<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996.
REGISTRATION NO. 333-04309
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OPTIKA IMAGING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7372 84-1345326
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
----------------
5755 MARK DABLING BOULEVARD, SUITE 100
COLORADO SPRINGS, COLORADO 80919
(719) 548-9800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARK K. RUPORT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5755 MARK DABLING BOULEVARD, SUITE 100
COLORADO SPRINGS, COLORADO 80919
(719) 548-9800
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
WARREN T. LAZAROW, ESQ. DOUGLAS R. NEWKIRK, ESQ.
JEREMY W. MAKARECHIAN, ESQ. SACHNOFF & WEAVER, LTD.
BROBECK, PHLEGER & HARRISON LLP 30 SOUTH WACKER DRIVE, 29TH FLOOR
TWO EMBARCADERO PLACE, 2200 GENG ROAD CHICAGO, ILLINOIS 60606
PALO ALTO, CALIFORNIA 94303 (312) 207-1000
(415) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 REGISTRATION
STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
-------------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................. Forepart of the Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges..... Prospectus Summary; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Risk Factors; Use of
Proceeds
5. Determination of Offering Price......... Risk Factors; Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Principal and Selling Stockholders
8. Plan of Distribution.................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.............................. Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel.. Not Applicable
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Dilution;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Experts; Additional Information;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Not Applicable
</TABLE>
<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 JULY 3, 1996
2,900,000 SHARES
[LOGO OF OPTIKA IMAGING SYSTEMS, INC. APPEARS HERE]
OPTIKA IMAGING SYSTEMS, INC.
COMMON STOCK
-----------
Of the 2,900,000 shares of Common Stock offered hereby, 2,200,000 shares are
being sold by Optika Imaging Systems, Inc. ("Optika" or the "Company"), and
700,000 shares are being sold by certain stockholders (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders." Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price of the Common Stock will be between $9.00 and $11.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for listing subject to official notice of issuance on The Nasdaq
National Market under the symbol "OPTK." Following the consummation of this
offering, directors and officers of the Company will beneficially own
approximately 52% of the Common Stock of the Company.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-----------
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>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</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, as amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $1,000,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters
a 30-day option to purchase up to 435,000 additional shares of Common
Stock, on the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
certificates for the shares of Common Stock will be available for delivery at
the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
-----------
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1996
<PAGE>
[GRAPHICAL REPRESENTATION OF THREE COMPUTER SCREENS AND ONE CD-ROM APPEARS
HERE]
Optika(R) and FilePower(R) are registered trademarks of the Company.
FPreport, FPdisc, FPmulti, FPocr, FPtext, FPtransact, FPprint, FPfax,
FPenhance, PowerFlow, FPengine and MediPower are trademarks of the Company.
This Prospectus contains other product names, trade names, service marks and
trademarks of the Company and of other organizations.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the information discussed under "Risk Factors." This Prospectus contains
forward-looking statements which involve substantial risks and uncertainties.
The Company's actual results could differ materially from the results discussed
in these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus.
THE COMPANY
Optika Imaging Systems, Inc. ("Optika" or the "Company") is a leading
provider of high-performance, client/server, integrated imaging software
designed to meet the needs of paper intensive industries such as healthcare,
financial services, insurance and retail. The Company's FilePower Suite is
comprised of server software, which provides core imaging functions,
application software for document image management, computer output to laser
disc ("COLD") and automated workflow transaction processing, and associated
development tools. The FilePower Suite is easy to install, use and integrate
with end-users' existing information systems and is designed to be deployed at
the departmental or workgroup level and then scale throughout the enterprise.
The Company believes that the FilePower Suite enables end-users to reduce
costs, improve operational productivity and enhance customer service. The
Company has licensed over 27,000 seats to its end-users, which include John
Hancock Mutual Life Insurance Company, Merrill Lynch, Pierce, Fenner & Smith
Inc., Mitsubishi Finance International Plc, Pascack Valley Hospital, Price
Costco, Inc. and St. Elizabeth Medical Center.
The open client/server architecture of the FilePower Suite enables it to be
tailored for industry-specific applications. According to industry sources, the
Company is one of the leading providers of imaging solutions to the healthcare
industry, based on over 80 installations of the FilePower Suite. The Company is
seeking to capitalize on the size of the installed base of the FilePower Suite
in the healthcare industry through the development of an integrated patient
accounting and medical records software suite (the "MediPower Suite") designed
to enable hospitals and other healthcare organizations to manage large amounts
of patient related documents. The MediPower Suite incorporates document image
management, COLD and automated workflow transaction processing technologies and
is designed to provide fast and efficient access to patient information from
workstations located throughout the enterprise, including the point of patient
care.
The growth of the market for document image processing systems is being
driven by: (i) improved price/performance characteristics of client/server
distributed computing systems, (ii) the widespread deployment of client/server
computing systems connected to an infrastructure of local and wide area
networks ("LANS" and "WANS") and (iii) increased competitive pressures for
businesses to improve productivity and reduce costs, especially in paper-
intensive industries. The production segment of the document imaging market
includes applications that handle large volumes of paper and perform structured
business functions such as patient records management, insurance claim
processing, loan processing and accounts payable processing. According to a
study by BIS Strategic Decisions, the software component of the North American
production imaging segment has grown from approximately $264 million in 1993 to
approximately $366 million in 1995 and is projected to grow to approximately
$682 million by 1998.
The Company distributes its products through a two-tiered distribution model
consisting of a worldwide network of approximately 170 value-added resellers
("VARs"), distributors and systems integrators referred to as Business
Solutions Partners ("BSPs") and three original equipment manufacturers
("OEMs"), Lanier Worldwide, Inc., Alltel Healthcare Information Services, Inc.
and Anacomp, Inc. The Company's BSPs and
3
<PAGE>
OEMs are responsible for identifying potential end-users, selling the Company's
products to end-users as part of a complete hardware and software solution,
customizing and integrating the Company's products at the end-users' sites and
supporting end-users following the sale. The Company's software products
operate on a variety of open computing platforms, including Windows 3.x,
Windows 95 and Windows NT on the client desktop, Windows NT and Novell Netware
as servers and UNIX for SQL database support. The Company's strategy is to
extend its position as a technology leader in developing and marketing open
architecture, client/server imaging software solutions, strengthen its network
of BSPs and OEMs in targeted domestic and international markets, focus on
scalable solutions, lower the cost of ownership to its customers and capitalize
on opportunities in the healthcare and other vertical markets.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company............................... 2,200,000 shares
The Selling Stockholders.................. 700,000 shares
Common Stock to be outstanding after this
offering................................... 6,547,494 shares(1)
Use of proceeds............................. Repayment of indebtedness,
working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............... OPTK
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1996. Excludes
1,981,370 shares of Common Stock issuable upon exercise of stock options
and warrants outstanding as of June 30, 1996 at a weighted average exercise
price of $2.08 per share, and 545,431 shares of Common Stock reserved for
grant of future options as of June 30, 1996 under the Company's 1994 Stock
Option/Issuance Plan (the "1994 Stock Plan"). Since June 30, 1996, the
Company has not granted additional options to purchase Common Stock or
issued any shares of Common Stock. Also excludes 250,000 shares of Common
Stock reserved for issuance pursuant to the Employee Stock Purchase Plan.
See "Capitalization," "Management," "Description of Capital Stock" and
Notes 7 and 10 of Notes to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- ----------------
1991 1992 1993 1994 1995(2) 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA(1):
Revenues................ $2,686 $4,771 $9,043 $ 9,252 $10,468 $ 4,433 $ 6,960
Gross profit............ 2,359 3,883 6,499 6,950 8,329 3,487 5,816
Income (loss) from
operations............. 152 118 545 (1,875) (522) (720) 48
Net income (loss)....... 101 (39) 27 (1,732) (962) (756) 45
Pro forma net income
(loss) per common
share(3)............... $ (0.20) $ (0.16) $ 0.01
Pro forma weighted
average number of
common shares
outstanding(3)......... 4,811 4,787 5,730
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Cash.................................................... $ 603 $ 19,913
Working capital......................................... 1,839 21,261
Total assets............................................ 7,022 26,332
Long-term debt, excluding current portion............... 341 303
Convertible preferred stock............................. 4,804 --
Total stockholders' equity (deficit).................... (1,916) 22,348
</TABLE>
- --------
(1) All financial information reflects the merger of TEAMWorks Technologies,
Inc. in January 1994, which was accounted for as a pooling of interests.
(2) In December 1995, the Company purchased certain assets and assumed certain
liabilities from IPRS Asia (S) Pte Ltd., a Singapore company, and Intuit
Development Limited, a Hong Kong company. The results of operations for
such companies are included in the Company's consolidated results of
operations since the date of the acquisitions.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the calculation of the pro forma weighted average number of common
shares outstanding.
(4) Pro forma as adjusted to reflect the sale of 2,200,000 shares of Common
Stock by the Company, the application of the estimated net proceeds
therefrom and the automatic conversion of all outstanding shares of the
Series A, B and C Convertible Preferred Stock into 1,500,464 shares of
Common Stock. See "Use of Proceeds" and "Capitalization."
----------------
Except as otherwise indicated, all information contained in this Prospectus (i)
assumes that the Underwriters' over-allotment option is not exercised, (ii)
except in the Consolidated Financial Statements, reflects the conversion of all
outstanding shares of Series A, B and C Convertible Preferred Stock of the
Company (collectively, the "Convertible Preferred Stock") into 1,500,464 shares
of Common Stock upon the closing of this offering and (iii) except in the
Consolidated Financial Statements, assumes the effectiveness of the Company's
reincorporation in the State of Delaware.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
History of Losses; Accumulated Deficit; Future Results of Operations
Uncertain. The Company was founded in January 1988 and did not ship an
integrated version of the FilePower Suite until the third quarter of 1995.
Since its inception, the Company has incurred substantial costs to develop and
improve its software products, establish sales, marketing and distribution
channels and recruit and train its employees. As a consequence, the Company
has incurred net losses in three of its past five fiscal years and incurred an
operating loss for the year ended December 31, 1995. In addition, the Company
experienced virtually no revenue growth between 1993 and 1995. As of June 30,
1996, the Company had an accumulated deficit of approximately $2.7 million.
There can be no assurance that the Company will achieve revenue growth or will
be profitable on a quarterly or annual basis. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Windows NT. The Company is largely dependent on the
development and growth in the market for Windows NT operating systems and the
migration of imaging and workflow server software to such operating systems.
There can be no assurance that this market will grow or that the Company will
be able to respond effectively to the evolving requirements of this market.
UNIX-based operating systems currently account for most current client/server-
based production imaging operating systems, and the Company's software
interoperates with UNIX-based operating systems to only a very limited extent.
There can be no assurance that UNIX will not continue to be the dominant
operating platform in the future or that the introduction of other operating
systems will not adversely affect the deployment of Windows NT. The failure of
Windows NT operating systems to achieve market acceptance over the next
several years would have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, certain
performance characteristics of the Company's products are currently limited by
the Windows NT architecture, including the ability to be deployed throughout
the largest enterprises.
Significant Fluctuations in Operating Results. The Company's sales and other
operating results have varied significantly in the past and will vary
significantly in the future as a result of factors such as the size and timing
of significant orders and their fulfillment, demand for the Company's
products, changes in pricing policies by the Company or its competitors, the
number, timing and significance of product enhancements and new product
announcements by the Company and its competitors, changes in the level of
operating expenses, customer order deferrals in anticipation of new products
or otherwise, foreign currency exchange rates, warranty and customer support
expenses, changes in its end-users' financial condition and budgetary
processes, changes in the Company's sales, marketing and distribution
channels, delays or deferrals of customer implementation, product life cycles,
software bugs and other product quality problems, discounts, the cancellation
of licenses during the warranty period or nonrenewal of maintenance
agreements, customization and integration problems with the end-user's legacy
system, changes in the Company's strategy, the level of international
expansion and seasonal trends. A significant portion of the Company's revenues
have been, and the Company believes will continue to be, derived from a
limited number of orders, and the timing of such orders and their fulfillment
have caused and are expected to continue to cause material fluctuations in the
Company's operating results. Revenues are also difficult to forecast because
the markets for the Company's products are rapidly evolving, and the sales
cycle of the Company and its BSPs and OEMs, from initial evaluation to
purchase, is lengthy and varies substantially from end-user to end-user. To
achieve its quarterly revenue objectives, the Company depends upon obtaining
orders in any given quarter for shipment in that quarter. Product orders are
typically shipped shortly after receipt, and consequently, order backlog at
the beginning of any quarter has in the past represented only a small portion
of that quarter's revenues. Furthermore, the Company has often recognized most
of its revenues in the last month, or even weeks or days, of a quarter.
Accordingly, a delay in shipment near the end of a particular quarter may
cause revenues in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter. Conversely, to the extent that
6
<PAGE>
significant revenues occur earlier than expected, operating results for
subsequent quarters may fail to keep pace with results of previous quarters or
even decline. The Company also has recorded generally lower sales in the first
quarter than in the immediately preceding quarter, as a result of, among other
factors, end-users' purchasing and budgeting practices and the Company's sales
commission practices, and expects this pattern to continue in future years. To
the extent future international operations constitute a higher percentage of
total revenues, the Company anticipates that it may also experience relatively
weaker demand in the third quarter as a result of reduced sales in Europe
during the summer months. A significant portion of the Company's expenses are
relatively fixed in the short term. Accordingly, if revenue levels fall below
expectations, operating results are likely to be disproportionately adversely
affected. As a result of these and other factors, the Company believes that
its quarterly operating results will vary in the future and period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore,
due to all of the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks Associated with the MediPower Suite. The Company's future performance
will depend in significant part upon its ability to complete the development
of and achieve commercial acceptance for the MediPower Suite, its first
software product tailored for an industry-specific application. The MediPower
Suite is being developed in response to an order by St. Elizabeth Medical
Center ("SEMC"), and only a limited number of end-users have purchased any of
the software modules contained in this suite. To date, five of the seven
software modules currently comprising the MediPower Suite have been developed
and the remaining two modules are under development and are currently expected
to be completed by the end of 1996. In addition, an eighth module will be
added to the MediPower Suite, and is expected to be delivered to SEMC by mid-
1997. Delays in the completion of the remaining modules could occur due to a
variety of factors such as turnover among software engineers, software bugs or
other product quality problems. The Company may add additional software
modules to extend the functionality of the MediPower Suite. Three of the
developed modules have been installed at SEMC's site. If the Company fails to
complete the MediPower Suite to SEMC's satisfaction in a timely manner, the
Company's ability to market its products to other prospective end-users in the
healthcare industry would be materially impaired and the Company's business,
results of operations and financial condition would be materially adversely
affected. The MediPower Suite has not achieved widespread customer acceptance
which acceptance may depend, in part, on the Company's ability to complete and
market this software successfully.
Reliance on Indirect Distribution Channels; Potential for Channel
Conflict. The Company's future results of operations will depend on the
success of its marketing and distribution strategy which relies, to a
significant degree, upon BSPs and OEMs to sell and install the Company's
software and provide post-sales support. In 1995, the Company's top 34 BSPs
accounted for approximately 80% of its revenues, and substantially all of the
Company's total revenues were derived from sales by BSPs and OEMs. These
relationships are usually established through formal agreements that generally
do not grant exclusivity, do not prevent the distributor from carrying
competing product lines and do not require them to purchase any minimum dollar
amount of the Company's software. There can be no assurance that any BSPs will
continue to represent the Company or sell its products. Furthermore, there can
be no assurance that other BSPs, some of which have significantly greater
financial, marketing and other resources than the Company, will not develop or
market software products which compete with the Company's products or will not
otherwise discontinue their relationships with or support of the Company. Some
of the Company's BSPs are small companies that have limited financial and
other resources which could impair their ability to pay the Company. To date,
the Company's inability to receive payments from such BSPs has not had a
material adverse effect on the Company's business, results of operations or
financial condition. The Company's OEMs currently compete with the Company and
its BSPs. Selling through indirect channels may also hinder the Company's
ability to forecast sales accurately, evaluate customer satisfaction, provide
quality service and support or recognize emerging customer requirements. The
Company's strategy of marketing its products indirectly through BSPs and OEMs
may result in distribution channel conflicts. To the extent different BSPs and
OEMs target the same customers, they may come into conflict with each other.
7
<PAGE>
Although the Company has attempted to allocate certain territories for its
products among its distribution channels in a manner to avoid potential
conflicts, there can be no assurance that channel conflict will not materially
adversely affect its relationships with existing BSPs or OEMs or adversely
affect its ability to attract new BSPs and OEMs. The loss by the Company of a
number of its more significant BSPs or OEMs, the inability of the Company to
obtain qualified new BSPs or OEMs or to obtain access to the channels of
distribution offering software products to the Company's targeted markets or
the failure of BSPs or OEMs to pay the Company for its software could have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business--Sales and Marketing."
Rapid Technological Change; Dependence on New Product Development. The
market for imaging software is characterized by rapid technological change,
changes in customer requirements, frequent new product introductions and
enhancements and emerging industry standards. The Company's future performance
will depend in significant part upon its ability to respond effectively to
these developments. The introduction of products embodying new technologies
and the emergence of new industry standards can render existing products
obsolete, unmarketable or noncompetitive. For example, new technologies based
on the Internet, such as Java, could alter generally accepted conventions for
document creation, distribution and management. However, the use of Internet
protocols for imaging applications is presently in the developmental stage,
and the Company is unable to predict the future impact of such protocols on
the Company's products. Moreover, the life cycles of the Company's products
are difficult to estimate. The Company's future performance will depend in
significant part upon its ability to enhance current products and to develop
and introduce new products that respond to evolving customer requirements. The
Company has in the recent past experienced delays in the development and
commencement of commercial shipments of new products and enhancements,
resulting in customer frustration and delay or loss of revenues. The inability
of the Company, for technological or other reasons, to develop and introduce
new products or enhancements in a timely manner in response to changing
customer requirements, technological change or emerging industry standards or
maintain compatibility with heterogeneous computing environments would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Product Concentration; Dependence on Emerging Market for Integrated Imaging
Systems. To date, substantially all of the Company's revenues have been
attributable to sales of the FilePower Suite and individual software modules
which comprise the FilePower Suite and the MediPower Suite. The Company
currently expects the FilePower and the MediPower Suite to account for
substantially all of its future revenues. As a result, factors adversely
affecting the pricing of or demand for such products, such as competition or
technological change, could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's future
financial performance will depend in general on growth in the relatively small
and emerging market for imaging software products, and in particular on the
successful development, introduction and customer acceptance of new and
enhanced versions of its existing software products such as the FilePower
Suite, along with the successful development, marketing and market acceptance
of new industry-specific products such as the MediPower Suite. There can be no
assurance that such market will grow or that the Company will be successful in
developing and marketing these or any other products, or that any of these
products will achieve widespread customer acceptance. If the document imaging
software market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, results of operations and financial
condition would be materially adversely affected. See "Business."
Lengthy and Complex Sales and Implementation Cycles; Dependence on Capital
Spending. The license of the Company's software products is typically an
executive-level decision by prospective end-users and generally requires the
Company and its BSPs or OEMs to engage in a lengthy and complex sales cycle
(typically between six and twelve months from the initial contact date). In
addition, the implementation by customers of the imaging products offered by
the Company may involve a significant commitment of resources by such
customers over an extended period of time. For these and other reasons, the
sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. The
Company's future performance also depends upon the capital expenditure budgets
of its customers and the demand by such
8
<PAGE>
customers for the Company's products. Certain industries to which the Company
sells its products, such as the financial services industry, are highly
cyclical. The Company's operations may in the future be subject to substantial
period-to-period fluctuations as a consequence of such industry patterns,
domestic and foreign economic and other conditions and other factors affecting
capital spending. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales and Marketing."
Intense Competition. The market for the Company's products is intensely
competitive and significantly affected by new product introductions and other
market activities of industry participants. The Company's competitors offer a
variety of products and services to address the emerging market for imaging
software solutions. The Company's principal direct competitors include
BancTec, Inc. ("BancTec"), FileNet Corporation ("FileNet"), International
Business Machines Corporation ("IBM"), Unisys Corporation, ViewStar
Corporation ("ViewStar") and Wang Laboratories, Inc. ("Wang"). The Company
also competes with industry-specific application vendors such as IMNET
Systems, Inc. ("IMNET") and LanVision Systems, Inc. ("LanVision"). Numerous
other software vendors also compete in each product area. Potential
competitors include providers of document management software, providers of
document archiving products and relational database management systems
("RDBMS") vendors. The Company also faces competition from VARs, OEMs,
distributors and systems integrators, some of which are BSPs or OEMs for the
Company. See "--Reliance on Indirect Distribution Channels; Potential for
Channel Conflict."
Many of the Company's current and potential competitors are substantially
larger than the Company and have significantly greater financial, technical
and marketing resources and have established more extensive channels of
distribution. As a result, such competitors may be able to respond more
rapidly to new or emerging technologies and changes in customer requirements,
or to devote greater resources to the development, promotion and sale of their
products than the Company. Because the Company's products are designed to
operate in non-proprietary computing environments and because of low barriers
to entry in the imaging software market, the Company expects additional
competition from established and emerging companies as the market for
integrated imaging products continues to evolve. The Company expects its
competitors to continue to improve the performance of their current products
and to introduce new products or new technologies that provide added
functionality and other features. Successful new product introductions or
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's products and services,
result in continued intense price competition or make the Company's products
and services or technologies obsolete or noncompetitive. To be competitive,
the Company will be required to continue to invest significant resources in
research and development and sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such investments or
that the Company will be able to make the technological advances necessary to
be competitive. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address the
needs of the Company's prospective customers. In addition, several competitors
have recently made or attempted to make acquisitions to enter the market or
increase their market presence. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which would
have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Competition."
Risks Associated with Acquisitions. Optika has consummated several recent
acquisitions, including the acquisitions of TEAMWorks Technologies, Inc.
("TEAMWorks") in 1994 (the "TEAMWorks Acquisition"), and IPRS Asia (S) Pte
Ltd., a Singapore company ("IPRS"), and Intuit Development Limited, a Hong
Kong company ("Intuit"), in 1995 (the "IPRS/Intuit Acquisition")
(collectively, the "Acquisitions"), and continues to evaluate potential
acquisitions of businesses, products and technologies. In 1995, the Company
terminated all
9
<PAGE>
of the operations of TEAMWorks due to the failure of the TEAMWorks products to
achieve market acceptance and the Company's lack of experience in selling such
products. The Company is in the process of integrating the operations acquired
in the IPRS/Intuit Acquisition with its own. There can be no assurance that
the anticipated benefits of the IPRS/Intuit Acquisition will be realized.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, potentially dilutive issuances of equity securities, accounting
charges, operating companies in different geographic locations with different
cultures, the potential loss of key employees of the acquired company, the
diversion of management's attention from other business concerns and the risks
of entering markets in which the Company has no or limited direct prior
experience. There can be no assurance that suitable acquisition candidates
will be identified, that any acquisitions can be consummated or that any
acquired businesses or products can be successfully integrated into the
Company's operations. In addition, there can be no assurance that the
Acquisitions or any future acquisitions will not have a material adverse
effect upon the Company's business, results of operations or financial
condition, particularly in the quarters immediately following the consummation
of such transactions due to operational disruptions, severance expenses,
unexpected expenses and accounting charges which may be associated with the
integration of such acquisitions. No acquisitions are currently planned or
being negotiated as of the date of this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management Changes; No Assurance of Successful Expansion of Operations. Most
of the Company's senior management team have joined the Company within the
last two years. There can be no assurance that these individuals will be able
to achieve and manage growth, if any, or build an infrastructure necessary to
operate the Company. The Company's ability to compete effectively and to
manage any future growth, will require the Company to continue to assimilate
new personnel and to expand, train and manage its work force. The Company
intends to continue to increase the scale of its operations significantly to
support anticipated increases in revenues and to address critical
infrastructure and other requirements. These increases have included and will
include the leasing of new space, the opening of additional field offices, the
Acquisitions and potential acquisitions, significant increases in research and
development to support product development and the hiring of additional
personnel in sales and marketing. The increased scale of operations has
resulted in significantly higher operating expenses which are expected to
continue to increase significantly in the future. If the Company's revenues do
not correspondingly increase, the Company's results of operations would be
materially adversely affected. Expansion of the Company's operations has
caused and is continuing to impose a significant strain on the Company's
management, financial and other resources. The Company's ability to manage its
recent and any future growth, should it occur, will depend upon a significant
expansion of its internal management systems and the implementation and
subsequent improvement of a variety of systems, procedures and controls. Any
failure to expand these areas and implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. In this regard, any
significant revenue growth will be dependent in significant part upon the
Company's expansion of its marketing, sales and BSP support capabilities. This
expansion will continue to require significant expenditures to build the
necessary infrastructure. There can be no assurance that the Company's efforts
to expand its marketing, sales and customer support efforts will be successful
or will result in additional revenues or profitability in any future period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Management."
Dependence on Key Personnel. The Company's future performance depends to a
significant degree upon the continuing contributions of its key management,
sales, marketing, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel, particularly in software development and
customer support. The Company believes that there may be only a limited number
of persons with the requisite skills to serve in those positions and it may
become increasingly difficult to hire such persons. Competitors and others
have in the past and may in the future attempt to recruit the Company's
employees. The loss of key management or technical personnel or the failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Research and Development" and "--Employees" and "Management."
10
<PAGE>
Dependence on Proprietary Technologies; Risk of Infringement. The Company's
performance depends in part on its ability to protect its proprietary rights
to the technologies used in its principal products. The Company relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions to protect its proprietary rights,
which measures afford only limited protection. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means
of protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technologies. The Company is not aware that it is infringing any proprietary
rights of third parties. In August 1994, a third party notified the Company
that it believes that one of the Company's products is infringing a patent
held by such third party. The Company subsequently notified such third party
that it does not believe that its products infringed such patent. Neither
party has communicated with the other since January 1995. If the third party
should file suit against the Company, and should it be determined that its
patent is valid and infringed by the Company's product, the Company may
redesign the allegedly infringing product or seek to obtain a license from
such third party. Any redesign may be costly and time consuming, may not avoid
litigation and would materially adversely affect the Company's business,
results of operations and financial condition. If it becomes necessary to seek
a license from such third party, there can be no assurance that the Company
will be able to obtain such a license on acceptable terms. Moreover, there can
be no assurance that additional third parties will not claim infringement by
the Company's products of their intellectual property rights. The Company
expects that software product developers will increasingly be subject to
infringement claims if the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, and regardless of
the outcome of any litigation, will be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, if at all. In the event of a
successful claim of infringement against the Company's products and the
failure or inability of the Company to license the infringed or similar
technology, the Company's business, results of operations and financial
condition would be materially adversely affected.
The Company also licenses software from third parties which is incorporated
into its products, including software incorporated into its viewer, image
decompression software and OCR and full-text engines. These licenses expire
from time to time. There can be no assurance that these third-party software
licenses will continue to be available to the Company on commercially
reasonable terms. While the Company believes that all of such third-party
software is available from alternate vendors and the Company maintains
standard software escrow arrangements with each of such parties which provide
the Company with access to the source code in the event of their bankruptcy or
insolvency, the loss of, or inability to maintain, any such software licenses
could result in shipment delays or reductions until equivalent software could
be developed, identified, licensed and integrated, which in turn could
materially adversely affect the Company's business, results of operations and
financial condition. In addition, the Company generally does not have access
to source code for the software supplied by these third parties. Certain of
these third parties are small companies that do not have extensive financial
and technical resources. If any of these relationships were terminated or if
any of these third parties were to cease doing business, the Company may be
forced to expend significant time and development resources to replace the
licensed software. Such an event would have a material adverse effect upon the
Company's business, results of operations and financial condition. The Company
has entered into source code escrow agreements with a limited number of its
customers and resellers requiring release of source code in certain
circumstances. Such agreements generally provide that such parties will have a
limited, non-exclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, if the Company ceases to do
business or if the Company fails to provide timely responses to identified
product defects. See "Business--Proprietary Rights" and "--Sales and
Marketing."
International Operations. Sales outside the United States accounted for
approximately 7%, 13%, 15% and 24% of the Company's revenues in 1993, 1994,
1995 and for the six months ended June 30, 1996, respectively.
11
<PAGE>
An important element of the Company's strategy is to expand its international
operations, including the development of certain third-party distributor
relationships and the hiring of additional sales representatives, each of
which involves a significant investment of time and resources. There can be no
assurance that the Company will be successful in expanding its international
operations. In addition, the Company has only limited experience in developing
localized versions of its products and marketing and distributing its products
internationally. There can be no assurance that the Company will be able to
successfully localize, market, sell and deliver its products internationally.
The inability of the Company to successfully expand its international
operations in a timely manner could materially adversely affect the Company's
business, results of operations and financial condition. The Company's
international revenues may be denominated in foreign or United States
currency. The Company does not currently engage in foreign currency hedging
transactions. As a result, a decrease in the value of foreign currencies
relative to the United States dollar could result in losses from transactions
denominated in foreign currencies, make the Company's software less price-
competitive and could have a material adverse effect upon the Company's
business, results of operations and financial condition. In addition, the
Company's international business is and will continue to be subject to a
variety of risks, including delays in establishing international distribution
channels, difficulties in collecting international accounts receivable,
increased costs associated with maintaining international marketing and sales
efforts, unexpected changes in regulatory requirements, tariffs and other
trade barriers, political and economic instability, limited protection for
intellectual property rights in certain countries, lack of acceptance of
localized products in foreign countries, difficulties in managing
international operations, potentially adverse tax consequences including
restrictions on the repatriation of earnings, and the burdens of complying
with a wide variety of foreign laws. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international revenues and, consequently, the Company's results of operations.
Although the Company's products are subject to export controls under United
States laws, the Company believes it has obtained all necessary export
approvals. However, the inability of the Company to obtain required approvals
under any applicable regulations could adversely affect the ability of the
Company to make international sales. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales and
Marketing."
Product Liability; Risk of Product Defects. The Company's license agreements
with its customers typically contain provisions designed to limit the
Company's exposure to potential product liability claims. However, it is
possible that the limitation of liability provisions contained in the
Company's license agreements may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of products by the Company may entail the
risk of such claims, and there can be no assurance that the Company will not
be subject to such claims in the future. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, results of operations and financial condition. Software
products such as those offered by the Company frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although the Company conducts extensive product testing, the Company has in
the past released products that contained defects, and has discovered software
errors in certain of its new products and enhancements after introduction. The
Company could in the future lose or delay recognition of revenues as a result
of software errors or defects, the failure of its products to meet customer
specifications or otherwise. The Company's products are typically intended for
use in applications that may be critical to a customer's business. As a
result, the Company expects that its customers and potential customers have a
greater sensitivity to product defects than the market for software products
generally. Although the Company's business has not been materially adversely
affected by any such errors, defects or failure to meet specifications, to
date, there can be no assurance that, despite testing by the Company and by
current and potential customers, errors or defects will not be found in new
products or releases after commencement of commercial shipments or that such
products will meet customer specifications, resulting in loss or deferral of
revenues, diversion of resources, damage to the Company's reputation, or
increased service and warranty and other costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Research and Development."
Uncertainty in Healthcare Industry; Government Regulation. The healthcare
industry is undergoing significant and rapid changes, including consolidation
of hospitals and other healthcare providers to form larger
12
<PAGE>
integrated healthcare networks as well as market-driven or government
initiatives to reform healthcare, which the Company anticipates will affect
the operations and procurement processes of healthcare providers, and which
could force the Company to reduce prices for its software. As the number of
hospitals and other healthcare providers decreases due to further industry
consolidation, each potential sale of the Company's software will become more
significant and competition for each sale will be greater. Further, healthcare
providers may react to proposed reform measures and cost containment pressures
by curtailing or delaying investments, including purchases of the Company's
software and related services. In addition, numerous proposals relating to
healthcare reform have been, and additional proposals are expected to be,
introduced in the United States Congress and state legislatures. Although the
effects of federal and state initiatives for healthcare reform are unknown,
the Company believes that competitive factors in the healthcare industry will
continue to drive reform of healthcare delivery. The Company cannot predict
with any certainty what impact, if any, such market or government initiatives
might have on its business, financial condition and results of operations. The
United States Food and Drug Administration ("FDA") has issued a draft guidance
document addressing the regulation of certain computer products as medical
devices under the Federal Food, Drug and Cosmetic Act. To the extent that
computer software is a medical device under the policy, the manufacturers of
such products could be required, depending on the product, to: (i) register
and list their products with the FDA, (ii) notify the FDA and demonstrate
substantial equivalence to other products on the market before marketing such
products or (iii) obtain FDA approval by filing a premarket application that
establishes the safety and effectiveness of the product. The Company expects
that the FDA is likely to become increasingly active in regulating computer
software that is intended for use in healthcare settings, although the FDA
does not currently regulate computer software products for medical records.
The FDA, if it chooses to regulate such software, can impose extensive
requirements governing pre- and post-market conditions such as device
investigation, approval, labeling and manufacturing. In addition, any
substantial reduction in price, failure of the Company to sell its software to
hospitals and other healthcare providers or increased government regulation
could have a material adverse effect on the Company's business, results of
operations and financial condition. Such products would be subject to the
Federal Food, Drug and Cosmetic Act's general provisions, including those
relating to good manufacturing practices and adverse experience reporting. The
Company is also subject to the risks inherent in selling its products to end-
users in other heavily regulated industries, such as insurance, banking and
financial services. See "Business--Industry Background."
No Prior Public Market; Potential Volatility of Stock Price; Dilution. Prior
to this offering there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market for the
Company's Common Stock will develop or be sustained after the offering. See
"Underwriting" for a discussion of the factors to be considered by the Company
and the Underwriters in determining the initial public offering price. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to proprietary rights, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, changes in financial
estimates by securities analysts and others, general market conditions and
other factors that may be unrelated to the Company or its performance. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
such company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation, regardless of its
outcome, would result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, results of operations and financial condition. In
addition, investors participating in this offering will incur immediate,
substantial dilution. To the extent outstanding options and warrants to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution" and "Underwriting."
13
<PAGE>
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could materially adversely affect the market price for the Company's Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without the prior
written consent of Volpe, Welty & Company. While Volpe, Welty & Company may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements, it has advised the
Company that it currently has no intention of releasing any portion of the
securities subject to lock-up agreements prior to the expiration of the 180-
day period. Based on shares outstanding and options granted as of June 30,
1996, assuming no options are exercised between June 30, 1996 and the date of
this Prospectus, the following shares of Common Stock will be eligible for
future sale. On the date of this Prospectus, 100,000 shares in addition to the
2,900,000 shares offered hereby will be eligible for sale. Approximately
2,732,000 additional shares will be eligible for sale 180 days after the date
of this Prospectus, of which 2,580,000 shares will be eligible for sale in
reliance on Rule 144 promulgated under the Securities Act and 124,000 shares
will be eligible for sale in reliance on Rule 701 promulgated under the
Securities Act 90 days after the date of this Prospectus. In addition, the
Company intends to register on a registration statement on Form S-8, within 30
days following the effective date of this offering, a total of approximately
2,682,000 shares of Common Stock subject to outstanding options or reserved
for issuance under the 1994 Stock Plan and under the Employee Stock Purchase
Plan. Upon expiration of the lock-up agreements referred to above, holders of
approximately 3,555,000 shares of Common Stock will be entitled to certain
registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See "Shares
Eligible for Future Sale."
Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions. Following the completion of this offering, members of the Board of
Directors and the executive officers of the Company, together with members of
their families and entities that may be deemed affiliates of or related to
such persons or entities, will beneficially own approximately 52% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders will be able to elect all members of the Company's Board of
Directors and determine the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions. Certain provisions of the
Company's Certificate of Incorporation, equity incentive plans, Bylaws and
Delaware law may also discourage certain transactions involving a change in
control of the Company. This level of ownership by such persons and entities,
when combined with the Company's classified Board of Directors and the ability
of the Board of Directors to issue "blank check" preferred stock without
further stockholder approval, may have the effect of delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. See "Management--
Directors and Executive Officers," "Certain Transactions," "Principal and
Selling Stockholders" and "Description of Capital Stock."
Management's Discretion Over Proceeds of the Offering. The primary purposes
of this offering are to create a public market for the Common Stock, to
facilitate future access to public markets and to obtain additional equity
capital. As of the date of this Prospectus, the Company has no specific plans
as to the use of the net proceeds from this offering, other than to repay
approximately $150,000 of outstanding debt; accordingly, the Company's
management will have broad discretion as to the application of such net
proceeds. Pending any such uses, the Company plans to invest the net proceeds
in short-term, investment grade, interest-bearing securities. See "Use of
Proceeds."
14
<PAGE>
THE COMPANY
Optika Imaging Systems, Inc. was incorporated in January 1988 in the State
of California. In July 1996, the Company will be reincorporated in the State
of Delaware. References in this Prospectus to "Optika" and the "Company"
include the Delaware corporation, its predecessors and its subsidiaries,
unless otherwise stated or indicated by the context. The Company's principal
executive offices are located at 5755 Mark Dabling Boulevard, Suite 100,
Colorado Springs, Colorado 80919. Its telephone number is (719) 548-9800. The
Company's home page is located at http://www.optika.com on the World Wide Web.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby, after deducting estimated underwriting discounts
and commissions and estimated expenses payable in connection with this
offering, are estimated to be approximately $19,460,000 ($23,505,500 if the
Underwriters' over-allotment option is exercised in full) based on an assumed
public offering price of $10.00 per share. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. The
principal purposes of this offering are to create a public market for the
Company's Common Stock, to facilitate future access by the Company to public
equity markets and to increase the Company's equity capital. The Company will
use a portion of the proceeds to repay $150,000 in outstanding indebtedness
under a non-interest bearing promissory note payable in 24 equal monthly
installments in the original aggregate principal amount of $225,000 issued in
settlement of litigation which will be due and payable upon consummation of
this offering or in December 1997. The Company expects to use the balance of
the net proceeds for working capital and other general corporate purposes. A
portion of the net proceeds may also be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. No acquisitions are currently planned or being negotiated as of the
date of this Prospectus. Pending such uses, the Company intends to invest the
net proceeds from this offering in short-term investment grade, interest-
bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not expect to pay cash dividends in the foreseeable future. In addition, the
Company's bank credit agreement currently prohibits the Company from paying
cash dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1996: (i) on an actual basis, (ii) on a pro forma basis after giving effect to
the automatic conversion of all outstanding shares of the Convertible
Preferred Stock upon closing of this offering and the assumed effectiveness of
the Company's reincorporation in the State of Delaware and (iii) on a pro
forma as adjusted basis, to reflect the sale by the Company of 2,200,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $10.00 and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(3).......... $ 383 $ 383 $ 271
======= ======= =======
Long-term debt, excluding current portion(3).. $ 341 $ 341 $ 303
------- ------- -------
Mandatorily Redeemable Series A, B and C
Convertible Preferred Stock; no par value,
1,493,024 shares authorized, 1,492,201 shares
issued and outstanding actual; $.001 par
value, no shares authorized, issued or
outstanding, pro forma and pro forma
as adjusted.................................. 4,804 -- --
Common Stockholders' equity (deficit):
Preferred Stock; $.001 par value, 2,000,000
shares authorized, none issued or
outstanding, pro forma and pro forma
as adjusted................................ -- -- --
Common Stock; no par value, 6,320,000 shares
authorized, 2,847,030 shares issued and
outstanding, actual; $.001 par value,
6,320,000 shares authorized, 4,347,494
shares issued and outstanding, pro forma;
$.001 par value, 25,000,000 shares
authorized, 6,547,494 shares issued and
outstanding, pro forma as adjusted(4)...... 805 4 7
Additional paid-in capital.................... -- 5,605 25,062
Accumulated deficit........................... (2,721) (2,721) (2,721)
------- ------- -------
Total stockholders' equity (deficit)...... (1,916) 2,888 22,348
------- ------- -------
Total capitalization.................... $ 3,229 $ 3,229 $22,651
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of the
Convertible Preferred Stock and the assumed effectiveness of the Company's
reincorporation in Delaware. See "Description of Capital Stock."
(2) Pro forma, as provided in footnote (1) above, and as adjusted to reflect
the sale of 2,200,000 shares of Common Stock by the Company at the assumed
initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
(3) See Note 5 of Notes to Consolidated Financial Statements for information
concerning the Company's indebtedness.
(4) Excludes 1,981,370 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of June 30, 1996 at a weighted average
exercise price of $2.08 per share, and 545,431 shares of Common Stock
reserved for grant of future options as of June 30, 1996 under the 1994
Stock Plan. Since June 30, 1996, the Company has not granted additional
options to purchase Common Stock or issued any shares of Common Stock.
Also excludes 250,000 shares of Common Stock reserved for issuance
pursuant to the Employee Stock Purchase Plan. See "Management,"
"Description of Capital Stock" and Notes 7 and 10 of Notes to Consolidated
Financial Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at June 30, 1996 was
approximately $2,581,000, or $0.59 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's net
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving effect to the conversion of all
outstanding shares of Convertible Preferred Stock into 1,500,464 shares of
Common Stock. After giving effect to the sale of 2,200,000 shares of Common
Stock offered hereby by the Company at the assumed initial public offering
price of $10.00 per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the Company's pro forma net tangible book value at June 30, 1996,
would have been $22,041,000, or $3.37 per share. This represents an immediate
increase in net tangible book value of $2.78 per share to the Company's
existing stockholders and an immediate dilution of $6.63 per share to new
investors purchasing shares of Common Stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of June 30,
1996....................................................... $0.59
Increase per share attributable to the offering............. 2.78
-----
Pro forma net tangible book value per share after the offer-
ing.......................................................... 3.37
------
Net tangible book value dilution per share to new investors... $ 6.63
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences in the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by new investors at the assumed
initial public offering price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 4,347,494 66.4% $ 5,755,000 20.7% $ 1.32
New investors(1)........... 2,200,000 33.6 22,000,000 79.3 $10.00
--------- ----- ----------- -----
Total.................... 6,547,494 100.0% $27,755,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 3,647,494 or approximately
55.7% and will increase the number of shares held by new investors to
2,900,000 or approximately 44.3% of the total number of shares of Common
Stock outstanding after the offering. See "Principal and Selling
Stockholders." In addition, the net effect of the exercise of the
Underwriters' over-allotment option will further reduce the percentage
held by existing stockholders to 52.1% and increase the percentage held by
new investors to 47.9%.
The foregoing tables assume no exercise of outstanding options or warrants.
As of June 30, 1996, there were outstanding stock options to purchase an
aggregate of 1,886,370 shares of Common Stock at a weighted average exercise
price of $2.09 per share, of which 1,797,870 options were then exercisable and
655,923 options were vested. In addition, there were outstanding warrants to
acquire an aggregate of 95,000 shares of Common Stock at a weighted average
exercise price of $1.875 per share, all of which were then exercisable and
fully vested. Assuming that all of these options and warrants were deemed to
be exercised and proceeds were received therefrom, net tangible book value
dilution per share to new investors would be $6.93. See "Management--1994
Stock Option/Stock Issuance Plan." "Description of Capital Stock--Warrants"
and Note 7 of Notes to Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by reference
to and should be read in conjunction with the Company's Consolidated Financial
Statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The selected consolidated financial data set forth below for the
years ended December 31, 1993, 1994, and 1995 and as of December 31, 1994 and
1995 have been derived from the Company's consolidated financial statements,
which have been audited by Price Waterhouse LLP, independent accountants, and
which are included elsewhere in this Prospectus. The selected consolidated
financial data set forth below for the year ended December 31, 1992 and as of
December 31, 1992 and 1993 have been derived from audited financial statements
not included in this Prospectus. The selected consolidated financial data for
the year ended December 31, 1991 and for the six-month periods ended June 30,
1995 and 1996 and as of December 31, 1991 and June 30, 1996 have been derived
from the unaudited consolidated financial statements of the Company. The
unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the information set forth
therein. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995(2) 1995 1996
------ ------ ------ ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA(1):
Revenues:
Licenses............... $2,483 $3,531 $6,924 $ 7,562 $ 8,333 $3,444 $5,648
Maintenance and other.. 203 1,240 2,119 1,690 2,135 989 1,312
------ ------ ------ ------- ------- ------ ------
Total revenues......... 2,686 4,771 9,043 9,252 10,468 4,433 6,960
Cost of revenues:
Licenses............... 196 275 471 413 316 104 278
Maintenance and other.. 131 613 2,073 1,889 1,823 842 866
------ ------ ------ ------- ------- ------ ------
Total cost of
revenues.............. 327 888 2,544 2,302 2,139 946 1,144
------ ------ ------ ------- ------- ------ ------
Gross profit............ 2,359 3,883 6,499 6,950 8,329 3,487 5,816
Operating expenses:
Sales and marketing.... 634 1,466 2,585 4,200 3,732 1,595 2,927
Research and
development........... 1,186 1,454 2,332 3,112 3,658 1,781 2,229
General and
administrative........ 387 845 1,037 1,513 1,461 831 612
------ ------ ------ ------- ------- ------ ------
Total operating
expenses.............. 2,207 3,765 5,954 8,825 8,851 4,207 5,768
------ ------ ------ ------- ------- ------ ------
Income (loss) from
operations............. 152 118 545 (1,875) (522) (720) 48
Other expenses.......... 28 53 476(3) 25 411(3) 23 3
------ ------ ------ ------- ------- ------ ------
Income (loss) before
provision (benefit) for
income taxes........... 124 65 69 (1,900) (933) (743) 45
Provision (benefit) for
income taxes........... 23 104 42 (168) 29 13 --
------ ------ ------ ------- ------- ------ ------
Net income (loss)....... $ 101 $ (39) $ 27 $(1,732) $ (962) $ (756) $ 45
====== ====== ====== ======= ======= ====== ======
Pro forma net income
(loss) per common
share(4)............... $ (0.20) $(0.16) $ 0.01
======= ====== ======
Pro forma weighted
average number of
common shares
outstanding(4)......... 4,811 4,787 5,730
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ JUNE 30,
1991 1992 1993 1994 1995(2) 1996
---- ------ ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(1):
Cash........................... $163 $ 110 $1,741 $ 771 $ 1,415 $ 603
Working capital................ 362 632 2,151 1,338 1,841 1,839
Total assets................... 928 2,223 5,102 4,450 6,182 7,022
Long-term debt, excluding
current portion............... 607 546 353 353 266 341
Convertible preferred stock.... -- 411 2,346 3,343 4,804 4,804
Total stockholders' equity
(deficit)..................... (54) 159 213 (1,497) (1,967) (1,916)
</TABLE>
- -------
(1) All financial information reflects the merger of TEAMWorks in January 1994
which was accounted for as a pooling of interests. See Note 2 of Notes to
Consolidated Financial Statements.
(2) In December 1995, the Company purchased certain assets and assumed certain
liabilities from IPRS and Intuit. The results of operations for such
companies are included in the Company's results of operations since the
date of the IPRS/Intuit Acquisition. See Note 2 of Notes to Consolidated
Financial Statements.
(3) During 1993 and 1995, the Company settled certain litigation as discussed
in Note 3 of Notes to Consolidated Financial Statements.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the calculation of the pro forma weighted average number of common
shares outstanding.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Optika is a leading provider of high-performance, client/server, integrated
imaging software designed to meet the needs of paper intensive industries such
as healthcare, financial services, insurance and large retail organizations.
As a result of growth in its core imaging business, the Company generated
revenues of approximately $4.8 million and $9.0 million during 1992 and 1993,
respectively, and operating income of approximately $118,000 and $545,000.
During 1994, under the direction of its former senior management team, the
Company sought to diversify beyond its core business by entering the market
for lower-end imaging systems by acquiring TEAMWorks. Concurrently, the
Company attempted to enter the market for large customized imaging solutions
by forming a complex imaging group. The Company believed that it could market
the TEAMWorks products to end-users through direct mail and that the complex
imaging group could market large customized imaging solutions to end-users
through a direct sales force. In order to execute this new strategy, the
Company created a direct sales and marketing infrastructure and implementation
team to support the complex imaging group, while maintaining corporate
facilities in both Massachusetts and Colorado to support the TEAMWorks
products. Neither strategy proved to be successful because the TEAMWorks
products did not achieve market acceptance and the Company lacked experience
in selling such products, and the complex imaging group's direct sales force
created conflict in the Company's distribution channels. In addition, issues
associated with the integration of TEAMWorks and other problems led to
significant senior management distraction and delayed the release of new
versions of the Company's core products. As a result of the foregoing factors,
the Company's 1994 revenues increased only 2% to $9.3 million from $9.0
million in the prior year, and the Company incurred an operating loss of $1.9
million. At the end of 1994, under the direction of an interim CEO, the
Company eliminated its direct sales and support infrastructure and dissolved
the complex imaging group.
Commencing in February 1995, under the direction of Mark K. Ruport, its new
President and CEO, the Company replaced a majority of its senior management
team and refocused its sales, marketing and research and development efforts
on its core imaging products. During the first six months of 1995, the Company
also began to develop a decentralized sales staff to support its indirect
distribution channels, eliminated the TEAMWorks infrastructure and focused on
the development of its integrated product suite.
During the second half of 1995 and continuing into 1996, the Company began
to implement a strategy based on extending its technology leadership in open
component-based imaging solutions, integrating its core imaging software
products into the FilePower Suite, strengthening its indirect distribution
channels, focusing on imaging solutions which scale from workgroups to
enterprises, lowering the total cost of ownership to its customers and
developing the MediPower Suite for the healthcare market. In August 1995, the
Company released the FilePower Suite, its first integrated imaging product
suite. The Company also began to commit substantial resources to strengthen
its indirect distribution channel of OEMs and BSPs. Sales and marketing
expenses increased from $1.6 million in the first six months of 1995 to $2.1
million during the last six months of 1995, and to $2.9 million in the first
six months of 1996, an increase of 34% and 84%, respectively. The Company
believes that these efforts were significant factors in its recent revenue
growth, including a 57% growth in total revenues during the first six months
of 1996 from the corresponding prior period. Healthcare revenues increased
from approximately 5% of total revenues in 1994 to approximately 9% of total
revenues during the first six months of 1996. On an overall basis, revenue
increased from $9.3 million in 1994 to $10.5 million in 1995, an increase of
13%. After experiencing operating losses in 1994 and the first two quarters of
1995, the Company returned to operating profitability in the third quarter of
1995 and has achieved an operating profit in each of the four subsequent
quarters. There can be no assurance, however, that such profitability will be
maintained in the future. See "Risk Factors--History of Losses; Accumulated
Deficit; Future Results of Operations Uncertain," "--Significant Fluctuations
in Operating Results" and "--Management Changes; No Assurance of Succesful
Expansion of Operations."
19
<PAGE>
The license of the Company's software products is typically an executive-
level decision by prospective end-users and generally requires the Company and
its BSPs or OEMs to engage in a lengthy and complex sales cycle (typically
between six and twelve months from the initial contact date). The Company
distributes its products through a worldwide network of approximately 170 BSPs
and three OEMs. For 1995 and the six months ended June 30, 1996, approximately
89% and 87%, respectively, of the Company's total revenues were derived from
its BSPs and approximately 11% and 13%, respectively, of its total revenues
were derived from sales by OEMs. In 1995, the Company's top 34 BSPs accounted
for approximately 80% of its total revenues. However, no individual BSP
accounted for greater than 10% of the Company's total revenues. For the year
ended December 31, 1995 and the six months ended June 30, 1996, the Company
generated approximately 15% and 24%, respectively, of its total revenues from
international sales.
The Company's revenues consist primarily of license revenues, which are
comprised of one-time fees for the license of the Company's products, and
maintenance revenues, which are comprised of fees for upgrades and technical
support. The BSPs and OEMs, which are responsible for the installation and
integration of the software, enter into sales agreements with the end-user and
purchase software directly from the Company. The software is licensed directly
to the end-user by the Company through a standard shrink-wrapped license
agreement. Annual maintenance agreements are also entered into between the
BSPs and OEMs and the end-user, and the BSPs and OEMs then purchase
maintenance services directly from the Company. For 1995 and the six months
ended June 30, 1996, approximately 80% and 81%, respectively, of the Company's
total revenues were derived from software licenses and approximately 11% and
14%, respectively, of the Company's total revenues were derived from
maintenance agreements. Other revenues, which are comprised of training,
consulting and implementation services and third-party hardware and software
products, accounted for 9% and 5%, respectively, of the Company's total
revenues.
License revenues are generally recognized upon shipment when no significant
vendor obligations remain and collectibility is probable. License revenues
related to contracts with significant post-delivery performance obligations
are recognized when the Company's obligations are no longer significant or
when the customer accepts the product, as applicable. Maintenance revenues are
deferred and recognized ratably over the maintenance period, which is
generally one year. Other revenues are recognized as services are performed.
Based on the Company's research and development process, costs incurred
between the establishment of technological feasibility and general release of
the software products have not been material and therefore have not been
capitalized in accordance with Statement of Financial Accounting Standards No.
86. All research and development costs have been expensed as incurred. See
Note 1 of Notes to Consolidated Financial Statements.
The Company generally does not grant rights to return products, except for
defects in the performance of the products relative to specifications and
pursuant to standard industry shrink-wrapped license agreements which provide
for 30-day rights of return if an end-user does not accept the terms of the
software license, nor does it provide provisions for price adjustments or
rotation rights. However, if other rights of return are granted, revenue
recognition is deferred until such rights lapse. The Company's aggregate
product returns have historically been insignificant. The Company's terms of
sales generally range from 30 to 60 days from date of shipment for BSPs and
OEMs. Terms of sales on major accounts are generally based on the achievement
of installation milestones and final system acceptance.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -------------
1993 1994 1995 1995 1996
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses........................ 76.6% 81.7% 79.6% 77.7% 81.1%
Maintenance and other........... 23.4 18.3 20.4 22.3 18.9
------- ------- ------- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses........................ 5.2 4.5 3.0 2.3 4.0
Maintenance and other........... 22.9 20.4 17.4 19.0 12.4
------- ------- ------- ----- -----
Total cost of revenues........ 28.1 24.9 20.4 21.3 16.4
------- ------- ------- ----- -----
Gross margin...................... 71.9 75.1 79.6 78.7 83.6
Operating expenses:
Sales and marketing............. 28.6 45.4 35.7 36.0 42.1
Research and development........ 25.8 33.6 34.9 40.2 32.0
General and administrative...... 11.5 16.3 14.0 18.7 8.8
------- ------- ------- ----- -----
Total operating expenses...... 65.9 95.3 84.6 94.9 82.9
------- ------- ------- ----- -----
Income (loss) from operations..... 6.0 (20.2) (5.0) (16.2) 0.7
Other expenses.................... 5.3 0.3 3.9 0.6 --
------- ------- ------- ----- -----
Income (loss) before provision
(credit) for income taxes........ 0.7 (20.5) (8.9) (16.8) 0.7
Provision (credit) for income
taxes............................ 0.5 (1.8) 0.3 0.3 --
------- ------- ------- ----- -----
Net income (loss)................. 0.2% (18.7)% (9.2)% (17.1)% 0.7%
======= ======= ======= ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO JUNE 30, 1995
Revenues
Total revenues increased 57% from $4.4 million for the six months ended June
30, 1995 to $7.0 million for the six months ended June 30, 1996.
Licenses. License revenues increased 64% from $3.4 million for the six months
ended June 30, 1995 to $5.6 million for the six months ended June 30, 1996,
representing approximately 78% and 81% of total revenues in their respective
periods. This increase was primarily the result of increased unit sales of the
FilePower Suite, increased international revenues as a result of the
IPRS/Intuit Acquisition and increased revenues from software sales to the
healthcare industry.
Maintenance and Other. Maintenance revenues increased 103% from approximately
$489,000 during the six months ended June 30, 1995 to $1.0 million for the six
months ended June 30, 1996, representing approximately 11% and 14% of total
revenues in the respective periods. This increase was primarily a result of an
increase in the number of installed systems and the Company's improved tracking
and monitoring of expiring maintenance contracts.
Cost of Revenues
Licenses. Cost of licenses consists of royalty payments to third-party
software vendors, product author commissions, whereby certain of the Company's
software developers are entitled to receive a specified percentage of product
sales, and costs of product media, duplication, packaging and fulfillment. Cost
of licenses
21
<PAGE>
increased from $104,000, or 3% of license revenues, for the six months ended
June 30, 1995 to $ 278,000 or 5% of license revenues, for the six months ended
June 30, 1996, primarily as a result of increased commissions paid under the
Company's product author program.
Maintenance and Other. Cost of maintenance and other consists of the direct
and indirect costs of providing software maintenance and support, training and
consulting services to the Company's BSPs, OEMs and end-users, and the cost of
third-party software products. Cost of maintenance and other increased from
$842,000, or 85% of maintenance and other revenues, for the six months ended
June 30, 1995 to $866,000, or 66% of maintenance and other revenues, for the
six months ended June 30, 1996. This increase was primarily due to increased
staffing for customer support, partially offset by a decreased third-party
software component, which has a lower gross profit margin, in the six months
ended June 30, 1996.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and other related expenses for sales and marketing
personnel, marketing, advertising and promotional expenses. Sales and
marketing expenses increased from $1.6 million, or 36% of total revenues, for
the six months ended June 30, 1995 to $2.9 million, or 42% of total revenues,
for the six months ended June 30, 1996. This increase was primarily
attributable to increased staffing for sales and marketing activities and the
opening of six regional sales offices during mid-1995. The Company anticipates
that sales and marketing expenses will continue to increase in absolute
dollars in 1996 as the Company continues to build and expand its network of
BSPs and OEMs.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, as well as the cost of facilities and equipment. Research and
development expenses increased from $1.8 million, or 40% of total revenues,
for the six months ended June 30, 1995 to $2.2 million, or 32% of total
revenues, for the six months ended June 30, 1996. The increase was primarily
due to increased staffing in order to develop enhancements to the FilePower
Suite and to continue the development of the MediPower Suite. The Company
expects research and development expenses to continue to increase in absolute
dollars in 1996 to fund the development of new products and product
enhancements.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and outside professional fees. General and
administrative expenses decreased from $831,000 or 19% of total revenues, for
the six months ended June 30, 1995 to $612,000, or 9% of total revenues for
the six months ended June 30, 1996. The decrease was primarily due to the
Company incurring severance payments and recruiting and relocation expenses in
connection with the senior management reorganization during the first six
months of 1995. This was partially offset by increased staffing and related
expenditures. General and administrative expenses are expected to increase in
absolute dollars in 1996 as the Company expands its staffing to support
expanded operations and to comply with the responsibilities of a public
company.
Provision (benefit) for Income Taxes. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109. Due to
the Company's history of pre-tax losses and uncertainty surrounding the timing
of realizing the benefits of its favorable tax attributes, the Company has
recorded a valuation allowance against all of its net deferred tax assets as
of June 30, 1996. In reaching the Company's determination of the need to
provide a deferred tax valuation allowance, the Company considered all
available evidence, both positive and negative, as well as the weight and
importance given to such evidence. As required by Statement of Financial
Accounting Standards No. 109, management concluded that a valuation allowance
against deferred tax assets was appropriate at the current time. Specifically,
the Company has had annual losses in each of the last two years and quarterly
losses in six of the last eight quarters in the period ended December 31, 1995
and has had only near breakeven results in the two most recent quarters ended
June 30, 1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
Revenues
Total revenues increased 13% from $9.3 million in 1994 to $10.5 million in
1995. Revenue growth accelerated from 2% during the first six months of 1995,
compared to the first six months of 1994, to 24% during
22
<PAGE>
the last six months of 1995, compared to the last six months of 1994, as the
Company began to implement its new strategy under its new management team.
Licenses. License revenues increased 10% from $7.6 million in 1994 to $8.3
million in 1995, representing 82% and 80% of total revenues in their
respective periods. The increase in license revenues was primarily due to
sales associated with the release of the FilePower Suite in August 1995,
increased sales through indirect distribution channels and increased
international sales in Asia and South America.
Maintenance and Other. Maintenance and other revenues increased 26% from
$1.7 million in 1994 to $2.1 million in 1995, representing 18% and 20% of
total revenues in their respective periods, primarily as a result of an
increase in the number of installed systems and the Company's improved
tracking and monitoring of expiring maintenance contracts.
Cost of Revenues
Licenses. Cost of licenses decreased from $413,000, or 5% of license
revenues, in 1994 to $316,000, or 4% of license revenues, in 1995, primarily
as a result of lower royalty costs on third-party developed software.
Maintenance and Other. Cost of maintenance and other decreased from $1.9
million, or 112% of maintenance and other revenues, in 1994 to $1.8 million,
or 85% of maintenance and other revenues, in 1995, primarily as a result of
the Company's reduction in implementation services associated with the complex
imaging group.
Sales and Marketing. Sales and marketing expenses decreased from $4.2
million, or 45% of total revenues, in 1994 to $3.7 million, or 36% of total
revenues, in 1995, primarily due to the elimination of the complex imaging
group and the sales and marketing infrastructure the Company had built to
market the TEAMWorks products. Sales and marketing expenses increased from
$1.6 million in the first six months of 1995 to $2.1 million during the last
six months of 1995, an increase of 34%, as the Company began to build and
expand its network of BSPs and OEMs.
Research and Development. Research and development expenses increased from
$3.1 million, or 34% of total revenues, in 1994 to $3.7 million, or 35% of
total revenues, in 1995, primarily as a result of additional staff hired in
1995 to develop enhancements to the FilePower Suite and continue the
development of the MediPower Suite.
General and Administrative. General and administrative expenses remained
constant at $1.5 million in 1994 and 1995, representing 16% and 14% of total
revenues, respectively, primarily as a result of the Company discontinuing the
general and administrative functions that were acquired in connection with the
TEAMWorks Acquisition, offset by the costs of restructuring the Company's
senior management team.
Other Expenses. In 1995, other expenses included $373,000 related to the
settlement of outstanding litigation. The expense included settlement costs
and legal fees.
Provision (benefit) for Income Taxes. The Company recognized a tax benefit
of $168,000 in 1994 principally as a result of net operating loss carrybacks.
The Company recognized minimal income tax expense in 1995 resulting from
taxable income in the Company's UK subsidiary. As of December 31, 1995, the
Company's net operating loss carryforwards were approximately $2.3 million and
expire in varying amounts from 2009 through 2010. Additionally, the Company
has various tax credit carryforwards aggregating approximately $341,000, which
expire between 2005 and 2009. The Company's ability to use the net operating
loss carryforwards against taxable income are subject to restrictions and
limitations under the Internal Revenue Code of 1986 (the "Code"), as amended,
in the event of a change of ownership within the meaning of the Code. Due
23
<PAGE>
to the Company's history of pre-tax losses and the uncertainty surrounding the
timing of realizing the benefits of the Company's favorable tax attributes,
the Company has placed a valuation allowance against its net deferred tax
assets. See Note 6 of Notes to Consolidated Financial Statements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 TO DECEMBER 31, 1993
Revenues
Total revenues increased 2% from $9.0 million in 1993 to $9.3 million in
1994. The significant decrease in the Company's historical revenue growth rate
was primarily due to the effects of the Company's unsuccessful efforts to
diversify outside of its core imaging business.
Licenses. License revenues increased 9% from $6.9 million in 1993 to $7.6
million in 1994, representing 77% and 82% of total revenues in their
respective periods. The increase in license revenues was primarily due to
increased sales volume of the Company's software products.
Maintenance and Other. Revenues from the sale of maintenance contracts and
third-party products decreased 20% from $2.1 million in 1993 to $1.7 million
in 1994, representing 23% and 18% of total revenues in their respective
periods. The decrease was primarily a result of the absence of third-party
hardware products in 1994 which accounted for approximately $600,000 of 1993
revenues.
Cost of Revenues
Licenses. Cost of licenses decreased from $471,000, or 7% of license
revenues, in 1993 to $413,000, or 6% of license revenues, in 1994, primarily
as a result of lower royalty costs on third-party software.
Maintenance and Other. Cost of maintenance and other decreased from $2.1
million, or 98% of maintenance and other revenues, in 1993 to $1.9 million, or
112% of maintenance and other revenues, in 1994, primarily as a result of the
absence of sales of third-party hardware products in 1994, offset by increased
support requirements for the TEAMWorks products and additional staffing in
connection with the formation of the complex imaging group.
Sales and Marketing. Sales and marketing expenses increased from $2.6
million, or 29% of total revenues, in 1993 to $4.2 million, or 45% of total
revenues, in 1994, primarily due to increased expenses associated with the
TEAMWorks products and the buildup of the direct sales and marketing
infrastructure to support the complex imaging group.
Research and Development. Research and development expenses increased from
$2.3 million, or 26% of total revenues, in 1993 to $3.1 million, or 34% of
total revenues, in 1994, primarily as a result of additional development
efforts required to integrate the products acquired in the TEAMWorks
Acquisition with the Company's core products.
General and Administrative. General and administrative expenses increased
from $1.0 million in 1993, or 12% of total revenues, to $1.5 million, or 16%
of total revenues, in 1994, primarily as a result of the increased general and
administrative expenses incurred in connection with the TEAMWorks Acquisition,
including the cost of maintaining duplicative corporate and administrative
functions for a period of six months after the closing of the TEAMWorks
Acquisition.
Other Expenses. In 1993, other expenses included $458,000 related to the
settlement of outstanding litigation. The expense included settlement costs
and legal fees.
Provision (benefit) for Income Taxes. The Company's provision (benefit) for
income taxes was $42,000 in 1993 and $(168,000) in 1994. The provision in 1993
was primarily for foreign taxes, and the Company's income
24
<PAGE>
tax benefit for 1994 reflects the utilization of operating loss carrybacks and
a valuation allowance recorded against the net operating loss carryforwards
generated during 1994.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly consolidated results of
operations data for each of the eight quarters ended June 30, 1996, including
such amounts expressed as a percentage of total revenues. This quarterly
information is unaudited, has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
30, 31, 31, 30, 30, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Licenses............... $1,592 $2,511 $1,567 $1,877 $2,132 $2,757 $2,506 $3,142
Maintenance and other.. 359 423 392 597 549 597 600 712
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 1,951 2,934 1,959 2,474 2,681 3,354 3,106 3,854
Cost of revenues:
Licenses............... 74 141 51 53 63 149 131 147
Maintenance and other.. 406 450 410 432 480 501 387 479
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues.............. 480 591 461 485 543 650 518 626
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 1,471 2,343 1,498 1,989 2,138 2,704 2,588 3,228
Operating expenses:
Sales and marketing.... 1,062 1,011 671 924 893 1,244 1,238 1,689
Research and
development........... 718 801 860 921 841 1,036 1,052 1,177
General and
administrative........ 322 392 273 558 297 333 288 324
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 2,102 2,204 1,804 2,403 2,031 2,613 2,578 3,190
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (631) 139 (306) (414) 107 91 10 38
Other expenses
(income)............... 11 14 15 8 6 382 8 (5)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision (benefit) for
income taxes........... (642) 125 (321) (422) 101 (291) 2 43
Provision (benefit) for
income taxes........... (52) 28 5 8 6 10 -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ (590) $ 97 $ (326) $ (430) $ 95 $ (301) $ 2 $ 43
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
30, 31, 31, 30, 30, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses............... 81.6% 85.6% 80.0% 75.9% 79.5% 82.2% 80.7% 81.5%
Maintenance and other.. 18.4 14.4 20.0 24.1 20.5 17.8 19.3 18.5
----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses............... 3.8 4.8 2.6 2.1 2.3 4.4 4.2 3.8
Maintenance and other.. 20.8 15.3 20.9 17.5 18.0 15.0 12.5 12.4
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues.............. 24.6 20.1 23.5 19.6 20.3 19.4 16.7 16.2
----- ----- ----- ----- ----- ----- ----- -----
Gross margin............ 75.4 79.9 76.5 80.4 79.7 80.6 83.3 83.8
Operating expenses:
Sales and marketing.... 54.4 34.5 34.3 37.3 33.3 37.1 39.9 43.8
Research and
development........... 36.8 27.3 43.9 37.2 31.4 30.9 33.8 30.6
General and
administrative........ 16.5 13.3 13.9 22.6 11.0 9.9 9.3 8.4
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses.............. 107.7 75.1 92.1 97.1 75.7 77.9 83.0 82.8
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (32.3) 4.8 (15.6) (16.7) 4.0 2.7 0.3 1.0
Other expenses
(income)............... 0.6 0.5 0.8 0.3 0.2 11.4 0.3 0.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision (benefit) for
income taxes........... (32.9) 4.3 (16.4) (17.0) 3.8 (8.7) -- 1.0
Provision (benefit) for
income taxes........... (2.7) 1.0 0.3 0.3 0.2 0.3 -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (30.2)% 3.3% (16.7)% (17.3)% 3.6% (9.0)% 0.0% 1.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
25
<PAGE>
To achieve its quarterly revenue objectives, the Company depends upon
obtaining orders in any given quarter for shipment in that quarter. Product
orders are typically shipped shortly after receipt, and consequently, order
backlog at the beginning of any quarter has in the past represented only a
small portion of that quarter's revenues. Furthermore, the Company has often
recognized most of its revenues in the last month, or even weeks or days, of a
quarter. Accordingly, a delay in shipment near the end of a particular quarter
may cause revenues in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter. Conversely, to the extent that significant
revenues occur earlier than expected, operating results for subsequent
quarters may fail to keep pace with results of previous quarters or even
decline. The Company also has recorded generally lower sales in the first
quarter than in the immediately preceding quarter, as a result of, among other
factors, end-users' purchasing and budgeting practices and the Company's sales
commission practices, and expects this pattern to continue in future years. To
the extent future international operations constitute a higher percentage of
total revenues, the Company anticipates that it may also experience relatively
weaker demand in the third quarter as a result of reduced sales in Europe
during the summer months. A significant portion of the Company's expenses are
relatively fixed in the short term. Accordingly, if revenue levels fall below
expectations, operating results are likely to be disproportionately adversely
affected because a proportionately small amount of the Company's expenses
varies with its revenues. As a result of these and other factors, the Company
believes that its quarterly operating results will vary in the future and
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
generated from operations, private sales of preferred stock totaling $4.8
million, equipment lease financings and periodic borrowings under its credit
facilities. At June 30, 1996, the Company had approximately $603,000 in cash.
Cash used in operating activities was $1.3 million and $127,000 in 1994 and
1995, respectively, and $772,000 for the six months ended June 30, 1996. The
Company generated cash from operations of $9,000 in 1993.
Cash used in investing activities was $72,000, $158,000 and $208,000 in
1993, 1994 and 1995, respectively. During the six months ended June 30, 1996
the Company used cash of $321,000 in investing activities. Uses of cash
consisted solely of purchases of property and equipment, partially offset by
cash acquired in the IPRS/Intuit Acquisition.
Cash provided from financing activities was $1.7 million, $0.5 million and
$1.0 million in 1993, 1994 and 1995, respectively. Cash provided from
financing activities was $281,000 for the first six months of 1996. Cash from
financing activities resulted primarily from private sales of preferred stock,
and proceeds from and repayments of bank borrowings and capital leases.
At June 30, 1996, the Company's principal sources of liquidity included cash
of $603,000. In addition, the Company had a secured credit facility for up to
$1.5 million which expired on such date. There were no amounts outstanding
under the working capital line at such time. The Company has received a
commitment letter for a new credit facility consisting of a working capital
line of credit pursuant to which the Company would be able to draw up to $3.0
million for one year bearing interest at the bank's prime rate plus .75%.
However, there can be no assurance that a new credit facility can be
established based on such terms or at all. Pursuant to the commitment letter,
any loans under the bank credit facility would be secured by all of the
Company's assets with the exception of its intellectual property. The Company
also has a term facility of $0.3 million to finance capital expenditures,
which bears interest at the bank's prime rate plus 2.0%. Pursuant to the term
facility, $271,000 was outstanding. The term facility is repayable in 30 equal
installments of principal and accrued interest commencing July 1996. In
addition, the Company has outstanding a two-year secured note with a principal
balance of $253,000 at June 30, 1996, bearing interest at 10.75%. See Note 4
of Notes to the Consolidated Financial Statements.
26
<PAGE>
The Company's aggregate product returns have historically been insignificant
to date. The liquidity characteristics of accounts receivable have a
significant impact on the Company's short-term liquidity, and a lesser impact
on the Company's long-term liquidity. The inability to collect accounts
receivable when due can have a material adverse effect on the Company's
working capital and financial condition at any point in time. This risk is
substantial because of the significance of accounts receivable relative to the
total assets of the Company.
As of June 30, 1996, the Company also had outstanding approximately $150,000
in indebtedness under a non-interest bearing promissory note in the original
aggregate principal amount of $225,000 which was issued in settlement of
litigation. A portion of the net proceeds of this offering will be used to
repay this note in full. See "Use of Proceeds."
The Company's principal commitments consist of leases on its office
facilities and obligations under its bank credit facility. The Company
currently has no material commitments for capital expenditures. The Company
believes that the net proceeds from this offering, together with anticipated
cash flow from operations and its bank credit facility, will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next 12 months. Depending on the Company's future growth and acquisitions, if
any, it may become necessary to secure additional sources of financing before
or after such time period.
27
<PAGE>
BUSINESS
Optika is a leading provider of high-performance, client/server, integrated
imaging software designed to meet the needs of paper intensive industries such
as healthcare, financial services, insurance and retail. The Company's
FilePower Suite is comprised of server software, which provides core imaging
functions, application software for document image management, COLD and
automated workflow transaction processing, and associated development tools.
The FilePower Suite is easy to install, use and integrate with end-users'
existing information systems, and is designed to be deployed at the
departmental or workgroup level and then scale throughout the enterprise. The
Company believes that the FilePower Suite enables end-users to reduce costs,
improve operational productivity and enhance customer service. According to
industry sources, the Company is one of the leading providers of imaging
solutions to the healthcare industry, based on over 80 installations of the
FilePower Suite. The Company is seeking to capitalize on the success of the
FilePower Suite in the healthcare industry through the development of the
MediPower Suite which is designed to enable hospitals and other healthcare
organizations to manage large amounts of patient related documents. The
MediPower Suite incorporates document image management, COLD and automated
workflow transaction processing technologies and is designed to provide fast
and efficient access to patient information from workstations located
throughout the enterprise, including the point of patient care.
INDUSTRY BACKGROUND
The Document Image Processing Industry
Document image processing systems allow documents to be electronically
stored, retrieved and routed and generally include the following five basic
functions: (i) document capture, (ii) optical storage, (iii) retrieval and
display, (iv) document management and (v) automated transaction processing
(workflow). Document capture is the conversion of paper documents into
digitized images and generally includes batch preparation, scanning, image
enhancement, quality assurance and indexing of images to long-term storage,
including optical disks, CD-ROM and magnetic media. Optical storage is the
storage of images on optical drives and jukeboxes and includes platter
management, volume management and hierarchical storage management. Retrieval
and display is the retrieval of document images via either standard searches
(using the indices stored during capture) or full-text indexing for display,
annotation and routing. Document management is the centralized management and
administration of large volumes of documents and typically provides a file
cabinet and file folder metaphor for retrieving documents. Workflow is the
automation of routine work processes, usually by automatic routing of images
as a replacement for manual routing of paper.
For paper intensive industries, such as healthcare, financial services,
insurance and retail, electronic document image processing offers several
advantages over paper or microfilm, including: (i) faster and easier file
access, because document images are located and retrieved by entering a few
key-words into a computer database rather than by searching through file
cabinets for paper folders or microfilm, (ii) fewer misfiled documents,
because database software is used to track the location of document images,
(iii) concurrent file access, since multiple users have the ability to access
a document simultaneously, (iv) remote distribution and access, because
document images are easily transmitted to standard facsimile equipment or
remote computer terminals over commercial telephone lines, and (v) less
expensive storage, because electronic storage generally requires less floor
space and clerical overhead than paper-based storage, thereby reducing overall
document storage costs. Once documents have been converted to an electronic
format, they can be automatically routed from one workgroup or task to
another. By implementing the automated workflow approach, companies can
improve operating efficiencies compared to traditional paper-based document
processing tasks. Several typical uses of document imaging systems include:
Patient Records Management. The effectiveness of many existing healthcare
information systems is limited because many aspects of a patient's medical
record are on paper and may be located in several different departments or at
off-site storage facilities. Hospitals and other healthcare providers can use
imaging solutions to create a respository for a patient's complete medical
record, including paper-based documents, such as doctors'
28
<PAGE>
orders and notes, consent forms and progress notes, and computer generated
information, such as lab reports, transcriptions and patient demographics. In
addition, medical images, such as X-rays and CAT scans, may be stored on the
system. The availability of timely and complete patient information can enable
healthcare providers to control costs while improving the quality of patient
care.
Insurance Claim Processing. Insurance companies use document imaging systems
to speed claim processing. Documents associated with the claim are imaged and
indexed, so that a service representative can retrieve the documents quickly
when a customer calls, rather than having the documents delivered and calling
the customer back. This can resolve claims more quickly and improve customer
service.
Loan Processing. Loan processing at financial institutions usually involves
a large folder of documents that must be approved by many departments, a
process that can take several weeks when done manually. By implementing
document imaging, loan documents can be routed electronically to multiple
departments, including remote offices, and approvals can be collected more
quickly, increasing the institution's operating efficiencies.
Accounts Payable Processing. Accounts payable processing for retailers and
distributors with multiple geographic locations and high transaction volumes
usually involves a large number of paper-based steps and significant costs for
document storage. Imaging solutions permit accounts payable personnel to
access invoices, purchase orders and related documents from their desktop
computers and can significantly reduce the number of costly paper-based steps.
The growth of the market for document image processing systems is being
driven by: (i) improved price/performance characteristics of client/server
distributed computing systems which have provided increased computing power at
the desktop and higher bandwidth LANs and WANs, (ii) the widespread deployment
of client/server computing systems connected to an infrastructure of LANs and
WANs and (iii) increased competitive pressures for businesses to improve
productivity and reduce costs, especially in paper-intensive industries. The
production segment of the document imaging market includes applications that
handle large volumes of paper and perform structured business functions such
as patient records management, insurance claim processing, loan processing and
accounts payable processing. According to a study by BIS Strategic Decisions,
the software component of the North American production imaging segment has
grown from approximately $264 million in 1993 to approximately $366 million in
1995 and is projected to grow to approximately $682 million by 1998.
The Evolution of Document Imaging Technology and Systems
In the mid-1980s, the first generation of document image processing systems
was introduced. The hardware components of these systems included optical
scanners, optical disks and digital compression technologies which provided
the technological foundation for processing and managing paper documents in
image form. These early systems employed proprietary minicomputer
architectures and closed, proprietary software and were sold by direct sales
organizations to address high-end production applications. These systems
generally required a significant amount of custom integration before they
could interface with the customer's existing legacy systems. The first
generation systems were typically priced in excess of $1 million.
Commencing in the early 1990s, the market for enterprise-wide computing
systems used by large commercial organizations has undergone a significant
transformation as advances in hardware, software and networking technologies
have led to a shift from mainframe and other "host-based" computer
architectures to networked, client/server architectures in which computing
tasks are distributed among numerous computers throughout the network. The
flexibility, computing power and cost-effectiveness of distributed processing
in an open systems environment has encouraged numerous large organizations to
move many mission-critical computer applications to client/server systems from
mainframes. In particular, the widespread adoption of client/server computing
systems has significantly reduced the investment required to install,
implement and operate mission-critical imaging and workflow applications. Most
client/server production imaging systems are currently based on UNIX operating
systems. However, a 1996 study by International Data Corporation predicts that
while shipments of UNIX servers will grow from 462,000 in 1994 to 766,000 in
1998, a 13% annual growth
29
<PAGE>
rate, shipments of Windows NT servers will grow from 115,000 in 1994 to
1,170,000 in 1998, a 79% annual growth rate, challenging UNIX as the leading
server software. Windows NT operating systems are expected to experience
significant growth due to the large installed base of Windows NT-ready
personal computers, its user friendliness and its relatively low user cost
compared to the cost of UNIX systems. With the emergence of Windows NT-based
operating systems, an alternative technological infrastructure to UNIX is now
in place to offer high performance imaging systems using standard desktop
hardware and software which can be installed and integrated in weeks or
months.
Certain challenges facing the healthcare industry illustrate the market
potential for client/server based imaging solutions. Competition and cost-
containment measures imposed by governmental and private payors have created
substantial pressures on healthcare providers to control healthcare costs
while providing quality patient care. At the same time, the healthcare
delivery system is experiencing a shift from a highly fragmented group of non-
allied healthcare providers to integrated delivery networks which combine
payors, hospitals, and outpatient facilities. These integrated delivery
networks are better suited to improve care and enhance operating efficiencies
in the increasingly competitive healthcare environment. Traditional healthcare
information systems have proven to be inadequate because (i) they do not
capture large amounts of paper-based records which are stored in various sites
throughout the enterprise, (ii) they usually cannot share computerized patient
data which have been generated using disparate systems and (iii) they cannot
access medical images such as X-rays and CAT scans at the point of care. In
order to address these concerns, hospitals and other healthcare providers are
demanding comprehensive, cost-effective information systems that deliver rapid
access to a fully updated and complete computer-based patient record ("CPR").
While healthcare information system ("HCIS") vendors have made progress
integrating many of the components necessary to construct a CPR, a complete
CPR must also contain all current and historical patient information and
information generated and stored outside of the local computer network.
Document imaging and COLD technologies are essential elements of a CPR because
they allow paper-based documents, computer generated information and medical
images to be stored, accessed and delivered to the provider at the point of
patient care. Hospitals and other healthcare providers are increasingly
seeking integrated imaging systems with a standards-based architecture and
custom interfaces designed to accept current medical interface formats to
increase productivity, reduce costs of administration and increase cash flow.
Other paper intensive industries face cost containment and productivity
challenges similar to those confronting the healthcare industry. An increasing
number of companies in these industries are seeking cost-effective image
processing solutions that leverage their existing technological investments.
THE OPTIKA SOLUTION
Optika has developed the FilePower Suite of integrated client/server imaging
software comprised of server software, which provides core imaging functions,
application software for document image management, COLD and automated
workflow transaction processing, and associated development tools. The Company
believes that the FilePower Suite enables end-users to reduce costs, improve
operational productivity and enhance customer service. The Company's
integrated imaging software combines image management, COLD and advanced
workflow processing into a single component-based application. The FilePower
Suite is designed to provide the following key benefits:
Rapid Installation and Ease of Use. The FilePower Suite is contained on a
single compact disk ("CD") which includes on-line documentation and on-line
help, and is designed for push-button installation and rapid integration into
the end-user's existing information system. The Company's products offer a
convenient user interface so that users can move easily between imaging, COLD
and workflow applications as well as other graphical applications. The
FilePower Suite uses common viewing technology for the integrated products
that allows end-users to work with a common environment to manage all of the
folder-based data in the imaging and COLD systems. Standard programming
languages can be used to integrate existing information systems and other
management information technologies with the FilePower Suite.
Enterprise-Wide Scalability. The Company's products can be deployed via LANs
and WANs, and are designed for enterprise-wide scalability throughout large
organizations. Thus, organizations can deploy solutions
30
<PAGE>
that meet the needs of workgroups and departments and can later scale across
an entire enterprise. Small workgroups can take advantage of enterprise
functionality such as volume input and storage, disaster recovery and security
while large enterprises can implement systems based on departmental return on
investment calculations.
Compatibility with Heterogeneous Computing Environments. Since inception,
the Company's products have been designed to operate on Windows-based
platforms. The Company's software products currently operate on a variety of
open computing platforms, including Windows 3.x, Windows 95 and Windows NT on
the client desktop, Windows NT and Novell Netware as servers and UNIX for SQL
database support. The Company's products also operate on many common hardware,
software and database platforms, including SQL databases from Oracle, Sybase
and Microsoft. Because different types of data can be accessed from a variety
of platforms without the need for reformatting, the Company's products can be
deployed in an enterprise which has heterogeneous platforms without
necessitating a restructuring of the organization's existing computing
environment.
Ease of Customization and Extension. The open client/server architecture of
the Company's products enables end-users to customize the software for
industry-specific vertical applications which can then be integrated into
existing computing environments through a custom user interface. The Company's
network of BSPs and OEMs are able to build industry-specific customized
applications which interoperate with the Company's open, component-based
software using Microsoft's Object Linking and Embedding ("OLE") and Open
Database Connectivity standards. The MediPower Suite is an example of a
customized application being developed by the Company based on the FilePower
Suite.
According to an industry source, the Company is one of the leading providers
of imaging solutions to the healthcare industry. The Company is seeking to
capitalize on the installed base of over 80 installations of the FilePower
Suite in the healthcare industry through the development of the MediPower
Suite. The MediPower Suite is designed to (i) capture and store electronic
data from disparate hospital information systems through real-time,
computerized interfaces, (ii) provide applications for efficiently scanning
and automatically indexing paper-based records, (iii) facilitate the storage
of digitized medical images such as X-rays and CAT scans, (iv) allow storage
of a patient's lifetime medical record on low cost optical disks, (v) enable
workflow re-engineering of business processes and (vi) incorporate user-
oriented interfaces that allow the provider to easily locate and retrieve
patient information in the hospital or clinical setting.
The following are examples of end-user applications of the Company's
products. The benefits achieved by the following end-users will not
necessarily be achieved by every end-user.
Healthcare: A 500-bed hospital with two facilities in Kentucky was
experiencing significant growth in out-patient volumes and associated billing
and cash collection processing, and wanted an imaging solution that would
streamline the patient intake function and ultimately create a complete CPR
for its physicians. In conjunction with one of its BSPs, the Company installed
the FilePower Suite and is currently in the process of installing the
MediPower Suite at the end-user's site to provide medical records and patient
billing document storage, workflow processes for patient billing and chart
completion, auto-indexing of documents, bursting and filing of reports from
existing healthcare information systems and automated bulk remittance
processing. Three of the seven software modules included in the MediPower
Suite have been installed and are currently operational at the end-user's
facilities.
Financial Services: A leading financial services firm needed to automate its
post-loan closing process at one of its three U.S. service centers. Prior to
the installation of the FilePower Suite, this process consisted of 155 total
steps, 22 of which were manual decisions and 109 of which were paper-based,
including mail, setup, audit, assignment, copying and filing. In conjunction
with one of its BSPs, Optika installed and integrated the FilePower Suite with
the end-user's existing legacy system in under 90 days. Following the
installation of the FilePower Suite, the number of paper-based steps and the
total number of steps were each reduced by over 50%, providing significant
productivity improvements. The Company is currently in the process of
installing the FilePower Suite at the end-user's second U.S. service center
and two international service centers.
31
<PAGE>
Banking: A leading U.S. financial institution sought to improve the quality
of customer service provided by its Sioux Falls, South Dakota operations
center which managed the customer service operations of 40 banks and to reduce
the space required to store paper-based files such as account applications,
powers-of-attorney, signature cards and correspondence. In conjunction with a
local BSP, the Company installed the FilePower Suite to enable customer
service employees at the operations center to store and retrieve customer
information formerly contained in paper-based files from their desktop
computers. Following the installation of the Company's software, the average
time that a bank has had to wait for information from the operations center
has been reduced from an average of 3.5 minutes to under one minute, hundreds
of square feet of storage space has been reduced to 40 square feet, and the
end-user has been able to reduce the number of customer service employees at
the operations center by approximately 30%.
Retail: A leading membership warehouse with over 240 membership warehouses
in the United States, Canada, Mexico and the United Kingdom needed to reduce
the paperwork associated with its accounts payable processing system. The end-
user expected that, by 1996, in the absence of an imaging solution, accounting
documents would exceed 9 million pages per year. In conjunction with one of
its BSPs, the Company installed FPmulti and FPreport to provide the end-user
with the ability to assemble and access proof of shipment, purchase orders and
invoices on-line, resulting in cost savings in excess of $7 million over a
five-year period as well as improved customer service through faster and more
reliable access to documents.
STRATEGY
Optika's objective is to be the leading worldwide supplier of high-
performance client/server, integrated imaging software designed to meet the
needs of paper-intensive industries. The Company's strategy includes the
following key elements:
Extend Technology Leadership. The Company intends to extend its position as
a technology leader in developing and marketing open architecture,
client/server, integrated imaging, COLD and workflow software products. The
Company believes that Windows NT will challenge UNIX as a leading imaging and
workflow server operating system over the next several years and intends to
maintain and extend its leadership position in developing imaging software to
support Windows NT operating environments. The Company plans to introduce
enhancements to its FilePower Suite and vertical market applications which are
complementary to the FilePower Suite, such as the MediPower Suite. The Company
also may seek to acquire complementary technologies and products both to
enhance the features and functionality of its existing products and to add new
products. The Company is developing intranet and Internet applications for its
imaging, COLD and workflow technologies.
Continue to Develop Leveraged Distribution Model. The Company intends to
continue to strengthen its network of BSPs and OEMs in targeted domestic and
international markets. BSPs are an integral part of the Company's distribution
strategy because they are responsible for identifying potential end-users,
selling the Company's products to end-users as part of a complete hardware and
software solution, customizing and integrating the Company's products at the
end-user's site and supporting the end-user following the sale. The Company's
strategy is to target its marketing activities toward its most productive BSPs
and recruit additional BSPs in key geographical and vertical markets. OEMs
also are an integral part of the Company's distribution strategy because they
generally have a higher sales volume and require considerably less post-sales
support than the Company's BSPs. The Company currently has OEM relationships
with Lanier Worldwide, Inc. ("Lanier"), Alltel Healthcare Information
Services, Inc. ("Alltel") and Anacomp, Inc. ("Anacomp") and is actively
seeking to develop additional OEM relationships.
Focus on Scalable Solutions. The Company has designed its products to scale
from workgroups and departments to large enterprises. The Company believes
that initial end-user success with its software is an essential factor in the
end-user's decision to deploy the software throughout the enterprise. The
Company believes that migrating end-users from initial departmental usage to
enterprise-wide deployment provides additional sales opportunities within its
existing end-user installed base. Optika also intends to integrate its
software with Lotus Notes and its workflow application software with Microsoft
Exchange client software.
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<PAGE>
Lower Cost of Ownership. The Company's intends to continue to enable end-
users to leverage their investment in their existing infrastructure of
heterogeneous hardware, software and database systems through the open
architecture of it software products. The Company believes that end-users,
BSPs and OEMs can reduce programming costs by using Optika's application
programming interface ("API") or by employing the integration methods in OLE.
Because the Company's products can be initially deployed at the workgroup
level, end-users can deploy a limited number of copies of Optika's software as
required to meet their immediate needs, and then receive preferential pricing
as they scale to a larger number of users.
Capitalize on Healthcare Opportunity. Due to the size of the FilePower
Suite's installed base in the healthcare industry, the Company formed a
dedicated Healthcare Division in August 1994 to develop and market the
MediPower Suite as a comprehensive software solution tailored to this
industry. Key elements of the Company's healthcare strategy include completing
the development of the MediPower Suite, recruiting additional BSPs, OEMs and
sales and marketing personnel focused on healthcare, and expanding sales of
its imaging products to other healthcare organizations, including health
maintenance organizations and home healthcare providers. The Company intends
to develop additional applications for other vertical markets, such as
financial services, in the future.
PRODUCTS
The Company's core products are the FilePower Suite, a suite of high-
performance, client/server, integrated imaging software products which perform
all five basic imaging functions, and the MediPower Suite, a suite of
integrated document imaging and computer report processing applications for
managing medical records and business office applications. The Company's
products run on a variety of open computing platforms, support standard
graphical operating systems and can be deployed across enterprises through
LANs and WANs.
FILEPOWER SUITE
In August 1995, the Company released the FilePower Suite on a single, easy-
to-use CD which simplifies system installation and configuration. The
FilePower Suite consists of a client domain, development tools and a server
domain. The client domain includes document image management, COLD and
workflow software applications while the server domain provides an extensive
set of core imaging services. API development tools included on the CD enable
third-party developers to build a variety of applications tailored to specific
industries. Electronic business documents and COLD pages can be stored in
folders along with document images, which are managed by the FilePower server
software. The FilePower Suite allows users to view and manipulate many
disparate document types without launching separate applications.
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<PAGE>
[GRAPHICAL REPRESENTATION OF COMPONENTS OF
FILEPOWER ARCHITECTURE APPEARS HERE]
Client Domain
FPmulti. FPmulti, the Company's image management product, provides a
comprehensive solution for managing scanned images of paper documents,
facsimiles and computer-generated reports, as well as data files created by
common Windows-based application software. FPmulti accesses the tools
necessary to capture, view, file, store, retrieve, share, print and fax
documents. FPmulti utilizes industry-standard SQL databases to manage the
index information for scanned documents, computer reports and electronic files
created by other office applications.
FPreport. FPreport, the Company's COLD product, is an information solution
for the capture, optical storage, management and retrieval of mainframe and
minicomputer generated reports as an alternative to paper or COM (computer
output to microfilm/fiche). FPreport captures computer data from mainframes,
minicomputers and personal workstations to be formatted, indexed, compressed
and stored on optical disk. It also provides users with an interface for
designing and selecting the fields that will be indexed for future retrieval
needs. FPreport is able to store hundreds of thousands or millions of computer
report pages on an optical disk using compression techniques.
PowerFlow. PowerFlow is the automated transaction processing system that
provides independent workflow services, process-based and ad hoc routing, and
a platform for integrating third-party applications and data into the workflow
process. All management and administration for the system (for example,
designing workflow process maps and, producing management reports) is
accomplished graphically and without programming or scripting. The resulting
process definitions are used as an electronic "road map" for automatically
routing documents, initiating task assignments and triggering automated
processes such as printing, faxing or updating. In addition, an administration
tool allows supervisory personnel to monitor and manage work processes and
resources on a continuous basis.
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WorkBooks and WebBooks. Optika WorkBooks enables copies of documents stored
in a FilePower application to be placed in a "container" that can be e-mailed
via Lotus Notes, Microsoft Exchange, corporate e-mail systems and similar
systems throughout the enterprise. WebBooks, the Company's first product being
developed for intranets and the Internet, will use WorkBook technology to
allow users to collect information from an Optika system, encrypt it, and
transmit it over intranets and the Internet with a high level of security.
Development Tools and Connectivity
FilePower integration and development tools include a set of APIs and an OLE
automation and control layer (collectively, "FPengine"). FPengine consists of
a powerful collection of advanced functions designed to simplify the
complexity of image-enabling, including optical disk management, OCR, full
text indexing, high-speed image printing and faxing and image display and
manipulation. FPengine provides a comprehensive solution for integrating
imaging, COLD and workflow functionality with most existing applications.
FPengine can be used by third-party developers with standard development tools
including Visual Basic, C/C++ and PowerBuilder and other programming
environments to image-enable legacy applications and to invent custom document
imaging solutions or create value added enhancements to the core FilePower
family of products by integrating other information management technologies.
Server Software Domain
The server software included in the FilePower Suite provides a number of
core image management functions. FPdisc facilitates the retrieval and storage
of documents and images. The FPdisc Server acts as the system's storage for
data files, documents, computer reports and images. FPdisc Server is the
foundation of the Optika image and work management systems and support
numerous high-capacity storage subsystems such as optical media and CD-ROM.
FPprint and FPfax provide hard-copy replication, electronic transmission and
reception of documents and images. FPenhance improves the quality of scanned
images by applying complex mathematical algorithms to the image. These
enhancement functions serve to improve the shape and readability of the
characters on the scanned image, resulting in higher accuracy for the optical
character recognition process performed by the FilePower Optical Character
Recognition Server ("FPocr"). The FilePower Transaction Processing Systems
("FPtransact") are companion servers that perform batch processing of work
generated by external systems. The FPtransact product line includes batch
processing capabilities for FPmulti and PowerFlow, and the SQL database
structures for FPmulti and PowerFlow.
MEDIPOWER SUITE
The Company is currently developing the MediPower Suite, an integrated
patient accounting and medical records software suite designed to enable
hospitals and other healthcare organizations to manage large amounts of
patient related documents. The MediPower Suite, which utilizes the FilePower
server software and associated development tools, is designed to provide fast
and efficient access to patient information from workstations located
throughout the enterprise, including the point of patient care. The MediPower
Suite integrates and improves on the traditional paper-handling associated
with patient care and is designed to address initial patient scheduling, in-
patient, out-patient or emergency department treatment, medical chart
completion, billing, follow-up and remittance posting. The MediPower Suite
will integrate with HCIS systems to automatically establish computer-based
patient records. Additionally, the MediPower Suite will provide a customized
medical viewer and configurable workflow processes. To date, five of the seven
software modules currently comprising the MediPower Suite have been developed
and the remaining two modules are under development and are currently expected
to be completed by the end of 1996. In addition, an eighth module will be
added to the MediPower Suite, and is expected to be delivered by mid-1997. The
Company may add additional software modules to extend the functionality of the
MediPower Suite. The Company has formed an advisory council of current and
potential end-users of the MediPower Suite to enable it to meet industry-wide
requirements. See "Risk Factors--Risks Associated with the MediPower Suite."
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<PAGE>
[GRAPHICAL REPRESENTATION OF COMPONENTS OF
MEDIPOWER SUITE APPEARS HERE]
The following are key aspects of the MediPower Suite:
MPregister. MPregister uses pen-pads and low-cost desktop scanners at the
registration desks to reduce or eliminate the creation of paper at the time of
patient registration. Patients review, complete and electronically sign
various forms which are then automatically placed in the patient's electronic
folder.
MPviewer. MPviewer is the fundamental interactive viewing tool for medical
charts and folders as well as records in the business office. It is used
throughout the MediPower Suite and displays scanned documents, medical images,
formatted pages from downloaded computer reports, as well as most word
processing, spreadsheet and other personal computer-type files. MPviewer
features folder-style tabs to access documents within sections of a chart or
billing folder, and can be personalized for individual users.
MPchart. MPchart combines sophisticated rule-based workflow with a simple
graphical interface for chart completion and enables doctors or other
authorized personnel to electronically sign individual documents. MPchart
supports assignment and re-analysis of deficiencies and interfaces with the
hospital's existing third-party deficiency tracking software to form a secure,
comprehensive and versatile completion system.
MPbridge. MPbridge uses the healthcare industry's "HL-7" communication
standard to interface with the hospital's admission, discharge and transfer
system for automatic folder creation/maintenance, as well as automatic
retrieval of documents from prior visits into high speed magnetic disk cache.
MPindex. MPindex is a configurable, extensible workflow system for scanning,
auto-indexing and filing all types of medical records, financial documents,
and correspondence. It combines technologies such as image enhancement, bar-
code recognition, OCR and mark sense with a streamlined user interface for
document quality control, exception handling, and re-scanning.
MPacquire. MPacquire, which is currently under development, is a family of
servers which capture, process and import documents created by other data
processing systems within the hospital. Transcriptions, lab reports, bills and
other documents can be filed electronically without the need for scanning
paper.
MPremit. MPremit, which is currently under development, is an automated
system for the scanning and processing of bulk remittances. MPremit applies
business rules based on the hospital and the specific payor to calculate
payment and adjustment amounts, and posts these transactions to the hospital's
financial system.
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<PAGE>
SALES AND MARKETING
Sales
Optika employs a two-tiered leveraged sales model consisting of a worldwide
network of approximately 170 BSPs and three OEMs. Optika also has a Major
Accounts team which supports its BSPs. Sales from BSPs and OEMs accounted for
89% and 11%, respectively, of the Company's revenues for the year ended
December 31, 1995, and 87% and 13%, respectively, for the six months ended
June 30, 1996. See "Risk Factors--Reliance on Indirect Distribution Channels;
Potential for Channel Conflict."
Business Solutions Partners. Business Solutions Partners or BSPs are VARs
which are responsible for identifying potential end-users, selling the
Company's products to the end-users as part of a complete hardware and
software solution, customizing and integrating the Company's products at end-
users sites and providing support and maintenance to the end-users following
the sale. The Company's BSPs currently include large organizations selling a
wide variety of products, smaller organizations focused on imaging,
application-oriented organizations and geographically-focused organizations.
The Company establishes relationships with BSPs through written agreements
which establish a price at which the BSP is eligible to purchase the Company's
software for resale to end-users, the maintenance fee revenues which must be
remitted back to the Company and other material terms and conditions. Such
agreements generally do not grant exclusivity to the BSPs, do not prevent the
BSPs from carrying competing product lines and do not require the BSPs to sell
any particular dollar amount of the Company's software, although the contracts
may be terminated at the election of the Company if specified sales targets
and end-user satisfaction goals are not attained. Actual sales contracts are
between the BSPs and the end-users, although the end-user directly licenses
the software from the Company through acceptance of a standard shrink-wrapped
license agreement. The BSPs remit the proceeds of software sales and
maintenance fees directly to the Company following the sale to the end-user.
The Company supports its BSPs through dedicated personnel at its headquarters
in Colorado Springs and a network of seven field offices. Services range from
joint marketing efforts and assistance with pricing and proposals to technical
product support.
The Company's strategy is to target its marketing activities toward its most
productive BSPs and recruit additional BSPs in key geographic and vertical
markets. The Company's "Eye on Partnership" and "Affiliate Company" programs
are crucial elements of this strategy. The Eye on Partnership program is
designed to promote long-term relationships between the Company and its BSPs
by awarding silver, gold and platinum status to BSPs based on their sales,
training and customer service achievements. This program includes extended
support and free training, as well as marketing assistance with seminars,
programs and co-op marketing funds. The Affiliate Company program is designed
to create a partnership between the Company and its most productive BSPs and
provide additional incentives to encourage them to promote the Company's
products. Affiliate Companies agree not to carry competing products and
receive territorial rights (although not exclusivity), concentrated marketing
efforts from the Company and additional support from the Company's Major
Accounts team.
OEMs. The Company has also established relationships with three OEMs who
resell the Company's software under their names to their end-user customers as
part of their own imaging software solution. Unlike the Company's BSP
relationships, the OEMs actively compete with the Company and its BSPs. The
Company's current OEM relationships consist of Lanier (imaging and COLD),
Alltel (healthcare) and Anacomp (COLD). Optika's OEM agreements establish a
price at which the OEM is eligible to purchase the Company's software for
resale to its customers, and the maintenance fees received by the OEM to be
remitted back to Optika. OEMs generally have a higher sales volume and require
considerably less post-sale support than the Company's BSPs. The Company's
strategy is to continue to recruit OEMs in key vertical markets such as
healthcare and financial services.
Major Accounts. The Company's Major Accounts team focuses on developing
relationships with large corporate end-users with multiple geographic
locations. The Major Accounts team initiates contact directly with the end-
user, but relies heavily on the Company's BSPs to provide installation and
integration services at the
37
<PAGE>
end-user's site and provide end-user support and maintenance following sales.
For sales originated by the Major Accounts team, the end-user enters into a
contract directly with the Company, and the Company sub-contracts and
coordinates installation and support activities with the BSPs.
International Sales
The Company believes that a significant opportunity exists to increase
international sales of its integrated imaging software products. For the year
ended December 31, 1995 and the six months ended June 30, 1996, Optika
generated approximately 15% and 24%, respectively, of its total revenues from
international sales. The Company currently maintains an office in London to
support its 22 European BSPs and an office in Singapore to support its 17
Asian BSPs. The Company is actively seeking to expand and strengthen its
network of foreign BSPs, particularly in Japan and throughout the Pacific Rim,
which was a significant factor behind the IPRS/Intuit Acquisition. The Company
is also recruiting BSPs in Canada, continental Europe and Latin America. See
"Risk Factors--International Operations."
Marketing
In support of its sales efforts, the Company conducts sales training
courses, targeted marketing programs, including direct mail, channel
marketing, promotions, seminars, trade shows, telemarketing and ongoing
customer and third-party communication programs. The Company also seeks to
stimulate interest in its products through its public relations program,
speaking engagements, white papers, technical notes and programs targeted at
educating consultants on the Company's capabilities. As part of its public
relations program, Optika is deploying a multimedia CD-ROM. This CD contains
product demonstrations, Company highlights, marketing material and video clips
of customer testimonials. Optika's marketing CD is used as a fulfillment piece
for direct mail and seminars, as well as an educational tool for industry
analysts. Optika is also entering into, or expanding corporate relationships
with major technology, database, application and hardware companies such as
Microsoft, Cornerstone Imaging, Inc., Kofax Image Products, Inc. and PC DOCS
Group International, Inc. to improve the Company's position in the market.
CUSTOMERS
The Company's direct customers are its BSPs and OEMs, which purchase and
resell its products to its indirect customers, the end-users. As of June 30,
1996, the Company had licensed over 27,000 seats to its end-users worldwide.
No BSP, OEM or end-user accounted for more than 10% of the Company's total
revenues for the year ended December 31, 1995 or the six months ended June 30,
1996. Set forth below is a partial list of end-users who have generated
revenues for the Company since January 1, 1995 and have acquired licenses for
a minimum of five users. The Company believes that all of these end-users are
currently using the Company's products and are representative of the Company's
overall end-user base.
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
HEALTHCARE EDUCATION
Parkview Hospital Mercer County Community College
Pascack Valley Hospital Pace University
Rush Presbyterian St. Luke's
Medical Center GOVERNMENT
St. Elizabeth Medical Center El Paso County, Colorado
Washington Dental Services Jefferson County, Alabama
Massachusetts Court of Appeals
FINANCIAL & BANKING Minnesota Department of Health
Bank One Denver N.A. San Francisco Department of Building
Equifax, Inc. Inspection
Federal Home Loan Bank
General American Credits, Inc. MANUFACTURING
Merrill Lynch, Pierce, Fenner & Better Bilt Aluminum Products
Smith, Inc. Company
Mitsubishi Finance International Plc Chaparral Steel Company, Inc.
Norwest Bank Dow Corning Corporation
UNIPAC Service Corporation Mazda Motor Corporation
Travelers Express Company, Inc. Michelin Tire Corporation
INSURANCE RETAIL
Blue Cross and Blue Shield of Best Buy Co., Inc.
Florida, Inc. Carr Gottstein Foods Co.
Colorado Farm Bureau Payless Cashways, Inc.
Fireman's Insurance Price Costco, Inc.
John Hancock Mutual Life Insurance Royal Cup Coffee, Inc.
Company
TRANSPORTATION
COMMUNICATIONS European Transport Company
AT&T Wireless Services Myers Industries, Inc.
Bell Atlantic Mobile
Continental Cablevision Inc. UTILITIES
Kansas Cellular Homer Electric Association Inc.
Louisville Gas & Electric Company
</TABLE>
SERVICE AND SUPPORT
The Company believes that a high level of service and support is critical to
the Company's performance. The Company provides technical support,
maintenance, training and consulting to its BSPs, which are in turn primarily
responsible for providing technical support services directly to the end-
users. The Company also provides such support directly to its end-users on an
as-needed basis. These services are designed to increase end-user
satisfaction, provide feedback to the Company as to end-users' demands and
requirements and generate recurring revenue. The Company plans to continue to
expand its services and support programs as the depth and breadth of the
products offered by the Company increases.
BSP Support
The Company maintains pre-sales technical support personnel that work
directly with the BSPs to provide technical responses to sales inquiries. The
Company offers educational and training programs, as well as customized
consulting services to its BSPs. Fees for training and consulting services are
generally charged on a per diem basis. The Company also provides product
information bulletins on an ongoing basis, including bulletins posted through
its Internet web site, Lotus Notes database and periodic informational updates
about the products installed. These bulletins generally answer commonly asked
questions and provide information about new product features.
Technical Support and Software Maintenance
The Company, in conjunction with its BSPs, offers end-users a software
maintenance program. The maintenance program includes software updates
provided by the Company to the end-user and technical support
39
<PAGE>
provided by the BSP. Telephone consultation is provided by the Company to the
BSP to respond to end-user technical questions that the BSP is unable to
answer. A BSP typically charges the end-user a fee for maintenance and support
of the entire imaging system, including software and hardware. In turn, the
Company, on an annual basis, charges the BSP a fee of between 8% and 12% of
the then-current list prices of the licensed software.
Warranty
The Company generally includes a 90-day limited warranty with the software
license. During the warranty period, the end-user is entitled to free product
upgrades and corrections for documented program errors and the BSP is entitled
to free telephone consultation. The services and updates provided during the
warranty period may be extended by the end-user if they enter into the
software maintenance program.
RESEARCH AND DEVELOPMENT
The Company has committed and expects to continue to commit substantial
resources to research and development. Optika's research and development
organization is organized along the product team concept. Each product team
has an engineering team leader, a product manager, development engineers and
quality assurance engineers. The team is entirely responsible for the design
implementation and quality of their products. Additionally, Optika has
employed a "product author" concept under which individual contributors, or
small teams, develop products from conception to market introduction with
limited corporate interference. Product authors are responsible for end-user
satisfaction with the products and are compensated based on a declining
percentage of the revenues generated by the product over a three year period.
Product authorship encourages innovation, faster time to market, higher
quality and long-term employment relationships between the Company and its
most valued engineers. Product development efforts are directed at increasing
product functionality, improving product performance and expanding the
capabilities of the products to interoperate with third-party software and
hardware. In particular, the Company is devoting substantial development
resources to develop additional functionality for its products and the
capability to support additional platforms, databases, graphical user
interfaces, toolsets and emerging technologies. The Company believes that the
modular architecture of its software products will provide the foundation for
future enhancements to the Company's integrated imaging solution.
Areas of future development currently being pursued by the Company include
completing the development of two software modules of the MediPower Suite,
further enhancing the FilePower Suite and completing the development of
WebBooks, the Company's first product for intranets and the Internet. The
Company continues to identify and prioritize various technologies for
potential future product offerings. The Company may develop these products
internally or enter into arrangements to license or acquire products or
technologies from third parties. As of June 30, 1996, the Company's research
and development organization consisted of 36 full-time employees in Colorado
Springs, Colorado, and six employees in Marlboro, Massachusetts. During 1995,
research and development expenses were $3.7 million. As of June 30, 1996, the
Company had expensed all of its software development costs as incurred. See
"Risk Factors--Rapid Technological Change; Dependence on New Product
Development," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 of Notes to Consolidated Financial
Statements.
COMPETITION
The market for the Company's products is intensely competitive and
significantly affected by new product introductions and other market
activities of industry participants. The Company believes that the principal
competitive factors affecting its market include product features such as
adaptability, scalability, ability to integrate with third-party products,
functionality, ease of use, product reputation, quality, performance, price,
customer service and support, effectiveness of sales and marketing efforts and
company reputation. Although the Company believes that it currently competes
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors. The Company's principal direct competitors for its various
product lines include BancTec, FileNet, IBM, Unisys
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<PAGE>
Corporation, ViewStar and Wang. The Company also competes with industry-
specific application vendors such as IMNET and LanVision. Numerous other
software vendors also compete in each product area. Potential competitors
include, without limitation, providers of document management software
products, providers of document archiving products and RDBMS vendors. Many of
the Company's current and potential competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers than the Company. As a result, these competitors
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products, than can the Company. The
Company also faces indirect competition from VARs, OEMs, distributors and
systems integrators. The Company relies on a number of these resellers for
implementation and other customer support services, as well as recommendations
of its products during the evaluation stage of the purchase process. Although
the Company seeks to maintain close relationships with these resellers, many
of these third parties have similar, and often more established, relationships
with the Company's principal competitors. If the Company is unable to develop
and retain effective, long-term relationships with these resellers, the
Company's competitive position would be materially adversely affected.
Further, there can be no assurance that these third parties, many of which
have significantly greater resources than the Company, will not market
software products in competition with the Company in the future or will not
otherwise reduce or discontinue their relationships with or support of the
Company and its products. See "Risk Factors--Intense Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of trade secret, copyright and trademark
laws, software licenses and nondisclosure agreements to establish and protect
its proprietary rights in its products. The Company enters into
confidentiality and/or license agreements with all of its employees and
distributors, as well as with its customers and potential customers seeking
proprietary information, and limits access to and distribution of its
software, documentation and other proprietary information. Despite these
precautions, it may be possible for unauthorized third parties to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. The Company has certain registered and other
trademarks. The Company believes that its products, trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future. See "Risk Factors--Dependence on
Proprietary Technology; Risk of Infringement."
EMPLOYEES
At June 30, 1996, the Company had 122 full-time employees in eleven cities.
Of these employees, 42 were involved in research and development, 43 in sales
and marketing, 25 in technical support and training and 12 in administration
and finance. No employees are covered by any collective bargaining agreements.
The Company believes that its relationships with its employees are good.
FACILITIES
The Company's principal administrative, sales and marketing, research and
development and support facilities consist of approximately 21,500 square feet
of office space in Colorado Springs, Colorado. The Company occupies these
premises under a lease expiring July 1997. As of June 30, 1996, the monthly
base rent for this facility was approximately $26,000. In support of its field
sales and support organization, the Company also leases facilities and offices
in eight other locations in the United States, one location in the United
Kingdom and one location in Singapore. The Company believes that it will
require additional space upon the expiration of its lease in July 1997, and
has entered into a non-binding letter of intent to lease approximately 38,000
square feet of office space in Colorado Springs commencing March 1997 at a
monthly base rent of approximately $41,000. No assurance can be given that a
lease will be consummated based on such terms or that such space can be
obtained on terms acceptable to the Company or that business interruptions
will not result due to any such relocation.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages as of the date
of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark K. Ruport.............. 43 President, Chief Executive Officer and
Chairman of the Board of Directors
Steven M. Johnson........... 34 Vice President--Finance and Administration,
Chief Financial Officer and Secretary
Marc R. Fey................. 40 Senior Vice President--Engineering and
Customer Support Services
Donald R. Graham............ 48 Vice President--United States Operations
David J. Mansen............. 41 Vice President--Marketing
Mark A. Schenecker.......... 36 Vice President--Research and Development
Paul Carter................. 41 Co-Founder and Director
Malcolm D. Thomson.......... 34 Co-Founder and Director
Richard A. Bass(1).......... 54 Director
James E. Crawford III(2).... 50 Director
Robert L. Gett.............. 45 Director
Harry S. Gruner(1)(2)....... 36 Director
Graham O. King(1)(2)........ 56 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mark K. Ruport has been President and Chief Executive Officer and a Director
of the Company since February 1995. He has served as Chairman of the Board of
Directors since May 1996. From June 1990 to July 1994, Mr. Ruport was
President and Chief Operating Officer, and most recently Chief Executive
Officer, of Interleaf, Inc., a publicly-held software and services company
that develops and markets document management, distribution and related
software. From July 1994 to February 1995, Mr. Ruport pursued personal
interests. From 1989 to 1990, Mr. Ruport was Senior Vice President of
Worldwide Sales of Informix Software, where he had direct responsibility for
direct and indirect sales and OEMs. From 1985 to 1989, Mr. Ruport was Vice
President of North American Operations for Cullinet Software, where he oversaw
North American sales, customer support and systems integration.
Steven M. Johnson has served as Vice President--Finance and Administration
and Chief Financial Officer of the Company since September 1992 and as its
Secretary since May 1996. He also served as interim Chief Executive Officer of
the Company from October 1994 to February 1995. Prior to joining the Company,
from February 1988 to September 1992, Mr. Johnson was Vice President, Finance
and Chief Financial Officer of Insurance Auto Auctions, Inc., a publicly held
company. From June 1987 to February 1988, Mr. Johnson served as Controller and
Director of Finance for HOH Water Technology Corporation and prior to 1987,
was a senior accountant with KPMG Peat Marwick.
Marc R. Fey has served as the Company's Senior Vice President--Engineering
and Customer Support Services since February 1996. Mr. Fey previously held the
position of Vice President--Development from July 1994 to February 1996. Prior
to joining the Company, from September 1991 to June 1994, Mr. Fey was
President of The Fey Company, which provided consulting services for software
companies and venture investors on technology, acquisitions, strategic
planning and general operations. Mr. Fey co-founded XA Systems Corporation,
where from 1982 to 1991 he served in various capacities, including President
and, most recently, Chairman and Chief Technology Officer. Prior to 1982, Mr.
Fey was a Manager with Andersen Consulting.
42
<PAGE>
Donald R. Graham has served as the Company's Vice President--United States
Operations since January 1, 1996. From June 1995 to December 1995, Mr. Graham
served as the Company's Vice President--Eastern Region, and from January 1994
to June 1995, he was self-employed as a private fund raiser. From April 1992
through December 1993, Mr. Graham served as Director of Sales for Relay
Technology, and from September 1991 through March 1992, he was Director of the
Eastern Region at Uniface Corporation.
David J. Mansen has served as Vice President--Marketing since October 1995.
From July 1991 to October 1995, Mr. Mansen was employed by Recognition
International, Inc., a provider of image processing systems, most recently as
Vice President of Marketing. From 1986 to 1991, Mr. Mansen was a principal in
a technology investment management firm, and from 1978 to 1985, he held
marketing positions at Datapoint Corporation.
Mark A. Schenecker has served as the Company's Vice President--Research and
Development since February 1996. Mr. Schenecker held the position of Director
of Product Management from August 1995 to January 1996 and Product Manager
from March 1994 to July 1995. Prior to joining the Company, Mr. Schenecker was
employed by Lanier Worldwide, Inc., where he held positions in systems
analysis and was responsible for advanced digital imaging and copier
technology.
Paul Carter is a co-founder of the Company and has served as a Director
since its inception. Since July 1994, he has served as Chief Product
Architect, and he served as the Company's Secretary from 1988 to May 1996.
From July 1990 to June 1994, Mr. Carter was Director of Research and
Development of the Company, and from January 1988 to June 1990 he was its Vice
President--Research and Development. Prior to co-founding the Company, Mr.
Carter was a design specialist for Ashton-Tate in California.
Malcolm D. Thomson is a co-founder of the Company and has served as a
Director since its inception. Since January 1996, he has served as Vice
President--Internet and Interconnectivity of the Company. From July 1994
through December 1995, he served as Vice President--New Business Development;
from February 1993 through June 1994, he served as Vice President--
Development; from August 1992 through January 1993, he served as Vice
President--Sales; from July 1990 through July 1992, he served as Director of
Systems Integration; and from the inception of the Company through June 1990,
he served as President. Prior to co-founding the Company, Mr. Thomson was an
engineer with Ashton-Tate in the United Kingdom and in California.
Richard A. Bass has served as a Director of the Company since May 1993, and
he served as Chairman of the Board from September 1994 to May 1996. Since
February 1991, Mr. Bass has been President and Chief Executive Officer of
Point of View, Inc., a multimedia publishing company.
James E. Crawford III has served as a Director of the Company since December
1993. He is a general partner of Frontenac Company, a venture capital firm
that he joined in August 1992. From February 1984 to August 1992, Mr. Crawford
was a general partner of William Blair Venture Management Co., the general
partner of William Blair Venture Partners III, a venture capital fund. He was
also a general partner of William Blair & Company, an investment bank and
brokerage affiliated with William Blair Venture Management Co., from January
1987 to August 1992. Mr. Crawford is also a Director of Cornerstone Imaging,
Inc., a provider of document imaging subsystems, and he is a director of
several private companies.
Robert L. Gett has served as a Director of the Company since June 1996. He
has been Executive Vice President--Operations of Cambridge Technology Partners
(Massachusetts), Inc., an international professional services information
technology firm, since March 1991, and he has served as a director of that
firm since October 1992. From August 1990 until March 1991, Mr. Gett served as
Executive Vice President--Operations, of Cambridge Technology Group, Inc. From
July 1988 until August 1990, Mr. Gett served as President of Fidelity Software
Development Company, the systems and technology services unit of Fidelity
Investments. From February 1982 until July 1988, Mr. Gett served as Chief
Information Officer of Smith Barney, Harris Upham & Company, Inc.
43
<PAGE>
Harry S. Gruner has served as a Director of the Company since May 1996. He
has been a general partner of JMI Equity Fund, a private equity investment
partnership, since November 1992. From August 1986 to October 1992, Mr. Gruner
was a principal with Alex. Brown & Sons Incorporated. Mr. Gruner is also a
director of Brock International, Inc., a developer, marketer and supporter of
software systems, Jackson Hewitt, Inc., an income tax processing company, The
META Group, Inc., a syndicated information technology research company,
Hyperion Software, Inc., a financial software company and numerous privately
held companies.
Graham O. King has served as a Director since April 1996. Mr. King is
currently the Chairman, Chief Executive Officer and a Director of US Servis,
Inc., a healthcare management services company. From April 1987 to October
1993, Mr. King was with Shared Medical Services, a company specializing in
hospital information systems, most recently serving as its president from 1988
to 1993. From February 1983 to December 1986, Mr. King was President of Daseke
and Company and from December 1979 to November 1982, was President and Chief
Executive Officer of Auto-Trol Technology, a computer-aided design software
company. Mr. King is also a Director of ADAC Laboratories, a provider of
nuclear medicine diagnostic imaging equipment and a supplier of radiology and
laboratory information systems.
The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. All Directors hold office until the next annual
meeting of stockholders or until their successors are duly elected and
qualified. The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board is composed of two
Class I Directors (Messrs. Carter and Bass), three Class II Directors (Messrs.
King, Gett and Gruner) and three Class III Directors (Messrs. Ruport, Thomson
and Crawford). At each annual meeting of stockholders after the 1997 annual
meeting of stockholders, the appropriate number of directors will be elected
for a three-year term to succeed the directors of the same class whose terms
are then expiring. The terms of the Class I Directors, Class II Directors and
Class III Directors will expire upon the election and qualification of
successor directors at the annual meetings of stockholders held in calendar
years 1998, 1999 and 2000, respectively. There are no family relationships
between any Director or executive officer of the Company. Messrs. Crawford,
Gruner, Ruport, Carter, Thomson and Bass were appointed to the Board of
Directors of the Company pursuant to an Amended and Restated Shareholders'
Agreement between the Company and certain stockholders named therein dated as
of November 22, 1995, which Agreement will expire on consummation of this
offering.
BOARD COMMITTEES
In May 1994, the Board of Directors established the Audit Committee, which
reviews the Company's annual audit and meets with the Company's independent
accountants to review the Company's internal controls and financial management
practices. The Audit Committee consists of Messrs. Bass, Gruner and King. In
January 1994, the Board of Directors also established the Compensation
Committee, which will recommend to the Board of Directors compensation for
certain of the Company's personnel and administers the 1994 Stock Plan. The
Compensation Committee consists of Messrs. Crawford, Gruner and King.
DIRECTOR COMPENSATION
Except for grants of stock options and reimbursement of expenses, directors
of the Company do not receive compensation for services rendered as a
director. However, both Mr. King and Mr. Gett will receive a fee of $10,000
for each year of service as a director. The Company does not pay compensation
for committee participation or special assignments of the Board of Directors.
Messrs. Carter and Thomson each received options in 1990 to purchase 120,000
shares of Common Stock at an exercise price of $0.75 per share, which options
are currently exercisable for fully vested shares of Common Stock. Mr. Ruport
has been granted options under the 1994 Stock Plan to purchase an aggregate of
510,000 shares of Common Stock.
On April 1, 1996, in connection with his appointment to the Board of
Directors, Mr. King received from the Company an option under the 1994 Stock
Plan to purchase 25,000 shares of Common Stock at an exercise price of $5.00
per share. The option has a maximum term of ten years measured from the grant
date, subject to
44
<PAGE>
earlier termination upon Mr. King's cessation of service with the Company. The
option is immediately exercisable in full. Twenty-five percent of the option
shares were fully vested as of the grant date. The remaining option shares are
subject to repurchase by the Company at the exercise price paid per share
should Mr. King cease to be a non-employee board member prior to vesting in
the shares. Mr. King will vest in an additional 25% of the option shares upon
his completion of each of the three years of service with the Company measured
from the option grant date. Mr. King also received an option from Frontenac VI
Limited Partnership ("Frontenac") to purchase 25,000 shares of Common Stock
currently owned by Frontenac at an exercise price of $5.00 per share. On June
3, 1996, in connection with his appointment to the Board of Directors, Mr.
Gett received an option under the 1994 Stock Plan to purchase 25,000 shares of
Common Stock at an exercise price of $7.50 per share. The option has a maximum
term of ten years measured from the grant date subject to earlier termination
upon Mr. Gett's cessation of service with the Company. The option is
immediately exercisable in full. The option shares are subject to repurchase
by the Company at the exercise price paid per share should Mr. Gett cease to
be a non-employee Board member prior to vesting in the shares. Twenty-five
percent of the option shares will vest on Mr. Gett's completion of each of the
next four years of service with the Company measured from the option grant
date. The option shares held by both Mr. King and Mr. Gett will fully vest in
the event the Company is acquired by merger or asset sale, unless the option
is assumed by the acquiring company. Non-employee Board members will receive
option grants at periodic intervals under the Automatic Option Grant Program
of the 1994 Stock Plan. See "--1994 Stock Option/Stock Issuance Plan" and
"Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Amended and Restated Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for
a breach of fiduciary duty as a director, except for liability as a result of:
(i) a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
Delaware General Corporation Law and (iv) transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Amended and Restated Certificate of Incorporation also
authorizes the Company to indemnify its officers, directors and other agents
by bylaws, agreements or otherwise, to the full extent permitted under
Delaware law. The Company has entered into separate indemnification agreements
with its executive officers and directors which may, in some cases, be broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements will require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a
culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during 1995 for
services rendered in all capacities to the Company and its subsidiaries during
such year by Mr. Ruport, who was appointed Chief Executive Officer of the
Company effective February 28, 1995, and Messrs. Johnson and Fey, whose total
compensation for 1995 was each in excess of $100,000 (collectively, the "Named
Officers").
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
AWARDS
------------
SECURITIES
NAME AND PRESENT PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION SALARY($) BONUS($)(1) COMPENSATION ($) OPTIONS(#)
- -------------------------- --------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Mark K. Ruport............. 152,208 41,000 100,000(2) 400,000(3)
President and Chief
Executive Officer
Steven M. Johnson.......... 105,578 9,000 -- --
Vice President--Finance
and Administration, Chief
Financial Officer and
Secretary
Marc R. Fey................ 118,300 5,000 -- --
Senior Vice President--
Engineering and Customer
Support Services
</TABLE>
- --------
(1) The bonuses listed in the table were earned during 1995 and paid in 1996.
(2) Represents an allowance for moving expenses incurred by Mr. Ruport in
connection with his appointment as President and Chief Executive Officer
of the Company.
(3) The option was granted under the 1994 Stock Plan. See "--Option Grants
During 1995."
OPTION GRANTS DURING 1995
The following table sets forth information concerning the stock option
grants made to each of the Named Officers during 1995. No stock appreciation
rights or restricted stock awards were granted to those individuals during
such year.
OPTION GRANTS DURING 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Ruport.......... 400,000(2) 51% $1.875(3) 03/27/05 $ 471,671 $ 1,195,307
Steven M. Johnson....... -- -- -- -- -- --
Marc R. Fey............. -- -- -- -- -- --
</TABLE>
- --------
(1) The five percent and ten percent assumed annual rates of compounded stock
price appreciation are mandated by the rules of the Securities and
Exchange Commission and are based on appreciation of the fair market value
at the grant date. Assuming a fair market value of $10.00 per share, the
potential realizable value at assumed rates of appreciation of five
percent and ten percent would be $2,515,579 and $6,374,970, respectively.
No assurance can be provided to the option holder or any other holder of
the Company's securities that the actual stock price appreciation over the
ten-year option term will be at the assumed five percent and ten percent
levels or at any other defined level.
(2) The option was granted to Mr. Ruport on March 28, 1995 pursuant to the
1994 Stock Plan. The option has a maximum term of ten years measured from
the grant date, subject to earlier termination upon Mr. Ruport's cessation
of service with the Company. The option is immediately exercisable for all
of the option shares. However, any shares purchased under the option are
subject to repurchase by the Company at the option exercise price paid per
share, should the optionee leave the Company prior to vesting in the
shares. Mr. Ruport will vest in the option shares in a series of four
equal successive annual installments over his period
46
<PAGE>
of service with the Company measured from February 28, 1995. The option
shares will fully vest in the event the Company is acquired by merger or
asset sale, unless the option is assumed by the acquiring company. In
addition, in the event the option is assumed by the acquiring company, the
option shares will fully vest upon the termination of Mr. Ruport's service,
whether involuntarily or through a resignation for good reason, within
eighteen months following the acquisition.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability incurred
by the optionee in connection with such exercise. The Compensation
Committee of the Board of Directors, as the Plan Administrator of the 1994
Stock Plan, has the discretionary authority to reprice the option through
the cancellation of such option and the grant of a replacement option with
an exercise price based on the fair market value of the option shares on
the grant date.
In addition to the options listed in the foregoing table, on January 9,
1996, Messrs. Ruport and Johnson received options to purchase 110,000 and
35,000 shares of Common Stock, respectively, under the Company's 1994 Stock
Plan at an exercise price of $3.40 per share. The options have a maximum term
of ten years measured from the grant date, subject to earlier termination upon
the optionee's cessation of service with the Company. Mr. Ruport's option is
exercisable as to 25% of the option shares as of the grant date and becomes
exercisable for an additional 25% of the option shares on January 1 of each of
1997, 1998 and 1999. Mr. Johnson's option is exercisable for 29,000 of the
option shares as of the grant date and becomes exercisable for the remaining
6,000 option shares on January 1, 1997. Any shares purchased upon exercise of
the option are subject to repurchase by the Company at the option exercise
price paid per share should the optionee leave the Company prior to vesting in
the shares. Each optionee will vest in 25% of his option shares upon his
completion of one year of service with the Company after the grant date and
the balance in a series of equal monthly installments over the 36 months of
service completed thereafter. The options will fully vest in the event the
Company is acquired by merger or asset sale, unless the option is assumed by
the acquiring company. In addition, if the option is assumed by the acquiring
company, such option will vest in full upon the termination of the optionee's
service, whether involuntarily or through a resignation for good reason,
within eighteen months following the acquisition.
AGGREGATE OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings as of
December 31, 1995 with respect to each of the Named Officers. No stock options
were exercised by the Named Officers during 1995. No stock appreciation rights
were granted during such year or outstanding at the end of such year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 1995 YEAR-END 1995 YEAR-END($)(1)
---------------------------- -------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark K. Ruport........... 400,000 -- $ 0 --
Steven M. Johnson........ 120,000 -- 32,500 --
Marc R. Fey.............. 60,000 -- 0 --
</TABLE>
- --------
(1) Based on the deemed fair value of the Company's Common Stock at fiscal
year-end, $1.875 per share (as determined by the Board of Directors), less
the exercise price payable per share. Based on a fair market value of
$10.00 per share, the value of unexercised options would be $3,250,000,
$1,007,500 and $487,500 for Messrs. Ruport, Johnson and Fey, respectively.
(2) The options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company at the original exercise price per share upon the optionee's
cessation of service prior to vesting in such shares. As of December 31,
1995, the Company's repurchase right had lapsed as to none of Mr. Ruport's
option shares, 52,000 of Mr. Johnson's option shares and 15,000 of Mr.
Fey's option shares.
47
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in January
1994. Messrs. Crawford, Gruner and Lawrence W. Lepard, a General Partner of
LMC Purchase Limited Partnership, served on the Compensation Committee during
the year ended December 31, 1995. The current members of the Compensation
Committee are Messrs. Crawford, Gruner and King. None of the individuals who
served on the Compensation Committee during the year ended December 31, 1995
was at any time during such year, or at any other time, an officer or employee
of the Company, and no executive officer of the Company served as a member of
the Board of Directors or Compensation Committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
1994 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1994 Stock Plan became effective upon its adoption by the
Board of Directors on August 12, 1994 and was approved by the Company's
stockholders on October 10, 1994. The 1994 Stock Plan was implemented to serve
as the successor equity incentive program to the Company's 1992 Stock Plan
(the "1992 Plan"). Outstanding options under the 1992 Plan were incorporated
into the 1994 Stock Plan upon its adoption by the Board of Directors on August
12, 1994, and no further option grants were made under the 1992 Plan after
such date. The incorporated options continue to be governed by their original
terms, unless the Plan Administrator elects to extend one or more features of
the 1994 Stock Plan to those options. However, the outstanding options under
the 1992 Plan contain substantially the same terms and conditions summarized
below for the Discretionary Option Grant Program in effect under the 1994
Stock Plan.
In February 1996, the Board of Directors amended the 1994 Stock Plan to (i)
increase the total number of shares of Common Stock authorized for issuance
thereunder from 2,040,000 to 2,790,000 shares and (ii) increase the maximum
aggregate number of shares of Common Stock for which any one participant in
such plan may receive option grants, separately exercisable stock appreciation
rights and direct stock issuances from 500,000 shares over the term of the
1994 Stock Plan to 500,000 shares per calendar year, beginning with the 1996
calendar year. In May 1996, the Board of Directors restated the 1994 Stock
Plan to implement the Salary Investment and Automatic Option Grant Programs
and provide that the share reserve for such plan will automatically be
increased on the first trading day of January 1998 and January 1999 by a
number of shares equal to three percent of the number of shares of Common
Stock outstanding on the last trading day of the immediately preceding
calendar year. In June 1996, the Company's stockholders approved the amendment
and restatement of the 1994 Stock Plan. As of June 30, 1996, 1,886,370 shares
of Common Stock were issuable upon exercise of options outstanding under the
1994 Stock Plan and 545,431 shares remained available for grant of future
options.
The 1994 Stock Plan is divided into four separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members
and consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of their fair market value on the grant date, (ii) the Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 85% of their fair market value at the
time of issuance or as a bonus tied to the performance of services, (iii) the
Salary Investment Option Grant Program under which executive officers and
other highly compensated employees may elect to apply a portion of their base
salary to the acquisition of special below-market stock option grants, and
(iv) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program are
administered by the Compensation Committee. The Compensation Committee as Plan
Administrator has complete discretion to
48
<PAGE>
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a non-
statutory stock option under the Federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The administration of the
Salary Investment Option Grant and Automatic Option Grant Programs will be
self-executing in accordance with the express provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1994 Stock Plan may be paid in cash or in shares of Common
Stock valued at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may permit one or more optionees
to pay the exercise price in installments or provide financial assistance to
one or more optionees in the exercise of their outstanding options by allowing
such individuals to deliver a full-recourse, interest-bearing promissory note
in payment of the exercise price and any associated withholding taxes incurred
in connection with such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation will automatically accelerate in
full, and all unvested shares under the Stock Issuance Program will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. Any
options that are assumed in an acquisition will automatically accelerate, and
any repurchase rights which are assigned will terminate, in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within eighteen months following the acquisition.
In addition, the Plan Administrator has the discretion to provide for the
automatic acceleration of options and the lapse of any repurchase rights upon
(i) a hostile change in control of the Company effected by a successful tender
offer for more than 50% of the Company's outstanding voting stock or by proxy
contest for the election of Board members or (ii) the termination of the
individual's service, whether involuntarily or through a resignation for good
reason, within a specified period following such a hostile change in control.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program and provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the 1992 Plan) in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of the Common Stock on the
new grant date.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. In return, the officer will
automatically be granted, on the first trading day in the calendar year for
which the salary reduction is to be in effect, a non-statutory option to
purchase that number of shares of Common Stock determined by dividing the
salary reduction amount by two-thirds of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the total spread on the option shares at the time of
grant will be equal to the salary reduction amount. The option will vest in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is in effect and will be subject to full and immediate
vesting upon certain changes in the ownership or control of the Company.
49
<PAGE>
Under the Automatic Option Grant Program, each individual who is serving as
a non-employee Board member on the date the underwriting agreement is signed
in connection with the offering (other than Mr. King and Mr. Gett, who
received option grants in connection with their appointment to the Board of
Directors on April 1, 1996 and June 3, 1996, respectively) will receive an
option grant for 10,000 shares of Common Stock on such date at an exercise
price equal to the offering price. Each individual who first joins the Board
after the effective date of this offering as a non-employee Board member will
receive an option grant for 10,000 shares of Common Stock at the time of his
or her commencement of Board service, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each Annual
Stockholders Meeting, beginning with the 1997 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member, including Mr. King
and Mr. Gett, will receive an option grant to purchase 2,500 shares of Common
Stock, whether or not such individual has been in the prior employ of the
Company.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of ten years, subject to earlier termination following the optionee's
cessation of Board service. Each automatic option will be immediately
exercisable; however, any shares purchased upon exercise of the option will be
subject to repurchase, at the option exercise price paid per share, should the
optionee's service as a non-employee Board member cease prior to vesting in
the shares. The 10,000-share grant will vest in four equal and successive
annual installments over the optionee's period of Board service measured from
the grant date. Each additional 2,500-share grant will vest upon the
optionee's completion of one year of Board service measured from the grant
date. However, each outstanding option will immediately vest upon (i) an
acquisition of the Company by merger, asset sale or a hostile takeover of the
Company or (ii) the death or disability of the optionee while serving as a
Board member.
The Board may amend or modify the 1994 Stock Plan at any time. However,
certain material changes will require the approval of the Company's
stockholders. The 1994 Stock Plan will terminate on August 11, 2004, unless
sooner terminated by the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors in May 1996 and approved by the Company's
stockholders in June 1996. The Purchase Plan is designed to allow eligible
employees of the Company and participating subsidiaries to purchase shares of
Common Stock, at semi-annual intervals, through their periodic payroll
deductions under the Purchase Plan, and a reserve of 250,000 shares of Common
Stock has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the underwriting agreement is executed
in connection with this offering and will end on the last business day in July
1998.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
quarterly entry date (February 1, May 1, August 1 or November 1 each year).
Individuals who become eligible employees after the start date of the offering
period may join the Purchase Plan on any subsequent quarterly entry date
within that period.
Payroll deductions may not exceed ten percent of the participant's total
cash earnings for each semi-annual period of participation, and the
accumulated payroll deductions will be applied to the purchase of shares on
the participant's behalf on each semi-annual purchase date (January 31 and
July 31 each year, with the first such purchase date to occur on January 31,
1997) at a purchase price per share equal to 85% of the lower of (i) the fair
market value of the Common Stock on the participant's entry date into the
offering period (but in no event less than the fair market value of the Common
Stock on the first day of the offering period) or (ii) the fair market value
on the semi-annual purchase date. In no event, however, may any participant
purchase more than 750 shares of Common Stock on any one semi-annual purchase
date. Should the fair market value of the Common Stock on any semi-annual
purchase date be less than the fair market value of the Common Stock on the
first day of the offering period, then the current offering period will
automatically end and a new twenty-four month offering period will begin,
based on the lower fair market value.
50
<PAGE>
EMPLOYMENT AGREEMENTS, COMPENSATION AND CHANGE OF CONTROL ARRANGEMENTS
Employment Agreements
The Company has an agreement with Mark K. Ruport that provides for his
employment as President and Chief Executive Officer of the Company at the
discretion of the Board of Directors. Mr. Ruport's base salary is $180,000,
subject to annual review by the Compensation Committee, and he is eligible to
receive performance bonuses which may be awarded by the Compensation
Committee. Mr. Ruport was also granted an option to acquire 400,000 shares of
Common Stock under the 1994 Stock Plan pursuant to the terms of his employment
agreement. Mr. Ruport is eligible to receive severance equal to one year's
base salary in the event he is terminated by the Company without cause.
The Company has an agreement with Marc R. Fey that provides for his
employment as Senior Vice President--Engineering and Customer Support
Services, at the discretion of the Board of Directors. Mr. Fey's base salary
is $120,000, subject to annual review by the Compensation Committee, and he is
eligible to receive performance bonuses which may be awarded by the
Compensation Committee. Mr. Fey is eligible to receive severance equal to six
months' salary in the event he is terminated by the Company without cause.
The Company has an agreement with Steven M. Johnson that provides for his
employment as Chief Financial Officer of the Company, at the discretion of the
Board of Directors. Mr. Johnson's base salary is $131,156, and he is eligible
to receive performance bonuses which may be awarded by the Compensation
Committee. Mr. Johnson is eligible to receive severance equal to six months'
salary in the event he is terminated by the Company without cause.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Chief Executive Officer and the other
executive officers under the 1994 Stock Plan will automatically accelerate in
full and all unvested shares of Common Stock issued to such individuals
pursuant to the exercise of options granted or direct stock issuances made
under such plan will immediately vest in full, except to the extent such
options are to be assumed by, and the Company's repurchase rights with respect
to those shares are to be assigned to, the successor corporation. Any options
that are assumed in an acquisition will automatically accelerate, and any
repurchase rights which are assigned will terminate, in the event the
executive's service is terminated, whether involuntarily or through a
resignation for good reason, within eighteen months following the acquisition.
In addition, the Compensation Committee as Plan Administrator of the 1994
Stock Plan has the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Chief
Executive Officer or any other executive officer or the shares of Common Stock
purchased pursuant to the exercise of options or subject to direct issuances
held by such individual, in connection with the termination of the officer's
employment following certain hostile changes in control of the Company.
1996 Management Incentive Compensation Plan
The Company's 1996 Management Incentive Compensation Plan (the "Management
Plan") was adopted by the Board of Directors in May 1996. The Management Plan
is intended to promote the interests of the Company by providing for bonus
payments to a select group of executive officers and key employees on the
attainment of certain performance goals established for the Company and for
each individual.
With respect to 1996, Mr. Ruport and the Compensation Committee have
established certain performance objectives based on the Company's operating
profit for such year. The maximum aggregate bonus payable to each participant
in the Management Plan will be limited to a pre-determined percentage of the
participant's base salary. A minimum performance level must be achieved by the
Company before payment of bonuses may be made under the Management Plan. A
designated percentage of the participant's maximum aggregate bonus will become
payable automatically upon achievement of such minimum performance level. The
remainder of such bonus will be payable at the discretion of Mr. Ruport and
the Compensation Committee, after consideration of individual performance
factors.
51
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1993, the Company has issued, in private placement
transactions, shares of Convertible Preferred Stock, as follows: an aggregate
of 752,160 shares of Series B Participating Convertible Preferred Stock at
$3.99 per share in December 1993 and March 1994 and 441,177 shares of Series C
Participating Convertible Preferred Stock at $3.40 per share in November 1995.
All of such Convertible Preferred Stock will convert into an aggregate of
1,201,600 shares of Common Stock upon the closing of the sale of the shares
offered hereby. The following table summarizes the shares of Convertible
Preferred Stock purchased by entities that may be deemed affiliated with
directors and five percent or greater stockholders of the Company and persons
associated with them as of June 30, 1996.
<TABLE>
<CAPTION>
SERIES B SERIES C TOTAL SHARES
PREFERRED PREFERRED AS IF
INVESTOR STOCK STOCK CONVERTED
-------- --------- --------- ------------
<S> <C> <C> <C>
Frontenac VI Limited Partnership(1)............ 501,440 294,118 801,067
JMI Equity Fund, L.P(2)........................ 250,720 147,059 400,533
</TABLE>
- --------
(1) James E. Crawford III, a director of the Company, is a general partner of
Frontenac Company, the general partner of Frontenac, the holder of
approximately 21% of the Company's Common Stock. See "Principal and
Selling Stockholders."
(2) Harry S. Gruner, a director of the Company, is a general partner of JMI
Equity Partners, L.P, the general partner of JMI Equity Fund, L.P., the
holder of approximately 9% of the Company's Common Stock. See "Principal
and Selling Stockholders."
Holders of shares of Convertible Preferred Stock are entitled to certain
registration rights in respect of the Common Stock issuable upon conversion
thereof. See "Description of Capital Stock--Registration Rights."
On May 1, 1996, the Company entered into a Resignation and Release Agreement
with Harvey L. Jeane, its former President, Chief Executive Officer and
Director. Under the Resignation and Release Agreement, Mr. Jeane immediately
resigned as a director of the Company. Mr. Jeane also agreed to remit to the
Company an aggregate of $80,000 plus accrued and unpaid interest in
satisfaction of certain promissory notes from Mr. Jeane to the Company.
Concurrently therewith, the Company agreed to release its security interest in
any shares of Common Stock Mr. Jeane pledged to secure repayment of such
indebtedness, and Mr. Jeane will be permitted to exercise any options for the
purchase of Common Stock held by him and sell all shares of Common Stock he
owns in this offering. Mr. Jeane also agreed to terminate his consulting
agreement with the Company and forfeit future compensation thereunder, and he
released the Company from any and all future claims.
In April 1996, Frontenac, which beneficially owns approximately 20% of the
Company's Common Stock prior to the offering, granted Mr. King an option to
purchase 25,000 shares of Common Stock currently owned by Frontenac at an
exercise price of $5.00 per share concurrently with his appointment to the
Board of Directors of the Company. The option is immediately exercisable for
all of the option shares. However, any shares purchased under the option are
subject to repurchase by Frontenac at the option exercise price per share,
should Mr. King leave the Board of Directors prior to vesting in the shares.
Mr. King vested as to 25% of such option shares on the grant date, and will
vest as to the balance of such option shares in equal annual installments over
the next three years of service.
In November 1995, Messrs. Thomson and Carter and the Company entered into a
Settlement Agreement and Mutual Release (the "Settlement Agreement") dated
November 1, 1995 with two claimants (the "Claimants"), to resolve litigation
initiated by the Claimants against each of Messrs. Thomson and Carter and the
Company. The claims in this matter included both contract and tort claims
related to the alleged contributions of the Claimants to the formation of the
Company. Under the Settlement Agreement, the Claimants received: (i) options
to purchase an aggregate of 95,000 shares of Common Stock held by Messrs.
Thomson and Carter at an exercise price of $1.875 per share, (ii) warrants for
the purchase of 95,000 shares of Common Stock from the Company at a price of
$1.875 per share (the "Warrants"), expiring five years from the date of
issuance, and (iii) a non-interest bearing promissory note then in the amount
of $225,000, which the Company expects to retire with a portion of the
proceeds from the offering.
52
<PAGE>
The Company is currently indebted to Messrs. Thomson and Carter in the
aggregate amount of $21,500 each, under subordinated promissory notes
(collectively, the "Founders' Notes") each in the original aggregate principal
amount $297,500, which notes are due and payable in February 2002. The Company
executed the Founders' Notes in satisfaction of certain indebtedness
previously incurred by the Company in consideration for the conveyance by
Messrs. Thomson and Carter of all of their right, title and interest in and to
the FilePower technology to the Company. Aggregate payments to Messrs. Thomson
and Carter under the Founders' Notes were $60,000 and $60,000, $156,000 and
$114,327 and $30,000 and $71,673 in 1993, 1994 and 1995, respectively.
The Company has entered into an Indemnification Agreement with each of its
executive officers and directors.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors of the Board
of Directors and will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by: (i) each
person who is known by the Company to beneficially own more than five percent
of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Officers, (iv) all current executive officers and directors
as a group and (v) all other Selling Stockholders.
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2) SHARES AFTER OFFERING (1)(2)
DIRECTORS, OFFICERS AND --------------------------- BEING -------------------------
5% STOCKHOLDERS NUMBER PERCENT OFFERED(3) NUMBER PERCENT
----------------------- -------------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Mark K. Ruport(4)....... 442,500 9.3% -- 442,500 6.3%
Steven M. Johnson(5).... 150,000 3.3 -- 150,000 2.2
Marc R. Fey(6).......... 161,500 3.7 -- 161,500 2.4
Paul Carter(7).......... 992,500 22.2 143,506 848,994 12.7
Malcolm D. Thomson(8)... 974,500 21.8 143,506 830,994 12.5
Richard A. Bass(9)...... 10,000 * -- 10,000 *
James E. Crawford
III(10)................ 903,067 20.7 -- 903,067 13.8
Robert L. Gett(11)...... 25,000 * -- 25,000 *
Harry S. Gruner(12)..... 410,533 9.4 -- 410,533 6.3
Graham O. King(13)...... 50,000 1.1 -- 50,000 *
Frontenac VI Limited
Partnership(14)........ 903,067 20.7 -- 903,067 13.8
208 S. LaSalle Street,
Suite 1900
Chicago, IL 60604
JMI Equity Fund,
L.P.(15) .............. 410,533 9.4 -- 410,533 6.3
1119 St. Paul St.
Baltimore, MD 21202
LMC Purchase Limited
Partnership............ 298,864 6.9 -- 298,864 4.6
339 Carlton Terrace
Ridgewood, NJ 07450
All directors and
executive officers as a
group
(13 persons)(16)....... 4,316,267 78.3 287,012 4,029,255 52.2
<CAPTION>
OTHER SELLING
STOCKHOLDERS
-------------
<S> <C> <C> <C> <C> <C>
Harvey L. Jeane(17)..... 406,976 9.1 268,976 138,000 2.1
Other Selling
Stockholders each
owning less than 1% of
the outstanding Common
Stock after the
offering............... 227,308 5.2 144,012 83,296 1.3
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Amounts shown for each stockholder include all shares issuable
upon conversion of the Company's Convertible Preferred Stock. The address
for Messrs. Ruport, Carter and Thomson is c/o Optika Imaging Systems,
Inc., 5755 Mark Dabling Blvd., Colorado Springs, Colorado 80919.
(2) Based on 4,347,494 shares of Common Stock outstanding as of June 30,
1996. The number of shares of Common Stock deemed outstanding prior to
this offering includes shares of Common Stock issuable pursuant to stock
options that may be exercised within 60 days after June 30, 1996, which
is the assumed effective date of the offering. Shares issuable pursuant
to such options are deemed outstanding for computing the percentage of
the person holding such options, but are not deemed outstanding for
computing the percentage of any other person.
(3) Does not include 435,000 shares of Common Stock subject to the
Underwriters' over-allotment option. If such over-allotment is exercised
in full, the Company will sell an additional 419,000 shares, and Messrs.
Carter and Thomson will each sell an additional 8,000 shares, and the
number of shares beneficially owned by Messrs. Carter and Thomson would
be 12.6% and 12.3%, respectively.
54
<PAGE>
(4) Includes 427,500 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of June 30, 1996, 327,500 of which shares are subject to a repurchase
right of the Company.
(5) Includes 149,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of June 30, 1996, 77,000 of which shares are subject to a repurchase
right of the Company.
(6) Includes 60,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of June 30, 1996, 30,000 of which shares are subject to a repurchase
right of the Company.
(7) Includes (i) 128,418 shares of Common Stock held of record by the Paul
Carter Irrevocable Trust, of which Mr. Carter may be deemed to be
beneficial owner and (ii) 120,000 vested shares of Common Stock issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days of June 30, 1996. Also includes an aggregate
of 57,500 shares of Common Stock which are subject to currently
exercisable options held by third parties. See "Certain Transactions."
(8) Includes an aggregate of 57,500 shares of Common Stock which are subject
to currently exercisable options held by third parties. See "Certain
Transactions." Also includes 120,000 vested shares of Common Stock
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days of June 30, 1996.
(9) Consists of 10,000 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within
60 days of June 30, 1996, all of which shares are subject to a repurchase
right of the Company.
(10) Includes 893,067 shares of Common Stock owned beneficially by Frontenac.
The general partner of Frontenac is the Frontenac Company, of which Mr.
Crawford is a general partner. In such capacity, Mr. Crawford may be
deemed to be a beneficial owner of such shares, although he disclaims
such beneficial ownership except to the extent of his pecuniary interest
therein, if any. Also includes (i) 10,000 shares of Common Stock issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days of June 30, 1996, all of which shares are
subject to a repurchase right of the Company, and (ii) 25,000 shares of
Common Stock which are subject to currently exercisable options granted
by Frontenac to Mr. King. See "Certain Transactions." The address of Mr.
Crawford is c/o Frontenac Company, 208 South LaSalle Street, Chicago
Illinois 60604.
(11) Includes 25,000 shares of Common Stock issuable upon exercise of options
granted by the Company that are currently exercisable or will become
exercisable within 60 days of June 30, 1996, all of which shares are
subject to a repurchase right of the Company.
(12) Includes 400,533 shares of Common Stock owned beneficially by JMI Equity
Fund, L.P. The general partner of JMI Equity Fund, L.P. is JMI Partners,
L.P., of which Mr. Gruner is a general partner. In such capacity, Mr.
Gruner may be deemed to be a beneficial owner of such shares, although he
disclaims such beneficial ownership except to the extent of his pecuniary
interest therein, if any. Also includes 10,000 shares of Common Stock
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days of June 30, 1996, all of which shares
are subject to a repurchase right of the Company. The address of Mr.
Gruner is c/o JMI Partners, L.P., 1119 St. Paul Street, Baltimore,
Maryland 21202.
(13) Includes (i) 25,000 shares of Common Stock issuable upon exercise of
options granted by the Company that are currently exercisable or will
become exercisable within 60 days of June 30, 1996, 18,750 of which
shares are subject to a repurchase right of the Company and (ii) 25,000
shares of Common Stock issuable upon exercise of options granted by
Frontenac to Mr. King, which options are currently exercisable or will
become exercisable within 60 days of June 30, 1996, 18,750 of which
shares are subject to a repurchase right of Frontenac. See "Certain
Transactions."
(14) Includes 25,000 shares of Common Stock which are subject to a currently
exercisable option granted to Mr. King by Frontenac. See "Certain
Transactions." Also includes 10,000 shares of Common Stock issuable upon
exercise of options granted to Mr. Crawford in connection with his
service on the Board of Directors that are currently exercisable or will
become exercisable within 60 days of June 30, 1996, all of which shares
are subject to a repurchase right of the Company.
(15) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Gruner in connection with his service on the Board of
Directors that are currently exercisable or will become exercisable
within 60 days of June 30, 1996, all of which shares are subject to a
repurchase right of the Company.
(16) Includes (i) 10,667 shares of Common Stock beneficially held by an
executive officer not named in the foregoing table and (ii) a total of
186,000 shares of Common Stock issuable upon exercise of options held by
executive officers not named in such table which are currently
exercisable or will become exercisable within 60 days of June 30, 1996,
166,250 of which shares are subject to a repurchase right of the Company.
(17) Includes (i) 120,000 vested shares of Common Stock issuable upon exercise
of options that are currently exercisable or will become exercisable
within 60 days of June 30, 1996 and (ii) 18,000 shares of Common Stock
held of record by trusts for the benefit of Michelle Thomson, Sylvia
Thomson and Julie White, of which Mr. Jeane is trustee and may be deemed
to be beneficial owner. The address of Mr. Jeane is 8832 Elk Grove Way,
#201, Las Vegas, Nevada 89117. Mr. Jeane previously served as President
and a Director of the Company.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, the authorized capital stock of the Company
will consist of 25,000,000 shares of Common Stock, par value $.001 per share,
and 2,000,000 shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), after giving effect to the amendment of the Company's
First Restated Certificate of Incorporation to delete references to the
Convertible Preferred Stock following conversion of such stock. The following
description of capital stock reflects the Second Amended and Restated
Certificate of Incorporation which will be effective upon closing of this
offering. Immediately following the completion of this offering, an aggregate
of 6,547,494 shares of Common Stock will be issued and outstanding, and no
shares of Convertible Preferred Stock will be issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying cash dividends in
the foreseeable future. In the event of the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. See "Dividend
Policy."
Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of Common Stock are, and the shares offered by the Company
hereby will be, if issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock of the Company
with such dividend, redemption, conversion and exchange provisions as may be
provided in the particular series. Any series of Preferred Stock may possess
voting, dividend, liquidation and redemption rights superior to that of the
Common Stock. The rights of the holders of Common Stock will be subject to,
and may be materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Issuance of a new series of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisition and other corporate purposes, could have the effect of
entrenching the Company's Board of Directors and making it more difficult for
a third-party to acquire, or discourage a third-party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any series of Preferred Stock.
WARRANTS
In November 1995, the Company issued the Warrants to purchase an aggregate
of 95,000 shares of Common Stock pursuant to the Settlement Agreement. Each
Warrant currently entitles the holder to purchase one share of Common Stock at
an exercise price of $1.875 during the period commencing on the date of
issuance and ending November 1, 2000. The Warrants are not transferable. The
exercise price and the number of shares purchasable pursuant to the Warrants
are subject to adjustment for any reclassification, split, subdivision or
combination of the Company's shares. The Warrants do not confer upon the
Claimants any voting or other rights of a stockholder of the Company.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Registration Agreement dated as of
November 22, 1995, as amended, among the Company and most holders of its
securities (the "Rights Agreement"), the holders of
56
<PAGE>
approximately 3,556,000 shares of Common Stock (the "Registrable Securities")
will be entitled to certain rights with respect to the registration of the
Registrable Securities under the Securities Act. Under the Rights Agreement,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or the account of other stockholders, the
holders of Registrable Securities are entitled to notice of such registration
and are entitled to include their Registrable Securities therein. In addition,
if at any time beginning six months following the date of this Prospectus, the
Company receives a request from certain initiating holders of Registrable
Securities, the Company is obligated to cause such shares to be registered
under the Securities Act (provided that the offering is reasonably expected to
exceed $750,000). Holders of Registrable Securities have the right to cause
two such demand registrations. In addition to the first two demand
registrations, holders of Registrable Securities may also require the Company
to register all or a portion of their Registrable Securities on Form S-2 or
Form S-3 under the Securities Act (provided that the offering size is
reasonably expected to exceed $250,000), when such forms become available for
use by the Company, and subject to certain other conditions and limitations.
The holders' rights with respect to all such registrations are subject to
certain conditions, including the right of the underwriters to limit the
number of shares included in any such registration. The Company has agreed to
pay all expenses related thereto, except for underwriting discounts and
commissions to effect the sale of the Registrable Securities.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Second Amended and Restated Certificate of Incorporation provides that,
effective upon the closing of this offering, all stockholder actions must be
effected at a duly called meeting and not by a consent in writing. The Bylaws
provide that the Company's stockholders may call a special meeting of
stockholders only upon a request of stockholders owning at least 50% of the
Company's capital stock. The Bylaws further provide that stockholders seeking
to make stockholder proposals or nominations for the Board of Directors must
notify the Company in writing not less than 20 nor more than 60 days prior to
the stockholders' meeting at which the proposal or nomination is to be
considered. In addition, the Company's Second Amended and Restated Certificate
of Incorporation provides that the directors of the Company shall be
classified into three classes as nearly equal in size as practicable, with
staggered three-year terms. The Second Amended and Restated Certificate of
Incorporation further provides that the vacancies on the Board of Directors
may be filled by a majority of the Board of Directors then in office.
Furthermore, any director elected by the stockholders, or by the Board of
Directors to fill a vacancy, may be removed only by a vote of 50% of the
combined voting power of the shares of Common Stock entitled to vote for the
election of directors. These provisions of the Second Amended and Restated
Certificate of Incorporation and Bylaws could have the effect of making it
more difficult for a third-party to acquire, or of discouraging a third-party
from acquiring or making a bid to acquire, control of the Company. These
provisions are intended (i) to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors, (ii) to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company, (iii) to reduce the vulnerability of the Company to an unsolicited
acquisition proposal and (iv) to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of
discouraging others from making tender offers for the Company's shares and, as
a consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company. See "Risk Factors--Control by Existing
Stockholders; Effects of Certain Anti-Takeover Provisions."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three (3) years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the
57
<PAGE>
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and
also officers and (y) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii)
any sale, transfer, pledge or other disposition of ten percent or more of the
assets of the corporation involving the interested stockholder, (iii) subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning fifteen percent or
more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
Limited Partnership.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this 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 materially adversely affect prevailing market prices.
Upon completion of this offering, the Company will have 6,547,494 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option or outstanding warrants or outstanding options under the
1994 Stock Plan). Of these shares, the 2,900,000 shares sold in this offering
will be freely transferable without restriction or registration under the
Securities Act, except for any shares purchased by an existing "affiliate" of
the Company, as that term is defined by the Securities Act (an "Affiliate"),
which shares will be subject to the resale limitations of Rule 144 adopted
under the Securities Act. The remaining 3,647,494 outstanding shares are
"restricted shares" (as defined in Rule 144). Of such shares, and without
consideration of the contractual restrictions described below, 100,000 shares
would be available for immediate sale in the public market without
restriction. Beginning 90 days after the date of this Prospectus, and without
consideration of the contractual restrictions described below, approximately
2,580,000 shares would be eligible for sale in reliance upon Rule 144
promulgated under the Securities Act and approximately 124,000 shares would be
eligible for sale in reliance upon Rule 701 promulgated under the Securities
Act. Without consideration of the contractual restrictions described below,
the remaining approximately 816,000 restricted shares will not be transferable
pursuant to Rule 144 until the expiration of their two-year holding periods.
After the offering pursuant to this Prospectus, the holders of approximately
3,555,000 shares of Common Stock, or their transferees, will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock--Registration Rights."
Registration of such shares under the Securities Act would result in such
shares becoming freely tradeable without restriction under the Securities Act
(except for shares purchased by Affiliates) immediately upon the effectiveness
of such registration.
All officers and directors and certain security holders of the Company have
agreed not to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of Common Stock of the Company for certain periods of time
after the effective date of the registration statement filed in connection
with this offering without the prior written consent of Volpe, Welty and
Company. Additionally, as a result of these contractual restrictions,
approximately 2,732,000 shares will become available for sale 180 days after
the effective date of this offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated), who owns
shares that were purchased from the Company (or any Affiliate) at least two
years previously, including persons who may be deemed Affiliates of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the then outstanding shares
of the Company's Common Stock (approximately 65,000 shares immediately after
the offering) or the average weekly trading volume of the Company's Common
Stock in The Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from the Company (or any Affiliate) at least three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers up to the date the
Company becomes subject to the
59
<PAGE>
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired
upon exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, such securities may be
sold (i) by persons other than Affiliates, subject only to the manner of sale
provisions of Rule 144 and (ii) by Affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company intends to file a registration statement under the Securities
Act covering approximately 2,682,000 shares of Common Stock issued or reserved
for issuance under the 1994 Stock Plan and the Employee Stock Purchase Plan.
See "Management--1994 Stock Option/Stock Issuance Plan" and "--Employee Stock
Purchase Plan." Such registration statement will be filed within 30 days
following the effective date of this offering and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement pursuant to the 1994 Stock Plan will, subject to Rule 144 volume
limitations applicable to Affiliates and the lapsing of the Company's
repurchase options, be available for sale in the open market, except to the
extent that such shares are subject to vesting restrictions with the Company
or the contractual restrictions described above. At June 30, 1996, options to
purchase 1,886,370 shares were issued and outstanding under the 1994 Stock
Plan.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters
for whom Volpe, Welty & Company, Piper Jaffray Inc. and Needham & Company,
Inc. (together, the "Representatives") are acting as representatives, has
agreed severally to purchase from the Company and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below. The Underwriters are committed to purchase and pay for all shares if
any shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Volpe, Welty & Company.........................................
Piper Jaffray Inc. ............................................
Needham & Company, Inc. .......................................
---------
Total........................................................ 2,900,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the offering price set forth on the cover page of this
Prospectus. The Underwriters may offer a portion of the shares of Common Stock
directly to the public at the public offering price set forth on the cover
page hereof and a portion to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers or dealers. After the public
offering, the public offering price and such concessions may be changed by the
Underwriters.
The Company and certain Selling Stockholders have granted the Underwriters
an option for 30 days after the date of this Prospectus to purchase, at the
public offering price, less the underwriting discounts and commissions as set
forth on the cover page of this Prospectus, up to 435,000 additional shares of
Common Stock, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 2,900,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotment in connection with the sale of the 2,900,000 shares of
Common Stock offered hereby.
The Company, each of its directors and executive officers and certain
holders of the Company's currently outstanding securities have agreed that,
for a period of 180 days following the date of this Prospectus, they will not,
without the prior written consent Volpe, Welty & Company, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for any shares of Common Stock. The
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 180 days following the date of this Prospectus without the prior
written consent of Volpe, Welty & Company, except for the granting of options
or the sale of stock pursuant to the Company's existing stock plans. Volpe,
Welty & Company, in its discretion, may waive the foregoing restrictions in
whole or in part, with or without a public announcement of such action.
The Underwriters will not make sales to accounts over which they exercise
discretionary authority (i) in excess of five percent of the number of shares
of Common Stock offered hereby and (ii) unless they obtain specific written
consent from the customer.
61
<PAGE>
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 negotiated
between the Company and the Representatives. The factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, include the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuations of companies in related businesses.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the offering, including liabilities under the Securities Act, or to
contribute payments that the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Brobeck, Phleger & Harrison LLP, in
Denver, Colorado and Palo Alto, California. A member of the firm of Brobeck,
Phleger & Harrison LLP owns 3,452 shares of Common Stock of the Company.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Securities and Exchange
Commission. The Securities and Exchange Commission also maintains a site on
the World Wide Web that contains reports, proxy and information statements and
other information regarding the Company. The address for such site is
http://www.sec.gov.
62
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations..................................... F-4
Consolidated Statement of Changes in Common Stockholders' Equity
(Deficit)............................................................... F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Pro Forma Combined Condensed Financial Information (Unaudited)........... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Optika Imaging Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in common stockholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Optika Imaging Systems, Inc. and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
March 1, 1996
Boulder, Colorado
F-2
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, DECEMBER 31, JUNE 30, EQUITY
1994 1995 1996 JUNE 30, 1996
------------ ------------ ----------- -------------
(NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash...................... $ 771 $ 1,415 $ 603
Accounts receivable, net
of allowance for doubtful
accounts of $76, $90 and
$90 at December 31, 1994,
1995 and June 30, 1996,
respectively............. 2,400 3,199 4,273
Other current assets...... 418 306 756
------- ------- -------
Total current assets... 3,589 4,920 5,632
------- ------- -------
Fixed assets, net of accu-
mulated depreciation of
$517, $820 and $1,009 at
December 31, 1994, 1995
and June 30, 1996, respec-
tively.................... 764 762 900
Notes receivable from re-
lated parties............. 95 103 106
Other assets, net.......... 2 397 384
------- ------- -------
$ 4,450 $ 6,182 $ 7,022
======= ======= =======
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-
term debt................. $ 367 $ 177 $ 383
Accounts payable.......... 625 627 722
Accrued vacation.......... 131 167 207
Accrued expenses.......... 295 563 559
Deferred revenues......... 833 1,545 1,922
------- ------- -------
Total current
liabilities........... 2,251 3,079 3,793
------- ------- -------
Long-term debt............. 353 266 341
Commitments and contingen-
cies (Note 9)
Preferred stock (1,493,024
shares authorized):
Series A mandatorily re-
deemable convertible pre-
ferred stock; no par val-
ue; 298,864 shares issued
and outstanding at Decem-
ber 31, 1994, 1995 and
June 30, 1996............ 411 411 411
Series B mandatorily re-
deemable convertible pre-
ferred stock; no par val-
ue; 752,160 shares issued
and outstanding at Decem-
ber 31, 1994, 1995 and
June 30, 1996............ 2,932 2,932 2,932
Series C mandatorily re-
deemable convertible pre-
ferred stock; no par val-
ue; 441,177 shares issued
and outstanding at Decem-
ber 31, 1995 and June 30,
1996..................... 1,461 1,461
Common stockholders' equity
(deficit):
Common stock; no par val-
ue; 6,320,000 shares au-
thorized; 2,595,376,
2,843,930 and 2,847,030
shares
issued and outstanding at
December 31, 1994, 1995
and June 30, 1996, re-
spectively, and 4,347,494
at June 30, 1996 pro
forma.................... 307 799 805 $ 5,609
Accumulated deficit....... (1,804) (2,766) (2,721) (2,721)
------- ------- ------- -------
Total stockholders'
equity (deficit)...... (1,497) (1,967) (1,916) 2,888
------- ------- ------- -------
$ 4,450 $ 6,182 $ 7,022 $ 7,022
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------------
1993 1994 1995 1995 1996
------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses................. $ 6,924 $ 7,562 $ 8,333 $3,444 $5,648
Maintenance and other.... 2,119 1,690 2,135 989 1,312
------- -------- ------- ------ ------
Total revenues......... 9,043 9,252 10,468 4,433 6,960
Cost of revenues:
Licenses................. 471 413 316 104 278
Maintenance and other.... 2,073 1,889 1,823 842 866
------- -------- ------- ------ ------
Total cost of
revenues.............. 2,544 2,302 2,139 946 1,144
------- -------- ------- ------ ------
Gross profit............... 6,499 6,950 8,329 3,487 5,816
Operating expenses:
Sales and marketing...... 2,585 4,200 3,732 1,595 2,927
Research and
development............. 2,332 3,112 3,658 1,781 2,229
General and
administrative.......... 1,037 1,513 1,461 831 612
------- -------- ------- ------ ------
Total operating
expenses.............. 5,954 8,825 8,851 4,207 5,768
------- -------- ------- ------ ------
Income (loss) from opera-
tions..................... 545 (1,875) (522) (720) 48
Litigation settlements... 458 -- 373 -- --
Other expenses, net........ 18 25 38 23 3
------- -------- ------- ------ ------
Total other expenses... 476 25 411 23 3
------- -------- ------- ------ ------
Income (loss) before
provision (benefit) for
income taxes.............. 69 (1,900) (933) (743) 45
Provision (benefit) for in-
come taxes................ 42 (168) 29 13 --
------- -------- ------- ------ ------
Net income (loss).......... $ 27 $ (1,732) $ (962) $ (756) $ 45
======= ======== ======= ====== ======
Pro forma net income (loss)
per common share
(unaudited)............... $ (.20) $ (.16) $ .01
======= ====== ======
Pro forma weighted average
number of common shares
outstanding............... 4,811 4,787 5,730
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON
COMMON STOCK STOCKHOLDERS'
---------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
--------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992........ 2,541,376 $ 258 $ (99) $ 159
Common stock issued upon exercise
of stock options.................. 26,000 27 -- 27
Net income......................... -- -- 27 27
--------- ----- ------- -------
Balance at December 31, 1993........ 2,567,376 285 (72) 213
Common stock issued upon exercise
of stock options.................. 28,000 22 -- 22
Net loss........................... -- -- (1,732) (1,732)
--------- ----- ------- -------
Balance at December 31, 1994........ 2,595,376 307 (1,804) (1,497)
Common stock issued upon exercise
of stock options.................. 32,123 30 -- 30
Warrants issued in settlement of
litigation........................ -- 57 -- 57
Common stock issued for
acquisitions...................... 216,431 405 -- 405
Net loss........................... -- -- (962) (962)
--------- ----- ------- -------
Balance at December 31, 1995........ 2,843,930 799 (2,766) (1,967)
Common stock issued upon exercise
of stock options.................. 3,100 6 -- 6
Net income......................... -- -- 45 45
--------- ----- ------- -------
Balance at June 30, 1996 (unau-
dited)............................. 2,847,030 $ 805 $(2,721) $(1,916)
========= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
-------- -------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)............... $ 27 $ (1,732) $ (962) $ (756) $ 45
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization.. 216 219 338 141 229
Loss on disposal of assets..... 15 15 --
Provision for loss on accounts
receivable.................... (76) (14) -- --
Litigation settlement.......... 300 282 -- --
Change in assets and
liabilities:
Accounts receivable........... (1,118) 133 (677) 587 (1,074)
Other assets.................. (43) (132) 64 (112) (480)
Accounts payable.............. 92 230 (66) (1) 95
Accrued expenses.............. 346 (394) 234 245 36
Deferred revenue.............. 189 455 659 18 377
-------- -------- ------- ------ -------
Net cash provided (used) by
operations.................. 9 (1,297) (127) 137 (772)
-------- -------- ------- ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (72) (158) (316) (42) (321)
Cash acquired in acquisition.... 108 -- --
-------- -------- ------- ------ -------
Net cash used in investing
activities.................. (72) (158) (208) (42) (321)
-------- -------- ------- ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
preferred stock, net........... 1,935 997 1,461 -- --
Principal payments on long-term
debt........................... (265) (534) (696) (218) (40)
Proceeds from issuance of long-
term debt...................... 184 -- 321
Proceeds from issuances of
common stock................... 27 22 30 -- --
-------- -------- ------- ------ -------
Net cash provided (used) by
financing activities........ 1,697 485 979 (218) 281
-------- -------- ------- ------ -------
Net increase (decrease) in
cash........................... 1,634 (970) 644 (123) (812)
Cash at beginning of period..... 107 1,741 771 771 1,415
-------- -------- ------- ------ -------
Cash at end of period........... $ 1,741 $ 771 $ 1,415 $648 $603
======== ======== ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-
CASH TRANSACTIONS
Capital lease obligations for
purchase of equipment.......... $ 278 $ 381
Interest paid................... 26 54 $ 54 $ 29 $ 25
Income taxes paid (refund)...... 132 (8) 130
Assets obtained in acquisition.. 498
Liabilities assumed in
acquisition.................... 200
Common stock issued in
acquisition.................... 405
Note issued in litigation
settlement..................... 225
Warrants issued in litigation
settlement..................... 57
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Optika Imaging Systems, Inc., a California corporation, and its subsidiaries
("Optika" or the "Company") was formed in 1988 and currently develops and
markets high-performance, client/server integrated imaging software. The
Company licenses its software under license agreements and provides services
including maintenance, training and implementation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Optika Imaging Systems, Inc. and its wholly owned subsidiaries TEAMWorks
Technologies, Inc., Optika Imaging Systems Europe, Ltd. and Optika Asia, Inc.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
License revenues are generally recognized upon shipment when no significant
vendor obligations remain and collectibility is probable. License revenues
related to contracts with significant post-delivery performance obligations
are recognized when the Company's obligations are no longer significant or
when the customer accepts the product, as applicable. Maintenance revenues for
maintaining, supporting and providing upgrades are deferred and recognized
ratably over the maintenance period which is generally one year. Other
revenues consist of training, consulting and implementation services and are
recognized as such services are performed.
Depreciation and Amortization
Office equipment and furniture are recorded at cost and depreciated using
the straight-line method over estimated useful lives ranging from three to
five years. Goodwill represents the excess of the purchase price over the fair
market value of assets acquired and is being amortized over a four- year
period.
Software Development Costs
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 86 (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of
current revenue to total projected product revenue, whichever is greater. To
date, the period between achieving technological feasibility and the general
availability of such software has been short. Consequently, software
development costs qualifying for capitalization have been insignificant and
therefore, the Company has not capitalized any software development costs.
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 liabilities as well as the reported amounts of revenue and
expenses. Significant estimates have been made by management in several areas
including the collectibility of accounts receivable and the valuation
allowance recorded against net deferred tax assets. Actual results could
differ from these estimates, making it reasonably possible that a change in
these estimates could occur in the near term.
F-7
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interim Financial Data
The interim financial data as of June 30, 1996 and for the six months ended
June 30, 1995 and June 30, 1996 is unaudited; however, in the opinion of
management of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. All data
presented in these notes at such dates and for such periods are unaudited.
Unaudited Pro Forma Stockholders' Equity
The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission ("SEC")
permitting the Company to sell shares of its common stock to the public. If
the Company's initial public offering is consummated under the terms presently
anticipated, all of the mandatorily redeemable convertible preferred stock
outstanding will automatically convert into 1,500,464 shares of common stock.
Unaudited pro forma stockholders' equity as of June 30, 1996, as set forth on
the accompanying balance sheet, is adjusted for the anticipated conversion of
preferred stock.
Pro Forma Net Income (Loss) Per Common Share
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
mandatorily redeemable convertible preferred stock into common stock
concurrent with the closing of the Company's anticipated initial public
offering. Accordingly, historical net income (loss) per common share is not
considered meaningful and has not been presented herein.
Pro forma net income (loss) per common share is computed based on the
weighted average number of common shares outstanding and gives effect to
certain adjustments described below. Common equivalent shares are not included
in the per share calculation where the effect of their inclusion would be
antidilutive, except that, in conformity with SEC requirements, common and
common equivalent shares issued during the twelve-month period prior to the
filing of the Company's proposed initial public offering have been included in
the calculation as if they were outstanding for all periods, using the
treasury stock method and the assumed initial public offering price of $10 per
share. Additionally, all outstanding shares of mandatorily redeemable
convertible preferred stock are assumed to have been converted to common stock
at the time of their issuance.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash,
short-term trade receivables and payables and long-term debt, approximate
their fair values.
Export Sales
The Company had export sales totaling approximately $600,000, $1,205,000 and
$1,542,500 for the years ended December 31, 1993, 1994 and 1995, respectively,
in Europe, Asia and Latin America.
Adoption of New Accounting Standards
The Company has reviewed Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" and No. 123 "Accounting for Stock-Based Compensation" for
applicability. Based on management's estimates and its intention to continue
to apply its existing accounting for stock options, the adoption of these
standards is not expected to have a material effect on the Company's
consolidated financial statements.
F-8
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration
The Company has historically relied on a limited number of products and has
concentrated risk related to the continued and future market acceptance of
such products. The Company currently has no major customers accounting for
more than 10% of its consolidated revenues; however, the Company's accounts
receivable are heavily concentrated with its BSPs who act as resellers of the
Company's products. Receivables from end-users are not concentrated in any
particular industry.
2. BUSINESS COMBINATIONS
On January 28, 1994, the Company issued approximately 272,400 shares of its
common stock for all of the outstanding common stock of TEAMWorks
Technologies, Inc. ("TEAMWorks"). The Company also reserved an additional
15,320 shares for issuance under Optika's stock option plan in connection with
the Company's assumption of TEAMWork's outstanding options. The combination
was accounted for as a pooling of interests and, accordingly, the consolidated
financial statements for all periods presented include the operations of
TEAMWorks. Separate pre-combination revenues and net income (loss) of
TEAMWorks was not significant for the period from January 1, 1994 through
January 28, 1994. Separate pre-combination revenues and net income (loss) of
Optika and TEAMWorks for 1993 were as follows:
<TABLE>
<S> <C>
Revenues:
Optika......................................................... $8,181,000
TEAMWorks...................................................... 861,850
----------
Total revenues............................................... $9,042,850
==========
Net income (loss):
Optika......................................................... $ 156,000
TEAMWorks...................................................... (129,000)
----------
Net income................................................... $ 27,000
==========
</TABLE>
On December 1, 1995, the Company acquired certain assets and assumed certain
liabilities of two of its resellers, IPRS Asia (S) Pte Ltd. and Intuit
Development Limited (the "acquired companies"). The acquisitions were
accounted for using the purchase method. The results of operations for the
acquired companies for the one-month period ended December 31, 1995 are
included in the Optika Consolidated Statement of Operations for the year ended
December 31, 1995. The purchase price of the acquired companies was 216,431
shares of common stock and resulted in $350,350 of goodwill. Goodwill is being
amortized on a straight-line basis over a four-year period beginning January,
1996.
The following table presents unaudited pro forma results of operations as if
the acquisitions had occurred as of the beginning of the respective periods
after giving effect to certain adjustments, including amortization of
goodwill. The unaudited pro forma information is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the acquisition had been effected for the
periods indicated, or of results which may be obtained in the future:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.................... $ 11,070 $ 9,824
Net loss.................... $ (1,355) $ (1,890)
Pro forma net loss per
common share (see Note 1).. $ (.28)
</TABLE>
F-9
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1995, the Company terminated the operations of TEAMWorks and
recorded approximately $69,000 of expenses related to this termination.
3. NOTES RECEIVABLE--RELATED PARTIES
Notes receivable and accrued interest aggregating approximately $95,000 and
$103,000 at December 31, 1994 and 1995, respectively, are due from certain
stockholders, officers and employees. The notes bear interest ranging from 5%
to 7.5% and are due through January 1998.
4. BANK CREDIT FACILITY
During 1995, the Company entered into a $1,500,000 bank credit facility with
a bank. This bank credit facility consists of (i) a working capital line of
credit pursuant to which the Company can draw up to the lesser of $1,200,000
or a borrowing base determined by eligible accounts receivable which bears
interest at the bank's prime rate plus 1.5% (actual rate of 10% at December
31, 1995) and (ii) a term facility of $300,000 to finance capital expenditures
which bears interest at the bank's prime rate plus 2.0% (actual rate of 10.5%
at December 31, 1995). At December 31, 1995 there were no amounts outstanding
under the working capital line and $1,200,000 was available for borrowing
thereunder. The borrowings under the term facility at December 31, 1995 are
due December 1998 and are secured by certain equipment (see Note 5).
Approximately $115,000 was available for borrowing under the term facility at
December 31, 1995. The working capital line of credit expires June 30, 1996.
The bank credit facility contains certain financial covenants which must be
maintained by the Company.
5. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Term loan payable to bank.................................. -- $ 185
Notes payable to stockholders; non-interest bearing;
balance due July 1997; unsecured.......................... $ 145 43
Notes payable for litigation settlement, non-interest bear-
ing; unsecured............................................ -- 206
Other...................................................... -- 9
Note payable; interest at prime rate plus 2% (10.50% at De-
cember 31, 1994); paid during 1995; unsecured............. 75 --
Capitalized lease obligations.............................. 500 --
------ ------
720 443
Less current portion....................................... (367) (177)
------ ------
$ 353 $ 266
====== ======
</TABLE>
Notes Payable for Litigation Settlements
During 1993, the Company settled a lawsuit with a former employee and
stockholder alleging various breach of contract and tort claims related to his
equity interest in the Company for $300,000. The Company paid $100,000 in cash
and issued a note payable for $200,000, payable in quarterly installments of
$25,000 beginning November 1993 through August 1995. The Company also incurred
$158,000 of legal expenses related to this litigation.
F-10
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, the Company settled a lawsuit by two former associates of the
founders of the Company which included various breach of contract and tort
claims related to the alleged contributions of the claimants to the formation
of the Company for $282,000 by issuing a non-interest bearing note and
warrants to purchase 95,000 shares of common stock. The warrants have an
exercise price of $1.875 per share and expire in 2000. The note is payable in
monthly installments beginning November 1995 through October 1997, or earlier
in the event of an initial public offering. The Company also incurred $91,000
of legal expenses related to this litigation.
Debt Maturities
Scheduled maturities of long-term debt at December 31, 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1996......................................................... $ 193
1997......................................................... 209
1998......................................................... 72
-----
474
Less: amount representing interest........................... (31)
-----
443
Less: current portion........................................ (177)
-----
$ 266
=====
</TABLE>
Lease Commitments
The Company has non-cancelable operating lease arrangements for office space
and certain office equipment. Future minimum annual operating lease payments
are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASE
OBLIGATIONS
-----------
<S> <C>
1996........................................................ $469
1997........................................................ 233
1998........................................................ 60
1999........................................................ 4
----
$766
====
</TABLE>
Rent expense related to these and other operating leases approximated
$284,000, $467,000 and $488,000 for the years ended December 31, 1993, 1994
and 1995.
6. INCOME TAXES
The Company's provision (benefit) for income taxes is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994 1995
---- ----- ----
<S> <C> <C> <C>
Current:
Federal.................................................... $12 $(184) --
State...................................................... 5 1 --
Foreign.................................................... 25 15 $29
--- ----- ---
$42 $(168) $29
=== ===== ===
</TABLE>
F-11
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's net deferred income tax assets are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Net operating loss carryforwards.................. $ 543 $ 895
Tax credit carryforwards.......................... 248 341
Deferred revenue.................................. 30 20
Accrued expenses.................................. 130 113
----- -------
951 1,369
Less: deferred tax asset valuation allowance...... (938) (1,359)
----- -------
13 10
----- -------
GROSS DEFERRED TAX LIABILITIES
Accelerated tax depreciation...................... (13) (10)
----- -------
Net deferred tax asset............................ $ -- $ --
===== =======
</TABLE>
Due to the Company's history of pre-tax losses and uncertainty surrounding
the timing of realizing the benefits of its net operating loss carryforwards,
tax credit carryforwards, and future net tax deductibles, the Company has
recorded a valuation allowance against its otherwise recognizable net deferred
tax assets.
The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income (loss) before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
U.S. federal income tax expense (benefit) at statutory
rate................................................... $23 $(646) $(317)
Increases (decreases) resulting from:
Unrecognized benefit of net operating loss
carryforwards and future net deductions.............. -- 411 310
Non-deductible items.................................. 3 17 35
Foreign tax rate differentials........................ -- (13) (1)
Effect of graduated tax rates in the carryback
period............................................... -- 63 --
Other................................................. 16 -- 2
--- ----- -----
Provision (benefit) for income taxes.................... $42 $(168) $ 29
=== ===== =====
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $2,342,000 which expire beginning in 2009 through 2010.
Additionally, the Company has various tax credit carryforwards aggregating
approximately $341,000 which expire beginning in 2005 through 2009;
utilization of these credit carryforwards is limited on an annual basis due to
regulations limiting utilization after a "change in ownership," which occurred
in 1994 and is subject to possible further limitations for future ownership
changes, including the proposed initial public offering described in Note 1.
7. CAPITAL STOCK AND STOCK OPTIONS
Stock Split
In August 1994, the Company effected a four-for-one stock split. All stock
and stock option amounts presented in these consolidated financial statements
reflect this stock split.
F-12
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock
The Board of Directors has authorized 1,493,024 shares of preferred stock
(298,864, 752,160 and 442,000 designated as Series A, Series B and Series C
mandatorily redeemable convertible preferred stock, respectively). The
following table reflects issuances of Series A, B and C preferred stock for
each of the three years ended December 31, 1995 and for the six months ended
June 30, 1996 (in thousands, except for share amounts):
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK
-----------------------------
SHARES AMOUNT
--------------- -------------
<S> <C> <C>
Balances at December 31, 1992................. 298,864 $ 411
Series B preferred stock issued for cash,
net.......................................... 501,440 1,935
--------------- ------------
Balance at December 31, 1993.................. 800,304 2,346
Series B preferred stock issued for cash,
net.......................................... 250,720 997
--------------- ------------
Balance at December 31, 1994.................. 1,051,024 3,343
Series C preferred stock issued for cash,
net.......................................... 441,177 1,461
--------------- ------------
Balance at December 31, 1995 and June 30,
1996......................................... 1,492,201 $ 4,804
=============== ============
</TABLE>
Each share of outstanding Series A, Series B and Series C preferred stock is
entitled to as many votes as the number of shares of common stock into which
it is convertible.
The conversion ratio for Series A and Series C preferred stock is one share
of common stock for each share of preferred stock, subject to certain
antidilution provisions. The conversion ratio for Series B preferred stock is
approximately 1.011 shares of common stock for each share of preferred stock
subject to certain additional antidilution provisions. At December 31, 1995,
1,500,464 authorized and unissued shares of common stock are reserved for
issuance upon conversion of the Series A, Series B and Series C preferred
stock.
Series A, Series B and Series C preferred stock have dividend rights equal
to dividends payable to common stockholders. Additionally, the holders of
Series A, B and C preferred stock have the option to require redemption
beginning November 1, 1998 or upon the occurrence of certain other events. The
redemption price and liquidation price of the Series A, Series B and Series C
preferred stock is $1.51, $3.99 and $3.40 per share, respectively, plus
dividends in arrears, if any. Additionally, all Series A, B and C preferred
stock automatically convert to shares of common stock at their respective
conversion rates upon closing of a qualified public offering.
Stock Options
The Company has a stock option plan (the "1994 Stock Plan") whereby
2,040,000 aggregate shares of common stock are reserved for issuance pursuant
to incentive and non-qualified stock options. Incentive stock options are
granted at exercise prices not less than the fair market value of the stock on
the date of grant as determined by the Board of Directors. Options generally
vest over four years. Certain options are subject to accelerated vesting
provisions.
F-13
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the stock option activity for the years ended
December 31, 1995, 1994 and for the six months ended June 30, 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding December 31, 1992............ 574 $ .4425--1.0625
Options granted................................. 133 1.0625--1.875
Options exercised............................... (26) 1.0625
----- ---------------
Options outstanding December 31, 1993............ 681 .4425--1.875
Options granted................................. 372 1.875
Options exercised............................... (28) .75
Options forfeited............................... (84) 1.0625--1.875
-----
Options outstanding at December 31, 1994......... 941 .4425--1.875
Options granted................................. 792 1.875
Options exercised............................... (32) .4425--1.875
Options forfeited............................... (152) 1.0625--1.875
-----
Options outstanding at December 31, 1995......... 1,549 .4425--1.875
Options granted................................. 369 3.40--7.50
Options exercised............................... (3) 1.875
Options forfeited............................... (29) 1.875
-----
Options outstanding at June 30, 1996 (unau-
dited).......................................... 1,886 $ .4425--7.50
</TABLE>
At December 31, 1995, 529,982 options are exercisable and 135,405 options
are available for grant. The weighted average exercise price per share of
outstanding options and warrants at June 30, 1996 is $2.08 per share.
8. 401(K) RETIREMENT SAVINGS PLAN
Effective January 1, 1994, the Company adopted a qualified 401(k) retirement
savings plan for all employees. Participants may contribute up to 15% of their
gross pay. The Company contributions are discretionary and vest at 20% per
year over 5 years. The Company did not contribute to this plan in 1994 or
1995.
9. CONTINGENCIES
The Company is, from time to time, subjected to certain claims, assertions
or litigation by outside parties as part of its ongoing business operations.
The outcomes of any such contingencies are not expected to have a material
adverse effect on the financial condition, operations or cash flows of the
Company. The Company is not currently a party to any material legal
proceedings.
10. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
On May 21, 1996, the Board of Directors adopted an Employee Stock Purchase
Plan authorizing 250,000 shares of common stock pursuant to such plan. This
plan will allow employees of the Company to purchase shares of common stock
through periodic payroll deductions at semi-annual intervals.
Subsequent to December 31, 1995, the Board of Directors increased the number
of authorized shares pursuant to the Company's 1994 Stock Plan from 2,040,000
to 2,790,000.
F-14
<PAGE>
OPTIKA IMAGING SYSTEMS, INC., IPRS ASIA (S) PTE LTD. AND INTUIT DEVELOPMENT
LIMITED
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On December 1, 1995, the Company acquired certain assets and assumed certain
liabilities of two of its resellers, IPRS Asia (S) Pte Ltd. and Intuit
Development Ltd. (the "acquired companies").
The following unaudited pro forma combined condensed financial information
reflects the business combination between the Company and the acquired
companies accounted for using the purchase method of accounting. The pro forma
combined condensed statement of operations combines the Company's historical
statements of operations with the acquired companies' historical statements of
operations for the year ended December 31, 1995. The pro forma combined
condensed statement of operations reflects the combination as if it had
occurred at the beginning of the year presented.
The unaudited pro forma combined condensed statement of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been effected as of the beginning of such period and
should not be construed as representative of future operations.
The historical consolidated financial statements of the Company are included
elsewhere in this Prospectus and should be read in conjunction with those
consolidated financial statements and related notes.
F-15
<PAGE>
OPTIKA IMAGING SYSTEMS, INC., IPRS ASIA (S) PTE LTD. AND INTUIT DEVELOPMENT
LIMITED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------
COMBINED
ACQUIRED PRO FORMA PRO FORMA
OPTIKA COMPANIES(1) ADJUSTMENTS COMBINED
------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $10,468 $ 776 $(174)(2) $11,070
Cost of revenues................. 2,139 174 (174)(2) 2,139
------- ------ ----- -------
Gross profit................... 8,329 602 8,931
------- ------ -------
Total operating expenses......... 8,851 903 88 (3) 9,842
------- ------ ----- -------
Loss from operations............. (522) (301) (88) (911)
Litigation settlement............ 373 373
Other expenses (income), net..... 38 (25) 13
------- ------ ----- -------
Loss before provision for income
taxes........................... (933) (276) (88) (1,297)
Provision for income taxes....... 29 29 58
------- ------ -------
Net loss......................... $ (962) $ (305) $ (88) $(1,355)
======= ====== ===== =======
Pro forma net loss per common
share........................... $ (.20) $ (.28)
======= =======
Pro forma weighted average number
of common shares outstanding.... 4,811 4,811
======= =======
</TABLE>
- --------
(1) The amounts included in the combined acquired companies column are the
results of the acquired companies for the eleven months ended November 30,
1995. Their combined results for December 1995 are included in the
Company's historical results.
(2) The pro forma adjustment includes the elimination of sales made by the
Company to the combined acquired companies. Additionally, the shares
issued in the acquisition are not presented as a pro forma adjustment
because the pro forma weighted average number of common shares outstanding
includes such shares as outstanding for the entire year ended December 31,
1995.
(3) The pro forma adjustment includes the amortization of $350,325 goodwill
over a four-year period.
See accompanying notes to pro forma combined condensed financial information.
F-16
<PAGE>
[GRAPHICAL REPRESENTATION OF THREE COMPUTER SCREENS
DISPLAYING MEDIPOWER SUITE APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER, ANY UNDER-
WRITER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 28
Management............................................................... 42
Certain Transactions..................................................... 52
Principal and Selling Stockholders....................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 62
Experts.................................................................. 62
Additional Information................................................... 62
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,900,000 SHARES
LOGO
COMMON STOCK
-----------
PROSPECTUS
, 1996
-----------
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 12,650
NASD filing fee.................................................. 4,169
Nasdaq National Market listing fee............................... 21,675
Printing and engraving expenses.................................. 123,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 100,000
Blue sky filing fees and expenses................................ 5,000
Registrar and transfer agent fees................................ 5,000
Officers and directors liability insurance premiums.............. 323,950
Miscellaneous fees and expenses.................................. 4,556
----------
Total.......................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Registrant's Bylaws provide for
mandatory indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. The Registrant's Amended and Restated
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Registrant and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant will
enter into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. Reference is also made to Section 7 of
the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities, and
Section 7 of the Amended and Restated Registration Agreement contained in
Exhibit 4.3 hereto, indemnifying certain of the Registrant's stockholders,
including controlling stockholders, and the officers and directors, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has issued and sold the following securities within the past
three (3) years (which have been adjusted to reflect the Company's four-for-
one forward stock split effected on November 22, 1994):
II-1
<PAGE>
1. From July 1990 through June 30, 1996, the Registrant granted options
to purchase 1,981,370 shares of Common Stock (net of expired, exercised and
cancelled options) to various service providers to the Registrant under its
1994 Stock Option/Stock Issuance Plan and related predecessor plans with
exercise prices ranging from $.75 per share to $7.50 per share, including
outstanding options assumed by the Company in an acquisition, held by three
individuals.
2. On January 31, 1994, the Registrant issued 272,400 shares of its
Common Stock to a group of five individuals in exchange for all of the
outstanding capital stock of TEAMWorks Technologies, Inc., a Massachusetts
corporation.
3. On December 17, 1993, the Registrant issued and sold 501,440 shares of
Series B Preferred Stock to Frontenac VI Limited Partnership for aggregate
consideration of $1,999,993.
4. On March 18, 1994, the Registrant issued and sold 250,720 shares of
Series B Preferred Stock to JMI Equity Fund, L.P., for aggregate
consideration of $999,997.
5. On November 1, 1995, the Registrant issued warrants to purchase 95,000
shares of its Common Stock to two individuals in settlement of litigation.
6. On November 22, 1995, the Registrant issued and sold 294,118 shares of
Series C Preferred Stock to Frontenac VI Limited Partnership and 147,069
shares of Series C Preferred Stock to JMI Equity Fund, L.P. for aggregate
consideration of $1,500,002.
7. On November 30, 1995, the Registrant issued 166,485 shares of its
Common Stock in exchange for substantially all of the assets of IPRS Asia
(S) Pte Ltd., a Singapore corporation, and Intuit Development Ltd., a Hong
Kong corporation.
8. In July 1996, the Registrant's predecessor California corporation will
be reincorporated in Delaware by way of a merger with and into a Delaware
corporation, pursuant to which one share of the Common Stock of the
Delaware corporation will be issued for each share of the Common Stock of
the California corporation, and one share of Preferred Stock of the
Delaware corporation will be issued for each share of Preferred Stock of
the California corporation, each share of the Preferred Stock of the
Delaware corporation being of the same series and having identical rights,
preferences and privileges as the share of Preferred Stock of the
California corporation which it replaces.
The issuances of the above securities were deemed exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. In addition,
certain issuances described in Item 15(1) were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.***
2.1 Form of Agreement and Plan of Merger of Optika Imaging Systems, Inc.,
a California corporation, and the Registrant.**
2.2 Agreement and Plan of Reorganization, dated January 31, 1994, by and
between the Registrant, TEAMWorks and certain other parties named
therein.**
2.3 Asset Purchase Agreement, dated November 13, 1995, by and among the
Registrant, Optika Asia, Inc., IPRS Asia (S) Pte Ltd., and other
entities named therein.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Registrant.**
Form of First Amended and Restated Certificate of Incorporation of the
3.2 Registrant.*
Form of Second Amended and Restated Certificate of Incorporation of
3.3 the Registrant.*
3.4 Bylaws of the Registrant.*
4.1 Specimen Common Stock certificate.*
4.2 Amended and Restated Shareholders' Agreement, dated November 22, 1995,
by and among the Registrant and the entities named therein.**
4.3 Amended and Restated Registration Agreement, dated November 22, 1995,
by and among the Registrant and the entities named therein, including
the First Amendment thereto.**
4.4 Form of Warrant to purchase Common Stock dated November 1, 1995.**
5.1 Opinion of Brobeck, Phleger & Harrison LLP.*
Form of Indemnification Agreement between the Registrant and each of
10.1 its directors and officers.**
The Registrant's 1994 Stock Option/Stock Issuance Plan, as restated
10.2 and amended.*
10.3 The Registrant's 1996 Management Incentive Compensation Plan.*
10.4 The Registrant's Employee Stock Purchase Plan.*
10.5 Loan and Security Agreement, dated June 16, 1995, by and between the
Registrant and Silicon Valley Bank, including Amendments No. 1 and 2
thereto.**
10.6 Office Lease Agreement, dated December 1, 1992, by and between the
Registrant and Lincoln National, regarding the space located at 5755
Mark Dabling Boulevard, Colorado Springs, Colorado, and the First
Amendment thereto, dated February 8, 1994.**
10.7 Employment Agreement by and between the Registrant and Mr. Mark K.
Ruport, effective
February 18, 1995.**
10.8 Employment Agreement by and between the Registrant and Mr. Steven M.
Johnson, effective
May 15, 1996.**
Employment Agreement by and between the Registrant and Mr. Marc Fey,
10.9 effective May 4, 1994.**
10.10 Form of Business Solutions Partner (Reseller) Agreement.**
10.11 Form of FilePower Suite Software License Agreement.**
10.12 Technology Transfer Agreement, dated February 20, 1992, by and between
the Registrant, Mr. Paul Carter and Mr. Malcolm Thomson.**
10.13 Commitment Letter for Line of Credit with Silicon Valley Bank.*
11.1 Statement re: Computation of Pro Forma Net Income (Loss) per Common
Share (Unaudited)*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Price Waterhouse LLP, Independent Accountants.*
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Power of Attorney.**
24.2 Power of Attorney for Robert L. Gett.*
24.7 Financial Data Schedule.**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, 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 hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of 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 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, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF COLORADO SPRINGS, STATE OF COLORADO, ON THIS 3RD DAY OF JULY, 1996.
Optika Imaging Systems, Inc.
By:/s/ Steven M. Johnson
---------------------------------
STEVEN M. JOHNSON VICE PRESIDENT--
FINANCE, CHIEF FINANCIAL OFFICER
AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Mark K. Ruport* President, Chief July 3, 1996
- ------------------------------------- Executive Officer
MARK K. RUPORT and Chairman of the
Board of Directors
(Principal
Executive Officer
/s/ Steven M. Johnson Vice President--
- ------------------------------------- Finance, Chief July 3, 1996
STEVEN M. JOHNSON Financial Officer
and Secretary
(Principal
Financial and
Accounting Officer)
/s/ Paul Carter* Director July 3, 1996
- -------------------------------------
PAUL CARTER
/s/ Malcolm D. Thomson* Director July 3, 1996
- -------------------------------------
MALCOLM D. THOMSON
/s/ Richard A. Bass* Director July 3, 1996
- -------------------------------------
RICHARD A. BASS
</TABLE>
II-5
<PAGE>
SIGNATURE TITLE DATE
Director
/s/ James E. Crawford III* July 3, 1996
- -------------------------------------
JAMES E. CRAWFORD III
Director
/s/ Harry S. Gruner* July 3, 1996
- -------------------------------------
HARRY S. GRUNER
Director
/s/ Graham O. King* July 3, 1996
- -------------------------------------
GRAHAM O. KING
*By: /s/ Steven M. Johnson
---------------------------------
STEVEN M. JOHNSON
ATTORNEY-IN-FACT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Mark K. Ruport and Steven M. Johnson, and each
of them singly, as 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 the Registration Statement No. 333-
04309 and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and otherwise), 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 the full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the foregoing, as full 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 his or her substitute, 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 has been signed by the following person in the capacity
and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert L. Gett Director July 3, 1996
- -------------------------------------
ROBERT L. GETT
II-6
<PAGE>
EXHIBIT 3.2
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPTIKA MERGER SUBSIDIARY, INC.
The undersigned Mark K. Ruport and Steven M. Johnson hereby certify that:
ONE: They are duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Certificate of Incorporation of said corporation was originally
filed in the Office of the Secretary of State of the State of Delaware on April
29, 1996.
THREE: The Certificate of Incorporation of said corporation shall be
amended to read in full as follows:
ARTICLE I
The name of this corporation is Optika Imaging Systems, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of its
registered agent at such address is the Corporation Service Company, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
(A) This Corporation is authorized to issue two classes of stock,
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares that this Corporation shall have authority to issue is Twenty-Eight
Million Four Hundred Ninety-Two Thousand Two Hundred One (28,492,201) shares.
The number of shares of Common Stock of this Corporation authorized to be issued
is Twenty-Five Million (25,000,000), par value $0.001. The number of shares of
Preferred Stock of this Corporation authorized to be issued is Three Million
Four Hundred Ninety-Two Thousand Two Hundred One (3,492,201), par value $0.001,
of which Two Hundred Ninety-Eight Thousand Eight Hundred Sixty-Four (298,864)
shares have been designated Series A Participating Convertible Preferred Stock
(the "Series A Preferred Stock"), Seven Hundred Fifty-Two Thousand One Hundred
Sixty (752,160) shares have been designated Series B Participating Convertible
Preferred Stock (the "Series B Preferred Stock"), and Four Hundred Forty-One
Thousand One Hundred Seventy-Seven (441,177) shares have been designated Series
C Participating Convertible Preferred Stock (the "Series C Preferred Stock").
<PAGE>
(B) Rights, Preferences, Privileges and Restrictions of Capital Stock.
-----------------------------------------------------------------
SECTION I. COMMON STOCK
------------
4.11 Voting Rights. Except as otherwise required by law or
-------------
expressly provided herein, each share of Common Stock shall entitle the holder
thereof to one vote on each matter submitted to a vote of the stockholders of
the Corporation.
4.12 Dividend Rights. Subject to the provisions of law and of
---------------
these articles of incorporation, the holders of Common Stock shall be entitled
to receive dividends at such times and in such amounts as may be determined from
time to time by the Board of Directors of the Corporation.
4.13 Liquidation Rights. In the event of any liquidation,
------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary
(sometimes referred to herein as a "Liquidation"), after payment or provision
for payment of the debts and other liabilities of the Corporation and the
preferential amounts to which the holders of any outstanding Preferred Stock now
or hereafter authorized shall be entitled upon Liquidation, the holders of
Common Stock shall be entitled to share ratably with the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in the
remaining assets of the Corporation based upon the number of shares of Common
Stock then held by such holders and the number (including any fraction) of
shares of Common Stock into which the shares of Preferred Stock then held by
such holders are convertible.
SECTION II. SERIES A PREFERRED STOCK
------------------------
4.2.1 Voting Rights. Except as otherwise required by law or
-------------
expressly provided herein, each share of Series A Preferred Stock shall entitle
the holder thereof to vote on all matters submitted to a vote of the
stockholders of the Corporation and to have the number of votes equal to the
number of shares of Common Stock into which such share of Series A Preferred
Stock is then convertible pursuant to the provisions hereof, assuming for this
purpose only that shares of Series A Preferred Stock are convertible into
fractional shares, at the record date for the determination of stockholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law or expressly provided herein, the holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Common Stock shall vote together and not as separate classes.
4.2.2 Dividend Rights. In the event any dividend or other
---------------
distribution payable in cash or other property is declared on the Common Stock
(other than dividends payable solely in shares of Common Stock), each holder of
shares of Series A Preferred Stock on the record date for such dividend or
distribution shall be entitled to receive on the date of payment or distribution
of such dividend or other distribution the same cash or other property which
such holder would have received if on such record date such holder was the
holder of record of the number (including any fraction) of shares of Common
Stock into which the shares of Series A Preferred Stock then held by such holder
are then convertible. Except as set forth in this Section 4.2.2, dividends shall
be paid on the Series A Preferred Stock if, as and when declared by the Board of
Directors of the Corporation and shall not be cumulative.
4.2.3 Liquidation.
-----------
(a) In the event of any Liquidation, each holder of shares of
Series A Preferred Stock then outstanding shall be entitled to receive out of
the assets of the Corporation available for distribution to stockholders, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of Common Stock, an amount equal to the Series A
Liquidation Price per share
2.
<PAGE>
of Series A Preferred Stock held by such holder. If, upon any Liquidation, the
assets of the Corporation available for distribution to the stockholders of the
Corporation shall be insufficient to permit the payment in full to such
stockholders of the aforesaid preferential amounts and the payment in full to
the holders of Series B Preferred Stock and Series C Preferred Stock of the
preferential amounts payable thereto pursuant to Sections 4.3.3 and 4.4.3.
hereof, the holders of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock then outstanding shall share ratably in such
distribution of assets in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
(b) After the payment or the setting aside for payment of the
preferential amounts payable upon a Liquidation to the holders of Series A
Preferred Stock hereunder and to the holders of Series B Preferred Stock and
Series C Preferred Stock pursuant to Sections 4.3.3 and 4.4.3 hereof, all of the
remaining assets of the Corporation, if any, shall be distributed to the holders
of Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock ratably based upon the number of shares of Common Stock then
held by such holders and the number (including any fraction) of shares of Common
Stock into which the shares of Preferred Stock then held by such holders are
convertible (the "Series A Liquidation Participation Rights"). The Series A
Liquidation Participation Rights set forth in this paragraph (b) shall terminate
upon the closing of a Public Offering.
(c) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 4.2.3 or for any other
purpose, then the Board of Directors of the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Common Stock. The Corporation shall, upon
receipt of such appraiser's valuation, give prompt written notice to each holder
of shares of Series A Preferred Stock of the appraiser's valuation.
(d) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a consolidation or merger
following which the holders of a majority of the capital stock of the resulting
or surviving entity, based on voting power in the election of directors, are
persons or entities who were stockholders of the Corporation immediately prior
to such consolidation or merger), or a sale of all or substantially all of the
assets of the Corporation, shall be deemed to be a Liquidation, within the
meaning of this Section 4.2.3, unless in any such particular event the holders
of more than 80% of the then outstanding shares of Series A Preferred Stock,
voting together as a single class, determine that such particular event shall
not, for purposes of this Section 4.2.3, be deemed a Liquidation.
4.2.4 Redemption.
----------
(a) (i) A holder of Series A Preferred Stock may elect to
require the Corporation to redeem, at any time on or after November 1, 1998, the
number of shares of Series A Preferred Stock equal to such holder's First
Redemption Number at a price per share equal to the Series A Liquidation Price
by giving written notice to the Corporation of such election (a "First Election
Notice"). Upon receipt of such election, the Corporation shall be obligated to
redeem from such holder, at a price per share equal to the Series A Liquidation
Price, a number of shares of Series A Preferred Stock equal to such holder's
First Redemption Number on a date selected by the Corporation, which date is
within 60 days of receipt of such holder's First Election Notice (a "First
Redemption Date"). The Corporation shall give prompt notice of any election to
require the Corporation to redeem shares of Series A Preferred Stock to all
other holders of Series A Preferred Stock within 5 days of receipt of any First
Election Notice.
(ii) A holder of Series A Preferred Stock may elect to
require the Corporation to redeem from such holder, at any time on or after
November 1, 1999, the number of shares of Series A Preferred Stock equal to such
holder's Second Redemption Number at a price per share equal to the Series A
Liquidation Price by giving written notice to the Corporation of such election
(a "Second Election
3.
<PAGE>
Notice"). Upon receipt of such election, the Corporation shall be obligated to
redeem from such holder, at a price per share equal to the Series A Liquidation
Price, a number of shares of Series A Preferred Stock equal to such holder's
Second Redemption Number on a date selected by the Corporation, which date is
within 60 days of receipt of such holder's Second Election Notice (a "Second
Redemption Date"). The Corporation shall give prompt written notice of any
election to require the Corporation to redeem shares of Series A Preferred Stock
to all other holders of Series A Preferred Stock within 5 days of receipt of any
Second Election Notice. For purposes of this paragraph (ii), if a Person
acquires any shares of Series A Preferred Stock from a prior holder at any time
after such prior holder's First Redemption Date but prior to such prior holder's
Second Redemption Date, then such Person's First Redemption Date with respect to
such shares shall be deemed to have occurred on such prior holder's First
Redemption Date and a number of shares of Series A Preferred Stock equal to such
prior holder's First Redemption Number shall be deemed to have been redeemed on
such prior holder's First Redemption Date.
(iii) A holder of Series A Preferred Stock may elect to
require the Corporation to redeem from such holder, at any time on or after
November 1, 2000, the number of shares of Series A Preferred Stock equal to such
holder's Third Redemption Number at a price per share equal to the Series A
Liquidation Price by giving written notice to the Corporation of such election
(a "Third Election Notice"). Upon receipt of such election, the Corporation
shall be obligated to redeem from such holder, at a price per share equal to the
Series A Liquidation Price, a number of shares of Series A Preferred Stock equal
to such holder's Third Redemption Number on a date selected by the Corporation,
which date is within 60 days of receipt of such holder's Third Redemption Notice
(a "Third Redemption Date"). The Corporation shall give prompt written notice of
any election to require the Corporation to redeem shares of Series A Preferred
Stock to all other holders of Series A Preferred Stock within 5 days of receipt
of any Third Election Notice. For purposes of this paragraph (iii), if a Person
acquires any shares of Series A Preferred Stock from a prior holder at any time
after such prior holder's Second Redemption Date but prior to such prior
holder's Third Redemption Date, then such Person's Second Redemption Date with
respect to such shares shall be deemed to have occurred on such prior holder's
Second Redemption Date and a number of shares of Series A Preferred Stock equal
to such prior holder's Second Redemption Number shall be deemed to have been
redeemed on such prior holder's Second Redemption Date.
(iv) The Corporation shall be obligated to redeem on the
First Redemption Date, the Second Redemption Date or the Third Redemption Date,
as the case may be, from the holders of shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock making elections pursuant
to Section 4.2.4(a), 4.3.4(a), or 4.4.4(a), respectively, the aggregate number
of shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock specified in elections pursuant to Sections 4.2.4(a), 4.3.4(a)
and 4.4.4(a), respectively, received by the Corporation at least 30 days prior
to the First Redemption Date, the Second Redemption Date or the Third Redemption
Date, as the case may be.
(b) Not fewer than 20 days nor more than 35 days prior to any
Redemption Date, written notice (the "Redemption Notice") shall be given to each
holder of record of the Series A Preferred Stock to be redeemed on such date.
The Redemption Notice shall state: (i) the number of shares of the Series A
Preferred Stock being redeemed from each such holder on such Redemption Date;
(ii) the Redemption Date and the Series A Liquidation Price; and (iii) that the
holder is to surrender to the Corporation, in the manner and at the place
designated, the certificate or certificates representing the shares of Series A
Preferred Stock to be redeemed.
(c) On or before each Redemption Date, each holder of shares of
Series A Preferred Stock being redeemed shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Series A
Liquidation Price for such shares shall be payable in immediately available
funds to the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate
4.
<PAGE>
shall be canceled and retired. If a certificate is surrendered and all the
shares evidenced thereby are not being redeemed, the Corporation shall cause
certificates representing Series A Preferred Stock which are not being redeemed
to be issued and registered in the name of the person whose name appears as the
owner on the surrendered certificates and deliver such certificates to such
persons.
(d) If the Redemption Notice shall have been duly given, and if
on the Redemption Date the Series A Liquidation Price is either paid or made
available for payment through the deposit arrangement specified in subsection
(e) below, then notwithstanding that the certificates evidencing any of the
shares of Series A Preferred Stock shall not have been surrendered, the
dividends with respect to such shares, if any, shall cease to accrue after the
Redemption Date and all rights with respect to such shares shall forthwith after
such Redemption Date terminate, except only the right of the holders to receive
the Series A Liquidation Price upon surrender of their certificate or
certificates therefor (and a certificate for the balance of such shares
evidenced by such surrendered certificates which are not being redeemed).
(e) On or prior to any Redemption Date, the Corporation shall
deposit with any bank or trust company in Boston, Massachusetts or Denver,
Colorado, having a capital and surplus of at least $50,000,000 as a trust fund,
a sum equal to the aggregate Series A Liquidation Price of all shares of Series
A Preferred Stock being redeemed on such Redemption Date and not yet redeemed,
with irrevocable instructions and authority to the bank or trust company to pay,
on or after the Redemption Date or prior thereto, the Series A Liquidation Price
to the respective holders upon the surrender of their share certificates. From
and after the date of such deposit, the shares so called for redemption shall be
redeemed. The deposit shall constitute full payment of the shares to their
holders, and from and after the date of the deposit the shares shall be deemed
to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive from the bank or trust company payment of
the Series A Liquidation Price of the shares, without interest, upon surrender
of their certificates therefor. Any funds so deposited and unclaimed at the end
of two years from such Redemption Date shall be released or repaid to the
Corporation, after which the holders of shares called for redemption shall be
entitled to receive payment of the Series A Liquidation Price only from the
Corporation.
(f) If the funds of the Corporation legally available therefor
shall be insufficient to discharge such redemption requirement in full, funds to
the extent legally available for such purpose shall be set aside in the place
specified in the Redemption Notice. The maximum number of full shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock that
can be redeemed with such funds shall be redeemed from the holders of the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
based on the aggregate Series A Liquidation Price, Series B Liquidation Price
and Series C Liquidation Price, respectively, of the shares to be redeemed from
such holders. Thereafter, the Corporation shall redeem shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
as set forth above from the holders of such shares as funds legally available
therefor become available and supplementary redemption notices containing
information similar to the Redemption Notice shall be delivered to holders of
Series A Preferred Stock. Such supplementary Redemption Notices shall specify
supplementary Redemption Dates which shall be not less than 30 nor more than 60
days after the date of such notice.
(g) The Corporation will not, and will not permit any Subsidiary
of the Corporation to, purchase or acquire any shares of Series A Preferred
Stock other than pursuant to the terms of this Section or pursuant to an offer
made on the equivalent terms to all holders of Series A Preferred Stock at the
time outstanding.
(h) Once redeemed pursuant to the provisions of this Section
4.2.4, shares of Series A Preferred Stock shall be canceled and not subject to
reissuance.
5.
<PAGE>
(i) The Corporation shall give each holder of Series A Preferred
Stock prompt notice of any election by a holder or holders of Series B Preferred
Stock or Series C Preferred Stock to require the Corporation to redeem shares of
Series B Preferred Stock or Series C Preferred Stock pursuant to Section 4.3.4
or 4.4.4 hereof, respectively, within 5 days of receipt of any such election.
4.2.5 Conversion. Series A Preferred Stock shall be convertible
----------
into Common Stock, as follows:
(a) Right to Convert. Each share of Series A Preferred Stock
----------------
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the offices of the Corporation. Each share of
Series A Preferred Stock shall be convertible into the number of shares of
Common Stock which results from dividing the Series A Conversion Price in effect
at the time of conversion into $1.505 (such amount to be adjusted
proportionately after the date of the filing of these Amended and Restated
Articles of Incorporation in the event shares of Series A Preferred Stock are
subdivided into a greater number (whether by stock split, stock dividend or
otherwise) or combined into a lesser number (whether by reverse stock split or
otherwise)). The Series A Conversion Price per share of Series A Preferred Stock
(the "Series A Conversion Price") initially in effect shall be $1.505. The
initial Series A Conversion Price shall be subject to adjustment as hereinafter
provided.
(b) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock as provided in Section 4.2.5(a), he shall surrender the certificate or
certificates therefor, duly endorsed, at the offices of the Corporation and
shall give written notice to the Corporation at such office that he elects to
convert the same. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(c) Automatic Conversion. Each share of Series A Preferred
--------------------
Stock shall automatically be converted into shares of Common Stock at the Series
A Conversion Price upon the closing of a Qualified Public Offering, without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of Series A Preferred Stock being
converted are either delivered to the Corporation or any transfer agent or the
holder notifies the Corporation or any transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith. Upon the automatic conversion of shares of Series A
Preferred Stock, the holder of such shares of Series A Preferred Stock shall
surrender the certificates representing such shares at the office of the
Corporation or of any transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder, promptly at such office and in his
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A Preferred Stock surrendered were convertible on the date on which such
automatic conversion occurred.
(d) Fractional Shares. No fractional shares of Common Stock
-----------------
shall be issued upon conversion of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Series A
Conversion Price.
6.
<PAGE>
(e) Adjustment of Series A Conversion Price. The Series A
---------------------------------------
Conversion Price shall be subject to adjustment from time to time as follows:
(i) If the number of shares of Common Stock outstanding
at any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Series A Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of Series A Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding
at any time after the date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, on the effective date of such
combination, the Series A Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of Series A
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(iii) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another person (other than a consolidation or
merger in which the Corporation is the continuing entity and which does not
result in any change in the Common Stock), or of the sale or other disposition
of all or substantially all the properties and assets of the Corporation as an
entirety to any other person, the shares of Series A Preferred Stock shall, if
such event is not deemed a Liquidation for purposes of Section 4.2.3(d), after
such reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or other
securities or property of the Corporation or of the entity resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold or otherwise disposed to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition he had converted his shares of
Series A Preferred Stock into Common Stock. The provisions of this Section
4.2.5(e)(iii) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(iv) All calculations under this Section 4.2.5 shall be
made to the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(f) Minimal Adjustments. No adjustment in Series A Conversion
-------------------
Price need be made if such adjustment would result in a change in Series A
Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is
not made shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, on a cumulative basis, amounts to an
adjustment of $0.01 or more in Series A Conversion Price.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of Series A Conversion Price pursuant to this Section
4.2.5, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Series A Conversion Price at the time in effect for
Series A Preferred Stock held, and (iii) the number of shares of Common Stock
and the amount if any, of other property which at the time would be received
upon the conversion of Series A Preferred Stock.
7.
<PAGE>
(h) Notice of Record Date. The Corporation will give written
---------------------
notice to all holders of shares of Series A Preferred Stock as soon as possible
but in any event at least 20 days prior to the date on which the Corporation
closes its books or takes a record (A) with respect to any dividend or
distribution upon Common Stock, (B) with respect to any pro rata subscription
offer to holders of Common Stock or (C) for determining rights to vote with
respect to any Liquidation or event specified in Section 4.2.5(e)(iii).
(i) Reservation of Stock Issuable Upon Conversion of Series A
---------------------------------------------------------
Preferred Stock. The Corporation shall at all times reserve and keep available
- ---------------
out of its effecting the conversion of the shares of Series A Preferred Stock
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this
-------
Section 4.2 to be given to the holder of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each such holder of record at his latest address appearing on
the books of the Corporation.
4.2.6 Protective Provision. So long as any shares of Series A
--------------------
Preferred Stock shall be outstanding, the Corporation shall not, without
obtaining the approval (by vote or written consent as provided by law) of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
materially and adversely alter or change the rights, preferences or privileges
of the Series A Preferred Stock in a manner that is different from the manner in
which the rights, preferences or privileges of the Series B Preferred Stock and
Series C Preferred Stock are altered or changed.
SECTION III. SERIES B PREFERRED STOCK
------------------------
4.3.1 Voting Rights.
-------------
(a) Except as otherwise required by law or expressly provided
herein, each share of Series B Preferred Stock shall entitle the holder thereof
to vote on all matters submitted to a vote of the stockholders of the
Corporation and to have the number of votes equal to the number of shares of
Common Stock into which such share of Series B Preferred Stock is then
convertible pursuant to the provisions hereof, assuming for this purpose only
that shares of Series B Preferred Stock are convertible into fractional shares,
at the record date for the determination of stockholders entitled to vote on
such matters or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited. Except as otherwise
required by law or expressly provided herein, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common
Stock shall vote together and not as separate classes.
(b) The holders of the Series B Preferred Stock and Series C
Preferred Stock shall be entitled, voting together as a single class, to elect
two directors of the Corporation at each annual election of directors by the
affirmative vote or consent of the holders of a majority of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, voting together
as a single class. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Common Stock, voting together as a
single class as hereinbefore described, shall be entitled to elect the remaining
directors of the Corporation. In the case of a vacancy in the office of the
director elected by the holders of the Series B Preferred Stock and Series C
Preferred Stock, voting together as a single class as hereinbefore described,
such vacancy may
8.
<PAGE>
be filled by the holders of a majority of the Series B Preferred Stock and
Series C Preferred Stock at a special meeting of the holders of the Series B
Preferred Stock and Series C Preferred Stock duly called for that purpose or
pursuant to a written consent of such stockholders. In the case of any vacancy
in the office of a director occurring among the directors elected by the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Common Stock, voting together as a single class as hereinbefore
described, the remaining directors so elected by the class may, by the
affirmative vote of a majority thereof (or the remaining director so elected if
there be but one), elect a successor or successors to hold office of the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of a class of
stock (with the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and Common Stock being treated as a single class
(voting as hereinbefore described) and the Series B Preferred Stock and Series C
Preferred Stock, together, being treated as another class (voting as
hereinbefore described)) may be removed either with or without cause, by, and
only by, the affirmative vote of the holders of a majority of the shares of the
class of stock who elected such director or directors, given either at a special
meeting of such stockholders duly called for the purpose or pursuant to a
written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class of stock represented at such meeting or pursuant to
such written consent.
4.3.2 Dividend Rights. In the event any dividend or other
---------------
distribution payable in cash or other property is declared on the Common Stock
(other than dividends payable solely in shares of Common Stock), each holder of
shares of Series B Preferred Stock on the record date for such dividend or
distribution shall be entitled to receive on the date of payment or distribution
of such dividend or other distribution the same cash or other property which
such holder would have received if on such record date such holder was the
holder of record of the number (including any fraction) of shares of Common
Stock into which the shares of Series B Preferred Stock then held by such holder
are then convertible. Except as set forth in this Section 4.3.2, dividends shall
be paid on the Series B Preferred Stock if, as and when declared by the Board of
Directors of the Corporation and shall not be cumulative.
4.3.3 Liquidation Rights.
------------------
(a) In the event of any Liquidation, each holder of shares of
Series B Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of Common Stock, an amount equal to the Series B
Liquidation Price per share of Series B Preferred Stock held by such holder. If
upon any Liquidation, the assets to be distributed to the stockholders of the
Corporation shall be insufficient to permit the payment in full to such
stockholders of the aforesaid preferential amounts and the payment in full of
the preferential amounts payable to the holders of Series A Preferred Stock and
the holders of Series C Preferred Stock pursuant to Sections 4.2.3 and 4.4.3
hereof, then all of the assets of the Corporation available for distribution to
the holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be distributed to such holders ratably in proportion to
the full preferential amount each such holder is otherwise entitled to receive.
(b) After the payment or the setting aside for such payment of
the preferential amounts payable upon a Liquidation to the holders of Series B
Preferred Stock hereunder and to the holders of Series A Preferred Stock and
Series C Preferred Stock pursuant to Sections 4.2.3 and 4.4.3 hereof, all of the
remaining assets of the Corporation, if any, shall be distributed to the holders
of shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock ratably based upon the number of shares of Common
Stock then held by such holders and the number (including any fraction) of
shares of Common Stock into which the shares of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock then held by such holders are
then convertible (the "Series B Liquidation Participation Rights"). The Series B
Liquidation Participation Rights set forth in this paragraph (b) shall terminate
upon the closing of a Public Offering.
9.
<PAGE>
(c) If any of the assets of the Corporation are to be
distributed other than in cash under this Section 4.3.3 or for any other
purpose, then the Board of Directors of the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Common Stock. The Corporation shall, upon
receipt of such appraiser's valuation, give prompt written notice to each holder
of shares of Series B Preferred Stock of the appraiser's valuation.
(d) For purposes of this Section 4.3.3, the merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the stockholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall not be treated as a
Liquidation.
(e) Nothing contained in this Section 4.3.3 shall be deemed to
prevent any holder of Series B Preferred Stock from exercising such holder's
right of conversion pursuant to Section 4.3.5 hereof with respect to any share
of Series B Preferred Stock at any time prior to the Liquidation, including the
giving of any notice of such Liquidation.
4.3.4 Redemption.
----------
(a) (i) Any holder of Series B Preferred Stock may elect to
require the Corporation to redeem, at any time on or after November 1, 1998, the
number of shares of Series B Preferred Stock equal to such holder's First
Redemption Number at a price per share equal to the Series B Liquidation Price
by giving written notice to the Corporation of such election (a "First Election
Notice"). Upon receipt of such election, the Corporation shall be obligated to
redeem from such holder, at a price per share equal to the Series B Liquidation
Price, a number of shares of Series B Preferred Stock equal to such holder's
First Redemption Number on a date selected by the Corporation, which date is
within 60 days of receipt of such holder's First Election Notice (a "First
Redemption Date"). The Corporation shall give prompt notice of any election to
require the Corporation to redeem shares of Series B Preferred Stock to all
holders of Series B Preferred Stock within 5 days of receipt of any First
Election Notice.
(ii) A holder of Series B Preferred Stock may elect to
require the Corporation to redeem from such holder, at any time on or after
November 1, 1999, the number of shares of Series B Preferred Stock equal to such
holder's Second Redemption Number at a price per share equal to the Series B
Liquidation Price by giving written notice to the Corporation of such election
(a "Second Election Notice"). Upon receipt of such election, the Corporation
shall be obligated to redeem from such holder, at a price per share equal to the
Series B Liquidation Price, a number of shares of Series B Preferred Stock equal
to such holder's Second Redemption Number on a date selected by the Corporation,
which date is within 60 days of receipt of such holder's Second Election Notice
(a "Second Redemption Date"). The Corporation shall give prompt written notice
of any election to require the Corporation to redeem shares of Series B
Preferred Stock to all other holders of Series B Preferred Stock within 5 days
of receipt of any Second Election Notice. For purposes of this paragraph (ii),
if a Person acquires any shares of Series B Preferred Stock from a prior holder
at any time after such prior holder's First Redemption Date but prior to such
prior holder's Second Redemption Date, then such Person's First Redemption Date
with respect to such shares shall be deemed to have occurred on such prior
holder's First Redemption Date and a number of shares of Series B Preferred
Stock equal to such prior holder's First Redemption Number shall be deemed to
have been redeemed on such prior holder's First Redemption Date.
(iii) A holder of Series B Preferred Stock may elect to
require the Corporation to redeem from such holder, at any time on or after
November 1, 2000, the number of shares of Series B
10.
<PAGE>
Preferred Stock equal to such holder's Third Redemption Number at a price per
share equal to the Series B Liquidation Price by giving written notice to the
Corporation of such election (a "Third Election Notice"). Upon receipt of such
election, the Corporation shall be obligated to redeem from such holder, at a
price per share equal to the Series B Liquidation Price, a number of shares of
Series B Preferred Stock equal to such holder's Third Redemption Number on a
date selected by the Corporation, which date is within 60 days of receipt of
such holder's Third Redemption Notice (a "Third Redemption Date"). The
Corporation shall give prompt written notice of any election to require the
Corporation to redeem shares of Series B Preferred Stock to all other holders of
Series B Preferred Stock within 5 days of receipt of any Third Election Notice.
For purposes of this paragraph (iii), if a Person acquires any shares of Series
B Preferred Stock from a prior holder at any time after such prior holder's
Second Redemption Date but prior to such prior holder's Third Redemption Date,
then such prior holder's Third Redemption Date with respect to such shares shall
be deemed to have occurred on such prior holder's Second Redemption Date and a
number of shares of Series B Preferred Stock equal to such Person's Second
Redemption Number shall be deemed to have been redeemed on such prior holder's
Second Redemption Date.
(iv) The Corporation shall be obligated to redeem on the
First Redemption Date, the Second Redemption Date or the Third Redemption Date,
as the case may be, from the holders of shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock making elections pursuant
to Section 4.2.4(a), 4.3.4(a) or 4.4.4(a), respectively, the aggregate number of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock specified in elections pursuant to Section 4.2.4(a), 4.3.4(a)
and 4.4.4(a), respectively, received by the Corporation at least 30 days prior
to the First Redemption Date, the Second Redemption Date or the Third Redemption
Date, as the case may be.
(b) Not fewer than 20 days nor more than 35 days prior to any
Redemption Date, written notice (the "Redemption Notice") shall be given to each
holder of record of the Series B Preferred Stock to be redeemed on such date.
The Redemption Notice shall state: (i) the number of shares of the Series B
Preferred Stock being redeemed from each such holder on such Redemption Date;
(ii) the Redemption Date and the Series B Liquidation Price; and (iii) that the
holder is to surrender to the Corporation, in the manner and at the place
designated, the certificate or certificates representing the shares of Series B
Preferred Stock to be redeemed.
(c) On or before each Redemption Date, each holder of shares of
Series B Preferred Stock being redeemed shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Series B
Liquidation Price for such shares shall be payable in immediately available
funds to the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled and
retired. If a certificate is surrendered and all the shares evidenced thereby
are not being redeemed, the Corporation shall cause certificates representing
Series B Preferred Stock which are not being redeemed to be issued and
registered in the name of the person whose name appears as the owner on the
surrendered certificates and deliver such certificates to such persons.
(d) If the Redemption Notice shall have been duly given, and if
on the Redemption Date the Series B Liquidation Price is either paid or made
available for payment through the deposit arrangement specified in subsection
(e) below, then notwithstanding that the certificates evidencing any of the
shares of Series B Preferred Stock shall not have been surrendered, the
dividends with respect to such shares, if any, shall cease to accrue after the
Redemption Date and all rights with respect to such shares shall forthwith after
such Redemption Date terminate, except only the right of the holders to receive
the Series B Liquidation Price upon surrender of their certificate or
certificates therefor (and a certificate for the balance of such shares
evidenced by such surrendered certificates which are not being redeemed).
11.
<PAGE>
(e) On or prior to any Redemption Date, the Corporation shall
deposit with any bank or trust company in Chicago, Illinois or Denver, Colorado,
having a capital and surplus of at least $50,000,000 as a trust fund, a sum
equal to the aggregate Series B Liquidation Price of all shares of Series B
Preferred Stock being redeemed for redemption on such Redemption Date and not
yet redeemed, with irrevocable instructions and authority to the bank or trust
company to pay, on or after the Redemption Date or prior thereto, the Series B
Liquidation Price to the respective holders upon the surrender of their share
certificates. From and after the date of such deposit, the shares so called for
redemption shall be redeemed. The deposit shall constitute full payment of the
shares to their holders, and from and after the date of the deposit the shares
shall be deemed to be no longer outstanding, and the holders thereof shall cease
to be stockholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payment of the Series B Liquidation Price of the shares, without interest, upon
surrender of their certificates therefor. Any funds so deposited and unclaimed
at the end of two years from such Redemption Date shall be released or repaid to
the Corporation, after which the holders of shares called for redemption shall
be entitled to receive payment of the Series B Liquidation Price only from the
Corporation.
(f) If the funds of the Corporation legally available therefor
shall be insufficient to discharge such redemption requirement in full, funds to
the extent legally available for such purpose shall be set aside in the place
specified in the Redemption Notice. The maximum number of full shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock that
can be redeemed with such funds shall be redeemed from the holders of the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
based on the aggregate Series A Liquidation Price, Series B Liquidation Price
and Series C Liquidation Price, respectively, of the shares to be redeemed from
such holders. Thereafter, the Corporation shall redeem shares of Series A
Preferred Stock, shares of Series B Preferred Stock and shares of Series C
Preferred Stock ratably as set forth above from the holders of such shares as
funds legally available therefor become available and supplementary redemption
notices containing information similar to the Redemption Notice shall be
delivered to holders of Series B Preferred Stock. Such supplementary Redemption
Notices shall specify supplementary Redemption Dates which shall be not less
than 30 nor more than 60 days after the date of such notice.
(g) The Corporation shall not, and shall not permit any
Subsidiary of the Corporation to, purchase or acquire any shares of Series B
Preferred Stock other than pursuant to the terms of this Section or pursuant to
an offer made on the equivalent terms to all holders of Series B Preferred Stock
at the time outstanding.
(h) In addition to the redemption rights set forth in paragraph
(a) of this Section 4.3.4, the holders of Series B Preferred Stock shall have
the following redemption rights:
(i) If a Change in Ownership has occurred or the
Corporation obtains knowledge that a Change in Ownership is to occur, the
Corporation shall give prompt written notice of such Change in Ownership,
describing in reasonable detail the definitive terms and date of consummation
thereof, to each holder of Series B Preferred Stock, but in any event such
notice shall not be given later than five days after the occurrence of such
Change in Ownership. The holder or holders of shares of Series B Preferred Stock
then outstanding may elect to require the Corporation to redeem all or any
portion of the Series B Preferred Stock owned by such holder or holders at a
price per share equal to the Series B Liquidation Price by giving written notice
to the Corporation of such election prior to the later of (a) 30 days after
receipt of the Corporation's notice and (b) 20 days prior to the consummation of
the Change in Ownership (the "Expiration Date"). The Corporation shall give
prompt written notice of any such election to all other holders of Series B
Preferred Stock within five days after the receipt thereof, and each such holder
shall have until the later of (a) the Expiration Date or (b) ten days after
receipt of such second notice to elect (by giving written notice to the
Corporation) to require the Corporation to redeem, at a price per share
12.
<PAGE>
equal to the Series B Liquidation Price, all or any portion of the shares of
Series B Preferred Stock owned by such holder. Upon receipt of such election(s),
the Corporation shall be obligated to redeem the aggregate number of shares of
Series B Preferred Stock specified therein on the later of (a) the occurrence of
the Change in Ownership or (b) 90 days after the Corporation's receipt of such
election(s). If in any case a proposed Change in Ownership does not occur, all
elections for redemption in connection therewith shall be automatically
rescinded. The term "Change in Ownership" means any sale or issuance or series
of sales and/or issuances of shares of the Corporation's capital stock by the
Corporation or any holders thereof which results in any Person or group of
affiliated Persons (other than the holders of Common Stock and Preferred Stock
as of the date of the Series C Purchase Agreement and their Affiliates) owning
capital stock of the Corporation possessing the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors.
(ii) If a Fundamental Change is proposed to occur, the
Corporation shall give written notice of such Fundamental Change, describing in
reasonable detail the definitive terms and date of consummation thereof, to each
holder of Series B Preferred Stock not more than 45 days nor less than 30 days
prior to the consummation thereof (the "Initial Redemption Notice"). The holder
or holders of the Series B Preferred Stock then outstanding may elect to require
the Corporation to redeem all or any portion of the Series B Preferred Stock
owned by such holder or holders at a price per share equal to the Series B
Liquidation Price by giving written notice to the Corporation of such election
prior to the later of (a) 20 days prior to the consummation of the Fundamental
Change or (b) 30 days after receipt of the Initial Redemption Notice from the
Corporation. The Corporation shall give prompt written notice of such election
to all other holders of Series B Preferred Stock (but in any event within five
days prior to the consummation of the Fundamental Change), and each such holder
shall have until ten days after the receipt of such notice to elect (by written
notice given to the Corporation) require the Corporation to redeem, at a price
per share equal to the Series B Liquidation Price, all or any portion of the
Series B Preferred Stock owned by such holder. Upon receipt of such election(s),
the Corporation shall be obligated to redeem the aggregate number of shares of
Series B Preferred Stock specified therein upon the consummation of such
Fundamental Change. If any proposed Fundamental Change does not occur, all
elections for redemption in connection therewith shall be automatically
rescinded. The term "Fundamental Change" means (a) a sale or transfer of all or
substantially all of the assets of the Corporation, or of the Corporation and
its Subsidiaries on a consolidated basis, in any transaction or series of
transactions and (b) any merger or consolidation to which the Corporation is a
party, except for (i) a merger in which the Corporation is the surviving
corporation and, after giving effect to such merger, the holders of the
Corporation's outstanding capital stock immediately prior to the merger shall
own the Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's Board of
Directors after such merger or (ii) a merger of the Corporation into a newly-
formed corporation organized under the General Corporation Law of the State of
Delaware that does not have any material liabilities or obligations in which the
certificate of incorporation of the surviving corporation immediately after such
merger is identical in all material respects to the Articles of Incorporation of
the Corporation immediately prior to such merger and, after giving effect to
such merger, the holders of the Corporation's outstanding capital stock
immediately prior to such merger shall own all of the surviving corporation's
outstanding capital stock possessing voting power after such merger.
(i) Nothing contained in this Section 4.3.4 shall be deemed to
prevent any holder of Series B Preferred Stock from exercising such holder's
right of conversion pursuant to Section 4.3.5 hereof with respect to any share
of Series B Preferred Stock at any time prior to the redemption of shares of
Series B Preferred Stock, including the giving of any notice of such redemption.
(j) The Corporation shall give each holder of Series B Preferred
Stock prompt notice of any election by a holder or holders of Series A Preferred
Stock or Series C Preferred Stock to require the
13.
<PAGE>
Corporation to redeem shares of Series A Preferred Stock or Series C Preferred
Stock pursuant to Sections 4.2.4 or 4.4.4 hereof, respectively, within 5 days of
receipt of any such election.
4.3.5 Conversion.
----------
(a) Conversion Procedure.
--------------------
(i) Any holder of shares of Series B Preferred Stock may
at any time convert all or any number of such shares held by such holder into a
number of shares of Common Stock computed by multiplying the number of such
shares to be converted by $3.9885 (such amount to be adjusted proportionately
after the date of the filing of these Amended and Restated Articles of
Incorporation in the event the shares of Series B Preferred Stock are subdivided
into a greater number (whether by stock split, stock dividend or otherwise) or
combined into a lesser number (whether by reverse stock split or otherwise)) and
dividing the result by the Series B Conversion Price then in effect.
(ii) Each conversion of shares of Series B Preferred Stock
will be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing such shares to be converted
have been surrendered at the principal office of the Corporation. At such time
as such conversion has been effected, the rights of the holder of such shares of
Series B Preferred Stock as such holder will cease and the person (or entity) or
persons (or entities) in whose name or names any certificate or certificates for
shares of Common Stock are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the shares of Common Stock
represented thereby.
(iii) As soon as possible after a conversion has been
effected (but in any event within three business days in the case of subsection
(A) and (C) below), the Corporation will deliver to the converting holder:
(A) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified;
(B) payment in an amount equal to all dividends,
if any, owing pursuant to Section 4.3.2 or 4.3.6 hereof with
respect to each share converted which have not been paid prior
thereto plus the amount payable under subsection (vii) below with
respect to such conversion; and
(C) a certificate representing any shares of
Series B Preferred Stock which were represented by the certificate
or certificates delivered to the Corporation in connection with
such conversion but which were not converted.
(iv) If for any reason the Corporation is unable to pay
any dividends owing pursuant to Section 4.3.2 or Section 4.3.6, the Corporation
will pay such dividends to the converting holder as soon thereafter as funds of
the Corporation are legally available for such payment. At the request of any
such converting holder, the Corporation will provide such holder with written
evidence of its obligation to such holder.
(v) The issuance of certificates for shares of Common
Stock upon conversion of shares of Series B Preferred Stock will be made without
charge to the holders of such shares of Series B Preferred Stock for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Common
Stock. Upon conversion of each share of Series B Preferred Stock, the
Corporation will take all such actions as are necessary in order
14.
<PAGE>
to insure that the Common Stock issuable with respect to such conversion will be
validly issued, fully paid and nonassessable.
(vi) The Corporation will not close its books against the
transfer of shares of Series B Preferred Stock or of Common Stock issued or
issuable upon conversion of shares of Series B Preferred Stock in any manner
which interferes with the timely conversion of shares of Series B Preferred
Stock.
(vii) If any fractional interest in a share of Common Stock
would, except for the provisions of this subsection (vii), be deliverable upon
any conversion of shares of Series B Preferred Stock, the Corporation, in lieu
of delivering the fractional share therefor, will pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the date of
conversion. "Market Price" of any security means the average of the closing
------------
prices of such security's sales on all recognized securities exchanges on which
such security may at the time be listed, or, if there has been no sale on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M., New York local time, or, if on any day such
security is not quoted in the Nasdaq System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any recognized securities exchange or quoted in the Nasdaq System or
the over-the-counter market, the "Market Price" will be the fair value thereof
reasonably determined in good faith by a majority of the disinterested directors
of the Board of Directors of the Corporation.
(b) Conversion Price.
----------------
(i) The initial Series B Conversion Price for Series B
Preferred Stock will be $3.9885. In order to prevent dilution of the conversion
rights granted under this Section 4.3.5, the Series B Conversion Price will be
subject to adjustment from time to time pursuant to this Section 4.3.5.
Notwithstanding anything herein to the contrary, the Series B Conversion Price
shall in no event be adjusted to greater than $3.9885 (such amount to be
adjusted proportionately after the date of the filing of these Amended and
Restated Articles of Incorporation in the event shares of Series B Preferred
Stock are subdivided into a greater number (whether by stock split, stock
dividend or otherwise) or combined into a lesser number (whether by reverse
stock split or otherwise)).
(ii) If and whenever on or after the original date of
issuance of shares of Series B Preferred Stock the Corporation issues or sells,
or in accordance with Section 4.3.5(c) is deemed to have issued or sold, any
share of its Common Stock for a consideration per share less than the Series B
Conversion Price in effect immediately prior to the time of such issue or sale,
then forthwith upon such issue or sale, or deemed issuance or sale, the Series B
Conversion Price will be reduced, in order to increase the number of shares of
Common Stock into which Series B Preferred Stock is convertible, to that price
per share determined by multiplying the Series B Conversion Price in effect
immediately prior to such issuance or sale, or deemed issuance or sale, by a
fraction (x) the numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding immediately prior to the issuance or deemed issuance
of such Common Stock, plus (B) the number of shares of Common Stock then
issuable upon conversion of the shares of Preferred Stock outstanding
immediately prior to the issuance or deemed issuance of such Common Stock, plus
(C) the number of shares of Common Stock then issuable upon conversion or
exercise of the Convertible Securities (other than Preferred Stock) or Options
(as such terms are hereinafter defined) outstanding immediately prior to such
issue or sale or deemed issuance or sale, plus (D) the number of shares of
Common Stock which the aggregate consideration (if any) received by the
Corporation for the total
15.
<PAGE>
number of such shares of Common Stock so issued or sold or deemed issued or sold
would purchase at the Series B Conversion Price in effect immediately prior to
such issue or sale or deemed issuance or sale, and (y) the denominator of which
shall be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale or deemed issuance or sale, plus (B) the
number of shares of Common Stock issuable upon conversion of shares of Preferred
Stock outstanding immediately prior to such issue or sale or deemed issuance or
sale, plus (C) the number of shares of Common Stock then issuable upon
conversion or exercise of the Convertible Securities (other than Preferred
Stock) or Options (as such terms are hereinafter defined) outstanding
immediately prior to such issue or sale or deemed issuance or sale, plus (D) the
number of such shares of Common Stock so issued or sold or deemed issued or
sold; provided, however, that additional shares of Common Stock issued or sold
(or deemed issued or sold) without consideration shall be deemed to have been
issued or sold for $.001 per share.
(c) Effect on Series B Conversion Price of Certain Events. For
-----------------------------------------------------
purposes of determining the adjusted Series B Conversion Price under Section
4.3.5(b), the following will be applicable:
(i) Issuance of Options. If the Corporation in any
-------------------
manner grants any rights or options to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Series B Conversion Price in effect immediately
prior to the time of the granting of such Options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the Corporation for such price
per share. For purposes of this Section, the "price per share for which Common
Stock is issuable" will be determined by dividing (A) the total amount, if any,
received or receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the exercise of Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Series B Conversion Price will be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
----------------------------------
Corporation in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Series B Conversion Price in effect immediately prior
to the time of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities will
be deemed to be outstanding and to have been issued and sold by the Corporation
for such price per share. For the purposes of this Section, the "price per share
for which Common Stock is issuable" will be determined by dividing (A) the total
amount received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Series B Conversion Price will be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Series B Conversion
Price had been or are to be made pursuant to
16.
<PAGE>
other provisions of this Section 4.3.5, no further adjustment of the Series B
Conversion Price will be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
-----------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock change at any time, and such change is not due
solely to the operation of anti-dilution provisions similar in nature to those
set forth in this Section 4.3.5, the Series B Conversion Price in effect at the
time of such change will be readjusted to the Series B Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that if such adjustment would
result in an increase of the Series B Conversion Price then in effect, such
adjustment will not be effective until 30 days after written notice thereof has
been given by the Corporation to all holders of shares of Series B Preferred
Stock (except no notice need be given and no delay in such adjustment shall
occur if such adjustment is made pursuant to the terms of such Options or
Convertible Securities upon their original issuance).
(iv) Treatment of Expired Options and Unexercised
--------------------------------------------
Convertible Securities. Upon the expiration of any Option or the termination of
- ----------------------
any right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Series B Conversion Price then in effect
hereunder will be adjusted to the Series B Conversion Price which would have
been in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Corporation therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation will be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash and securities will be reasonably determined in good faith by the Board of
Directors of the Corporation.
(vi) Integrated Transactions. In case any Option is
-----------------------
issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
will be deemed to have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common
---------------
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Corporation or any subsidiary, and the disposition of any
shares so owned or held will be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of
-----------
the holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or
17.
<PAGE>
Convertible Securities, then for purposes of this Section 4.3.5 such record date
will be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or upon
the making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.
(ix) Certain Events. If any event occurs of the type
--------------
contemplated by the provisions of this Section 4.3.5 but not expressly provided
for by such provisions (including, without limitation, the granting of stock or
capital appreciation rights, phantom stock rights or other rights with equity
features), then the Board of Directors of the Corporation shall make an
appropriate adjustment in the Series B Conversion Price so as to protect the
rights of the holders of Series B Preferred Stock; provided that no such
adjustment shall increase the Series B Conversion Price as otherwise determined
pursuant to this Section 4.3.5 or decrease the number of shares of Common Stock
issuable upon conversion of each share of Series B Preferred Stock.
(x) Certain Exceptions. Anything herein to the contrary
notwithstanding, no adjustment will be made to the Series B Conversion Price by
reason of:
(i) the issuance of shares of Common Stock upon exercise
of options outstanding on the date of filing of these Amended and Restated
Articles of Incorporation;
(ii) the issuance of shares of Common Stock, or options or
warrants to purchase shares of Common Stock, to employees, officers, directors
or consultants of the Corporation, or any Subsidiary, pursuant to the Optika
Imaging Systems, Inc. 1992 Stock Plan, the Optika Imaging Systems, Inc. Amended
and Restated 1994 Stock Option/Stock Issuance Plan, any successor, predecessor
or amended plan or otherwise (including, without limitation, any options or
warrants issued to employees, officers, directors or consultants of a
corporation being merged with or into the Corporation, or any Subsidiary, which
are assumed in connection with such merger), provided (A) that the issuance of
such shares or options or warrants has been approved by a majority of the entire
Board of Directors of the Corporation or by the members of a committee of the
Board of Directors duly authorized by the Board of Directors to grant such
options or warrants and (B) that the number of shares of Common Stock issued
pursuant to this clause (ii) and the number of shares of Common Stock issuable
upon exercise of such options or warrants issued pursuant to this clause (ii)
does not exceed, in the aggregate, 2,790,000 (such number to be proportionately
adjusted after the date of the filing of these Amended and Restated Articles of
Incorporation in the event the Common Stock is subdivided (whether by stock
split, stock dividend or otherwise) into a greater number or combined (whether
by reverse stock split or otherwise) into a lesser number), net of options or
warrants which expire or terminate, or are cancelled, prior to exercise without
the payment of consideration, directly or indirectly, to the holder or holders
thereof by or on behalf of the Corporation;
(iii) the issuance of shares of Common Stock upon
conversion of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock provided, however, that this subsection (iii) shall not be
construed to preclude an adjustment to the Series B Conversion price upon the
sale, issuance or deemed issuance of shares of the Company's Series C Preferred
Stock at a price per share that is less than the Series B Conversion Price then
in effect.;
(iv) the issuance of shares of Common Stock upon a
subdivision or combination of the Common Stock for which an adjustment to the
Series B Conversion Price is made pursuant to Section 4.3.5(d);
(v) the issuance of shares of Common Stock upon the
exercise of warrants to purchase such shares outstanding as of the date of
filing of these Amended and Restated Articles of Incorporation;
18.
<PAGE>
(vi) the issuance of shares of Common Stock in
connection with the merger of a Subsidiary of the Corporation with and into
TEAMWorks Technologies, Inc., a Massachusetts corporation; and
(vii) the issuance of shares of Common Stock in
connection with the acquisition by the Corporation of substantially all of the
assets of IPRS Asia (S) Pte Ltd, a Singapore corporation, and Intuit Development
Limited, a Hong Kong corporation.
(d) Subdivision or Combination of Common Stock. If the
------------------------------------------
Corporation at any time after the filing of these Amended and Restated Articles
of Incorporation subdivides (whether by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series B Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced, and if the Corporation at any time
after the filing of these Amended and Restated Articles of Incorporation
combines (whether by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Series B Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(e) Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any capital reorganization, reclassification, consolidation, merger or
- ----
sale of all or substantially all of the Corporation's assets to another person
or entity which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Corporation will make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the shares of Series B Preferred
Stock then outstanding) to insure that each of the holders of Series B Preferred
Stock who do not exercise the redemption rights provided for in Section 4.3.4
hereof, if applicable, with respect to all or any of the shares of Series B
Preferred Stock held thereby will thereafter have the right to acquire and
receive, in lieu of or in addition to the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
shares of Series B Preferred Stock, such shares of stock, securities or assets
as such holder would have received in connection with such Organic Change if
such holder had converted his Series B Preferred Stock immediately prior to such
Organic Change. In any such case, the Corporation will make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the shares of Series B Preferred Stock then outstanding) to insure that the
provisions of this Section 4.3.5 will thereafter be applicable to Series B
Preferred Stock (including, in the case of any such consolidation, merger or
sale in which the successor corporation or purchasing corporation is other than
the Corporation, an immediate adjustment of the Series B Conversion Price to the
value for the Common Stock reflected by the terms of such consolidation, merger
or sale, and a corresponding immediate adjustment in the number of shares of
Common Stock acquirable and receivable upon conversion of shares of Series B
Preferred Stock, if the value so reflected is less than the Series B Conversion
Price in effect immediately prior to such consolidation, merger or sale). The
Corporation will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor corporation (if other than the
Corporation) resulting from consolidation or merger or the corporation
purchasing such assets assumes by written instrument (in form reasonably
satisfactory to the holders of a majority of the shares of Series B Preferred
Stock then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) Notices.
-------
(i) Upon any adjustment of the Series B Conversion Price,
the Corporation will give prompt written notice thereof to all holders of shares
of Series B Preferred Stock, setting forth in reasonable detail and certifying
the calculation of such adjustment.
19.
<PAGE>
(ii) The Corporation will give written notice to all
holders of shares of Series B Preferred Stock as soon as possible but in any
event at least 20 days prior to the date on which the Corporation closes its
books or takes a record (A) with respect to any dividend or distribution upon
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change or Liquidation.
(iii) The Corporation will also give written notice to the
holders of shares of Series B Preferred Stock as soon as possible but in any
event at least 20 days prior to the date on which any Organic Change or
Liquidation will take place.
(g) Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series B Preferred Stock, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series B Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(h) Taxes and Charges. The Corporation will pay all taxes and
-----------------
other governmental charges that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of Series B
Preferred Stock.
(i) Protection of Conversion Rights. The Corporation shall not
-------------------------------
amend its Amended and Restated Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions of this Section
4.3.5 and will take all actions that may be necessary or appropriate in order to
protect the rights of the holders of shares of Series B Preferred Stock to
convert such shares against impairment.
(j) Automatic Conversion. The shares of Series B Preferred
--------------------
Stock shall automatically be converted into shares of Common Stock at the Series
B Conversion Price then in effect upon the closing of a Qualified Public
Offering without any further action by the holders of such shares and whether or
not the certificates representing such shares are surrendered to the Corporation
or its transfer agent; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless certificates evidencing such shares of Series B
Preferred Stock being converted are either delivered to the Corporation or any
transfer agent or the holder notifies the Corporation or any transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith. Upon the automatic conversion of
Series B Preferred Stock, the holder of such Series B Preferred Stock shall
surrender the certificates representing such shares at the office of the
Corporation or of any transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder, promptly at such office and in his
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series B Preferred Stock surrendered were convertible on the date on which such
automatic conversion occurred.
20.
<PAGE>
4.3.6 Events of Noncompliance.
-----------------------
(a) Definition. An Event of Noncompliance shall be deemed to have
----------
occurred if:
(i) the Corporation fails to pay accrued or declared dividends to
the holders of the Series B Preferred Stock as such dividends become due and
payable, and such failure continues for a period of thirty (30) days after
notice from any holder of Series B Preferred Stock of such failure;
(ii) the Corporation fails to redeem any shares of the Series B
Preferred Stock which it is obligated to redeem hereunder, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject, and such failure continues for a period of two (2) days
after notice from any holder of Series B Preferred Stock of such failure;
(iii) the Corporation breaches or otherwise fails to perform or
observe, in any material respect, any other material covenant or material
agreement set forth herein or in the Series B Purchase Agreement; provided, that
no Event of Noncompliance shall be deemed to have occurred under this
subparagraph (iii) until such breach or failure has continued for a period of
ninety (90) days after notice from any holder of Series B Preferred Stock of
such breach or failure if the Corporation (a) establishes (to the reasonable
satisfaction of the holders of a majority of the Series B Preferred Stock then
outstanding) that (1) the particular Event of Noncompliance has not been caused
by knowing or purposeful conduct by the Corporation or any Subsidiary, (2) the
cure of such breach or failure is possible, and (3) the Corporation has
exercised, and continues to exercise, its best efforts to expeditiously cure the
Event of Noncompliance and (b) gives prompt notice of such breach or failure to
each holder of Series B Preferred Stock as soon as the Corporation learns of, or
should reasonably have learned of, such breach or failure;
(iv) any default or the happening of any other event shall occur
under one or more indentures, agreements or other instruments under which any
Indebtedness of the Corporation or any Subsidiary may be issued, the effect of
which is the acceleration of the maturity of Indebtedness of the Corporation
outstanding thereunder which, in the aggregate, equals or exceeds $500,000;
(v) a receiver, conservator, custodian, liquidator or trustee of
the Corporation or any Material Subsidiary or of all or any of the assets of any
of them, is appointed by court order and such order remains in effect for more
than sixty (60) days; or an order for relief is entered under the federal
bankruptcy laws with respect to the Corporation or any Material Subsidiary; or
any of the material assets of any of them is sequestered by court order and such
order remains in effect for more than sixty (60) days after such filing;
(vi) the Corporation or any Material Subsidiary files a petition
in voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law;
(vii) the Corporation or any Material Subsidiary makes an
assignment for the benefit of its creditors, or admits in writing its inability
to pay, or in fact does not pay, its debts generally as they become due, or
consents to the appointment of a receiver, conservator, custodian, liquidator or
trustee of the Corporation or any Material Subsidiary, or all or any part of the
property of any of them; or
(viii) any representation or warranty contained in the Series B
Purchase Agreement or required to be furnished to any holder of Series B
Preferred Stock pursuant to the Series B Purchase Agreement was false,
inaccurate or misleading on the date or dates made or furnished, which Event of
Noncompliance could be material to a holder's investment in the Series B
Preferred Stock, provided
21.
<PAGE>
a holder of Series B Preferred Stock would be entitled to pursue a claim against
the Corporation with respect to such representation or warranty pursuant to
Section 9.2 of the Series B Purchase Agreement.
(b) Election of Directors.
---------------------
(i) If at any time there has occurred and is continuing an Event
of Noncompliance, the holders of Series B Preferred Stock and Series C Preferred
Stock shall have the exclusive and special right (in addition to any other
voting rights), voting together as a single class, to elect, at any annual
meeting of stockholders, at a special meeting held in place thereof, at a
special meeting of the holders of Series B Preferred Stock and Series C
Preferred Stock called as hereinafter provided or by written consent, a majority
of the members of the Board of Directors.
(ii) At any time after an Event of Noncompliance has occurred and
is continuing, the secretary of the Corporation may and, upon written request of
holders of record of at least 20% of the shares of the Series B Preferred Stock
and Series C Preferred Stock then outstanding (counted together as a single
group) addressed to such secretary at the principal executive offices of the
Corporation shall, call a special meeting of the holders of Series B Preferred
Stock and Series C Preferred Stock for the purpose of electing such members of
the Board of Directors, such meeting to be held at the registered office of the
Corporation, or such other place as such request shall specify, as soon as
practicable after the receipt of such request, upon the notice provided by law
and the bylaws of the Corporation for the holding of special meetings of
stockholders. If such special meeting shall not be called by the secretary
within 3 days after receipt of such request, then the holders of record of at
least 20% of the shares of the Series B Preferred Stock and Series C Preferred
Stock then outstanding (counted together as a single group) may designate in
writing one of their number to call such a meeting at the place designated by
such holders and upon the notice above provided, and any person so designated
for that purpose shall have access to the stock records of the Corporation for
such purpose.
(iii) At any meeting at which the holders of Series B Preferred
Stock and Series C Preferred Stock shall be entitled to elect a majority of the
members of the Board of Directors as provided above, the holders of a majority
of the shares of the Series B Preferred Stock and Series C Preferred Stock then
outstanding (counted together as a single group) present in person or by proxy
shall constitute a quorum for the election of such directors, and the vote of
the holders of shares representing a majority of the shares of Series B
Preferred Stock and Series C Preferred Stock so present, voting together as a
single class, at any such meeting at which there shall be such a quorum shall be
sufficient to elect such directors. The election of such directors shall
automatically increase the number of members of the Board of Directors by the
number of directors so elected. Therefore, the number of additional directors to
be elected by such holders shall be equal to the total number of directors
immediately prior to such election, plus one (e.g., if there were five
directors, the number of additional directors would be six). The persons so
elected as directors by the holders of Series B Preferred Stock and Series C
Preferred Stock shall hold office until the next annual meeting of stockholders
and until their successors shall have been elected by such holders or until
there shall be no existing Event of Noncompliance. Upon there ceasing to be any
existing Event of Noncompliance or at such time as there are no outstanding
shares of Series B Preferred Stock or Series C Preferred Stock, any directors so
elected by the holders of Series B Preferred Stock and Series C Preferred Stock
shall forthwith cease to be directors of the Corporation, and the number of
directorships shall automatically be reduced accordingly. If a vacancy occurs in
a directorship elected by the holders of Series B Preferred Stock and Series C
Preferred Stock voting together as a single class, a successor may be appointed
by the remaining directors or director so elected by the holders of Series B
Preferred Stock and the holders of Series C Preferred Stock.
(iv) At any meeting at which the holders of Series B Preferred
Stock and Series C Preferred Stock, shall be entitled to elect the majority of
the members of the Board of Directors as
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provided above, or any adjournment thereof, (A) the absence of a quorum of the
holders of Series B Preferred Stock and Series C Preferred Stock shall not
prevent the election of directors other than those to be elected by the holders
of Series B Preferred Stock and Series C Preferred Stock voting together as a
single class, (B) the absence of a quorum of the holders of classes or series of
stock entitled to elect directors other than those elected by the holders of
Series B Preferred Stock and Series C Preferred Stock, voting together as a
single class, shall not prevent the election of the directors to be elected by
the holders of Series B Preferred Stock and Series C Preferred Stock voting
together as a single class, (C) in the absence of a quorum of the holders of
Series B Preferred Stock and Series C Preferred Stock, the holders of shares
representing a majority of the shares of either Series B Preferred Stock or the
Series C Preferred Stock present in person or by proxy shall have power to
adjourn from time to time the meeting for the election of the directors which
they are entitled to elect, voting together as a single class, without notice
other than announcement at the meeting, until a quorum shall be present, and (D)
in the absence of a quorum of the holders of the classes or series of stock
entitled to elect directors other than those elected by the holders of Series B
Preferred Stock and Series C Preferred Stock, the holders of a majority of such
classes or series present in person or by proxy shall have power to adjourn from
time to time the meeting for the election of the directors which they are
entitled to elect, without notice other than announcement at the meeting, until
a quorum shall be present.
(v) At any time after the holders of Series B Preferred Stock and
Series C Preferred Stock shall have become entitled to elect a majority of the
Board of Directors pursuant to this Section 4.3.6, such holders may do so by a
consent in writing setting forth the action so taken, and signed by the holders
of shares representing a majority of the shares of Series B Preferred Stock and
Series C Preferred Stock then outstanding, voting together as a single class.
(c) Redemption of Series B Preferred Stock. In addition to the rights
--------------------------------------
set forth in paragraph (b) of this Section 4.3.6, if at any time there has
occurred and is continuing an Event of Noncompliance, the holders of 70% of the
shares of Series B Preferred Stock then outstanding may demand (by written
notice delivered to the Corporation) immediate redemption of all or any portion
of the Series B Preferred Stock owned by such holders at a price per share equal
to the Series B Liquidation Price. The Corporation will give prompt written
notice of such election to the other holders of Series B Preferred Stock (but in
any event within 10 days after receipt of the initial demand for redemption),
and each such other holder may demand immediate redemption of all or any portion
of such holder's Series B Preferred Stock by giving written notice thereof to
the Corporation within 30 days after receipt of the Corporation's notice. The
Corporation will redeem all Series B Preferred Stock as to which rights under
this paragraph have been exercised at the Series B Liquidation Price within 45
days after receipt of the initial demand for redemption on the terms and
conditions provided in Section 4.3.4 for a redemption of Series B Preferred
Stock.
(d) Other Rights. If an Event of Noncompliance exists each holder of
------------
shares of Series B Preferred Stock shall also have any other rights to which
such holder is entitled to under any contract or agreement at any time and any
other rights which such holder may have pursuant to applicable law.
(e) Delays or Omissions. No failure to exercise or delay in the exercise
-------------------
of any right, power or remedy accruing to any holder of Series B Preferred Stock
upon any Event of Noncompliance hereunder shall impair such right, power or
remedy of such holder or shall it be construed to be a waiver of any such Event
of Noncompliance, or an acquiescence therein, or of or in any similar Event of
Noncompliance thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any Event of Noncompliance theretofore or
thereafter occurring.
4.3.7 Cancellation of Series B Preferred Stock. No share or shares of
----------------------------------------
Series B Preferred Stock acquired by the Corporation by reason of redemption,
conversion or otherwise shall be reissued, and
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all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
4.3.8 Miscellaneous.
-------------
(a) Notices. Except as otherwise expressly provided hereunder,
-------
all notices referred to in this Section 4.3 shall be in writing and shall be
delivered personally or by registered or certified mail, return receipt
requested and postage prepaid, or by reputable overnight courier services,
charges prepaid, and shall be deemed to have been given when personally
delivered to such holder, one (1) business day after the same is delivered to
such an overnight courier service, charges prepaid, or three (3) business days
after the same has been so deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed (i) to
the Corporation, at its principal executive offices and (ii) to any holder of
Series B Preferred Stock, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
(b) Registration of Transfer. The Corporation shall keep at its
------------------------
principal office a register for the registration of Series B Preferred Stock.
Upon the surrender of any certificate representing Series B Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of Series B Preferred Stock represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of shares of Series B Preferred Stock as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
(c) Replacement of Certificates. Upon receipt of evidence
---------------------------
reasonably satisfactory to the Corporation (an affidavit of the registered
holder shall be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing shares of Series B Preferred Stock,
and, in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of Series B Preferred Stock represented by
such lost, stolen, destroyed or mutilated certificate.
(d) Amendment and Waiver. No amendment, modification or waiver
--------------------
shall be binding or effective with respect to any provision of Section 4.3 or
4.5 hereof, and no change in the terms of such Sections may be accomplished by
merger or consolidation of the Corporation with another corporation or entity,
without the prior written consent of the holders of a majority of the shares of
Series B Preferred Stock outstanding at the time such action is taken.
SECTION IV. SERIES C PREFERRED STOCK
------------------------
4.4.1 Voting Rights.
-------------
(a) Except as otherwise required by law or expressly provided
herein, each share of Series C Preferred Stock shall entitle the holder thereof
to vote on all matters submitted to a vote of the stockholders of the
Corporation and to have the number of votes equal to the number of shares of
Common Stock into which such share of Series C Preferred Stock is then
convertible pursuant to the provisions hereof, assuming for this purpose only
that shares of Series C Preferred Stock are convertible into fractional shares,
at the record date for the determination of stockholders entitled to vote on
such matters or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited.
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Except as otherwise required by law or expressly provided herein, the holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Common Stock shall vote together and not as separate classes.
(b) The holders of the Series B Preferred Stock and Series C Preferred
Stock shall be entitled, voting together as a single class, to elect two
directors of the Corporation at each annual election of directors by the
affirmative vote or consent of the holders of a majority of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, voting together
as a single class. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Common Stock, voting together as a
single class as hereinbefore described, shall be entitled to elect the remaining
directors of the Corporation. In the case of a vacancy in the office of the
director elected by the holders of the Series B Preferred Stock and Series C
Preferred Stock, voting together as a single class as hereinbefore described,
such vacancy may be filled by the holders of a majority of the Series B
Preferred Stock and Series C Preferred Stock at a special meeting of the holders
of the Series B Preferred Stock and Series C Preferred Stock duly called for
that purpose or pursuant to a written consent of such stockholders. In the case
of any vacancy in the office of a director occurring among the directors elected
by the holders of the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Common Stock, voting together as a single class as
hereinbefore described, the remaining directors so elected by the class may, by
the affirmative vote of a majority thereof (or the remaining director so elected
if there be but one), elect a successor or successors to hold office of the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of a class of
stock (with the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and Common Stock being treated as a single class
(voting as hereinbefore described) and the Series B Preferred Stock and Series C
Preferred Stock, together, being treated as another class (voting as
hereinbefore described)) may be removed either with or without cause, by, and
only by, the affirmative vote of the holders of a majority of the shares of the
class of stock who elected such director or directors, given either at a special
meeting of such stockholders duly called for the purpose or pursuant to a
written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class of stock represented at such meeting or pursuant to
such written consent.
4.4.2 Dividend Rights. In the event any dividend or other distribution
---------------
payable in cash or other property is declared on the Common Stock (other than
dividends payable solely in shares of Common Stock), each holder of shares of
Series C Preferred Stock on the record date for such dividend or distribution
shall be entitled to receive on the date of payment or distribution of such
dividend or other distribution the same cash or other property which such holder
would have received if on such record date such holder was the holder of record
of the number (including any fraction) of shares of Common Stock into which the
shares of Series C Preferred Stock then held by such holder are then
convertible. Except as set forth in this Section 4.4.2, dividends shall be paid
on the Series C Preferred Stock if, as and when declared by the Board of
Directors of the Corporation and shall not be cumulative.
4.4.3 Liquidation Rights.
------------------
(a) In the event of any Liquidation, each holder of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of Common Stock, an amount equal to the Series C Liquidation Price
per share of Series C Preferred Stock held by such holder. If upon any
Liquidation, the assets to be distributed to the stockholders of the Corporation
shall be insufficient to permit the payment in full to such stockholders of the
aforesaid preferential amounts and the payment in full of the preferential
amounts payable to the holders of Series A Preferred Stock and Series B
Preferred Stock pursuant to Sections 4.2.3 and 4.3.3 hereof, then all of the
assets of the Corporation available for distribution to the holders of Series A
Preferred Stock, Series B
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Preferred Stock and Series C Preferred Stock shall be distributed to such
holders ratably in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
(b) After the payment or the setting aside for such payment of the
preferential amounts payable upon a Liquidation to the holders of Series C
Preferred Stock hereunder and to the holders of Series A Preferred Stock and
Series B Preferred Stock pursuant to Sections 4.2.3 and 4.3.3 hereof, all of the
remaining assets of the Corporation, if any, shall be distributed to the holders
of shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock ratably based upon the number of shares of Common
Stock then held by such holders and the number (including any fraction) of
shares of Common Stock into which the shares of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock then held by such holders are
then convertible (the "Series C Liquidation Participation Rights"). The Series
C Liquidation Participation Rights set forth in this paragraph (b) shall
terminate upon the closing of a Public Offering.
(c) If any of the assets of the Corporation are to be distributed other
than in cash under this Section 4.4.3 or for any other purpose, then the Board
of Directors of the Corporation shall promptly engage independent competent
appraisers to determine the value of the assets to be distributed to the holders
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Common Stock. The Corporation shall, upon receipt of such appraiser's
valuation, give prompt written notice to each holder of shares of Series C
Preferred Stock of the appraiser's valuation.
(d) For purposes of this Section 4.4.3, the merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, in which
consolidation or merger the stockholders of the Corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, or a sale of all or substantially all of
the assets of the Corporation, shall not be treated as a Liquidation.
(e) Nothing contained in this Section 4.4.3 shall be deemed to prevent
any holder of Series C Preferred Stock from exercising such holder's right of
conversion pursuant to Section 4.4.5 hereof with respect to any share of Series
C Preferred Stock at any time prior to the Liquidation, including the giving of
any notice of such Liquidation.
4.4.4 Redemption.
----------
(a) (i) Any holder of Series C Preferred Stock may elect to require the
Corporation to redeem, at any time on or after November 1, 1998, the number of
shares of Series C Preferred Stock equal to such holder's First Redemption
Number at a price per share equal to the Series C Liquidation Price by giving
written notice to the Corporation of such election (a "First Election Notice").
Upon receipt of such election, the Corporation shall be obligated to redeem from
such holder, at a price per share equal to the Series C Liquidation Price, a
number of shares of Series C Preferred Stock equal to such holder's First
Redemption Number on a date selected by the Corporation, which date is within 60
days of receipt of such holder's First Election Notice (a "First Redemption
Date"). The Corporation shall give prompt notice of any election to require the
Corporation to redeem shares of Series C Preferred Stock to all holders of
Series C Preferred Stock within 5 days of receipt of any First Election Notice.
(ii) A holder of Series C Preferred Stock may elect to require the
Corporation to redeem from such holder, at any time on or after November 1,
1999, the number of shares of Series C Preferred Stock equal to such holder's
Second Redemption Number at a price per share equal to the Series C Liquidation
Price by giving written notice to the Corporation of such election (a "Second
Election Notice"). Upon receipt of such election, the Corporation shall be
obligated to redeem from such holder, at a
26.
<PAGE>
price per share equal to the Series C Liquidation Price, a number of shares of
Series C Preferred Stock equal to such holder's Second Redemption Number on a
date selected by the Corporation, which date is within 60 days of receipt of
such holder's Second Election Notice (a "Second Redemption Date"). The
Corporation shall give prompt written notice of any election to require the
Corporation to redeem shares of Series C Preferred Stock to all other holders of
Series C Preferred Stock within 5 days of receipt of any Second Election Notice.
For purposes of this paragraph (ii), if a Person acquires any shares of Series C
Preferred Stock from a prior holder at any time after such prior holder's First
Redemption Date but prior to such prior holder's Second Redemption Date, then
such Person's First Redemption Date with respect to such shares shall be deemed
to have occurred on such prior holder's First Redemption Date and a number of
shares of Series C Preferred Stock equal to such prior holder's First Redemption
Number shall be deemed to have been redeemed on such prior holder's First
Redemption Date.
(iii) A holder of Series C Preferred Stock may elect to require
the Corporation to redeem from such holder, at any time on or after November 1,
2000, the number of shares of Series C Preferred Stock equal to such holder's
Third Redemption Number at a price per share equal to the Series C Liquidation
Price by giving written notice to the Corporation of such election (a "Third
Election Notice"). Upon receipt of such election, the Corporation shall be
obligated to redeem from such holder, at a price per share equal to the Series C
Liquidation Price, a number of shares of Series C Preferred Stock equal to such
holder's Third Redemption Number on a date selected by the Corporation, which
date is within 60 days of receipt of such holder's Third Redemption Notice (a
"Third Redemption Date"). The Corporation shall give prompt written notice of
any election to require the Corporation to redeem shares of Series C Preferred
Stock to all other holders of Series C Preferred Stock within 5 days of receipt
of any Third Election Notice. For purposes of this paragraph (iii), if a Person
acquires any shares of Series C Preferred Stock from a prior holder at any time
after such prior holder's Second Redemption Date but prior to such prior
holder's Third Redemption Date, then such prior holder's Third Redemption Date
with respect to such shares shall be deemed to have occurred on such prior
holder's Second Redemption Date and a number of shares of Series C Preferred
Stock equal to such Person's Second Redemption Number shall be deemed to have
been redeemed on such prior holder's Second Redemption Date.
(iv) The Corporation shall be obligated to redeem on the First
Redemption Date, the Second Redemption Date or the Third Redemption Date, as the
case may be, from the holders of shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock making elections pursuant to Section
4.2.4(a), 4.3.4(a) or 4.4.4(a), respectively, the aggregate number of shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
specified in elections pursuant to Section 4.2.4(a), 4.3.4(a) and 4.4.4(a),
respectively, received by the Corporation at least 30 days prior to the First
Redemption Date, the Second Redemption Date or the Third Redemption Date, as the
case may be.
(b) Not fewer than 20 days nor more than 35 days prior to any Redemption
Date, written notice (the "Redemption Notice") shall be given to each holder of
record of the Series C Preferred Stock to be redeemed on such date. The
Redemption Notice shall state: (i) the number of shares of the Series C
Preferred Stock being redeemed from each such holder on such Redemption Date;
(ii) the Redemption Date and the Series C Liquidation Price; and (iii) that the
holder is to surrender to the Corporation, in the manner and at the place
designated, the certificate or certificates representing the shares of Series C
Preferred Stock to be redeemed.
(c) On or before such Redemption Date, each holder of shares of Series C
Preferred Stock being redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Series C Liquidation
Price for such shares shall be payable in immediately available funds to the
person whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and retired. If a
certificate is surrendered and all the shares evidenced thereby are not
27.
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being redeemed, the Corporation shall cause certificates representing Series C
Preferred Stock which are not being redeemed to be issued and registered in the
name of the person whose name appears as the owner on the surrendered
certificates and deliver such certificates to such persons.
(d) If the Redemption Notice shall have been duly given, and if on the
Redemption Date the Series C Liquidation Price is either paid or made available
for payment through the deposit arrangement specified in subsection (e) below,
then notwithstanding that the certificates evidencing any of the shares of
Series C Preferred Stock shall not have been surrendered, the dividends with
respect to such shares, if any, shall cease to accrue after the Redemption Date
and all rights with respect to such shares shall forthwith after such Redemption
Date terminate, except only the right of the holders to receive the Series C
Liquidation Price upon surrender of their certificate or certificates therefor
(and a certificate for the balance of such shares evidenced by such surrendered
certificates which are not being redeemed).
(e) On or prior to any Redemption Date, the Corporation shall deposit with
any bank or trust company in Chicago, Illinois or Denver, Colorado, having a
capital and surplus of at least $50,000,000 as a trust fund, a sum equal to the
aggregate Series C Liquidation Price of all shares of Series C Preferred Stock
being redeemed for redemption on such Redemption Date and not yet redeemed, with
irrevocable instructions and authority to the bank or trust company to pay, on
or after the Redemption Date or prior thereto, the Series C Liquidation Price to
the respective holders upon the surrender of their share certificates. From and
after the date of such deposit, the shares so called for redemption shall be
redeemed. The deposit shall constitute full payment of the shares to their
holders, and from and after the date of the deposit the shares shall be deemed
to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive from the bank or trust company payment of
the Series C Liquidation Price of the shares, without interest, upon surrender
of their certificates therefor. Any funds so deposited and unclaimed at the end
of two years from such Redemption Date shall be released or repaid to the
Corporation, after which the holders of shares called for redemption shall be
entitled to receive payment of the Series C Liquidation Price only from the
Corporation.
(f) If the funds of the Corporation legally available therefor shall be
insufficient to discharge such redemption requirement in full, funds to the
extent legally available for such purpose shall be set aside in the place
specified in the Redemption Notice. The maximum number of full shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock that
can be redeemed with such funds shall be redeemed from the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
based on the aggregate Series A Liquidation Price, Series B Liquidation Price
and Series C Liquidation Price, respectively, of the shares to be redeemed from
such holders. Thereafter, the Corporation shall redeem shares of Series A
Preferred Stock, shares of Series B Preferred Stock and shares of Series C
Preferred Stock ratably as set forth above from the holders of such shares as
funds legally available therefor become available and supplementary redemption
notices containing information similar to the Redemption Notice shall be
delivered to holders of Series C Preferred Stock. Such supplementary Redemption
Notices shall specify supplementary Redemption Dates which shall be not less
than 30 nor more than 60 days after the date of such notice.
(g) The Corporation shall not, and shall not permit any Subsidiary of the
Corporation to, purchase or acquire any shares of Series C Preferred Stock other
than pursuant to the terms of this Section or pursuant to an offer made on the
equivalent terms to all holders of Series C Preferred Stock at the time
outstanding.
(h) In addition to the redemption rights set forth in paragraph (a) of
this Section 4.4.4, the holders of Series C Preferred Stock shall have the
following redemption rights:
28.
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(i) If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is to occur, the Corporation shall
give prompt written notice of such Change in Ownership, describing in reasonable
detail the definitive terms and date of consummation thereof, to each holder of
Series C Preferred Stock, but in any event such notice shall not be given later
than five days after the occurrence of such Change in Ownership. The holder or
holders of shares of Series C Preferred Stock then outstanding may elect to
require the Corporation to redeem all or any portion of the Series C Preferred
Stock owned by such holder or holders at a price per share equal to the Series C
Liquidation Price by giving written notice to the Corporation of such election
prior to the later of (a) 30 days after receipt of the Corporation's notice and
(b) 20 days prior to the consummation of the Change in Ownership (the
"Expiration Date"). The Corporation shall give prompt written notice of any such
election to all other holders of Series C Preferred Stock within five days after
the receipt thereof, and each such holder shall have until the later of (a) the
Expiration Date or (b) ten days after receipt of such second notice to elect (by
giving written notice to the Corporation) to require the Corporation to redeem,
at a price per share equal to the Series C Liquidation Price, all or any portion
of the shares of Series C Preferred Stock owned by such holder. Upon receipt of
such election(s), the Corporation shall be obligated to redeem the aggregate
number of shares of Series C Preferred Stock specified therein on the later of
(a) the occurrence of the Change in Ownership or (b) 90 days after the
Corporation's receipt of such election(s). If in any case a proposed Change in
Ownership does not occur, all elections for redemption in connection therewith
shall be automatically rescinded. The term "Change in Ownership" means any sale
or issuance or series of sales and/or issuances of shares of the Corporation's
capital stock by the Corporation or any holders thereof which results in any
Person or group of affiliated Persons (other than the holders of Common Stock
and Preferred Stock as of the date of the Series C Purchase Agreement and their
Affiliates) owning capital stock of the Corporation possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's Board of
Directors.
(ii) If a Fundamental Change is proposed to occur, the Corporation
shall give written notice of such Fundamental Change, describing in reasonable
detail the definitive terms and date of consummation thereof, to each holder of
Series C Preferred Stock not more than 45 days nor less than 30 days prior to
the consummation thereof (the "Initial Redemption Notice"). The holder or
holders of the Series C Preferred Stock then outstanding may elect to require
the Corporation to redeem all or any portion of the Series C Preferred Stock
owned by such holder or holders at a price per share equal to the Series C
Liquidation Price by giving written notice to the Corporation of such election
prior to the later of (a) 20 days prior to the consummation of the Fundamental
Change or (b) 30 days after receipt of the Initial Redemption Notice from the
Corporation. The Corporation shall give prompt written notice of such election
to all other holders of Series C Preferred Stock (but in any event within five
days prior to the consummation of the Fundamental Change), and each such holder
shall have until ten days after the receipt of such notice to elect (by written
notice given to the Corporation) require the Corporation to redeem, at a price
per share equal to the Series C Liquidation Price, all or any portion of the
Series C Preferred Stock owned by such holder. Upon receipt of such election(s),
the Corporation shall be obligated to redeem the aggregate number of shares of
Series C Preferred Stock specified therein upon the consummation of such
Fundamental Change. If any proposed Fundamental Change does not occur, all
elections for redemption in connection therewith shall be automatically
rescinded. The term "Fundamental Change" means (a) a sale or transfer of all or
substantially all of the assets of the Corporation, or of the Corporation and
its Subsidiaries on a consolidated basis, in any transaction or series of
transactions and (b) any merger or consolidation to which the Corporation is a
party, except for (i) a merger in which the Corporation is the surviving
corporation and, after giving effect to such merger, the holders of the
Corporation's outstanding capital stock immediately prior to the merger shall
own the Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's Board of
Directors after such merger or (ii) a merger of the Corporation into a newly-
formed corporation organized under the General Corporation Law of the State of
Delaware that does not have any material liabilities or obligations in which the
certificate of incorporation of the surviving corporation immediately after such
merger is identical in all material respects
29.
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to the Articles of Incorporation of the Corporation immediately prior to such
merger and, after giving effect to such merger, the holders of the Corporation's
outstanding capital stock immediately prior to such merger shall own all of the
surviving corporation's outstanding capital stock possessing voting power after
such merger.
(i) Nothing contained in this Section 4.4.4 shall be deemed to prevent
any holder of Series C Preferred Stock from exercising such holder's right of
conversion pursuant to Section 4.4.5 hereof with respect to any share of Series
C Preferred Stock at any time prior to the redemption of shares of Series C
Preferred Stock, including the giving of any notice of such redemption.
(j) The Corporation shall give each holder of Series C Preferred Stock
prompt notice of any election by a holder or holders of Series A Preferred Stock
or Series B Preferred Stock to require the Corporation to redeem shares of
Series A Preferred Stock or Series B Preferred Stock pursuant to Sections 4.2.4
or 4.3.4 hereof, respectively, within 5 days of receipt of any such election.
4.4.5 Conversion.
----------
(a) Conversion Procedure.
--------------------
(i) Any holder of shares of Series C Preferred Stock may at any
time convert all or any number of such shares held by such holder into a number
of shares of Common Stock computed by multiplying the number of such shares to
be converted by $3.40 (such amount to be adjusted proportionately after the date
of the filing of these Amended and Restated Articles of Incorporation in the
event the shares of Series C Preferred Stock are subdivided into a greater
number (whether by stock split, stock dividend or otherwise) or combined into a
lesser number (whether by reverse stock split or otherwise)) and dividing the
result by the Series C Conversion Price then in effect.
(ii) Each conversion of shares of Series C Preferred Stock will be
deemed to have been effected as of the close of business on the date on which
the certificate or certificates representing such shares to be converted have
been surrendered at the principal office of the Corporation. At such time as
such conversion has been effected, the rights of the holder of such shares of
Series C Preferred Stock as such holder will cease and the person (or entity) or
persons (or entities) in whose name or names any certificate or certificates for
shares of Common Stock are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the shares of Common Stock
represented thereby.
(iii) As soon as possible after a conversion has been effected (but
in any event within three business days in the case of subsection (A) and (C)
below), the Corporation will deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(B) payment in an amount equal to all dividends, if any,
owing pursuant to Section 4.4.2 or 4.4.6 hereof with respect to each
share converted which have not been paid prior thereto plus the amount
payable under subsection (vii) below with respect to such conversion;
and
(C) a certificate representing any shares of Series C
Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted.
30.
<PAGE>
(iv) If for any reason the Corporation is unable to pay any
dividends owing pursuant to Section 4.4.2 or Section 4.4.6, the Corporation will
pay such dividends to the converting holder as soon thereafter as funds of the
Corporation are legally available for such payment. At the request of any such
converting holder, the Corporation will provide such holder with written
evidence of its obligation to such holder.
(v) The issuance of certificates for shares of Common Stock upon
conversion of shares of Series C Preferred Stock will be made without charge to
the holders of such shares of Series C Preferred Stock for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Common Stock. Upon
conversion of each share of Series C Preferred Stock, the Corporation will take
all such actions as are necessary in order to insure that the Common Stock
issuable with respect to such conversion will be validly issued, fully paid and
nonassessable.
(vi) The Corporation will not close its books against the
transfer of shares of Series C Preferred Stock or of Common Stock issued or
issuable upon conversion of shares of Series C Preferred Stock in any manner
which interferes with the timely conversion of shares of Series C Preferred
Stock.
(vii) If any fractional interest in a share of Common Stock would,
except for the provisions of this subsection (vii), be deliverable upon any
conversion of shares of Series C Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, will pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the date of
conversion. "Market Price" of any security means the average of the closing
------------
prices of such security's sales on all recognized securities exchanges on
which such security may at the time be listed, or, if there has been no sale on
any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in the Nasdaq System as of 4:00 P.M., New York local time, or, if
on any day such security is not quoted in the Nasdaq System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of 21
days consisting of the day as of which "Market Price" is being determined and
the 20 consecutive business days prior to such day. If at any time such security
is not listed on any recognized securities exchange or quoted in the Nasdaq
System or the over-the-counter market, the "Market Price" will be the fair value
thereof reasonably determined in good faith by a majority of the disinterested
directors of the Board of Directors of the Corporation.
(b) Conversion Price.
----------------
(i) The initial Series C Conversion Price for Series C Preferred
Stock will be $3.40. In order to prevent dilution of the conversion rights
granted under this Section 4.4.5, the Series C Conversion Price will be subject
to adjustment from time to time pursuant to this Section 4.4.5. Notwithstanding
anything herein to the contrary, the Series C Conversion Price shall in no event
be adjusted to greater than $3.40 (such amount to be adjusted proportionately
after the date of the filing of these Amended and Restated Articles of
Incorporation in the event shares of Series C Preferred Stock are subdivided
into a greater number (whether by stock split, stock dividend or otherwise) or
combined into a lesser number (whether by reverse stock split or otherwise)).
(ii) If and whenever on or after the original date of issuance of
shares of Series C Preferred Stock the Corporation issues or sells, or in
accordance with Section 4.4.5(c) is deemed to have issued or sold, any share of
its Common Stock for a consideration per share less than the Series C Conversion
Price in effect immediately prior to the time of such issue or sale, then
forthwith upon such issue
31.
<PAGE>
or sale, or deemed issuance or sale, the Series C Conversion Price will be
reduced, in order to increase the number of shares of Common Stock into which
Series C Preferred Stock is convertible, to that price per share determined by
multiplying the Series C Conversion Price in effect immediately prior to such
issuance or sale, or deemed issuance or sale, by a fraction (x) the numerator of
which shall be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to the issuance or deemed issuance of such Common Stock, plus
(B) the number of shares of Common Stock then issuable upon conversion of the
shares of Preferred Stock outstanding immediately prior to the issuance or
deemed issuance of such Common Stock, plus (C) the number of shares of Common
Stock then issuable upon conversion or exercise of the Convertible Securities
(other than Preferred Stock) or Options (as such terms are hereinafter defined)
outstanding immediately prior to such issue or sale or deemed issuance or sale,
plus (D) the number of shares of Common Stock which the aggregate consideration
(if any) received by the Corporation for the total number of such shares of
Common Stock so issued or sold or deemed issued or sold would purchase at the
Series C Conversion Price in effect immediately prior to such issue or sale or
deemed issuance or sale, and (y) the denominator of which shall be the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issue or sale or deemed issuance or sale, plus (B) the number of shares of
Common Stock issuable upon conversion of shares of Preferred Stock outstanding
immediately prior to such issue or sale or deemed issuance or sale, plus (C) the
number of shares of Common Stock then issuable upon conversion or exercise of
the Convertible Securities (other than Preferred Stock) or Options (as such
terms are hereinafter defined) outstanding immediately prior to such issue or
sale or deemed issuance or sale, plus (D) the number of such shares of Common
Stock so issued or sold or deemed issued or sold; provided, however, that
additional shares of Common Stock issued or sold (or deemed issued or sold)
without consideration shall be deemed to have been issued or sold for $.001 per
share.
(c) Effect on Series C Conversion Price of Certain Events. For purposes
-----------------------------------------------------
of determining the adjusted Series C Conversion Price under Section 4.4.5(b),
the following will be applicable:
(i) Issuance of Options. If the Corporation in any manner grants
-------------------
any rights or options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities is
less than the Series C Conversion Price in effect immediately prior to the time
of the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities will be deemed to be outstanding and to
have been issued and sold by the Corporation for such price per share. For
purposes of this Section, the "price per share for which Common Stock is
issuable" will be determined by dividing (A) the total amount, if any, received
or receivable by the Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Corporation upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further adjustment of
the Series C Conversion Price will be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Series C Conversion Price in effect immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable upon
conversion or
32.
<PAGE>
exchange of such Convertible Securities will be deemed to be outstanding and to
have been issued and sold by the Corporation for such price per share. For the
purposes of this Section, the "price per share for which Common Stock is
issuable" will be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Series C Conversion Price will be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Series C Conversion
Price had been or are to be made pursuant to other provisions of this Section
4.4.5, no further adjustment of the Series C Conversion Price will be made by
reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
-----------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, and such change is not due solely to the operation of
anti-dilution provisions similar in nature to those set forth in this Section
4.4.5, the Series C Conversion Price in effect at the time of such change will
be readjusted to the Series C Conversion Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that if such adjustment would result in an increase of the Series
C Conversion Price then in effect, such adjustment will not be effective until
30 days after written notice thereof has been given by the Corporation to all
holders of shares of Series C Preferred Stock (except no notice need be given
and no delay in such adjustment shall occur if such adjustment is made pursuant
to the terms of such Options or Convertible Securities upon their original
issuance).
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right to
- ----------
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Series C Conversion Price then in effect hereunder will be
adjusted to the Series C Conversion Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible Security,
to the extent outstanding immediately prior to such expiration or termination,
never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor will be deemed to be the
net amount received by the Corporation therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation will be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash and securities will be reasonably determined in good faith by the Board of
Directors of the Corporation.
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in
33.
<PAGE>
which no specific consideration is allocated to such Option by the parties
thereto, the Option will be deemed to have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock outstanding
---------------
at any given time does not include shares owned or held by or for the account of
the Corporation or any subsidiary, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then for purposes of this Section 4.4.5 such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or upon the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ix) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 4.4.5 but not expressly provided for by such
provisions (including, without limitation, the granting of stock or capital
appreciation rights, phantom stock rights or other rights with equity features),
then the Board of Directors of the Corporation shall make an appropriate
adjustment in the Series C Conversion Price so as to protect the rights of the
holders of Series C Preferred Stock; provided that no such adjustment shall
increase the Series C Conversion Price as otherwise determined pursuant to this
Section 4.4.5 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series C Preferred Stock.
(x) Certain Exceptions. Anything herein to the contrary
------------------
notwithstanding, no adjustment will be made to the Series C Conversion Price by
reason of:
(i) the issuance of shares of Common Stock upon exercise of
options outstanding on the date of filing of these Amended and Restated Articles
of Incorporation;
(ii) the issuance of shares of Common Stock, or options or
warrants to purchase shares of Common Stock, to employees, officers, directors
or consultants of the Corporation, or any Subsidiary, pursuant to the Optika
Imaging Systems, Inc. 1992 Stock Plan, the Optika Imaging Systems, Inc. Amended
and Restated 1994 Stock Option/Stock Issuance Plan, any successor, predecessor
or amended plan or otherwise (including, without limitation, any options or
warrants issued to employees, officers, directors or consultants of a
corporation being merged with or into the Corporation, or any Subsidiary, which
are assumed in connection with such merger), provided (A) that the issuance of
such shares or options or warrants has been approved by a majority of the entire
Board of Directors of the Corporation or by the members of a committee of the
Board of Directors duly authorized by the Board of Directors to grant such
options or warrants and (B) that the number of shares of Common Stock issued
pursuant to this clause (ii) and the number of shares of Common Stock issuable
upon exercise of such options or warrants issued pursuant to this clause (ii)
does not exceed, in the aggregate, 2,790,000 (such number to be proportionately
adjusted after the date of the filing of these Amended and Restated Articles of
Incorporation in the event the Common Stock is subdivided (whether by stock
split, stock dividend or otherwise) into a greater number or combined (whether
by reverse stock split or otherwise) into a lesser number), net of options or
warrants which expire or terminate, or are cancelled, prior to exercise without
the payment of consideration, directly or indirectly, to the holder or holders
thereof by or on behalf of the Corporation;
(iii) the issuance of shares of Common Stock upon conversion of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock;
34.
<PAGE>
(iv) the issuance of shares of Common Stock upon a subdivision or
combination of the Common Stock for which an adjustment to the Series C
Conversion Price is made pursuant to Section 4.4.5(d);
(v) the issuance of shares of Common Stock upon the exercise of
warrants to purchase such shares outstanding as of the date of filing of these
Amended and Restated Articles of Incorporation;
(vi) the issuance of shares of Common Stock in connection with the
merger of a Subsidiary of the Corporation with and into TEAMWorks Technologies,
Inc., a Massachusetts corporation; and
(vii) the issuance of shares of Common Stock in connection with the
acquisition by the Corporation of substantially all of the assets of IPRS Asia
(S) Pte Ltd, a Singapore corporation, and Intuit Development Limited, a Hong
Kong corporation.
(d) Subdivision or Combination of Common Stock. If the Corporation at
------------------------------------------
any time after the filing of these Amended and Restated Articles of
Incorporation subdivides (whether by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series C Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced, and if the Corporation at any time
after the filing of these Amended and Restated Articles of Incorporation
combines (whether by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Series C Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(e) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
capital reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Corporation's assets to another person or entity
which is effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock is referred to herein as
an "Organic Change." Prior to the consummation of any Organic Change, the
Corporation will make appropriate provisions (in form and substance satisfactory
to the holders of a majority of the shares of Series C Preferred Stock then
outstanding) to insure that each of the holders of Series C Preferred Stock who
do not exercise the redemption rights provided for in Section 4.4.4 hereof, if
applicable, with respect to all or any of the shares of Series C Preferred Stock
held thereby will thereafter have the right to acquire and receive, in lieu of
or in addition to the shares of Common Stock immediately theretofore acquirable
and receivable upon the conversion of such holder's shares of Series C Preferred
Stock, such shares of stock, securities or assets as such holder would have
received in connection with such Organic Change if such holder had converted his
Series C Preferred Stock immediately prior to such Organic Change. In any such
case, the Corporation will make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the shares of Series C Preferred
Stock then outstanding) to insure that the provisions of this Section 4.4.5 will
thereafter be applicable to Series C Preferred Stock (including, in the case of
any such consolidation, merger or sale in which the successor corporation or
purchasing corporation is other than the Corporation, an immediate adjustment of
the Series C Conversion Price to the value for the Common Stock reflected by the
terms of such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of shares of Common Stock acquirable and receivable
upon conversion of shares of Series C Preferred Stock, if the value so reflected
is less than the Series C Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument (in form reasonably satisfactory to the holders of a majority
of the shares of Series C Preferred Stock then outstanding), the obligation to
deliver to
35.
<PAGE>
each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
(f) Notices.
-------
(i) Upon any adjustment of the Series C Conversion Price, the
Corporation will give prompt written notice thereof to all holders of shares of
Series C Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation will give written notice to all holders of
shares of Series C Preferred Stock as soon as possible but in any event at least
20 days prior to the date on which the Corporation closes its books or takes a
record (A) with respect to any dividend or distribution upon Common Stock, (B)
with respect to any pro rata subscription offer to holders of Common Stock or
(C) for determining rights to vote with respect to any Organic Change or
Liquidation.
(iii) The Corporation will also give written notice to the holders of
shares of Series C Preferred Stock as soon as possible but in any event at least
20 days prior to the date on which any Organic Change or Liquidation will take
place.
(g) Reservation of Common Stock. The Corporation shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series C Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series C Preferred Stock, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series C Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(h) Taxes and Charges. The Corporation will pay all taxes and other
-----------------
governmental charges that may be imposed in respect of the issue or delivery of
shares of Common Stock upon conversion of shares of Series C Preferred Stock.
(i) Protection of Conversion Rights. The Corporation shall not amend its
-------------------------------
Amended and Restated Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions of this Section
4.4.5 and will take all actions that may be necessary or appropriate in order to
protect the rights of the holders of shares of Series C Preferred Stock to
convert such shares against impairment.
(j) Automatic Conversion. The shares of Series C Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Series C
Conversion Price then in effect upon the closing of a Qualified Public Offering
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Series C Preferred
Stock being converted are either delivered to the Corporation or any transfer
agent or the holder notifies the Corporation or any transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith. Upon the automatic conversion of
Series C Preferred Stock, the holder of such
36.
<PAGE>
Series C Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or of any transfer agent for the Common
Stock. Thereupon, there shall be issued and delivered to such holder, promptly
at such office and in his name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series C Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
4.4.6 Events of Noncompliance.
-----------------------
(a) Definition. An Event of Noncompliance shall be deemed to have
----------
occurred if:
(i) the Corporation fails to pay accrued or declared dividends to
the holders of the Series C Preferred Stock as such dividends become due and
payable, and such failure continues for a period of thirty (30) days after
notice from any holder of Series C Preferred Stock of such failure;
(ii) the Corporation fails to redeem any shares of the Series C
Preferred Stock which it is obligated to redeem hereunder, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject, and such failure continues for a period of two (2) days
after notice from any holder of Series C Preferred Stock of such failure;
(iii) the Corporation breaches or otherwise fails to perform or
observe, in any material respect, any other material covenant or material
agreement set forth herein or in the Series C Purchase Agreement; provided, that
no Event of Noncompliance shall be deemed to have occurred under this
subparagraph (iii) until such breach or failure has continued for a period of
ninety (90) days after notice from any holder of Series C Preferred Stock of
such breach or failure if the Corporation (a) establishes (to the reasonable
satisfaction of the holders of a majority of the Series C Preferred Stock then
outstanding) that (1) the particular Event of Noncompliance has not been caused
by knowing or purposeful conduct by the Corporation or any Subsidiary, (2) the
cure of such breach or failure is possible, and (3) the Corporation has
exercised, and continues to exercise, its best efforts to expeditiously cure the
Event of Noncompliance and (b) gives prompt notice of such breach or failure to
each holder of Series C Preferred Stock as soon as the Corporation learns of, or
should reasonably have learned of, such breach or failure;
(iv) any default or the happening of any other event shall occur
under one or more indentures, agreements or other instruments under which any
Indebtedness of the Corporation or any Subsidiary may be issued, the effect of
which is the acceleration of the maturity of Indebtedness of the Corporation
outstanding thereunder which, in the aggregate, equals or exceeds $500,000;
(v) a receiver, conservator, custodian, liquidator or trustee of
the Corporation or any Material Subsidiary or of all or any of the assets of any
of them, is appointed by court order and such order remains in effect for more
than sixty (60) days; or an order for relief is entered under the federal
bankruptcy laws with respect to the Corporation or any Material Subsidiary; or
any of the material assets of any of them is sequestered by court order and such
order remains in effect for more than sixty (60) days after such filing;
(vi) the Corporation or any Material Subsidiary files a petition
in voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law;
(vii) the Corporation or any Material Subsidiary makes an
assignment for the benefit of its creditors, or admits in writing its inability
to pay, or in fact does not pay, its debts generally as
37.
<PAGE>
they become due, or consents to the appointment of a receiver, conservator,
custodian, liquidator or trustee of the Corporation or any Material Subsidiary,
or all or any part of the property of any of them; or
(viii) any representation or warranty contained in the Series C
Purchase Agreement or required to be furnished to any holder of Series C
Preferred Stock pursuant to the Series C Purchase Agreement was false,
inaccurate or misleading on the date or dates made or furnished, which Event of
Noncompliance could be material to a holder's investment in the Series C
Preferred Stock, provided a holder of Series C Preferred Stock would be entitled
to pursue a claim against the Corporation with respect to such representation or
warranty pursuant to Section 10.2 of the Series C Purchase Agreement.
(b) Election of Directors.
---------------------
(i) If at any time there has occurred and is continuing an Event
of Noncompliance, the holders of Series B Preferred Stock and Series C Preferred
Stock shall have the exclusive and special right (in addition to any other
voting rights), voting together as a single class, to elect, at any annual
meeting of stockholders, at a special meeting held in place thereof, at a
special meeting of the holders of Series B Preferred Stock and Series C
Preferred Stock called as hereinafter provided or by written consent, a majority
of the members of the Board of Directors.
(ii) At any time after an Event of Noncompliance has occurred and
is continuing, the secretary of the Corporation may and, upon written request of
holders of record of at least 20% of the shares of the Series B Preferred Stock
and Series C Preferred Stock then outstanding (counted together as a single
group) addressed to such secretary at the principal executive offices of the
Corporation shall, call a special meeting of the holders of Series B Preferred
Stock and Series C Preferred Stock for the purpose of electing such members of
the Board of Directors, such meeting to be held at the registered office of the
Corporation, or such other place as such request shall specify, as soon as
practicable after the receipt of such request, upon the notice provided by law
and the bylaws of the Corporation for the holding of special meetings of
stockholders. If such special meeting shall not be called by the secretary
within 3 days after receipt of such request, then the holders of record of at
least 20% of the shares of the Series B Preferred Stock and Series C Preferred
Stock then outstanding (counted together as a single group) may designate in
writing one of their number to call such a meeting at the place designated by
such holders and upon the notice above provided, and any person so designated
for that purpose shall have access to the stock records of the Corporation for
such purpose.
(iii) At any meeting at which the holders of Series B Preferred
Stock and Series C Preferred Stock shall be entitled to elect a majority of the
members of the Board of Directors as provided above, the holders of a majority
of the shares of the Series B Preferred Stock and Series C Preferred Stock then
outstanding (counted together as a single group) present in person or by proxy
shall constitute a quorum for the election of such directors, and the vote of
the holders of shares representing a majority of the shares of Series B
Preferred Stock and Series C Preferred Stock so present, voting together as a
single class, at any such meeting at which there shall be such a quorum shall be
sufficient to elect such directors. The election of such directors shall
automatically increase the number of members of the Board of Directors by the
number of directors so elected. Therefore, the number of additional directors to
be elected by such holders shall be equal to the total number of directors
immediately prior to such election, plus one (e.g., if there were five
directors, the number of additional directors would be six). The persons so
elected as directors by the holders of Series B Preferred Stock and Series C
Preferred Stock shall hold office until the next annual meeting of stockholders
and until their successors shall have been elected by such holders or until
there shall be no existing Event of Noncompliance. Upon there ceasing to be any
existing Event of Noncompliance or at such time as there are no outstanding
shares of Series B Preferred Stock or Series C Preferred Stock, any directors so
elected by the holders of Series B Preferred Stock and Series C Preferred Stock
shall forthwith cease to be directors of the Corporation, and the number of
directorships shall
38.
<PAGE>
automatically be reduced accordingly. If a vacancy occurs in a directorship
elected by the holders of Series B Preferred Stock and Series C Preferred Stock
voting together as a single class, a successor may be appointed by the remaining
directors or director so elected by the holders of Series B Preferred Stock and
the holders of Series C Preferred Stock.
(iv) At any meeting at which the holders of Series B Preferred
Stock and Series C Preferred Stock, shall be entitled to elect the majority of
the members of the Board of Directors as provided above, or any adjournment
thereof, (A) the absence of a quorum of the holders of Series B Preferred Stock
and Series C Preferred Stock shall not prevent the election of directors other
than those to be elected by the holders of Series B Preferred Stock and Series C
Preferred Stock voting together as a single class, (B) the absence of a quorum
of the holders of classes or series of stock entitled to elect directors other
than those elected by the holders of Series B Preferred Stock and Series C
Preferred Stock, voting together as a single class, shall not prevent the
election of the directors to be elected by the holders of Series B Preferred
Stock and Series C Preferred Stock voting together as a single class, (C) in the
absence of a quorum of the holders of Series B Preferred Stock and Series C
Preferred Stock, the holders of shares representing a majority of the shares of
either Series B Preferred Stock or the Series C Preferred Stock present in
person or by proxy shall have power to adjourn from time to time the meeting for
the election of the directors which they are entitled to elect, voting together
as a single class, without notice other than announcement at the meeting, until
a quorum shall be present, and (D) in the absence of a quorum of the holders of
the classes or series of stock entitled to elect directors other than those
elected by the holders of Series B Preferred Stock and Series C Preferred Stock,
the holders of a majority of such classes or series present in person or by
proxy shall have power to adjourn from time to time the meeting for the election
of the directors which they are entitled to elect, without notice other than
announcement at the meeting, until a quorum shall be present.
(v) At any time after the holders of Series B Preferred Stock and
Series C Preferred Stock shall have become entitled to elect a majority of the
Board of Directors pursuant to this Section 4.4.6, such holders may do so by a
consent in writing setting forth the action so taken, and signed by the holders
of shares representing a majority of the shares of Series B Preferred Stock and
Series C Preferred Stock then outstanding, voting together as a single class.
(c) Redemption of Series C Preferred Stock. In addition to the rights
--------------------------------------
set forth in paragraph (b) of this Section 4.4.6, if at any time there has
occurred and is continuing an Event of Noncompliance, the holders of 70% of the
shares of Series C Preferred Stock then outstanding may demand (by written
notice delivered to the Corporation) immediate redemption of all or any portion
of the Series C Preferred Stock owned by such holders at a price per share equal
to the Series C Liquidation Price. The Corporation will give prompt written
notice of such election to the other holders of Series C Preferred Stock (but in
any event within 10 days after receipt of the initial demand for redemption),
and each such other holder may demand immediate redemption of all or any portion
of such holder's Series C Preferred Stock by giving written notice thereof to
the Corporation within 30 days after receipt of the Corporation's notice. The
Corporation will redeem all Series C Preferred Stock as to which rights under
this paragraph have been exercised at the Series C Liquidation Price within 45
days after receipt of the initial demand for redemption on the terms and
conditions provided in Section 4.4.4 for a redemption of Series C Preferred
Stock.
(d) Other Rights. If an Event of Noncompliance exists each holder of
------------
shares of Series C Preferred Stock shall also have any other rights to which
such holder is entitled to under any contract or agreement at any time and any
other rights which such holder may have pursuant to applicable law.
(e) Delays or Omissions. No failure to exercise or delay in the exercise
-------------------
of any right, power or remedy accruing to any holder of Series C Preferred Stock
upon any Event of Noncompliance
39.
<PAGE>
hereunder shall impair such right, power or remedy of such holder or shall it be
construed to be a waiver of any such Event of Noncompliance, or an acquiescence
therein, or of or in any similar Event of Noncompliance thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
Event of Noncompliance theretofore or thereafter occurring.
4.4.7 Cancellation of Series C Preferred Stock. No share or shares of
----------------------------------------
Series C Preferred Stock acquired by the Corporation by reason of redemption,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
4.4.8 Miscellaneous.
-------------
(a) Notices. Except as otherwise expressly provided hereunder, all
-------
notices referred to in this Section 4.4 shall be in writing and shall be
delivered personally or by registered or certified mail, return receipt
requested and postage prepaid, or by reputable overnight courier services,
charges prepaid, and shall be deemed to have been given when personally
delivered to such holder, one (1) business day after the same is delivered to
such an overnight courier service, charges prepaid, or three (3) business days
after the same has been so deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed (i) to
the Corporation, at its principal executive offices and (ii) to any holder of
Series C Preferred Stock, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
(b) Registration of Transfer. The Corporation shall keep at its
------------------------
principal office a register for the registration of Series C Preferred Stock.
Upon the surrender of any certificate representing Series C Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of Series C Preferred Stock represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of shares of Series C Preferred Stock as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
(c) Replacement of Certificates. Upon receipt of evidence reasonably
---------------------------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Series C Preferred Stock, and, in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series C Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate.
(d) Amendment and Waiver. No amendment, modification or waiver shall be
--------------------
binding or effective with respect to any provision of Section 4.4 or 4.5 hereof,
and no change in the terms of such Sections may be accomplished by merger or
consolidation of the Corporation with another corporation or entity, without the
prior written consent of the holders of a majority of the shares of Series C
Preferred Stock outstanding at the time such action is taken.
4.9 Definitions. As used in this Article FOURTH, the following
-----------
terms have the following meanings:
40.
<PAGE>
"Affiliate" as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. The term "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of 50% or more of the
voting power (or in the case of a Person which is not a corporation, 50% or more
of the ownership interest, beneficial or otherwise) of such Person, or the
ability to otherwise direct or cause the direction of the management and
policies of that Person, whether through voting power, by contract or otherwise.
For purposes of this paragraph, "voting power" of any Person means the total
number of votes which may be cast by the holders of the total number of
outstanding shares of stock of any class or classes of such Person in any
election of directors of such Person.
"First Redemption" means, with respect to any holder, the redemption of a
number of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, equal to such holder's First Redemption
Number pursuant to Section 4.2.4(a)(i), 4.3.4(a)(i) or 4.4.4(a)(i),
respectively.
"First Redemption Date" means, with respect to any holder, the date set for
the First Redemption of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, pursuant to Section 4.2.4(a)(i),
Section 4.3.4(a)(i) or 4.4.4(a)(i), respectively.
"First Redemption Number" means, with respect to any holder, the number of
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, determined by multiplying the total number
of shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, held by such holder on such holder's First
Redemption Date by 33-1/3% and rounding up to the nearest whole number.
"Indebtedness" of any Person shall mean the principal of, premium, if any,
and unpaid interest on (a) indebtedness for money borrowed from others; (b)
indebtedness guaranteed, directly or indirectly, in any manner by such Person,
or in effect guaranteed, directly or indirectly, in any manner by such Person
through an agreement, contingent or otherwise, to supply funds to, or in any
other manner invest in, the debtor, or to purchase indebtedness, or to purchase
and pay for property if not delivered or pay for services if not performed,
primarily for the purpose of enabling the debtor to make payment of the
indebtedness or to assure the owners of the indebtedness against loss; (c) all
indebtedness secured by any mortgage, lien, pledge, charge or other encumbrance
upon property owned by such Person, even though such Person has not in any
manner become liable for the payment of such indebtedness; (d) all indebtedness
of such Person created or arising under any conditional sale, lease (intended
primarily as a financing device) or other title retention or security agreement
with respect to property acquired by such Person even though the rights and
remedies of the seller, lessor or lender under such agreement or lease in the
event of default may be limited to repossession or sale of such property; and
(e) renewals, extensions and refunding of any such indebtedness.
"Material Subsidiary" means any Subsidiary that (i) owns at least 10% of
the Corporation's assets, determined on a consolidated basis, (ii) generates at
least 10% of the Corporation's revenue or net income, determined on a
consolidated basis, or (iii) has a fair value equal to at least 10% of the fair
value of the Corporation, determined on a consolidated basis.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
or a governmental entity or any department, agency or political subdivision
thereof.
"Public Offering" means a firm commitment underwritten public offering of
Common Stock to the public pursuant to a registration statement declared
effective under the Securities Act of 1933, as
41.
<PAGE>
amended, other than an offering made in connection with a business acquisition
or combination or an employee benefit plan.
"Qualified Public Offering" means a Public Offering in which:
(i) the pre-offering value of the Corporation, as reasonably
determined in good faith by the lead managing underwriter of the
offering, equals or exceeds Forty Million Dollars ($40,000,000);
(ii) the aggregate gross proceeds received by the Corporation in such
Public Offering equals or exceeds Ten Million Dollars
($10,000,000);
(iii) upon the closing of such Public Offering, the Common Stock will
be quoted on the National Association of Securities Dealers
Automated Quotation System or listed on the American Stock
Exchange or the New York Stock Exchange;
(iv) the lead underwriter and the co-managing underwriter or
underwriters for such Public Offering will be mutually
acceptable to the Corporation and the holder or holders of a
majority of the outstanding shares of Series B Preferred Stock
and Series C Preferred Stock; and
(v) prior to the effective date of the registration statement for
such Public Offering, at least one underwriter, which is
mutually acceptable to the Corporation and the holder or holders
of a majority of the outstanding shares of Series B Preferred
Stock and Series C Preferred Stock, has indicated that it
intends to provide research coverage for the Corporation after
the Public Offering.
"Redemption Date" means, with respect to any holder, such holder's First
Redemption Date, Second Redemption Date or Third Redemption Date, or, with
respect to any holder of Series B Preferred Stock or Series C Preferred Stock,
the date on which the Corporation is to redeem shares of Series B Preferred
Stock or Series C Preferred Stock, pursuant to paragraph (h) of Section 4.3.4 or
4.4.4 or paragraph (c) of Section 4.3.6 or 4.4.6, respectively, or, with respect
to any holder of Series A Preferred Stock, the date on which the Corporation is
to redeem shares of Series A Preferred Stock pursuant to paragraph (j) of
Section 4.2.4.
"Second Redemption" means, with respect to any holder, the redemption of a
number of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, equal to such holder's Second Redemption
Number pursuant to Section 4.2.4(a)(ii), 4.3.4(a)(ii) or 4.4.4(a)(ii),
respectively.
"Second Redemption Date" means, with respect to any holder, the date set
for the Second Redemption of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock, as the case may be, pursuant to Section
4.2.4(a)(ii), Section 4.3.4(a)(ii) or Section 4.4.4 (a)(ii), respectively.
"Second Redemption Number" means, with respect to any holder, the number of
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, determined by (i) multiplying the total
number of shares of Series A Preferred Stock, Series B Preferred
42.
<PAGE>
Stock or Series C Preferred Stock, as the case may be, held by such holder on
such holder's Second Redemption Date by (a) 50% if the First Redemption has been
consummated in full or (b) 66-2/3% if the First Redemption has not been
consummated in full and (ii) rounding up to the nearest whole number; provided,
however, that such holder's Second Redemption Number shall be reduced by the
number of shares of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as the case may be, with respect to which such holder
exercises its conversion rights pursuant to Section 4.2.5, 4.3.5 or 4.4.5,
respectively, during the period commencing on the date of the Redemption Notice
with respect to such redemption and ending on the date of such redemption.
"Series A Liquidation Price" means, at any time, $1.505 per share (such
amount to be proportionately decreased after the date of the filing of these
Amended and Restated Articles of Incorporation in the event the Series A
Preferred Stock is subdivided into a greater number (whether by stock split,
stock dividend or otherwise) or increased in the event the Series A Preferred
Stock is combined (whether by reverse stock split or otherwise) into a lesser
number) plus any dividends declared or accrued but unpaid on such share at such
time.
"Series B Liquidation Price" means, at any time, $3.9885 per share (such
amount to be proportionately decreased after the date of the filing of these
Amended and Restated Articles of Incorporation in the event the Series B
Preferred Stock is subdivided into a greater number (whether by stock split,
stock dividend or otherwise) or increased in the event the Series B Preferred
Stock is combined into a lesser number (whether by reverse stock split or
otherwise)) plus accrued or declared but unpaid dividends on such share at such
time.
"Series B Purchase Agreement" means that certain Series B Preferred Stock
Purchase Agreement dated as of December 17, 1993, by and among the Corporation,
Frontenac VI Limited Partnership and JMI Equity Fund, L.P., as such agreement
has been, and may from time to time be, amended in accordance with its terms.
"Series C Liquidation Price" means, at any time $3.40 per share (such
amount to be proportionately decreased after the date of the filing of these
Amended and Restated Articles of Incorporation in the event the Series C
Preferred Stock is subdivided into a greater number (whether by stock split,
stock dividend or otherwise) or increased in the event the Series C Preferred
Stock is combined into a lesser number (whether by reverse stock split or
otherwise)) plus accrued or declared but unpaid dividends on such share at such
time.
"Series C Purchase Agreement" means that certain Series C Preferred Stock
Purchase Agreement by and among the Corporation, Frontenac VI Limited
Partnership and JMI Equity Fund, L.P., as such agreement may from time to time
be amended in accordance with its terms.
"Subsidiary" means any corporation, association or other business entity of
which securities or other ownership interests representing more than fifty
percent (50%) of the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled by the Corporation or one or
more Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
"Third Redemption" means, with respect to any holder, the redemption of a
number of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, equal to such holder's Third Redemption
Number pursuant to Section 4.2.4(a)(iii), Section 4.3.4(a)(iii) or Section
4.4.4(a)(iii), respectively.
43.
<PAGE>
"Third Redemption Date" means, with respect to any holder, the date set for
the Third Redemption of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, pursuant to Section 4.2.4(a)(iii),
Section 4.3.4(a)(iii) or Section 4.4.4(a)(iii), respectively.
"Third Redemption Number" means, with respect to any holder, the number of
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, held by such holder on such holder's Third
Redemption Date.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to time
by the Bylaws or a bylaw amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
Effective upon the closing of the Corporation's initial public offering of
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of the Corporation may not take action by
written consent without a meeting but must take any actions at a duly called
annual or special meeting. Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
A director of this Corporation shall, to the full extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article IX, nor the adoption of any provision of this Certificate
of Incorporation inconsistent with this Article IX, shall eliminate or reduce
the effect of this Article IX in respect of any matter occurring, or any cause
of action, suit or claim that, but for this Article IX, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision. If
the Delaware General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article IX
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
44.
<PAGE>
ARTICLE X
To the fullest extent permitted by applicable law, this corporation is also
authorized to provide indemnification of (and advancement of expenses to) such
agents (and any other persons to which Delaware law permits this corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the General Corporation Law of the State of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to this corporation, its stockholders, and
others.
Any repeal or modification of any of the foregoing provisions of this
Article X shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
45.
<PAGE>
FOUR: The foregoing amendment has been duly adopted by the Corporation's
Board of Directors in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Incorporation on July __, 1996.
-----------------------------------------
Mark K. Ruport, President
-----------------------------------------
Steven M. Johnson, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing First Amended and Restated Certificate of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed in Colorado Springs, Colorado, on July __, 1996.
-----------------------------------------
Mark K. Ruport
-----------------------------------------
Steven M. Johnson
46.
<PAGE>
EXHIBIT 3.3
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPTIKA IMAGING SYSTEMS, INC.
The undersigned, Mark K. Ruport and Steven M. Johnson hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
---
respectively, of said corporation.
TWO: The Certificate of Incorporation of said corporation was originally
---
filed in the Office of the Secretary of State of the State of Delaware on April
29, 1996.
THREE: The Certificate of Incorporation of said corporation shall be
-----
amended and restated to read in full as follows:
ARTICLE I.
The name of this corporation is Optika Imaging Systems, Inc. (the
"Corporation").
ARTICLE II.
The address of the corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name
of the corporation's registered agent at such address is the Corporation Service
Company.
ARTICLE III.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV.
A. Classes of Stock. The Corporation is authorized to issue two classes of
----------------
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares that the Corporation is authorized to issue is Twenty-
Seven Million (27,000,000). Twenty-Five Million (25,000,000) shares shall be
Common Stock, par value $0.001 per share, and Two Million (2,000,000) shares
shall be Preferred Stock, par value $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. Without
-------------------------------------------------------
further
<PAGE>
stockholder approval, the Preferred Stock authorized by this Second Amended and
Restated Certificate of Incorporation may be issued from time to time in one or
more series. The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon each
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. The rights, privileges,
preferences and restrictions of any such additional series may be subordinated
to, pari passu with (including, without limitation, inclusion in provisions with
----------
respect to liquidation and acquisition preferences, redemption and/or approval
of matters by vote), or senior to any of those of any present or future class or
series of Preferred Stock or Common Stock. The Board of Directors is also
authorized to increase or decrease the number of shares of any series prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all classes
---------------
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. In the event of any voluntary or involuntary
------------------
liquidation, dissolution or winding up of the Corporation, after distribution of
the preferential amounts to be distributed to the holders of shares of the
Preferred Stock, the holders of shares of the Common Stock shall be entitled to
receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of the Common Stock held by them.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have the
-------------
right to one vote, and shall be entitled to notice of any stockholders' meeting
in accordance with the Bylaws of this Corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE V.
Except as otherwise provided in this Second Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
<PAGE>
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to time
by, or in the manner provided in, the Bylaws or an amendment thereof duly
adopted by the Board of Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide. At each annual meeting of stockholders,
directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, or until their successors
have been duly elected and qualified; except that if any such election shall not
be so held, such election shall take place at a stockholders' meeting called and
held in accordance with the GCL. The directors of the Corporation shall be
divided into three (3) classes as nearly equal in size as is practicable, hereby
designated Class I, Class II and Class III. For the purposes hereof, the
initial Class I, Class II and Class III directors shall be those directors so
designated and elected at the Corporation's 1997 Annual Meeting of Stockholders.
At the first annual meeting of stockholders following the initial election in
1997 and designation of directors into classes, the term of office of the Class
I directors shall expire and Class I directors shall be elected for a full term
of three (3) years. At the second annual meeting of stockholders following the
initial election in 1997 and designation of directors into classes, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three (3) years. At the third annual meeting of
stockholders following the initial election in 1997 and designation of directors
into classes, the terms of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three (3) years. At
each succeeding annual meeting of stockholders, directors shall be elected for a
full term of three (3) years to succeed the directors of the class whose terms
expire at such annual meeting. If the number of directors is hereafter changed,
any newly created directorships or decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in number
as is practicable.
Vacancies occurring on the Board of Directors for any reason may be filled
by vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, at any meeting of the board of directors.
ARTICLE VIII
Stockholders of the Corporation shall take action by meetings held pursuant
to this Second Amended and Restated Certificate of Incorporation and the Bylaws
and shall have no right to take any action by written consent without a meeting.
Meetings of stockholders may be held within or without the State of Delaware, as
the Bylaws may provide. The books of the Corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board
3.
<PAGE>
of Directors or in the Bylaws of the Corporation.
ARTICLE IX
A director of this Corporation shall, to the full extent permitted by the
GCL as it now exists or as it may hereafter be amended, not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this Article IX, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article IX, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision. If the GCL is amended after approval by
the stockholders of this Article IX to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL as so amended.
Any repeal or modification of the foregoing provisions of this Article IX
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE X
To the full extent permitted by applicable law, this Corporation is also
authorized to provide indemnification of (and advancement of expenses to) such
agents (and any other persons to which Delaware law permits this Corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the GCL, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
Corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions of this
Article X shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Second Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
4.
<PAGE>
FOUR: The foregoing amendment has been duly adopted by the Corporation's
----
Board of Directors in accordance with the applicable provisions of Sections 241
and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate on July
__, 1996.
--------------------------------------------
Mark K. Ruport
President and Chief Executive Officer
--------------------------------------------
Steven M. Johnson, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Second Amended and Restated Certificate of Incorporation and know
the contents thereof, and that the statements therein are true.
Executed in Colorado Springs, Colorado, on July __, 1996.
--------------------------------------------
Mark K. Ruport
--------------------------------------------
Steven M. Johnson
5.
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
OPTIKA IMAGING SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
----------
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
----------
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
----------
shall be held at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1997,
----------
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a
<PAGE>
plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
----------
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than twenty-five (25) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least fifty
percent (50%) of the entire capital stock of the
2
<PAGE>
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
----------
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than twenty-five (25) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
----------
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
----------
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
3
<PAGE>
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
-----------
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three (3)
years from its date, unless the proxy provides for a longer period.
Section 11. Nominations for election to the Board of Directors must be
-----------
made by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by the Board of Directors of the corporation,
must be preceded by notification in writing received by the Secretary of the
corporation not less than twenty (20) days nor more than sixty (60) days prior
to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership, limited partnership, syndicate or other group,
who participates or is expected to participate in making such nomination or in
4
<PAGE>
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
(a) the name, age, residence, address, and business address of each
proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of business and
address of the corporation or other organization in which such employment is
carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such person; and
(d) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person regarding
future employment or any future transaction to which the corporation will or may
be a party.
The presiding officer of the meeting shall have the authority to determine
and declare to the meeting that a nomination not preceded by notification made
in accordance with the foregoing procedure shall be disregarded.
Section 12. At any meeting of the stockholders, only such business shall
-----------
be conducted as shall have been brought before the meeting (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
5
<PAGE>
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) of this Section 12, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than twenty (20)
days nor more than sixty (60) days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at a meeting except in accordance with the procedures set forth in
this Section 12. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the procedures prescribed by
this Section 12, and if such person should so determine, such person shall so
declare to the meeting and any such business
6
<PAGE>
not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section 12.
Section 13. Effective upon the closing of the corporation's initial public
-----------
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
----------
constitute the whole board shall be determined by resolution of the Board of
Directors or by the stockholders at the annual meeting of the stockholders;
provided, however, that no decrease in the number of directors shall have the
effect of shortening the term of an incumbent director. Except as provided in
Section 2 of this Article, the directors shall be elected at the annual meeting
of the stockholders, in accordance with the certificate of incorporation, and
each director elected shall hold office until his/her successor is elected and
qualified, unless he/she shall resign, become disqualified, disabled or
otherwise removed. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
----------
increase in the authorized number of directors may be filled by a majority of
the
7
<PAGE>
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified or until his
earlier resignation or removal. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or under
----------
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
----------
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
----------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special
8
<PAGE>
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without
----------
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the President on
----------
four (4) days' notice to each director by mail or forty-eight (48) hours notice
to each director either personally, or by telephone, telegram or facsimile;
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director, in which case special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of the sole director. A written waiver of notice, signed by the person
entitled thereto, whether before or after the time of the meeting stated
therein, shall be deemed equivalent to notice.
Section 8. At all meetings of the board a majority of the directors shall
----------
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
9
<PAGE>
Section 9. Unless otherwise restricted by the certificate of incorporation
----------
of these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a majority
-----------
of the whole board, designate one (1) or more committees, each committee to
consist of one (1) or more of the directors of the corporation. The board may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
10
<PAGE>
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
-----------
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall
11
<PAGE>
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
-----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
12
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a President, Treasurer and a Secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more Vice-Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a President, a Treasurer, and a
Secretary and may choose Vice Presidents.
Section 3. The Board of Directors may appoint such other officers and
----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
----------
fixed by the Board of Directors. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the President or any
Vice-President of the corporation.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of
13
<PAGE>
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
----------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
----------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The President shall be the chief executive officer of the
----------
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he/she shall preside at all meetings of the stockholders and the Board of
Directors; he/she shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The President or any Vice President shall execute bonds,
----------
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except
14
<PAGE>
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the President or in the event of his
-----------
inability or refusal to act, the Vice-President, if any, (or in the event there
be more than one Vice-President, the Vice-Presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
-----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he/she shall be. He/she shall have custody
of the corporate seal of the corporation and he/she, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
15
<PAGE>
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 12. The Assistant Secretary, or if there be more than one,
-----------
the Assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall be the chief financial officer of the
-----------
corporation, shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
-----------
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he/she shall give
-----------
the corporation a bond (which shall be renewed every six years) in such sum and
with such
16
<PAGE>
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his/her office and for the restoration to
the corporation, in case of his/her death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his/her control belonging to the
corporation.
Section 16. The Assistant Treasurer, or if there shall be more than
-----------
one, the Assistant Treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
----------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned by
him/her in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
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<PAGE>
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
----------
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he/she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
----------
certificates to be issued in place of any certificate or certificates
theretofore issued by the
18
<PAGE>
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his/her legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in
19
<PAGE>
advance, a record date, which shall not be more than sixty (60) nor less than
twenty-five (25) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
----------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
20
<PAGE>
Section 2. Before payment of any dividend, there may be set aside out
----------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
----------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from
21
<PAGE>
time to time, indemnify any director made, or threatened to be made, a party to
an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General
22
<PAGE>
Corporation Law of Delaware. Notwithstanding the foregoing, the corporation
shall not be required to advance such expenses to an agent who is a party to an
action, suit or proceeding brought by the corporation and approved by a majority
of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to
23
<PAGE>
include such an employee benefit plan, including without limitation, any plan of
the corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the stockholders or by the Board of Directors, when
----
such power is conferred upon the Board of Directors by the certificate of
- -------------------------------------------------------------------------
incorporation, at any regular meeting of the stockholders or of the Board of
- -------------
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
24
<PAGE>
CERTIFICATE OF ADOPTION BY THE
ASSISTANT SECRETARY OF
OPTIKA IMAGING SYSTEMS, INC.
The undersigned, Warren T. Lazarow, hereby certifies that he is the
duly elected and acting Assistant Secretary of Optika Imaging Systems, Inc., a
Delaware corporation (the "Corporation"), and that the Bylaws attached hereto
constitute the Bylaws of said Corporation as duly adopted by Unanimous Written
Consent of the Board of Directors on May , 1996.
--
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this th day of May, 1996.
---
------------------------------------------------
Warren T. Lazarow
Assistant Secretary
25
<PAGE>
EXHIBIT 4.1
[LOGO OF OPTIKA]
THIS CERTIFICATE IS INCORPORATED UNDER THE SEE REVERSE FOR
TRANSFERABLE IN LAWS OF THE STATE OF STATEMENTS RELATING
BOSTON, MA OR NEW DELAWARE TO RIGHTS,
YORK, NY PREFERENCES
PRIVILEGES AND
RESTRICTIONS, IF ANY
This Certifies that CUSIP 683973101
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
------------------ OPTIKA IMAGING SYSTEMS, INC. ------------------
- ------------------------- -------------------------
------------------ ------------------
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
/s/ STEVEN M. JOHNSON /s/ MARK K. RUPORT
VICE PRESIDENT-FINANCE, [SEAL] PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
AND SECRETARY
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY /s/
AUTHORIZED SIGNATURE
<PAGE>
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ...................Custodian.....................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .............................................
(State)
UNIF TRF MIN ACT - ...................Custodian (until age..........)
(Cust)
..........................under Uniform Transfers
(Minor)
to Minors Act....................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________________
X ______________________________________
X ______________________________________
Notice: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
July 2, 1996
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-04309) originally filed by Optika Imaging Systems, Inc. (the "Company") with
the Securities and Exchange Commission (the "Commission") on May 22, 1996, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of shares of
the Company's Common Stock (the "Shares"). The Shares include shares to be sold
by selling stockholders and the Company and an over-allotment option granted to
the Underwriters by the Company and certain Stockholders to purchase additional
shares of the Company's Common Stock. The Shares are to be sold to the
Underwriters as described in the Registration Statement for resale to the
public. As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be taken
by you in connection with the sale and issuance of the Shares.
It is our opinion that, upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and to the use of this opinion as an
exhibit to the Registration Statement and any amendment thereto.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.2
OPTIKA IMAGING SYSTEMS, INC.
1994 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
AS RESTATED AND AMENDED THROUGH MAY 21, 1996
ARTICLE ONE
GENERAL
-------
I. PURPOSE OF THE PLAN
This 1994 Stock Option/Stock Issuance Plan, as amended and restated,
is intended to promote the interests of Optika Imaging Systems, Inc., a Delaware
corporation, by providing eligible individuals with the opportunity to obtain an
equity interest, or otherwise increase their equity interest, in the
Corporation. This Plan shall serve as the successor equity incentive program to
the Corporation's 1992 Stock Plan.
II. DEFINITIONS
For the purposes of this Plan, the following definitions shall be in
effect:
AUTOMATIC OPTION GRANT PROGRAM: the automatic option grant program in
effect under the Plan.
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
- the direct or indirect acquisition by any person or related group
of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
- a change in the composition of the Board over a period of thirty-six
(36) months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to be
comprised of individuals who either (a) have been Board members
continuously since the beginning of such period or (b) have been elected or
<PAGE>
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (a) who were still in
office at the time such election or nomination was approved by the Board;
provided, however, that a change in the composition of the Board pursuant
to Section 4.3.1(b) or Section 4.3.6 of the Corporation's Amended and
Restated Articles of Incorporation shall not constitute a Change in
Control.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATE TRANSACTION: either of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
CORPORATION: Optika Imaging Systems, Inc., a Delaware corporation, and
its successors.
DISCRETIONARY OPTION GRANT PROGRAM: the discretionary option grant
program in effect under the Plan.
DOMESTIC RELATIONS ORDER: any judgment, decree or order (including
approval of a property settlement agreement) which provides or otherwise
conveys, pursuant to applicable State domestic relations laws (including
community property laws), marital property rights to any spouse or former spouse
of the Optionee.
ELIGIBLE DIRECTOR: a non-employee Board member eligible to participate
in the Automatic Option Grant Program in accordance with the eligibility
provisions of Section v, Article One.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation (or any Parent or Subsidiary) subject to the control and
direction of the
2.
<PAGE>
employer entity not only as to the work to be performed but also as to the
manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the option exercise.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
- If the Common Stock is not at the time listed or admitted to trading
on any national stock exchange but is traded on the Nasdaq National Market,
the Fair Market Value shall be the closing selling price per share on the
date in question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor system.
If there is no reported closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
- If the Common Stock is at the time listed or admitted to trading on
any national securities exchange, then the Fair Market Value shall be the
closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
- If the Common Stock is on the date in question neither listed nor
admitted to trading on any national securities exchange nor traded on the
Nasdaq National Market, then the Fair Market Value of the Common Stock on
such date shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
- For purposes of any option grants made on the Underwriting Date, the
Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in the initial public offering
pursuant to the Underwriting Agreement.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
- the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
3.
<PAGE>
controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, and
---
- the acceptance of more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer from holders
other than Section 16 Insiders.
INCENTIVE OPTION: a stock option which satisfies the
requirements of Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
Optionee or Participant which occurs by reason of:
- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
- such individual's voluntary resignation following (i) a change
in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-
discretionary and objective-standard incentive payment or bonus award)
by more than ten percent (10%) in the aggregate or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected by
the Corporation without the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such individual of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary) or any other intentional misconduct by such
individual adversely affecting the business or affairs of the Corporation in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation or any Parent or Subsidiary may
consider as grounds for the dismissal or discharge of any Optionee, Participant
or other individual in the Service of the Corporation.
1934 ACT: the Securities Exchange Act of 1934, as amended.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
4.
<PAGE>
OPTIONEE: a person to whom an option is granted under the Option
Grant Program.
PARENT: Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
PLAN: shall mean the Corporation's 1994 Stock Option/Stock
Issuance Plan, as amended and restated and set forth in this document.
PLAN EFFECTIVE DATE: shall mean August 12, 1994, the date on
which the Plan was adopted by the Board.
PLAN ADMINISTRATOR: either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan in accordance with Section IV of Article One.
PREDECESSOR PLAN: the Corporation's 1992 Stock Plan.
QUALIFIED DOMESTIC RELATIONS ORDER: shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p). The Plan Administrator shall have the sole discretion to
determine whether a Domestic Relations Order is a Qualified Domestic Relations
Order.
SALARY INVESTMENT OPTION GRANT PROGRAM: shall mean the salary
investment option grant program in effect under the Plan.
SECTION 12(G) REGISTRATION DATE: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act becomes
effective.
5.
<PAGE>
SECTION 16 INSIDER: shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
SERVICE: the performance of services on a periodic basis for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or an independent consultant, except
to the extent otherwise specifically provided in the applicable stock option or
stock issuance agreement.
SUBSIDIARY: any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
such corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
STOCK ISSUANCE PROGRAM: shall mean the stock issuance program in
effect under the Plan.
TAXES: shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
10% STOCKHOLDER: the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or any Parent or
Subsidiary.
TAKE-OVER PRICE: the greater of (a) the Fair Market Value per
-------
share of Common Stock on the date the particular option to purchase such stock
is surrendered to the Corporation in connection with a Hostile Take-Over or (b)
the highest reported price per share of Common Stock paid by the tender offeror
in effecting such Hostile Take-Over. However, if the cancelled option is an
Incentive Option, then the Take-Over Price shall not exceed the clause (a) price
per share.
UNDERWRITING AGREEMENT: shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
UNDERWRITING DATE: shall mean the date on which the Underwriting
Agreement is executed and priced in connection with the initial public offering
of the Common Stock.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
6.
<PAGE>
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary),
(iii) the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary
invested each year in special below-market option grants, and
(iv) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants
at periodic intervals to purchase shares of Common Stock.
B. The Discretionary Option Grant and Stock Issuance programs became
effective on the Plan Effective Date. The Salary Investment Option Grant
Program shall become effective when implemented by the Plan Administrator. The
Automatic Option Grant Program shall become effective on the Underwriting Date.
C. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
IV. ADMINISTRATION OF THE PLAN
A. Until the Section 12(g) Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board or the
Committee. From and after such Section 12(g) Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered
solely and exclusively by the Committee. No non-employee Board member shall be
eligible to serve on the Committee if such individual has, within the relevant
period designated below, received an option grant or direct stock issuance under
this Plan or any other stock plan of the Corporation (or any Parent or
Subsidiary):
- for each of the initial members of the Committee, the period
commencing with the Section 12(g) Registration Date and ending with the
date of his or her appointment to the Committee, or
- for any successor or substitute member, the twelve (12)-month
period immediately preceding the date of his or her appointment to the
Committee or (if shorter) the period commencing with the Section 12(g)
7.
<PAGE>
Registration Date and ending with the date of his or her appointment to
the Committee.
B. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time.
C. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant,
Stock Issuance and Salary Investment Option Grant Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding option grants or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator shall be
final and binding on all parties who have an interest in the Discretionary
Option Grant, Stock Issuance or Salary Investment Option Grant Programs, or any
outstanding option grant or share issuance thereunder.
D. Administration of the Automatic Option Grant Programs shall
be self-executing in accordance with the terms of such program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under that program.
V. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board (other than those
serving as members of the Committee) or the board of directors of any
Parent or Subsidiary, and
(iii) consultants who provide services to the
Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to
8.
<PAGE>
be issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. Only Section 16 Insiders and other highly compensated Employees shall
be eligible to participate in the Salary Investment Option Grant Program.
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as non-
employee Board members on the Underwriting Date, (ii) those individuals who
first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who continue to serve as non-employee Board members
after one or more Annual Stockholders Meetings held after the Underwriting Date.
However, those non-employee Board members who were appointed on or after April
1, 1996 but prior to the Underwriting Date shall not be eligible to receive an
initial option grant under the Automatic Option Grant Program on the
Underwriting Date. In addition, a non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program on
the Underwriting Date or at the time he or she first becomes a non-employee
Board member, but shall be eligible to receive periodic option grants under the
Automatic Option Grant Program as he or she continues to serve as a non-
employee Board member.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under
the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock which may be issued over the ten (10)-year term
of the Plan shall not exceed 2,790,000/*/ shares, subject to adjustment from
time to time in accordance with the provisions of this Section VI. Such
authorized share reserve is comprised of (i) the number of shares which remained
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to the outstanding options incorporated into this Plan and any other
shares which would have been available for future option grant under the
Predecessor Plan as last approved by the stockholders, plus (ii) an increase of
520,000/*// shares authorized by the Board as of the Plan Effective Date and
subsequently approved by the Corporation's stockholders, plus (iii) an
- --------
/*// Adjusted for the 4-for-1 split of the Common Stock effected on November
22, 1994.
9.
<PAGE>
additional increase of 200,000 shares authorized by the Board on November 8,
1995, and approved by the Corporation's stockholders in February 1996, plus (iv)
an additional increase of 750,000 shares approved by the Board in February 1996
and by the Corporation's stockholders in June 1996. As one or more outstanding
options under the Predecessor Plan which have been incorporated into this Plan
are exercised, the number of shares issued with respect to each such option
shall reduce, on a share-for-share basis, the number of shares available for
issuance under this Plan. In addition, the share reserve under the Plan shall be
reduced on a share-for-share basis for each share of Common Stock issued under
the Corporation's Special Stock Option/Stock Purchase Plan, pursuant to which a
maximum of 80,000 shares of Common Stock have been reserved for issuance to
service providers of the Corporation's Business Solution Partner Companies.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each of
the 1998 and 1999 calendar years, by an amount equal to three percent (3%) of
the shares of Common Stock outstanding on December 31 of the immediately
preceding calendar year. No Incentive Options may be granted on the basis of the
additional shares of Common Stock resulting from such annual increases.
C. In no event may any one individual participating in the Plan
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate per calendar year, beginning with the 1996 calendar year.
D. Should one or more outstanding options under this Plan
(including options incorporated from the Predecessor Plan) expire or terminate
for any reason prior to exercise in full (including any option cancelled in
accordance with the cancellation-regrant provisions of Section IV of Article Two
of the Plan), then the shares subject to the portion of each option not so
exercised shall be available for subsequent option grants under the Plan. Shares
subject to any stock appreciation rights exercised under the Plan and all share
issuances under the Plan, whether or not the shares are subsequently repurchased
by the Corporation pursuant to its repurchase rights under the Plan, shall
reduce on a share-for-share basis the number of shares of Common Stock available
for subsequent issuance under the Plan. In addition, should the exercise price
of an outstanding option under the Plan be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an outstanding option under the Plan or the vesting of a
direct share issuance made under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the share
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or share issuance.
10.
<PAGE>
E. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one individual participating in
the Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate under this Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and price per share in effect under each option outstanding under the
Plan and (v) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
11.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options. Individuals who are not
Employees may only be granted Non-Statutory Options. Each granted option shall
be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
--------
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
------------
1. The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of Common Stock subject
to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value of such Common Stock on the
grant date.
(ii) The option price per share of Common Stock subject
to a Non-Statutory Option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the grant
date.
2. The option price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four,
be payable in cash or check made payable to the Corporation. Should the option
be exercised on or after the Section 12(g) Registration Date, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held by the Optionee for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (a) to a
12.
<PAGE>
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such purchase and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
3. Except to the extent such sale and remittance
procedure is utilized, payment of the option price for the purchased shares must
be made on the Exercise Date.
B. Term and Exercise of Options. Each option granted under
----------------------------
this Plan shall be exercisable at such time or times and during such period as
is determined by the Plan Administrator and set forth in the instrument
evidencing the grant. No such option, however, shall have a maximum term in
excess of ten (10) years measured from the grant date. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable by the Optionee other than by will or by the laws
of descent and distribution following the Optionee's death. However, a Non-
Statutory Option may be assigned in whole or in part during the Optionee's
lifetime in accordance with the terms of a Qualified Domestic Relations Order.
The assigned portion may only be exercised by the person or persons who acquire
a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
C. Termination of Service.
----------------------
1. Except to the extent otherwise provided pursuant to
subsection C.2 below, the following provisions shall govern the exercise period
applicable to any options held by the Optionee at the time of cessation of
Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than death or Permanent Disability, then the period
during which each outstanding option held by such Optionee is to remain
exercisable shall be limited to the three (3)-month period following the
date of such cessation of Service.
(ii) Should such Service terminate by reason of
Permanent Disability, then the period during which each outstanding
option held by the Optionee is to remain exercisable shall be limited to
the twelve (12)-month period following the date of such cessation of
Service.
13.
<PAGE>
(iii) Should the Optionee die while holding one or more
outstanding options, then the period during which each such option is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of the Optionee's death. During such limited period,
the option may be exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.
(iv) Under no circumstances, however, shall any such option
be exercisable after the specified expiration date of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be exercisable for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding with respect to any option shares for which
the option is not at that time exercisable or in which the Optionee is
not otherwise at that time vested.
(vi) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding,
- to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under subsection C.1 of this Article Two
to such greater period of time as the Plan Administrator shall deem
appropriate; provided, that in no event shall such option be exercisable
--------
after the specified expiration date of the option term; and/or
- to permit one or more options held by the Optionee under
this Article Two to be exercised, during the limited post-Service exercise
period applicable under this paragraph C., not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more subsequent installments for which the option
would otherwise have become exercisable had such cessation of Service not
occurred.
14.
<PAGE>
D. Stockholder Rights. An Optionee shall have no stockholder rights with
------------------
respect to any shares covered by the option until such individual shall have
exercised the option, paid the option price for the purchased shares and become
the record holder of those shares.
E. Unvested Shares. The Plan Administrator shall have the discretion to
---------------
authorize the issuance of unvested shares of Common Stock under the Plan. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the option price paid per share, any or
all of those unvested shares. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the agreement evidencing
such repurchase right. All outstanding repurchase rights under the Plan shall
terminate automatically upon the occurrence of any Corporate Transaction, except
to the extent the repurchase rights are expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
F. First Refusal Rights. Until the Section 12(g) Registration Date, the
--------------------
Corporation shall have the right of first refusal with respect to any proposed
sale or other disposition by the Optionee (or any successor in interest by
reason of purchase, gift or other transfer) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms and conditions established by the Plan Administrator and set
forth in the agreement evidencing such right.
II. INCENTIVE OPTIONS
Incentive Options may only be granted to individuals who are Employees,
and the terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Except as modified by the provisions
of this Section II, all the provisions of Articles One, Two and Six of the Plan
shall be applicable to all Incentive Options granted hereunder. Any Options
specifically designated as Non-Statutory shall not be subject to such terms and
---
conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as of
-----------------
the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its Parent or Subsidiary) may for the
first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum
of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as incentive stock options under the
Federal tax laws shall be applied on the basis of the order in which
such options are granted. Should the number of shares of Common Stock
for which any Incentive Option first becomes exercisable in any calendar
year exceed the applicable One Hundred
15.
<PAGE>
Thousand Dollar ($100,000) limitation, then that option may nevertheless be
exercised in that calendar year for the excess number of shares as a Non-
Statutory Option under the Federal tax laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the grant date and the option term shall not exceed five (5)
years measured from the grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option which is at
the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for such Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. However, an outstanding option under this Article Two shall NOT so
accelerate if and to the extent: (i) such option is, in connection with such
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of such
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. However, upon an Optionee's cessation of Service
by reason of an Involuntary Termination within eighteen (18) months after a
Corporate Transaction in which his or her outstanding options are assumed or
replaced pursuant to clause (i) above, each such option shall automatically
accelerate and become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of such shares as fully vested shares of Common Stock.
The option as so accelerated shall remain exercisable until the earlier of (i)
-------
the expiration of the option term or (ii) the expiration of the one (1)-year
period measured from the date of such Involuntary Termination. The determination
of option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
All outstanding repurchase rights shall terminate automatically and the shares
of Common Stock subject to those terminated rights shall immediately vest in
full, upon an Optionee's cessation of Service by reason of an Involuntary
Termination within eighteen (18) months after a Corporate Transaction in which
such repurchase rights were assigned to the successor corporation or parent
thereof.
16.
<PAGE>
C. Immediately following the consummation of a Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to remain
outstanding, except to the extent assumed by the successor corporation or its
parent company.
D. Each outstanding option under this Article Two that is assumed in
connection with a Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share, provided the aggregate exercise price payable for such
--------
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of such Corporate Transaction shall
be appropriately adjusted.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under this Article Two (and the termination of one or
more of the Corporation's outstanding repurchase rights under this Article Two)
upon the occurrence of a Change in Control. The Plan Administrator shall also
have full power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the Optionee's cessation
of Service by reason of an Involuntary Termination within a specified period
following such Change in Control.
F. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term or the surrender of such option in accordance with Section V of this
Article Two.
G. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
H. The portion of any Incentive Option accelerated under this Section III
in connection with a Corporate Transaction or Change in Control shall remain
exercisable as an incentive stock option under the Federal tax laws only to the
extent the dollar limitation of Section II of this Article Two is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated portion of
such option shall be exercisable as a Non-Statutory Option under the Federal tax
laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
17.
<PAGE>
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plan incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an option price per share
not less than (i) one hundred percent (100%) of the Fair Market Value on the new
grant date in the case of a grant of an Incentive Option, (ii) one hundred ten
percent (110%) of such Fair Market Value in the case of an Incentive Option
grant to a 10% Stockholder or (iii) eighty-five percent (85%) of such Fair
Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate exercise price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
-----
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more Section 16 Insiders may, in the Plan Administrator's sole
discretion, be granted limited stock appreciation rights in tandem with their
outstanding options under this Article Two. Upon the occurrence of a Hostile
Take-Over at a time when the Corporation's outstanding Common Stock is
registered under Section 12(g) of the 1934 Act, each such officer holding one or
more options with such a limited stock appreciation right in effect for at least
six (6) months shall have the unconditional right (exercisable for a thirty
(30)-day period following such Hostile Take-Over) to surrender each
18.
<PAGE>
such option to the Corporation, to the extent the option is at the time
exercisable for fully vested shares of Common Stock. The officer shall in return
be entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the vested shares of Common Stock at
the time subject to each surrendered option (or surrendered portion of such
option) over (ii) the aggregate exercise price payable for such vested shares.
Such cash distribution shall be made within five (5) days following the option
surrender date. Neither the approval of the Plan Administrator nor the consent
of the Board shall be required in connection with such option surrender and cash
distribution. Any unsurrendered portion of the option shall continue to remain
outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall NOT be available for
subsequent issuance under the Plan.
19.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement that
complies with the terms and conditions of this Article Three.
A. Consideration.
-------------
1. Shares of Common Stock may be issued under the Stock Issuance
Program for one or more of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) full payment in cash or check made payable to the
Corporation's order;
(ii) a promissory note payable to the Corporation's
order in one or more installments; or
(iii) past services rendered to the Corporation or
any Parent or Subsidiary.
2. The shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one hundred
percent (100%) of the Fair Market Value of such shares at the time of issuance,
but in no event less than eighty-five percent (85%) of such Fair Market Value.
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance (as a bonus for past services) or may vest in
one or more installments over the Participant's period of Service or the
Corporation's attainment of performance milestones. The elements of the vesting
schedule applicable to any unvested shares of Common Stock issued under the
Stock Issuance Program, namely:
20.
<PAGE>
(i) the Service period to be completed by the
Participant or the performance objectives to be achieved by the
Corporation,
(ii) the number of installments in which the shares
are to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement executed by the Corporation and the Participant at the time
such unvested shares are issued.
2. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration or by reason of any Corporate Transaction shall be
issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Stock Issuance
Program, then the Corporation shall have the right to require the Participant to
surrender those shares immediately to the Corporation for cancellation, and the
Participant shall cease to have any further stockholder rights with respect to
the surrendered shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the unpaid principal balance of any outstanding
purchase-money note of the Participant attributable to such surrendered shares.
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the non-
completion of the
21.
<PAGE>
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
C. First Refusal Rights. Until the Section 12(g) Registration
--------------------
Date, the Corporation shall have a right of first refusal with respect to any
proposed disposition by the Participant (or any successor in interest by reason
of purchase, gift or other transfer) of any shares of Common Stock issued under
this Article Three. Such right of first refusal shall be exercisable in
accordance with the terms and conditions established by the Plan Administrator
and set forth in the agreement evidencing such right.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under this
Article Three shall automatically terminate upon the occurrence of a Corporate
Transaction, except to the extent the Corporation's outstanding repurchase
rights are expressly assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction. However, any assigned repurchase
rights covering the unvested shares held by a Participant under this Article
Three shall immediately terminate should there occur an Involuntary Termination
of that Participant's Service within eighteen (18) months after such Corporate
Transaction.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the shares are issued under this Article Three or
at any time while those shares remain outstanding, to provide for the automatic
termination of the Corporation's repurchase rights with respect to those shares
should there occur a Change in Control. The Plan Administrator shall also have
full power and authority to condition the termination of those repurchase rights
upon the Participant's cessation of Service by reason of an Involuntary
Termination within a specified period following such Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing such unvested shares.
B. The Participant shall have no right to transfer any unvested shares
of Common Stock issued to him or her under the Stock Issuance Program. For
purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift or other disposition
of such shares, whether voluntary or involuntary. Upon any such attempted
transfer, the unvested shares shall immediately be
22.
<PAGE>
cancelled in accordance with substantially the same procedure in effect under
Section I.B.3 of this Article Three, and neither the Participant nor the
proposed transferee shall have any rights with respect to such cancelled shares.
However, the Participant shall have the right to make a gift of unvested shares
acquired under the Stock Issuance Program to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the transferee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Stock Issuance Program and
the Stock Issuance Agreement applicable to the gifted shares.
23.
<PAGE>
ARTICLE FOUR
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Committee shall have the sole and exclusive authority to determine
the calendar year or years (if any) for which the Salary Investment Option Grant
Program is to be in effect and to select the Section 16 Insiders and other
highly compensated Employees eligible to participate in the Salary Investment
Option Grant Program for those calendar year or years. Each selected individual
who elects to participate in the Salary Investment Option Grant Program must,
prior to the start of each calendar year of participation, file with the Plan
Administrator (or its designate) an irrevocable authorization directing the
Corporation to reduce his or her base salary for that calendar year by an amount
not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand
Dollars ($50,000.00). Each individual who files a proper salary reduction
authorization shall automatically be granted an option under this Salary
Investment Option Grant Program on the first trading day in January of the
calendar year for which that salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
24.
<PAGE>
A is the dollar amount by which the Optionee's base salary is to
be reduced for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
-------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
three (3)-year period measured from the date of the Optionee's cessation of
Service. However, the option shall, immediately upon the Optionee's cessation of
Service for any reason, terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
25.
<PAGE>
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier or (i) the expiration
-------
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is serving as a non-employee Board
member on the Underwriting Date, other than an individual appointed to the Board
as a non-employee Board member on or after April 1, 1996 but prior to the
Underwriting Date, shall automatically be granted, on such date, a Non-Statutory
Option to purchase 10,000 shares of Common Stock, provided such individual has
not previously been in the employ of the Corporation (or any Parent or
Subsidiary).
2. Each individual who is first elected or appointed as a non-
employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment
(as the case may be), a Non-Statutory Option to purchase 10,000 shares of Common
Stock, provided such individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director after such Meeting (including those individuals first
appointed on or after April 1, 1996 but prior to the Underwriting Date) whether
or not that individual is standing for re-election to the Board at that
particular Annual Meeting, shall automatically be granted a Non-Statutory Option
to purchase 2,500 shares of Common Stock, provided such individual has served as
a non-employee Board member for at least six (6) months. There shall be no limit
on the number of such 2,500-share option grants any one Eligible Director may
receive over his or her period of Board service, and non-employee Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall be eligible to receive one or more such annual option grants
over their period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
27.
<PAGE>
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
-------------------------------
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 10,000-share grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of four
(4) successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 2,500-share grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the option grant date.
E. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any
28.
<PAGE>
reason other than death or Permanent Disability, terminate and cease to
be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her for a period of at least six (6) months. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required in connection with such option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
29.
<PAGE>
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with the
option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
30.
<PAGE>
ARTICLE SIX
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal, state and local income and employment
tax obligations arising therefrom, by:
(i) authorizing the extension of a loan from the Corporation to
such Optionee or Participant, or
(ii) permitting the Optionee or Participant to pay the option
price or purchase price for the purchased Common Stock in installments
over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate at the time such option price or purchase price
becomes due and payable. Loans or installment payments may be authorized with or
without security or collateral. In all events, the maximum credit available to
the Optionee or Participant may not exceed the option or purchase price of the
acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this Section I shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may in its discretion deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, (i) no such amendment or modification shall adversely
affect rights and obligations with respect to options at the time outstanding
under the Plan, nor adversely affect the rights of any Participant with respect
to Common Stock issued under the Stock Issuance Program prior to such action,
unless the Optionee or Participant consents to such amendment and
31.
<PAGE>
(ii) any amendment made to the Salary Incentive Option Grant and Automatic
Option Grant Program (or any stock option or stock issuances outstanding
thereunder) shall be in compliance with the applicable limitations of those
programs. In addition, the Board may not, without the approval of the
Corporation's stockholders, amend the Plan to (i) increase the maximum number of
shares issuable under the Plan or the maximum number of shares for which any one
individual participating in the Plan may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances in the
aggregate per calendar year under the Plan, except for permissible adjustments
under Article One, (ii) materially modify the eligibility requirements for Plan
participation, or (iii) otherwise materially increase the benefits accruing to
Plan participants.
B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and (ii) shares of Common Stock may
be issued under the Stock Issuance Program, which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Option Grant Program or the
Stock Issuance Program are held in escrow until stockholder approval is obtained
for a sufficient increase in the number of shares available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (i) any unexercised excess options shall terminate and cease to be
exercisable and (ii) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any stock options granted under Article Two or upon the
issuance of any shares under Article Three shall be subject to the satisfaction
of all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
32.
<PAGE>
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan originally became effective upon its adoption by the
Board on August 12, 1994 and was approved by the Corporation's stockholders on
October 10, 1994. The Plan is designed to serve as the successor to the
Corporation's 1992 Stock Plan No further option grants or stock issuances shall
be made under the Predecessor Plan from and after the Plan Effective Date.
B. On November 22, 1994, the Corporation effected a four-for-one
split of the outstanding Common Stock. On November 8, 1995 the Board adopted a
200,000-share increase in the maximum number of shares of Common Stock issuable
over the term of the Plan. The increase was approved by the Corporation's
stockholders in November 1995.
C. In February 1996, the Board amended the Plan to (i) increase the
maximum number of shares of Common Stock issuable over the term of the Plan by
750,000 shares to 2,790,000 shares and (ii) increase the maximum number of
shares of Common Stock for which any one participant in the Plan may receive
option grants, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate from 500,000 shares over the term of such plan to
500,000 shares per calendar year, beginning with the 1996 calendar year. On May
21, 1996, in anticipation of the initial public offering of the Common Stock,
the Board further amended and restated the Plan to (i) provide for the immediate
termination of options granted after such date in the event of the Optionee's
termination of Service for misconduct, (ii) provide for automatic increases in
the maximum number of shares of Common Stock reserved for issuance under the
Plan to be effected on the first trading day in each of the 1998 and 1999
calendar years, and (ii) implement the Automatic Option Grant and Salary
Investment Option Grant Programs. The restatement was approved by the
Corporation's stockholders in June 1996.
D. Each stock option grant outstanding under the Predecessor Plan
immediately prior to the Plan Effective Date was incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder. However, the
Plan Administrator shall have complete discretion to extend, under such
circumstances as it may deem appropriate, one or more provisions of this Plan
33.
<PAGE>
EXHIBIT 10.3
OPTIKA IMAGING SYSTEMS, INC.
----------------------------
1996 MANAGEMENT INCENTIVE COMPENSATION PLAN
(ADOPTED BY THE BOARD OF DIRECTORS ON MAY 21, 1996)
I. PURPOSE OF THE PLAN
This Management Incentive Compensation Plan (the "Plan") is intended to
promote the interests of Optika Imaging Systems, Inc., a Delaware corporation
(the "Company"), by providing a select group of senior executive employees of
the Company who are primarily responsible for the management, growth and success
of the business with the opportunity to participate in a special cash bonus
program designed to provide them with an incentive to remain in the Company's
employ and encourage them to contribute to the Company's financial success in
the 1996 fiscal year.
II. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a special committee (the "Plan
Administrator") to be comprised of the President of the Company and the members
of the Company's Compensation Committee. The Plan Administrator shall have full
power and authority (subject to the provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for proper administration of
the Plan and to make such determinations under, and issue such interpretations
of, the Plan as it may deem necessary or advisable. Any ambiguities in the Plan
shall be resolved solely by the Plan Administrator. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan.
III. PLAN PARTICIPANTS
<PAGE>
The senior executive employees of the Company shall be eligible to
participate in the Plan. The Plan Administrator shall select the individuals
who shall participate in the Plan (each a "Participant").
IV. BONUS POOL
Assuming the Company's actual operating profit for the 1996 fiscal year
is equal to 100% of its planned operating profit for such fiscal year (after
deduction of the amount to be reserved pursuant to the Plan), the bonus pool for
the Plan (the "Plan Pool") shall be $254,000. However, the Plan Pool shall be
increased or decreased based on the Company's actual operating results as
compared to the planned operating profit in accordance with the formula set
forth below:
% OF PLANNED OPERATING ACTUAL POOL AS % OF
PROFIT ACHIEVED $254,000
200%+ 300%
175% 250%
150% 200%
130% 150%
115% 120%
100% 100%
95% 95%
90% 90%
85% 80%
80% 70%
75% 60%
70% 0%
No Plan Pool shall be established, and no bonuses shall become payable
under the Plan, in the event the Company's actual operating profit for the 1996
fiscal year is not at least seventy-five percent (75%) of the Company's planned
operating profit for such fiscal year. The amount of the Plan Pool shall be
established within thirty (30) days after the end of the 1996 fiscal year.
V. INDIVIDUAL PARTICIPANT BONUSES
The Plan Administrator shall establish the target dollar bonus for each
Participant which shall be a percentage of each Participant's base salary.
Upon establishment of the Plan Pool, fifty percent (50%) of the Plan
Pool shall be reserved for distribution to those Participants who are serving as
employees of the Company at the end of the 1996 fiscal year in proportion to
their respective target bonuses.
The remaining fifty percent (50%) of the Plan Pool shall be reserved
for distribution to those Participants who were employees of the Company at the
end of the 1996 fiscal year as determined in the sole discretion of the Plan
Administrator following a review of each such Participant's performance. The
Plan Administrator shall have the discretion to distribute all or part of such
remaining fifty percent (50%) of the Plan Pool.
VI. PAYMENT OF BONUSES
Payment of fifty percent (50%) of each Participant's total bonus (as
determined in paragraph V above) shall be made within thirty (30) days after the
end of the 1996 fiscal year. Payment of the remaining fifty percent (50%) shall
be made upon completion of the audit of the Company's financial statements for
the 1996 fiscal year.
VII. NON-TRANSFERABILITY/UNFUNDED AND UNSECURED OBLIGATION
The right to receive a bonus under the Plan may not be transferred,
assigned, pledged or encumbered. The Company's obligation to pay the amounts
which become due and payable under the Plan shall at all times be an unfunded
and unsecured obligation of the Company, and Participants shall only have the
status of general creditors with respect to any amounts which actually become
due and payable to them under the Plan and shall look solely and exclusively to
the general assets of the Company for payment.
VIII. WITHHOLDING
All bonus amounts which become payable under the Plan shall be subject
to the Company's collection of all applicable Federal, state and local income
and employment taxes required to be withheld therefrom.
IX. NO EMPLOYMENT RIGHTS
Nothing in the Plan shall confer upon a Participant any right to
continue in Employee status for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Company or of the
Participant, which rights are hereby expressly reserved by each, to terminate
the Participant's employment at any time for any reason, with or without cause.
X. GOVERNING LAW
The provisions of the Plan shall be governed by and construed in
accordance with the laws of the State of Colorado without resort to that State's
conflict-of-laws rules.
XI. SUCCESSORS AND ASSIGNS
The liabilities and obligations of the Company hereunder shall be
binding upon any successor corporation or entity which succeeds to all or
substantially all of the assets and business of the Company by merger or other
transaction, whether or not such transaction qualifies as an Acquisition.
XII. ARBITRATION
Should a Participant dispute the Plan Administrator's decision with
respect to such Participant's claimed benefit entitlement under the Plan
(whether as to eligibility or amount), such dispute shall be settled by
arbitration proceedings conducted in the State of Colorado in accordance with
the applicable rules of the American Arbitration Association. If the parties
cannot agree upon the individual to serve as arbitrator, then they shall request
the American Arbitration Association to submit a list of five (5) potential
arbitrators, and in the absence of any agreement as to which of the named
individuals shall serve as arbitrator, each party shall have the right to remove
two (2) of the named individuals from the list, and the last remaining
individual on the list shall accordingly serve as the arbitrator. Such
arbitrator shall have full power and authority to settle the dispute through
interpretation and application of the express provisions of the Plan, but shall
have no authority to amend, revise or supplement such provisions. The costs of
such arbitration shall be shared equally by the Company and the Participant, and
the decision of the arbitrator shall be final and binding on them.
2.
<PAGE>
SCHEDULE A
PLAN PARTICIPANTS
<PAGE>
EXHIBIT 10.4
OPTIKA IMAGING SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Optika Imaging Systems, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed Two Hundred Fifty
Thousand (250,000) shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
<PAGE>
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The initial offering period shall commence at the Effective Time and
terminate on the last business day in July 1998. The next offering period shall
commence on the first business day in August 1998, and subsequent offering
periods shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year. However, the first Purchase Interval in
effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in January 1997.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date, with all
Participants in the terminated offering period to be automatically enrolled in
the new offering period. The new offering period shall have a duration of
twenty-four (24) months, unless a shorter duration is established by the Plan
Administrator within five (5) business days following the start date of that
offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Quarterly Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Quarterly Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect throughout the
offering period, except to the extent such rate is changed in accordance with
the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
-----------------------
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive
3.
<PAGE>
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common Stock
--------------
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be eighty-five percent (85%) of the lower of (i) the Fair
-----
Market Value per share of Common Stock on the Participant's Entry Date into that
offering period or (ii) the Fair Market Value per share of Common Stock on that
Purchase Date. However, for each Participant whose Entry Date is other than the
start date of the offering period, the clause (i) amount shall in no event be
less than the Fair Market Value per share of Common Stock on the start date of
that offering period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
----------------------------
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed seven hundred fifty (750) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
4.
<PAGE>
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If no
such election is made at the time such purchase right is terminated, then
the payroll deductions collected with respect to the terminated right shall
be refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for
which the terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into that offering
period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his
or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business day
of the Purchase Interval in which such leave commences, to elect to (a)
withdraw all the payroll deductions collected to date on his or her behalf
for that Purchase Interval or (b) have such funds held for the purchase of
shares on his or her behalf on the next scheduled Purchase Date. If no such
election is made prior to the last business day of the purchase interval in
which the leave commences, then the payroll deductions collected during such
Purchase Period shall be refunded as soon as possible. In no event, however,
shall any further payroll deductions be collected on the Participant's
behalf during the leave of absence. Upon the Participant's return to active
service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, unless the
Participant withdraws from the Plan prior to his or her return.
5.
<PAGE>
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each
Participant for the Purchase Interval in which such Corporate Transaction
occurs to the purchase of whole shares of Common Stock at a purchase price
per share equal to eighty-five percent (85%) of the lower of (i) the Fair
-----
Market Value per share of Common Stock on the Participant's Entry Date into
the offering period in which such Corporate Transaction occurs or (ii) the
Fair Market Value per share of Common Stock immediately prior to the
effective date of such Corporate Transaction.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
----------------------------
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by the
-------------
Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
------------------
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate
6.
<PAGE>
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of
the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 21, 1996 and shall become
effective at the Effective Time, provided, however, that no purchase rights
--------
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect,
7.
<PAGE>
and all sums collected from Participants during the initial offering period
hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2006, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time
to become effective immediately following the close of any Purchase Interval.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of Colorado without resort to that State's conflict-of-laws rules.
8.
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Optika Imaging Systems, Inc.
Optika Asia Incorporated
Optika Imaging Systems Europe Limited
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. CASH COMPENSATION shall mean (i) the regular base salary paid to a
-----------------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan, plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Corporation or any Corporate Affiliate, plus
(iii) all of the following amounts to the extent paid in cash: overtime
payments, bonuses, commissions, profit-sharing distributions and other
incentive-type payments. However, Eligible Earnings shall NOT include any
contributions (other than Code Section 401(k) or Code Section 125 contributions)
made on the Participant's behalf by the Corporation or any Corporate Affiliate
to any deferred compensation plan or welfare benefit program now or hereafter
established.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
-------------------
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Optika Imaging Systems, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Optika Imaging Systems, Inc. which shall by
appropriate action adopt the Plan.
A-1.
<PAGE>
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first commences
----------
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which begins at
the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
A-2.
<PAGE>
M. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
----
set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be January 31, 1997.
R. PURCHASE INTERVAL shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. QUARTERLY ENTRY DATE shall mean the first business day in February,
--------------------
May, August and November each year on which an Eligible Employee may first enter
an offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
EXHIBIT 10.13
June 28, 1996
Mr. Steve Johnson
Chief Financial Officer
Optika Imaging Systems, Inc.
5575 Mark Dabling Blvd. #100
Colorado Springs, CO 80919
Dear Steve:
Silicon Valley Bank ("Bank") is pleased to outline the revised terms of our
credit facility in the aggregate amount of $3,000,000 ("Credit Facility") to
provide Optika Imaging Systems, Inc. ("Borrower") with working capital financing
under the terms and conditions of this letter. This letter outlines the changes
to the Line of Credit. All other credit obligations will remain unchanged.
This letter is not meant to be, nor shall it be construed as, an attempt to
define all the terms and conditions of the Credit Facility. The following,
however, is a summary of the basic business points.
BORROWER: Optika Imaging Systems, Inc.
CREDIT FACILITIES: $3,000,000 Revolving Line of Credit
PURPOSE: Finance working capital.
MATURITY: 12 months from close
(Line of Credit)
BORROWING FORMULA: Advances under the Line of Credit will be based on a 75%
advance rate against Eligible Accounts Receivable.
Eligible Accounts Receivable are those which contain selling
terms acceptable to Bank and those in which the Bank has
been granted a security interest. Eligible Accounts will
exclude accounts over 90 days from invoice date, government
accounts, intercompany accounts, contra accounts, foreign
accounts not supported by acceptable letter of credit,
accounts in excess of 25% of the receivable and accounts
with more than 50% over 90 days from invoice date.
Upon closing of an Initial Public Offering generating in
excess of $15,000,000 of net proceeds ("Qualified IPO") the
Borrowing Formula will be eliminated.
INTEREST RATE: P+.75% floating
<PAGE>
Mr. Steve Johnson
June 28, 1996
Page 2
INTEREST PAYMENT: Monthly
PRINCIPAL PAYMENT: Upon Maturity
COMMITMENT FEE: 3/8% of commitment
COLLATERAL: First perfected interest in all assets, including
intellectual property.
Upon a Qualified IPO all intellectual property to be
released as collateral.
WARRANTIES AND Borrower shall make customary representations, warranties,
and COVENANTS: covenants, together with such other representations,
warranties, and covenants as Bank or its counsel may deem
reasonably necessary or desirable, including but not
limited to the following:
Financial Covenants: Borrower to maintain the following on a quarterly basis:
1. Minimum Quick Ratio* 1.75 to 1.00
2. Minimum Tangible Net Worth, plus 75% of $2,000,000
additional equity.
3. Maximum Debt*/Tangible Net Worth 1.00 to 1.00
4. Quarterly profitability with an
allowance for one loss quarter up to
$250,000.
5. Minimum Liquidity times principal
outstandings under existing term debt. 2.00 times
6. Debt Service requirement of 1.50 to
1.00 to replace (5) above upon Borrower
achieving 2 consecutive quarters of
Debt Service.
* Excludes deferred maintenance revenue from liabilities.
Financial Reporting: Borrower to provide Bank with the following:
1. Monthly company prepared financial statements within 30
days after month-end, including a compliance
certificate
2. Monthly accounts receivable and accounts payable agings
along with a borrowing base certificate with 15 days
after month-end. To be eliminated upon a Qualified IPO.
3. Annual CPA Audited financial statements with an
unqualified opinion within 90 days after month end.
4. Upon a Qualified IPO (1) above will revert to 10Q and
10K reports within 45 days and 90 days of period end,
including a compliance certificate.
Other Covenants: 1. Restrictions on additional debt financing, guarantees,
mergers and acquisitions.
2. A satisfactory accounts receivable audit will be
completed prior to funding and semi-annually if
outstandings exist. Upon a Qualified IPO accounts
receivable audits will be eliminated.
EXPENSES: Borrower shall pay all fees and charges in connection with
the Credit Facilities, including fees of Bank's counsel
and accounts receivable audits. Such costs payable by
Borrower are in addition to the Commitment Fee described
above.
<PAGE>
Mr. Steve Johnson
June 28, 1996
Page 3
CONDITIONS OF CLOSING: The following shall be satisfied by Borrower prior to
closing and shall be conditions precedent to any
obligation to fund the Credit Facility:
1. Documentation satisfactory to Bank.
2. No representation, warranty, or disclosure made by
Borrower shall prove to be false or misleading as of
the date made.
3. Borrower shall continue to maintain its primary
depository relationship with Bank.
4. Bank to be named as Loss Payee on Borrower's
insurance policy.
If these basic terms and conditions are acceptable, please so indicate by
signing this letter and returning it by July 2, 1996. Receipt of this will
constitute your instruction to the Bank to commence (at your expense)
documentation which shall supersede this letter. Without Bank's written consent
this letter and related items will expire if formal documentation is not agreed
upon by July 19, 1996.
This letter is intended to set fourth the proposed terms of the Credit Facility
currently under discussion between us. It is intended that all legal rights and
obligations of the Bank and Borrower will be set fourth in signed definitive
loan documents. On behalf of the Bank, we are delighted to make this proposal
to you and look forward continuing our relationship.
Sincerely,
SILICON VALLEY BANK
/s/ GREG BECKER
- ---------------------
Greg Becker
Senior Vice President
ACCEPTED AND AGREED TO THIS ______ DAY OF JULY, 1996.
OPTIKA IMAGING SYSTEMS, INC.
/s/ STEVEN M. JOHNSON
- ----------------------
MR. STEVE JOHNSON, CFO
<PAGE>
EXHIBIT 11.1
OPTIKA IMAGING SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PRO FORMA NET INCOME (LOSS)
PER COMMON SHARE (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER ---------------------------
31, 1995 JUNE 30, 1995 JUNE 30, 1996
---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Number of common shares outstanding for
entire period......................... 2,595,376 2,595,376 2,595,376
Weighted average number of shares of
mandatorily redeemable convertible
preferred stock assumed converted to
common stock at time of issuance...... 1,132,817 1,059,287 1,500,464
Common and common equivalent shares
issued during the twelve month period
prior to the filing of the Company's
proposed initial public offering
calculated using the treasury stock
method and the assumed initial
offering price of $10 per share....... 1,082,893 1,132,081 836,954
Weighted average number of dilutive
common stock equivalent shares
calculated using the treasury stock
method................................ -- -- 796,856
---------- ---------- ----------
Pro forma weighted average number of
common shares outstanding............. 4,811,086 4,786,744 5,729,650
========== ========== ==========
Net income (loss)...................... $ (962,000) $ (756,000) $ 45,000
========== ========== ==========
Pro forma net income (loss) per common
share (unaudited)..................... $ (.20) $ (.16) $ 0.01
========== ========== ==========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form S-1 of our report dated
March 1, 1996, relating to the consolidated financial statements of Optika
Imaging Systems, Inc., which appears in such Prospectus. We also consent to
the references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boulder, Colorado
July 1, 1996
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Mark K. Ruport and Steven M. Johnson, and each of
them singly, as 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 the Registration Statement No. 333-04309 and any
or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and otherwise), 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 the full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as full 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 his or
her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Power of Attorney has been signed by the following person in the capacity
and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT L. GETT Director July 3, 1996
- -------------------
Robert L. Gett
