-----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, MSv5aYWSBoZdydG+YKsXudq09CBJK062pGWQwZN786YuZpCbqHxmabUH6TdS+9rb 1khxqLf3AvpvzUoYKBQg/w== 0000950109-96-004171.txt : 19960702 0000950109-96-004171.hdr.sgml : 19960702 ACCESSION NUMBER: 0000950109-96-004171 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLYTH HOLDINGS INC CENTRAL INDEX KEY: 0000820738 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943046892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16449 FILM NUMBER: 96588971 BUSINESS ADDRESS: STREET 1: 989 E HILLSDALE BLVD #400 CITY: FOSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 4152867174 MAIL ADDRESS: STREET 1: 989 E HILLSDALE BLVD. #400 CITY: FOSTER CITY STATE: CA ZIP: 94404 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 [Fee Required] For the fiscal year ended March 31, 1996 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 [No Fee Required] For the transition period From _________ to ________ Commission File No. 0-16449 BLYTH HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 989 East Hillsdale 94-3046892 - ------------------------ Boulevard ------------------------- (State of incorporation) Suite 400, (I.R.S. employer Foster City, identification No.) California 94404 (Address of principal executive offices including zip code) (415) 571-0222 Registrant's telephone number, including area code ____________________________________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ____________________________________________________ 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. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 10, 1996 was approximately $28,028,972 based upon the closing price for such date on the NASDAQ National Market System. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed affiliates. This determination is not necessarily conclusive. As of June 10, 1996, the registrant had 9,804,838 shares of its Common Stock outstanding. _____________________________________________________ DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy statement for the 1996 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and 13 hereof. ITEM 1. BUSINESS The Company Blyth Holdings Inc. ("Blyth" or the "Company") develops, markets and supports application tools and components for electronic commerce. It's client/server software products are used for the development and deployment of applications for accessing multi-user databases in workgroup and enterprise-wide client/server computing environments. The Company's OMNIS family of products is used by corporations, system integrators, small businesses and independent consultants to deliver custom information management applications for a wide range of uses including financial management, decision support, executive information, sales and marketing and multi-media authoring systems. The Company has announced its Internet and Intranet ("'Net") technology direction but has yet to announce specific Net products. In addition to these technologies, Blyth provides consulting, technical support and training to help plan, analyze, implement and maintain applications software based on the Company's technology. The Company was incorporated under the laws of the State of Delaware on August 5, 1987 pursuant to a reorganization of predecessor companies originally incorporated under the laws of England in 1983. Blyth Holdings Inc. is the holding company of a group of companies which includes three operating companies: Blyth Software Limited, a limited liability company organized under the laws of England, Blyth Software Inc., a California corporation, and Blyth Software, GMBH a German Corporation. As used herein, the "Company" and "Blyth" refer to Blyth Holdings Inc. and its consolidated subsidiaries. Industry Background The evolution of computing has been characterized by several distinct stages. In the 1970's, mainframe and minicomputer systems with character- oriented user terminals emerged as the principal structure for enterprise computing. This was followed in the 1980's by the introduction of personal computers and workstations which primarily addressed personal productivity applications such as word processing and spreadsheets. Toward the end of the decade, local and enterprise-wide networks connecting these desktop systems became increasingly prevalent, initially for accessing file storage archives (file servers) and electronic mail communications. Building on this infrastructure, client/server computing emerged as an important new architecture for corporate computing in the early 1990's. In the client/server computing model, application software is divided into two components: a "client" handling functions such as the user interface, local data storage, manipulation and presentation, and a "server" handling tasks such as data management and access, storage and retrieval for multiple clients. Typically, the client software runs in a single-user desktop system, while the server operates utilizing a shared mainframe, minicomputer or workstation, and messages linking client and server are exchanged through connecting networks. Downsizing and rightsizing, movements now underway in many corporate computing environments, are resulting in the replacement of mainframes or minicomputers in proprietary architecture by networked desktop systems using these standards-based client/server structures. The shift to client/server computing is fueled by the growth in desktop computing power, the emergence of a heterogeneous, standards-based computing and networking environment, and the productivity improvements and ease of use provided by graphical user interfaces for both development and applications. As a result, businesses are now able to shift much of their computing workloads to these distributed systems. In the last two years 'Net has become a potential new alternative for the dissemination and collection of information. Use by individuals and educational institutions has been heavily adopted. Many businesses use it as a marketing tool. However there are still some security issues that have prevented businesses from using 'Net as a tool for dissemination of confidential information. When that issue is satisfactorily resolved, many believe that the 'Net will be used as a conduit for portable computing as well as a network for enterprise wide applications associated with communication, collaboration and electronic commerce. Concurrent with these changes in computing, businesses are addressing increasing attention to strategic engineering of overall business processes, the result of which is a requirement for new enterprise-wide computing solutions. These new business processes generally are developed through prototyping and pilot programs in one or more workgroups prior to large-scale adoption. This new wave in information processing is facilitated by significant advances in software technology. For more than two decades, commercially available computers have been doubling in raw processing power approximately every 18-24 months. Until recently, programming productivity remained largely unchanged: the average programmer produces about one line of usable code per day. Historically, programmers have used two classes of tools to develop software applications: third generation language ("3GL") tools such as COBOL and C++, or fourth generation language ("4GL") database tools. The 3GL tools have traditionally been used for mainframes and minicomputers and for mass-marketed personal computer products. These character-oriented languages do not provide an efficient means for developing graphical user interface applications, and programming requires a significant base of skill and experience which typically restricts their use to a small group of professionals. Conversely, the class of tools which have evolved for dedicated desktop database applications generally do not allow access to multiple relational database management systems ("RDBMS") backend repositories for other vendors, and they lack the group development capabilities required to build complex enterprise-wide business applications which reach a global audience of employees, customers and suppliers. With the recent growth in computing power and the emergence of the 'Net, the industry is now able to combine more sophisticated graphical techniques, reusable code structures ("objects"), and efficient 4GLs to substantially alter applications programming efficiency which allows faster prototyping and development of new applications and broader deployment access. In this new approach to applications development, software developers use a new class of applications development tools for building client applications to access shared database servers built on RDBMS from suppliers such as Oracle Systems Corporation, Informix Corporation or Sybase, Inc. or existing legacy databases from suppliers of earlier generation proprietary systems. Often, an existing database is to be used for the application, and the primary programming objective is to improve the user interface from character-oriented screens to more intuitive graphical structures. Initially, these tools were targeted at individual developers focused on workgroup-level applications, but recent industry announcements indicate a trend toward product features which permit groups of developers to collaborate in producing larger enterprise-wide computing solutions. More recently, these same systems must be available to broader internal and external constituencies via the "Net. Blyth has developed and marketed a series of multi-user workgroup database products for Macintosh, Windows and OS/2 platforms over the past decade. To meet this application market opportunity, Blyth has extended these earlier generation products and added a broad range of connectivity options and other features to produce a robust applications development environment, OMNIS 7, which was introduced (Version 1) in January 1992. Because of its evolution from workgroup databases, OMNIS is well-suited to enable a straightforward transition of applications from prototyping to enterprise-wide and 'Net utilization. OMNIS enables platform-independent applications development to serve heterogeneous computing environments, and provides access to a wide range of industry-standard structured query language ("SQL") and legacy data repositories. Business Strategy The Company's objective is to become a premier provider of application tools and components for electronic commerce. To achieve this goal, Blyth's business strategy builds on three elements: . Technology Leadership. Blyth addresses the needs of its customers by providing technology which supports the full life cycle of applications, including design, prototyping, development, deployment and maintenance. OMNIS provides a powerful 4GL coupled with a graphical programming environment to foster efficient programming. Support for multiple programmers enhances group development for large- scale projects. Automatic change management features provide support for effectively deploying applications, changes and upgrades. New, currently announced products, will allow companies to deploy and manage the applications over the 'Net. . Open Systems. Blyth's technology provides interoperable access to a wide range of industry-standard, backend RDBMS and non-SQL repositories. Blyth plans to extend the cross platform capabilities of OMNIS and its 'Net technology, to a variety of platforms. OMNIS is currently available on Windows 3.1, Windows 95, Windows NT, Macintosh, Power Macintosh and OS/2. . Partnering. Blyth is committed to developing partnerships with major customers, complementary industry vendors, systems integrators and value-added resellers ("VARs"). The Company believes that to obtain competitive advantage against competitors with larger technical staffs, broader product offerings, stronger overall market recognition, and better financial resources, it must carefully track customer requirements and industry trends, and it must build strong, lasting partnerships with its customers. Customer and industry partnerships provide valuable feedback to guide product development, to allow rapid response to actual or perceived problems, and to differentiate the Company from the shrink-wrap software suppliers of personal productivity tools. Client/Server Products The Company's OMNIS family of products is used by professional software developers and end-users in corporations, system integrators, and small businesses to develop custom information management applications for a wide range of uses including financial management, decision support, executive information, sales and marketing and multi-media authoring systems. The Company's principal products are the OMNIS family of graphical user interface ("GUI") application development tools for the Macintosh, Windows and OS/2 platforms. OMNIS provides a powerful development environment for producing complex, multiple-window applications. It offers an intuitive, graphical developer interface and powerful 4GL coding to deliver event-driven programming (single source code) native GUI for Windows, Windows NT, Macintosh and Power Macintosh platforms. OMNIS utilizes drag-and-drop technology and reusable object libraries to enhance developer productivity. OMNIS also includes a powerful debugger which, because of the modeless characteristic of the development environment, enables the developer to observe simultaneously debugger and application operations in separate windows to assist in identifying and correcting programming errors. The product includes report design capabilities to tailor the output of an application to user requirements. With OMNIS programmers can quickly build custom applications which offer the look and feel of commercial GUI products. In addition OMNIS offers operational flexibility and efficient run-time execution without program compilation. This enables immediate transitions between development and execution, which can substantially enhance development and debugging efforts. OMNIS's deployment software converts application code into executable procedures for the target desktop platform, so that an application can be delivered to multiple platforms as a single OMNIS application program in combination with the OMNIS deployment software for each platform. An application developed on Macintosh can be immediately run under Windows (or the reverse). This platform-to-platform portability is a key benefit of Blyth's client/server products. The latest release for OMNIS, a powerful application development and deployment environment with which client/server applications can be implemented to access either a local or server-based OMNIS database, third-party SQL databases, or legacy databases. OMNIS is designed to support a complete client/server applications life-cycle, from design and prototyping through full- scale development, deployment, maintenance and revision. The 4GL, graphical development environment and object orientation capabilities of OMNIS increase development productivity significantly in comparison with 3GL tools. Unlike single-user, individual productivity products, client/server applications require careful coordination of software deployment and version control across the installed base of desktop systems. Without this coordination, the effectiveness of the applications is likely to be compromised, and, particularly for mission- critical applications, a material impact on related operations of the enterprise could result. This adds a significant systems administration burden for client/server systems as compared to traditional centralized computing. OMNIS supports teams of programmers developing a unified application with features for author management, locking and reuse of objects and libraries, and overall application linking. These features enable groups of developers to cooperate effectively on a single client application project, and to benefit from a hierarchical development methodology, where re-usable application library objects are prepared by core developers for use by other developers, thereby increasing productivity. To address these issues, OMNIS supports automatic deployment of applications from a central source. The Company offers a Change Management System ("CMS") which includes maintenance and revision features to update deployed applications automatically with new releases of applications and objects included within applications. OMNIS includes features to enable application customization. These features allow the end user to modify the application window size, colors, fonts, and more. For programmers, this capability can be used to modify the OMNIS development environment as well. To enhance the development environment further, OMNIS enables advanced developers to extend the core 4GL language using C or C++ coding through a documented extensions interface. Data Access Modules OMNIS is designed to interoperate with a wide variety of industry-standard relational and legacy databases as well as the integrated local or server-based OMNIS database. Connections from OMNIS to SQL databases and other data repositories are achieved through the following middleware: EDA/SQL from Information Builders, Inc. INFORMIX-NET from Informix Corporation ODBC from Microsoft Corporation Open Client from Sybase, Inc. SQL Net from Oracle Systems Corporation Local data storage at the client system gives the developer capabilities for more flexible applications structures, including portable applications where data is not always accessible from a SQL system, as well as local data caching to minimize network traffic and/or response time. OMNIS supports access to multiple databases from within a single application. Connections to these standard RDBMSs support not only industry- standard SQL but also non-standard data types (e.g., images), stored procedures, database extensions and other features specific to each RDBMS. In addition, OMNIS offers an extensive command set which enables development of SQL connect and data exchange with minimal coding to a specific database SQL. This enables users to easily transition between data sources without re-writing the client application. These capabilities, combined with the ease of selecting a data source and switching, provide considerable power and flexibility for on-line data access. Configurable Deployment Software The Company offers deployment kits with bundled SQL connectivity for enterprise client/server applications and for workgroup applications which use the OMNIS relational database. Deployment kits enable users to access or run an OMNIS-based application, but do not allow them to access the development tools to create or modify such applications. The OMNIS deployment code can be packaged with the application code for a single stand-alone application, or it can be deployed as an application environment serving multiple applications. This scalability enables large deployments of many different applications for diverse organizations. The deployment software also includes the integrated OMNIS RDBMS. These components are integrated to provide a comprehensive environment for building, deploying and maintaining client-based applications for a distributed network computing environment. 'Net Products In response to the demands of the evolving 'Net marketplace, the Company is developing a suite of products that will integrate new 'Net tools with advanced three-tier object oriented client/server tools for electronic commerce. This integrated tool suite is intended to be complemented by new offerings of reusable components for the emerging electronic commerce market. There can be no guarantee that these products can be developed, or if developed will be commercially successful. Many of the Company's competitors are working on internet related products that may be competitive with the products which the Company expects to develop. Other Products In addition to OMNIS, Blyth continues to sell deployment packages of OMNIS 7 Version 2.4, OMNIS 7 Version 1.4 and OMNIS 7 PLUS Version 1.4, deployment packages for their Change Management System, which can automatically distribute any modified portions of the application through a small download of changes when a user initially connects to the OMNIS server, and TrueAccess, a client server data warehousing tool. Product Pricing The current U.S. list prices for OMNIS products are listed in the table below. In September of 1995, the Company changed the way it sold its products. Prior to then, OMNIS was sold as a Portable Enterprise Development Kit which allowed the developer to develop and deploy his applications on all supported platforms. This kit had a US list price of $5,000. In order to meet developers' needs for more cost effective solutions, the Company began selling platform specific, limited versions of its software with US list prices ranging from $495 to $2,995 depending on what edition was purchased. Three platform "families' are currently offered, MacIntosh (which include MacIntosh and PowerMac configurations), Windows (including Window 95, Windows 3.1, and Windows NT) and IBM OS/2 Warp. Deployment software is offered at prices ranging from no additional charges to $100 per user, depending on configuration. Deployment software is offered with or without SQL connectivity, and is priced on both a single-user and concurrent-user basis. List Price Product (USD) ----- OMNIS Enterprise Edition $2,995 per developer, per platform (Windows, Mac, or OS/2) OMNIS Server Edition $1,595 per developer, per platform (Windows, Mac, or OS/2) OMNIS Workgroup Edition $495 per developer, per platform (Windows, Mac, or OS/2) OMNIS Databases $30 to $100 per end user OMNIS Configurable no charge for end users Deployment Software OMNIS Change Management $1,995 to $17,500 based on number of users System Blyth offers special terms and pricing to companies, such as VARs and systems integrators, who add value to OMNIS products through bundled applications, product enhancements or associated services. The Company also offers U.S. Government and educational discounts, as well as discounts to large commercial customers. The Company offers perpetual, fully-paid-up software licenses. A 30 day warranty is offered with the purchase of any OMNIS edition which provides for replacement of defective media, maintenance releases, and technical support. The Company offers comprehensive maintenance subscription programs to extend the availability of maintenance releases and technical support after the warranty period has expired. Upgrades for major releases are priced to reflect incremental value. Sales, Marketing and Distribution The Company's sales and marketing staff consisted of 38 employees at June 10, 1996. Direct Sales The Company sells its products through direct sales teams in North America, consisting of account executives and software engineers combined with telesales representatives, and technical support personnel located at the corporate offices in Foster City, California. The Company also sells its products in the United Kingdom primarily through a direct sales force operating from a sales office in London, in Germany through a direct sales force operating from a sales office in Hamburg, Germany, and in Benelux through a direct sales force operating from a sales office in The Netherlands. International Distribution The Company has various non-exclusive distributor relationships that cover France, Scandinavia, Greece, Austria, Iceland, Switzerland, Italy, Australia, Singapore, Malaysia, Indonesia, The Philippines. Hong Kong, China, Mexico, Guatemala, Costa Rica, Honduras, El Salvador, Nicaragua, Panama, Colombia, Venezuela, Peru, Ecuador, Chile, Brazil, Argentina, Uruguay, Paraguay, and Bolivia, as well as exclusive distribution relationships in Japan and Korea. All of Blyth's distributors provide primary customer service and support for their markets. The Company is in the process of extending this distributor network to address additional international markets. The distributors in Latin America and in the Pacific Rim are currently managed from the Foster City office while Europe, Middle East and Africa are managed from the London Office. Marketing In support of its selling efforts, Blyth conducts numerous marketing programs including public relations efforts, trade shows, seminars, direct mail campaigns, and direct customer communications. The Company conducts user conferences in both United States, the United Kingdom and Germany and periodically conducts meetings with customer groups to obtain direct feedback of customers' needs. Blyth also provides a variety of collateral materials and demonstration applications to stimulate customer interest. Customers The Company has customers in a wide range of industries, including financial services, pharmaceuticals, manufacturing, telecommunications, aerospace, defense, government laboratories, and universities. In the fiscal year ended March 31, 1996 one customer in the United States, U.S. West, accounted for approximately 16% of revenue and no other customer accounted for more than 10% of revenues during that year. No single customer accounted for more than 10% of revenues during either of the fiscal years ended March 31, 1995 or 1994. As is the case with other participants in the software industry, the Company generally ships as orders are received or within 30 days thereafter. As a result, Blyth has historically operated with little backlog. Because of this short cycle between receipt of an order and shipment, the Company does not believe that its backlog as of any particular date is meaningful. In the past the Company's products targeted single-user, workgroup and small business database applications. The Company's current principal market focus is applications tools and components for companies with electronic commerce requirements which comprise a new, emerging marketplace. The single- user, workgroup and small business database appliations continue to be served mainly through reseller channels. The Company's future financial performance will depend on the continued growth of the client/server computing and 'Net markets and on its ability to compete effectively in these markets. There can be no assurance that these markets will continue to grow or that the Company will be able to respond effectively to customer requirements and competitive offerings in these markets. Customer Services and Support Because Blyth's products are used by customers to build applications which may become a critical component of their business operations, continuing customer support services are an important element of the Company's business strategy. Blyth offers customer service programs to meet customer support requirements. These programs include support services, training and consulting. Support Programs This program allows registered users of OMNIS products to purchase an annual, or, in some cases, longer, maintenance support program which includes maintenance releases, associated documentation. and developer support services beyond the initial warranty period. Services included under this program are telephone technical support during regular business hours, and access to an electronic bulletin board where users can exchange development tips and commentary. The customer resource library provides in-depth analyses of specific OMNIS features, example code, programming short cuts and optimization techniques. Blyth's technical support team, composed of experienced OMNIS developers, focuses on problem solving and resolution in networking, connectivity, security and client/server computing. Technical support representatives are regularly trained in usual, as well as advanced uses of OMNIS products. Training Blyth offers classroom and customer training classes, from introductory classes on OMNIS and client/server capability to advanced SQL and OMNIS techniques. Consulting The Company provides consulting services to facilitate the design, development and deployment of OMNIS-based applications and applications for 'Net. Industry Partners In January, 1996 Blyth announced that it would partner with IBM to develop and market OMNIS for OS/2 Warp platform to better meet the heterogeneous information requirements of the global enterprise. IBM and Blyth intend to work together on both product development and marketing. Shipment of an Intel-based version of OMNIS for the OS/2 platform is expected to ship in July, 1996. As part of Blyth's strategy to increase awareness of its technology and to broaden the market for OMNIS, the Company has established a number of strategic relationships with management consultants, system integrators and computer system and software vendors. Blyth believes that its relationships with other providers of client/server products will encourage and reinforce the decision by corporate application developers and information technologists to entrust their strategic, mission-critical applications to the Company's products. While the Company believes these relationships will be successful, there can be no assurance that the existing relationships will continue, new similar relationships will develop, or that any such existing or future relationship will lead to additional revenues. Product Development Since inception, Blyth has made substantial investments in product development. All of Blyth's main products have been developed by the Company's internal development staff. Because the Company believes that timely development of new products and enhancements of existing products is critical to maintaining its competitive position in this market, Blyth intends to continue to invest substantially in product development. During the past year the Company focused on two business initiatives, utilizing a portion of the cash raised through convertible debenture issuances (that were subsequently converted into common stock) in calendar year 1995; 1) enhancing its product portfolio to enable Blyth to continue to compete for a market share in the client/server market, and 2) beginning development of a suite of products to address the growth of the Internet. In fiscal 1996, the Company spent 21% of net revenues on product development: In June 1994, Blyth introduced OMNIS 7/3/, which offers several important new features. The Company focused its fiscal 1996 development efforts on extending features of its product line and developing new Internet related products. The software industry is characterized by rapid technological advances, frequent new product introductions, rapid enhancements of existing products through new releases, and changing customer requirements. The future success of the Company will largely depend on its ability to enhance its current products and to successfully develop new products which keep pace with technology trends, competitive offerings, and evolving customer requirements. In particular, the Company believes it must continue to enhance the basic functionality of its products and extend its product line to keep pace with the advances in hardware, operating systems and RDBMS's. Any failure of the Company to anticipate new technology developments and customer needs or any significant delays in product development and introduction could result in a loss of competitiveness and revenues. Because of the complexity of software products, new product introductions may contain undetected software errors that, despite quality assurance testing by the Company, are discovered only after a product has been installed and used by customers. Although the Company has not experienced any material adverse effects from such errors to date, there can be no assurance that errors will not be discovered in the future which would cause delays in shipments, loss of revenues or require significant design changes that could adversely affect the Company's competitive position and operating results. There can be no assurance that any of the Company's product development efforts will lead to a commercially viable product, and the Company is unable to predict whether or when proposed new products, product enhancements or product extensions might be released or whether, when released, they will achieve market acceptance. The Company's products are developed at Blyth's United Kingdom facility and at its corporate headquarters in Foster City, California. The Company's research and development staff consisted of 28 employees at June 10, 1996. For the periods ended March 31, 1996, 1995 and 1994, respectively, gross expenditures for research and development were approximately $2.85 million, $5.18 million and $4.02 million, of which $0.00, $2.36 million and $2.89 million were capitalized. The Company did not capitalized any research and development costs in Fiscal 1996 since the net realizability (as defined in Statement of Financial Accounting Standards 86) for most of the Company's current development efforts cannot be determined. In addition, during fiscal 1995 the Company wrote off $2.6 million associated with previously capitalized software development costs, of which $1.7 million was charged to operating expenses and $900,000 was charged to cost of product revenues. Competition The applications development tools software market is rapidly changing and intensely competitive for client/server tools. Blyth currently encounters competition from several direct competitors, including the Powersoft product line from Sybase Corporation, Borland Corporation, ParcPlace Corporation and Uniface Corporation. In addition, Blyth competes indirectly with several other companies. These include (a) the RDBMS vendors, such as Oracle Systems Corporation and Informix Corporation, who provide applications development tools primarily for customers who use their database technology; (b) 4GL applications tools vendors such as Progress Software Corporation and Cognos Incorporated; (c) CASE tools vendors such as Knowledgeware, Inc., Intersolv, and Texas Instruments, Incorporated; and (d) shrink-wrap database software suppliers such as Microsoft Corporation. For 'Net related application tools the market is in its embryonic state and leading competitors have yet to emerge. The Company believes that its ability to compete depends on factors both within and outside its control, including the timing and success of new products developed by the Company and its competitors, product performance and price, distribution and customer support. There can be no assurance that the Company will be able to compete successfully with respect to these factors. In particular, competitive pressures from existing and new competitors who offer lower prices, provide free deployment licenses for applications developed using configurable development software or introduce new products, including "native" products that fully utilize the capabilities of a particular operating platform, could result in delays in purchase decisions by or loss of sales to potential customers or cause the Company to institute price reductions, any of which would adversely affect the Company's results of operations. In particular, deployment licenses which permit developers to develop configurable applications and deliver those applications to end-users, have been, and may continue to be subject to significant pricing pressures which could have an adverse effect on the Company's business and results of operations. There can be no assurance that the Company will be able to maintain its price structure or that entry of future competitors in the Company's current market will not result in pricing pressures in the future. Additional competitive factors influencing the market for Blyth's products include product functionality and features, platforms, performance, vendor and product reputation, product and service quality. These items may also result in market confusion, delays in purchases, intensified competition, price restructuring or price reductions. Blyth believes that the broad functionality of OMNIS, including its cross platform capability and its important features for group development, application deployment and maintenance has enabled the Company to compete effectively to date, particularly for professional development environments in major corporations. Blyth's primary focus on client application development tools may be a disadvantage in competing with vendors who can provide a greater range of products to customers who wish to deal with a limited number of suppliers. As the client/server market evolves, the Company anticipates that competition is likely to increase from both existing and future market participants, most of whom are larger companies and have greater financial, technical, marketing, sales and distribution resources and a larger installed base of customers than Blyth. Moreover, if such competition were to enter the cross platform market or the existing Macintosh market, the principal strengths of the Company, Blyth might be required to increase defensive measures to maintain its position in these target markets. This increased effort could adversely affect operating results due to increased marketing programs, price declines, longer sales cycles and increased product development expenses, among other things. There can be no assurance that the Company could compete effectively with such new products. Intellectual Properties and Other Proprietary Rights The Company relies primarily on a combination of trade secret, copyright and trademark laws and contractual provisions to protect its proprietary rights. In addition to trademark and copyright protections, the Company licenses its products to end users on a "right to use" basis pursuant to a perpetual license agreement that restricts use of products to a specified number of users. The Company generally relies on shrink-wrap licenses which become effective when a customer opens the package. Because they are not negotiated with or signed by the licensees, in order to retain exclusive ownership rights to its software and technology, the Company generally provides its software in object code only, with contractual restrictions on copying, disclosure and transferability. There can be no assurance that these protections will be adequate, or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. Copyright and other protection for intellectual property may be unavailable or restricted in certain foreign countries. In addition, shrink-wrap licenses may be unenforceable under the laws of certain jurisdictions. Nevertheless, the Company believes that its copyright and license protections are important. However, because of the rapid pace of technological change in the computer software industry, factors such as the product knowledge, ability and experience of the Company's personnel, brand name recognition, customer support and ongoing product maintenance and enhancement may be more significant in maintaining the Company's competitive advantage. As the number of software products available in the market increases and the functions and features of these products further overlap, the Company anticipates that software products may become increasingly subject to infringement claims. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to any current or future product. Any such assertion, whether with or without merit, could require the Company to enter into costly litigation or royalty arrangements. If required, such royalty arrangements may not be available on reasonable terms, or at all. Production The Company uses subcontractors in the United States to perform its manufacturing operations, which include duplication and preparation of software media, documentation and packaging. The principal materials used in the manufacture of the Company's products are disks, boxes, binders and multi-color printed materials which the Company obtains from its manufacturers. The Company utilizes certain of its distributors in some international markets to localize the products, including conversion of the product and product documentation to native languages, where necessary. The production of the resulting localized product is then handled by the distributor for that market. The Company requires that quality control tests be performed on all duplicated disks and finished products. Quality control personnel work in both United Kingdom and North American operations to help ensure product quality. The Company produces software and documentation based upon forecasts of monthly sales. Employees At June 10, 1996, the Company had 121 employees, including 28 in product development, 42 in sales and marketing, 38 in customer support and consulting and 13 in finance and administration. Of these 121 employees, 53 employees are based in the Europe, and 68 are located in the United States. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage. Further, the Company believes its relationships with its employees is good. The Company's success also depends to a significant extent upon a number of key management and technical personnel, the loss of one or more of whom could adversely affect its business. In addition, the Company believes that its future success will depend to a significant extent on its ability to recruit, hire and retain highly skilled management and employees for product development, sales, marketing, and customer service. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. Finally the Company must continue to enhance its internal infrastructure and management information systems. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information regarding the executive officers of the Company as of June 10, 1996:
Name Age Position - ---- --- -------- Michael J. Minor 48 Chairman, Chief Executive Officer and Director of the Company, Blyth Software Inc., and Blyth Software Limited Stephen R. Lorentzen 42 President and Chief Operating Officer, and Director of the Company, Blyth Software Inc. and Blyth Software Limited David R. Seaman 43 Vice President and Chief Technical Officer of the Company, and Director of Blyth Software Limited
Mr. Minor has served as Chairman and Chief Executive Officer of the Company and of Blyth Software Inc. and Blyth Software Limited since May 1995 and previously as President And Chief Executive Officer since he joined the Company in July 1991. Mr. Minor served as President and Chief Executive Officer of Connect, Inc., a computer software company, from May 1990 to May 1991, and in various positions at Apple Computer, Inc. a computer manufacturer, ("Apple"), including Group Manager, Worldwide Channel Systems and Senior Manager, Strategic Planning, of Apple USA, a division of Apple from January 1988 to April 1990. Mr. Lorentzen has served as President and Chief Operating Officer of the Company since he joined the Company in May 1995. For more than five years prior to joining Blyth, Mr. Lorentzen was Vice President and Director of Information Services at Arthur D. Little, an international management consulting firm. Mr. Seaman has also served as Research and Development Director of Blyth Software Limited since 1982, and he served as Managing Director of Blyth Software Limited from September 1990 until June of 1993. ITEM 2. PROPERTIES Blyth currently leases an aggregate of 32,703 square feet of office space at 989 East Hillsdale Boulevard, Foster City, California 94404 pursuant to a lease which expires on August 31, 1997 and has monthly rental payments of $53,325 plus a percentage of operating costs and property taxes above the the 1993 base year. Blyth this year subleased approximately 12,200 square feet of excess space in this facility to a tenant through August 31, 1997, receiving a monthly payment of $20,130. The Company owns property in the United Kingdom known as Mitford House, located in Benhall, Saxmundham, Suffolk, England which it acquired on March 31, 1988 and which it uses for its research and development personnel in the United Kingdom. Blyth also leases 7,375 square feet of office space for its European headquarters office at Part First Floor, Avis House, Park Road, Bracknell, England. The lease, which expires on February 17, 2001, has monthly rental payments of (Pounds)4,609 plus (Pounds)3,011 for common area maintenance. Blyth has the right to terminate this Lease on February 27, 1998. Blyth also leases 2,370 square feet of office space (formerly its London sales office) at Unitec House, 2 Albert Place, Finchley Central, London, England. The lease, which expires on November 1, 2012, has monthly rental payments of (Pounds)2,370. During the year the Company sublet all of the London office space for which it received a monthly rental of (Pounds)1,375 plus 100% reimbursement for common area maintenance. The sublease terminates on December 25,1999. The Company believes that these facilities and additional space available to it will be adequate to meet its requirements for fiscal 1997, and that if required, suitable additional or alternative space would be available to it on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market System ("NMS") under the symbol "BLYH". The following table sets forth the high and low closing prices for the Company's Common Stock for Fiscal 1995 and 1996.
High Low Fiscal 1995 Closing Closing - ----------- ------- ------- 1/st/ Quarter $ 8.25 $ 3.75 2/nd/ Quarter $ 5.75 $ 3.875 3/rd/ Quarter $ 5.25 $ 3.625 4/th/ Quarter $ 6.25 $ 3.50 High Low Fiscal 1996 Closing Closing - ----------- ------- ------- 1/st/ Quarter $ 5.25 $ 2.5625 2/nd/ Quarter $ 3.375 $ 1.9375 3/rd/ Quarter $ 2.75 $ 2.125 4/th/ Quarter $ 3.0625 $ 2.125
On June 10, 1996, the closing price for the Company's Common Stock on the NASDAQ National Market System was $3.188 and there were approximately 150 holders of record of the Company's Common Stock. This does not include stockholders whose Common Stock is held in street name. The Company has never declared or paid dividends on its Common Stock. The Company intends to retain earnings, if any, for the operation and expansion of the Company's business, and therefore does not anticipate paying any cash dividends in the foreseeable future. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." ____________________ ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial information for each of the years indicated and is derived from the Company's audited consolidated financial statements.
Year ended March 31, ------------------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 -------------- ------------------ ----------------- ---------------- ---------------- Consolidated statement of (Amounts in thousands except per share amounts) operations data: Total net revenues $13,703 $ 16,715 $14,845 $11,743 $ 7,862 ------- -------- ------- ------- ------- Operating expenses: Cost of products and services 6,990 8,160 4,174 3,505 2,555 Selling, general & administrative 9,635 16,583 10,316 5,955 4,511 Research and development 2,846 4,524 1,130 1,974 1,263 Restructuring costs -- -- -- -- 277 ------- -------- ------- ------- ------- Total operating expenses 19,471 29,267 15,620 11,434 8,606 Operating income (loss) (5,768) (12,552) (775) 309 (744) ------- -------- ------- ------- ------- Net income (loss) $(5,675) $(12,424) $ (544) $ 274 $(1,138) ======= ======== ======= ======= ======= Net income (loss) per share $(0.64) $(1.86) $(0.08) $0.05 $(0.35) ======= ======== ======= ======= ======= Weighted average common shares and equivalents/1/ 8,846 6,684 6,519 5,270 3,238 At March 31, -------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- ------- ------- ------- Consolidated balance sheet (Amounts in thousands) data: Working capital $ 5,634 $ 6,526 $16,145 $ 5,706 $ 2,116 Total assets 10,841 14,372 24,379 8,962 5,249 Current liabilities 3,023 3,372 2,540 1,619 1,460 Long-term liabilities 26 2,759 373 439 539 Stockholders' equity 7,792 8,241 21,466 6,904 3,250
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's audited consolidated financial statements, including the notes thereto, included in this annual report. Recent Developments On June 4,1996 the Company sold $7.35 million of 8% Convertible Subordiinated Debentures (the "Debentures") under Regulation S. The net proceeds of $6.83 million will be used primarily for - ----------------------- /1/ Weighted average common shares and equivalents is based upon the number of shares of Common Stock and dilutive Common Stock equivalents of the Company outstanding during each period. working capital purposes and to fund continuing research and development for the Company's 'Net product lines. The Debentures carry a coupon rate of eight percent (8%) per annum payable at the time of conversion (when converted the interest is payable in common stock). The Debentures are convertible at the option of the holder (subject to certain call privileges at the option of the Company) and are automatically converted into common stock three years from the date of issuance. The Debentures are convertible into common stock at the lower of $3.75 per share or 85% of the five day average of the trading price of the Company's common stock prior to the date of conversion. Results of Operations The following table sets forth, as a percentage of revenues, certain consolidated statement of operations data for the periods indicated (subtotals not adjusted for rounding):
Percent of Total Net Revenues ------------------------------- Year Ended March 31, ------------------------------- 1996 1995 1994 Net revenues: --------- --------- --------- Product 46% 64% 78% Services 54 36 22 ------- ------- ------- Total net revenues 100 100 100 Operating expenses: Cost of product 18 25 15 Cost of services 33 24 13 Selling and marketing 45 74 53 Research and development 21 27 8 General and administrative 25 25 16 ------- ------- ------- Total operating expenses 142 175 105 Operating loss (42) (75) (5) Other income (expense), net 1 2 2 ------- ------- ------- Net loss (41%) (74%) (4%) ======= ======= ======= Gross margins: Gross margin on product revenues 61% 61% 80% Gross margin on service revenues 39% 34% 42%
Total Net Revenues. Total net revenues decreased 18% to $13.7 million in fiscal 1996 from $16.7 million in fiscal 1995, which was a 13% increase over total net revenues of $14.8 million in fiscal 1994. International revenues, primarily product revenues, accounted for 25%, 26%, and 26% of total net revenues in fiscal years 1996, 1995 and 1994, respectively. See Note 11 of Notes to Consolidated Financial Statements. Net revenues from reseller operations have decreased to $3.0 million in fiscal 1996 from $4.2 million and $3.4 million in fiscal 1995 and 1994 respectively.
(amounts in millions) 1996 1995 1994 ---- ---- ---- Direct Net Revenues $10.7 $12.5 $11.4 Reseller Net Revenues 3.0 4.2 3.4 ----- ----- ----- Total Net Revenues $13.7 $16.7 $14.8 ===== ===== =====
Included in reseller net revenues for 1995 are revenues associated with the sale of exclusive geographical marketing rights to Rikei Corporation in Japan and Daewoo Telecom Ltd. in Korea that totaled $1,100,000. The gross margin on future reseller revenues is expected to be less than the gross margin on sales made by the Company's direct selling organization due to the necessity of granting larger discounts on sales to resellers than on direct sales to corporate customers. In addition, a growing reseller channel increases the risk of returned products, which have not been material to date, but could be material in the future. The Company's revenues are derived from two sources: first, fees from software licensing, including software distributed as packaged products and licensing arrangements that permit software reproduction; and second, fees for services, including consulting, training, maintenance and product support. Product revenues decreased 41% to $6.3 million in fiscal 1996 from $10.7 million in fiscal 1995, which represented a decrease of 8% from $11.6 million in fiscal 1994. The decline in product revenues in fiscal 1996 was largely due to changes in the Company's pricing structure. In September 1995, the Company restructured its product offerings and pricing. Prior to September 1995, OMNIS was sold as a Portable Enterprise Development Kit which allowed the developer to develop and deploy his applications on all supported platforms. This kit had a US list price of $5,000. In order to meet the developers needs for more cost effective solutions, the Company began selling platform specific, limited versions of its software with US list prices ranging from $495 to $2,995 depending on what edition was purchased. Also, due to competitive pressures, the Company was forced to significantly reduce prices on its OMNIS Databases early in the fiscal 1996. Service revenues increased 23% to $7.4 million in fiscal 1996 from $6.0 million in fiscal 1995, which represented an increase of 85% from $3.2 million in fiscal 1994. The increase in fiscal 1996 was due primarily to an increase in consulting services sold to customers. The increase in fiscal 1995 over fiscal 1994 was due primarily to an increase in consulting and maintenance contracts sold to customers. Maintenance contracts are typically paid annually in advance, and revenue is recognized ratably over the period of the contract. In the fiscal year ended March 31, 1996 one customer in the United States accounted for approximately 16% of revenue and no other customer accounted for more than 10% of revenues during that year. No single customer accounted for more than 10% of revenues during either of the fiscal years ended March 31, 1995 or 1994. The Company sells its products and services in U.S. dollars in North America and principally in pounds sterling and German Deutschemarks in the United Kingdom, Germany and Europe. Currency exchange rates may cause variances in the Company's period-to-period revenues and results of operations (which have not been material to date) in future periods. Cost of Product. Cost of product includes the cost of both internal and subcontracted production, technical support and maintenance services during the warranty period and amortization of capitalized internal software development costs. Cost of product as a percentage of total net revenues decreased to 18% in fiscal 1996 from 25% in fiscal 1995 and from 15% in fiscal 1994, and as a percentage of product revenues was 39% in fiscal 1996 as compared to 39% in fiscal 1995 having increased from 20% in fiscal 1994. There was a decrease in the variable cost of product percentage in fiscal 1996, mainly due to savings in the cost of product due to the use of compact disks (CD's) as opposed to diskettes and the savings from supplying documentation on-line and offering printed documentation as an option at an extra cost. Also included in the cost of product is the amortization of previously capitalized internal software development costs which increased as a percentage of net product sales due to the decrease in net product sales in absolute dollars. These costs are amortized using the greater of the amount computed using the ratio of current revenue to the total of current and anticipated revenue or the straight-line method over the estimated economic life of the product not to exceed three years. Amortization charges were $1,120,092 in fiscal 1996, $2,129,611 (including $876,261 of previously capitalized software that was written off in fiscal 1995) and $314,512 in fiscal 1994. The "net realizability" (as defined in Statement of Financial Accounting Standards 86) for most of the Company's current development efforts cannot be currently determined, accordingly, the Company has not capitalized any research and development costs in Fiscal 1996 nor does it plan to capitalize any research and development costs in the foreseeable future. At the end of Fiscal 1996 the Company had $300,000 of unamortized previously capitalized internal software development costs. Cost of Services. Cost of services includes the costs associated with consulting, technical support, maintenance services, and training, which are primarily personnel costs. Cost of services as a percentage of net service revenues decreased to 61% in fiscal 1996 from 66% in fiscal 1995, having increased from 58% in fiscal 1994. The decrease in the percentage of the cost of services in 1996 is primarily due to increase in the volume of service revenues. The company believes that it must achieve economies of scale through an expanded installed customer base to continue to improve revenues or to improve its gross margin on service revenues. Selling and Marketing. Selling and marketing expenses decreased to $6.1 million in fiscal 1996 from $12.4 million in 1995 and from $7.9 million in fiscal 1994, representing 45%, 74%, and 53% of total net revenues during such periods, respectively. The decrease in selling and marketing expense in fiscal 1996 was due primarily to decreases in headcount as the Company made a strategic shift to depend more on leveraged resellers and inside sales as opposed to the direct sales force model. The increase in selling and marketing expense in fiscal 1995 as compared to fiscal 1994 was primarily attributable to investing $1.7 million in expanding the Company's direct sales force, including establishing a sales office in Germany; $1.5 million represents investment in building an indirect channels and a Pacific rim sales group in North America and $1.3 million of the increase came from increased marketing spending to enhance the Company's market visibility. Research and Development. The table below sets forth gross research and development expenses, capitalized software development costs, and net research and development expenses in absolute dollars and as a percentage of total net revenues for the periods indicated.
Year Ended March 31, ----------------------------- 1996 1995 1994 ---- ---- ---- (dollars in thousands) Dollar amounts: Gross research and development costs 2,846 $5,186 $ 4,020 Capitalized software development cost 0 (662) (2,890) ------ ------ ------- Net research and development costs $2,846 $4,524 $ 1,130 ====== ====== ======= As a percentage of total net revenues: Gross research and development expenses 21% 31% 27% Net research and development expenses 21% 27% 8%
The decrease in research and development expenses in absolute dollars for fiscal 1996 was due mainly to a reduction in personnel as the Company changed its product software development strategy to focus on its near-term marketing and sales efforts on products addressing the dominant desktop platforms for which it has a developed customer base. In addition, during fiscal 1995 the Company expensed $1.7 million associated with previously capitalized software development costs due to a strategic change in product plans regarding support for additional software platforms. The increase in fiscal 1995 as compared to fiscal 1994 is due to increased staffing and associated support costs required to expand and enhance the Company's product line. General and Administrative. General and administrative expenses decreased to $3.5 million in fiscal 1996 from $4.1 million in fiscal 1995 after an increase from $2.4 million in fiscal 1994, representing 25%, 25% and 16% of total net revenues, during such periods, respectively. General and administrative expenses increased in fiscal 1995 primarily due to a $930,000 expense related to a strategic investment in an early development stage company which the Company expensed in full, as well as expansion of the Company's infrastructure including increased facilities, insurance and depreciation expenses. Other Income (Expense), Net. Other income is primarily comprised of interest income, interest expense, gains or losses on foreign currency transactions and other income. Interest income reflects earnings from the Company's cash position. Interest expense is principally interest on convertible debentures issued that had been converted into stock by the end of fiscal 1996. Income Tax Expense. Income tax expense was $35,485 in fiscal 1996, $128,326 in fiscal 1995, and $46,286 in fiscal 1994. The increase in 1995 is attributable to taxes on sales in Japan. At March 31, 1996, the Company had net operating loss carry forwards of approximately $23.4 million for federal income tax purposes, $6.5 million for state tax purposes and $2.8 million for foreign taxes. The Tax Reform Act of 1986, as amended, and the California Conformity Act of 1987 impose substantial restrictions on the utilization of net operating loss and tax credit carry forwards in the event of an "ownership change," as defined by the Internal Revenue Code. An "ownership change" took place in fiscal 1992, and the Company is limited to using $780,000 per year of federal and California net operating loss carry forwards, respectively. See Note 8 of Notes to Consolidated Financial Statements. Inflation. The Company believes that inflation has not had a material impact on the Company's operating results to date and does not expect inflation to have a material impact on the Company's operating results in fiscal 1997. Variability of Results The Company has experienced significant quarterly fluctuations in operating results and anticipates such fluctuations in the future. The Company generally ships orders as received and, as a result, typically has little or no backlog. Quarterly revenues and operating results, therefore, depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Furthermore, the Company has typically sold to large corporate enterprises which often purchase in significant quantities, and therefore, the timing of the receipt of such orders could cause significant fluctuations in operating results. Historically, the Company has often recognized a substantial portion of its license revenues in the last month of the quarter. Service revenues tend to fluctuate as consulting projects, which may continue over several quarters, are undertaken or completed. Operating results may also fluctuate due to factors such as the demand for the Company's products, the size and timing of customer orders, the introduction of new products and product enhancements by the Company or its competitors, changes in the proportion of revenues attributable to licenses and service fees, commencement or conclusion of significant consulting projects, changes in the level of operating expenses, and competitive conditions in the industry. The Company's staffing and other operating expenses are based on anticipated revenue, a substantial portion of which is not typically generated until the end of each quarter. As a result, despite careful planning, delays in the receipt of orders can cause significant variations in operating results from quarter to quarter. In addition, revenues in quarters after a new product release may be significantly affected by the amount of upgrade revenue, which tends to increase soon after the release of a new product and then decline rapidly. A number of additional factors have, from time to time, caused and may in the future cause the Company's revenues and operating results to vary substantially from period-to-period. These factors include: pricing competition, delays in introduction of new products or product enhancements, size and timing of demand for existing products, shortening of product life cycles, inventory obsolescence and general economic conditions. The Company's future operating results will depend, to a considerable extent, on its ability to rapidly and continuously develop new products that offer its customers enhanced performance at competitive prices. Inherent in this process are a number of risks. The development of new, enhanced software products is a complex and uncertain process requiring high levels of innovation from the Company's designers as well as accurate anticipation of customers needs and technical trends by the marketing staff. Once a product is developed, the Company must rapidly bring it into production, a process that requires lead times on some product components and accurate forecasting of production volumes, among other things, in order to achieve acceptable product costs. The Company's operating results will also be affected by the volume, mix and timing of orders received during a period and by conditions in the industries that it serves as well as the general economy. Additionally, the Company operates on a global basis with offices or distributors in Europe, Asia and Latin America as well as North America. Changes in the economies, trade policies and fluctuations in interest or exchange rates may have an impact on its future financial results. Also, as the Company becomes more global, seasonality may become an increasing factor. The development and introduction of new or enhanced products also requires the Company to manage the transition from older, displaced products in order to minimize disruptions in customer ordering patterns and excessive levels of older product inventory and to ensure that adequate supplies of new products can be delivered to meet customer demand. Because the Company is continuously engaged in this product development and transition process, its operating results may be subject to considerable fluctuations, particularly when measured on a quarterly basis. Liquidity and Capital Resources At March 31, 1996, the Company's principal sources of liquidity consisted of cash and equivalents of $5.1 million. On June 4,1996 the Company sold $7.35 million of 8% Convertible Debentures under Regulation S. The net proceeds of $6.83 million will be used primarily to strengthen the balance sheet, increase working capital and fund continuing research and development for the Company's 'Net product lines. The $6.83 million net proceeds are in addition to the $5.14 million in cash and equivalents report on the Company's March 31, 1996 balance sheet. The placement consisted of convertible subordinated debentures, which carry a coupon rate of eight (8) percent per annum, payable at the time of conversion (when converted the interest is payable in common stock). The Debentures are convertible at the option of the holder (subject to certain call privileges at the option of the Company) and are automatically converted into common stock three years from the date of issuance. The Debentures are convertible into common stock at the lower of $3.75 per share or 85% of the five day average of the trading price of the Company's common stock at the time of conversion. The Company's working capital position increased to $5.1 million at March 31, 1996 from $4.6 million at March 31, 1995, largely driven by $1.9 million in cash used by operations. Proceeds of $2.6 million from the issuance of convertible debentures in July of 1995 increased the Company's working capital. See Note 5 of the Notes to the Consolidated Financial Statements. On June 4, 1996 the Company sold $7.35 million of 8% Convertible Subordinated Debentures under Regulation S. The net proceeds of $6.83 million will be used primarily for working capital purposes and to fund continuing research and development for the Company's 'Net product line. In June of 1995 the Company curtailed capital spending, reduced its workforce by more than 25% and implemented other actions to conserve cash. The Company believes that these actions, along with the influx of cash from the debenture sales during and shortly after fiscal 1996, will allow its cash and equivalents, together with expected net revenues to be adequate to meet the Company's anticipated cash needs through fiscal 1997. However, the Company believes the level of financial resources is a significant competitive factor in its industry and may choose or be required, prior to the end of fiscal 1997, to raise additional capital through debt or equity financings to strengthen its financial position, to accelerate growth or to provide the Company with additional flexibility to take advantage of business opportunities that might arise. There can be no guarantee that additional capital will be available to the Company or, if available, will be available on terms favorable to the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, including the notes thereto, together with the independent auditors' report thereon, and the Financial Statement Schedules required to be filed by Item 14 of this Form 10-K are presented on Page F-1. All other schedules are omitted as they are not applicable or the required information is given in the financial statements or the notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company is incorporated by reference from "Election of Directors" in the Blyth's 1996 Proxy Statement for the Company's 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement"). Current Executive Officers of the Registrant found under the caption "Executive Officers of the Registrant" in Part I hereof is also incorporated by reference into this Item 10. ITEM 11. EXECUTIVE COMPENSATION The information required in this item is incorporated by reference from the sections entitled "Executive Compensation", "Report of the Compensation Committee of the Board of Directors," "Company Stock Price Performance," "Election of Directors - Director Compensation" and "Election of Directors - Compensation Committee Interlocks and Insider Participation" in Blyth's 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management" in Blyth's 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from the section entitled "Executive Compensation-Other Employee Benefit Plans" and "Certain Transactions" in Blyth's 1996 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Annual Report on Form 10K: 1. Consolidated Financial Statements required to be filed by Item 8 of Form 10-K. See Index to Consolidated Financial Statements of the Company at page F-2. 2. Financial Statement Schedules required to be filed by Item 8 of Form 10-K: Schedule II Valuation and Qualifying Accounts 3. Exhibits: Exhibit Number Description - -------------- ----------- 3.1 Certificate of Incorporation of the Company, as amended./1/ 3.2 By-Laws of the Company, as amended./1/ 10.1 Definitive Trust Deed dated October 26, 1983 among Blyth Holdings Limited, Blyth Software Limited and Geoffrey Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme)./2/ 10.2 Lease of premises at 989 East Hillsdale Boulevard, Foster City, California dated September 20, 1993 between Blyth Software Inc. and OB-1 Associates, Landlord and HBO & Company, Sub-lessor./6/ 10.3 Service Agreement dated July 30, 1990 between Blyth Holdings Inc. and David Seaman./2/ 10.4 Stock Purchase Warrant sold to Richard Hanschen on July 26, 1990./3/ 10.5 Deed of Guarantee dated June 1, 1993 between Blyth Holdings Inc. and A. Levy & Son Limited./4/ 10.6 Form of Subscription Agreement for purchase of Units of the Company's securities./4/ 10.7 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities./4/ 10.8 Form of Stock Purchase Warrant sold to Director Walter V. Smiley, Richard J. Hanschen, and Albert Yu on September 1, 1992./4/ 10.9 Common Stock Purchase Agreement dated July 19, 1993 between Blyth Holdings Inc. and The Wisconsin Investment Board./5/ 10.10 Common Stock Purchase Agreement dated July 19, 1993 between Blyth Holdings Inc. and The Transamerica Capital Appreciation Fund./5/ 10.11 Director's Warrant Plan and Amendment to Warrant issued to Albert Yu on September 1, 1992/6/. 10.12 Advisor's Warrant Plan and warrant issued to Garth Saloner on November 1, 1992/6/. 10.13 Common Stock Purchase Agreement dated March 31, 1993 between Blyth Holdings Inc. and General Reinsurance Corp/6/. 10.14 Amendment to Common Stock Purchase Agreement dated May 14, 1993, between the Company and General Reinsurance Corp., Amerindo Technology Partners, Ltd., Los Angeles Fire & Police Pension Plan and University of British Columbia Staff Pension Plan/6/. 10.15 Amended and Restated Registration Rights Agreement dated May 14, 1993, between the Company and General Reinsurance Corp., Amerindo Technology Partners, Ltd., Los Angeles Fire & Police Pension Plan and University of British Columbia Staff Pension Plan/6/. 10.16 The Blyth Holdings Inc. Amended and Restated 1987 Stock Option Plan, as amended/6/. 10.17 The Blyth Holdings Inc. 1993 Directors' Warrant Plan and form of Director's Warrant/6/. 10.18 The Blyth Holdings Inc. 1994 Employee Stock Purchase Plan./6/ 10.19 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems Limited./6/ 10.20 Warrant to Purchase shares of Common Stock dated January 3, 1994 granted to Migration Software Systems Limited/6/. 10.21 Consulting Agreement dated January 31, 1994 between the Company and RGS Associates, Inc./6/ 10.22 Form of Subscription Agreement between the Company and purchasers of 8% Convertible Debentures due March 31, 1997./8/ 10.23 Form of Convertible Debenture due March 31, 1997./8/ 10.24 Form of Registration Rights Agreement among the Company, Purchasers of 8% Convertible Debentures due March 31, 1997 and Swartz Investments, Inc./8/ 10.25 Warrant to Purchase Common Stock issued to Swartz Investments, Inc./8/ 10.26 Form of Regulation S securities Subscription Agreement between the Company and purchasers of 8% Convertible Debentures due June 3, 1999. 10.27 Form of 8% Convertible Debenture due June 3, 1999. 10.28 Form of Registration Rights Agreement among the Company and purchasers of 8% Convertible Debentures due June 3, 1999. 10.29 Form of Registration Rights Agreement among the Company and Swartz Investments, LLC and its designees. 10.30 Form of Warrant to Purchase Common Stock issued to certain persons affiliated with Swartz Investments, LLC. 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent. 27.1 Financial Data Schedule. (b) Reports on form 8-K. The Company filed a current report on form 8-K on June 4, 1996 with respect to its issuance of $7.35 million aggregate principal amount of 8% Convertible Debentures due June 3, 1999. ______________ /1/ Incorporated by reference to the Registration Statement on Form S-8 (Registration Statement No. 33-46166) filed by the Company with the Securities and Exchange Commission on March 2, 1992. /2/ Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on July 13, 1990. /3/ Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on June 28, 1991. /4/ Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on June 26, 1992. /5/ Incorporated by reference to the Annual Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on August 16, 1993. /6/ Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on June 28, 1994. /7/ Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 6, 1994. /8/ Incorporated by reference to the Annual Report on Form 8-K filed by the Company with the Securities and Exchange Commission on April 7, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: June 28, 1996 BLYTH HOLDINGS INC. By: /s/ MICHAEL J. MINOR -------------------- Michael J. Minor Chairman, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date - ---------- ----- ---- /s/MICHAEL J. MINOR - ------------------- Chairman, Chief Executive June 28, 1996 Michael J. Minor Officer and Director /s/STEPHEN R. LORENTZEN President, Chief Operating - ----------------------- Officer, Chief Financial Officer, June 28, 1996 Stephen R. Lorentzen Director /s/WILLIAM M. GLYNN - ------------------- Director of Finance, (Principal June 28, 1996 William M. Glynn Accounting Officer) /s/RICHARD J. HANSCHEN - ---------------------- Vice-Chairman of the Board June 28, 1996 Richard J. Hanschen of Directors /s/WILLIAM E. KONRAD - -------------------- Director June 28, 1996 William E. Konrad BLYTH HOLDINGS INC. AND SUBSIDIARIES Consolidated Financial Statements for the Years Ended March 31, 1996, 1995 and 1994 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Blyth Holdings Inc.: We have audited the accompanying consolidated balance sheets of Blyth Holdings Inc. and subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1996. Our audits also included the financial statement schedule listed in Item 14.(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Blyth Holdings Inc. and subsidiaries at March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP May 10, 1996 (June 4, 1996 as to Note 12) San Jose, California BLYTH HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND 1995
- -------------------------------------------------------------------------------- ASSETS 1996 1995 CURRENT ASSETS: Cash and equivalents $ 5,128,733 $ 4,593,459 Trade accounts receivable (less allowances for doubtful accounts of $399,973 in 1996 and $458,710 in 1995) 2,303,025 3,966,551 Inventories 70,747 261,926 Other current assets 1,155,014 1,076,637 ------------ ------------ Total current assets 8,657,519 9,898,573 PROPERTY, FURNITURE AND EQUIPMENT, Net 1,831,399 2,979,029 CAPITALIZED SOFTWARE DEVELOPMENT COSTS, Net 299,758 1,439,925 OTHER ASSETS 52,325 54,868 ------------ ------------ TOTAL $ 10,841,001 $ 14,372,395 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit $ 143,715 $ - Current portion of long-term debt 108,011 97,178 Accounts payable 836,912 678,327 Accrued liabilities 841,151 1,556,314 Deferred revenue 1,093,209 1,040,249 ------------ ------------ Total current liabilities 3,022,998 3,372,068 LONG-TERM DEBT 25,524 2,758,883 ------------ ------------ Total liabilities 3,048,522 6,130,951 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY: Preferred stock - $1.00 par value; 3,000,000 shares authorized; none outstanding - - Common stock - $.01 par value; 20,000,000 shares authorized; outstanding: 1996, 9,753,791 shares; 1995, 7,080,239 shares 97,538 70,802 Treasury stock at cost: 1995; 195,622 shares - (1,557,214) Paid-in capital 35,722,507 30,740,878 Accumulated deficit (28,151,965) (21,295,375) Cumulative foreign currency translation adjustment 124,399 282,353 ------------ ------------ Total stockholders' equity 7,792,479 8,241,444 ------------ ------------ TOTAL $ 10,841,001 $ 14,372,395 ============ ============
See notes to consolidated financial statements. -2- BLYTH HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- -------------------------------------------------------------------------------- 1996 1995 1994 NET REVENUES: Product $ 6,271,843 $ 10,695,771 $11,595,599 Services 7,431,268 6,019,490 3,249,671 ----------- ------------ ----------- Total net revenues 13,703,111 16,715,261 14,845,270 ----------- ------------ ----------- OPERATING EXPENSES: Cost of product revenues 2,421,637 4,216,175 2,281,346 Cost of service revenues 4,568,514 3,944,271 1,893,236 Selling and marketing 6,140,458 12,440,229 7,903,316 Research and development 2,845,801 4,524,063 1,130,440 General and administrative 3,495,008 4,142,384 2,412,362 ----------- ------------ ----------- Total operating expenses 19,471,418 29,267,122 15,620,700 ----------- ------------ ----------- OPERATING LOSS (5,768,307) (12,551,861) (775,430) ----------- ------------ ----------- OTHER INCOME (EXPENSE): Interest income 254,207 272,667 332,008 Interest expense and other, net (125,842) (16,031) (54,356) ----------- ------------ ----------- 128,365 256,636 277,652 ----------- ------------ ----------- LOSS BEFORE INCOME TAXES (5,639,942) (12,295,225) (497,778) INCOME TAX EXPENSE 35,486 128,326 46,286 ----------- ------------ ----------- NET LOSS $(5,675,428) $(12,423,551) $ (544,064) =========== ============ =========== NET LOSS PER SHARE $ (0.64) $ (1.86) $ (0.08) =========== ============ =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,845,693 6,683,552 6,519,366 =========== ============ ===========
See notes to consolidated financial statements. -3- BLYTH HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------------------------------------------------------- Series A Preferred Stock Stock Common Treasury Stock -------------------- -------------------- ------------------------ Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit BALANCES, April 1, 1993 19,500 $ 19,500 5,602,628 $56,026 - $ - $15,016,438 $ (8,231,371) Conversion of preferred to common (19,500) (19,500) 19,500 195 - - 19,305 - Common stock issued (net of issuance costs $520,050) - - 1,098,667 10,986 - - 14,836,470 - Common stock options exercised - - 86,750 868 - - 293,739 - Foreign currency translation adjustment - - - - - - - - Net loss - - - - - - - (544,064) ------- --------- --------- ------- -------- ----------- ----------- ------------ BALANCES, March 31, 1994 - - 6,807,545 68,075 - - 30,165,952 (8,775,435) Common stock options exercised - - 31,860 319 - - 134,601 - Common stock warrants exercised (net of issuance costs of $12,165) - - 240,834 2,408 - - 440,325 - Purchase of treasury stock - - - - 221,600 (1,764,007) - - Reissuance of treasury stock - - - - (25,978) 206,793 - (96,389) Foreign currency translation adjustment - - - - - - - - Net loss - - - - - - - (12,423,551) ------- --------- --------- ------- -------- ----------- ----------- ------------ BALANCES, March 31, 1995 - - 7,080,239 70,802 195,622 (1,557,214) 30,740,878 (21,295,375) Common stock options exercised - - 22,643 226 (2,000) 15,921 69,409 (13,922) Common stock issued upon conversion of convertible debentures payable (net of issuance costs of $461,355) - - 2,633,273 26,334 (175,942) 1,400,555 4,869,365 (1,070,703) Common stock issued - - 17,636 176 - - 42,855 - Reissuance of treasury stock - - - - (17,680) 140,738 - (96,537) Foreign currency translation adjustment - - - - - - - - Net loss - - - - - - - (5,675,428) ------- --------- --------- ------- -------- ----------- ----------- ------------ BALANCES, March 31, 1996 - $ - 9,753,791 $97,538 - $ - $35,722,507 $(28,151,965) ======= ========= ========= ======= ======== =========== =========== ============ - --------------------------------------------------------- Cumulative Foreign Total Currency Stock- Translation Stockholders' Adjustment Equity BALANCES, April 1, 1993 $ 43,183 $ 6,903,776 Conversion of preferred to common - - Common stock issued (net of issuance costs $520,050) - 14,847,456 Common stock options exercised - 294,607 Foreign currency translation adjustment (35,661) (35,661) Net loss - (544,064) --------- ------------ BALANCES, March 31, 1994 7,522 21,466,114 Common stock options exercised - 134,920 Common stock warrants exercised (net of issuance costs of $12,165) - 442,733 Purchase of treasury stock - (1,764,007) Reissuance of treasury stock - 110,404 Foreign currency translation adjustment 274,831 274,831 Net loss - (12,423,551) --------- ------------ BALANCES, March 31, 1995 282,353 8,241,444 Common stock options exercised - 71,634 Common stock issued upon conversion of convertible debentures payable (net of issuance costs of $461,355) - 5,225,551 Common stock issued - 43,031 Reissuance of treasury stock - 44,201 Foreign currency translation adjustment (157,954) (157,954) Net loss - (5,675,428) --------- ------------ BALANCES, March 31, 1996 $ 124,399 $ 7,792,479 ========= ============
See notes to consolidated financial statements. -4- BLYTH HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- -------------------------------------------------------------------------------- 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(5,675,428) $(12,423,551) $ (544,064) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization expense 1,288,756 1,219,194 756,022 Amortization and write-off of capitalized software development costs 1,120,092 3,834,685 314,512 Loss on disposal of property 74,786 52,674 62,793 Changes in assets and liabilities: Trade accounts receivable 1,534,497 (656,324) (545,047) Inventories 188,249 (160,120) 34,613 Other current assets (99,777) (65,314) (271,320) Other assets 2,543 325,604 (363,865) Accounts payable and accrued liabilities (436,682) 364,563 421,107 Deferred revenue 60,513 355,033 496,374 ----------- ------------ ----------- Net cash provided by (used for) operating activities (1,942,451) (7,153,556) 361,125 ----------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalized software development costs - (2,367,181) (2,890,041) Purchases of property, furniture and equipment (94,115) (1,475,289) (1,918,001) Proceeds from the sale of fixed assets (14,953) - - Advance for note receivable - related party - - (507,419) ----------- ------------ ----------- Net cash used for investing activities (109,068) (3,842,470) (5,315,461) ----------- ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit 147,298 - - Repayments of debt (226,568) (437,990) (96,039) Proceeds from long-term debt 2,742,083 2,647,337 - Proceeds from stock issuance 47,687 110,404 15,142,063 Exercise of stock options and warrants 69,635 577,653 - Purchase of treasury stock - (1,764,007) - ----------- ------------ ----------- Net cash provided by financing activities 2,780,135 1,133,397 15,046,024 ----------- ------------ ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (193,342) 50,568 3,896 ----------- ------------ ----------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 535,274 (9,812,061) 10,095,584 CASH AND EQUIVALENTS - Beginning of year 4,593,459 14,405,520 4,309,936 ----------- ------------ ----------- CASH AND EQUIVALENTS - End of year $ 5,128,733 $ 4,593,459 $14,405,520 =========== ============ =========== CASH PAID FOR: Interest $ 63,874 $ 26,557 $ 57,707 =========== ============ =========== Income taxes $ 35,486 $ 128,326 $ 1,600 =========== ============ ===========
(Continued) -5- BLYTH HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1996, 1995 AND 1994 (Concluded) - -------------------------------------------------------------------------------- NONCASH TRANSACTIONS: During fiscal 1996, convertible debenture noteholders converted $5,650,000 of 8% and 5% debentures, net of $461,355 of issuance costs, into 2,809,212 shares of common stock. Of those shares, 175,942 shares were reissued from treasury stock for less than cost. The Company also reissued treasury stock for the exercise of options and for purchases under the Employee Stock Purchase Plan for less than cost. Therefore, the difference between the fair value at date of issuance and the cost resulted in an appropriation charge to accumulated deficit. During fiscal 1995, the Company reissued treasury stock for purchases under the Employee Stock Purchase Plan for less than cost. Therefore, the difference between the fair value at date of issuance and the cost resulted in an appropriation charge to accumulated deficit. In addition, the Company acquired property, furniture and equipment of $205,194 under capital lease obligations. During fiscal 1994, preferred stockholders converted shares of preferred stock into 19,500 shares of common stock. In addition, the Company acquired property, furniture and equipment of $49,966 under capital lease obligations. See notes to consolidated financial statements. -6- BLYTH HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1996, 1995 AND 1994 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Blyth Holdings Inc. ("Company") develops, markets and supports software products for the development and deployment of applications for accessing multi-user databases in workgroup and enterprise-wide client/server computing environments. The Company's OMNIS family of products is used by corporations, system integrators, small businesses and independent consultants to deliver custom information management applications for a wide range of users including financial management, decision support, executive information, sales and marketing and multi-media authoring systems. In addition to these products, Blyth provides consulting, technical support and training to help plan, analyze, implement and maintain applications software based on the Company's technology. The consolidated financial statements include Blyth Holdings Inc. (BHI) (U.S.) and its wholly-owned subsidiaries, Blyth Holdings Limited (BHL) (U.K.), Blyth Software Limited (BSL) (U.K.), Blyth Software Inc. (BSI) (U.S.) and Blyth Software GmbH (Germany). Significant accounting policies applied in the preparation of the accompanying consolidated financial statements of the Company follow: Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. Product Revenue - Revenue related to product sales is recognized when the product is shipped, the collection of the related receivable is probable and no significant vendor or post-contract support obligations remain. Insignificant vendor and post contract support obligations, including maintenance for the first 30 days, is included in product revenue and the estimated cost of providing this maintenance is accrued and charged to cost of product. During fiscal 1995, certain of the Company's sales during a promotional period included a nine-month maintenance agreement. The Company deferred a portion of the revenue which was recognized ratably over the term of the maintenance agreement. In fiscal 1996, the Company changed the warranty period to 30 days and discontinued the nine-month maintenance agreement. Fiscal 1995 included revenues from non-refundable licensing fees relating to the granting of marketing and remanufacturing rights that were recognized when the related product was shipped, the collection of the related receivable was probable and no significant vendor or post-contract support obligations remained. The cost of providing insignificant vendor and post contract support obligations was accrued and charged to cost of product at the time revenue was recognized. Service Revenue - Service revenue is generated from consulting, technical support and training. Product support revenue is recognized ratably over the related contractual term. Revenue from training is recognized when the services are provided. Revenue associated with contracts to develop specific software for customers is recognized using the percentage-of-completion method of accounting. -7- Cost of Product and Service Revenues - Cost of product revenues includes the cost of production materials and related documentation and amortization of capitalized software development costs. Cost of service revenues principally includes payroll and other costs associated with the customer support function. Other costs specifically identifiable with the revenue source have been classified accordingly. Cash Equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Inventories - Inventories, principally finished goods, are stated at the lower of cost on a first-in, first-out (FIFO) basis, or market value. Property, Furniture and Equipment - Property, furniture and equipment are stated at cost. Capital leases are recorded at the present value of the minimum lease payments at the date of acquisition. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets or lease term whichever is shorter, which range from three to 25 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets. Capitalized Software Development Costs - Software development costs are capitalized when technological feasibility has been established. The Company did not capitalize any software development costs in fiscal 1996 since the net realizability for most of the Company's current development efforts could not be determined. Such costs are amortized using the greater of the amount computed using the ratio of current revenue to the total of current and anticipated revenue or the straight-line method over the estimated life of the product not to exceed three years. The Company has capitalized software development costs of $4,363,462 and $4,383,537, with accumulated amortization of $4,063,704 and $2,943,612 at March 31, 1996 and 1995, respectively. Amortization of capitalized software development costs charged to cost of product revenues was $1,120,092, $2,129,611 and $314,512 for the years ended March 31, 1996, 1995 and 1994, respectively. During fiscal 1995, the Company reevaluated its software development and product strategy in relation to its financial resources and emerging market conditions. As a result of this review, the Company changed its product software development strategy and charged $1,705,074 of capitalized costs related to products that would not be part of the Company's new strategy to operating expenses. No write-offs of capitalized software occurred during the years ended March 31, 1996 and 1994. Financial Instruments - The Company believes that the carrying amount reported in the financial statements for cash and equivalents as of March 31, 1996 approximates fair value. The fair value of the bank line of credit and the note payable to finance company approximate the carrying amount based on the current rate offered to the Company for debt of the same remaining maturities. Income Taxes - Income taxes are accounted for using the asset and liability approach for financial reporting which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Net Loss Per Share - Net loss per share is computed based on the weighted average number of common shares outstanding during the period. -8- CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and equivalents and trade accounts receivable. The Company places its cash and equivalents with what it believes are high credit quality financial institutions. The Company sells its products primarily to companies in North America and Europe. To reduce credit risk, management performs ongoing credit evaluations of its customers' financial condition. The Company maintains reserves for potential credit losses, but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates include the allowance for doubtful accounts receivable, the net realizable value of inventory and unamortized capitalized software development costs. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION - All assets and liabilities of operations outside the United States are translated into U.S. dollars from their functional currency, which is the local currency, at year-end exchange rates. Income and expense items are translated at the average exchange rate for the year. Gains and losses resulting from translation are included in stockholders' equity. Gains and losses on foreign currency transactions have been reflected in the statements of operations and have not been material in any year. ACCOUNTING PRONOUNCEMENTS - Effective April 1, 1996, the Company will adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), which requires that long-lived assets, certain identifiable intangibles, and goodwill related to those assets used by an entity be reviewed for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. The Company's policy is to review the recoverability of all intangible assets at a minimum on an annual basis, and in addition whenever events or changes indicate that the carrying amount of an asset may not be recoverable. No adjustment to the carrying value of such assets is expected as a result of adopting this pronouncement. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation." The new standard defines a fair value method of accounting for stock options and other equity instruments. Under this method, compensation cost is measured based on the fair value of the stock award when granted and is recognized as expense over the service period, which is usually the vesting period. This standard will be effective for the Company beginning in fiscal 1997 and requires measurement of awards made beginning in fiscal year 1996. The new standard permits companies to continue to account for equity transactions with employees under existing accounting rules, but requires disclosure in a note to the financial statements of the pro forma net income and earnings per share as if the Company had applied the new method of accounting. The Company intends to implement these disclosure requirements for its employee stock plans. As a result, adoption of the new standard will not impact reported net income (loss). -9- 2. PROPERTY, FURNITURE AND EQUIPMENT Property, furniture and equipment at March 31 consist of:
1996 1995 Land and building $ 654,784 $ 694,774 Leasehold improvements 74,423 59,716 Office equipment, furniture and fixtures 4,467,870 4,974,610 Automobiles 435,271 488,112 ----------- ----------- Total 5,632,348 6,217,212 Accumulated depreciation and amortization (3,800,949) (3,238,183) ----------- ----------- Property, furniture and equipment - net $ 1,831,399 $ 2,979,029 =========== ===========
3. ACCRUED LIABILITIES Accrued liabilities at March 31 consist of:
1996 1995 Salaries and benefits $ 242,112 $ 355,783 Commissions 173,146 464,385 Other 425,893 736,146 ----------- ----------- $ 841,151 $ 1,556,314 =========== ===========
4. LINE OF CREDIT The Company's wholly owned subsidiary has a line of credit with a bank in the U.K. that allows the Company to borrow up to (Pounds)100,000 ($152,770) at March 31, 1996, automatically upon overdraft of the Company's operating bank account. Interest on the overdraft is at the bank's prime rate (6.5% at March 31, 1996) plus 3%. Borrowings under the line of credit are secured by all assets of BHL and BSL and a life insurance policy. There were (Pounds)94,072 ($143,715) borrowed under the line of credit at March 31, 1996. There were no borrowings under the line of credit at March 31, 1995. The line of credit expired in April 1996. -10- 5. LONG-TERM DEBT Long-term debt at March 31 consists of:
1996 1995 Capital lease obligations $ 97,263 $ 208,724 Convertible debentures payable, 8%, due March 31, 1997, converted into common stock during fiscal 1996 - 2,647,337 Note payable to finance company, 8.57%, due in monthly installments of $18,331 through May 1996 36,272 - ---------- ---------- 133,535 2,856,061 Current portion (108,011) (97,178) ---------- ---------- Total long-term debt $ 25,524 $2,758,883 ========== ==========
Aggregate maturities of debt subsequent to March 31, 1997: 1998, $25,524. 6. STOCKHOLDERS' EQUITY PREFERRED STOCK - During fiscal 1994, 19,500 shares of preferred stock were converted into common stock. No preferred stock was outstanding at March 31, 1996 and 1995. COMMON STOCK - During fiscal 1996, $2,900,000 of 8% convertible debentures and $2,750,000 of 5% convertible debentures plus accrued interest, were converted into 1,212,875 and 1,596,337 shares, respectively, of the Company's common stock. In fiscal 1996, the Company reissued all remaining shares of treasury stock. 175,942 shares were reissued in conjunction with the conversion of 8% and 5% convertible debentures discussed above at a price of $1.78 -$1.98 per share, and 17,680 shares were reissued under the Employee Stock Purchase Plan at a price of $2.50 per share. 2,000 shares were reissued in conjunction with the exercise of stock options at a price of $1.00 per share. The difference between the fair value at the date of issuance and the cost resulted in an appropriation charge to accumulated deficit of $1,181,162. In fiscal 1995, the Company acquired 221,600 shares of the Company's common stock at an average price of $7.96. The Company reissued 25,978 shares of the treasury stock under the Employee Stock Purchase Plan at a price of $4.25 per share. The difference between the fair value at the date of issuance and the cost resulted in an appropriation charge to accumulated deficit of $96,389. The Company has reserved 4,887,834 shares of common stock for issuance upon exercise of warrants and options to purchase shares of the Company's common stock. WARRANTS - The Company granted five-year warrants to purchase 70,000, 202,500 and 170,000 shares of common stock to consultants to the Company and to members of the Company's Board of Directors in recognition of services rendered during fiscal 1996, 1995 and 1994, respectively. The warrants were granted with an exercise price equal to the fair market value of the common stock at the date of grant and generally vest over three years. In connection with the issuance of the 5% convertible debentures and 8% convertible debentures in 1996 and 1995, the Company granted warrants to purchase 80,000 and 47,590 shares of common stock at $5.85 and $4.25 per share, respectively. -11- The following summarizes warrants outstanding:
WARRAMTS EXERCISE PRICE Warrants outstanding at April 1, 1993 1,935,834 $ 1.00 - $ 8.50 Granted 170,000 $11.75 - $16.00 --------- Warrants outstanding at March 31, 1994 2,105,834 $ 1.00 - $16.00 Granted 250,090 $ 4.00 - $ 6.50 Exercised (240,834) $ 1.00 - $ 3.38 Canceled (41,667) $16.00 --------- Warrants outstanding at March 31, 1995 2,073,423 $ 1.00 - $16.00 Granted 150,000 $ 1.00 - $ 5.85 --------- Warrants outstanding at March 31, 1996 2,223,423 $ 1.00 - $16.00 =========
The warrants expire at various dates between 1996 and 2001. At March 31, 1996, there are 2,067,592 warrants exercisable. EMPLOYEE STOCK PURCHASE PLAN - In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the Plan) and reserved 225,000 shares of common stock for issuance under the Plan. The Plan permits eligible employees to purchase common stock through payroll deductions of up to a maximum of 10% of their eligible compensation at 85% of the fair market value at the beginning or end of each six-month offering period. During fiscal 1996, 35,316 shares were issued at $2.44 - $2.50 per share. During fiscal 1995, 25,978 shares were issued at $4.25 per share. 7. STOCK OPTIONS Under the Company's Amended and Restated 1987 Stock Option Plan, incentive and non-qualified stock options to purchase a total of 2,500,000 shares of common stock may be granted to directors, officers, key employees and consultants. In fiscal year 1996, the Plan was amended to increase the numbers of authorized shares by 350,000 shares. The Plan is administered by a committee of the Board which is empowered to grant either nonqualified or incentive stock options. The exercise price is determined by the committee at the time of the granting of an option, but in the case of incentive stock options, the exercise price shall not be less than the fair market value on the date of the grant. Generally, options vest and become exercisable over a four- or five-year period. On February 22, 1994, the Board of Directors amended the vesting schedule for future options granted under the Plan. In the first full year of employment 20% of the shares will vest. Thereafter, each option shall vest at the rate of 20% during the second year, 25% during the third year and 35% during the fourth year. -12- The following table summarizes the activity under the Plan:
Options Outstanding Options ------------------------------------- Available Price for Grant Shares Per Share Balances, April 1, 1993 668,218 1,625,740 $ 1.00 - $18.250 Granted (790,900) 790,900 $ 10.25 - $17.630 Canceled 631,080 (631,080) $ 2.75 - $18.250 Exercised - (86,750) $ 1.00 - $ 6.000 ---------- ---------- Balances, March 31, 1994 508,398 1,698,810 $ 1.00 - $18.250 Granted (1,403,597) 1,403,597 $ 4.25 - $ 5.250 Canceled 1,256,024 (1,256,024) $ 1.00 - $18.250 Exercised - (31,860) $ 1.00 - $ 6.000 ---------- ---------- Balances, March 31, 1995 360,825 1,814,523 $ 1.00 - $18.250 Additional authorization 350,000 - Granted (809,950) 809,950 $ 1.00 - $ 3.313 Canceled 793,572 (793,572) $ 1.00 - $17.000 Exercised - (24,643) $ 1.00 - $ 3.625 ---------- ---------- Balances, March 31, 1996 694,447 1,806,258 $ 1.00 - $18.250 ========== ==========
As of March 31, 1996, there were 574,299 options exercisable. 8. INCOME TAXES Income tax expense consists of:
1996 1995 1994 Current: Federal $ - $ - $ - State 22,761 24,738 1,600 Foreign 12,725 103,588 44,686 ------- ------- ------- Total $ 35,486 $ 128,326 $46,286 ======= ======= =======
Pretax foreign income (loss) was $(1,732,144), $(1,899,549) and $448,770 in 1996, 1995 and 1994, respectively. The effective tax rate differs from the federal statutory income tax rate as follows:
1996 1995 1994 Tax at federal statutory rate (35.0)% (35.0)% (35.0)% Change in valuation allowance 35.5 23.3 121.0 Net operating loss - - (124.0) Other differences, net 0.1 12.7 47.3 ------ ------ ------ 0.6 % 1.0 % 9.3 % ====== ====== ======
-13- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss carryforwards. Significant components of the Company's deferred income tax assets and liabilities are as follows (in thousands):
1996 1995 Deferred tax assets (liabilities): Net operating losses $ 9,670 $ 7,290 Depreciation 140 140 Accruals and reserves recognized in different periods 580 490 Tax credits 490 80 Capitalized software 500 (770) -------- -------- Total 11,380 7,230 Valuation allowance (11,380) (7,230) -------- -------- Net deferred tax asset $ - $ - ======== ========
The net operating losses included in deferred tax assets at March 31, 1996 and 1995 includes $399,850 and $386,142, respectively, of tax benefits relating to the exercise and sale by employees of certain incentive stock options. When the Company becomes profitable, the benefit associated with the stock compensation will be recorded as an adjustment to stockholder's equity. Due to uncertainties surrounding the ability to realize the benefits of its net deferred tax assets, the Company has placed a full valuation allowance against its net deferred tax assets at March 31, 1996. The net change in the valuation allowance was an increase of $4,150,000 in 1996 and $2,865,000 in 1995. At March 31, 1996, the Company had net operating loss carryforwards which expire as follows (in thousands):
Federal California Foreign 1997 $ 350 1998 1,430 1999 101 2000 $ 321 2,772 2001 42 1,870 2002 246 2003 2,494 2004 834 2005 1,272 2006 1,440 2007 1,210 2008 1,339 2009 1,446 2010 9,042 2011 3,740 No expiration date $2,751 ------- ------ ------ $23,426 $6,523 $2,751 ======= ====== ======
-14- The Tax Reform Act of 1986, as amended, and the California Conformity Act of 1987 impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change," as defined by the Internal Revenue Code. An "ownership change" took place in 1992, and the Company is limited to using $780,000 per year of federal and California net operating loss carryforwards accrued through that date (a total of $7,859,000 federal and $3,521,000 California). It has not been determined whether there have been subsequent ownership changes which would further limit the net operating losses and credits. 9. RETIREMENT PLANS The Company sponsors two defined contribution plans for its U.K. employees. Both plans have been approved by the U.K.'s Department of Inland Revenue. BHL sponsors the Blyth Retirement Benefits Scheme (BRB Plan). The only participant in the BRB Plan is the Chief Technical Officer of BHL. The BRB Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. BHL makes annual contributions based on the participant's salary to fund these retirement benefits. The BRB Plan is partially insured through the Sun Life Assurance Society. BHL retains the right to terminate the BRB Plan at any time upon 30 days' written notice. BSL sponsors the BSL Retirement Benefits Scheme (BSL Plan) for substantially all of its employees. The BSL Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. BSL contributes an amount from 5% to 8% of each participant's compensation to fund such benefits. In addition, participants are entitled to make voluntary contributions under the BSL Plan. The Company contributed a total of $128,894, $143,000 and $100,526 to the BRB and BSL Plans for the years ended March 31, 1996, 1995 and 1994, respectively. The Company sponsors the Blyth Software Inc. 401(k) Savings and Retirement Plan (the Plan). Employees meeting the eligibility requirements, as defined, may contribute specified percentages of their salaries. Under the Plan, which is qualified under Section 401(k) of the federal tax laws, the Company's Board of Directors, at its sole discretion, may make a discretionary profit-sharing contribution to the Plan. Moreover, the Company is not obligated, but may at its discretion, pay certain administrative costs on behalf of the Plan. For the years ended March 31, 1996, 1995 and 1994, discretionary contributions of $18,797, $29,814, $59,475, respectively, were made to the Plan. 10. COMMITMENTS AND CONTINGENCIES Leases The Company leases its facilities under noncancelable operating lease agreements. Rent expense on these leases is recognized ratably over the entire lease term. The Company is required to pay property taxes, insurance and normal maintenance costs. -15- Future minimum rental commitments under equipment capital leases and noncancelable operating leases as of March 31, 1996 are as follows:
Year Ending Capital Operating March 31, Leases Leases 1997 $ 81,840 $ 496,047 1998 29,687 270,682 1999 - 109,707 2000 - 84,500 2001 - 84,500 -------- ---------- Total minimum lease payments 111,527 $1,045,436 ========== Amount representing interest (14,264) -------- Present value of net minimum capital lease payments 97,263 Current portion of obligations under capital leases (71,739) -------- Obligations under capital leases, excluding current portion $ 25,524 ========
Equipment under capital leases had a net book value of $122,568 and $225,279 at March 31, 1996 and 1995, respectively. Rent expense of $687,059, $727,284 and $527,532 was incurred in 1996, 1995 and 1994, respectively. Employment Agreements On April 1, 1990, the Company entered into a four-year employment agreement with an officer of BSL, which provides for the payment of an annual base salary of (Pounds)48,000, increasing each year by an inflation adjustment factor. In addition, the officer may be entitled to earn up to 1/4 of his annual base salary as bonus, subject to the Company meeting certain financial targets. The agreement renews automatically for subsequent two-year terms and can be terminated by the Company by giving six months' written notice. -16- 11. SEGMENT INFORMATION The following table presents information concerning the Company's domestic and foreign operations. Blyth U.S. serves the United States and Canada and Blyth U.K. serves the United Kingdom and Europe. The Company's operating revenues were generated primarily from the sale of personal microcomputer software and service contracts related to that software.
1996 1995 1994 Revenue by geographic region: United States $10,222,171 $ 12,398,049 $11,028,123 Europe 3,480,940 4,317,212 3,817,147 ----------- ------------ ----------- Total $13,703,111 $ 16,715,261 $14,845,270 =========== ============ =========== Operating loss by geographic region: United States $(4,050,935) $(10,635,947) $(1,474,723) Europe (1,717,372) (1,915,914) 699,293 ----------- ------------ ----------- Total $(5,768,307) $(12,551,861) $ (775,430) =========== ============ =========== Total assets: United States $ 7,980,312 $ 10,437,279 $20,743,719 Europe 2,860,689 3,935,116 3,635,118 ----------- ------------ ----------- Total $10,841,001 $ 14,372,395 $24,378,837 =========== ============ =========== Export sales from the U.S. (included in total U.S. sales above): Latin America $ 1,286,681 $ 173,944 $ 23,235 Asia 264,539 1,434,219 9,475 Australia 259,211 - - Canada 213,253 398,469 546,088 Caribbean 35,024 - - Europe 17,763 7,300 - ----------- ------------ ----------- Total $ 2,076,471 $ 2,013,932 $ 578,798 =========== ============ ===========
One customer accounted for 16% of net revenues in 1996. No other customers accounted for net revenues in excess of 10% in 1995 and 1994. 12. SUBSEQUENT EVENT On June 4, 1996, the Company completed a private offering of convertible debentures with net proceeds to the Company of $6.8 million. The convertible debentures bear interest at 8% and are due June 1999. At the option of the holder, one-third of the debentures are convertible into the Company's common stock after 45 days; two-thirds are convertible after 75 days; and the final third are convertible after 105 days. The debentures are convertible into common stock at the lower of $3.75 per share or 85% of the five-day average of the trading price of the Company's common stock prior to the date of conversion. In addition, the Company may call the debentures under certain circumstances. * * * * * -17- Schedule II ----------- BLYTH HOLDING INC. AND SUBSIDIARIES Valuation and Qualifying Accounts
Additions Balance at Balance at charged to costs Deductions end beginning of period and expenses (1) of period ------------------- ---------------- ---------- ---------- Allowance for doubtful accounts and returns: Year ended March 31, 1996 $458,710 327,886 (386,623) $399,973 ======== ======= ========= ======== Year ended March 31, 1995 $307,682 196,517 (45,489) $458,710 ======== ======= ======= ======== Year ended March 31, 1994 $218,717 127,923 (38,958) $307,682 ======== ======= ======= ========
(1) Uncollectible accounts written off and foreign currency translation adjustment. S-1 EX-10.26 2 REGULATION S SECURITIES SUBSCRIPTION AGREEMENT Exhibit 10.26 BLYTH HOLDINGS, INC. REGULATION S SECURITIES SUBSCRIPTION AGREEMENT THE DEBENTURES BEING SUBSCRIBED FOR HEREIN AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION ("THE COMMISSION") UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY ANY U.S. FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON, CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Regulation S Securities Subscription Agreement (the "Agreement") is executed by the undersigned (the "Subscriber") in connection with the offering (the "Offering") and subscription by the undersigned for 8% convertible Debentures (the "Debentures") of Blyth Holdings, Inc., a Delaware Corporation (the "Company"), due on June 3, 1999, and offered in denominations of at least Fifty Thousand Dollars ($50,000) and integral multiples of Ten Thousand Dollars ($10,000) in excess thereof up to a maximum aggregate principal amount of Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000). The terms of the Debentures, including the terms on which the Debentures may be converted into common stock, $.01 par value of the Company (the "Common Stock"), are set forth in the Debentures, substantially in the form attached hereto as Exhibit A. The --------- solicitation of this subscription and, if accepted by the Company, the offer and sale of Debentures, are being made in reliance upon the provisions of Regulation S. The Debentures and the shares of Common Stock issuable upon conversion thereof (the "Shares") are sometimes referred to herein collectively as the "Securities." The Subscriber wishes to subscribe for Debentures in the amount set forth in Section 19 in accordance with the terms and conditions of the form of Debenture and this Agreement. 1 It is agreed as follows: 1. Offer to Subscribe; Purchase Price; Closing; Placement Fees; and Conditions to Subscriber's Obligations. 1.1 Offer by Subscriber; Purchase Price. Subject to satisfaction of the ----------------------------------- conditions to Closing set forth below, the Subscriber hereby subscribes for and agrees to purchase the aggregate principal amount of Debentures for a purchase price set forth in Section 19 of this Agreement. 1.2 Closing. The closing of the sale and purchase of the Debentures ------- ("Closing") will occur upon (i) the satisfaction of all conditions described in Section 1.4 of this Agreement, (ii) sale in this Offering of at least Three Million Dollars ($3,000,000) of aggregate principal amount of Debentures (the "Minimum Amount"), and no more than Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000) of aggregate principal amount of Debentures (the "Maximum Amount"), and (iii) the satisfaction (or waiver) of all conditions required by the Escrow Agreement ("Escrow Agreement"), defined as the agreement among the Company, Swartz Investments, LLC ("Placement Agent") and First Union National Bank ("Escrow Agent") regarding this Offering. As soon as subscriptions for at least the Minimum Amount have been accepted by the Company, in accordance with the terms of this Agreement, the Company shall close on the Minimum Amount (the "First Closing"). Thereafter, the Company may conduct one or more additional Closings until the Maximum Amount has been reached. 1.3 Placement Fees. The parties hereto acknowledge that the Placement -------------- Agent for this Offering will be compensated by the Company in cash and warrants to purchase Common Stock of the Company. The Placement Agent has acted solely as placement agent in connection with the Offering by the Company of the Debentures pursuant to this Agreement. The information and data contained in the Disclosure Documents (as defined in Section 2.2 below) including, but not limited to, the Risk Factors (as discussed in Section 2.3 below) have not been subjected to independent verification by Placement Agent, and no representation or warranty is made by Placement Agent as to the accuracy or completeness of the information contained in the Disclosure Documents, including any Risk Factors, or any tax advice or legal advice. 1.4 Conditions to Subscriber's Obligations. The Subscriber's obligations -------------------------------------- hereunder are further conditioned upon the following: (i) the following documents have been deposited with the Company's Escrow Agent: the Registration Rights Agreement, substantially in the form attached hereto as Exhibit B (executed by the --------- Company), the Opinion of Counsel, substantially in the form attached hereto as Exhibit C (signed by Company's counsel), the --------- Irrevocable Instructions to Transfer Agent, substantially in the form attached hereto as Exhibit D (executed by Company and --------- transfer agent) and the Subscriber's Debenture(s) executed by the Company, substantially in the form attached hereto as Exhibit A; --------- (ii) the Common Stock issuable upon conversion of the Debenture has been listed on the National Association of Securities Dealers, Inc.'s ("Nasdaq") National Market System or Small Capitalization System, subject to official notice of issuance; (iii)the representations and warranties of the Company are true and correct in all 2 material respects as of the Closing as if made on such date, and the Company shall deliver an officer's certificate, signed by at least one officer of the Company, to such effect to the Escrow Agent; (iv) there have been no material adverse changes in the Company's business prospects or financial condition since the date of the Company's balance sheet dated December 31, 1995; and (v) the Company shall have reserved for issuance upon conversion of the Debentures a sufficient number of shares of Common Stock which number of shares shall initially be Four Million (4,000,000) shares. 2. Subscriber's Representations and Covenants; Access to Information; Independent Information; And Independent Investigation. The Subscriber hereby makes the following representations and warranties to the Company (which shall be true at the signing of this Agreement, as of Closing, and as of any such later date as contemplated hereunder) and agrees with the Company that: 2.1 Offshore Transaction. The Subscriber represents and warrants to the -------------------- Company that (i) Subscriber is not a U.S. person ("U.S. person") as that term is defined in Rule 902(o) of Regulation S (a copy of which definition is attached as Exhibit E) including, without limitation if --------- a corporation or partnership, (a) it is organized under the laws of a jurisdiction other than the United States and (b) if organized by a U.S. person principally for the purpose of investing in securities not registered under the Act, it was organized or incorporated and is owned by accredited investors (as defined in Rule 501(a) of Regulation D under the Act) who are not natural persons, estates or trusts; (ii) the Securities were not offered to the Subscriber in the United States and at the time of execution of this Subscription Agreement the Subscriber was physically outside the United States; (iii) the Subscriber is purchasing the Securities for its own account and not on behalf of or for the benefit of any U.S. person and the sale and resale of the Securities have not been prearranged with any U.S. person or buyer in the United States; (iv) the Subscriber agrees, and to the knowledge of the Subscriber, without any independent investigation, each distributor, if any, participating in the offering of the Securities, has agreed, that all offers and sales of the Securities prior to the expiration of a period commencing on the date of the last closing of a sale and purchase of Debentures (the "Last Closing") and ending forty (40) days thereafter (the "Restricted Period") shall not be made to U.S. persons or for the account or benefit of U.S. persons and shall otherwise be made in compliance with the provisions of Regulation S; (v) subscriber is not an underwriter, dealer, or other person who participates, pursuant to a contractual arrangement, in the distribution of the Securities offered or sold in reliance on Regulation S; and (vi) Subscriber is not an underwriter of the Securities within the meaning of Section 2(11) of this Act. During the Restricted Period, Subscriber shall not engage in any activity for the purpose of, or which could reasonably be expected to have the effect of, conditioning the market in the U.S. for the Securities. 2.2 Subscriber's Independent Investigation. The Subscriber, in offering -------------------------------------- to subscribe for the Securities hereunder, has relied solely upon an (i) independent investigation of the Company made by it and its representatives, if any, and (ii) the representations, warranties and disclosure statements of the Company set forth herein and in the Disclosure Documents (as defined below). Subscriber, prior to the date hereof, has been given access to and the opportunity to examine all publicly available books and records of the Company, and all material contracts and documents of the Company 3 which have been filed as exhibits to the Company's filings made under the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), through publicly available means. Subscriber has been provided with copies of the Company's (i) Annual Report on Form 10-K for the year ended March 31, 1995; (ii) Quarterly Report on Form 10-Q for the quarters ended June 30, 1995, September 30, 1995 and December 30, 1995; (iii) any reports on Form 8-K filed under the Exchange Act since the date of such Form 10-K; (iv) Risk Factors, attached as Exhibit F; (v) Capitalization Table, attached as Exhibit G; and (vi) --------- --------- Use of Proceeds, attached as Exhibit H (collectively, the "Disclosure --------- Documents"). In making its investment decision to purchase the Debentures, the Subscriber is not relying on any oral or written representations or assurances from the Company or any other person or any representation of the Company or any other person (including, without limitation, the analyst report sent by Placement Agent to Subscriber dated May 16, 1996) other than as set forth in this Agreement, or the Disclosure Documents. The Subscriber is an accredited investor as defined in Rule 501 of Regulation D, a copy of which definition is attached hereto as Exhibit I. The Subscriber --------- assumes, without any independent investigation, that neither the Company nor Placement Agent has offered the Debentures to any Subscribers in the U.S. or to any U.S. person unless such U.S. person is a professional fiduciary of a non-U.S. person (as defined in Section (o) (2) through (o) (4) of rule 902 of Regulation S). 2.3 Subscriber's Economic Risk. The Subscriber understands and -------------------------- acknowledges that an investment in the Securities involves a high degree of risk. Subscriber acknowledges that there are limitations on the liquidity of the Securities. The Subscriber represents that the Subscriber is able to bear the economic risk of an investment in the Securities, including a possible total loss of investment. In making this statement, the Subscriber hereby represents and warrants to the Company that the Subscriber has adequate means of providing for the Subscriber's current needs and contingencies; that Subscriber is able to afford to hold the Securities for an indefinite period; and that Subscriber further represents Subscriber has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of the investment in the Securities to be received by the Subscriber. Further, the Subscriber represents, as of the date of signing this Agreement, that the Subscriber has no present need for liquidity in the Securities and the Subscriber is willing to accept such investment risks. 2.4 No Government Recommendation or Approval. The Subscriber understands ---------------------------------------- that no United States federal or state agency, or similar agency of any other country, has reviewed, approved, passed upon or made any recommendation or endorsement of the Company, the Offering or the subscription for the Securities. 2.5 No Directed Selling Efforts in Regard to this Transaction. To the --------------------------------------------------------- knowledge of the Subscriber, without any independent investigation, neither the Company, Placement Agent, nor any distributor participating in the Offering (if any), nor any person acting for the Company, Placement Agent or any such distributor, has conducted any "directed selling efforts" in the United States as the term "directed selling efforts" is defined in Rule 902(b) of Regulation S, which, in general, means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Securities being offered in reliance on Regulation S. Such activity includes, without limitation, the mailing of printed material to investors residing in the United States, the holding of promotional seminars in the United States, and the placement of advertisements with radio or television stations broadcasting in the United States or in publications with a general circulation in the United States, that refers to the offering of the Securities in reliance on Regulation S. 4 2.6 Company's Reliance on Representations of Subscribers. This Agreement ---------------------------------------------------- is made by the Company with each Subscriber in reliance upon such Subscriber's representations and covenants made in this Section 2, which reliance by his, her or its execution of this Agreement the Subscriber hereby confirms. 2.7 Securities Not Registered Under the Act or Any State Act. Subscriber -------------------------------------------------------- understands that the Debentures and the Common Stock issuable upon conversion of the Debentures have not been registered under the Act or any state securities laws ("State Acts") and are being offered and sold pursuant to Regulation S based in part upon the representations of Subscriber contained herein. The Common Stock does, however, carry certain registration rights as set forth in the Registration Rights Agreement, substantially in the form of Exhibit B (see Section 7.4 --------- below) executed by the parties hereto. 2.8 No Public Solicitation. Subscriber knows of no public solicitation or ---------------------- advertisement of an offer in connection with the proposed issuance and sale of the Securities. 2.9 Investment Intent. Subscriber is acquiring the Debentures to be ----------------- issued and sold hereunder (and the Shares issuable upon conversion of the Debentures) for his, her or its own account (or a trust account if such Subscriber is a trustee) for investment and not as a nominee and not with a view to the distribution thereof. Subscriber understands that Subscriber must bear the economic risk of this investment indefinitely unless such Debentures or such Shares are registered pursuant to the Act and any applicable State Acts, or an exemption from such registration is available, and that the Company has no present intention of registering any such sale of the Debentures or Shares other than as contemplated by the Registration Rights Agreement. Subscriber represents and warrants to the Company, as of the date of this Agreement, that Subscriber has no present plan or intention to sell the Debentures or the Shares in the United States at any predetermined time, and has made no predetermined arrangements to sell the Debentures or the Shares. Subscriber covenants that neither Subscriber nor its affiliates nor any person acting on its or their behalf has entered, has the intention of entering, or will enter into any put option, short position or other similar instrument or position in the U.S. with respect to the Debentures or Common Stock of the Company anytime after the earlier of (i) the time Subscriber first received the term sheet (the "Term Sheet") concerning this Offering and (ii) the time that Subscriber was first notified by Placement Agent of the existence of the Offering (the earlier of which is referred to as the "Time of Notification of the Offering") until the end of the Restricted Period, or for the intended purpose of lowering the price at which the Debentures are convertible into Shares. 2.10 Subscriber Not to Sell or Transfer Securities in Violation of the ----------------------------------------------------------------- Securities Laws. Subscriber covenants that he, she or it will not --------------- knowingly make any sale, transfer or other disposition of the Debentures or the Shares in violation of (1) the Act (including Regulation S), the Exchange Act, any applicable State Acts or the rules and regulations of the Commission or of any state securities commissions or similar state authorities promulgated under any of the foregoing, or (2) any applicable securities laws of jurisdictions outside the United States and the rules and regulations thereunder, or (3) the terms of this Agreement. 2.11 Subscriber's Power and Authority. Subscriber has the full power and -------------------------------- authority to execute, deliver and perform this Agreement. This Agreement, when executed and delivered by Subscriber, will constitute a valid and legally binding obligation of 5 Subscriber, enforceable in accordance with its terms. 2.12 Signatory's Representation. The signatory to this Agreement hereby -------------------------- represents and warrants that he, she or it is either: (a) not a U.S. person (as defined in Regulation S), and is not located in the U.S. at the time of signing this Agreement, or (b) a professional fiduciary of Subscriber (as described in Section (o)(2) through (o)(4) of Rule 902 of Regulation S), acting solely in his capacity as holder of such account, as a fiduciary, executor, administrator, or trustee, and has completed and signed the accompanying Certificate (Exhibit J) and forwarded it to --------- Placement Agent. 2.13 No Tax Advice From Company or Its Agents. Subscriber has reviewed ---------------------------------------- with his, her or its own tax advisors the foreign, U.S. federal, state and local tax consequences of this investment, and the transactions contemplated by this Agreement. Subscriber is relying solely on such advisors and not on any statements or representations of the Company, Placement Agent or any of their agents and understands that Subscriber (and not the Company) shall be responsible for the Subscriber's own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. 2.14 No Legal Advice from Company or Its Agents. Subscriber acknowledges ------------------------------------------ that he, she, or it has had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his, or her or its own legal counsel. Subscriber is relying solely on such counsel and not on any statements or representations of the Company, Placement Agent or any of their agents for legal advice with respect to this investment or the transactions contemplated by this Agreement, except for the representations, warranties and covenants set forth herein and in the opinion provided for in paragraph 7.3 herein. 2.15 Offering Material Statements. Subscriber acknowledges that all ---------------------------- offering materials and documents received by it in connection with the offers and sales of the Securities included statements to the effect of those contained in the first legend set forth on the first page of this Agreement. 2.16 No Scheme to Evade Registration. Subscriber's acquisition of the ------------------------------- Debentures is not a transaction (or any element of a series of transactions) that is part of a plan or scheme to evade the registration provisions of the Act. 3. Resales of Securities by Subscriber. Subscriber acknowledges, covenants and agrees that the Securities may and will only be resold by it in the U.S. (a) in compliance with Regulation S and applicable State Acts, if any; or (b) pursuant to an exemption from registration under the Act other than Regulation S; or (c) pursuant to an effective and current Registration Statement under the Act. In addition, in connection with any resale of the Debentures in accordance with clause (a) or (b), above, the Subscriber will deliver to the Company and will cause the purchaser to deliver to the Company the documents described in Section 3.1 and 3.2 below, respectively: 3.1. Documents to be Delivered for Offshore Regulation S Resales. If any ----------------------------------------------------------- Debenture is being resold to an offshore purchaser in compliance with Regulation S: 1. Sales Agreement, executed by Subscriber and purchaser (substantially in the 6 form of Exhibit K); --------- 2. Seller Representation Letter to Offshore Purchaser (substantially in the form of Exhibit L); --------- 3. Purchaser Representation Letter (substantially in the form of Exhibit M); --------- 4. Assignment (substantially in the form of Exhibit N); and --------- 5. Seller's Instruction Letter (substantially in the form of Exhibit O). --------- 3.2 Documents to be Delivered for Resales into the United States. If any ------------------------------------------------------------ Debenture is being resold to a purchaser in the U.S. pursuant to an exemption from registration under the Act: 1. Sales Agreement, executed by both Subscriber and purchaser (substantially in the form of Exhibit K); --------- 2. Seller Representation Letter to U.S. Purchaser (substantially in the form of Exhibit P); --------- 3. Purchaser Representation Letter (substantially in the Form of Exhibit M); --------- 4. Assignment (substantially in the form of Exhibit N); and --------- 5. Seller's Instruction Letter (substantially in the form of Exhibit O). --------- Upon receipt of the executed documents listed above, the Company will effect the transfer of the Debentures on the Company's books and will issue and deliver new Debentures in the purchaser's name (and, in the case of a resale pursuant to Section 3.2 after the Restricted Period, free of any restrictive legend) within three (3) business days of such receipt. The provisions of this Section 3 shall not apply to subsequent resales of Debentures that have previously been sold by Subscriber in compliance with this Section 3, and the Company shall or shall cause the Transfer Agent to remove the Legend on any subsequent resale after the Restricted Period. 4. Legends; Subsequent Sale of Securities. 4.1 Debenture Legend. Upon issuance, the Debenture shall bear a ---------------- legend substantially in the form of the first legend set forth on the first page of this Agreement and any other legend or legends as reasonably required to comply with the state, U.S. federal, or foreign law. 4.2 Removal of Debenture Legend for Pledge With a Margin Account. ------------------------------------------------------------ Upon the submission, at any time after the expiration of forty (40) days after the Last Closing, by Subscriber of a written request for removal of the restrictive legend for the purpose of a bona fide pledge or deposit of Debentures with a margin account, together with the Debentures for which legend removal is being requested and a Certificate substantially in the form of Exhibit Q, the Company shall immediately re-issue the Debentures --------- without any restrictive legend, and the Company shall irrevocably instruct its designated transfer agent ("Transfer Agent") to do so, assuming that there are no changes in the material facts set forth in Section 2 of this Agreement or applicable law from the date hereof until the date of such submission. Except for the requirements otherwise set forth in this Agreement, and assuming there 7 are no changes after the date hereof in the material facts set forth in Section 2 of the Agreement (other than subsections which by their terms would be inapplicable at such time) or applicable law, no action other than as set forth in this Section 4.2 shall be required of the Subscriber to remove the restrictive legend (unless such pledge or deposit would constitute a violation of securities law). 4.3 The Shares Obtained Upon Conversion. -------------------------------------- (a) No Restrictive Legend. Assuming that there are no changes in the material facts set forth in Section 2 of this Agreement (other than subsections which by their terms would be inapplicable at such time) or applicable law from the date hereof until the Date of Conversion (as that term is defined in the Debentures) of the Debentures by Subscriber, the Shares so obtained shall not bear any restrictive legend, nor shall any stop order be placed on the books of the Transfer Agent, provided that the Subscriber delivers to the Company a Notice of Conversion in the form attached hereto as Exhibit R (the "Notice of Conversion"). --------- (b) Subscriber's Rights in the Event Shares Issued with a Restrictive Legend. In the event that the Company issues Shares with a restrictive legend upon Conversion by the Subscriber and there have been no changes in the material facts set forth in Section 2 of this Agreement (other than subsections which by their terms would be inapplicable at such time) or applicable law from the date hereof until the Date of Conversion, then Subscriber, at its option, may require the Company immediately to either (i) redeem the Debentures submitted for conversion at the redemption price determined under Section 5(a)(i) of the Debentures or (ii) demand (without any other Subscriber's participation) that the Company file a registration statement under the Act covering the registration of the Common Stock which has been issued with such restrictive legend and the Common Stock issuable upon conversion of such Subscriber's remaining Debentures then outstanding pursuant to the terms of the Registration Rights Agreement; provided, however, that nothing hereunder shall affect any other Subscriber's rights under the terms of the Registration Rights Agreement. (c) Issuance of Additional Shares. In the event that the applicable Conversion Price, as that term is defined in the Debenture (the "Resubmission Conversion Price") for (i) the date that such registration statement demanded under Section 4.3(b) above becomes effective, or (ii) the date that the Company reissues and delivers to Subscriber such Shares without restrictive legend, whichever is earlier (the "Resubmission Date"), is less than the applicable Conversion Price on the date that the Subscriber initially submitted such Debentures for conversion, then the Company shall issue additional Shares of Common Stock to Subscriber equal in number to the difference between the number of Shares initially issued upon conversion and the number of Shares to which the Subscriber would have been entitled had the Resubmission Conversion Price been in effect on such Resubmission Date. (d) Payment for Failure to Register. The Company shall pay to a Subscriber who has demanded registration under Section 4.3(b) an amount equal to five percent (5%) per month of the aggregate principal amount of such Subscriber's Debentures which were outstanding immediately prior to the delivery of the Notice of Conversion contemplated under Section 4.3(a), compounded monthly and accruing daily, payable in cash by the fifth (5th) day of the month following such demand and the fifth (5th) day of each 8 month thereafter that (i) a registration statement demanded under Section 4.3(b) is not effective, or (ii) the Company has not re- issued and delivered to Subscriber Shares without a restrictive legend, whichever is earlier. 4.4 The Company's Instructions to Transfer Agent. The Company will issue -------------------------------------------- to its Transfer Agent an irrevocable instruction letter (the "Irrevocable Instructions to Transfer Agent") substantially in the form of Exhibit D to convert the Subscriber's Debentures to Common --------- Stock (in accordance with the Debenture and so long as Section 4.3 is complied with, free of any restrictive legend) upon receipt of a valid Notice of Conversion from a Subscriber and the original Debentures, and such other documents as are required by this Agreement or the Debenture. The Company covenants and agrees that, in the event the Company's agency relationship with its Transfer Agent should be terminated for any reason prior to a date which is three (3) years after the Last Closing, the Company shall immediately appoint a new transfer agent, and shall require that such transfer agent execute, and agree to be bound by the terms of, the same Irrevocable Instructions to Transfer Agent. 5. Capital Raising Limitations; Rights of First Refusal. 5.1 Capital Raising Limitations. The Company shall not issue any debt or equity securities for cash in private capital raising transactions ("Future Offerings") for a period beginning on the date of the First Closing and ending one hundred twenty (120) days after the Last Closing without obtaining the prior written approval of Subscribers holding a majority of the purchase price of Debentures then outstanding. 5.2 Subscriber's 240 Day Right of First Refusal. The Company will not ------------------------------------------- conduct any Future Offerings for a period beginning on the date hereof and ending one hundred eighty (180) days after the Last Closing without delivering to the Subscriber, at least seven (7) days prior to the closing of such issuance, written notice describing the proposed issuance and the terms upon which such securities are being issued, and providing the Subscriber the option during such seven (7) day period to purchase the securities being offered in the Future Offerings on the same terms as contemplated by such Future Offerings and in the amount set forth below (the limitations referred to in this and the immediately preceding sentence are collectively referred to as the "Capital Raising Limitation"). 5.3 Amount of Subscriber's Right of First Refusal. The amount of --------------------------------------------- securities which a Subscriber is entitled to purchase in such a Future Offering shall be a number obtained by multiplying the aggregate amount of securities being offered in the Future Offering by a fraction, the numerator of which is the purchase price of the Debentures purchased by the Subscriber pursuant to this Agreement and the denominator of which is the aggregate dollar amount of Debentures placed in this Offering. 5.4 Exceptions to the Capital Raising Limitation. The Capital Raising -------------------------------------------- Limitation shall not apply to any transaction involving the Company's commercial banking arrangements or issuances of securities in connection with a merger, consolidation or purchase or sale of assets, or in connection with or as part of the same transaction as a joint venture or other acquisition or disposition of a business, a product or a license by the Company or exercise of options by employees, consultants or directors or any transaction with a strategic corporate partner. The Capital Raising Limitation also shall not apply to the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date of the Last Closing, or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option, or restricted stock plan. Additionally, 9 the Capital Raising Limitation shall not apply to any public offerings undertaken by the Company. Also, the Capital Raising Limitation shall not apply to any corporation which acquires the Company or any corporation into the Company is merged if the Company is not the surviving corporation. 6. Representations and Warranties of Company. The Company hereby makes the following representations and warranties to the Subscribers (which shall be true at the signing of this Agreement and as of any Closing date) and agrees with the Subscribers that: 6.1 Organization, Good Standing, and Qualification. The Company is a ---------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of state of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the business or properties of the Company and its subsidiaries taken as a whole. The Company is not the subject of any pending or, to its knowledge, threatened investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, or the Securities and Exchange Commission which have not been disclosed in the reports referred to in Section 2.2 above. 6.2 Corporate Condition. The Company's condition was, in all material ------------------- respects, as described in the Disclosure Documents at the respective dates thereof, including without limitation the reports filed pursuant to the Exchange Act and described in Section 2.2. There has been no material adverse change in the Company's business, financial condition or prospects since December 31, 1995. The Disclosure Documents are true and correct, in all material respects, and the financial statements contained in the Disclosure Documents have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present the financial position and results of operation and cash flows of the Company on a consolidated basis, for the periods then ended. Without limiting the foregoing, there are no material liabilities, contingent or actual, that are not disclosed in the Disclosure Documents. The Company has paid all material taxes which are due, except for taxes which it reasonably disputes. There is no material claim, litigation, or administrative proceeding pending, or to the best of the Company's knowledge, threatened against the Company, except as disclosed in the Disclosure Documents. This Agreement and the Disclosure Documents do not contain any untrue statement of a material fact and do not omit to state any material fact required to be stated therein or herein necessary to make statements contained therein or herein not misleading in the light of the circumstances under which they were made. 6.3 Authorization. All corporate action on the part of the Company by its ------------- officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the Registration Rights Agreement, the Irrevocable Instructions to Transfer Agent, the Escrow Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Debentures being sold hereunder and issuance (and reservation for issuance) of the Common Stock obtainable on conversion of the Debentures have been taken, and this Agreement, the Registration Rights Agreement, the Irrevocable Instructions to Transfer Agent, and the Escrow Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms. The Company has obtained all consents and approvals required for it to execute, deliver, and perform this Agreement. The Company is not in violation of or default under 10 any provisions of its Articles of Incorporation or By-laws, as amended and in effect on and as of the date of this Agreement, or of any material provision of any instrument or contract to which it is a party or by which it is bound or of any material provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company except where such violation, default and/or conflict would have no material adverse affect on the Company's business prospects or financial condition, or on the transaction contemplated herein. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation 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, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 6.4 Valid Issuance of Securities. The Debentures, when issued, sold and ---------------------------- delivered in accordance with the terms hereof for the consideration expressed herein, will be validly issued and binding obligations of the Company, enforceable in accordance with their terms, and, based in part upon the representations of the Subscriber in this Agreement, will be issued in compliance with all applicable U.S. federal and state securities laws. The Common Stock issuable upon conversion of the Debentures, when issued in accordance with the terms of the Debentures, shall be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of Subscriber of the Debentures, will be issued in compliance with all applicable U.S. federal securities laws and State Acts. The Shares will be issued free of any preemptive right. The Company currently has at least Four Million (4,000,000) shares reserved for issuance upon conversion of the Debentures. 6.5 Current Public Information. The Company represents and warrants to -------------------------- the Subscriber that the Company is a "reporting issuer" as defined in Rule 902(l) of Regulation S and it has a class of securities registered under Section 12(b) or 12(g) of the Exchange Act or is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for a period of at least twelve (12) months preceding the date hereof (or for such shorter period as the Company was required by law to file such material), and all such filings have been made on a timely basis. The Company undertakes to furnish the Subscriber with copies of such information as may be reasonably requested by the Subscriber prior to consummation of this Offering. 6.6 No Securities Offered in U.S. or to any U.S. Person. The Company --------------------------------------------------- represents that it has not offered the Debentures to the Subscriber in the U.S. or to any person in the United States or any U.S. person (as defined in Regulation S) unless such U.S. person is a professional fiduciary of a non-U.S. person (as defined in Section (o) (2) through (o) (4) of rule 902 of Regulation S). 6.7 No Directed Selling Efforts in Regard to this Transaction. The --------------------------------------------------------- Company, nor any person acting for the Company, Placement Agent or any such distributor, has conducted any "directed selling efforts" in the United States, as the term "directed selling efforts" is defined in Rule 902(b) of Regulation S, which in general, means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Securities being offered in reliance upon Regulation S. Such activity includes, without limitation, the mailing of printed material to investors residing in the United States, the holding of promotional seminars in the United States, and the placement of advertisements with radio or television stations broadcasting in the United States or in 11 publications with a general circulation in the United States, that refers to the offering of the Securities. 6.8 Capitalization Structure of the Company. The capitalization of the --------------------------------------- Company, as of the date of the Closing, after giving effect to the issuances of the Securities in this Offering, is as set forth in Exhibit G. --------- 6.9 Termination Date of Offering. In no event shall the Last Closing of a ---------------------------- sale of a Debenture occur later than June 21, 1996, which date can be extended by up to ten (10) days upon written approval by the Company and the Placement Agent. 6.10 Use of Proceeds. As of the date hereof, the Company expects to use --------------- the proceeds from this Offering (less fees and expenses) for the purposes and in the approximate amounts as set forth in Exhibit H --------- hereto. These purposes and amounts are estimates and are subject to change. 6.11 Underwriter's Fees and Rights of First Refusal. The Company is not ----------------------------------------------- obligated to pay any compensation or other fees, costs, or related expenditures in cash or securities to any underwriter, broker, agent or other representative other than the Placement Agent in connection with this Offering. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties. 7. Covenants of Company. 7.1 Independent Auditors. The Company shall, until at least three (3) -------------------- years after the date of the Last Closing, maintain as its independent auditors an accounting firm authorized to practice before the Commission. 7.2 Corporate Existence and Taxes. The Company shall, until at least the ----------------------------- earlier of three (3) years after the date of the Last Closing or the conversion or redemption of all the Debentures purchased pursuant to this Agreement maintain its corporate existence in good standing (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization as long as the surviving entity in such transaction, if not the Company, assumes the Company's obligations with respect to the Debentures) and shall pay all its material taxes when due except for taxes which the Company reasonably disputes. 7.3 Opinion of Counsel. Subscriber shall, upon purchase of the ------------------ Debentures, receive an opinion letter from outside counsel to the Company, substantially in the form attached hereto as Exhibit C, to --------- the effect that (i) the Company is duly incorporated and validly existing under the laws of the state of Delaware; (ii) this Agreement, the Registration Rights Agreement, the Irrevocable Instructions to Transfer Agent, the Escrow Agreement, the issuance of the Debentures, and the issuance of the Common Stock upon conversion of the Debentures (and the reservation of a sufficient number of shares of Common Stock into which the Debentures can be converted) have been duly authorized by all required corporate action, and that all such Shares, upon delivery, shall be validly issued and outstanding, fully paid and nonassessable; (iii) this Agreement, the Registration Rights Agreement, the Irrevocable Instructions to Transfer Agent and the Escrow Agreement constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except as enforceability of any indemnification provisions may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of laws governing specific performance and other equitable 12 remedies; (iv) based upon the representations and warranties of the Subscribers contained in the Regulation S Subscription Agreements entered into in connection with the Offering, the issuance of the Debentures and the issuance of the Shares upon conversion of the Debentures in accordance with their terms by the Subscriber (assuming that no commission or other remuneration is paid or given, directly or indirectly, for soliciting such conversion) will not be subject to the registration provisions of the Act; and (v) the execution, delivery and performance of this Agreement and the other agreements entered into in connection herewith, does not conflict with or result in a breach of the Company's Articles of Incorporation, By- laws, or any material agreement to which the Company is a party or by which its property is bound or any judgment, or decree to which it is subject. 7.4 Registration Rights. The Company will grant Subscriber the ------------------- registration rights covering the Common Stock issuable on conversion of the Debentures on the terms of the Registration Rights Agreement substantially in the form attached hereto as Exhibit B. --------- 7.5 Notification of Final Closing Date & Restricted Period by Company. ----------------------------------------------------------------- Within five (5) business days after the Last Closing, the Company shall notify the Subscriber in writing that the Last Closing has occurred, the date of the Last Closing, the date upon which the forty (40) day Restricted Period will terminate with respect to the Securities, the dates that the subscribers are entitled to convert the respective portions of their Debentures, the value of the Fixed Conversion Price, as that term is defined in the Debenture, and the name and telephone number of an administrative contact person at the Company whom the Subscriber may contact regarding information related to conversion of the Debenture and/or advance notice of redemption as contemplated by the Debenture. 7.6 Payments for Late Conversion or Failure to Reserve Authorized but ----------------------------------------------------------------- Unissued Common Stock. --------------------- (a) Payments for Late Conversion. As set forth in the Debenture, the Company shall use its best efforts to issue and deliver, within two (2) business days after the Subscriber has fulfilled all conditions and submitted all necessary documents duly executed and in the proper form required for conversion (the "Deadline") (including the original Debenture(s)), to such Holder of Debentures at the address of the Holder on the books of the Company, a certificate or certificates for the number of Shares of Common Stock to which the Holder shall be entitled upon submission of a notice of conversion. The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Deadline could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments to the Holder for late issuance of Shares upon Conversion in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond five (5) business days from the date of receipt by the Company of a notice of conversion and the Transfer Agent of all necessary documentation duly executed and in proper form required for conversion, including the original Debentures to be converted, all in accordance with the subscription documents): Late Payment For Each $10,000 Of Debenture Principal No. Business Days Late Amount Being Converted ---------------------- ---------------------- 13
1 $50 2 $100 3 $150 4 $200 5 $250 6 $300 7 $350 8 $400 9 $450 10 $500 >10 $500 + $100 for each Business Day Late beyond 10 days
To the extent that the failure of the Company to issue the Common Stock pursuant to this Section 7.6 is due to the unavailability of authorized but unissued shares of Common Stock, the provisions of this Section 7.6(a) shall not apply but instead the provisions of Section 7.6(b) shall apply. The Company shall pay any payments incurred under this Section 7.6(a) inimmediately available funds within three (3) business days from the date of issuance of the applicable Common Stock. Nothing herein shall limit a Holder's right to pursue actual damages for the Company's failure to issue and deliver Common Stock to the Holder pursuant to the terms of the Debenture. (b) Payments for Failure to Reserve Authorized but Unissued Common Stock. If, at any time a Holder of Debentures submits a Notice of Conversion (as defined in the Debenture) and the Company does not have sufficient authorized but unissued shares of Common Stock available to effect, in full, a conversion of the Debentures under Section 4 of the Debenture (a "Conversion Default", the date of such default being referred to herein as the "Conversion Default Date"), the Company shall issue to the Holder all of the shares of Common Stock which are available, and the Notice of Conversion as to any Debentures requested to be converted but not converted (the "Unconverted Debentures") shall become null and void. The Company shall provide notice of such Conversion Default ("Notice of Conversion Default") to all Holders of outstanding Debentures, by facsimile, within one (1) business day of such default (with the original delivered by overnight or two (2) day courier). No Holder may submit a Notice of Conversion after receipt of a Notice of Conversion Default until the date additional shares of Common Stock are authorized by the Company. The Company agrees to pay to all Holders of outstanding Debentures payments for a Conversion Default ("Conversion Default Payments") in the amount of (N/365) x (.24) x the initial issuance price of the outstanding Debentures held by each Holder where N = the number of days from the Conversion Default Date to the date (the "Authorization Date") that the Company authorizes a sufficient number of shares of Common Stock to effect conversion of all remaining Debentures. The Company shall send notice ("Authorization Notice") to each Holder of outstanding Debentures, by facsimile, within one (1) business day after the Authorization Date (with the original delivered by overnight or two (2) day courier) that additional shares of Common Stock have been authorized, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default shall be paid in cash or shall be convertible into Common 14 Stock at the Conversion Rate (as that term is defined in the Debenture), at the Holder's option, payable as follows: (i) in the event Holder elects to take such payment in cash, cash payments shall be made to each Holder of outstanding Debentures by the fifth (5th) day of the following calendar month, or (ii) in the event Holder elects to take such payment in stock, the Holder may convert such payment amount into Common Stock at the Conversion Rate at any time after the fifth (5th) day of the calendar month following the month the Authorization Notice was received, until the automatic conversion date set forth in the Debenture. The Company will use its best effort to increase the number of authorized shares as soon as practicable following the Conversion Default. Nothing herein shall limit the Subscriber's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock. 7.7 Listing. The Company shall maintain the listing of the shares of ------- Common Stock on NASDAQ-Small Cap Market or National Market System or another national securities exchange or quotation system. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of California, U.S.A. applicable to agreements made in and wholly to be performed in that jurisdiction, except for matters arising under the Act or the Exchange Act which matters shall be construed and interpreted in accordance with such laws. Any action brought to enforce, or otherwise arising out of, this Agreement shall be heard and determined only in either a federal or state court sitting in the County of San Mateo in the State of California, U.S.A. 9. Entire Agreement; Written Amendments Required This Agreement, the Debentures, the Registration Rights Agreement the Irrevocable Instructions to Transfer Agent, the Escrow Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 10. Written Notices, Etc. Any notice, demand or request required or permitted to be given by either the Company or the Subscriber pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally, or by facsimile (with a hard copy to follow by either overnight or two (2) day courier), addressed to the parties at the addresses and/or facsimile telephone number of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. 11. Execution in Counterparts Permitted This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument. 15 12. Representations and Warranties Survive the Closing; Agreement is Severable. The Subscriber's and the Company's representations and warranties shall survive the closing of the transaction notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 13. Titles and Subtitles; Gender. 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. The use in this Agreement of a masculine, feminine or neuter pronoun shall be deemed to include a reference to the others. 14. Exact Registered Name of Security Holder; Offshore Delivery Instructions. Subscriber agrees to provide Company with the exact name in which he, she or it wishes the Securities to be registered by providing that information on the accompanying signature page of this Agreement. Additionally, Subscriber also agrees to provide Company with detailed delivery instructions to an offshore addressee and will also provide that information on the accompanying signature page of this Agreement. 15. Subscriber to Forward Original Signed Subscription Agreement to Company. Subscriber agrees to courier to Company his, her or its original inked signed Subscription Agreement within two (2) days after faxing said signed agreement to the Placement Agent. 16. Limitations on Assignment of this Agreement. Neither party to this Agreement may assign this Agreement without the written consent of the other (which may be withheld for any reason); provided, however, that Subscriber may assign its rights to any accredited investor who is a non-U.S. person controlled by, controlling or under common control with the Subscribers or to any other accredited investor who is a non-U.S. person to which it transfers Securities. Further, this provision does not limit the Subscriber's right to transfer the Securities pursuant to the terms of the Debenture and this Agreement. 17. Subscription and Wiring Instructions; Irrevocability. (a) Subscriber shall send its signed Subscription Agreement by facsimile to Placement Agent at (770) 640-7150, and shall send its subscription funds by wire transfer, to the Escrow Agent as follows: 16 First Union National Bank of Georgia Attn: Rick Schaal Corporate Trust Administration 999 Peachtree Street, N.E., Suite 1100 Atlanta, Georgia 30309 Fax: 404-827-7305 First Union National Bank ABA #: 053000219 Acct. #: 465946 Attn: Claire Moore Ref. Account Name: Blyth Holdings, Inc./Swartz Investments, LLC ACCT: 3072233112 Contact: Nicole Stefanini Phone: 404-827-7326 SWIFT Code: FUNBUS33 (b) The Subscriber hereby acknowledges and agrees, subject to the provisions of any applicable laws providing for the refund of subscription amounts submitted by the Subscriber, that this Agreement is irrevocable and that the Subscriber is not entitled to cancel, terminate or revoke this Agreement; provided, however, that if the conditions to Closing are not satisfied prior to the termination date of this offering as determined in accordance with Section 6.9 or if the Disclosure Documents are discovered prior to Closing to contain statements which are materially inaccurate, or omit statements of material fact, the Subscriber may revoke or cancel this Agreement. (c) This Agreement shall be accepted by the Company when the Company countersigns this Agreement. The Subscriber hereby confirms that the Company has full right in its sole discretion to accept or reject the subscription of the Subscriber, in whole or in part, provided that, if the Company decides to reject such subscription, the Company must do so promptly and in writing. In the case of rejection, the Company will promptly return any rejected payments (together with any interest earned on such rejected funds in the Escrow account) and (if rejected in whole) copies of all executed subscription documents (including without limitation this Agreement) to Subscriber. 18. Indemnification. The Company shall indemnify and hold harmless the Subscriber and the Placement Agent and each of their officers, directors, employees, partners, control persons and agents (a "Subscriber Indemnified Party") who is or may be a party to any threatened, pending, or completed action, suit or proceeding of any kind, against any losses, damages, liabilities and expenses (including reasonable attorneys fees) suffered or incurred by a Subscriber Indemnified Party and not otherwise reimbursed, arising from or due to any representation or warranty made by the Company contained in this Agreement or contained in the Disclosure Documents that is determined to be a misstatement of applicable facts or omission to state applicable facts in connection with the Offering. The Subscriber shall indemnify and hold harmless the Company and the Placement Agent and each of their officers, directors, employees, partners, control persons and agents (a "Company Indemnified Party") who is or may be a party to any threatened, pending, or completed action, suit or proceeding of any kind, against any losses, damages, liabilities and expenses (including reasonable attorneys fees) suffered or incurred by a Company Indemnified Party and not otherwise reimbursed, arising from or due to any representation or warranty made by the Subscriber contained in this 17 Agreement that is determined to be a misstatement of applicable facts or omission to state applicable facts in connection with the Offering. [Intentionally Left Blank] 18 19. Amount The undersigned hereby subscribes for _________________________ principal amount of Debentures, and pays herewith funds in the amount of ________________________ U.S. Dollars ($______________U.S.) on the terms and conditions of this Agreement. The undersigned acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below. Dated this _____ day of ___________, 1996. __________________________________ _______________________________________ Your Signature EXACT NAME IN WHICH YOU WANT THE SECURITIES TO BE REGISTERED (Please Print Exact Registered Name) ----- OFFSHORE DELIVERY INSTRUCTIONS: __________________________________ _______________________________________ Name: Please Print Please type or print address where your security is to be delivered. ATTN: _________________________________ ___________________________________ _______________________________________ Title/Representative Capacity Street Address (if applicable) ___________________________________ _______________________________________ Name of Company You Represent Street Address (if applicable) ___________________________________ _______________________________________ Place of Execution of this City, State or Province, Country Agreement _______________________________________ Offshore Postal Code _________________________________ Phone Number (For Federal Express) _________________________________ Facsimile Number (re: Notice) THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ____ DAY OF ________________ 1996. BLYTH HOLDINGS, INC. By:_________________________________ (Signature) Print Name: __________________________ Title: _______________________________ 19 BLYTH HOLDINGS, INC. FIDUCIARY, ADMINISTRATOR, EXECUTOR OR TRUSTEE CERTIFICATE --------------------------------------------------------- Nature of Signatory. The signatory to this Agreement hereby represents and ------------------- warrants that he, she or it is a professional fiduciary of Subscriber (as described in Section (o)(2) through (o)(4) of Rule 902 of Regulation S), acting solely in his capacity as holder of such account, in which case: (i) the Subscriber is not a U.S. person (as defined in Regulation S); and (ii) either (sign either A, B or C, as applicable): A. The account for which the Securities are being purchased by Subscriber is a discretionary account or similar account (other than an estate or trust) which the undersigned manages and holds for the benefit or account of Subscriber and the Subscriber is not located in the U.S. at the time of signing this Agreement; ________________________ (signature) OR B. The account for which the Securities are being purchased by Subscriber is the account of an estate of which the undersigned acts as executor or administrator, provided that an executor or administrator of the estate who is not a U.S. person (as defined in Regulation S) has sole or shared investment discretion with respect to the assets of the estate, and the estate is governed by foreign law and provided further that the Subscriber is not located in the U.S. at the time of signing this Agreement; ________________________ (signature) OR C. The account for which the securities are being purchased by Subscriber is the account of a trust of which the undersigned acts as trustee, provided that the undersigned, who is not a U.S. person (as defined in Regulation S), has sole or shared investment discretion with respect to the trust assets, and no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person (as defined in Regulation S) and provided further that the Subscriber is not located in the U.S. at the time of signing this Agreement. __________________________ (signature) ______________________________ _________________________________________ Print Your Name Person or Entity for Whom You are Signing 20 EXHIBIT J 21 NOTICE OF CONVERSION AND RESALE BLYTH HOLDINGS, INC. (To be Executed by the Registered Holder in order to Convert the Debentures) The undersigned hereby irrevocably elects to convert Debentures into shares of common stock ("Common Stock") of Blyth Holdings, Inc. (the "Company") according to the conditions of the Debenture, as of the date written below in connection with the resale of the underlying Common Stock. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Debentures shall be made in compliance with Regulation S, pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act") or pursuant to an exemption from registration under the Act, subject to any restrictions on sale or transfer set forth in the Subscription Agreement between the Company and the original holder of the Debentures submitted herewith for conversion. The undersigned hereby confirms that its representations and warranties contained within the Subscription Agreement between the undersigned and the Company are true and correct as of the date of this Notice (including but not limited to the fact that the undersigned is not an underwriter, dealer or other person who participates pursuant to a contractual arrangement in the distribution of the Securities offered or sold in reliance on Regulation S), or, if the undersigned is not the original Subscriber of the Debentures being converted, the undersigned hereby confirms and reaffirms its representations contained in the Purchaser Representation Letter which it executed in conjunction with purchasing the Debentures. Date of Conversion:_________________ Applicable Conversion Price:___________ Signature:__________________________ Name:_____________________________ Address: ___________________________ * No shares of Common Stock will be issued until the original Debenture(s) to be converted and the Notice of Conversion are received by the Company or its Transfer Agent. The Holder shall (i) fax, on or prior to 11:59 p.m., New York City time, on the date of conversion, a copy of this completed and fully executed Notice of Conversion to the Company at the office of the Company or its designated Transfer Agent for the Debenture(s) that the Holder elects to convert and (ii) surrender, to a common courier for delivery to the office of the Company or the Transfer Agent, the original Debenture(s) representing the Debenture(s) being converted. The Company or its Transfer Agent shall use its best efforts to issue shares of Common Stock and surrender them to a common courier for delivery to the Debenture Holder no later than two (2) business days following receipt of a facsimile of this Notice of Conversion and receipt by the --- Company or its Transfer Agent of the Debenture(s) to be converted and any other required documents, pursuant to the terms of the Debenture(s) and the Subscription Agreement, and shall make payments for the number of business days such issuance and delivery is late, pursuant to the terms of the Subscription Agreement. 22 EXHIBIT R 23 EX-10.27 3 FORM OF 8% CONVERTIBLE DEBENTURE Exhibit 10.27 (Page 1 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE (COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. No. ____ $50,000.00 U.S. BLYTH HOLDINGS, INC. 8% CONVERTIBLE DEBENTURE DUE JUNE 3, 1999 THIS DEBENTURE is one of a duly authorized issue of Debentures of Blyth Holdings, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), designated as its 8% Convertible Debentures due June 3, 1999, in an aggregate principal amount not exceeding Seven Million Three Hundred Fifty Thousand Dollars, U.S. ($7,350,000 U.S.) (the "Debentures"). FOR VALUE RECEIVED, the Company promises to pay to ______________________________, or any subsequent registered holder hereof (the "Holder"), the principal sum of Fifty Thousand Dollars ($50,000.00 U.S.), on or prior to June 3, 1999 (the "Maturity Date"), and (continued on reverse) IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized. Blyth Holdings, Inc. 1 (Page 2 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) Dated: June 3, 1996 By:________________________________________________ Michael Minor, Chairman and Chief Executive Officer 2 (Page 3 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) to pay interest on the principal sum outstanding in arrears on the earlier of the Date of Conversion (as defined in Section 4(c)(iv)below) or the Maturity Date, at the rate of eight percent (8%) per annum. Accrual of interest on this Debenture shall commence on the date that, in connection with the consummation of the initial purchase of this Debenture from the Company, the escrow agent first had in its possession funds representing full payment for this Debenture, and shall continue to accrue until payment in full of the principal sum has been made or duly provided for, or until the Date of Conversion, whichever is earlier. The interest so payable will be paid on the Maturity Date or the Date of Conversion, as the case may be. Such interest shall be paid to the person and at the address in whose name this Debenture is registered on the records of the Company regarding registration and transfers of the Debentures (the "Debenture Register") on the business day immediately preceding the payment date. The principal of, and interest on, this Debenture are payable, if converted, in shares of Common Stock, or if redeemed, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, to the person and at the address in whose name this Debenture is registered on the Debenture Register on the business day immediately preceding the payment date. The forwarding of such payment shall constitute a payment of interest hereunder and shall satisfy and discharge the liability for principal and interest on this Debenture to the extent of the sum or Common Shares so paid. This Debenture is subject to the following additional provisions: Section 1. Debenture Denominations. The Debentures are initially issuable in ----------------------- denominations of at least Fifty Thousand Dollars ($50,000 U.S.) and integral multiples of Ten Thousand Dollars ($10,000 U.S.) in excess thereof. Upon conversion of a portion, but less than all, of this Debenture in accordance with the terms hereof, a new debenture or debentures may be issued to the Holder in a denomination equal to the exact amount of the unconverted portion of this Debenture. No service charge will be made for registration of transfer or exchange. Section 2. Withholding. The Company shall be entitled to withhold from all ----------- payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax laws, or other applicable laws, at the time of such payments. Holder shall, prior to any transfer hereof, deliver to the Company a completed form W-8 for such transferee. The Holder shall pay any other taxes, charges, or levies in connection with the issuance or transfer thereof. Section 3. Sale, Transfer or Exchange. This Debenture has been issued based -------------------------- upon investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Act, including Regulation S and any applicable state securities laws ("State Acts"). Any Holder of this Debenture, by acceptance hereof, agrees to the representations, warranties and covenants herein. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. Section 4. Conversion. The record Holder of this Debenture shall have ---------- conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Rate. The record Holder of this Debenture shall be entitled to convert, subject to the Company's right of redemption set forth in Section 5(a), (x) up to one-third (1/3) of the Debenture(s) (measured by the aggregate principal amount) initially issued to such Holder beginning forty five (45) days following the date of the last closing of a purchase and sale of Debentures that occurs pursuant to the offering of the Debentures by the Company (the "Last Closing Date") and at any time thereafter; (y) an additional one-third (1/3) of the Debenture(s) (measured by the aggregate principal amount) initially issued to such Holder beginning seventy five (75) days following the Last Closing Date and at any time thereafter; and (z) all remaining Debentures beginning one hundred five (105) days following the Last Closing Date (each of the time periods referenced in subclause (x), (y) and (z) is hereinafter referred to singularly as a "Conversion Gate"), at the office of the Company or its designated transfer agent for the Debentures (the "Transfer Agent"), into that number of fully-paid and non-assessable shares of Common Stock of the Company calculated in 3 (Page 4 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) accordance with the following formula (the "Conversion Rate"): Number of shares issued upon conversion = (Principal + Interest)/Conversion Price, where . Principal = The principal amount of the Debenture(s) to be converted, . Interest = Principal x (N/365) x .08, where . N = the number of days between (i) the date that, in connection with the consummation of the initial purchase of this Debenture from the Company, the escrow agent first had in its possession funds representing full payment for this Debenture, and (ii) the applicable Date of Conversion for the Debenture(s) for which conversion is being elected, and . Conversion Price = the lesser of (x) $3.75 (the "Fixed Conversion Price"), or (y) 85% of the average Closing Bid Price, as that term is defined below, of the Company's Common Stock for the five (5) trading days immediately preceding the Date of Conversion, as defined below (the "Variable Conversion Price"). For purposes hereof, the term "Closing Bid Price" shall mean the closing bid price on the over-the-counter market as reported by NASDAQ's National Market System or Small Capitalization System ("NASDAQ"), or if then traded on a different national securities exchange, the closing sales price on the principal national securities exchange on which it is so traded and if not available, the mean of the daily high and low sales prices on such securities exchange on which it is so traded, or, if the actual Closing Bid Price is not available on any such day on NASDAQ or such other exchange or market where traded, then the Closing Bid Price on the immediately preceding reported date. (b) Conversion at Market Price. Notwithstanding the limitations on conversion set forth above, the record Holder of this Debenture shall be entitled to convert, subject to the Company's right of redemption set forth in section 5(a), the Debentures in whole or in part prior to the applicable Conversion Gate (but no earlier than forty-five (45) days following the Last Closing Date), at the office of the Transfer Agent, into that number of fully- paid and non-assessable shares of Common Stock of Company calculated in accordance with the Conversion Rate set forth above; provided, however, that, for purposes of the conversion pursuant to this subsection 4(b), the Conversion Price shall equal the average of the Closing Bid Price of the Company's Common Stock on the five (5) trading days immediately preceding the Date of Conversion. (c) Mechanics of Conversion. In order to convert the Debentures into full shares of Common Stock, the Holder shall (i) fax a copy of the fully executed notice of conversion ("Notice of Conversion") to the Company at the office of the Company or the Transfer Agent, which notice shall specify the principal amount of Debentures to be converted and shall contain a calculation of the Conversion Rate (together with a copy of the first page of each Debenture to be converted) on or prior to 5:30 p.m., San Francisco, California time (the "Conversion Notice Deadline") on the Date of Conversion specified on the Notice of Conversion and (ii) surrender the original Debenture(s) being converted to a common courier for delivery to the office of the Company or the Transfer Agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless either the original Debentures are delivered to the Company or the Transfer Agent as provided above, or the Holder notifies the Company or the Transfer Agent that such Debenture(s) have been lost, stolen or destroyed. Upon receipt by Company of a facsimile copy of a Notice of Conversion, Company shall immediately send, via facsimile, confirmation of receipt of the Notice of Conversion to Holder which shall specify that the Notice of Conversion has been received and the name of a contact person at the Company whom the Holder should contact regarding information related to the conversion. In the case of a dispute as to the calculation of the Conversion Rate, the Company shall promptly issue the number of Shares that are not disputed. Company shall submit the disputed calculations to its outside accountant via facsimile within three (3) days of receipt of Holder's Notice of Conversion. The Company shall cause the accountant to perform the calculations and notify Company and Holder of the results no later than forty-eight (48) hours from the time such Accountant receives the disputed calculations. Accountant's calculation shall be deemed conclusive absent manifest error. (i) Lost or Stolen Debentures. Upon receipt by the Company of evidence of the loss, 4 (Page 5 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) theft, destruction or mutilation of this Debenture, and (in the case of loss, theft or destruction) indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of the Debentures, if mutilated, the Company shall execute and deliver new Debenture(s) of like tenor and date. (ii) Delivery of Common Stock upon Conversion. The Transfer Agent or the Company (as applicable) shall, no later than the close of business on the second (2nd) business day after delivery to the Transfer Agent or the Company (as applicable) of the Debenture(s) to be converted (or after provision for security or indemnification, if required), issue a certificate for the number of shares of Common Stock to which the Holder shall be entitled as aforesaid and surrender such original Common Stock certificates to a common courier for either overnight or (if delivery is outside the United States) two (2) business day delivery to the Holder at the address of the Holder on the books of the Company. (iii) No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Debenture. If any conversion of the Debenture would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional shares, on an aggregate basis, shall be disregarded and the number of shares of Common Stock issuable upon conversion shall be, on an aggregate basis, the next lower number of whole shares. (iv) Date of Conversion. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is faxed to the Company on or before 11:59 p.m., New York City time, on the Date of Conversion, and (ii) that the original Debentures to be converted are surrendered by depositing such Debentures with a common courier, as provided above, and received by the Transfer Agent or the Company within five (5) business days from the Date of Conversion. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Date of Conversion. If the original Debentures to be converted are not received by the Transfer Agent or the Company within five (5) business days after the Date of Conversion or if the facsimile of the Notice of Conversion is not received by the Company or the Transfer Agent prior to the Conversion Notice Deadline, the Notice of Conversion, at the Company's option, may be declared null and void. (d) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Debentures, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding Debentures; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding Debentures, the Company will immediately take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (e) Automatic Conversion. Each of the Debentures that remains issued and outstanding on the date which is three (3) years after the first closing date on which such Debenture or part thereof was first issued automatically shall be converted into Common Stock on such date at the Conversion Rate then in effect (calculated in accordance with the formula in Section 4(a) above), and the date which is three (3) years after the first closing date on which such Debenture or part thereof was first issued shall be deemed the Date of Conversion with respect to such conversion. (f) Adjustment to Conversion Price. (i) Adjustment to Fixed Conversion Price Due to Stock Split, Stock Dividend, Etc. If at any time when the Debentures are issued and outstanding, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, or other similar event, the Fixed Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a combination or reclassification of shares, or other similar event, the Fixed Conversion Price shall be proportionately increased. (ii) Adjustment to Variable Conversion Price. If, at any time when Debentures are issued and outstanding, the number of outstanding shares of Common Stock is increased or decreased by a stock split, stock dividend, or other similar event, which event shall have taken place during the reference period for determination of the 5 (Page 6 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) Conversion Price for any conversion of the Debentures, then the Variable Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event for each day during such reference period beginning with the effective date of such stock split, stock dividend or other similar event. (iii) Adjustment Due to Merger, Consolidation, Etc. If at any time when the Debentures are issued and outstanding, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity or there is a sale of all or substantially all the Company's assets, then the holders of the Debentures shall thereafter have the right to receive upon conversion of the Debentures, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities and/or other assets which the holder would have been entitled to receive in such transaction had the Debentures been converted immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of the Debentures to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Debentures) shall thereafter be applicable, as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise hereof. The Company shall not effect any transaction described in this subsection 4(f)(iii) unless (a) it first gives notice fifteen (15) business days prior to the effective date of such merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event (during which time the Holder shall be entitled to convert its Debentures into Common Stock) and (b) the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation of the Company under the Debenture including this Section 4(f)(iii). Section 5. Redemption by Company. ---------------------- (a) Company's Right to Redeem upon Receipt of Notice of Conversion. If the Conversion Price of the Company's Common Stock is less than the Fixed Conversion Price (as defined in Section 4(a)), at the time of receipt of a Notice of Conversion pursuant to Section 4, the Company shall have the right, in its sole discretion, to redeem in whole or in part any Debentures submitted for conversion, immediately prior to and in lieu of conversion ("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to redeem some, but not all, of the Debentures submitted for conversion, the Company shall redeem from among the Debentures submitted by the various Holders for conversion on the applicable date, a pro-rata amount from each such Holder so submitting Debentures for conversion. (i) Redemption Price Upon Receipt of a Notice of Conversion. The redemption price for a redemption of this Debenture under this Section 5(a) shall be calculated in accordance with the following formula: (Principal + Interest) x Closing Bid Price on the Date of Conversion ------------------------------------------- Conversion Price For the purposes of the above formula, "Principal", "Interest", "Closing Bid Price", "Conversion Price" and "Date of Conversion" shall have the meanings set forth in Section 4. (ii) Mechanics of Redemption Upon Receipt of Notice of Conversion. The Company shall effect each such redemption by giving notice of its election to redeem, by facsimile within one (1) business day following receipt of a Notice of Conversion from a Holder, with a copy by overnight or two (2) business day courier, to (A) the Holder of Debentures submitted for conversion at the address and facsimile number of such Holder appearing in the Company's register for the Debentures, and (B) the Company's Transfer Agent. Such redemption notice shall indicate whether the Company will redeem all or part of the Debentures submitted for conversion and the applicable redemption price. (b) Company's Right to Redeem at Its Election. Upon giving at least thirty (30) business days prior written notice, at any time commencing one (1) year after the Last Closing Date, the Company shall have the right, in its sole discretion, to redeem ("Redemption at Company's Election"), from time to time, any or all of the Debentures; 6 (Page 7 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) provided that the Company shall only be entitled to redeem Debentures having an aggregate principal amount of at least One Million Five Hundred Thousand Dollars ($1,500,000) (or the amount outstanding if the aggregate principal amount of outstanding Debentures is less than One Million Five Hundred Thousand Dollars ($1,500,000.00)). If the Company elects to redeem some, but not all, of the Debentures, the Company shall redeem a pro-rata amount from each Holder of the Debentures. (i) Redemption Price At Company's Election. The "Redemption Price At Company's Election" shall be calculated as a percentage of Stated Value, as that term is defined below, of the Debentures redeemed pursuant to this Section 5(b), which percentage shall vary depending on the Date of Redemption at Company's Election (as that term is defined in subsection (ii) below), and shall be determined as follows:
Date of Redemption at Company's Election Call Price ---------------------------------------- ---------- 12 months and 1 day to 18 months following Last Closing Date 130% of Stated Value 18 months and 1 day to 24 months following Last Closing Date 125% of Stated Value 24 months and 1 day to 30 months following Last Closing Date 120% of Stated Value 30 months and 1 day to 36 months following the business day 115% of Stated Value immediately preceding the date which is three (3) years from the first closing date of which such Debenture or part thereof was issued.
For purposes hereof, "Stated Value" shall mean the original principal amount of the Debentures being redeemed, plus the unpaid interest being redeemed, pursuant to this Section 5(b). (ii) Mechanics of Redemption at Company's Election. The Company shall effect each such redemption by giving at least thirty (30) business days prior written notice ("Notice of Redemption at Company's Election"), which notice may be given on or after thirty (30) business days prior to one (1) year after the Last Closing Date, to (A) the Holders of the Debentures selected for redemption, at the address and facsimile number of such Holder appearing in the Company's register for the Debentures and (B) the Transfer Agent, which Notice of Redemption at Company's Election shall be deemed to have been delivered three (3) business days after the Company's mailing (by overnight or two (2) day courier, with a copy by facsimile) of such Notice of Redemption at Company's Election. Such Notice of Redemption at Company's Election shall indicate the number of Debentures that have been selected for redemption, the date which such redemption is to become effective (the "Date of Redemption at Company's Election") and the applicable Redemption Price at Company's Election, as defined in subsection (b)(i) above. Notwithstanding the above, Holder may convert into Common Stock pursuant to section 4, prior to the close of business on the Date of Redemption at Company's Election, any Debenture which it is otherwise entitled to convert, including those selected for Redemption at Company's Election pursuant to this subsection 5(b); provided, however, that the Company shall still be entitled to exercise its right to redeem upon receipt of a Notice of Conversion pursuant to section 5(a). (c) Company Must Have Immediately Available Funds or Credit Facilities. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure under either Section 5(a) or 5(b) unless it has: (i) the full amount of the applicable redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution; or (ii) immediately available credit facilities, in the full amount of the applicable redemption price with a bank or similar financial institution, or (iii) an agreement with a standby underwriter willing to purchase from the Company a sufficient number of shares of stock to provide proceeds necessary to redeem any stock that is not converted prior to redemption; or 7 (Page 8 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) (iv) a combination of the items set forth in (i), (ii) and (iii) above, in the aggregate, in the full amount of the redemption price. (d) Payment of Redemption Price. (i) Each holder submitting Debentures being redeemed under subsection (b) above shall send their Debentures so redeemed to the Company or the Transfer Agent, and the Company shall pay the applicable redemption price to that Holder within five (5) business days of the date of such receipt of the Debentures. The Company shall not be obligated to deliver the redemption price until the Debentures so redeemed are delivered to the Company or the Transfer Agent, or, in the event one (1) or more Debentures have been lost, stolen, mutilated or destroyed, until the Holder has complied with Section 4(c)(i). (ii) If Company elects to redeem pursuant to either Sections 5(a) or 5(b) hereof, and Company fails to pay Holder the redemption price within the time frame as required by this Section 5(d), then Company shall issue shares of Common Stock to any such Holder who has submitted a Notice of Conversion in compliance with Section 4(c) hereof. The shares to be issued to Holder pursuant to this provision shall be the number of shares determined using a Conversion Price (as defined in Section 5 hereof) that equals the lesser of (i) the Conversion Price on the date Holder sends its Notice of Conversion to Company or Transfer Agent via facsimile or (ii) the Conversion Price on the date the Transfer Agent issues Common Stock pursuant to this Section 5(d). (e) Blackout Period. Notwithstanding the foregoing, the Company may not either send out a redemption notice or effect a redemption pursuant to subsection (b) above during a Blackout Period (defined as a period during which the Company's officers or directors would not be entitled to buy or sell stock because of their holding of material non-public information), unless the Company shall first disclose the non-public information that resulted in the Blackout Period; provided, however, that no redemption shall be effected until at least fifteen (15) days after the Company shall have given the Holder written notice that the Blackout Period has been lifted. Section 6. Holder's Right to Advance Notice of Company's Election to Redeem. ---------------------------------------------------------------- (a) Holder's Right to Elect to Receive Notice of Cash Redemption by Company. Holder shall have the right to require Company to provide advance notice stating whether Company will elect to redeem Holder's Debentures in cash, pursuant to Company's redemption rights discussed in Section 5(a). (b) Mechanics of Holder's Election Notice. Holder shall send notice ("Election Notice") to Company and such other person(s) as the Company may designate, via facsimile, stating Holder's intention to require Company to disclose that if Holder were to exercise his, her or its right of conversion (pursuant to section 4) whether Company would elect to redeem a specific number of Holder's Debentures for cash in lieu of issuing Common Stock. Company is required to disclose to Holder what action Company would take if the Notice of Conversion is received within the subsequent five (5) business day period, including the date Company receives such Election Notice, as further discussed in subsection 6(c). (c) Company's Response. Upon receipt by the Company of a facsimile copy of an Election Notice, Company shall immediately send, via facsimile, a confirmation of receipt of the Election Notice to Holder, which shall specify that the Election Notice has been received and the name and telephone number of a contact person at the Company whom the Holder should contact regarding information related to the requested advance notice. Company must respond by the close of business on the next business day following receipt of Holder's Election Notice (1) via facsimile and (2) via overnight or two (2) day courier. The Company's response must state whether it would redeem the shares, in whole or in part, or allow conversion into shares without redemption. If Company does not respond to Holder within one (1) business day via facsimile and overnight or two (2) day courier, Company shall be required to issue to Holder Common Stock upon Holder's conversion within the subsequent five (5) business day period of Holder's Election Notice. However, if the Company's Common Stock price decreases so that under the Conversion Rate the Company would be required to issue more than an additional ten percent (10%) of shares of Common Stock than Holder was entitled to receive at the time Holder 8 (Page 9 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) sent Company its Election Notice, then Company shall no longer be bound to convert Holder's Preferred Stock into Common Stock, but may elect to redeem the Debentures for cash. Section 7. No Voting Rights. This Debenture shall not entitle the Holder ---------------- hereof to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company. Section 8. Protective Provision. So long as Debentures are outstanding, the -------------------- Company shall not, without first obtaining the approval (by vote or written consent, as provided by law) of both (i) the Holders of at least seventy-five percent (75%) of the aggregate principal amount of Debentures then outstanding, and (ii) seventy-five (75%) of the Holders of Debentures then outstanding, alter or change the rights, preferences or privileges of the Debentures or of any securities or debt instruments, senior in right of payment, so as to affect adversely the Debentures. Any Holders of the Debentures that did not agree to such alteration or change (the "Dissenting Holders") shall have the right for a period of thirty (30) business days to convert pursuant to the terms of this Debenture as they exist prior to such alteration or change (notwithstanding the Forty Five (45) day, Seventy Five (75) day, and One Hundred Five (105) day holding requirements set forth in Section 4(a) hereof), or continue to hold their Debentures; provided, however, that the Dissenting Holders may not convert anytime on or before the fortieth (40th) day following the Last Closing Date. Section 9. Status of Redeemed or Converted Debentures. After this Debenture ------------------------------------------ shall have been paid or surrendered for conversion as herein provided or notice of conversion shall have been given by the Holder pursuant to Section 4(a) herein (or redeemed pursuant to Section 5(a) or 5(b) herein), this Debenture shall no longer be deemed to be outstanding and all rights with respect to this Debenture, including, without limitation, the right to receive interest hereon and the principal hereof, shall forthwith terminate as of the Date of Conversion or the effective date of such redemption, except only the right of the Holder hereof to receive shares of Common Stock in exchange for such Debenture(s) (or, in the case of a redemption, the right to receive the applicable redemption price). Section 10. Events of Default. (i) Upon the occurrence of and during the ----------------- continuation of an Event of Default (as defined below) specified in subsections (a), (b), (c) or (e) of this Section 10, upon the written notice of the Holders of seventy-five percent (75%) of the outstanding principal amount of the Debentures, and/or (ii) upon the occurrence of any Event of Default specified in subsections (d) or (f) of this Section 10, the Company shall pay to the Holder an amount equal to the sum of (x) the unpaid principal amount of this Debenture plus (y) the accrued and unpaid interest on the unpaid principal amount of this Debenture to the date of payment and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment, or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or equity. If the Company fails to pay any amounts due pursuant to this Section 10 within five (5) business days of such amounts being due and payable, then the Holder shall have the right at any time, so long as the Company remains in default, to require the Company, upon written notice, to immediately issue, in lieu of such amounts, the number of shares of Common Stock of the Company equal to the amounts owed by Borrower to the Company divided by the Conversion Price then in effect. An "Event of Default" shall mean the following: (a) Conversion. If the Company fails to issue shares of Common Stock to the Holder upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture, fails to transfer any as certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture and when required by this Debenture or any Subscription Agreement between the Holder and the Company or fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture or any Subscription Agreement by and between Company and Holder and any such failure shall continue uncured for thirty (30) business days; 9 (Page 10 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) (b) Breach of Covenant. If the Company breaches any material covenant or other material term or condition of this Debenture (other than as specifically provided in subsection 10(a) hereof), or any Subscription Agreement by and between Company and Holder (including the failure to have enough stock available for issuance upon conversion), and the breach of which would have a material adverse effect on the Company or the prospects of the Company or a material adverse effect on the Holder or the rights of the Holder with respect to this Debenture or the shares of Common Stock issuable upon conversion of this Debenture and such breach continues for a period of thirty (30) business days after written notice thereof to the Company from the Holder; (c) Breach of Representations and Warranties. Any representation or warranty of the Company made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, any Subscription Agreement by and between Company and Holder), shall be false or misleading in any material respect when made and the breach of which would have a material adverse effect on the Company or the prospects of the Company or a material adverse effect on the Holder or the rights of the Holder with respect to this Debenture or the shares of Common Stock issuable upon conversion of this Debenture; (d) Receiver or Trustee. The Company or any subsidiary of the Company shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; (e) Judgments. Any money judgment, writ or similar process shall be entered or filed against the Company or any subsidiary of the Company or any of its property or other assets for more than Five Hundred Thousand Dollars ($500,000), and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld; or (f) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company. Section 11. Governing Law. This Debenture shall be governed by and construed in ------------- accordance with the laws of the State of California without giving effect to the principles of conflicts of laws, except for matters arising under the Act or the Securities Exchange Act of 1934, as amended, which matters shall be governed by and construed in accordance with such laws. Section 12. Business Day Definition. For purposes hereof, the term "business ----------------------- day" shall mean any day on which banks are generally open for business in the State of California and New York, USA and excluding any Saturday and Sunday. Section 13. Notices. Any notice or other communication required or permitted ------- to be given hereunder shall be given as provided herein or delivered against receipt if to (i) the Company at 989 E. Hillsdale Blvd., Suite 400, Foster City, California 944047-2113, Attn: Mr. Bill Glynn, Telephone No. (415) 571-0222, Telecopy No. (415) 571-1132 and (ii) the Holder of this Debenture, to such holder at its last address as shown on the Debenture Register (or to such other address as the party shall have furnished in writing as its new address to be entered on the Debenture Register (which address must include a telecopy number) in accordance with the provisions of this Section 13). Any notice or other communication needs to be made by facsimile and delivery shall be deemed given, except as otherwise required herein, at the time of transmission of said facsimile. Any notice given on a day that is not a business day shall be effective upon the next business day. Section 14. Waiver of any Breach to be in Writing. Any waiver by the Company ------------------------------------- or the Holder hereof of a breach of any provision of the Debenture shall not operate as, or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of the Debenture. The failure of the Company or the Holder hereof to insist upon strict adherence to any term of the Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of the Debenture. Any waiver must be in writing. 10 (Page 11 of 11 of 8% Convertible Debentures of Blyth Holdings, Inc. Due June 3, 1999) Section 15. Unenforceable Provisions. If any provision of this Debenture is ------------------------ invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. 11 EX-10.28 4 REGISTRATION RIGHTS AGREEMENT- CO. & PURCHASERS Exhibit 10.28 BLYTH HOLDINGS, INC. REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of June 3, 1996, by and among Blyth Holdings, Inc., a Delaware corporation ("Company"), and the subscribers ("Subscribers") to the Company's offering ("Offering") of up to Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000) of Debentures pursuant to the Regulation S Subscription Agreement between the Company and the Subscribers of even date herewith ("Subscription Agreement"). 1. Definitions. For purposes of this Agreement: ----------- (a) The terms "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 of 1933 (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the Company's Common Stock (together with any Capital Stock issued as a dividend on, in replacement of, in exchange for, or otherwise in respect of such Common Stock, the "Common Stock") issuable or issued upon conversion of the Debentures issued to Subscribers in the Offering; provided, however, that after the expiration of the Restricted Period (as defined in the Subscription Agreement), shares of Common Stock obtainable on conversion of the Debentures (in whole or in part), shall not constitute Registrable Securities, if those shares of Common Stock may be sold or transferred in the U.S. free of any restrictive legend, including without limitation under Rule 144; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock which have been issued or are issuable upon conversion of the Debentures at the time of such determination; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any permitted assignee thereof. 2. Demand Registration. ------------------- (a) At any time beginning after the end of the Restricted Period (as defined in the Subscription Agreement), the Holders of Registrable Securities obtained or obtainable upon conversion of at least twenty-five percent (25%) in principal amount of the Debentures outstanding may notify the Company in writing that they demand that the Company file a registration statement under the Act covering the registration of all of the Registrable Securities then outstanding. Upon receipt of such notice, the Company shall, within ten (10) days, give written notice of such request to all Holders and shall, subject to the limitations of subsection 2(b), effect as soon as practicable, and in any event within thirty(30) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request, by notice given to the Company within ten (10) days of receipt of the Company's notice, to be registered as expeditiously as reasonably possible after the mailing of such notice by the Company (a "Demand Registration"). 1 (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2 and the Company shall include such information in the written notice referred to in subsection 2(a). In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 6(f)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, and reasonably acceptable to the Company; provided that no Holder shall be required to make any representations other than with respect to its ownership of Registered Securities and its intended method of distribution. (c) The Company agrees to include all Registrable Securities held by all Holders in such Registration Statement without cutback or reduction. In the event the Company breaches its obligation of the preceding sentences, any Holders of the Registrable Securities which were not included in such Registration Statement shall be entitled to additional Demand Registrations for such excluded securities on the same terms as the Demand Registration described in this Agreement. (d) The Company is not obligated to effect a demand registration under this Section 2 if in the written opinion of counsel to the Company reasonably acceptable to the person or persons from whom written request for registration has been received (and satisfactory to the Company's transfer agent to permit the transfer) that registration under the Act is not required for the immediate transfer of the Registrable Securities pursuant to Rule 144 or other applicable provision. (e) The Company represents that it is eligible to effect the registration contemplated hereby on Form S-3 and will continue to take such actions as are necessary to maintain such eligibility. 3. Piggyback 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 shareholders other than the Holders) any of its Common Stock under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a registration on Form S-4 promulgated under the Act or any successor or similar form registering stock issuable upon a reclassification, upon a business combination involving an exchange of securities or upon an exchange offer for securities of the issuer or another entity), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given by fax within ten (10) days after mailing of such notice by the Company, which request shall state the intended method of disposition of such shares by such Holder, the Company shall cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered (a "Piggyback Registration"). 4. Limitation on Obligations to Register. ------------------------------------- (a) In the case of a Piggyback Registration on an underwritten public offering 2 by the Company, if the managing underwriter determines and advises in writing that the inclusion in the registration statement of all Registrable Securities proposed to be included would interfere with the successful marketing of the securities proposed to be registered by the Company, then the number of such Registrable Securities to be included in the registration statement shall be allocated among all Holders who had requested Piggyback Registration, in the proportion that the number of Registrable Securities which each such Holder seeks to register bears to the total number of Registrable Securities sought to be included by all Holders; provided that in no event shall the number of Registrable Securities be less than thirty-five percent (35%) pro-rata of the total number of shares included in such registration. (b) Notwithstanding anything to the contrary herein, the Company shall have the right (i) to defer the initial filing or request for acceleration of effectiveness of any Demand Registration or Piggyback Registration or (ii) after effectiveness, to suspend effectiveness of any such registration statement, if, in the good faith judgment of the board of directors of the Company and upon the advice of counsel to the Company, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning the Company disclosure of which at the time is not, in the opinion of the board of directors of the Company upon the advice of counsel, (A) otherwise required and (B) in the best interests of the Company; provided however that the Company will use its best efforts to terminate such delay or suspension as soon as practicable and, in any event will not delay effectiveness of such registration for more than two (2) months from the date of the demand or suspend effectiveness for more than twenty (20) days, unless it is then engaged in an acquisition that would make such registration impracticable, in which case it will use its best efforts to eliminate such impracticability as soon as possible. 5. Obligations to Increase Available Shares. In the event that the ---------------------------------------- number of shares available under a registration statement filed pursuant to Section 2 is insufficient to cover all of the Registrable Securities then outstanding, the Company shall amend that registration statement, or file a new registration statement, or both, so as to cover all shares of Registrable Securities then outstanding. The Company shall effect such amendment or new registration within sixty (60) days of the date the registration statement filed under Section 2 is insufficient to cover all the shares of Registrable Securities then outstanding. Any Registration Statement filed hereunder shall, to the extent permissible by the Rules of the Securities and Exchange Commission ("SEC"), state that, in accordance with Rule 416 under the Act, such Registration Statement also covers such indeterminate numbers of additional shares of Common Stock as may become issuable upon conversion of the Debentures to prevent dilution resulting from stock changes or by reason of changes in the conversion price in accordance with the terms thereof. 6. Obligations of the Company. Whenever required under this Agreement -------------------------- 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. (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 Act with respect to the disposition of all 3 securities covered by such registration statement. (c) With respect to any Demand Registration, use best efforts to keep such registration statement effective until the Holders of Registrable Securities covered by such registration statement have completed the distribution described in the registration statement. 4 (d) Furnish to the Holders (i) such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them and (ii) copies of all correspondence to or with the SEC. Each Holder shall be furnished with copies of drafts, or all filings prior to filing and given sufficient time to provide comments thereon. (e) 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 of the Registrable Securities covered by such registration statement, provided 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. (f) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (g) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act upon 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. (h) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Agreement, 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. (i) Maintain the listing of the Common Stock on NASDAQ National Market System, NASDAQ Small Cap Market, or a National Securities Exchange. 7. Furnish Information. It shall be a condition precedent to the ------------------- obligations of the Company to take any action pursuant to this Agreement that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities or to determine that registration is not required pursuant to Rule 144 or other applicable provision of the Act. 8. Expenses of Demand Registration. All expenses other than ------------------------------- 5 underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and including the reasonable fees and disbursements incurred of only one counsel for the selling Holders, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Holders who had requested such registration shall bear such expenses); provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2. 9. Expenses of Company Registration. The Company shall bear and pay -------------------------------- all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 3 for each Holder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto (and including the reasonable fees and disbursements incurred of only one counsel for the selling Holders selected by them), but excluding underwriting discounts and commissions relating to Registrable Securities. 10. Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each "Holder Indemnified Persons" (defined for purposes of this Section 10 as each Holder, the officers and directors of each Holder acting in their capacity as such, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act")), against any losses, claims, damages, expenses, or liabilities (joint or several) (hereinafter referred to singularly as "Loss" and collectively as "Losses") to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such Losses (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 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 by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will reimburse each such Indemnified Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or action; provided, however, that the indemnity agreement contained in this subsection 10(a) shall not apply to amounts paid in settlement of any such Loss 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 in any such case for any such Loss or action to the extent that it arises out of or is based upon a Violation which occurs in either (i) reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder Indemnified Person or (ii) based upon a prospectus which included a Violation after the Company has advised the Holder not to sell 6 pursuant to such prospectus, and has made available an amended or supplemental prospectus that corrects such Violation. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the "Company Indemnified Persons" (defined for the purpose of this Section 10 as the Company, each of its directors in their capacity as such, each of its officers who have signed the registration statement in their capacity as such, each person, if any, who controls the Company within the meaning of the Act in their capacity as such, any underwriter and any other Holder Indemnified Person selling securities in such registration statement), against any Loss (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such Holder Indemnified Person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such Loss (or actions in respect thereto) arises out of or is based upon any 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 reimburse any legal or other expenses reasonably incurred by the Company and any such Company Indemnified Person in connection with investigating or defending any such Loss or action; provided, however, that the indemnity agreement contained in this subsection 10(b) shall not apply to amounts paid in settlement of any such Loss or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 10(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 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 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 shall have the right to retain its own counsel, with the reasonably incurred 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 prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 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 10 to the extent it is prejudicial. (d) The obligations of the Company and Holders under this Section 10 shall survive the redemption and conversion, if any, of the Debentures, the completion of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise. 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 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: 7 (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company, if true, 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 Act and the 1934 Act, (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. 12. Amendment of Registration Rights. Any provision of this Agreement -------------------------------- may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company; provided that no amendment or waiver that materially and adversely affects the rights of any Holder shall be effective against such Holder unless such Holder agrees thereto. 13. Notices. All notices required or permitted under this Agreement ------- shall be made in writing signed by the party making the same, shall specify the section under this Agreement pursuant to which it is given, and shall be addressed if to (i) the Company at: Attn: President, 989 E. Hillsdale Blvd., Foster City, CA 94404-2113 (address); Telephone No. (415) 571-0222; Telecopy No. (415) 571-1132 and (ii) the Holders at their respective last address as the party shall have furnished in writing as a new address to be entered on such register. Any notice, except as otherwise provided in this Agreement, shall be made by fax and shall be deemed given at the time of transmission of the fax. 14. Termination. This Agreement shall terminate on the later to occur ----------- of (a) the date that is five (5) years from the date of this Agreement and (b) the date that is ninety (90) days after the date on which all Debentures have been converted into Common Stock; but without prejudice to (i) the parties' rights and obligations arising from breaches of this Agreement occurring prior to such termination or (ii) other indemnification obligations under this Agreement. 15. Assignment. No assignment, transfer or delegation, whether by ---------- operation of law or otherwise, of any rights or obligations under this Agreement by the Company or any Holder, respectively, shall be made without the prior written consent of the majority in interest of the Holders or the Company, respectively; provided that the rights of a Holder may be transferred to a subsequent holder of the Holder's Registrable Securities (provided such transferee shall provide to the Company, together with or prior to such transferee's request to have such Registrable Shares included in a Demand Registration or Piggyback Registration, a writing executed by such transferee agreeing to be bound as a Holder by the terms of this Agreement); and provided further that the Company may transfer its rights and obligations under this Agreement to a purchaser of all or a substantial portion of its business if the obligations of the Company under this Agreement are assumed in connection with such transfer, either by merger or other operation of 8 law (which may include without limitation a transaction whereby the Registrable Shares are converted into securities of the successor in interest) or by specific assumption executed by the transferee. 16. Payments for Failure to Register or Failure to List. If the --------------------------------------------------- Company is not eligible to effect a Registration under Form S-3, or other appropriate registration statement, at the time of a Demand Registration under the terms of this agreement, then the Company shall pay to all Holders of outstanding Debentures a penalty equal to the amount of the Conversion Default Penalty ("Conversion Default Penalty") set forth in Section 7(b) of the Regulation S Subscription Agreement between the Company and the Subscribers ("Subscription Agreement") for each day beyond 60 days of the receipt of a request for a Demand Registration until such registration is complete. If, on the date (the "Conversion Eligibility Date") that 9 Debentures become eligible for conversion into Common Stock, the Common Stock is not listed on the National Market System, Small Cap Market or National Stock Exchange, then the Company shall pay to all Holders of outstanding Debentures that is eligible for immediate conversion a penalty equal to the amount of the Conversion Default Penalty for each day beyond the Conversion Eligibility Date until such listing is complete. 17. Governing Law. This Registration Rights Agreement shall be ------------- governed by and construed in accordance with the laws of the State of California applicable to agreements made in and wholly to be performed in that jurisdiction, except for matters arising under the Act or the Securities Exchange Act of 1934, which matters shall be construed and interpreted in accordance with such laws. Any action brought to enforce, or otherwise arising out of, this Agreement shall be heard and determined only in either a federal or province court sitting in the State of California, San Mateo County. [INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement as of the date first above written. Blyth Holdings, Inc. By: -------------------------------------- Michael Minor Chairman and Chief Executive Officer Address: 989 E. Hillsdale Blvd. Foster City, CA 94404-2113 INVESTOR(S) ----------------------------------------- Investor's Name By: -------------------------------------- (Signature) Address: ------------------------------------ ------------------------------------ 11 EX-10.29 5 REGISTRATION RIGHTS AGREEMENT- CO. & SWARTZ INVES. Exhibit 10.29 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of June 3, 1996, by and among Blyth Holdings, Inc., a Delaware corporation ("Company"), and Swartz Investments, LLC, a Georgia limited liability corporation, on behalf of itself and its designees or permitted assigns ("Swartz" sometimes referred to herein, together with its designees or permitted assigns, as "Holder" or "Holders") with respect to the Company's offering ("Offering") of up to Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000) of 8% Convertible Debentures (the "Debentures") pursuant to the Subscription Agreements between the Company and certain investors. 1. Demand Registration. After the expiration of a period of one hundred ------------------- eighty (180) calendar days from the final closing of the Offering, Holder may notify the Company in writing that it demands that the Company file a registration statement under the Act registering the resale of all of the Common Stock issuable upon exercise of the Warrant issued to Holder in connection with the Offering ("Registrable Securities"), without cutback or reduction. Upon receipt of such notice, the Company shall effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities (a "Demand Registration"). 2. Piggyback Registration. If (but without any obligation to do so) the ---------------------- Company proposes to register any of its Common Stock under the Act in connection with the public offering of such securities solely for cash (other than (i) a registration relating solely to the sale of securities to participants in a Company stock or other benefit plan, or (ii) a registration of stock options, stock purchase or compensation or incentive plans or securities issued or issuable pursuant to any such plan on Form S-8 or comparable form then in effect, the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given by fax within ten (10) days after mailing of such notice by the Company, which request shall state the intended method of disposition of such shares by such Holder, the Company shall cause to be included in such registration all of the Registrable Securities that each such Holder has requested to be registered (a "Piggyback Registration"). 3. Limitation on Obligations to Register. Notwithstanding anything to the ------------------------------------- contrary herein: (a) the Company shall not be obligated to effect a Demand Registration (i) unless the closing bid price for the Company's common stock has equaled or exceeded 110% of the exercise price of the Warrants each day for the five (5) trading days immediately prior to the notice of demand; or (ii) if the Company filed a registration statement which became effective within six (6) months prior to the notice of demand and granted Holders the right to include all Registrable Securities in such registration statement, and the Holders declined to do so; and (b) the Company shall have the right (i) to defer the initial filing or request for acceleration of effectiveness of any Demand Registration or Piggyback Registration, or (ii) after effectiveness, to suspend effectiveness of any such registration statement, if, in the good faith judgment of the board of directors of the Company and upon the advice of counsel to the Company or the managing underwriter (if any) of the offering, such delay in filing or requesting acceleration of effectiveness or such suspension of effectiveness is necessary in light of the existence of material non-public information (financial or otherwise) concerning the Company disclosure of which at the time is not, in the opinion of the board of directors of the Company upon the advice of counsel, otherwise required and in the best interests of the Company; provided, however, that the Company will not delay or suspend effectiveness of such registration for more than ninety (90) days from the date of the demand. The registration may only be delayed for one ninety (90) day period. 4. Expenses of Registration. All expenses other than underwriting ------------------------ discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1 or 2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (and including the reasonable fees and disbursements incurred of only one counsel for the selling Holders selected by them, not to exceed $5,000) shall be borne by the Company. 5. Indemnification. In the event any Registrable Securities are included --------------- in a registration statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each "Holder Indemnified Persons" (defined for purposes of this Section 5 as each Holder, the officers and directors of each Holder acting in their capacity as such, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act")), against any losses, claims, damages, expenses, or liabilities (joint or several)("Losses") to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such Losses (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 of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the 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 by the Company of the Act, the 1934 Act, any state securities law or rule or regulation promulgated under the Act, the 1934 Act, or any state securities law and the Company will reimburse each such Holder Indemnified Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or action; provided, however, that the indemnity agreement contained in this subsection 5(a) shall not apply to amounts paid in settlement of any such Loss 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 in any such case for any such Loss or action to the extent that it arises out of or is based upon a Violation which occurs (i) in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder Indemnified Person, or (ii) the failure of such Holder Indemnified Person to deliver a copy of the registration statement or the prospectus, or any amendments or supplements thereto, after the Company or underwriters has furnished such person with a sufficient number of copies of the same. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the "Company Indemnified Persons" (defined for the purpose of this Section 5 as the Company, each of its directors in their capacity as such, each of its officers who have signed the registration statement in their capacity as such, each person, if any, who controls the Company within the meaning of the Act in their capacity as such, any underwriter and any other Holder Indemnified Person selling securities in such registration statement), against any Loss (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such Holder Indemnified Person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such Loss (or actions in respect thereto) arise out of or are based upon any 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 reimburse any legal or other expenses reasonably incurred by the Company and any such Company Indemnified Person in connection with investigating or defending any such Loss or action; provided, however, that the indemnity agreement contained in this subsection 5(b) shall not apply to amounts paid in settlement of any such Loss or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld); provided, that, in no event shall any indemnity under this subsection 5(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 5 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 5, 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 shall have the right to retain its own counsel, with the reasonably incurred 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; provided, further, that the indemnifying party shall be responsible for the fees and expenses incurred by only one (1) counsel for all indemnified parties. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5, 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 5. (d) If the indemnification provided for in this Section 5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any Loss, then the indemnifying party, in lieu of indemnifying the indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as such court finds appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other, in connection with the statements or omissions that resulted in such Loss as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement. 6. Miscellaneous ------------- (a) Company shall maintain any registration statement filed under this Agreement effective as provided above until the distribution described in that registration statement has been completed, but in no event more than one hundred eighty (180) days. (b) Each Holder shall give the Company one business day's prior written notice of any proposed sale of Registrable Securities under the registration statement, and shall not make such sale unless (i) one business day lapses without response from the Company, or (ii) the Company notifies the Holder in writing that the registration statement requires a post-effective amendment or supplement to be current. In the event of (ii) above, and subject to section 3 above, the Company shall use its reasonable efforts to file a complete and accurate post-effective amendment or supplement with the SEC and have any such amendment declared effective as soon as reasonably possible and provide copies to the Holders to enable them to sell their Registrable Securities in accordance with applicable law and regulations. (c) Any provision of this Agreement may be amended and the observance thereof may be waived only with the written consent of the Company and the Holders of a majority of the Registrable Securities. (d) All notices required or permitted under this Agreement shall be made in writing signed by the party making the same, shall specify the section under this Agreement pursuant to which it is given, and shall be addressed if to (i) the Company at: President, 989 E. Hillsdale Blvd., Foster City, CA 94404-2113, Telephone No. (415) 571-0222, Telecopy No. (415) 571-1132 and (ii) the Holders at their respective last address as the party shall have furnished in writing as a new address to be entered on such register. Any notice, except as otherwise provided in this Agreement, shall be made by fax and shall be deemed given at the time of transmission of the fax. (e) This Agreement shall terminate on the date that is three years from the date of this Agreement; but without prejudice to (i) the parties' rights and obligations arising from breaches of this Agreement occurring prior to such termination or (ii) other indemnification obligations under this Agreement. (f) The rights of a Holder under this Agreement may be transferred to a subsequent holder of the Holder's Registrable Securities (provided such transferee shall provide to the Company, together with or prior to such transferee's request to have such Registrable Shares included in a Demand Registration or Piggyback Registration, a copy of this Agreement executed by such transferee agreeing to be bound as a Holder by the terms of this Agreement). (g) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, U.S.A. applicable to agreements made in and wholly to be performed in that jurisdiction, except for matters arising under the Act or the Securities Exchange Act of 1934, which matters shall be construed and interpreted in accordance with such laws. Any action brought to enforce, or otherwise arising out of, this Agreement shall be heard an determined only in either a federal or state court sitting in the county of Fulton in the State of Georgia, U.S.A. [INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Blyth Holdings, Inc. By: ------------------------------------ Michael Minor, Chairman and Chief Executive Officer SWARTZ INVESTMENTS, LLC By: ------------------------------------ Eric Swartz, President EX-10.30 6 WARRANT TO PURCHASE COMMON STOCK Exhibit 10.30 THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. Warrant to Purchase shares - --------------- Warrant to Purchase Common Stock of BLYTH HOLDINGS, INC. THIS CERTIFIES that _______________________ or any subsequent ("Holder") hereof, has the right to purchase from Blyth Holdings, Inc., a Delaware corporation (the "Company"), not more than ______________ fully paid and nonassessable shares of the Company's Common Stock, $.01 par value ("Common Stock"), at a price equal to the Exercise Price as defined in Section 3 below, subject to adjustment as provided herein, at any time on or before 5:00 p.m., Atlanta, Georgia time, on June 3, 2001. The Holder of this Warrant agrees with the Company that this Warrant is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein. 1. Date of Issuance. ----------------- This Warrant shall be deemed to be issued on June 3, 1996 ("Date of Issuance"). 2. Exercise. -------- (a) Manner of Exercise. This Warrant may be exercised as to all or any lesser number of full shares of Common Stock covered hereby upon surrender of this Warrant, with the Exercise Form attached hereto duly executed, together with the full Exercise Price (as defined in Section 3) for each share of Common Stock as to which this Warrant is exercised, at the office of the Company, 989 E. Hillsdale Blvd., Foster City, CA 94404-2113, Attention: President, Telephone No. (415) 571-0222, Telecopy No. (415) 571-1132, or at such other office or agency as the Company may designate in writing, by overnight mail, with an advance copy of the Exercise Form attached as Exhibit A ("Exercise Form") by facsimile (such surrender and payment of the Exercise Price hereinafter called the "Exercise of this Warrant"). (b) Date of Exercise. The "Date of Exercise" of the Warrant shall be defined as the date that the advance copy of the Exercise Form is sent by facsimile to the Company, provided that the original Warrant and Exercise Form are received by the Company within five (5) business days thereafter. The original Warrant and Exercise Form must be received within five (5) business days of the Date of Exercise, or the exercise may, at the 1 Company's option, be considered void. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not sent advance notice by facsimile. (c) Cancellation of Warrant. This Warrant shall be canceled upon its Exercise, and, as soon as practical after the Date of Exercise, the Holder hereof shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise, and if this Warrant is not exercised in full, the Holder shall be entitled to receive a new Warrant or Warrants (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock. (d) Holder of Record. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to have become the Holder of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of such shares of Common Stock. Nothing in this Warrant shall be construed as conferring upon the Holder hereof any rights as a shareholder of the Company. 3. Payment of Warrant Exercise Price. --------------------------------- The Exercise Price ("Exercise Price") shall equal $3.75 ("Exercise Price"). Payment of the Exercise Price may be made by either of the following, or a combination thereof, at the election of Holder: (i) Cash Exercise: cash, certified check or cashiers check or wire transfer; or (ii) Cashless Exercise: surrender of this Warrant at the principal office of the Company together with notice of cashless election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B)/A where: X = the number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock for which this Warrant is being exercised. A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(ii), the "Market Price" shall be defined as the closing price of the Common Stock on the Date of Exercise of this Warrant (the "Average Closing Price"), as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or if the Common Stock is not traded on NASDAQ, the price in the over-the- counter market; provided, however, that if the Common Stock is listed on a stock exchange, the Market Price shall be the average Closing on such exchange. If the Common Stock is/was not traded on the Date of Exercise, then the closing price for the last publicly traded day shall be deemed to be the closing price for the Date of Exercise. B = the Exercise Price. For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for 2 the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have commenced on the date this Warrant was issued. 3 4. Transfer and Registration. ------------------------- (a) Transfer Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon surrender of this Warrant properly endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and the Holder of this Warrant shall be entitled to receive a new Warrant or Warrants as to the portion hereof retained. (b) Registrable Securities. The Common Stock issuable upon the exercise of this Warrant may constitute "Registrable Securities" under that certain Registration Rights Agreement dated on or about June 3, 1996 by and between the Company and Swartz Investments, LLC and, accordingly, has the benefit of the registration rights pursuant to that agreement. 5. Anti-Dilution Adjustments. ------------------------- (a) Stock Dividend. If the Company shall at any time declare a dividend payable in shares of Common Stock, then the Holder hereof, upon Exercise of this Warrant after the record date for the determination of Holders of Common Stock entitled to receive such dividend, shall be entitled to receive upon Exercise of this Warrant, in addition to the number of shares of Common Stock as to which this Warrant is Exercised, such additional shares of Common Stock as such Holder would have received had this Warrant been Exercised immediately prior to such record date and the Exercise Price will be proportionately adjusted. (b) Recapitalization or Reclassification. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which the Holder hereof shall be entitled to purchase upon Exercise of this Warrant shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. The Company shall give the Warrant Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(b). (c) Distributions. If the Company shall at any time distribute to Holders of Common Stock cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus or net profits for the current or preceding year) then, in any such case, the Holder of this Warrant shall be entitled to receive, upon exercise of this Warrant, with respect to each share of Common Stock issuable upon such Exercise, the amount of cash or evidences of indebtedness or other securities or assets which such Holder would have been entitled to receive with respect to each such share of Common Stock as a result of the happening of such event had this Warrant been Exercised immediately prior to the record date or other date fixing shareholders to be affected by such event (the "Determination Date") or, in lieu thereof, if the Board of Directors of the Company should so determine at the time of such distribution, a reduced Exercise Price determined by multiplying the Exercise Price on the Determination 4 Date by a fraction, the numerator of which is the result of such Exercise Price reduced by the value of such distribution applicable to one share of Common Stock (such value to be determined by the Board in its discretion) and the denominator of which is such Exercise Price. (d) Notice of Consolidation or Merger. If, the Company shall at any time (i) consolidate or merge with any other corporation and the Company is not the surviving corporation, or (ii) transfer all or substantially all of its assets, then the Company shall deliver written notice to the Holder of such merger, consolidation or sale of assets at least thirty (30) days prior to record date for determining shareholders entitled to vote on such merger, consolidation or sale of assets and this Warrant shall terminate and expire immediately prior to the closing of such merger, consolidation or sale of assets. (e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise Price" shall mean the purchase price per share specified in Section 3 of this Warrant until the occurrence of an event stated in subsection (a), (b) or (c) of this Section 5 and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No such adjustment under this Section 5 shall be made unless such adjustment would change the Exercise Price at the time by $.01 or more; provided, however, that all adjustments not so made shall be deferred and made when the aggregate thereof would change the Exercise Price at the time by $.01 or more. No adjustment made pursuant to any provision of this Section 5 shall have the effect of increasing the total consideration payable upon Exercise of this Warrant in respect of all the Common Stock as to which this Warrant may be exercised. Notwithstanding anything to the contrary contained herein, the Exercise Price shall not be reduced to an amount below the par value of the Common Stock. (f) Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 5, the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5. 6. Fractional Interests. -------------------- No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the Holder hereof may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, the Holder hereof would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion shall be the next lower number of shares. 7. Reservation of Shares. --------------------- The Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for Exercise and payment of the Exercise Price of this Warrant. The Company covenants and agrees that upon Exercise of this 5 Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid, nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any person or entity. 8. Restrictions on Transfer. ------------------------ (a) Registration or Exemption Required. This Warrant and the Common Stock issuable on Exercise hereof have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in the absence of registration or the availability of an exemption from registration under said Act. All shares of Common Stock issued upon Exercise of this Warrant shall bear an appropriate legend to such effect, if applicable. (b) Assignment. Assuming the conditions of (a) above regarding registration or exemption have been satisfied, the Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the person or persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within ten days, and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares. (c) Investment Intent. The Warrant and Common Stock issuable upon conversion are intended to be held for investment purposes and not with an intent to distribution, as defined in the Act. 9. Benefits of this Warrant. ------------------------ Nothing in this Warrant shall be construed to confer upon any person other than the Company and the Holder of this Warrant any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and the Holder of this Warrant. 10. Applicable Law. -------------- This Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the state of California, without giving effect to conflict of law provisions thereof. 11. Loss of Warrant. --------------- Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. 6 12. Notice or Demands. ----------------- Notices or demands pursuant to this Warrant to be given or made by the Holder of this Warrant to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, Blyth Holdings, Inc., 989 E. Hillsdale Blvd., Foster City, CA 94404-2113, Attention: President, Telephone No. (415) 571-0222, Telecopy No. (415) 571-1132. Notices or demands pursuant to this Warrant to be given or made by the Company to or on the Holder of this Warrant shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, Attn: Holder, address: c/o Swartz Investments, LLC, 200 Roswell Summit, Suite 285, 1080 Holcomb Bridge Road, Roswell, Georgia 30076, until another address is designated in writing by Holder. [INTENTIONALLY LEFT BLANK] 7 IN WITNESS WHEREOF, the undersigned has executed this Warrant as of June 3, 1996. Blyth Holdings, Inc. By: ________________________________ Print Name: ________________________________ Title: ________________________________ 8 EXHIBIT A EXERCISE FORM TO: Blyth Holdings, Inc. The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of Common Stock of Blyth Holdings, Inc., a Delaware corporation, evidenced by the attached Warrant, and herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of said Warrant. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of such Common Stock, except in accordance with the provisions of Section 8 of the Warrant, and consents that the following legend may be affixed to the stock certificates for the Common Stock hereby subscribed for, if such legend is applicable: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any provincial or state securities law, and may not be sold, transferred, pledged, hypothecated or otherwise disposed of until either (i) a registration statement under the Securities Act and applicable provincial or state securities laws shall have become effective with regard thereto, or (ii) an exemption from registration under the Securities Act or applicable provincial or state securities laws is available in connection with such offer, sale or transfer." The undersigned requests that stock certificates for such shares be issued, and a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Registered Holder and delivered to the undersigned at the address set forth below: Dated: - -------------------------------------------------------------------------------- Signature of Registered Holder - -------------------------------------------------------------------------------- Name of Registered Holder (Print) - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9 EXHIBIT B ASSIGNMENT (To be executed by the registered Holder desiring to transfer the Warrant) FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells, assigns and transfers unto the person or persons below named the right to purchase _______ shares of the Common Stock of Blyth Holdings, Inc. evidenced by the attached Warrant and does hereby irrevocably constitute and appoint _______________________ attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises. Dated: --------------------------------- Signature Fill in for new Registration of Warrant: - ----------------------------------- Name - ----------------------------------- Address - ----------------------------------- Please print name and address of assignee (including zip code number) - -------------------------------------------------------------------------------- NOTICE The signature to the foregoing Exercise Form or Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever. - -------------------------------------------------------------------------------- 10 EX-21.1 7 LIST OF SUBSIDIARIES Exhibit 21.1 List of Subsidiaries Percent Name Jurisdiction Ownership ---- ------------ --------- Blyth Software, Inc. California 100% Blyth Software Limited England 100% Blyth Software GmbH Germany 100% EX-23.1 8 INDEPENDENT AUDITORS CONSENT Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33- 65538, 33-81008, 33-46166 and 33-32677 of Blyth Holding Inc. on Forms S-8 of our report dated May 10, 1996 (June 4, 1996 as to Note 12) appearing in this Annual Report on Form 10-K of Blyth Holdings Inc. for the year ended March 31, 1996. DELOITTE & TOUCHE LLP San Jose, California June 25, 1996 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 12-MOS MAR-31-1996 APR-01-1995 MAR-31-1996 5,128,733 0 2,702,998 (399,973) 0 1,155,014 5,632,348 (3,800,949) 10,841,001 3,022,998 0 0 0 35,820,045 (28,276,364) 10,841,001 13,703,111 13,703,111 6,990,151 19,471,418 0 327,886 125,842 (5,675,428) 35,486 (5,675,428) 0 0 0 (5,675,428) (0.64) (0.64)
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