<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DATAMAX INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3577 59-309-4679
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
4501 PARKWAY COMMERCE BOULEVARD, ORLANDO, FLORIDA 32808
(407) 578-8007
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PETER D. ORR
4501 PARKWAY COMMERCE BOULEVARD, ORLANDO, FLORIDA 32808
(407) 578-8007
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
MARK B. TRESNOWSKI MARK J. MACENKA
KIRKLAND & ELLIS TESTA, HURWITZ & THIBEAULT, LLP
200 EAST RANDOLPH DRIVE HIGH STREET TOWER, 125 HIGH STREET
CHICAGO, ILLINOIS 60601 BOSTON, MASSACHUSETTS 02110
(312) 861-2000 (617) 248-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery to the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED (1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per share.............. $75,000,000 $22,727
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</TABLE>
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(1) Includes shares issuable upon exercise of options granted to the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MAY 30, 1997
PROSPECTUS
, 1997
LOGO
[LOGO OF DATAMAX INTERNATIONAL CORPORATION APPEARS HERE]
SHARES
DATAMAX INTERNATIONAL CORPORATION
COMMON STOCK
Of the shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, shares are being sold by Datamax
International Corporation (the "Company" or "Datamax") and 1,000,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently estimated that the initial offering price
will be between $ and $ per share. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "DMAX."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of approximately $500,000, payable by the
Company.
(3) Certain Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to an aggregate of additional shares, at the
price to the public less underwriting discounts and commissions, solely to
cover over-allotments, if any. If the Underwriters exercise such option in
full, the total price to the public, underwriting discounts and commissions
and proceeds to the Selling Stockholders will be $ , $ and
$ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to various conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the shares will be made on or about
, 1997.
DONALDSON, LUFKIN & JENRETTE THE ROBINSON-HUMPHREY COMPANY, INC.
SECURITIES
CORPORATION
<PAGE>
[Graphic depicting the Company's products and applications thereof]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the Consolidated Financial Statements and Notes thereto,
included elsewhere in this Prospectus. As used herein, the terms "Company" and
"Datamax" mean Datamax International Corporation, together with its
subsidiaries and predecessor, unless the context otherwise requires. All
references to the Company's fiscal years mean the year ended in February of the
year indicated. Except as otherwise noted, all information contained in this
Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised and (ii) assumes an initial public offering price of $ per
share.
THE COMPANY
Datamax designs, manufactures and markets the bar code industry's broadest
line of thermal printers, including entry level, mid-range, high performance
and specialty thermal bar code printers. The Company is also one of the world's
highest volume manufacturers of thermal bar code printers, having shipped
approximately 58,000 printers in fiscal 1997 and over 250,000 printers since
1989. The Company's products are distributed in more than 90 countries through
over 190 resellers and OEMs. The Company also manufactures and markets an
extensive range of bar code consumables (label and ribbon products) and a line
of bar code verifiers, which are designed to ensure bar code label scannability
and quality. Fiscal 1997 net sales were 61% thermal bar code printers, 23%
consumables and 16% parts, verifiers and other related products and services.
Bar coding technology allows users to capture, process and transmit data
quickly, accurately and cost-effectively and has become the predominant
technology in the automated identification and data collection ("Auto ID")
market. The health care, manufacturing, retail, telecommunications and
transportation and distribution industries and users in government and other
non-commercial settings have adopted bar code technology to improve
productivity and quality, to facilitate access to real-time information and to
reduce costly errors. Many of these industries have mandated the use of
industry specific bar code symbologies and label format standards and the
Company expects this trend to continue. The Company believes that future bar
code industry growth will be driven by further penetration into these and other
existing markets as well as by the introduction of new bar code applications
and technologies. The Company also expects that the rate of adoption of bar
code technology in international markets will increase and that international
markets will exhibit stronger growth than markets in North America. According
to industry sources, 1996 worldwide shipments of bar code printers were
estimated to be $1.4 billion ($762 million North America, $613 million
international), with forecasted annual growth of 15% through 2000 (10% North
America, 21% international). The 1996 worldwide bar code consumables market was
estimated to be $1.7 billion ($1.0 billion North America, $700 million
international), with forecasted annual growth of 19% through 2000 (14% North
America, 24% international).
The Company has grown rapidly over the past several years. The primary
drivers of this growth were the introduction of new internally developed
products, the expansion of existing product families, the expansion and
strengthening of the Company's distribution network, particularly
internationally, and the acquisition of a bar code consumables company. The
Company's net sales grew from $56.7 million in fiscal 1995 to $95.2 million in
fiscal 1997, a compound annual growth rate of approximately 30%. Approximately
70% of this growth was from internal sources, with the remaining 30% resulting
from the acquisition.
Since March 1993, the Company has invested heavily in research and
development, has increased the number of its product families from three to
fourteen, has introduced the Company's first high performance and specialty
thermal bar code printers and has significantly expanded its line of bar code
consumables. The Company's development efforts, combined with increased
vertical integration and flexible manufacturing capabilities, have resulted in
products that are designed and manufactured for reliability and performance, at
a cost that allows the Company to provide superior value to customers. The
Company strives to improve product
3
<PAGE>
design and reduce costs on an ongoing basis. The Company plans to continue to
enhance the capabilities and quality of its current products and to develop and
introduce new products to meet changing customer needs and developing industry
standards.
The Company's products are sold exclusively through indirect distribution
channels, with over 190 systems integrators, distributors and value added
resellers ("VARs," and collectively, "Resellers") and original equipment
manufacturers ("OEMs") distributing the Company's products. The Company
believes its exclusive use of indirect channels of distribution provides for
optimal distribution of the Company's products because it offers superior
profit opportunities for its Resellers, encourages OEMs to integrate Datamax
products into their systems and minimizes marketing and pricing conflicts
between the Company and its distribution channels. In addition, to allow OEMs
to more easily configure Datamax products' internal programming language into
the OEM's specific language, the Company developed and markets its proprietary
Firmware Development Kit software. The Company believes that this product
provides the Company a unique advantage over competitors in the OEM market.
Datamax also is in the process of developing strategic relationships with
several software providers as a part of its "Solutions Connection" program to
enable the Company's customers to provide a more comprehensive range of
solutions to end users.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company............ shares
Common Stock Offered by the Selling
Stockholders.................................. 1,000,000 shares
Total........................................ shares
Common Stock to be Outstanding after the
Offering...................................... shares(1)
Use of Proceeds................................ To repay indebtedness
outstanding under the Company's
senior credit facilities and
for general corporate purposes,
including potential
acquisitions. The Company will
not receive any proceeds from
the sale of the shares by the
Selling Stockholders. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol......... DMAX
</TABLE>
- --------------------
(1) After giving effect to (i) the issuance of shares of preferred stock and
Common Stock upon the cashless exercise of warrants and (ii) the mandatory
conversion of all of the Company's then outstanding shares of preferred
stock into shares of Common Stock, collectively resulting in the net
issuance of 6,172,720 shares of Common Stock (the "Offering Related
Transactions"). Does not include 2,398,894 shares of Common Stock reserved
for issuance under the Company's stock option plans, of which options to
purchase 1,810,256 shares at a weighted average exercise price of $3.26 per
share are outstanding as of May 30, 1997. Also does not include 500,000
shares reserved for issuance pursuant to the Company's employee stock
purchase plan, none of which had been purchased as of May 30, 1997. The
Company will have shares of Common Stock outstanding on a fully
diluted basis after giving effect to the Offering (at an assumed initial
public offering price of $ per share) and the Offering Related
Transactions.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
PREDECESSOR DATAMAX
------------- ----------------------------------------------------
TWELVE MONTHS YEAR ENDED
ENDED ----------------------------------------------------
FEBRUARY 25, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1993(1) 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA AND PRINTERS SHIPPED)
<S> <C> <C> <C> <C> <C>
Net sales.............. $44,434 $47,600 $56,739 $67,762 $95,162
Cost of sales.......... 23,890 24,922 29,691 38,695 61,284
------- ------- ------- ------- -------
Gross profit........... 20,544 22,678 27,048 29,067 33,878
General and
administrative........ 2,522 3,169 3,574 3,843(2) 5,546(2)
Sales and marketing.... 2,174 2,595 4,214 5,661 6,773
Research and
development........... 934 1,597 3,952 5,587 4,616
Amortization of
goodwill and other
intangibles........... -- 2,455 2,566 2,613 2,838
Write-off of goodwill
and other intangibles. -- -- -- 2,071 --
Stock option
compensation(3)....... -- 2,351 262 722 2,168
------- ------- ------- ------- -------
Income from continuing
operations before
interest, taxes and
other income.......... 14,914 10,511 12,480 8,570 11,937
Interest and other
expense, net.......... 85 4,808 5,280 5,100 5,096
------- ------- ------- ------- -------
Income from continuing
operations before
income taxes.......... 14,829 5,703 7,200 3,470 6,841
Income tax expense..... -- 2,101 2,343 1,201 2,374
------- ------- ------- ------- -------
Income from continuing
operations(4)......... $14,829 $ 3,602 $ 4,857 $ 2,269 $ 4,467
======= ======= ======= ======= =======
Income per common share
from continuing
operations(4)......... -- $ 0.54 $ 0.53 $ 0.24 $ 0.47
Weighted average shares
outstanding........... -- 6,714 9,139 9,511 9,583
PRO FORMA DATA(5):
Interest and other
expense (income), net. -- -- -- -- $ (28)
Net income............. -- -- -- -- 7,054
Net income per common
share................. -- -- -- -- $
Weighted average shares
outstanding........... -- -- -- --
OTHER DATA
EBITDA(6).............. $15,810 $15,515 $15,793 $14,892 $18,445
Printers shipped....... N/A 36,140 44,300 49,500 57,800
<CAPTION>
FEBRUARY 28, 1997
--------------------------
AS
ACTUAL ADJUSTED(5)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash............................................................ $ 1,760 $10,147
Working capital................................................. 13,257 26,510
Total assets.................................................... 78,971 87,358
Total debt(7)................................................... 37,124 1,555
Stockholders equity............................................. 30,195 75,505
</TABLE>
- --------------------
(1) Data relating to the statement of operations of the Company's predecessor,
Fargo Electronics, Inc. ("Fargo"), for the twelve months ended February 25,
1993, include results of operations for product lines not acquired by the
Company. Net sales adjusted to exclude sales of product lines not acquired
by the Company would have been approximately $42.4 million for the twelve
months ended February 25, 1993. The Company believes that the adjustment to
eliminate the results of operations for the product lines not acquired
would not have a material effect on the summary historical and pro forma
financial and other data presented herein. The capital structure of the
Company subsequent to February 26, 1993, the date of the Fargo acquisition,
differed from that of Fargo. As a result, income per common share from
continuing operations and weighted average shares outstanding are not
presented for the Predecessor. Fargo operated during the twelve months
ended February 25, 1993, as an S corporation and therefore was not subject
to federal and certain state income taxes at the corporate level.
5
<PAGE>
(2) General and administrative includes expenses of $849,000 in fiscal 1996
related to the preparation and filing of a registration statement which was
subsequently withdrawn and expenses of $884,000 in fiscal 1997 for
severance costs associated with two executive officers, including the
Company's former Chief Executive Officer, and costs associated with
replacing the Company's former Chief Executive Officer.
(3) In fiscal 1994 through 1997, the Company incurred non-cash charges to
earnings related to compensatory stock options. Stock option compensation
is recorded based upon the difference between the option exercise price and
the fair market value of the underlying stock measured at the grant date.
In fiscal 1994, as a result of modifications to certain existing stock
options and as a result of the grant of certain new options to employees,
the Company incurred non-cash compensation cost of $3.3 million that was
expensed over the three year period from fiscal 1994 through 1996, based
upon vesting provisions. In fiscal 1997, as a result of additional
modifications to certain existing stock options, the Company incurred
additional non-cash compensation cost of $2.2 million, all of which was
expensed in fiscal 1997. At February 28, 1997, all of these compensatory
options were fully vested and the Company does not expect to incur
additional compensation expense associated with such options. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Overview."
(4) During fiscal 1994 through 1996, the Company operated in two business
segments: (i) the bar code printer and related products segment and (ii)
the airline ticket and boarding pass business segment (the "ATB Business").
On November 3, 1995, the Company sold certain equipment, inventory and
intellectual property, effectively discontinuing the ATB Business. Income
from continuing operations and income per common share from continuing
operations do not reflect net income (loss) related to the ATB Business.
See "Managements Discussion and Analysis of Financial Condition and Results
of Operations--History " and Note 14 to the Company's Consolidated
Financial Statements.
(5) Gives effect to (i) the sale of shares of Common Stock offered by
the Company and the application of the net proceeds therefrom as set forth
under "Use of Proceeds," (ii) the elimination of the unamortized portion of
debt discount and debt issuance costs on debt to be repaid with the net
proceeds of the Offering and (iii) the Offering Related Transactions, as if
each had occurred as of the date or at the beginning of the period
presented. The unamortized portion of debt discount and debt issuance
costs, approximately $690,000 net of tax at February 28, 1997, will be
expensed as an extraordinary non-cash charge in the period in which the
proceeds of the Offering are used to extinguish debt. See "The Offering
Related Transactions" and "Use of Proceeds."
(6) "EBITDA" is income from continuing operations before interest, taxes,
depreciation, amortization and write-off of goodwill and other intangibles,
non-cash stock compensation and other income. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles
("GAAP"). The Company, however, believes it is generally accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. EBITDA does not take into account the Company's
debt service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses.
(7) Total debt includes notes payable to the State Board of Administration of
Florida ("SBA"), which are administered by Liberty Partners, L.P.
("Liberty") as investment manager under a power of attorney. Such notes
will be paid in their entirety from the proceeds of the Offering. Liberty
is the manager of Liberty Partners Holdings I, L.L.C., a Delaware limited
liability company ("Liberty Holdings"), which will directly own 5,001,122
shares of Common Stock after giving effect to the Offering Related
Transactions. See "The Offering Related Transactions," "Use of Proceeds"
and "Principal and Selling Stockholders."
6
<PAGE>
RISK FACTORS
In analyzing an investment in the Common Stock offered hereby, prospective
investors should carefully consider, along with the other matters referred to
herein, the risk factors described below.
COMPETITION
The bar code printer and supplies market is highly competitive. Competition
has increased in the last several years as new competitors possessing
technological, marketing or other competitive advantages have entered the
market. A number of companies compete directly with the Company and certain of
the Company's competitors have significantly greater financial, technical or
marketing resources than the Company. Moreover, certain of the Company's
international competitors may, from time to time, experience competitive
advantages or disadvantages as their domestic currencies fluctuate relative to
the U.S. dollar. Certain of the Company's customers also manufacture and sell
products that compete with the Company's products. The Company considers its
direct competition in the bar code printer market to be suppliers of thermal
transfer and direct thermal printers and supplies. In addition, the Company
believes that some of its printers and consumables are used to print items
other than bar code labels and therefore also compete to a lesser extent with
standard computer and label printers and consumables. Competitive pressures
could cause the Company's products to have reduced market share or result in
price erosion, either of which could adversely affect the Company's business,
financial condition or results of operations. See "Business--Competition."
RISK OF PRODUCT INTRODUCTIONS AND TECHNOLOGICAL CHANGE
The markets for the Company's products are subject to changing technology,
frequent new product introductions and increasing customer expectations
concerning product performance and price. As a result of these factors the
Company believes that its future growth and financial performance will depend
upon the Company's ability to develop and market new products that achieve
market acceptance, while enhancing existing products to accommodate the latest
technological advances and customer preferences. In connection with the
introduction of certain of its product families, the Company experienced
levels of corrective action requests from customers and product returns that
were higher than those related to its other product lines. The Company
incurred expenses in connection with engineering changes to new products and
development of certain retrofits for installation into end-users' products.
There can be no assurance that such issues will not recur in connection with
future product introductions or that the Company will not incur unusual
expense levels in addressing such issues in the future. Any recurrence of or
failure to address such issues could adversely affect the Company's business,
financial condition or results of operations. In addition, if new technologies
become available, the Company's current products may become obsolete. Failure
by the Company to anticipate or respond adequately to changes in technology or
customer preferences or any significant delays in product development or
introduction could adversely affect the Company's business, financial
condition or results of operations. In addition, there can be no assurance
that new product introductions will not result in a decrease in revenues from
the Company's existing products or otherwise adversely affect the Company's
business, financial condition or results of operations.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company's profitability and success depend upon the Company's ability to
retain existing customers and develop additional customers. There can be no
assurance that the Company will be able to retain its major existing customers
or develop new customers. In fiscal 1995, 1996 and 1997, the Company's top
five customers accounted for approximately 39.3%, 31.3% and 28.0%,
respectively, and the Company's top ten customers accounted for 52.8%, 46.4%
and 43.3%, respectively, of net sales. In addition, certain of the Company's
customers also manufacture and sell products that compete with the Company's
products. A loss by the Company of a significant customer would be likely to
adversely affect the Company's business, financial condition or results of
operations. See "Business--Sales and Marketing; Customers" and "Business--
Competition."
7
<PAGE>
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS
Quarterly revenues and results of operations in the future may fluctuate as a
result of a variety of factors, including changes in product mix, demand for
the Company's products, the introduction of new products and product
enhancements by the Company or its competitors, changes in customer budgets,
competitive conditions in the industry and general economic conditions. In
addition, the Company typically ships products within 30 days of receiving an
order and, therefore, does not customarily have a material backlog of orders
for its products. Because a significant portion of the Company's operating
expenses are fixed in the short term, the Company's business, financial
condition or result of operations may be adversely affected if orders for the
Company's products fall below the Company's expectations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results."
RISK OF LIMITED SUPPLY SOURCES
The Company purchases certain parts and supplies from a limited number of
vendors and in some instances from a single vendor. Some of the Company's
vendors are located in foreign countries and therefore base their pricing, in
part, on currency exchange rates. The Company currently relies on a primary
source of supply, Kyocera Corporation, a publicly held Japanese corporation,
for the majority of its thermal and thermal transfer printheads, and single
sources of supply for certain microprocessors used to control its printers. The
Company is vulnerable to limits in availability and changes in pricing, based
on exchange rate fluctuations or otherwise, and changes in product design by
these suppliers. The Company could experience delays in manufacturing and
shipping in the event the Company is required to find new suppliers for any of
these parts or supplies and such delays could adversely affect the Company's
business, financial condition or results of operations. See "Business--
Manufacturing and Purchasing."
INTERNATIONAL SALES
Approximately 26.9%, 29.9% and 31.3% of the Company's net sales in fiscal
1995, 1996 and 1997, respectively, were to international customers and the
Company expects that sales to international customers will continue to
represent a material portion of its net sales in the foreseeable future. In
addition, the Company believes that many of its U.S. Resellers and OEMs sell a
significant amount of the Company's products to international end users. Risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade
barriers, trade embargoes, political instability, longer accounts receivable
payment cycles and greater difficulties in accounts receivable collection in
certain countries, costs and risks associated with localizing products for
foreign countries and the burdens of complying with foreign law. There can be
no assurance that these factors will not adversely affect the Company's ability
to increase or maintain its sales to international customers or adversely
affect the Company's business, financial condition or results of operations.
All sales to international customers are denominated in U.S. dollars.
Accordingly, the Company's competitive position in international markets is
affected by changes in the value of the U.S. dollar relative to foreign
currencies.
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
efforts of its senior management and certain other key personnel. If, for any
reason, one or more key personnel were not to remain active in the Company, it
could adversely affect the Company's business, financial condition or results
of operations. The Company's future success will depend upon its ability to
attract and retain additional qualified management, technical and marketing
personnel. There is competition in the market for the services of such
qualified personnel and there can be no assurance that the Company will be able
to attract and retain such personnel. A failure to attract and retain such
personnel could adversely affect the Company's business, financial condition or
results of operations. See "Management."
8
<PAGE>
PROPRIETARY RIGHTS
The Company's success depends upon its proprietary technology. Although the
Company has certain patents, it relies principally on unregistered copyrights
and trade secrets. The Company currently seeks to enter into confidentiality
agreements with its newly hired engineering, sales and marketing personnel;
however, until recently, substantially all of the Company's employees were
hired without such agreements. There can be no assurance that the Company's
failure to enter into such agreements with its employees will not adversely
affect its business, financial condition or results of operations. The Company
also generally seeks to enter into license agreements with its Resellers and
OEMs and limit access to its systems, documentation and other proprietary
information. It may be possible for unauthorized third parties to copy the
Company's products or to reverse engineer or obtain and use information that
the Company regards as proprietary. There can be no assurance that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies. In
addition, the laws of certain countries in which the Company's products are or
may be distributed do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. Although
the Company does not believe that its products infringe on the rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such
assertion will not result in costly litigation or require the Company to
obtain a license to intellectual property rights of such third parties. In
addition, there can be no assurance that such licenses will be available on
reasonable terms or at all, which could have an adverse effect on the
Company's business, financial condition or results of operations.
RISKS RELATED TO ACQUISITIONS
Historically, the Company was formed through the acquisition of other
businesses and a significant part of its growth has been through such
acquisitions. The Company, however, currently does not contemplate that
acquisitions will constitute a major part of its growth in the near future.
The Company does, however, evaluate acquisition candidates from time to time
and may choose to pursue acquisitions in the future. The Company is currently
in negotiations to acquire a small consumables manufacturer located in the
United Kingdom. There are a number of risks associated with any acquisition
including the substantial time and attention required from management in
connection with pursuing such transactions and integrating acquired
businesses, the difficulty of predicting whether the operations will perform
as expected and other problems inherent in the transition of one business
organization to another. In the event that the Company does pursue such
transactions in the future, there can be no assurance that the anticipated
benefits will be realized or that the Company will be able to effectively
manage the completion of any such transactions or the integration of any such
businesses. There can be no assurance that future acquisitions, if any, will
not adversely affect the Company's business, financial condition or results of
operations. In addition to acquisitions, the Company may enter into other
transactions, such as joint ventures, which may pose risks similar to those of
acquisitions.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's certificate of incorporation and bylaws
may inhibit changes in control of the Company not approved by the Company's
board of directors (the "Board of Directors" or the "Board"). These provisions
include (i) a classified Board, (ii) a prohibition on stockholder action
through written consents, (iii) a requirement that special meetings of
stockholders be called only by the Board, (iv) advance notice requirements for
stockholder proposals and nominations, (v) limitations on the ability of
stockholders to amend, alter or repeal the Company's bylaws and (vi) the
authority of the Board to issue, without stockholder approval, preferred stock
with such terms as the Board may determine. The Company is also afforded the
protections of Section 203 of the Delaware General Corporation Law, which
could have similar effects. See "Description of Capital Stock."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, the Company's officers, directors and their
affiliated entities will beneficially own approximately % ( % if the over-
allotment option is exercised in full) and one of such
9
<PAGE>
stockholders, Liberty Holdings, will beneficially own approximately % ( %
if the over-allotment option is exercised in full), of the issued and
outstanding shares of Common Stock. Pursuant to the terms of an agreement with
Liberty Holdings, the Company has agreed to nominate for election to the Board
two persons designated by Liberty Holdings for so long as Liberty Holdings or
its affiliates hold at least 20% of the outstanding Common Stock and one
person designated by Liberty Holdings for so long as Liberty Holdings or its
affiliates hold at least 10% but less than 20% of the outstanding Common
Stock. This may have the effect of delaying, deferring or preventing a change
in the control of the Company. See "Principal and Selling Stockholders" and
"Certain Relationships and Related Transactions."
SHARES ELIGIBLE FOR FUTURE SALE
There will be shares of Common Stock outstanding upon completion
of the Offering (excluding 2,398,894 shares reserved for issuance upon the
exercise of options granted pursuant to the Company's stock option plans,
1,810,256 of which relate to options that were outstanding as of May 30, 1997,
and excluding 500,000 shares reserved for issuance pursuant to the Company's
employee stock purchase plan, none of which had been purchased as of May 30,
1997). All of the shares sold in the Offering will be eligible for sale in the
public market without restriction upon completion of the Offering. All of the
remaining 7,962,184 shares of Common Stock will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). The Company and its directors, officers and all of its
existing stockholders have entered into agreements (the "Lock Up Agreements")
that provide, subject to certain limitations, that for a period of 180 days
after the commencement of the Offering they will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, offer,
sell, contract to sell, grant any option to purchase, or otherwise dispose of
or transfer any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except that certain stockholders
may sell shares of Common Stock pursuant to the Offering. Upon the expiration
of the Lock Up Agreements, these 7,962,184 shares will be eligible for sale in
the public market pursuant to Rule 144.
Within 90 days after the date of this Prospectus, the Company intends to
file a registration statement covering the sale of an aggregate of 2,398,894
shares of Common Stock reserved for issuance under its stock option plans and
500,000 shares of Common Stock reserved for issuance under its employee stock
purchase plan. Of the 2,398,894 shares of Common Stock reserved for issuance
under the Company's stock option plans, options to purchase 1,810,256 shares
of Common Stock were outstanding on May 30, 1997, 325,000 of which are not
subject to the Lock Up Agreements, and 1,529,456 of which are held by
officers, directors or current stockholders of the Company and, therefore, are
subject to the Lock Up Agreements. Of the 280,800 options not subject to the
Lock Up Agreements, 10,000 were exercisable on May 30, 1997, and the
associated shares of Common Stock will be eligible for sale to the public.
Upon the expiration of the Lock Up Agreements, 1,029,206 of the 1,529,456
options held by officers, directors or current stockholders will be
exercisable, and the associated shares of Common Stock will be eligible for
sale in the public market pursuant to Rule 144. Sales of substantial amounts
of the Common Stock in the public market could adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise additional capital through the sale of equity securities. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."
ABSENCE OF PRIOR PUBLIC MARKET; SUBSTANTIAL DILUTION
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations between the Company, the representatives of the Selling
Stockholders and the Representatives (as defined below) and may not be
indicative of the market price for shares of the Common Stock after the
Offering. For a description of factors considered in determining the initial
public offering price, see "Underwriting." There can be no assurance that an
active trading market for the Common Stock will develop or if developed, that
such market will be sustained. The market price for shares of the Common Stock
may be significantly affected by such factors as quarter-to-quarter variations
in the Company's results of operations, news announcements or changes in
general market conditions. In addition, broad market fluctuation and general
economic and political conditions may adversely affect the market price of the
Common Stock, regardless of the Company's actual performance. Purchasers of
the Common Stock in the Offering will be subject to immediate and substantial
dilution. See "Dilution."
10
<PAGE>
THE COMPANY
Datamax International Corporation is a holding company incorporated in
Delaware in 1991. The principal operations of the Company are conducted
through its wholly-owned subsidiaries, Datamax Corporation, Datamax Bar Code
Products Corporation and Pioneer Labels, Inc. ("Pioneer"). Datamax Corporation
was founded in 1977 as a specialized engineering company focused on the design
of high-speed, special application printers. Datamax entered the bar code
printer and supplies business in February 1993 by completing the acquisition
(the "Fargo Acquisition") of substantially all of the assets of the bar code
printer and consumables business of Fargo Electronics, Inc. ("Fargo"). Fargo
had been in the bar code printer business since 1989. Datamax entered the bar
code verifier business in November 1993 by acquiring certain verification
technology and patent rights from Symbol Technology, Inc. ("Symbol"). In
February 1996, Datamax purchased the stock of Pioneer, a manufacturer of
consumables. Datamax's principal offices are located at 4501 Parkway Commerce
Boulevard in Orlando, Florida 32808 and its telephone number is (407) 578-
8007.
The following Company trademarks are used in this Prospectus: Allegro(R),
Allegro(R)2, DATAMAX(R), "Design by Datamax and Globe Design(TM)," DMX(TM),
DPL(TM), FDK(TM), MaxWax(TM), Ovation!(TM), Ovation!(TM)2, Prodigy(TM),
Prodigy MAX(TM), Prodigy Plus(R), Solutions Connection(TM) and
WinOvation!(TM). This Prospectus also contains product names, trademarks and
trade names of other companies.
THE OFFERING RELATED TRANSACTIONS
The following transactions (the "Offering Related Transactions") will be
accomplished upon or prior to the consummation of the Offering: (i) the
issuance of shares of preferred stock and Common Stock upon the cashless
exercise of warrants and (ii) the mandatory conversion of all of the Company's
then outstanding shares of preferred stock into shares of Common Stock,
collectively resulting in the net issuance of 6,172,720 shares of Common
Stock.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, at an assumed initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
$46.0 million. The Company intends to apply the net proceeds of the Offering
as follows: (i) approximately $8.1 million to retire its outstanding Senior
Revolving Note and (ii) approximately $28.2 million to retire its Senior Term
Note (each as defined below). The remainder will be used for working capital
and for general corporate purposes. Pending such uses, the Company intends to
invest the net proceeds in short-term, investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of the United
States. In the ordinary course of its business and from time to time, the
Company evaluates potential acquisitions of businesses, products and
technologies that would complement or expand the Company's business. Although
the Company has no present commitments or agreements to complete any
acquisitions, other than its current negotiations to acquire a small
consumables manufacturer located in the United Kingdom, a portion of the net
proceeds of this Offering could be used in connection with such a transaction.
The Company's Senior Revolving Credit Note (the "Senior Revolving Note")
bears interest at a rate equal to prime plus 1.5% per annum (or 9.75% at
February 28, 1997) and requires annual commitment reductions beginning in
December 1998 through December 2000. The Company's Senior Term Note (the
"Senior Term Note") bears interest at a rate equal to prime plus 2% per annum
(or 10.25% at February 28, 1997) and requires principal payments quarterly
beginning in June 1993 through December 2000. The Senior Revolving Note and
the Senior Term Note are secured by substantially all of the Company's assets.
The Senior Revolving Note and the Senior Term Note were issued pursuant to
loan agreements between Datamax Corporation and SBA and are administered by
Liberty under a power of attorney. Liberty Holdings, an affiliate of Liberty,
will directly own 5,001,122 shares of Common Stock prior to the Offering after
giving effect to the Offering Related Transactions. Upon the repayment of the
Senior Revolving Note and the Senior Term Note, the unamortized portion of
debt discount and debt issuance costs, approximately $690,000 net of tax at
February 28, 1997, will be expensed as an extraordinary non-cash charge. See
"Principal and Selling Stockholders" and "Capitalization."
In connection with the Offering, the Company intends to enter into a new
revolving credit agreement with a commercial lender to provide funds for
working capital and for general corporate purposes.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders.
DIVIDEND POLICY
Datamax International Corporation has never paid or declared any cash
dividends on its Common Stock and anticipates that all of its income in the
foreseeable future will be retained for the development and expansion of its
business and therefore does not anticipate paying dividends on its Common
Stock in the foreseeable future. The Company anticipates entering into a new
revolving credit agreement upon consummation of the Offering. Such new
revolving credit agreement may contain provisions that limit or prohibit the
payment of dividends to Datamax International Corporation from its
subsidiaries for the purpose of paying dividends to holders of Common Stock or
otherwise.
12
<PAGE>
DILUTION
As of February 28, 1997, the Company's deficit in net tangible book value
was $11.9 million. Pro forma deficit in net tangible book value per share
represents total tangible assets (total assets less goodwill and other
intangibles) less total tangible liabilities (total liabilities increased by
the unamortized portion of debt discount and debt issuance costs) divided by
the number of pro forma shares of Common Stock outstanding. The number of pro
forma shares of Common Stock outstanding gives effect to the Offering Related
Transactions. See "The Offering Related Transactions."
After giving effect to (i) the Offering Related Transactions, (ii) the sale
by the Company of shares of Common Stock in the Offering and the
application of the net proceeds therefrom as set forth under "Use of Proceeds"
and (iii) the tax effect (which would be approximately $366,000) of the write-
off of the unamortized portion of debt discount and debt issuance costs of
approximately $1.1 million at February 28, 1997 upon the consummation of the
Offering, the pro forma net tangible book value of the Company would have been
$34.5 million or $ per common share. This represents an immediate
dilution of $ per share to new investors. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book deficit per share before the
Offering................................................ $(1.33)
Increase in pro forma net tangible book value (deficit)
per share attributable to:
Tax effect of non-recurring debt discount and debt
issuance cost write-off............................... .04
New investors..........................................
------
Pro forma net tangible book value per share after the
Offering..................................................
-------
Dilution per share to new investors........................ $
=======
</TABLE>
The following table, at February 28, 1997 after giving effect to the
Offering Related Transactions, summarizes the differences between existing
stockholders and new investors with respect to the number of shares purchased
from the Company, the total consideration paid to the Company, before
deducting underwriting discounts and commissions and estimated offering
expenses, and the average price per share paid by the existing stockholders
and by the new investors.
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1).... 8,962,184 $14,790,271 22.8% $1.65
New Investors(2)............ 50,000,000 77.2%
----------- -----
Total..................... $64,790,271 100.0%
=========== =====
</TABLE>
- ---------------------
(1) Does not include 2,398,894 shares of Common Stock reserved for issuance
under the Company's stock option plans, of which options to purchase
1,810,256 shares at a weighted average exercise price of $3.26 per share
are outstanding as of May 30, 1997. Also does not include 500,000 shares
reserved for issuance pursuant to the Company's employee stock purchase
plan, none of which had been purchased as of May 30, 1997. The Company
will have shares of Common Stock outstanding on a fully diluted
basis after giving effect to the Offering (at an assumed initial public
offering price of $ per share).
(2) Sales of Common Stock by the Selling Stockholders in the Offering will
reduce the number of shares held by existing stockholders to 7,962,184, or
approximately % of the total shares of Common Stock outstanding after
the Offering and will increase the number of shares held by new investors
to , or approximately % of the total shares of Common Stock
outstanding after the Offering. See "Principal and Selling Stockholders."
13
<PAGE>
CAPITALIZATION
The following table sets forth the cash, notes payable to stockholder and
capitalization of the Company as of February 28, 1997 and as adjusted to give
effect to (i) the sale of shares of Common Stock offered by the Company
at an assumed initial public offering price of $ per share and the
application of the net proceeds therefrom as set forth under "Use of
Proceeds," (ii) the elimination of the unamortized portion of debt discount
and debt issuance costs on debt to be repaid with the net proceeds of the
Offering and (iii) the Offering Related Transactions. The table should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. See "Use of Proceeds" and "The
Offering Related Transactions."
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................... $ 1,760 $10,147
======= =======
Current portion of long-term debt (1)...................... $ 5,348 $ 848
======= =======
Long-term debt, less current portion:
Notes payable to stockholder............................. $32,057 $ 0
Patent obligation........................................ 707 707
------- -------
Total long-term debt, net, less current portion........ 32,764 707
Stockholders' equity:
Preferred stock, $0.01 par value. 1,000,000 shares
authorized; no shares issued or outstanding............. 0 0
Series A, voting, convertible preferred stock, $0.01 par
value, 1,085,799 shares authorized; 1,085,799 shares
issued and outstanding; no shares authorized, issued or
outstanding as adjusted................................. 11 0
Series B, voting, convertible preferred stock, $0.01 par
value, 764,876 shares authorized; 500,000 shares issued
and outstanding; no shares authorized, issued or
outstanding as adjusted................................. 5 0
Common stock, $0.01 par value, 37,149,325 shares
authorized; 2,789,464 shares issued and outstanding;
shares issued and outstanding as adjusted(2)... 28
Additional paid-in-capital............................... 15,188
Retained earnings........................................ 14,963 14,273
------- -------
Total stockholders' equity............................. 30,195 75,504
------- -------
Total capitalization................................. $62,959 $76,211
======= =======
</TABLE>
- -------------------
(1) Includes bank borrowings, current portion of notes payable to stockholder
and patent obligation.
(2) Does not include 2,398,894 shares of Common Stock reserved for issuance
under the Company's stock option plans, of which options to purchase
1,810,256 shares at a weighted average exercise price of $3.26 per share
are outstanding as of May 30, 1997. Also does not include 500,000 shares
reserved for issuance pursuant to the Company's employee stock purchase
plan, none of which had been purchased as of May 30, 1997.The Company will
have shares of Common Stock outstanding on a fully diluted
basis after giving effect to the Offering (at an assumed initial public
offering price of $ per share).
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following statement of operations data for the four fiscal years ended
February 28, 1997, and the balance sheet data at the end of each such year
were derived from the Company's Consolidated Financial Statements and Notes
thereto, which were audited by Coopers & Lybrand L.L.P., independent auditors.
The statement of operations data for the first eight months of the twelve
months ended February 25, 1993, were derived from the financial statements of
Fargo for the year ended October 31, 1992, which were audited by Fargo's
independent auditors, and for the last four months of the twelve months ended
February 25, 1993, were derived from the financial statements of Fargo for the
four months ended February 25, 1993, which were audited by Coopers & Lybrand
L.L.P., independent auditors. This information should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR DATAMAX
------------- ----------------------------------------------------
TWELVE MONTHS YEAR ENDED
ENDED ----------------------------------------------------
FEBRUARY 25, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1993 (1) 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT SHARE DATA AND PRINTERS SHIPPED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $44,434 $47,600 $56,739 $67,762 $95,162
Cost of sales.......... 23,890 24,922 29,691 38,695 61,284
------- ------- ------- ------- -------
Gross profit........... 20,544 22,678 27,048 29,067 33,878
General and
administrative........ 2,522 3,169 3,574 3,843(2) 5,546(2)
Sales and marketing.... 2,174 2,595 4,214 5,661 6,773
Research and
development........... 934 1,597 3,952 5,587 4,616
Amortization of
goodwill and other
intangibles........... -- 2,455 2,566 2,613 2,838
Write-off of goodwill
and other
intangibles........... -- -- -- 2,071 --
Stock option
compensation (3)...... -- 2,351 262 722 2,168
------- ------- ------- ------- -------
Income from continuing
operations before
interest, taxes and
other income.......... 14,914 10,511 12,480 8,570 11,937
Interest and other
expense, net.......... 85 4,808 5,280 5,100 5,096
------- ------- ------- ------- -------
Income from continuing
operations before
income taxes.......... 14,829 5,703 7,200 3,470 6,841
Income tax expense..... -- 2,101 2,343 1,201 2,374
------- ------- ------- ------- -------
Income from continuing
operations............ 14,829 3,602 4,857 2,269 4,467
DISCONTINUED OPERATIONS
(4):
Income (loss) from
operations of
discontinued business
(net of taxes)....... -- 613 (327) (267) --
Loss on disposal of
discontinued
business, including a
provision of $267,882
for operating losses
(net of tax benefits)
during phase-out
period............... -- -- -- (1,211) --
------- ------- ------- ------- -------
Net income............ $14,829 $ 4,215 $ 4,530 $ 791 $ 4,467
======= ======= ======= ======= =======
NET INCOME (LOSS) PER
COMMON SHARE:
Continuing operations. -- $ 0.54 $ 0.53 $ 0.24 $ 0.47
Discontinued
operations........... -- 0.09 (0.04) (0.16) --
------- ------- ------- -------
Net income ........... -- $ 0.63 $ 0.49 $ 0.08 $ 0.47
======= ======= ======= =======
Weighted average
shares outstanding... -- 6,714 9,313 9,297 9,282
PRO FORMA DATA (5):
Interest and other
expense (income),
net.................. -- -- -- -- $ (28)
Net income............ -- -- -- -- 7,054
Net income per common
share................ -- -- -- -- $
Weighted average
shares outstanding... -- -- -- --
OTHER DATA:
EBITDA (6)............ $15,810 $15,515 $15,793 $14,892 $18,445
Printers shipped...... N/A 36,140 44,300 49,500 57,800
BALANCE SHEET DATA (AT
PERIOD END):
Cash.................. -- $ 588 $ 142 $ 381 $ 1,760
Working capital....... -- 12,092 12,568 7,406 13,257
Total assets.......... -- 64,138 64,777 76,880 78,971
Total debt (7)........ -- 43,359 40,395 40,844 38,112
Stockholders equity... -- 15,667 20,498 23,558 30,195
</TABLE>
See footnotes on following page
15
<PAGE>
(1) Data relating to the statement of operations of the Company's predecessor,
Fargo, for the twelve months ended February 25, 1993, include results of
operations for product lines not acquired by the Company. Net sales
adjusted to exclude sales of product lines not acquired by the Company
would have been approximately $42.4 million for the twelve months ended
February 25, 1993. The Company believes that the adjustment to eliminate
the results of operations for the product lines not acquired would not have
a material effect on the selected historical and pro forma financial and
other data presented herein. The capital structure of the Company
subsequent to February 26, 1993, the date of the Fargo Acquisition,
differed from that of Fargo. As a result, share and balance sheet data are
not presented for the Predecessor. Fargo operated during fiscal 1993 as an
S corporation and therefore was not subject to federal and certain state
income taxes at the corporate level.
(2) General and administrative includes expenses of $849,000 in fiscal 1996
related to the preparation and filing of a registration statement which was
subsequently withdrawn and expenses of $884,000 in fiscal 1997 for
severance costs associated with two executive officers, including the
Company's former Chief Executive Officer, and costs associated with
replacing the Company's former Chief Executive Officer.
(3) In fiscal 1994 through 1997, the Company incurred non-cash charges to
earnings related to compensatory stock options. Stock option compensation
is recorded based upon the difference between the option exercise price and
the fair market value of the underlying stock measured at the grant date.
In fiscal 1994, as a result of modifications to certain existing stock
options and as a result of the grant of certain new options to employees,
the Company incurred non-cash compensation cost of $3.3 million that was
expensed over the three year period from fiscal 1994 through 1996, based
upon vesting provisions. In fiscal 1997, as a result of additional
modifications to certain existing stock options, the Company incurred
additional non-cash compensation cost of $2.2 million, all of which was
expensed in fiscal 1997. At February 28, 1997, all of these compensatory
options were fully vested and the Company does not expect to incur
additional compensation expense associated with such options. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(4) During fiscal 1994 through 1996, the Company operated in two business
segments: (i) the bar code printer and related products segment and (ii)
the ATB Business. On November 3, 1995, the Company sold certain equipment,
inventory and intellectual property, effectively discontinuing the ATB
Business. Income from continuing operations and income per common share
from continuing operations do not reflect net income (loss) related to the
ATB Business. See "Managements Discussion and Analysis of Financial
Condition and Results of Operations--History" and Note 14 to the Company's
Consolidated Financial Statements.
(5) Gives effect to (i) the sale of shares of Common Stock offered by the
Company and the application of the net proceeds therefrom as set forth
under "Use of Proceeds," (ii) the elimination of the unamortized portion of
debt discount and debt issuance costs on debt to be repaid with the net
proceeds of the Offering and (iii) the Offering Related Transactions, as if
each had occurred at the beginning of the period presented. The unamortized
portion of debt discount and debt issuance costs, approximately $690,000
net of tax at February 28, 1997, will be expensed as an extraordinary non-
cash charge in the period in which the proceeds of the Offering are used to
extinguish debt. See "The Offering Related Transactions" and "Use of
Proceeds."
(6) "EBITDA" is income from continuing operations before interest, taxes,
depreciation, amortization and write-off of goodwill and other intangibles,
non-cash stock compensation and other income. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by GAAP. The Company, however, believes it is
generally accepted that EBITDA provides useful information regarding a
company's ability to service and/or incur indebtedness. EBITDA does not
take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary uses.
(7) Total debt includes notes payable to SBA, which are administered by Liberty
as investment manager under a power of attorney. Such notes will be paid in
their entirety from the proceeds of the Offering. Liberty is the manager of
Liberty Holdings, which will directly own 5,001,122 shares of Common Stock
after giving effect to the Offering Related Transactions. See "Use of
Proceeds" and "Principal and Selling Stockholders."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including management's discussion and analysis of financial
condition and results of operations, contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors." The following management's discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus.
HISTORY
Datamax was founded in 1977 as a specialized engineering Company focused on
the design of high-speed, special application printers and was acquired by
GTECH Corporation ("GTECH") in 1984. In 1986, Datamax designed and began
manufacturing and selling airline and travel agent printers and supplies to the
emerging airline ticket and boarding pass market (the "ATB Business"). In
August 1991, key members of the then existing Datamax management team and an
investment group acquired the ATB Business from GTECH.
Datamax Corporation entered the bar code printer and supplies business in
February 1993 by completing the acquisition of substantially all of the assets
of the bar code printer and consumables business of Fargo. Fargo had been in
the bar code printer business since 1989. The Fargo Acquisition was accounted
for as a purchase and the related net assets were included in the financial
statements at their estimated fair value at the date of the acquisition. The
aggregate purchase price of $48.0 million, including fees and expenses,
resulted in an allocation of $41.2 million for goodwill and other intangibles
that are being amortized on a straight-line basis over periods ranging from
five to 20 years. In connection with the Fargo Acquisition, the Company moved
the principal offices and manufacturing facilities of the acquired business
from Minnesota to Orlando, Florida.
On November 1, 1993, the Company acquired certain verification product
technologies from Symbol for an aggregate purchase price of $2.8 million. This
line of bar code verifiers is a complementary extension of the Company's
printer business. The acquisition was accounted for as a purchase and the
related net assets were included in the financial statements at their estimated
fair value as of the date of the acquisition. The acquisition resulted in an
allocation of $2.8 million for patent rights and goodwill that were being
amortized on a straight-line basis over periods ranging from 15 to 20 years.
During fiscal 1996, based on a reevaluation of the level of business generated
by the Symbol acquisition, the patents and goodwill were deemed to be impaired.
As a result, in fiscal 1996, the Company wrote-off $1.1 million and $0.9
million on the Symbol patents and goodwill, respectively, reducing the value of
such assets to zero.
On February 7, 1996, in order to provide additional manufacturing
capabilities and broaden distribution in its complementary consumables
business, the Company acquired Pioneer. The purchase price was $9.6 million in
cash plus contingent consideration of up to an additional $2.0 million, of
which $935,000 was paid in fiscal 1998 with up to the remainder payable in
fiscal 1999. The acquisition was accounted for as a purchase and the related
net assets were included in the financial statements at their estimated fair
value as of the date of the acquisition. The acquisition resulted in an
allocation of $9.2 million to goodwill (including the $935,000 payment made in
fiscal 1998) that is being amortized on a straight-line basis over 20 years.
In fiscal 1994 through 1996 the Company operated in two business segments:
(i) the bar code printer and related products business and (ii) the ATB
Business. In order to focus on its principal market, the bar code printer and
related products market, in September 1995 the Company decided to discontinue
the ATB Business and on November 3, 1995, the Company sold certain equipment,
inventory and intellectual property related to the ATB Business. For financial
reporting purposes, the Company accounted for the disposition of its ATB
Business as a discontinued operation. Accordingly, the Company's statements of
operations for fiscal 1994, 1995 and 1996, present the results of the
discontinued ATB Business separately from the results of continuing operations.
17
<PAGE>
OVERVIEW
The Company's net sales grew from $56.7 million in fiscal 1995 to $95.2
million in fiscal 1997, a compound annual growth rate of approximately 30%.
The primary drivers of growth during this period were the introduction of new
internally developed products, the enhancement of existing products, the
expansion and strengthening of the Company's distribution network,
particularly internationally, and the acquisition of Pioneer. Approximately
70% of the Company's growth during the period was from internal sources, with
the remaining 30% resulting from the acquisition of Pioneer.
Since 1993, significant investments in research and development were
required to broaden the Company's product offerings and to enhance its
existing products. As a result of internal development efforts, the Company
expanded its printer product offerings from the three product families
acquired from Fargo to the fourteen product families offered today. In fiscal
1997, approximately 42% of printer net sales were derived from new products
developed by the Company since the Fargo Acquisition.
The Company has made significant investments in sales and marketing during
this period to expand its international and domestic distribution channels and
to support new product introductions. These expenditures included investments
necessary to establish sales and support offices in both London and Singapore
to support international growth. As a result of these efforts, the Company's
products are sold by over 190 Resellers and OEMs, including approximately 131
VARs and systems integrators, 49 distributors and 12 OEMs, in more than 90
countries. Because OEMs are typically high volume customers, the relatively
small number of OEMs accounted for approximately 26.3%, 20.5% and 22.5% of the
Company's net sales in fiscal 1995, 1996 and 1997, respectively. The expansion
in the number of Resellers and OEMs has provided for broader distribution of
the Company's products and has reduced the Company's largest single customer
from approximately 15.4% of net sales in fiscal 1994 to approximately 7.6% of
net sales in fiscal 1997.
From fiscal 1995 to 1997, the Company's net sales to international customers
increased by $14.5 million, or 94.8%, to $29.8 million from $15.3 million, as
the Company expanded its support for international Resellers and OEMs and its
product lines for international markets. International markets typically have
a lower level of penetration and higher growth rates than domestic markets.
The Company expects its net sales to international customers will continue to
represent a significant portion of its total net sales for the foreseeable
future. See "Risk Factors--International Sales."
During the three year period from fiscal 1995 through 1997, gross margin as
a percentage of net sales has been affected by a number of factors. The
primary factors were (i) the introduction of new printer products which
generated lower gross margins than the Company's existing printer products,
(ii) high start-up costs associated with the introduction of these new
products and (iii) the increased level of consumables business, which
generates lower gross margins than printers. Gross margins on new printer
products declined as the costs of providing improved capabilities increased
printer costs and prices remained relatively constant. Production costs for
new products during the early stages of manufacturing are also typically
higher than for established products, as the Company typically develops and
enhances the manufacturing process for new products and implements tooling and
design modifications, resulting in reduced costs over time. Although gross
margins for consumables are typically lower than gross margins for printer
products, the lower gross margin is offset in part by a lower level of sales
and marketing and research and development expenses required to support the
consumables business. In the last two quarters of fiscal 1997, gross margin
improved sequentially as the above factors were more than offset by cost
reductions and price increases on a number of products.
During the four year period from fiscal 1994 through 1997, the Company
incurred non-cash charges to earnings related to compensatory stock options.
Stock option compensation is generally recorded based upon the difference
between the option exercise price and the fair market value of the underlying
stock measured at the
18
<PAGE>
grant date. In fiscal 1994, as a result of modifications to certain existing
stock options and as a result of the grant of certain new options to
employees, the Company incurred non-cash compensation cost of $3.3 million
that was expensed over the three year period from fiscal 1994 through 1996. In
fiscal 1997, as a result of additional modifications to certain existing stock
options, the Company incurred additional non-cash compensation cost of $2.2
million, all of which was expensed in fiscal 1997. At February 28, 1997, all
of these compensatory options were fully vested and the Company does not
expect to incur additional compensation expense associated with such options.
General and administrative includes expenses of $849,000 in fiscal 1996
related to the preparation and filing of a registration statement which was
subsequently withdrawn. As a result of the Company's decision not to proceed
with an offering, costs associated with the registration statement were
expensed. General and administrative also includes expenses of $884,000 in
fiscal 1997 for severance costs associated with two executive officers,
including the Company's former Chief Executive Officer, and costs associated
with replacing the Company's former Chief Executive Officer.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship that certain statement of operations items bear to net sales.
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0%
Cost of sales........................ 52.3% 57.1% 64.4%
----- ----- -----
Gross profit......................... 47.7% 42.9% 35.6%
General and administrative........... 6.3% 5.7% 5.8%
Sales and marketing.................. 7.4% 8.4% 7.1%
Research and development............. 7.0% 8.2% 4.9%
Amortization of goodwill and other
intangibles......................... 4.5% 3.9% 3.0%
Write-off of goodwill and other
intangibles......................... 0.0% 3.1% 0.0%
Stock option compensation............ 0.5% 1.1% 2.3%
----- ----- -----
Income from continuing operations
before interest, taxes and other
income.............................. 22.0% 12.5% 12.5%
Interest and other expense, net...... 9.3% 7.5% 5.4%
----- ----- -----
Income from continuing operations
before income taxes................. 12.7% 5.0% 7.1%
Income tax expense................... 4.1% 1.8% 2.4%
----- ----- -----
Income from continuing operations.... 8.6% 3.2% 4.7%
===== ===== =====
</TABLE>
YEAR ENDED FEBRUARY 28, 1997 COMPARED TO YEAR ENDED FEBRUARY 29, 1996
Net sales increased by $27.4 million, or 40.5%, to $95.2 million in fiscal
1997 from $67.8 million in fiscal 1996. Increased net sales were due
principally to an increase in shipments of bar code printers, parts and other
products and services, the acquisition of the Pioneer consumables business and
to a lesser degree to increased prices on certain of the Company's products.
The increase in net sales of bar code printers was primarily attributable to
shipments of new product families introduced in late fiscal 1996 and fiscal
1997, offset in part by decreased shipments of the Company's older product
families. Net sales, consisting primarily of printers, to the Company's
international customers increased by $9.5 million, or 47.0%, to 31.3% of net
sales in fiscal 1997 from 29.9% in fiscal 1996. Net sales of consumables
increased by $14.8 million to 23.3% of net sales in fiscal 1997 from 10.8% in
fiscal 1996, primarily due to the acquisition of Pioneer.
19
<PAGE>
Gross profit decreased as a percentage of total net sales to 35.6% in fiscal
1997 from 42.9% in fiscal 1996 due principally to a shift in product mix and
to continued high startup costs on certain new product families. The decline
due to a shift in product mix was caused primarily by two factors. First,
sales of new printers, which generated lower gross margins than older
printers, accounted for an increased percentage of total net sales. Second,
sales of consumables, which normally generate lower gross margins than printer
products, increased to 23.3% from 10.8% of net sales. In the third and fourth
quarters of fiscal 1997, gross margin improved to 36.7% and 36.9%,
respectively, from 33.1% in the second quarter as the shift in product mix and
high start-up costs were more than offset by cost reductions and price
increases on a number of products.
General and administrative expenses increased by $1.7 million, or 44.3%, to
$5.5 million in fiscal 1997 from $3.8 million in fiscal 1996 and increased as
a percentage of net sales to 5.8% in fiscal 1997 from 5.7% in fiscal 1996.
Increased expenses were due principally to increased costs to support
increased net sales. Also included in general and administrative expenses were
$884,000 in fiscal 1997 of severance costs associated with two executive
officers, including the Company's former Chief Executive Officer, and costs
associated with replacing the Company's former Chief Executive Officer, and
$849,000 in fiscal 1996 of costs associated with the preparation and filing of
a registration statement which was subsequently withdrawn.
Sales and marketing expenses increased by $1.1 million, or 19.6%, to $6.8
million in fiscal 1997 from $5.7 million in fiscal 1996, but decreased as a
percentage of net sales to 7.1% in fiscal 1997 from 8.4% in fiscal 1996. The
decrease as a percentage of sales was due to improved productivity and changes
in product and distribution mix. Increased expenses in absolute dollars were
driven primarily by the Company's introduction of new product families and the
expansion of its international and domestic distribution channels.
Research and development expenses decreased by $1.0 million, or 17.4%, to
$4.6 million in fiscal 1997 from $5.6 million in fiscal 1996 and decreased as
a percentage of net sales to 4.9% in fiscal 1997 from 8.2% in fiscal 1996.
Research and development expenses decreased primarily due to decreased
expenditures for consulting and prototype materials associated with the
development of new products. In addition, research and development expenses
decreased as a percentage of net sales due in part to a shift in product mix
as consumables, which require nominal research and development, accounted for
a substantially increased percentage of net sales.
Amortization of goodwill and other intangibles increased by $0.2 million, or
8.6%, to $2.8 million in fiscal 1997 from $2.6 million in fiscal 1996 due
principally to amortization of goodwill associated with the acquisition of
Pioneer.
Stock option compensation expense increased by $1.5 million to $2.2 million
in fiscal 1997 from $722,000 in fiscal 1996. In fiscal 1994 the Company
amended certain existing options and granted certain new options which
resulted in $3.3 million of non-cash compensation cost that was expensed over
the three year period from fiscal 1994 through 1996, based on vesting
provisions, resulting in $722,000 of expense in fiscal 1996. In fiscal 1997
the Company amended certain existing options which resulted in $2.2 million of
non-cash compensation cost, all of which was expensed in fiscal 1997 because
the options were fully vested at the time of the amendment. At February 28,
1997, all of these compensatory options were fully vested and the Company does
not expect to incur additional compensation expense associated with these
options.
Income from continuing operations before interest, income taxes and other
income increased by $3.4 million, or 39.3%, to $11.9 million in fiscal 1997
from $8.6 million in fiscal 1996 as a result of the above described changes.
Interest expense net of other income, which was primarily attributable to
interest paid on the Senior Revolving Note and the Senior Term Note, remained
relatively constant at $5.1 million in fiscal 1996 and 1997. The Company
intends to repay the Senior Revolving Note and the Senior Term Note out of the
proceeds of the Offering.
Income tax expense increased by $1.2 million to $2.4 million in fiscal 1997
from $1.2 million in fiscal 1996 due to an increase in taxable income as the
effective tax rate remained relatively constant.
Income from continuing operations increased by $2.2 million, or 96.9%, to
$4.5 million in fiscal 1997 from $2.3 million in fiscal 1996. Income from
continuing operations increased as a percentage of net sales to 4.7% in
20
<PAGE>
fiscal 1997 from 3.3% in fiscal 1996. The Company incurred no operating losses
or losses on disposal associated with the discontinued ATB Business in fiscal
1997, compared to a loss of $1.5 million in fiscal 1996.
Net income increased by $3.7 million to $4.5 million in fiscal 1997 from
$791,000 in fiscal 1996 as a result of the above described changes.
YEAR ENDED FEBRUARY 29, 1996 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
Net sales increased by $11.0 million, or 19.4%, to $67.8 million in fiscal
1996 from $56.7 million in fiscal 1995. Increased net sales were due
principally to an increase in shipments of bar code printers and to increased
sales of consumables and parts. The increase in net sales of bar code printers
was attributable to shipments of new product families introduced in fiscal
1996, as well as increased shipments of the Company's existing product
families. Unit prices for each of the Company's products remained relatively
constant compared to fiscal 1995. Net sales to the Company's international
customers increased by $5.0 million, or 33.0%, to 29.9% of net sales in fiscal
1996 from 26.9% in fiscal 1995. Net sales of consumables increased by $2.0
million, or 37.2%, to 10.8% of net sales in fiscal 1996 from 9.4% in fiscal
1995.
Gross profit decreased as a percentage of net sales to 42.9% in fiscal 1996
from 47.7% in fiscal 1995 due principally to a shift in product mix as new
product families, which generated lower gross margins, accounted for a larger
percentage of total net sales and to high start up costs associated with the
introduction of new products.
General and administrative expenses increased by $270,000, or 7.6%, to $3.8
million in fiscal 1996 from $3.6 million in fiscal 1995, but declined as a
percentage of net sales to 5.7% in fiscal 1996 from 6.3% in fiscal 1995.
Increased expenses were primarily due to $849,000 of costs associated with the
preparation and filing of a registration statement which was subsequently
withdrawn, that more than offset reductions in consulting and legal expenses.
Sales and marketing expenses increased by $1.5 million, or 34.3%, to $5.7
million in fiscal 1996 from $4.2 million in fiscal 1995, and increased as a
percentage of net sales to 8.4% in fiscal 1996 from 7.4% in fiscal 1995.
Increased expenses were driven primarily by the Company's introduction of new
product families and the expansion of its international and domestic
distribution channels.
Research and development expenses increased by $1.6 million, or 41.4%, to
$5.6 million in fiscal 1996 from $4.0 million in fiscal 1995, and increased as
a percentage of net sales to 8.2% in fiscal 1996 from 7.0% in fiscal 1995.
Research and development expenses increased primarily due to increased costs
for personnel and related costs associated with expanding the Company's
development staff, consulting costs and expenditures for prototype materials
related principally to the development of new product families.
Amortization of goodwill and other intangibles remained relatively constant
at $2.6 million in fiscal 1996 and fiscal 1995, but decreased to 3.5% of net
sales in fiscal 1996 from 4.5% of net sales in fiscal 1995.
Write-off of goodwill and other intangibles was $2.1 million as a result of
the impairment of goodwill and other intangibles related to the verification
product line acquired in fiscal 1994.
Stock option compensation expense in fiscal 1995 and 1996 related to the
amendment and grant of certain stock options in fiscal 1994 resulting in $3.3
million of non-cash compensation cost to be amortized over the three year
period of fiscal 1994 through fiscal 1996. Stock option compensation expense
increased by $460,000 to $722,000 in fiscal 1996 from $262,000 in fiscal 1995
based on vesting provisions relating to these options.
Income from continuing operations before interest, taxes and other income
decreased by $3.9 million, or 31.3%, to $8.6 million in fiscal 1996 from $12.5
million in fiscal 1995 as a result of the above described changes.
Income tax expense decreased by $1.1 million, or 48.7%, to $1.2 million in
fiscal 1996 from $2.3 million in fiscal 1995. The effective tax rate increased
to 34.6% in fiscal 1996 from 32.5% in fiscal 1995 principally due to a
decrease in the amount of tax credits available for research and development
in fiscal 1996.
21
<PAGE>
Income from continuing operations decreased by $2.6 million, or 53.3%, to
$2.3 million in fiscal 1996 from $4.9 million in fiscal 1995. Income from
continuing operations decreased as a percentage of net sales to 3.3% in fiscal
1996 from 8.6% in fiscal 1995.
Loss from operations of discontinued business (net of taxes) decreased by
$61,000 to a loss of $267,000 in fiscal 1996 from a loss of $328,000 in fiscal
1995. Additionally, the Company recorded a loss of $1.2 million on disposal of
discontinued business (net of taxes) in fiscal 1996 as a result of the
disposal of the ATB Business. Net income decreased by $3.7 million to $800,000
in fiscal 1996 from $4.5 million in fiscal 1995 as a result of the above
described changes.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth certain unaudited statements of operation
data for each of the eight consecutive quarters through the quarter ended
February 28, 1997. This information has been prepared by the Company on the
same basis as the audited consolidated financial statements and includes all
adjustments (consisting only of normal recurring adjustments believed by the
Company to be necessary) to present fairly the financial information for such
periods.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------- -----------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------- -----------------------------------------
MAY 31, AUG. 31, NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1995 1995 1996 1996 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales............... $16,323 $16,679 $16,849 $17,911 $21,499 $23,259 $25,064 $25,340
Cost of sales........... 8,628 8,975 9,509 11,583 13,870 15,556 15,868 15,990
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 7,695 7,704 7,340 6,328 7,629 7,703 9,196 9,350
General and
administrative......... 791 743 694 1,615(1) 1,429(1) 1,448(1) 1,311 1,358(1)
Sales and marketing..... 1,409 1,357 1,489 1,406 1,646 1,643 1,767 1,717
Research and
development............ 1,537 1,340 1,348 1,362 1,144 1,204 1,025 1,243
Amortization of goodwill
and other intangibles.. 636 659 641 677 735 672 715 716
Write-off of goodwill
and other intangibles.. -- -- -- 2,071 -- -- -- --
Stock option
compensation........... 66 656 -- -- 52 1,833 -- 283
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before interest, taxes
and other income....... 3,256 2,949 3,168 (803) 2,623 903 4,378 4,033
Interest and other
expense, net........... 1,354 1,326 1,208 1,212 1,370 1,313 1,263 1,150
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes.... 1,902 1,623 1 ,960 (2,015) 1,253 (410) 3,115 2,833
Income tax expense...... 650 496 752 (697) 435 (142) 1,081 1,000
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations.. $ 1,252 $ 1,127 $ 1,208 $(1,318) $ 818 $ (268) $ 2,034 $ 1,883
======= ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA (2).............. $ 4,140 $ 4,492 $ 4,046 $ 2,213 $ 3,765 $ 3,774 $ 5,483 $ 5,426
MARGINS:
Gross profit............ 47.1% 46.2% 43.6% 35.3% 35.5% 33.1% 36.7% 36.9%
Income (loss) from
continuing operations.. 7.7% 6.8% 7.2% (7.4%) 3.8% (1.2%) 8.1% 7.4%
EBITDA (2).............. 25.4% 26.9% 24.0% 12.4% 17.5% 16.2% 21.9% 21.4%
</TABLE>
- ------------------
(1) General and administrative includes expenses of approximately $849,000 in
the quarter ended February 29, 1996, related to the preparation and filing
of a registration statement which was subsequently withdrawn and expenses
of $388,000 and $221,000 in the quarters ended May 31, 1996 and August 31,
1996, respectively, for severance costs associated with two executive
officers, including the Company's former Chief Executive Officer, and
$275,000 in the quarter ended February 28, 1997 for costs associated with
replacing the Company's former Chief Executive Officer.
(2) "EBITDA" is income from continuing operations before interest, taxes,
depreciation, amortization and write-off goodwill and other intangibles,
non-cash stock compensation and other income. EBITDA does not represent
and should not be considered as an alternative to net income or cash flow
from operations as determined by GAAP. The Company, however, believes it
is generally accepted that EBITDA provides useful information regarding a
company's ability to service and/or incur indebtedness. EBITDA does not
take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses.
22
<PAGE>
Quarterly revenues and results of operations may fluctuate in the future as
a result of a variety of factors, including changes in product mix, demand for
the Company's products, the introduction of new products and product
enhancements by the Company or its competitors, changes in customer budgets,
competitive conditions in the industry and general economic conditions. See
"Risk Factors--Potential Fluctuations in Future Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal sources of liquidity have been cash flow generated
from operations and private sales of debt and equity securities.
The Company's principal working capital requirements are financing of
accounts receivable and, to a lesser extent, purchases of inventory. At
February 28, 1997, the Company had working capital of approximately $13.3
million, including $17.7 million of accounts receivable and $9.1 million of
inventories offset by $6.5 million of accounts payable and $3.9 million of
accrued expenses.
OPERATING ACTIVITIES
In fiscal 1995, operating cash flows were $5.7 million, resulting from $4.5
million of net income offset in part by increases in working capital,
principally an increase in accounts receivable of $3.6 million, to support
increased sales.
In fiscal 1996, operating cash flows increased to $8.5 million although net
income declined to $800,000 due principally to a $2.9 million increase in non-
cash charges relating to goodwill, other intangibles and stock option
compensation and a $5.2 million reduction in net working capital. Non-cash
charges increased principally due to the $2.1 million write-off of goodwill
and other intangibles associated with the Symbol acquisition. Net working
capital was reduced through the liquidation of assets of the discontinued
business which generated $4.4 million in cash and through a $6.4 million
increase in accounts payable. However, these reductions in net working capital
were offset in part by a $3.5 million increase in accounts receivable and by a
$3.7 million increase in inventory.
In fiscal 1997, operating cash flows declined to $6.7 million despite
increased profitability due primarily to an increase in net working capital as
accounts receivable increased by $3.4 million to support additional sales
growth and accounts payable declined by $2.9 million as the Company reduced
its average payment cycle.
INVESTING ACTIVITIES
In fiscal 1995, investing activities used cash of $1.8 million principally
as a result of the purchase of property and equipment primarily for the
expansion of production capacity, computer systems hardware and software and
leasehold improvements. Additionally, the Company purchased approximately $1.2
million of machinery and equipment which was financed through an operating
lease.
In fiscal 1996, investing activities used cash of $9.1 million principally
as a result of the acquisition of Pioneer for $9.6 million. Additionally, the
Company invested cash to purchase property and equipment for $2.6 million
principally for the tooling and the expansion of computer systems hardware and
software. Proceeds from the sale of discontinued business assets provided $3.0
million in cash from investing activities.
In fiscal 1997, investing activities used cash of $2.1 million principally
as a result of the purchase of property and equipment primarily for tooling
and the expansion of computer systems hardware and software.
The Company anticipates that its planned purchases of capital equipment in
fiscal 1998 will require expenditures of approximately $3.5 million consisting
primarily of the acquisition of tooling, equipment and computer systems
hardware and software.
23
<PAGE>
FINANCING ACTIVITIES
In fiscal 1995, financing activities used cash of $4.3 million as the
Company used cash generated by operations to reduce outstanding debt.
In fiscal 1996, financing activities provided cash of $796,000 as a result
of the reduction in debt by $750,000 offset by $1.5 million of cash received
from the issuance of stock.
In fiscal 1997, financing activities used cash of $3.2 million principally
to reduce outstanding debt. On October 1, 1996, to provide additional
liquidity, the Company amended and restated the Senior Loan Agreement
governing the Senior Revolving Note and Senior Term Note to increase the
Senior Term Loan to $30.0 million and increase the amount then available under
the Senior Revolving Note to $9.0 million. Additionally, the amendment
extended the repayment terms of both notes, modified the financial covenants
of the Senior Loan Agreement and terminated the Subordinated Loan Agreement
and Subordinated Note.
As of February 28, 1997, after giving effect to the Offering and the
application of the net proceeds to repay the Senior Term Note and the Senior
Revolving Note, the Company would have had long-term debt of $707,000 and
stockholders' equity of $75.5 million. Upon consummation of the Offering, the
Company's principal source of liquidity will be approximately $10.1 million of
cash. In addition, the Company anticipates entering into a new revolving
credit agreement with a commercial lender providing borrowing capacity of
approximately $20.0 million.
The Company believes that the net proceeds from the Offering, together with
existing cash balances, cash flows expected to be generated by operations and
amounts available under the Company's anticipated new revolving credit
agreement will be sufficient to meet the Company's cash requirements for
working capital and capital expenditures through fiscal 1999.
General price inflation has not had a material impact on the Company's
results of operations in any of the past three fiscal years.
24
<PAGE>
BUSINESS
COMPANY OVERVIEW
Datamax designs, manufactures and markets the bar code industry's broadest
line of thermal printers, including entry level, mid-range, high performance
and specialty thermal bar code printers. The Company is also one of the
world's highest volume manufacturers of thermal bar code printers, having
shipped approximately 58,000 printers in fiscal 1997 and over 250,000 printers
since 1989. The Company's products are distributed in more than 90 countries
through over 190 Resellers and OEMs. The Company also manufactures and markets
an extensive range of bar code consumables (label and ribbon products) and a
line of bar code verifiers, which are designed to ensure bar code label
scannability and quality. Fiscal 1997 net sales were 61% thermal bar code
printers, 23% consumables and 16% parts, verifiers and other related products
and services.
Bar coding technology allows users to capture, process and transmit data
quickly, accurately and cost-effectively and has become the predominant
technology in the automated identification and data collection ("Auto ID")
market. The health care, manufacturing, retail, telecommunications and
transportation and distribution industries and users in government and other
non-commercial settings have adopted bar code technology to improve
productivity and quality, to facilitate access to real-time information and to
reduce costly errors. Many of these industries have mandated the use of
industry specific bar code symbologies and label format standards and the
Company expects this trend to continue. The Company believes that future bar
code industry growth will be driven by further penetration into these and
other existing markets as well as by the introduction of new bar code
applications and technologies. The Company also expects that the rate of
adoption of bar code technology in international markets will increase and
that international markets will exhibit stronger growth than markets in North
America. According to industry sources, 1996 worldwide shipments of bar code
printers were estimated to be $1.4 billion ($762 million North America, $613
million international), with forecasted annual growth of 15% through 2000 (10%
North America, 21% international). The 1996 worldwide bar code consumables
market was estimated to be $1.7 billion ($1.0 billion North America, $700
million international), with forecasted annual growth of 19% through 2000 (14%
North America, 24% international).
The Company has grown rapidly over the past several years. The primary
drivers of this growth were the introduction of new internally developed
products, the expansion of existing product families, the expansion and
strengthening of the Company's distribution network, particularly
internationally, and the acquisition of a bar code consumables company. The
Company's net sales grew from $56.7 million in fiscal 1995 to $95.2 million in
fiscal 1997, a compound annual growth rate of approximately 30%. Approximately
70% of this growth was from internal sources, with the remaining 30% resulting
from the acquisition.
Since March 1993, the Company has invested heavily in research and
development, has increased the number of its product families from three to
fourteen, has introduced the Company's first high performance and specialty
thermal bar code printers and has significantly expanded its line of bar code
consumables. The Company's development efforts, combined with increased
vertical integration and flexible manufacturing capabilities, have resulted in
products that are designed and manufactured for reliability and performance,
at a cost that allows the Company to provide superior value to customers. The
Company strives to improve product design and reduce costs on an ongoing
basis. The Company plans to continue to enhance the capabilities and quality
of its current products and to develop and introduce new products to meet
changing customer needs and developing industry standards.
The Company's products are sold exclusively through indirect distribution
channels, with over 190 Resellers and OEMs distributing the Company's
products. The Company believes its exclusive use of indirect channels of
distribution provides for optimal distribution of the Company's products
because it offers superior profit opportunities for its Resellers, encourages
OEMs to integrate Datamax products into their systems and minimizes marketing
and pricing conflicts between the Company and its distribution channels. In
addition, to allow OEMs to more easily configure Datamax products' internal
programming language into the OEM's specific language,
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the Company has developed its proprietary Firmware Development Kit software.
The Company believes that this product provides the Company a unique advantage
over competitors in the OEM market. Datamax also is in the process of
developing strategic relationships with several software providers as a part
of its "Solutions Connection" program to enable the Company's customers to
provide a more comprehensive range of solutions to end users.
INDUSTRY OVERVIEW
The Auto ID industry consists of the design, manufacture and marketing of
products and technologies that enable the automatic capture, processing and
transmission of data. Auto ID technologies include bar coding, radio frequency
identification and communications, smart cards, optical character recognition
and voice recognition. These technologies help eliminate errors commonly
associated with manual data entry and allow information to be entered into
computer databases, processed and transmitted in real time. Bar coding allows
users to capture, process and transmit data quickly, accurately and cost-
effectively and has become the predominant technology in the Auto ID market.
Bar code labels generally contain one or more machine-readable bar codes as
well as alphanumeric characters. Bar codes typically consist of a series of
vertical bars and spaces of specified widths, representing specific
alphanumeric and control characters. More complex two-dimensional ("2-D") bar
codes are now in use which can store much more information in a relatively
smaller space than traditional bar code symbologies. For example, a 2-D bar
code of approximately 2.25 by 2.25 inches can store the entire text of the
Gettysburg Address. The following are examples of typical bar code labels:
[INSERT GRAPHIC DEPICTING SAMPLE BAR CODE LABELS]
Bar code labels can be printed in large batches or "on-demand." On-demand
printing generally refers to the generation of labels at the point of use,
when and where they are needed, frequently in environmentally harsh
conditions. Unique variable data such as time of issue, serial number, weight,
part number, employee ID number or expiration date can be processed and
printed on site for immediate placement on the item to be identified.
The bar code segment of the Auto ID industry consists primarily of five
product categories: (i) printers that create bar code labels; (ii) hand-held
and stationary scanners that read and decode bar codes; (iii) data collection
terminals; (iv) labeling media and other consumables used with bar code
printers; and (v) software, services and other products. According to industry
sources, 1996 worldwide shipments of bar code products, which include
scanners, data collection terminals, printers, consumables (ribbons and
labels), software, services and other bar code products, was $7.25 billion.
Worldwide shipments of bar code printers in 1996 were estimated to be $1.4
billion ($762 million domestic, $613 million international) with forecasted
growth of 15% per year through 2000 (10% domestic, 21% international). The
1996 worldwide bar code consumables market was estimated to be $1.7 billion
($1.0 billion domestic, $700 million international) with annual growth of 19%
through 2000 (14% domestic, 24% international). The following charts show
percentages by category of 1996 North American and international shipments of
bar code products:
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[INSERT GRAPHIC REFLECTING 1996 PERCENTAGES BY CATEGORY OF NORTH AMERICAN AND
INTERNATIONAL SHIPMENTS OF BAR CODE PRODUCTS]
Source: Venture Development Corporation
The health care, manufacturing, retail, telecommunications and
transportation and distribution industries and users in government and other
non-commercial settings have adopted bar code technology to improve
productivity and quality, to facilitate access to real-time information and to
reduce costly errors. Many of these industries have mandated the use of
industry specific bar code symbologies and label format standards and the
Company expects this trend to continue.
Applications for bar code technology exist in many industries and markets,
including:
Health Care Bar code labels are used by hospitals and laboratories to
identify medication, blood and tissue samples. X-rays, patient
records and even patients are identified with bar code labels,
reducing operating costs and potentially reducing life-
threatening errors. Other applications exist in hospitals,
laboratories, health maintenance organizations, insurance
companies and medical device and pharmaceutical manufacturers.
Manufacturing Bar code labels are used in inventory control, work-in-process
management, lot tracking, quality assurance, tool tracking,
labor reporting, warranty tracking, product identification,
shipping and compliance labeling. Bar code labels can be used
in a variety of harsh manufacturing environments.
Retail Price information for each bar coded item is downloaded from a
store's computer system to the cash register which reduces
errors, speeds checkout transactions and updates inventory
records in real time, enabling retailers to avoid overstock or
stock-out situations.
Telecommunications
Bar code labels are used for tracking printed circuit boards
in telephone switching equipment, for tracking fixed assets
and improving the processing of utility bills.
Transportation & Distribution
Bar code labels allow goods to be accurately tracked while in
transit. Most major package delivery and transportation
companies, including overnight package delivery services,
utilize bar coding to trace shipments from pickup to delivery.
Other Bar coding may be used anywhere information needs to be
collected, identified, monitored or recorded. For example:
. The U.S. Department of Defense uses bar coding to track
ordnance and other mission critical materiel.
. Insurance companies, mortgage banks and law firms use bar
coded file labels to track critical documents.
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. At trade shows, bar coded attendee badges help exhibitors
capture data for lead tracking.
. Ski resorts issue water resistant lift tickets that are bar
coded to monitor slope traffic patterns and help prevent
fraud.
. Bar coded member ID cards are scanned at video store rental
counters to track tapes, monitor sales and record customer
activity.
. Sporting, political and other high-profile events use bar
coded identification badges to restrict access.
. Museums use bar coded labels to track artwork and
artifacts.
. The U.S. Postal Service uses bar code print and apply
systems for change of address labeling.
. Lottery systems use bar code validation devices for
"instant win" lottery tickets to help prevent fraud.
The Company believes that future bar code industry growth will be driven by
further penetration into these and other existing markets as well as by the
introduction of new bar code applications and technologies. The Company also
expects that the rate of adoption of bar code technology in international
markets will increase and that international markets will exhibit even stronger
growth than markets in North America.
BAR CODE LABEL PRINTING
PRINTERS
A typical bar code label printer incorporates a variety of hardware, firmware
and software, including a power supply, a print engine, a microprocessor-based
controller and an internal or external label source. Several print technologies
can be used to generate bar code labels, including thermal transfer, direct
thermal, dot matrix, laser and ink jet. The following table briefly describes
each major bar code label printing technology:
Thermal Creates images by selectively heating very small printhead
Transfer elements to melt ink from a wax or resin-coated film ribbon
onto a paper or synthetic label.
Direct Creates images when the heated printhead elements come into
Thermal contact with paper chemically treated to change color when
heated. Uses essentially the same technique as thermal
transfer, but does not require a ribbon.
Dot Matrix Creates images when small hammers strike a fabric ribbon to
transfer ink to a printing surface.
Laser Creates images when a laser beam charges certain areas of a
rotating drum to form an image. Powdered toner ink is picked
up by these charged areas and then transferred to a label
using heat and pressure.
Ink Jet Creates images when small jets spray dots of ink onto a label
or a package surface.
For on-demand bar code label printing applications, thermal printing has
emerged as the preferred technology due to its speed, processing power, image
quality, high print resolution and cost. Thermal printers offer rugged, durable
designs ideal for environmentally demanding industrial applications. The term
"thermal printing" is often used to refer to both thermal transfer and direct
thermal printing technologies. Thermal transfer printing has become the most
prevalent bar code label printing technology because it (i) prints labels at
relatively low cost and with high quality compared to alternative bar code
printing technologies, (ii) can be used with a wide variety of smooth-surfaced,
general purpose paper and specialty synthetic materials and (iii) permits the
use of high-performance, environmentally resistant resin inks which are not
viable with other printing technologies. Direct thermal printing may be
preferable for cost sensitive customers who favor the simplicity of a
ribbonless system for short-term use under normal environmental conditions and
for customers who do not require certain synthetic labeling stock such as
plastics or metal foils.
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CONSUMABLE PRODUCTS
Bar code labeling media consists of two consumable components: bar code
labels and thermal transfer ribbons. Bar code labels are generally classified
as either paper or synthetic and are typically purchased by the end user in
rolls of precut individual labels, sized to meet such end users needs. Paper
is the most common labeling material and is the least expensive. More
expensive synthetic materials, including polyester, vinyl and mylar, are used
for applications where a label is subjected to excessive abrasion, heat,
ultra-violet light, chemicals or other destructive conditions. Thermal
transfer ribbons are available in three basic grades, based on durability and
image quality. Wax-based ribbons are the most common and are the least
expensive. More expensive resin-based ribbons are used for demanding
applications or with labeling stock that will not accept wax-based images.
Wax/resin combinations can afford the user some of the benefits of a resin-
based formulation at lower cost. Labeling media represents an opportunity for
recurring revenue that the Company believes will grow at a rate exceeding that
of the market for bar code printers as the industry's installed base of bar
code label printers continues to grow.
VERIFICATION PRODUCTS
Bar code verifiers ensure bar code scannability, quality and accuracy by
comparing a symbol's key characteristics with certain quality and
specification measures. On-line bar code verifiers are typically used in
conjunction with a printer or other device to automatically verify every bar
code symbol as labels are printed or applied. Portable bar code verifiers are
typically used to manually spot check the quality of labels after placement on
the item that they are intended to identify. In many industries, including the
automotive, retail, electronics and telecommunications industries, companies
require their suppliers to label shipments with bar coded labels and levy
significant fines on suppliers for out-of-spec or unscannable bar codes.
Consequently, verification is increasingly used by suppliers as a means to
protect their business by ensuring bar code scannability and quality.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
THE INDUSTRY'S BROADEST PRODUCT LINE
Datamax designs, manufactures and markets the bar code industry's broadest
line of thermal printers, including entry level, mid-range, high performance
and specialty thermal bar code printers. The Company also manufactures and
markets an extensive range of bar code consumables (label and ribbon products)
and a line of bar code verifiers. The Company believes that the breadth of its
product line gives the Company a competitive advantage in meeting the needs of
its customers by (i) providing them with a "one-stop shop" for reliable
thermal bar code printers and supplies, (ii) allowing them to reduce their
number of suppliers and the technical support costs associated with
maintaining multiple vendor relationships and (iii) enabling them to provide
end users with integrated systems designed to produce high quality bar code
labels. The Company plans to continue to enhance the capabilities of its
current line of thermal bar code printers and to develop and introduce new
products, such as the Company's new Windows-compatible printers, to meet
changing customer needs and developing industry standards. The Company's
strategy also calls for continued expansion of its line of consumables for
Datamax and competitive printers by expanding its own consumables operations
and by collaborating with, or potentially acquiring, consumables suppliers. In
addition, the Company plans to continue to upgrade and expand its line of bar
code verifiers for hand-held use and for integration with the Company's
printer products.
RELIABLE HIGH-QUALITY PRODUCTS
Datamax is committed to shipping products with the highest levels of
reliability and performance. The Company's product development program focuses
on designing and engineering products for long-term reliability and
performance in the field. In addition, the Company invested over $2 million in
fiscal 1997 in
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improved tooling and quality systems, internal process improvements, bar code
material tracking systems and employee training. As one measure of the
resulting improvements, the Company reduced corrective action requests
outstanding from its customers by 90% during fiscal 1997.
FLEXIBLE, LOW COST MANUFACTURING ENABLING EXCELLENT PRICE/PERFORMANCE RATIOS
The Company's products are designed and engineered for low cost
manufacturing while still providing superior performance, reliability and
quality. Through the combined efforts of engineering, marketing and
manufacturing, the Company continually strives for improved manufacturing
costs and flexibility through vertical integration, common and scaleable parts
across product lines, strategic vendor relationships and tooling investments
for mechanical and electronic (ASIC) parts. In addition, the design of the
Company's products and manufacturing facilities enable the Company to
routinely configure very small product runs to meet customers' individual
needs while still controlling costs. This capacity for "mass customization"
enables Datamax to provide thousands of custom product configurations with
superior price/performance ratios to customers.
EXCLUSIVE USE OF INDIRECT DISTRIBUTION CHANNELS
Because of the wide variety of applications for the Company's products and
because its products are frequently integrated with other bar code products to
form complete systems, the Company sells exclusively through indirect
distribution channels, with over 190 Resellers and OEMs, each offering
expertise in particular markets. The Company believes its exclusive use of
indirect channels of distribution provides for optimal distribution of its
products because it offers superior profit opportunities for its Resellers,
encourages OEMs to integrate Datamax products into their systems and minimizes
marketing and pricing conflicts between the Company and its distribution
channels. The Company's distribution strategy also provides its distribution
network with the opportunity to sell the Company's lines of consumables as
well as their own or third party consumables to end users without direct
competition from the Company. Over the past two fiscal years, the Company has
added 78 new Resellers and OEMs worldwide and plans to continue to make
significant investments in sales and marketing to expand its distribution
channels and to support new product introductions.
FOCUS ON INTERNATIONAL AS WELL AS DOMESTIC MARKETS
A key element of the Company's strategy is its focus on international
markets, which are forecasted by industry sources to grow even faster than
domestic markets. Since 1993, the Company has made significant investments in
sales and marketing to expand its international distribution channels. In
addition, the Company manufactures international versions of most of its
products, which are compatible with foreign power supplies and are available
in up to 40 languages, including Chinese and Kanji. As a result, international
sales have grown from $11.4 million (24% of net sales) in fiscal 1994 to $29.8
million (31% of net sales) in fiscal 1997. The Company plans to continue this
focus in the future, expanding its international distribution both within
currently served geographic regions and into new regions of the world.
PARTNERING TO PROVIDE INTEGRATED CUSTOMER SOLUTIONS
Through Company-developed and third party software and complementary
products, the Company enables its customers to provide integrated Auto-ID
systems solutions to end users utilizing Datamax printers. In addition, to
allow OEMs to more easily configure Datamax products' internal programming
language into the OEM's specific language, the Company developed and markets
its proprietary Firmware Development Kit software. The Company believes that
this product provides the Company a unique advantage over competitors in the
OEM market. Datamax also is in the process of developing strategic
relationships with several software providers as a part of its "Solutions
Connection" program to enable the Company's customers to provide a more
comprehensive range of solutions to end users. Examples of such solutions
include programs that enable Datamax printers to replace competing brands in
existing integrated systems and to provide specialized label formatting. The
Company plans to continue its focus on these programs to increase the number
of partners and provide an expanding portfolio of integrated solutions to
customers.
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PRODUCTS
Datamax designs, manufactures and markets the bar code industry's broadest
line of thermal printers, including entry level, mid-range, high performance
and specialty thermal bar code printers. The Company also manufactures and
markets an extensive range of bar code consumables (label and ribbon products)
and a line of bar code verifiers.
BAR CODE PRINTERS
The Company's Prodigy product family, introduced in 1989, was the first
thermal transfer bar code label printer to sell at a retail price of under
$3,000. By 1992, the Company's product line consisted of the Allegro, Prodigy
and Prodigy Plus product families. Since that time, Datamax has substantially
broadened its product line, introducing printers featuring print density up to
300 dots per inch ("DPI"), print speeds up to 10 inches per second ("IPS"),
print widths up to 8.5 inches and 32 bit RISC processors. With the addition of
the DMX 600 and DMX 800 product families, the Company entered into the high
performance segment of the bar code printer market. In 1995, the Prodigy Plus
Linerless and the PE 42 (print and apply engine) product families represented
the Company's first entry into the manufacture of specialty application
printers. Most recently, the Company has expanded the entry level segment with
a higher performance model of the original Allegro printer and lower cost
versions of the Ovation!, including one of the industry's first Windows
printers, the WinOvation!.
Set forth below is a table showing data relating to the Company's principal
product families:
<TABLE>
<CAPTION>
LIST
PRICE
PRODUCT DATE OF DENSITY SPEED WIDTH OF BASE
FAMILY PERFORMANCE INTRODUCTION (DPI) (IPS) (INCHES) PROCESSOR MODEL (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Allegro (2) Entry October 1992 203 2 4.1 8 bit $1,395
Allegro2 Entry April 1997 203 3 4.1 8 bit $1,395
Ovation!
(2) Entry October 1995 203/300 2 4.1 32 bit $ 995
Ovation!2
(2) Entry March 1997 203 2 4.1 16 bit $ 795
WinOvation! Entry March 1997 203 2 4.1 16 bit $ 795
Prodigy Mid May 1989 203 4 4.4 8 bit $2,195
Prodigy
Plus (2) Mid May 1991 203 8 4.1 8 bit $2,295
Prodigy MAX
(2) Mid October 1995 203/300 10 4.1 32 bit $2,195
DMX 400 Mid March 1994 203 4 4.1 32 bit $1,995
DMX 430 Mid August 1994 289 6 4.1 32 bit $2,695
DMX 600 (2) High November 1994 300 8 6.4 32 bit $5,250
DMX 800 (2) High May 1995 300 5 8.5 32 bit $6,250
Prodigy
Plus
Linerless Specialty August 1995 203 8 4.1 8 bit $3,295
PE 42 Specialty October 1995 203 10 4.1 32 bit $4,995
</TABLE>
- ---------------------
(1) Actual list prices vary depending upon the number of options and features
added to the base model. Actual price paid varies depending on customer
volume and applicable discounts.
(2) Also available in different OEM configurations.
Printers in each product family are designed to be easily configured with a
wide number of options to meet a particular end user's requirements. Optional
features include internal and external reminders for batch label printing;
cutters for producing individual labels or strips of labels; mechanisms to
peel away and rewind label backing as a label is dispensed; memory cards and
chips for storing label formats, graphics and fonts; memory expansion chips
for enhancing printer performance; and communications options that enable the
Company's products to operate in a range of computing environments. These
options add functionality and value for the end user and generate additional
revenue for the Company and its Resellers and OEMs.
Each of the Company's products incorporates Datamax designed computer
hardware, electromechanisms and firmware which operate the printer and enable
the printer to receive data from a host computer. Datamax printing systems
operate using DPL, a proprietary printer driver language which was designed by
the Company and is compatible with integrated Auto-ID systems running under
UNIX, MS/DOS and Windows. The Company
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also offers Windows drivers to facilitate the integration of other Datamax
printers into Windows based systems. In addition, the Company's Firmware
Development Kit allows OEMs to configure DPL into the OEM's specific language.
With the introduction of the WinOvation!, the Company now offers a Windows
only printer design. The Company believes that this approach provides a low
cost "plug and play" printer for the entry level segment.
The Company derived approximately 76%, 73% and 61% of its net sales from
sales of thermal bar code printers in fiscal 1995, 1996 and 1997,
respectively.
CONSUMABLES
The Company offers a variety of labeling media: both paper and synthetic
labeling stock and thermal transfer ribbons of varying formulations, widths,
lengths and colors. The Company typically manufactures and sells labeling
stock material which it prints, perforates, slits or die cuts into individual
labels to match customer specifications. Datamax's label products also
incorporate various adhesive formulations. For example, some adhesives are
permanent and will keep a label in place even with exposure to temperature
extremes, high humidity, chemical immersion or outdoor use. Others can be
easily removed without leaving a residue. Still others are tamper-evident and
will not come off in one piece if removal is attempted.
The Company also offers thermal transfer ribbons manufactured by third
parties to its exacting specifications in three basic formulations: "wax-
based," "resin-based" and "wax/resin" combinations. The Company has introduced
a high-performance wax-based ribbon, MaxWax, which it believes offers superior
performance, at comparable prices, relative to traditional wax-based ribbon
products.
The Company derived approximately 9%, 11% and 23% of its net sales from
sales of consumables in fiscal 1995, 1996 and 1997, respectively.
OTHER PRODUCTS AND SERVICES
The Company manufactures and markets on-line verifiers, which are used in
conjunction with a printer or other device to automatically verify every bar
code symbol, and portable verifiers, which are used apart from the printing
system to manually verify bar codes. The Company believes bar code verifiers
will become an important complement to its bar code printers, however, it does
not anticipate that net sales of verification products will represent a large
percentage of its annual net sales.
The Company offers replacement thermal printheads and parts used for the
repair of its printers. The Company also offers repair services at its
Orlando, Florida and metropolitan London locations for which it typically
charges time plus materials. In addition, certain of the Company's Resellers
and OEMs offer replacement parts and repair services for the Company's
printers. The Company typically offers a one year warranty on its bar code
printers and incurred approximately $144,000 of warranty expense in fiscal
1997.
The Company also provides contract manufacturing capacity for strategic
customers, whose products complement the Company's business strategy.
The Company derived approximately 15%, 16% and 16% of its net sales from
sales of other products and services in fiscal 1995, 1996 and 1997,
respectively.
SALES AND MARKETING; CUSTOMERS
Because of the wide variety of applications for the Company's products and
because its products are frequently integrated with other bar code products to
form complete systems, the Company sells exclusively through indirect
distribution channels, with over 190 Resellers and OEMs, each offering
expertise in particular markets. In accordance with its indirect distribution
strategy, the Company sells its products to its Resellers and OEMs at a
substantial discount to list price. The Company believes its exclusive use of
indirect
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channels of distribution provides for optimal distribution of the Company's
products because it offers superior profit opportunities for Resellers,
encourages OEMs to integrate Datamax products into their systems and minimizes
marketing and pricing conflicts between the Company and its distribution
channels. The Company's distribution strategy also provides its distribution
network with the opportunity to sell the Company's lines of consumable media as
well as their own or third party consumables to end users without direct
competition from the Company. In addition, to allow OEMs to more easily
configure Datamax products' internal programming language into the OEM's
specific language, the Company developed and markets its proprietary Firmware
Development Kit software. The Company believes that this product provides the
Company a unique advantage over competitors in the OEM market. Datamax also is
in the process of developing strategic relationships with several software
providers as a part of its "Solutions Connection" program to enable the
Company's customers to provide a more comprehensive range of solutions to end
users. In fiscal 1995, 1996 and 1997, the Company's top five customers
accounted for approximately 39.3%, 31.3% and 28.0%, respectively, and the
Company's top ten customers accounted for approximately 52.8%, 46.4% and 43.3%,
respectively, of net sales. See "Risk Factors--Dependence on Significant
Customers."
The Company has made significant investments in sales and marketing to expand
its international and domestic distribution channels and to support new product
introductions. The Company plans to continue to make significant investments in
sales and marketing to expand its distribution channels and to support new
product introductions and over the past two fiscal years has added 78 new
Resellers and OEMs worldwide. The Company's products are now distributed in
more than 90 countries. In addition, the Company expanded its presence in the
London metropolitan area and Singapore during fiscal 1997 to support its sales
and marketing efforts. The Company's distribution channel offers Datamax
products to a broad range of customers worldwide for use in bar coding systems.
Approximately 26.9%, 29.9% and 31.3% of the Company's net sales in fiscal 1995,
1996 and 1997, respectively, were to international customers and the Company
expects that sales to international customers will continue to represent a
material portion of its net sales in the foreseeable future. All sales to
international customers are denominated in U.S. dollars. In addition, the
Company believes that many of its U.S. Resellers and OEMs sell a significant
amount of the Company's products to international resellers and end users. See
"Risk Factors--International Sales."
Datamax's marketing strategy includes traditional marketing activities such
as advertising, public relations, trade shows, direct mail, market research and
reseller training sessions. The Company also utilizes advanced technology to
support its marketing efforts including the Internet and PC based configuration
and decision support tools for its resellers. The Company collaborates with
members of its distribution network to identify opportunities, and designs and
manufactures products based on their input. Customers attend periodic
"partners' conferences" where new and planned Datamax products, new
technologies, the marketplace, competition and other key issues are discussed.
Additionally, a "partners' advisory council" composed of representatives from
the Company's distribution channels meets several times annually with Datamax's
senior management to review market developments, product strategy and Company
direction. As part of its marketing and distribution strategy, the Company has
developed and worked with third-party software vendors to develop software that
enables its customers to provide fully integrated Auto-ID systems solutions to
end users utilizing Datamax printers.
In addition to its headquarters in Orlando, Florida, Datamax has offices in
Eden Prairie, Minnesota, Robinson, Illinois, metropolitan London and Singapore
to support sales and marketing efforts.
NEW PRODUCT DEVELOPMENT
Datamax designs, manufactures and markets the bar code industry's broadest
line of thermal printers, including entry level, mid-range, high performance
and specialty thermal bar code printers. Since March 1993, the Company has
invested heavily in research and development, has increased the number of its
product families from three to fourteen and has introduced the Company's first
high performance and specialty thermal bar code printers. The Company has also
significantly expanded its line of bar code consumables. The Company believes
that continued investment in research and development will be an important
factor to the Company's future success. The Company plans to continue to
enhance the capabilities of its current products and to introduce and develop
new products to meet changing customer needs and developing industry standards.
As a result, the
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Company invests considerable resources in developing new products to provide
customers in its targeted markets with cost effective solutions to their
printing needs. Research and development spending totaled $4.0 million, $5.6
million and $4.6 million in fiscal 1995, 1996 and 1997, respectively.
On February 28, 1997, the Company's engineering and development group
consisted of approximately 46 full time engineers and design staff experienced
in specialty printing applications as well as in mechanical. electronic,
firmware and materials engineering. The Company provides the engineering group
with computer aided design tools to facilitate an efficient design process and
to shorten product development cycles. The Company's engineers have the
ability to design in-house all mechanical parts, mechanisms, enclosures,
electronics and firmware used in the Company's products. Specialty groups
exist within engineering for the development of key components and
technologies such as DPL and FDK software, power supplies and application
specific integrated circuits. The Company also makes use of consultants in its
research and development group from time to time to support internal
development efforts.
MANUFACTURING AND PURCHASING
The Company's printer manufacturing operations, located in its Orlando and
Sanford, Florida facilities, consist primarily of metal fabrication, PC board
and cable manufacturing, the assembly and testing of products, as well as the
procurement of materials, components and subassemblies. The Company also
manufactures consumables at the Pioneer facility in Robinson, Illinois. The
Company purchases components, electronics subassemblies and custom parts from
around the world from a select vendor base.
The Company's products are designed and engineered for low cost
manufacturing while still providing superior performance, reliability and
quality. Through the combined efforts of engineering, marketing and
manufacturing, the Company continually strives for improved manufacturing
costs and flexibility through vertical integration, common and scaleable parts
across product lines, strategic vendor relationships and tooling investments
for mechanical and electronic (ASIC) parts. In addition, the design of the
Company's products and manufacturing facilities enable the Company to
routinely configure very small product runs to meet customers' individual
needs while still controlling costs. This capacity for "mass customization"
enables Datamax to provide thousands of custom product configurations with
superior price/performance ratios to customers.
The Company purchases certain parts and supplies from a limited number of
vendors and in some instances from a single vendor. Some of the Company's
vendors are located in foreign countries and therefore base their pricing, in
part, on currency exchange rates. Although the Company believes that
alternative sources are available for such parts and supplies, the Company
currently relies on a primary source of supply, Kyocera Corporation, a
publicly held Japanese corporation, for the majority of its thermal and
thermal transfer printheads, and single sources of supply for certain
microprocessors used to control its printers. The Company has generally been
able to obtain adequate supplies of these parts to date, but the Company is
vulnerable to limits in availability and changes in pricing, based on exchange
rate fluctuations or otherwise, and changes in product design by these
suppliers.
The Company's consumables operations are located in Robinson, Illinois and
include an art work facility, printing and converting presses, finishing
equipment for perforating, slitting and fan-folding and the manufacturing
support for procurement and fulfillment. The Company maintains an extensive
stock of consumables, including 136 label and 646 ribbon products, which are
typically shipped within one business day of order receipt. The Company
purchases its consumables from a wide variety of sources and believes that
alternative sources of supply are available for most of the consumable
products processed by the Company.
COMPETITION
The bar code printer and supplies market is highly competitive. Competition
has increased in the last several years as new competitors possessing
technological, marketing or other competitive advantages have entered the
market. A number of companies compete directly with the Company and certain of
the Company's competitors
34
<PAGE>
have significantly greater financial, technical or marketing resources than
the Company. Moreover, certain of the Companies international competitors may,
from time to time, experience competitive advantages or disadvantages as their
domestic currencies fluctuate relative to the U.S. dollar. Certain of the
Company's customers also manufacture and sell products that compete with the
Company's products. The Company considers its direct competition in the bar
code printer market to be suppliers of thermal transfer and direct thermal
printers and supplies. In addition, the Company believes that some of its
printers are used to print items other than bar code labels and therefore also
compete with standard computer and label printers and supplies. Competitive
pressures could cause the Company's products to have reduced market share or
result in price erosion, either of which could adversely affect the Company's
results of operations. The Company believes that competing successfully in the
Company's markets today depends on a number of factors including product
quality and reliability, product pricing and performance, product development
and innovation and the level of technical and sales support offered by the
manufacturer and available to distribution channels.
The Company's principal competitors in the thermal transfer and direct
thermal bar code printer and supplies market include: Zebra Technologies
Corporation, a manufacturer of thermal bar code printers and supplies;
Intermec Corporation, a manufacturer of bar code scanners. labels and thermal
label printers; Eltron International, Inc., a manufacturer of thermal bar code
printers and related supplies; Tokyo Electric Company and its affiliates,
manufacturers of a broad range of electronic products, including thermal bar
code printers; and Sato America, Inc., a manufacturer of thermal bar code
printers and related supplies. Intermec is also one of the Company's largest
customers, accounting for 7.6% of the Company's net sales in fiscal 1997.
INTELLECTUAL PROPERTY RIGHTS
The Company currently holds registered U.S. trademarks on the words or marks
Allegro, Datamax and Prodigy Plus, and trademarks on the words or marks
Allegro 2, DMX, DPL, FDK, MaxWax, Ovation! Ovation!2, Prodigy, Prodigy MAX,
Solutions Connection, WinOvation! and the phrase "Design by Datamax" and
accompanying globe emblem. The trademark "Prodigy" is used by the Company
under license from the holder thereof.
Although the Company has certain patents it relies principally on
unregistered copyrights and trade secrets. The Company currently seeks to
enter into confidentiality agreements with its newly hired engineering, sales
and marketing personnel; however, until recently, substantially all of the
Company's employees were hired without such agreements. There can be no
assurance that the Company's failure to enter into such agreements with its
employees will not adversely affect its business, financial condition or
results of operations. The Company also generally seeks to enter into license
agreements with its Resellers and OEMs and limit access to its systems,
documentation and other proprietary information. It may be possible for
unauthorized third parties to copy the Company's products or to reverse
engineer or obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technologies. In addition, the laws of certain
countries in which the Company's products are or may be distributed do not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. Although the Company does not believe
that its products infringe on the rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future or that any such assertion will not result in costly
litigation or require the Company to obtain a license to intellectual property
rights of such third parties. In addition, there can be no assurance that such
licenses will be available on reasonable terms or at all, which could have an
adverse effect on the Company's business, financial condition or results of
operations.
EMPLOYEES
On February 28, 1997, the Company employed a total of 537 employees. Of this
total, 46 were employed in the engineering and development group, 369 were
engaged in manufacturing, 46 were engaged in sales and marketing and 76 were
engaged in administration. None of the Company's employees is represented by a
labor union. The Company considers its relationship with its employees to be
good.
35
<PAGE>
FACILITIES
The Company's principal manufacturing, research and development, service,
administrative and warehouse facilities consist of approximately 86,800 square
feet located in Orlando, Florida, with approximately 53,200 square feet of
additional manufacturing and warehouse space located in nearby Sanford,
Florida and approximately 38,000 square feet of manufacturing and warehouse
space in Robinson, Illinois. The approximately 86,800 square feet occupied in
Orlando is occupied pursuant to various leases expiring on January 31, 1999.
The Sanford facility is occupied pursuant to a lease that expires on November
14, 2001. The Illinois facility is owned by the Company's wholly owned
subsidiary, Pioneer. The Company may be required to expand the Pioneer space
to accommodate planned growth in the Company's consumables business. The
Company also maintains sales offices in metropolitan London and Singapore
consisting of approximately 6,476 square feet in the aggregate under leases
expiring between April 30, 1998 and April 24, 2001. The Company believes its
property, equipment and manufacturing facilities are in good condition and
suitable for its needs.
LEGAL PROCEEDINGS
The Company is currently not a party to any material legal proceedings.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Chief Executive Officer and Chairman of the
Marvin A. Davis................. 59 Board
Thomas E. Turner................ 49 President and Director
Robert L. Wohlers............... 45 Senior Vice President, Chief Technical
Officer and Director
T. Michael Janney............... 48 Senior Vice President, Chief Financial
Officer and Treasurer
Dino G. Zampini................. 55 Senior Vice President, Operations
William M. Bouverie............. 54 Senior Vice President, Engineering
Peter E. Bennett................ 55 Director
Donald H. Gately................ 77 Director
Carl E. Ring, Jr................ 59 Director
Robert A. Spann................. 62 Director
Jeffrey A. Weber................ 32 Director
</TABLE>
Marvin A. Davis has served as Chief Executive Officer since April 1996, as
Chairman of the Board since April 1997 and as a director since 1994. Mr. Davis
also served as President of the Company from April 1996 to April 1997. Mr.
Davis served in his capacity as President and Chief Executive Officer from
April 1996 to February 1997 pursuant to a management agreement between the
Company and GGG, Inc., a management consulting firm. Mr. Davis was a member of
Grisanti, Galef & Goldress from 1983 to February 1997, when he resigned from
Grisanti, Galef & Goldress and became an employee of the Company. Mr. Davis is
also a director of Z-Axis Corporation, a litigation graphics manufacturer, and
Crown Crafts, Inc., a bedding manufacturer, both public companies.
Thomas E. Turner has served as President and a director of the Company since
April 1997. From 1993 through March 1997 he was the Executive Vice President
of Sales and Marketing for the Company. Prior to joining the Company, Mr.
Turner was Senior Vice President-North America of Symbol, a manufacturer of
bar code data capture systems, from 1990 to 1993. Prior to that time, Mr.
Turner was Director of U.S. Marketing Operations for Wang Laboratories, Inc.,
a manufacturer of computer equipment, from 1989 to 1990. He also served as
President and Chief Executive Officer of Wang Canada Ltd. from 1986 to 1989
and Director of International Marketing for Wang Laboratories, Inc. from 1983
to 1986.
Robert L. Wohlers has served as Senior Vice President and Chief Technical
Officer and a director of the Company since March 1993. Prior to that time, he
served as Vice President of the Company from 1991 to 1993 and Director of
Software Engineering of the Company from 1984 to 1991. Prior to joining the
Company, Mr. Wohlers worked for Stromberg Carlson Corporation, a manufacturer
of digital telephone switches, from 1981 to 1984, as a software engineering
specialist.
T. Michael Janney has served as Senior Vice President of the Company since
April 1997 and has been Chief Financial Officer and Treasurer of the Company
since 1993. From 1993 through March 1997, he also served as Vice President of
the Company. Prior to joining the Company, Mr. Janney held the position of
Executive Vice President and Chief Financial Officer of Laser Photonics, Inc.,
a provider of medical equipment, from 1987 to 1992.
37
<PAGE>
Dino G. Zampini has served as Senior Vice President, Operations of the
Company since March 1997. From 1993 through March 1997, he was Vice President,
Operations of the Company. Prior to joining the Company, Mr. Zampini was
Director of Engineering and Manufacturing at Bell & Howell Company, a
manufacturer of mail processing equipment, from 1988 to 1993. Previous
positions included Vice President of Operations of Lexicon Corporation, a
manufacturer of communications equipment and credit card verification devices,
from 1986 to 1988, and Vice President of Product Development and Manufacturing
for Coleco Industries, a manufacturer of consumer products, from 1978 to 1986.
William M. Bouverie has served as Senior Vice President, Engineering of the
Company since March 1997. From 1994 through March 1997, he was Vice President,
Engineering of the Company. Prior to joining the Company, Mr. Bouverie was
Vice President of Engineering for NAI Technologies, Inc., a manufacturer of
computer products and printing devices, from 1988 to 1993, and spent 10 years
with Eaton Corporation, a manufacturer of processors and controls for
electronic warfare systems.
Peter E. Bennett has served as a director of the Company since 1993. He is a
founding partner of Liberty Partners, L.P., whose general partner is Liberty
Capital Partners, Inc., an investment management firm, where he has served as
Managing Director since September 1992. For five years prior thereto, Mr.
Bennett was a Managing Director and Senior Vice President of Merrill Lynch
Interfunding Inc., a subsidiary of Merrill Lynch & Co., an investment banking
and brokerage firm. Mr. Bennett is also a director and stockholder of Liberty
Capital Partners, Inc. Mr. Bennett is a director of Aldila, Inc., a
manufacturer of golf club shafts.
Donald H. Gately has served as a director of the Company since February
1994. Mr. Gately joined the Company in 1994 as Executive Vice President and
Chief Operating Officer and held that position until he resigned in March
1997. Currently, Mr. Gately is General Manager of SpectraTurf, Inc., a
manufacturer of playground surfacing. Prior to joining Datamax, Mr. Gately was
President of Donald H. Gately & Associates, Inc., a management consulting
firm, from 1990 to 1994. From 1987 to 1990, Mr. Gately was President and Chief
Executive Officer of Illinois Coil Spring Company, a manufacturing concern.
Mr. Gately is also a director of Inrad, Inc., a manufacturer of crystals and
crystal devices for controlling modulating laser beams.
Carl E. Ring, Jr. has served as a director of the Company since March 1993
and as Chairman of the Board from April 1996 to April 1997. He is a founding
partner of Liberty Partners, L.P., whose general partner is Liberty Capital
Partners, Inc., where he has served as Managing Director since September 1992.
From 1991 to 1992, he was President of Eden, Miller & Co., Incorporated, an
investment banking firm. For more than five years prior thereto, Mr. Ring was
a Managing Director of Lehman Brothers, an investment banking and brokerage
firm. Mr. Ring is also a director and stockholder of Liberty Capital Partners,
Inc. Mr. Ring is a director of Monaco Coach Corporation, a manufacturer of
luxury recreational vehicles.
Robert A. Spann has served as a director of the Company since 1993. He is
Chairman of the Board, President, Chief Executive Officer and Chief Operating
Officer of Gilbert Engineering Co., Inc., a manufacturer of connectors for
cable television. He has served as its President since 1975.
Jeffrey A. Weber has served as a director of the Company since 1992. He has
been President and Chief Executive Officer for William A.M. Burden & Co., L.P.
("Burden"), a private investment partnership, since 1996. From 1992 until
1996, Mr. Weber was the Managing Director and Chief Investment Officer for
Burden. Mr. Weber is President and CEO of Burden Brothers, Inc. ("Burden
Brothers"), the general partner of Burden. From 1990 through 1992, Mr. Weber
was an Associate with Chemical Venture Partners, a venture capital
partnership.
Each director serves on the boards of Datamax International Corporation,
Datamax Corporation and Datamax Bar Code Products Corporation. The Board of
Directors is divided into three classes, as nearly equal in number as
possible, with each director serving a three year term and one class being
elected at each year's annual meeting of stockholders. Messrs. Gately and
Weber are in the class of directors whose term expires at the 1998 annual
meeting of the Company's stockholders. Messrs. Ring, Spann and Wohlers are in
the class of directors
38
<PAGE>
whose term expires at the 1999 annual meeting of the Company's stockholders.
Messrs. Bennett, Davis and Turner are in the class of directors whose term
expires at the 2000 annual meeting of the Company's stockholders. At each
annual meeting of the Company's stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three year terms and until their successors are elected and qualified. Messrs.
Ring, Weber and Gately are members of the Audit Committee; Messrs. Davis,
Bennett and Spann are members of the Compensation Committee; Messrs. Davis and
Bennett are members of the Executive Committee, and Messrs. Davis, Bennett and
Spann are members of the Stock Option Committee.
Pursuant to the terms of an Agreement Regarding Director Nominations with
Liberty Holdings, the Company has agreed to nominate for election to the Board
two persons presented by Liberty Holdings for so long as Liberty Holdings
continues to hold at least 20% of the outstanding Common Stock and one person
presented by Liberty Holdings for so long as Liberty Holdings holds at least
10% but less than 20% of the outstanding Common Stock. Currently, all members
of the Board of Directors are elected pursuant to the Stockholders Agreement,
which will be terminated upon the consummation of the Offering. See "Certain
Relationships and Related Transactions." All executive officers serve at the
discretion of the Board. There are no family relationships between any of the
directors or executive officers of the Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation for services in all
capacities paid to the Company's current and former Chief Executive Officers
and the four other most highly compensated executive officers (the "Named
Executives") for fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
--------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($) SARS (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin A. Davis
Chief Executive Officer 1997 $609,615(2) 100,000 -- -- -- -- $ 49,889(3)
Thomas E. Turner
President 1997 181,432 87,500 -- -- -- -- 7,542(4)
Robert L. Wohlers
Senior Vice President
and Chief Technical Of-
ficer 1997 214,014 17,500 -- -- -- -- 8,898(4)
Dino G. Zampini
Senior Vice President,
Operations 1997 127,005 20,000 -- -- -- -- 3,778(4)
William M. Bouverie
Senior Vice President,
Engineering 1997 127,005 20,000 -- -- -- -- 5,240(4)
Robert C. Strandberg
Former President and
Chief Executive Officer 1997 33,537 -- -- -- -- -- 410,105(5)
</TABLE>
- ---------------------
(1) Includes amounts earned in 1997, but deferred at each executive's election
pursuant to the Company's 401(k) profit sharing plan.
(2) Includes $600,000 in consulting fees paid to GGG, Inc. See "Certain
Relationships and Related Transactions."
(3) Includes reimbursements for personal living expenses.
(4) Represents employer contributions to the Company's 401(k) profit sharing
plan.
(5) Includes (a) $823 in employer contributions to the Company's 401(k) profit
sharing plan and (b) $409,822 in severance pay and consulting fees.
39
<PAGE>
The following tables disclose for the Named Executives information regarding
stock options granted or exercised during or held at the end of fiscal 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Marvin A. Davis......... 50,000 14% $6.03 6/17/01 $ 83,299 $184,069
270,000 75 6.03 9/11/01 449,814 993,971
Thomas E. Turner(1)..... -- -- -- -- -- --
Robert L. Wohlers....... -- -- -- -- -- --
Dino G. Zampini......... -- -- -- -- -- --
William M. Bouverie..... 1,000 * 6.03 6/17/01 1,666 3,681
20,000 6 6.03 6/17/01 33,320 73,628
Robert C. Strandberg.... -- -- -- -- -- --
</TABLE>
- ---------------------
* Less than 1%.
(1) On May 30, 1997, Mr. Turner was granted an option to purchase 100,000
shares of Common Stock at an exercise price per share of $9.12.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
SHARES ACQUIRED FISCAL YEAR END AT FISCAL YEAR END (1)
UPON EXERCISE VALUE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Marvin A. Davis......... -- -- 60,000/270,000
Thomas E. Turner........ -- -- 143,922/ 50,000
Robert L. Wohlers....... -- -- 355,556/ 0
Dino G. Zampini......... -- -- 0/ 40,000
William M. Bouverie..... -- -- 0/ 28,000
Robert C. Strandberg.... 222,222 $1,339,888 133,334/ 0
</TABLE>
- ---------------------
(1) At an assumed initial public offering price of $ per share, minus
the exercise price.
The Company did not grant any long term incentive awards in fiscal 1997.
DIRECTOR COMPENSATION
Each director (other than directors who are employees of the Company or who
are affiliated with a 1% or greater stockholder of the Company) receives an
annual retainer of $20,000 per year and is reimbursed for out-of-pocket
expenses related to the Company's business. Each director (other than
directors who are affiliated with a 1% or greater stockholder of the Company)
is also entitled to participate in the 1996 Long-Term Performance Incentive
Plan. See "--Stock Plans--1996 Stock Option Plan."
STOCK PLANS
1996 STOCK OPTION PLAN
The Company has adopted the Datamax International Corporation 1996 Long-Term
Performance Incentive Plan (the "1996 Stock Option Plan"), which provides for
the granting to directors, employees and other key individuals who perform
services for the Company ("Participants") the following types of incentive
awards: stock options, stock appreciation rights, restricted stock,
performance grants and other types of awards
40
<PAGE>
that the Board of Directors or a duly appointed committee of the Board of
Directors (the "Committee") deems to be consistent with the purposes of the
1996 Stock Option Plan. The 1996 Stock Option Plan affords the Company
latitude in tailoring incentive compensation to support corporate and business
objectives and to anticipate and respond to changing business environments and
competitive compensation practices.
An aggregate of 1,000,000 shares of Common Stock of the Company have been
reserved for issuance under the 1996 Stock Option Plan. Options for a total of
456,000 shares of Common Stock of the Company have been issued under the 1996
Stock Option Plan, at a weighted average exercise price of $6.71 per share and
having termination dates ranging from June 2001 to January 2002. All of these
options are outstanding, but not yet exercisable. Except for any other
adjustments made by the Board of Directors relating to stock splits or certain
other changes in the number of shares of Common Stock, or to reflect
extraordinary corporate transactions, further increases in the number of
shares authorized for issuance under the 1996 Stock Option Plan must be
approved by the stockholders of the Company.
STOCK PURCHASE PLAN
The Company has adopted the Datamax International Corporation Employee Stock
Purchase Plan (the "Stock Purchase Plan"), which permits employees of the
Company to purchase Common Stock at 85% of fair market value through payroll
deductions. All employees of the Company who have completed 90 days of
employment and who work at least 20 hours per week and 5 months per year are
eligible to participate in the Stock Purchase Plan. An aggregate of 500,000
shares of Common Stock are reserved for issuance under the Stock Purchase
Plan.
1991 STOCK OPTION PLAN
The DMX International Corporation 1991 Stock Option Plan (the "1991 Stock
Option Plan") provides for the granting of options to purchase a maximum of
2,108,756 shares of Common Stock, to directors, officers and key employees of
the Company. As of May 30, 1997, options for a total of 2,064,118 shares of
Common Stock have been issued under this Plan, 709,862 of which shares have
been exercised, 951,456 of which are exercisable and 402,800 of which are
outstanding but not yet exercisable, each with exercise prices ranging from
$0.005 to $6.03 and termination dates ranging from February 1998 to May 2003.
EMPLOYMENT AGREEMENTS
Datamax entered into an employment agreement with Mr. Turner in May 1993.
Pursuant to this agreement Mr. Turner was paid a salary and bonus of $268,932
in fiscal 1997.
Datamax entered into an employment agreement with Donald H. Gately in
February 1994, pursuant to which Mr. Gately was paid an annual salary of
$195,000 and an automobile allowance of $7,200. Mr. Gately resigned from the
Company in March 1995. In connection with Mr. Gately's resignation, the
Company agreed to pay Mr. Gately $202,700 through March 1, 1996.
Mr. Strandberg was President, Chief Executive Officer and Chairman of the
Board of Directors of the Company from 1991 until April 1996. He resigned on
April 25, 1996. Pursuant to his severance arrangements, the Company agreed to
pay Mr. Strandberg his salary, including an automobile allowance, through
April 1998 and to continue his health insurance for 18 months. During fiscal
1997, the Company paid a total of $148,429 to Mr. Strandberg under this
agreement.
G. William Hartman was a Director of Datamax from 1991 until June 1996 and
Senior Vice President and Chief Operating Officer of Datamax from March 1995
until June 1996. He resigned on June 28, 1996. Pursuant
41
<PAGE>
to his severance arrangements, the Company agreed to pay Mr. Hartman his
salary and automobile allowance through June 1997 and to continue his health
insurance coverage for 12 months. During fiscal 1997, the Company paid a total
of $129,875 to Mr. Hartman under this agreement.
In April 1996, Datamax entered into a management agreement with GGG, Inc.,
under which Mr. Davis commenced to serve as President and Chief Executive
Officer of the Company. During fiscal 1997, GGG, Inc. was paid a total of
$775,000 under this agreement. In February 1997, Mr. Davis resigned from
Grisanti, Galef & Goldress and became an employee of the Company. The Company
entered into an employment agreement with Mr. Davis in February 1997, pursuant
to which Mr. Davis is paid an annual salary of $500,000 plus a signing bonus
of $100,000 and an additional annual bonus of up to $150,000 to be determined
based on the Company's performance, together with reimbursement of expenses
for commuting, apartment and auto rental. The Company's agreement with GGG,
Inc. also required the Company to pay $175,000 to GGG, Inc. upon employing Mr.
Davis. Also during fiscal 1997, Mr. Davis was granted options to purchase up
to 320,000 shares of Common Stock of the Company, at an exercise price of
$6.03 per share, with termination dates ranging from June 2001 to September
2001. At the end of fiscal 1997, 50,000 of these shares were exercisable and
no shares had been exercised.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Strandberg, Davis, Bennett and Spann served as members of the
Company's Compensation Committee and Stock Option Committee during fiscal
1997. Mr. Strandberg is no longer a member of such committees. Mr. Bennett is
affiliated with Liberty and Liberty Holdings. See "Principal and Selling
Stockholders" and "Certain Relationships and Related Transactions."
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, giving effect to the Offering Related Transactions
as of May 30, 1997, and immediately following the Offering by (i) each person
who is known by the Company to own beneficially more than five percent of the
Common Stock, (ii) each director and Named Executive of the Company, (iii) all
directors and executive officers of the Company as a group and (iv) each
Selling Stockholder. To the knowledge of the Company, each of the persons
named in the table has sole voting and investment power with respect to the
securities beneficially owned by it or him as set forth opposite its or his
name unless otherwise noted and subject to community property laws where
applicable. See "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO THE AFTER THE
OFFERING OFFERING
----------------- NUMBER OF -----------------
NUMBER OF SHARES BEING NUMBER OF
SHARES PERCENT OFFERED(1) SHARES PERCENT
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS, NAMED
EXECUTIVES AND DIRECTORS:
Liberty Partners Holdings I,
L.L.C. (2).................. 5,001,122 55.8% -- 5,001,122
Burden Direct Investment Fund
I (3)....................... 125,000 1.4 125,000 --
William A.M. Burden & Co.,
L.P. (3).................... 400,004 4.5 400,004 --
William Hartman (4).......... 800,000 8.2 -- 800,000
Marvin A. Davis (5).......... 60,000 * -- 60,000
Thomas E. Turner (6)......... 187,118 2.1 -- 187,118
Robert L. Wohlers (7)........ 800,000 8.6 -- 800,000
Dino G. Zampini.............. -- * -- --
William M. Bouverie.......... -- * -- --
Robert Strandberg (8)........ 800,000 8.8 -- 800,000
Peter E. Bennett (2)......... -- -- -- --
Donald H. Gately (9)......... 44,200 * -- 44,200
Carl E. Ring, Jr. (2)........ -- -- -- --
Robert A. Spann (10)......... 10,000 * -- 10,000
Jeffrey A. Weber (3)......... -- -- -- --
All directors and executive
officers as a group
(12 persons)................ 613,678 6.4 -- 701,428
OTHER SELLING STOCKHOLDERS:
Other Selling Stockholders as
a group..................... 474,996 5.8% 474,996 --
</TABLE>
- ---------------------
*Less than 1%.
(1) Messrs. and and Liberty Holdings have granted to the
Underwriters a 30-day option to purchase up to an aggregate of
additional shares, solely to cover over-allotments, if any. If such
option is exercised in full, Messrs. , and Liberty Holdings
will own %, % and % of Common Stock, respectively. Messrs.
and are members of the Company's management.
(2) Liberty Holdings owns directly 5,001,122 shares of Common Stock. The
members of Liberty Holdings are Liberty Investments 5, Inc., which is
beneficially owned by SBA, and Liberty Investment Partners I, which is
beneficially owned by, among others, Directors Peter E. Bennett and Carl
E. Ring, Jr., as well as Michael J. Kluger and Paul J. Huston. The
manager of Liberty Holdings, which has sole voting and investment power
over the shares of Common Stock owned by Liberty Holdings, is Liberty
Partners, L.P. Liberty Capital Partners, Inc. is the general partner of
Liberty Partners, L.P. Peter E. Bennett, Carl E. Ring, Jr., Michael J.
Kluger and Paul J. Huston are directors and stockholders of Liberty
Capital Partners, Inc. and as such may be deemed to share beneficial
ownership of the shares deemed to be beneficially owned by
43
<PAGE>
Liberty Holdings. The business address of Liberty Capital Partners, Inc.,
Liberty Partners, L. P., Liberty Investment Partners I, Liberty
Investments 5, Inc. and Messrs. Bennett, Ring, Kluger and Huston is c/o
Liberty Capital Partners, Inc., 1177 Avenue of the Americas, 34th Floor,
New York, New York 10036.
(3) Burden Direct Investment Fund I ("Fund I") owns directly 125,000 shares
of Common Stock. William A. M. Burden & Co., L. P. ("Burden") and JAW
Holdings I, L.L.C. ("JAW") are the general partners of Fund I. Burden
Brothers, Inc. ("Burden Brothers") is the general partner of Burden and
as such may be deemed to share beneficial ownership of the shares
beneficially owned by Burden. Director Jeffrey A. Weber is President and
CEO of Burden Brothers and owns a majority interest in JAW and as such
may be deemed to have voting and dispositive power over the shares
beneficially owned by JAW, Burden Brothers and Fund I. Burden owns
directly 400,004 shares of Common Stock. Burden Brothers is the general
partner of Burden and as such may be deemed to be the beneficial owner of
the shares held by Burden. The business address of Fund I, Burden, JAW,
Burden Brothers and Mr. Weber is c/o William A.M. Burden & Co., L.P., 10
East 53rd Street, New York, New York 10022.
(4) Includes 244,444 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997. Includes 159,624
shares of Common Stock held by Mr. Hartman's former spouse, June C.
Winfield, and 68,000 shares of Common Stock held by Mr. Hartman's sons.
Mr. Hartman's business address is P.O. Box 1293, Winter Park, Florida
32790.
(5) Includes 60,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997.
(6) Includes 143,922 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997.
(7) Includes 355,556 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997.
(8) Includes 133,334 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997. Mr. Strandberg's
business address is c/o PSC Inc., 675 Basket Road, Webster, NY 14580.
(9) Includes 44,200 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997. Mr. Gately's business
address is c/o SpectraTurf, Inc., 310 Reed Circle, Corona, California
91719.
(10) Includes 10,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of May 30, 1997. Mr. Spann's business
address is c/o Gilbert Engineering Co., Inc., 5310 West Camelback,
Glendale, Arizona 85310.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Fargo Acquisition, the Company and the stockholders
of the Company at such time (the "Original Stockholders"), including Liberty
Investment Partners I, SBA and Mr. Wohlers, entered into a Stockholders
Agreement (the "Stockholders Agreement"). All of the current directors of the
Company were elected pursuant to the Stockholders Agreement. The Stockholders
Agreement will be terminated upon the consummation of the Offering.
Also in connection with the Fargo Acquisition, the Original Stockholders
entered into a Registration Agreement with the Company (the "Registration
Agreement"). The Registration Agreement provides for certain demand and
piggyback registration rights to the Original Stockholders and to subsequent
holders of the Common Stock. See "Shares Eligible for Future Sale--
Registration Agreement."
Pursuant to the terms of an Agreement Regarding Director Nominations, the
Company agreed to nominate for election to the Board two persons designated by
Liberty Holdings for so long as Liberty Holdings or its affiliates continue to
hold 20% of the outstanding Common Stock and one person designated by Liberty
Holdings for so long as Liberty Holdings or its affiliates hold at least 10%
but less than 20% of the outstanding Common Stock.
In connection with the Fargo Acquisition, the Company paid Liberty a fee of
$1.3 million and agreed to pay to Liberty a monthly monitoring fee of $10,000
for each month in which any amounts due under the Senior Revolving Note, the
Senior Term Note or the Subordinated Note remain outstanding. Liberty has
received aggregate monitoring fees of $480,000 as of February 28, 1997. The
monthly monitoring fee will terminate upon the repayment of such notes in
connection with the Offering. See "Use of Proceeds."
Liberty Holdings owns warrants to purchase an aggregate of 244,657 shares of
the Company's preferred stock and 2,886,948 shares of its Common Stock (the
"Warrants"). The exercise prices of the Warrants are $3.00 per share and $1.50
per share, respectively. The Warrants will be exercised by Liberty Holdings
concurrently with the Offering by applying the value of a portion of the
Warrants (equal to (i) the number of shares issuable under the Warrants being
exercised, multiplied by (ii) the initial public offering price less the per
share exercise price) in lieu of payment of the exercise price. Based upon an
assumed initial public offering price of $ per share Liberty Holdings will
receive 217,473 shares of preferred stock (all of which shares will be
converted into a total of 434,946 shares of Common Stock upon the consummation
of the Offering) and 2,566,176 shares of Common Stock upon the exercise of the
Warrants.
On November 21, 1994, the Company made a loan to Mr. Turner, President and
director of the Company, in connection with the exercise of certain of his
compensatory stock options, in the principal amount of $40,000 which bears
interest at an annual rate of 6% and which will become due and payable on or
before June 30, 1997. On March 6, 1995, the Company made an additional loan to
Mr. Turner in connection with the exercise of certain of his compensatory
stock options in the principal amount of $46,392 which bears interest at the
applicable federal rate and which will become due and payable on or before
September 30, 1997. As of the end of fiscal year 1997, the entire principal
amount of both loans was outstanding.
Datamax entered into an employment agreement with Mr. Turner in May 1993.
Pursuant to this agreement Mr. Turner was paid a salary and bonus of $268,932
in fiscal 1997.
Datamax entered into an employment agreement with Donald H. Gately in
February 1994, pursuant to which Mr. Gately was paid an annual salary of
$195,000 and an automobile allowance of $7,200. Mr. Gately resigned from the
Company in March 1995. In connection with Mr. Gately's resignation, the
Company agreed to pay Mr. Gately $202,700 through March 1, 1996.
Mr. Strandberg was President, Chief Executive Officer and Chairman of the
Board of Directors of the Company from 1991 until April 1996. He resigned on
April 25, 1996. Pursuant to his severance arrangements,
45
<PAGE>
the Company agreed to pay Mr. Strandberg his salary, including an automobile
allowance, through April 1998 and to continue his health insurance for 18
months. During fiscal 1997, the Company paid a total of $148,429 to Mr.
Strandberg under this agreement.
Mr. Hartman was a director of Datamax from 1991 until June 1996 and Senior
Vice President and Chief Operating Officer of Datamax from March 1995 until
June 1996. He resigned on June 28, 1996. Pursuant to his severance
arrangements, the Company agreed to pay Mr. Hartman his salary and automobile
allowance through June 1997 and to continue his health insurance coverage for
12 months. During fiscal 1997, the Company paid a total of $129,875 to Mr.
Hartman under this agreement.
In April 1996, Datamax entered into a consulting agreement with GGG, Inc.,
under which Mr. Davis commenced to serve as President and Chief Executive
Officer of the Company. During fiscal 1997, GGG, Inc. was paid a total of
$775,000 under his agreement. In February 1997, Mr. Davis resigned from
Grisanti, Galef & Goldress and became an employee of the Company. The Company
entered into an employment agreement with Mr. Davis in February 1997, pursuant
to which Mr. Davis is paid an annual salary of $500,000 plus a signing bonus of
$100,000 and an additional annual bonus of up to $150,000 to be determined
based on the Company's performance, together with reimbursement of expenses for
commuting, apartment and auto rental. The Company's agreement with GGG, Inc.
also required the Company to pay $175,000 to GGG, Inc. upon employing Mr.
Davis. Also during fiscal 1997, Mr. Davis was granted options to purchase up to
320,000 shares of Common Stock of the Company, at an exercise price of $6.03
per share, with termination dates ranging from June 2001 to September 2001. At
the end of fiscal 1997, 50,000 of these shares were exercisable and no shares
had been exercised.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of million shares of Common Stock, par value $0.01
per share and one million shares of preferred stock, par value $0.01 per
share, after giving effect to the Offering Related Transactions. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Each holder of Common Stock on the applicable record date is entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor and, in the event of liquidation, to share
pro rata in any distribution of the preferred stock. Each holder of Common
Stock is entitled to one vote for each share held of record on the applicable
record date on all matters presented to a vote of stockholders, including the
election of directors. There are no preemptive, subscription, redemption or
conversion rights or sinking fund provisions. There is no cumulative voting.
All outstanding shares of Common Stock are and the shares of Common Stock
offered hereby will be when issued, fully paid and nonassessable. The rights
preferences and privileges of holders of Common Stock are subject to and may
be adversely affected by, the rights of holders of any series of preferred
stock which the Board may designate from time to time. See "--Preferred
Stock."
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "DMAX." The transfer agent and
registrar for the Common Stock is SunTrust Bank, Atlanta, 58 Edgewood Avenue,
Annex Building Room 225, Atlanta, Georgia 30303.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board to issue one million
shares of preferred stock without further stockholder approval (except as may
be required by applicable law or stock exchange regulations). The Board is
authorized to cause the Company to issue shares in one or more series and to
fix, by resolution, the voting powers, liquidation preferences, dividend
rates, conversion rights, redemption provisions, participation, optional or
other rights, if any and the qualifications, limitations or restrictions
thereof, if any, including the number of shares in such series, without any
further vote or action by the stockholders. Any shares of preferred stock so
issued would likely have priority over the Common Stock with respect to
dividend or liquidation rights or both. The Company has no present plans to
issue any preferred stock.
WARRANTS
Liberty Holdings owns Warrants to purchase an aggregate of 244,657 shares of
the Company's preferred stock and 2,886,948 shares of its Common Stock. The
exercise prices of the Warrants are $3.00 per share and $1.50 per share,
respectively. The Warrants will be exercised by Liberty Holdings concurrently
with the Offering by applying the value of a portion of the Warrants (equal to
(i) the number of shares issuable under the Warrants being exercised,
multiplied by (ii) the initial public offering price less the per share
exercise price) in lieu of payment of the exercise price. Based upon an
assumed intitial public offering price of $ per share, Liberty Holdings
will receive 217,473 shares of preferred stock (all of which shares will be
converted into a total of 434,946 shares of Common Stock upon the consummation
of the Offering) and 2,566,176 shares of Common Stock upon the exercise of the
Warrants.
DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Delaware General Corporation Law (the "DGCL"), the Certificate of
Incorporation and the Bylaws contain several provisions that may make the
acquisition of control of the Company by means of a tender offer,
47
<PAGE>
open market purchase, proxy fight or otherwise more difficult. These
provisions are designed to encourage persons seeking to acquire control of the
Company to negotiate the terms with the Board. To the extent that these
provisions discourage takeover attempts, they could discourage accumulations
of large blocks of Common Stock, thus depriving stockholders of any advantages
which large accumulations of stock might provide.
The Certificate of Incorporation divides the Board into three classes, as
nearly equal in number as possible, serving staggered terms. Approximately
one-third of the Board is elected each year. See "Management." Under the DGCL,
directors serving on a classified board can only be removed for cause. The
provision for a classified board could prevent a party who acquires control of
a majority of the outstanding voting stock from obtaining control of the Board
until the second annual stockholders meeting following the date the acquirer
obtains the controlling stock interest. The classified board provision could
have the effect of discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of the Company and could
increase the likelihood that incumbent directors will retain their positions.
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The Certificate of Incorporation
provides that, except as otherwise required by law, special meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors. Stockholders are not permitted to call a special
meeting or to require the Board to call a special meeting.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder of record on the record date of the
meeting, who is entitled to vote at a meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Bylaws do not give the Board the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at a special or annual meeting, the Bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquirer
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.
The Company is subject to Section 203 of the DGCL, which prohibits certain
transactions between a publicly held corporation like the Company and an
"interested stockholder." An "interested stockholder" is defined, with respect
to a particular Delaware corporation (the "Subject Company"), as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15% or more of the outstanding voting shares of
the Subject Company. Section 203 prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 50% of the
consolidated assets of the Subject Company and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
Subject Company) between an interested stockholder and the Subject Company for
a period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination is approved by the Subject
Company's board of directors prior to the date the interested stockholder
acquired shares, (ii) the interested stockholder acquired at least 85% of the
voting stock of the Subject Company in the transaction in which it became an
interested stockholder or (iii) the business combination is approved by a
majority of the Subject Company's board of directors and by the affirmative
vote of two-thirds of the votes entitled to be cast by disinterested
stockholders at an annual or special meeting.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
There will be shares of Common Stock outstanding upon completion
of the Offering (excluding 2,398,894 shares reserved for issuance upon the
exercise of options granted pursuant to the Company's stock option plans,
1,810,256 of which relate to options that were outstanding as of May 30, 1997,
and excluding 500,000 shares reserved for issuance pursuant to the Company's
employee stock purchase plan, none of which had been purchased as of May 30,
1997). All of the shares sold in the Offering will be eligible for sale in the
public market without restriction upon completion of the Offering. All of the
remaining 7,962,184 shares of Common Stock will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). The Company and its directors, officers and all of its
existing stockholders have entered into agreements (the "Lock Up Agreements")
that provide, subject to certain limitations, that for a period of 180 days
after the commencement of the Offering they will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, offer,
sell, contract to sell, grant any option to purchase, or otherwise dispose of
or transfer any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except that certain stockholders
may sell shares of Common Stock pursuant to the Offering. Upon the expiration
of the Lock Up Agreements, these 7,962,184 shares will be eligible for sale in
the public market pursuant to Rule 144.
Within 90 days after the date of this Prospectus, the Company intends to
file a registration statement covering the sale of an aggregate of 2,398,894
shares of Common Stock reserved for issuance under its stock option plans and
500,000 shares of Common Stock reserved for issuance under its employee stock
purchase plan. Of the 2,398,894 shares of Common Stock reserved for issuance
under the Company's stock option plans, options to purchase 1,810,256 shares
of Common Stock were outstanding on May 30, 1997, 280,800 of which are not
subject to the Lock Up Agreements, and 1,485,256 of which are held by
officers, directors or current stockholders of the Company and, therefore, are
subject to the Lock Up Agreements. Of the 280,800 options not subject to the
Lock Up Agreements, 10,000 were exercisable on May 30, 1997, and the
associated shares of Common Stock will be eligible for sale to the public.
Upon the expiration of the Lock Up Agreements, 1,029,206 of the 1,529,456
options held by officers, directors or current stockholders will be
exercisable, and the associated shares of Common Stock will be eligible for
sale in the public market pursuant to Rule 144. Sales of substantial amounts
of the Common Stock in the public market could adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise additional capital through the sale of equity securities. See
"Description of Capital Stock."
In general under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquirer or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock (
shares immediately after the Offering) or the average weekly trading volume of
the Common Stock on all exchanges and/or reported through the automated
quotation system of a registered securities association during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule
144 are also subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the late of the date of acquisition
of restricted shares from the Company or from any affiliate of the Company and
the acquirer or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares in the public market under Rule
144(k) without regard to the limitations described above.
49
<PAGE>
REGISTRATION AGREEMENT
In connection with the Fargo Acquisition, the Company and the Original
Stockholders entered into the Registration Agreement. The Registration
Agreement provides for certain demand registration rights for the Original
Stockholders and subsequent holders of Common Stock. Holders of a majority of
the registrable securities held by the Original Stockholders (and their
permitted transferees) are entitled to request three long-form registrations in
which the Company pays all registration expenses and, subject to certain
limitations, an unlimited number of short-form registrations in which the
Company pays all registration expenses. The Company is not required to effect a
demand registration within six months of a previous registration in which
holders of registrable securities participated without reduction of the number
of their included shares.
The Registration Agreement also provides that, subject to certain
limitations, the Original Stockholders (and their permitted transferees) may
request inclusion of their shares in a registration of securities by the
Company (other than pursuant to a demand registration). Expenses incurred in
connection with the exercise of such piggyback registration rights are borne by
the Company.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1997 (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation and The Robinson-Humphrey Company, Inc. (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders, and the Company and the Selling Stockholders have agreed
to sell to them, the number of shares of Common Stock set forth opposite their
names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
The Robinson-Humphrey Company, Inc..........................
--------- ---
Total...................................................
========= ===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.
Certain of the Company's stockholders have granted to the Underwriters an
option exercisable within 30 days after the date of this Prospectus to
purchase, from time to time, in whole or in part, up to an additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions solely to cover over-allotments. To the extent that
the Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriters' initial commitment as indicated in the
preceding table. Such stockholders and the Underwriters have agreed that, in
the event such option is exercised in part, the Underwriters shall purchase the
shares from such stockholders on a pro rata basis.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The officers, directors and all of the existing stockholders of the Company,
including the Selling Stockholders, have agreed, subject to certain
limitations, that for a period of 180 days after the commencement of the
Offering, they will not, without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation, offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of or transfer any shares of Common
Stock or any securities convertible into exercisable or exchangeable for Common
Stock except that certain stockholders may sell shares of Common Stock pursuant
to the Underwriters' over-allotment option. See "Shares Eligible for Future
Sale." The Company has also agreed that, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock for a period of
180 days from the commencement of the Offering, except shares of Common Stock
issued pursuant to the exercise of outstanding options disclosed in this
Prospectus or options granted after the date of this Prospectus pursuant to the
Company's Stock Option Plans.
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<PAGE>
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price for the shares of Common Stock offered hereby
will be determined by negotiations among the Company, the representatives of
the Selling Stockholders and the Representatives. The factors to be considered
in determining the initial public offering price include the history of and the
prospects for the industry in which the Company competes, the past and present
operations of the Company, the historical results of operations of the Company,
the prospects for future earnings of the Company, the recent market price of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offering.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock in part
directly to the public initially at the price to the public set forth on the
cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
of not in excess of $ per share on sales to other dealers. After the
initial offering of the Common Stock, the public offering price and selling
terms may be changed by the Representatives. The Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. In addition, the Underwriters may bid for and purchase shares
of Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate
may reclaim selling concessions from syndicate members in the Offering if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Other than in the United States, no action has been taken in any jurisdiction
by the Company or the Underwriters that would permit a public offering of the
Common Stock in any jurisdiction where action for that purpose is required. The
Common Stock offered hereby may not be offered or sold, directly or indirectly,
and neither this Prospectus nor any other offering material or advertisements
in connection with the offer and sale of Common Stock may be distributed or
published in or from any jurisdiction, except under circumstances that will
result in compliance with applicable rules and regulations of any such
jurisdiction. Persons into whose possession this Prospectus comes are hereby
advised to inform themselves about and to observe any applicable restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock in any jurisdiction
or in any circumstances in which such offer or solicitation is unlawful.
Of the shares of Common Stock offered hereby, 170,000 shares have been
reserved (the "Reserved Shares") for sale to certain investors, including
employees of Datamax and members of their families. The Reserved Shares will be
sold at a price per share equal to the price to the public set forth on the
cover page of this Prospectus. The number of shares available to the general
public will be reduced to the extent those persons
purchase Reserved Shares. Any shares not so purchased will be offered in the
Offering at the price to the public set forth on the cover page of this
Prospectus.
As of the date of this Prospectus, The Robinson-Humphrey Company, Inc. and
its affiliates own 95,000 shares of Common Stock and are parties to the
Stockholders Agreement and the Registration Agreement. Donaldson, Lufkin &
Jenrette Securities Corporation, which is acting as one of the Representatives,
was paid $50,000 in 1995 for certain financial advisory services rendered to
the Company.
52
<PAGE>
LEGAL MATTERS
The validity of the Common Stock to be sold in the Offering will be passed
upon for the Company by Kirkland & Ellis, Chicago, Illinois. Certain partners
of Kirkland & Ellis own interests in a member of Liberty Holdings which owns
shares of Common Stock. Certain legal matters relating to the Offering will be
passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated balance sheets of the Company as of February 29, 1996 and
February 28, 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended February 28, 1997 included in this Prospectus and elsewhere in the
Registration Statement have been included herein in reliance on the reports of
Coopers & Lybrand L.L.P., independent accountants given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (together
with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act, with respect to the Common Stock being
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document referred to herein are
not necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable documents
filed as an exhibit to the Registration Statement. The Registration Statement
and the exhibits and schedules thereto may be inspected at the public
reference room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material may be obtained at
prescribed rates by writing the Commission. Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http:www.sec.gov.
53
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INDEX TO FINANCIAL STATEMENTS
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of February 29, 1996 and February 28,
1997................................................................... F-3
Consolidated Statements of Income for the years ended February 28, 1995,
February 29, 1996, and February 28, 1997............................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1995, February 29, 1996, and February 28, 1997............ F-5
Consolidated Statements of Cash Flows for the years ended February 28,
1995, February 29, 1996, and February 28, 1997......................... F-6
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Datamax International Corporation
We have audited the accompanying consolidated balance sheets of Datamax
International Corporation (formerly DMX International Corporation) and
Subsidiaries as of February 29, 1996 and February 28, 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Datamax
International Corporation and Subsidiaries as of February 29, 1996 and
February 28, 1997, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended February 28, 1997,
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Orlando, Florida
April 7, 1997, except for
Note 6 as to which
the date is May 21, 1997
F-2
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
29, 28,
ASSETS 1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 381,164 $ 1,760,321
Accounts receivable (less allowances of $513,675 at
February 29, 1996 and $393,065 at February 28,
1997)............................................... 14,462,628 17,701,505
Inventories 8,676,164 9,143,070
Deferred income taxes................................ 636,922 --
Income taxes receivable.............................. 518,834 --
Prepaid and other.................................... 620,063 664,090
Note receivable...................................... 681,802 --
----------- -----------
Total current assets............................... 25,977,577 29,268,986
Property and equipment, net............................ 5,715,571 6,219,965
Goodwill and other intangibles......................... 42,959,103 41,018,460
Deferred income taxes.................................. 1,413,215 2,123,596
Other assets........................................... 814,065 339,882
----------- -----------
Total assets....................................... $76,879,531 $78,970,889
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable..................................... $ 9,377,260 $ 6,517,498
Accrued compensation and benefits.................... 1,252,972 1,712,395
Other accrued liabilities............................ 1,129,722 2,064,440
Accrued liabilities of discontinued operations....... 609,600 95,200
Income taxes payable................................. 14,898 274,568
Bank borrowings...................................... 1,001,002 567,116
Current portion of notes payable to stockholder...... 5,000,000 4,500,000
Current portion of patent obligation................. 186,073 281,000
----------- -----------
Total current liabilities.......................... 18,571,527 16,012,217
Non-current patent obligation.......................... 1,113,927 707,180
Other non-current liabilities.......................... 93,549 --
Notes payable to stockholder, less current portion..... 33,542,750 32,056,717
----------- -----------
Total liabilities.................................. 53,321,753 48,776,114
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; no shares issued or outstanding......... -- --
Series A, voting, convertible preferred stock, $0.01
par value, 1,085,799 shares authorized shares issued
and outstanding of 1,085,799 at February 29, 1996
and February 28, 1997, aggregate liquidation
preference $2,384,010 at February 29, 1996 and
$2,599,280 at February 28, 1997..................... 10,858 10,858
Series B, voting, Convertible preferred stock, $0.01
par value, 764,876 shares authorized, 500,000 shares
issued and outstanding, liquidation preference
$2,590,100 at February 29, 1996 and $2,823,163 at
February 28, 1997................................... 5,000 5,000
Common Stock, $0.01 par value, 37,149,325 shares
authorized, shares issued and outstanding of
2,456,132 at February 29, 1996 and 2,789,464 at
February 28, 1997................................... 24,561 27,894
Additional paid-in capital........................... 13,019,938 15,187,937
Retained earnings.................................... 10,497,421 14,963,086
----------- -----------
Total stockholders' equity......................... 23,557,778 30,194,775
----------- -----------
Total liabilities and stockholders' equity......... $76,879,531 $78,970,889
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY
28, 29, 28,
1995 1996 1997
<S> <C> <C> <C>
Net sales............................... $56,739,315 $67,761,624 $95,161,684
Cost of sales........................... 29,690,979 38,694,227 61,284,197
----------- ----------- -----------
Gross profit............................ 27,048,336 29,067,397 33,877,487
General and administrative expenses..... 3,573,796 3,844,088 5,546,014
Sales and marketing expenses............ 4,214,409 5,660,881 6,773,140
Research and development expenses....... 3,951,597 5,586,982 4,615,701
Amortization of goodwill and other
intangibles............................ 2,566,385 2,612,647 2,837,485
Write-off of goodwill and other
intangibles............................ -- 2,071,042 --
Stock option compensation expenses...... 262,068 721,666 2,167,999
----------- ----------- -----------
Income from continuing operations before
interest, taxes and other income....... 12,480,081 8,570,091 11,937,148
Interest expense........................ (5,391,854) (5,372,805) (5,266,870)
Other income............................ 112,130 272,477 170,470
----------- ----------- -----------
Income from continuing operations before
income taxes........................... 7,200,357 3,469,763 6,840,748
Income tax expense...................... 2,343,165 1,201,094 2,373,584
----------- ----------- -----------
Income from continuing operations....... 4,857,192 2,268,669 4,467,164
Discontinued operations:
Loss from discontinued operations (net
of tax benefits)..................... (327,624) (266,538) --
Loss on disposal of discontinued
operations, including a provision of
$267,882 for operating losses (net of
tax benefits) during phase-out
period............................... -- (1,210,788) --
----------- ----------- -----------
Net income.............................. $ 4,529,568 $ 791,343 $ 4,467,164
=========== =========== ===========
Net Income (Loss) per Common Share:
Continuing operations................... $ 0.53 $ 0.24 $ 0.47
Discontinued operations................. (0.04) (0.16) --
----------- ----------- -----------
Net income per common share......... $ 0.49 $ 0.08 $ 0.47
=========== =========== ===========
Weighted average shares and equivalents
outstanding............................ 9,139,122 9,510,898 9,583,139
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1995, FEBRUARY 29, 1996 AND FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SERIES A SERIES B ADDITIONAL
CONVERTIBLE CONVERTIBLE COMMON PAID-IN RETAINED
PREFERRED PREFERRED STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28,
1994................... $ 5,858 $5,000 $24,129 $10,455,244 $ 5,176,510 $15,666,741
Exercise of 20,000
Common Stock options. -- -- 200 39,800 -- 40,000
Stock option
compensation expense. -- -- -- 262,068 -- 262,068
Net income............ -- -- -- -- 4,529,568 4,529,568
------- ------ ------- ----------- ----------- -----------
Balance at February 28,
1995................... 5,858 5,000 24,329 10,757,112 9,706,078 20,498,377
Exercise of 500,000
Series A Preferred
Stock warrants....... 5,000 -- -- 1,495,000 -- 1,500,000
Exercise of 23,196
Common Stock options. -- -- 232 46,160 -- 46,392
Stock option
compensation expense. -- -- -- 721,666 -- 721,666
Net income............ -- -- -- -- 791,343 791,343
------- ------ ------- ----------- ----------- -----------
Balance at February 29,
1996................... 10,858 5,000 24,561 13,019,938 10,497,421 23,557,778
Exercise of 333,332
Common Stock options. -- -- 3,333 -- (1,499) 1,834
Stock option
compensation expense. -- -- -- 2,167,999 -- 2,167,999
Net income............ -- -- -- -- 4,467,164 4,467,164
------- ------ ------- ----------- ----------- -----------
Balance at February 28,
1997................... $10,858 $5,000 $27,894 $15,187,937 $14,963,086 $30,194,775
======= ====== ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................. $4,529,568 $ 791,343 $4,467,164
Adjustments to reconcile net income to
net cash provided by operating
activities:
Stock option compensation.............. 262,068 721,666 2,167,999
Depreciation........................... 856,642 972,058 1,504,087
Amortization of goodwill and other
intangibles........................... 2,617,625 3,035,994 2,877,981
Write-off of goodwill and other
intangibles........................... -- 2,071,042 --
Amortization of debt discount and debt
acquisition costs..................... 874,095 808,437 763,967
Abandonment of property and equipment.. -- -- 100,059
Bad debt expense....................... 96,600 179,400 163,501
Deferred income taxes.................. (38,545) (1,584,827) (73,459)
Changes in assets and liabilities, net
of effects of acquisitions:
Accounts receivable................... (3,573,814) (3,665,542) (3,402,378)
Inventories........................... 688,946 (3,716,416) (466,906)
Prepaid and other..................... 2,785 (450,312) (44,027)
Note receivable....................... -- (681,802) 681,802
Other assets.......................... (611,046) (40,212) 474,183
Net assets of discontinued
operations........................... -- 4,443,438 --
Accounts payable...................... 523,993 6,351,873 (2,859,762)
Accrued compensation and benefits..... 382,715 (143,499) 459,423
Other accrued liabilities............. 67,102 (36,072) (248)
Accrued liabilities of discontinued
operations........................... -- 609,600 (514,400)
Income taxes payable.................. (1,301,468) (626,413) 778,504
Other................................. 279,766 (527,564) (391,044)
---------- ---------- ----------
Net cash provided by operating
activities.......................... 5,657,032 8,512,192 6,686,446
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment..... (1,640,040) (2,609,252) (2,125,237)
Purchase of Symbol verification
business.............................. (116,378) -- --
Purchase of ComTel Metals assets....... -- (1,083,103) --
Proceeds from sale and leaseback of
ComTel Metals equipment............... -- 1,200,000 --
Purchase of Pioneer Labels............. -- (9,577,173) --
Proceeds from sale of assets from
discontinued operations............... -- 3,000,000 --
---------- ---------- ----------
Net cash used in investing
activities.......................... 1,756,418 (9,069,528) (2,125,237)
---------- ---------- ----------
Cash Flows from Financing Activities:
Principal payments on debt............. (4,386,915) (4,750,000) (2,750,000)
Proceeds from issuance of debt......... -- 4,000,000 --
Principal payments on bank borrowings.. -- -- (433,886)
Proceeds from issuance of stock........ 40,000 1,546,392 1,834
---------- ---------- ----------
Net cash provided by (used in)
financing activities................ (4,346,915) 796,392 (3,182,052)
---------- ---------- ----------
Increase (decrease) in cash............. (446,301) 239,056 1,379,157
Cash and cash equivalents at beginning
of year................................ 588,409 142,108 381,164
---------- ---------- ----------
Cash and cash equivalents at end of
year................................... $ 142,108 $ 381,164 $1,760,321
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Supplemental Cash Flow Disclosures:
Income taxes paid...................... $3,507,000 $1,090,000 $2,431,000
Interest paid.......................... 4,715,000 4,680,000 4,320,000
</TABLE>
Supplemental Non-Cash Investing and Financing Information:
For fiscal years 1995 and 1997, see accompanying notes to the
consolidated financial statements for disclosure of non-cash investing and
financing activities.
On June 13, 1995 (fiscal year 1996), the Company purchased substantially
all of the property and equipment and Inventory of ComTel Metals, Inc. As a
result of the transaction, the Company received net assets of $1,353,912 in
exchange for a $270,809 note payable and $1,083,103 in cash.
On November 3, 1995 (fiscal year 1996), the Company entered into an
agreement to sell certain assets related to the discontinued business. The
Company received approximately $3,000,000 in cash and an eight-year non-
compete agreement for $1,000,000 at closing. The remaining purchase price
of approximately $682,000 was paid in November, 1996.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1995, FEBRUARY 29, 1996 AND FEBRUARY 28, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Asset Purchase--DMX International Corporation was formed in
July, 1991 for the purpose of acquiring Datamax Corporation. On August 26,
1991, DMX International Corporation purchased 100% of the outstanding stock of
Datamax from GTECH Corporation ("GTECH") and commenced operations. Subsequent
to February 28, 1995, DMX International Corporation changed its name to
Datamax International Corporation (the "Company" or "Datamax").
On February 26, 1993, the Company raised funds through the issuance of debt
and equity securities and purchased substantially all the net assets of Fargo
Electronics Inc.'s ("Fargo") bar code printer business (the "Fargo
Acquisition"). The following sets forth the sources and uses of funds in
connection with the acquisition:
<TABLE>
<S> <C>
Sources:
Debt securities............................................ $46,798,265
Debt related warrants...................................... 2,701,735
Equity securities.......................................... 2,932,992
Equity related warrants.................................... 1,567,008
-----------
$54,000,000
===========
Uses:
Purchase price, including acquisition costs................ $48,002,219
Line of credit payment..................................... 4,000,000
Transaction expenses:
Debt..................................................... 1,691,448
Equity................................................... 65,916
Cash for working capital................................... 240,417
-----------
$54,000,000
===========
</TABLE>
The $49,500,000 of debt security and debt related warrant financing was
provided by the State Board of Administration of Florida ("SBA"), The equity
for the transaction was provided by SBA, Liberty Investment Partners I ("LIP
I") and others. In connection with these transactions, the Company issued
warrants to purchase 264,876 shares of Series B Preferred Stock at an exercise
price of $3.00 per share and warrants to purchase 3,125,538 shares of Common
Stock at an exercise price of $1.50 per share. In accordance with the terms of
a warrant agreement, the number of shares subject to the preferred stock and
common stock warrants were reduced to 244,657 and 2,886,948, respectively, on
May 3, 1995. The value of the debt related warrants and the equity related
warrants issued in connection with the Fargo Acquisition was recorded at book
value as determined using a standard option pricing model with the remaining
value allocated to the common and preferred stock.
Pursuant to an investment management agreement, Liberty Partners L.P.
("Liberty") invests in debt and equity securities, on behalf of SBA. LIP I is
a limited partnership whose majority partners are the principals of Liberty.
Effective January 1, 1995, SBA and LIP I contributed their common equity
interests into Liberty Partners Holdings I, L.L.C., a Delaware limited
liability company of which Liberty is the sole manager. As such, Liberty holds
all voting and dispositive power over the common equity securities. In
conjunction with the February 26, 1993 debt financing, the Company paid
$1,303,000 in debt issue costs to Liberty. Additionally, the Company paid
management fees of $120,000 per year in fiscal 1995, 1996, and 1997 to
Liberty.
The Fargo acquisition was accounted for as a purchase and the related net
assets were included in the financial statements at their estimated fair value
at the date of acquisition. The aggregate purchase price of
F-8
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$48,002,219, including fees and expenses, was allocated on the basis of fair
values of the assets acquired and the liabilities assumed. The purchase price
was allocated as follows:
<TABLE>
<S> <C>
Accounts receivable.......................................... $ 3,623,237
Inventories.................................................. 3,599,985
Prepaid expenses............................................. 28,700
Property and expenses........................................ 263,405
Goodwill..................................................... 35,576,526
Other identifiable intangibles............................... 5,600,000
Liabilities assumed.......................................... (689,634)
-----------
$48,002,219
===========
</TABLE>
Nature of Business--Datamax designs, manufactures and markets thermal bar
code printers, including entry level, mid-range high performance and specialty
thermal bar code printers. The Company also manufactures and markets bar code
consumables (label and ribbon products) and a line of bar code verifiers.
Datamax sells its products exclusively through indirect distribution channels,
with a network of systems integrators, distributors, value added resellers and
original equipment manufacturers.
Principles of Consolidation--The accompanying financial statements have been
prepared on a consolidated basis to include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts,
transactions and unrealized profit have been eliminated in consolidation.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method.
Property and Equipment--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 30 years.
Goodwill and Other Intangibles--Goodwill is amortized on a straight-line
basis over 20 years. Other intangibles are amortized on a straight-line basis
over periods ranging from 5 to 10 years. The Company periodically evaluates
the recoverability of goodwill and other intangibles and measures any
impairment by comparison to estimated undiscounted cash flows from future
operations. The factors considered by management in performing this assessment
include current operating results, trend and prospects as well as the effects
of obsolescence, demand, competition and other economic factors.
Income Taxes--Income taxes are based on the asset and liability approach.
Deferred tax liabilities or assets reflect the impact of temporary differences
between amounts of assets and liabilities for financial and tax reporting.
Such amounts are subsequently adjusted, as appropriate, to reflect changes in
tax rates expected to be in effect when the temporary differences reverse. A
valuation allowance is established for any deferred tax asset for which
realization is not likely.
Revenue Recognition--Net sales are comprised of gross sales from shipment of
product to customers less product sales returns and allowances. The Company
recognizes sales upon shipment to customers. An estimate of the sales returns
and allowances is recorded in the period that the related product is shipped.
F-9
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising--Advertising costs are expensed as incurred and amounted to
approximately $1,108,000, $1,271,000 and $1,322,000 in fiscal years 1995, 1996
and 1997, respectively,
Net Income Per Common Share--Net income per common share has been computed
using the weighted average number of shares outstanding during each year plus
common equivalent shares arising from the effect of convertible preferred
stock and the assumed exercise of dilutive common stock warrants and
employees' stock options less the number of treasury shares assumed to be
purchased from the proceeds using the treasury stock method and the per share
market value of the common stock based on independent appraisals. Shares
issued within one year of the Company's proposed initial public offering at
prices below the offering price have been included in the calculation of
weighted average number of common shares for all periods presented in
accordance with rules promulgated by the Securities and Exchange Commission.
The difference between shares for primary and fully diluted income per share
was not significant for any period presented. Accordingly, fully diluted
income per share is not presented.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year classification.
Use of 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. Estimates also affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Research and Development--Research and development costs to develop new
products are charged to expense as incurred.
Recently Issued Accounting Standards--The Financial Accounting Standards
Board recently issued Statement No. 128, Earnings Per Share. This statement is
effective for the Company's fiscal year ending February 28, 1998 and
establishes standards for computing and presenting earnings per share.
Applying the provisions of this pronouncement, the Company would have reported
Basic EPS and Diluted EPS of approximately $1.60 per share and $.45 per share,
respectively, for the fiscal year 1997.
2. OTHER ACQUISITIONS:
On November 1, 1993, the Company purchased the bar code verification
business of Symbol Technologies, Inc. ("Symbol") for $1,000,000 in cash and an
obligation related to certain patent rights valued at $1,830,000, representing
the estimated future royalty payments due Symbol discounted at 11%, the
Company's incremental borrowing rate at such time. The acquisition was
accounted for as a purchase and the aggregate purchase price of $2,830,000 was
allocated to the fair value of assets acquired as follows:
<TABLE>
<S> <C>
Patent rights................................................ $1,830, 000
Property and equipment....................................... 84,500
Goodwill..................................................... 1,064,065
Liabilities assumed.......................................... (148,565)
-----------
$ 2,830,000
===========
</TABLE>
During fiscal year 1996, based on a reevaluation of the level of business
generated by the Symbol acquisition, the Symbol patent and goodwill were
deemed to be impaired. As a result, impairment losses of $1,123,775 and
$947,267 were recognized on the Symbol patent and goodwill, respectively.
F-10
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On June 13, 1995, the Company purchased substantially all of the property
and equipment and inventory of ComTel Metals, Inc., a metal fabrication
company in Sanford, Florida, for $1,083,103 in cash and a $270,809 note
payable. The acquisition was recorded as a purchase and the aggregate purchase
price of $1,353,912 was allocated to the fair value of assets acquired as
follows:
<TABLE>
<S> <C>
Property and equipment....................................... $1,200,000
Inventory.................................................... 270,809
Liabilities assumed.......................................... (116,897)
----------
$1,353,912
==========
</TABLE>
In connection with such purchase of assets, the Company entered into an
agreement with a bank for the sale at fair value and leaseback of the property
and equipment. The lease is for a period of five years and has renewal options
at projected fair market values. The lease is classified as an operating lease
and the book value of the property and equipment of $1,200,000 has been
removed from the balance sheet. Rental expense related to this lease is
approximately $270,000 annually.
On February 7, 1996, the Company purchased the common stock of Pioneer
Labels, Inc. ("Pioneer"), a manufacturer of consumables in Robinson, Illinois,
for $9,577,173. The acquisition was recorded as a purchase, and results of
operations from the date of acquisition have been included in the consolidated
financial statements. The aggregate purchase price was allocated to the fair
value of assets acquired as follows:
<TABLE>
<S> <C>
Property and equipment....................................... $1,301,055
Accounts receivable.......................................... 1,243,883
Inventory.................................................... 908,683
Goodwill..................................................... 8,309,295
Other assets................................................. 253,675
Liabilities assumed.......................................... (2,439,418)
----------
$9,577,173
==========
</TABLE>
Under the terms of the purchase agreement, the Company paid an additional
amount of approximately $935,000 in March 1997, since certain sales and gross
profit levels were achieved in fiscal year 1997. The Company may also be
required to pay additional contingent consideration not to exceed $1,065,000
in March 1999 if certain sales and gross profit levels are achieved in fiscal
year 1998. The $935,000 payment related to results achieved for fiscal year
1997 is reflected in the consolidated financial statements as an addition to
goodwill and an increase in other accrued liabilities.
3. INVENTORIES:
Inventories are summarized below:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
29, 28,
1996 1997
<S> <C> <C>
Raw materials....................................... $7,463,823 $7,214,015
Work in process..................................... 369,617 152,523
Finished goods...................................... 842,714 1,776,532
---------- ----------
$8,676,154 $9,143,070
========== ==========
</TABLE>
F-11
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4.PROPERTY AND EQUIPMENT:
Property and equipment are summarized below:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
<S> <C> <C>
Building...................................... $ 576,568 $ 581,970
Machinery and equipment....................... 3,907,130 5,515,887
Computer equipment............................ 1,639,117 1,988,348
Furniture and fixtures........................ 461,905 480,710
Leasehold improvements........................ 846,102 776,056
----------- -----------
7,430,822 9,342,971
Less accumulated depreciation................. (1,715,251) (3,123,006)
----------- -----------
$ 5,715,571 $ 6,219,965
=========== ===========
</TABLE>
5. GOODWILL AND OTHER INTANGIBLES:
Goodwill and other intangibles consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
<S> <C> <C>
Goodwill...................................... $43,885,821 $44,820,787
Customer lists................................ 5,000,000 5,000,000
Non-compete and license agreements............ 1,294,850 1,233,536
----------- -----------
50,180,671 51,054,323
Less accumulated amortization................. (7,221,568) (10,035,863)
----------- -----------
$42,959,103 $41,018,460
=========== ===========
</TABLE>
6. NOTES PAYABLE TO STOCKHOLDER:
Notes payable to SBA consist of:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
<S> <C> <C>
Senior Revolving Note, prime plus 1.5%
(9.75% at February 28, 1997), commitment
reductions in 3 annual installments in
December 1998, December 1999, and December
2000....................................... $ 8,000,000 $ 8,113,085
Senior Term Note, prime plus 2% (10.25% at
February 28, 1997), principal payable
quarterly through December 2000............ 6,363,085 29,500,000
Subordinated Note, prime plus 4%............ 26,000,000 --
----------- -----------
40,363,085 37,613,085
Current portion............................. (5,000,000) (4,500,000)
Unamortized debt issue costs................ (703,406) (365,726)
Unamortized debt discount................... (1,116,929) (690,642)
----------- -----------
$33,542,750 $32,056,717
=========== ===========
</TABLE>
The Senior Term Note agreement requires an additional principal payment to
be made no later than 120 days after the end of each fiscal year based on a
computation of excess cash flows as defined by the loan agreement. On May 19,
1997, an excess cash flow payment of $827,494 was made for fiscal year 1997.
No excess cash flow payment was required for fiscal year 1995 or fiscal year
1996.
F-12
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Senior Revolving Note and Senior Term Note agreements contain certain
restrictive covenants which, among other things, prohibit the payment of any
dividends and require the maintenance of minimum interest coverage ratios and
a maximum debt-to-equity ratio.
All the assets of the Company serve as collateral for the Senior Revolving
Note and Senior Term Note. Carrying values of the Senior Revolving Note and
Senior Term Note are reasonable estimates of fair values since interest rates
are based on prevailing market rates.
In connection with the notes payable to SBA, the Company granted SBA
detachable 10-year warrants in February 1993, exercisable into 2,119,008
shares of common stock at $1.50 per share. In accordance with the terms of the
warrant agreement, the number of shares under warrant was subsequently reduced
to 1,957,252. The fair value of the warrants at the time they were issued was
recorded as debt discount, which is amortized using the effective interest
method over the remaining term of the Senior Term Note.
In October 1996, the Notes Payable to Stockholder were restructured to
increase the Senior Term Note to $30,000,000, increase the amount available
under the Senior Revolving Note to $9,000,000, terminate the Subordinated
Note, lengthen the maturities, and amend the restrictive covenants.
The Company pays an annual commitment fee of 1% on the unused portion of the
amount available under the revolver.
Aggregate maturities of notes payable to stockholder are:
<TABLE>
<S> <C>
Fiscal Year
1998........................................................ $ 4,500,000
1999........................................................ 10,000,000
2000 ....................................................... 11,250,000
2001........................................................ 11,863,085
-----------
$37,613,085
===========
</TABLE>
7. BANK BORROWINGS:
The Company's Pioneer subsidiary has three bank notes payable which are due
on demand; however, they are currently being paid in aggregate monthly
installments of approximately $15,000, including interest at annual rates
ranging from 8.25% to 9.5%. Since all of the Pioneer debt is payable on
demand, it is classified as current. At February 28, 1997, the aggregate
balance due on the three notes is $567,116. The notes are collateralized by
Pioneer's inventory, accounts receivable, and property and equipment.
Pioneer has available a bank line of credit for $100,000. At February 28,
1997, no amounts are outstanding under this line.
8. LEASE COMMITMENTS:
The Company leases certain assets, primarily buildings, under agreements
accounted for as operating leases. Total rental expense was approximately
$896,000 for the year ended February 28, 1995, $1,179,000 for the year ended
February 29, 1996 and $1,155,000 for the year ended February 28, 1997. Future
minimum rental payments under leases at February 28, 1997 are as follows:
<TABLE>
<S> <C>
Fiscal Year
1998......................................................... $1,048,878
1999......................................................... 865,535
2000......................................................... 490,715
2001......................................................... 296,806
2002......................................................... 109,837
----------
$2,811,771
==========
</TABLE>
F-13
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES:
The components of the Company's deferred tax assets and liabilities from
continuing operations are as follows:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
29, 28,
1996 1997
<S> <C> <C>
Deferred tax assets:
Compensation related to stock options............ $1,173,746 $1,726,524
Inventory........................................ 175,996 211,286
Goodwill and other intangibles................... 372,413 613,647
Fixed asset basis differences.................... 283,987 --
Other--net....................................... 43,995 (138,473)
---------- ----------
2,050,137 2,412,984
Deferred tax liabilities:
Fixed asset basis differences.................... -- 289,388
---------- ----------
-- 289,388
---------- ----------
Net deferred tax assets............................ $2,050,137 $2,123,596
========== ==========
</TABLE>
No valuation allowance has been provided for these deferred tax assets at
February 29, 1996 and February 28, 1997 since full realization of these assets
is expected.
The provisions (benefits) for income taxes from continuing operations are as
follows:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY FEBRUARY
28, 29, 28,
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal.............................. $2,119,990 $2,623,428 $2,754,142
State................................ 200,241 167,453 320,127
---------- ---------- ----------
2,320,231 2,790,881 3,074,269
Deferred:
Federal.............................. 11,990 (1,494,400) (601,857)
State................................ 10,944 (95,387) (98,828)
---------- ---------- ----------
22,934 (1,589,787) (700,685)
---------- ---------- ----------
$2,343,165 $1,201,094 $2,373,584
========== ========== ==========
</TABLE>
The components of deferred income tax expense (benefit) from continuing
operations are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Compensation related to stock
options........................ $ (89,252) $ (265,570) $(777,311)
Inventory reserve............... (14,647) (255,620) (115,308)
Goodwill and other intangibles.. 131,114 621,340 148,509
Fixed asset basis differences... 113,730 (426,885) 146,287
Other--net...................... (118,011) (20,372) (102,862)
--------- ----------- ---------
$ 22,934 $(1,589,787) $(700,685)
========= =========== =========
</TABLE>
F-14
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the effective income tax rate and the statutory federal
income tax rate for taxes on income from continuing operations are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Statutory federal income tax
rate............................ 34.0% 34.0% 34.0%
State taxes...................... 1.8 3.4 2.5
Research and development credit.. (3.1) (5.3) (1.9)
Other............................ (0.2) 2.5 0.1
---- ---- ----
Effective income tax rate........ 32.5% 34.6% 34.7%
==== ==== ====
</TABLE>
10. CAPITAL STOCK:
The Company has three classes of stock outstanding, Series A preferred
stock, Series B preferred stock and Common Stock.
In September 1995, the Company amended and restated its certificate of
incorporation to increase the number of authorized shares of Common Stock to
37,149,325, to effectuate a 2-for-1 split of its Common Stock and to authorize
1,000,000 shares of undesignated preferred stock, each with a par value of
$0.01 per share. Any dividends, preferences or conversion terms for the
additional classes of preferred stock will be determined by the Board of
Directors. All share and per share amounts have been retroactively adjusted to
give effect to the stock split.
The Company has authorized 1,085,799 shares of Series A preferred stock,
$0.01 par value per share, for issuance. Each share of Series A preferred
stock is convertible into 2 shares of Common Stock (subject to adjustment in
the event of future dilution) and has voting rights equal to the voting rights
of the Common Stock into which it is convertible. The liquidation value of
each share of Series A preferred stock is $1.70, increased at the rate of 9%
per annum to the date of payment, plus an amount equal to all declared but
unpaid dividends.
The Company has authorized 764,876 shares of Series B preferred stock, $0.01
par value per share, for issuance. Each share of Series B preferred stock is
convertible into 2 shares of Common Stock (subject to adjustment in the event
of future dilution) and has voting rights equal to the voting rights of the
Common Stock into which it is convertible. The liquidation value of each
Series B preferred stock is $4.00, increased at the rate of 9% per annum to
the date of payment, plus an amount equal to all declared but unpaid
dividends.
Each share of both Series A and Series B preferred stock automatically shall
be converted into Common Stock in a ratio of 2 to 1 upon a public offering of
the Common Stock of the Company.
11. STOCK OPTIONS:
The DMX International Corporation 1991 Stock Option Plan provides for the
granting of either non-qualified or incentive stock options to purchase a
maximum of 2,108,756 shares of Common Stock to directors and key employees. In
September 1995, the Company adopted the Datamax International Corporation 1996
Long-Term Performance Incentive Plan providing for the awarding of either
stock options (non-qualified or incentive), stock appreciation rights,
restricted stock or performance grants to select employees and other key
individuals who perform services for the Company for not more than an
aggregate of 500,000 shares of Common Stock. Under both option plans, the
Board of Directors has discretion over the types of awards granted, terms,
vesting, performance objectives, and the employees and key individuals to whom
awards are granted. Incentive stock options generally expire five years from
the date they are granted; options vest over service periods that range from
one to five years.
F-15
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock option activity for
the three fiscal years ended February 28, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF PER
OPTIONS SHARE
<S> <C> <C>
Options outstanding February 28, 1994................. 1,675,668 $1.53
Granted............................................. 191,500 $5.42
Exercised........................................... (20,000) $2.00
Forfeited........................................... (94,884) $5.12
---------
Options outstanding February 28, 1995................. 1,752,284 $1.75
Granted............................................. -- --
Exercised........................................... (23,196) $2.00
Forfeited........................................... (9,900) $3.42
---------
Options outstanding February 29, 1996................. 1,719,188 $1.74
Granted............................................. 360,000 $6.03
Exercised........................................... (333,332) $0.01
Forfeited........................................... (37,600) $4.61
---------
Options outstanding February 28, 1997................. 1,708,256 $2.92
=========
</TABLE>
The following table summarizes information about stock options outstanding
at February 28, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ ---------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF AVERAGE EXERCISE EXERCISE
EXERCISE NUMBER REMAINING PRICE NUMBER PRICE
PRICES OUTSTANDING LIFE (1) PER SHARE EXERCISABLE PER SHARE
<S> <C> <C> <C> <C> <C>
$0.01 384,234 1.1 $0.01 333,334 $0.01
$2.00 708,322 1.3 $2.00 563,922 $2.00
$5.37-$6.03 615,700 3.6 $5.79 104,200 $5.75
--------- ---------
1,708,256 1,001,456
========= =========
</TABLE>
- ---------------------
(1) Average remaining contractual life in years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, but continues to account for stock compensation costs in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. All stock options granted in fiscal
years 1995 and 1997 were granted at an exercise price equal to the fair value
of the shares at the date of grant. No options were granted in fiscal year
1996. Certain stock options granted in previous fiscal years were extended in
fiscal year 1997, resulting in the recognition of additional stock
compensation expense of $2,167,999. Stock option compensation expense
recognized in fiscal years 1995 and 1996 relates to the time vesting of non-
qualified options granted in fiscal year 1994. The weighted-average fair value
of the options granted during fiscal year 1997 was $2.74 per share. Had
compensation cost been determined based on the fair value of options at their
grants dates in accordance with SFAS No. 123, net income would have been
reduced by $201,500 or $0.02 per share in fiscal 1997.
F-16
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
for fiscal year 1997:
(a)an average discount rate of 6.62%
(b)volatility of 40% based on volatility of a comparable group of companies
(c)average expected option life of 5 years
12. EMPLOYEE BENEFIT AND INCENTIVE PLANS:
The Company sponsors a tax-deferred 401(k) defined contribution savings and
profit sharing plan which cover substantially all employees who meet minimum
service requirements. In general, the Company matches certain percentages of
employee deferrals to the plans and, at the discretion of the Board of
Directors, makes annual profit sharing contributions.
Amounts charged to expense related to the 401(k) plan for the years ended
February 28, 1995, February 29, 1996 and February 28, 1997 totalled
approximately $573,500, $375,000 and $422,000, respectively.
13. MAJOR CUSTOMERS/EXPORT SALES:
The Company sells its principal products to a large number of systems
integrators, distributors, original equipment manufacturers and value added
resellers. To reduce credit risk, the Company performs ongoing credit
evaluations of its customers' financial conditions and does not generally
require collateral.
In fiscal year 1995, there were sales to two major customers, Intermec
Corporation ("Intermec") and Unimark, Inc. ("Unimark"), that exceeded 10% of
total net sales. Sales to these customers were approximately: Intermec
$6,517,000 (11%), Unimark $6,283,000 (11%). No individual customer exceeded
10% of net sales in fiscal year 1996 or fiscal year 1997.
Export sales for fiscal years 1995, 1996 and 1997 were approximately
$15,255,000 (27% of net sales), $20,288,000 (30% of net sales) and $29,817,000
(31% of net sales), respectively. These sales were principally to customers in
European and Asian/Pacific countries. No individual export country exceeded
10% of net sales for the periods above.
14. DISCONTINUED OPERATIONS:
In September 1995, the Company adopted a plan to dispose of its airline
ticket and boarding pass printer business ("ATB Business") through the sale of
certain assets and the liquidation of the balance of the net assets. The
Company's consolidated financial statements and notes thereto have been
reclassified to reflect the discontinuance of this business.
On November 3, 1995, the Company sold certain equipment, inventory and
intellectual property related to the ATB Business. In conjunction with the
sale of the ATB Business, the Company entered into a transitional services
agreement that required the Company to manufacture certain products related to
the ATB Business at cost plus 10%, to provide certain facilities and
personnel, for which the Company was reimbursed at cost, and to facilitate the
transfer of technical, marketing and manufacturing information. The Company
received $3,000,000 in cash and an eight-year non-compete agreement for
$1,000,000, payable $125,000 per year, at closing, and the remaining purchase
price of approximately $682,000 was paid in cash in November, 1996.
The results of the ATB Business have been reported separately as a component
of discontinued operations in the Consolidated Statements of Income.
F-17
<PAGE>
DATAMAX INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The summarized results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
<S> <C> <C> <C>
Net sales......................... $27,854,408 $18,265,266 $--
=========== =========== ====
Loss from operations before income
tax benefits..................... $ (509,524) $ (427,144) $--
Income tax benefits............... 181,900 160,606 --
----------- ----------- ----
Net loss from discontinued
operations....................... $ (327,624) $ (266,538) $--
=========== =========== ====
</TABLE>
15. EMPLOYMENT AGREEMENT
In April 1996, the Company entered into a management agreement with a
management consulting firm of which the Company's current Chief Executive
Officer ("CEO") was a principal member. During fiscal 1997, the consulting
firm was paid a total of $775,000 under this agreement. In February 1997, the
Company's current CEO became an employee of the Company under an employment
agreement pursuant to which he is paid an annual salary of $500,000 plus a
signing bonus of $100,000 and an additional annual bonus of up to $150,000 to
be determined based on the Company's performance. The Company's agreement with
the management consulting firm also required the Company to pay $175,000 to
the firm upon employing the Company's current CEO.
16. SUBSEQUENT EVENTS (UNAUDITED)
During May 1997, the Company is expected to file a registration statement
with the Securities and Exchange Commission for an initial public offering of
shares of Common Stock by the Company (the "Offering").
In connection with the proposed Offering, the Company's board approved an
Employee Stock Purchase Plan which will permit employees of the Company to
purchase Common Stock at 85% of fair market value through payroll deductions.
An aggregate of 500,000 shares of Common Stock will be reserved for issuance
under the Stock Purchase Plan.
In May 1997, the Company increased the number of shares reserved for
issuance under the 1996 Long-Term Performance Incentive Plan to 1,000,000
shares and granted options to purchase an additional 100,000 shares under the
Plan.
F-18
<PAGE>
[GRAPHIC DEPICTING THE COMPANY'S PRODUCT FAMILIES]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGIS-
TERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO BUY, OR SOLICITATION OF,
ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAW-
FUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
The Company...............................................................
The Offering Related Transactions.........................................
Use of Proceeds...........................................................
Dividend Policy...........................................................
Dilution..................................................................
Capitalization............................................................
Selected Historical and Pro Forma Financial and Other Data................
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................
Business..................................................................
Management................................................................
Principal and Selling Stockholders........................................
Certain Relationships and Related Transactions............................
Description of Capital Stock..............................................
Shares Eligible for Future Sale...........................................
Underwriting..............................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
LOGO
[LOGO OF DATAMAX INTERNATIONAL CORPORATION APPEARS HERE]
DATAMAX INTERNATIONAL
CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $22,727
NASD Filing Fee.................................................. *
Nasdaq Original Listing Fee...................................... *
Blue Sky Fees and Expenses
(including attorneys' fees and expenses)........................ *
Printing and Engraving Expenses.................................. *
Transfer Agent's Fees and Expenses............................... *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... *
Miscellaneous Expenses........................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- ---------------------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
Section 145.
In that regard, the Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, administrative or investigative (other than action by or in the
right of the corporation)
II-1
<PAGE>
by reason of the fact that he is or was a director or officer of the Company,
or is or was serving at the request of the Company as a director, officer or
member of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of such corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification in connection with an action or suit by or in the right of
such corporation to procure a judgment in its favor is limited to payment of
expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such an action or suit except
that no such indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the indemnifying
corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
that, despite the adjudication of liability but in consideration of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
The Company has in effect insurance policies covering all of the Company's
directors and officers in certain instances where by law they may not be
indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has issued options to purchase an aggregate of
shares of Common Stock pursuant to its 1991 Stock Option Plan and 1996 Stock
Plan, of which have been exercised.
The Company has not sold any unregistered securities, other than those
described above, in the last three years. All of the sales described above
were deemed to be exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, as transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Compa-
ny.
*3.2 Bylaws of the Company.
*4.1 Form of certificate representing shares of Common Stock of the
Company.
*5.1 Opinion of Kirkland & Ellis with respect to legality.
*10.1 DMX International Corporation 1991 Stock Option Plan.+
*10.2 DMX International Corporation Profit Sharing Plan.+
*10.3 Datamax International Corporation 1996 Long-Term Performance
Incentive Plan.+
*10.4 Datamax International Corporation Employee Stock Purchase
Plan.+
*10.5 Employment Agreement dated February 23, 1997, between Datamax
and Marvin A. Davis.+
*10.6 Nonqualified Stock Option Agreement, dated September 12, 1996,
between the Company and Marvin A. Davis.+
*10.7 Employment Agreement between Datamax Corporation and Thomas E.
Turner.+
*10.8 Incentive Stock Option Agreement, dated May 10, 1993, between
the Company and Thomas E. Turner.+
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*10.9 Second Amended and Restated Stock Option Agreement, dated July
16, 1993, between the Company and Robert L. Wohlers.+
*10.10 Confidentiality, Consulting and Noncompete Agreement, dated
April 25, 1996, between the Company and Robert C. Strandberg.+
*10.11 Stockholders Agreement, dated February 26, 1993, among the Com-
pany and certain of its stockholders.
*10.12 Form of Termination Agreement among the Company and certain of
its stockholders.
*10.13 Registration Agreement, dated February 26, 1993, among the Com-
pany and certain of its stockholder, together with certain
joinder agreements thereto.
*10.14 Form of Agreement Regarding Director Nominations, dated
, 1995, among the Company and Liberty Holdings.
*10.15 Stock Purchase Agreement, dated February 7, 1996, by and among
the Company, Pioneer Labels, Inc. and the stockholders of Pio-
neer Labels, Inc.
*10.16 Agreement of Purchase and Sale of Assets, dated November 3,
1995, between the Company and Unimark, Inc.
*10.17 Transition Services Agreement, dated November 3, 1995, between
the Company and Unimark, Inc.
*10.18 Noncompetition Agreement, dated November 3, 1995, among the
Company, Robert L. Wohlers, G. William Hartman, Jr., Robert C.
Strandberg and Unimark, Inc.
*10.19 Lease, dated January 27, 1989, between John Hancock Mutual Life
Insurance Company and Datamax, together with certain amendments
thereto.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Kirkland & Ellis (included in opinion filed as Ex-
hibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
*24.1 Power of attorney (included on signature page).
</TABLE>
- ---------------------
*To be filed by amendment
+Management contract or compensation plan or arrangement
(b) FINANCIAL STATEMENT SCHEDULES.
No schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are required under the
related instructions, as they are inapplicable or not material, or the
information called for thereby is otherwise included in the financial
statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to every purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
II-3
<PAGE>
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ORLANDO, STATE OF
FLORIDA, ON MAY 30, 1997.
Datamax International Corporation
/s/ Marvin A. Davis
By: _________________________________
Marvin A. Davis, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS MARVIN A. DAVIS, CARL E. RING, JR. AND PETER D.
ORR AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH
FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE
AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS FILED PURSUANT TO RULE 462(B) OF THE SECURITIES ACT
OF 1933, AS AMENDED) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT
AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH
AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED ON MAY 30, 1997,
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Marvin A. Davis Director, Chairman of the Board and Chief
___________________________________________ Executive Officer (principal executive
Marvin A. Davis officer)
/s/ T. Michael Janney Chief Financial Officer (principal
___________________________________________ accounting and financial officer)
T. Michael Janney
/s/ Peter E. Bennett Director
___________________________________________
Peter E. Bennett
/s/ Donald H. Gately Director
___________________________________________
Donald H. Gately
/s/ Carl E. Ring, Jr. Director
___________________________________________
Carl E. Ring, Jr.
/s/ Thomas E. Turner Director
___________________________________________
Thomas E. Turner
/s/ Robert A. Spann Director
___________________________________________
Robert A. Spann
/s/ Jeffrey A. Weber Director
___________________________________________
Jeffrey A. Weber
/s/ Robert L. Wohlers Director
___________________________________________
Robert L. Wohlers
</TABLE>
II-5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 7, 1997, except for Note 6, as to which the date is May
21, 1997, on our audits of the consolidated financial statements of Datamax
International Corporation as of February 29, 1996 and February 28, 1997 and
for each of the three years in the period ended February 28, 1997. We also
consent to the reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Orlando, Florida
May 30, 1997
