<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996
REGISTRATION NO. 333-09457
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
DIGITAL LIGHTWAVE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3663 95-4313013
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 34615
(813) 442-6677
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
BETH A. MORRIS
CHIEF FINANCIAL OFFICER
DIGITAL LIGHTWAVE, INC.
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 34615
(813)442-6677
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
<TABLE>
<S> <C>
JOHN J. HENTRICH, ESQ. JEFFREY M. STEIN, ESQ.
BAKER & MCKENZIE KING & SPALDING
101 WEST BROADWAY 191 PEACHTREE STREET, N.E.
SAN DIEGO, CALIFORNIA 92101-3890 ATLANTA, GEORGIA 30303-1763
(619) 235-7776 (404) 572-4600
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS PROMPTLY AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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. / /
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.0001
par value per share.............. $55,200,000 $19,034
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes 600,000 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
----------------
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DIGITAL LIGHTWAVE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information; Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors; Not Applicable
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal and Selling Stockholders
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock; Shares Eligible for
Future Sale; Dilution; Dividend Policy
10. Interests of Named Experts and Counsel............... Experts; Legal Matters
11. Information with Respect to the Registrant
(1) Description of Business......................... Prospectus Summary; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Certain Transactions;
Financial Statements (including the Notes thereto)
(2) Description of Property......................... Business -- Facilities
(3) Legal Proceedings............................... Business -- Legal Proceedings
(4) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters............................. Risk Factors; Dividend Policy; Underwriting
(5) Financial Statements............................ Financial Statements (including the Notes thereto)
(6) Selected Financial Data......................... Prospectus Summary -- Summary Financial Data;
Selected Financial Data
(7) Supplementary Financial Information............. Not Applicable
(8) Management's Discussion and Analysis of
Financial Condition and Results of Operations... Management's Discussion and Analysis of Financial
Condition and Results of Operations
(9) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. Not Applicable
(10) Directors and Executive Officers............... Management -- Executive Officers and Directors
(11) Executive Compensation......................... Management -- Executive Compensation
(12) Security Ownership of Certain Beneficial Owners
and Management................................. Principal and Selling Stockholders
(13) Certain Relationships and Related
Transactions................................... Management; Certain Transactions
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.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1996
4,000,000 Shares
[LOGO]
Common Stock
($.0001 PAR VALUE)
--------------
OF THE SHARES OF COMMON STOCK ("COMMON STOCK") OFFERED HEREBY (THE "OFFERING"),
3,140,000 SHARES ARE BEING SOLD BY DIGITAL LIGHTWAVE, INC. ("DIGITAL
LIGHTWAVE" OR THE "COMPANY") AND 860,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS NAMED HEREIN UNDER "PRINCIPAL AND SELLING
STOCKHOLDERS" (THE "SELLING STOCKHOLDERS"). THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS OF SHARES SOLD BY THE SELLING
STOCKHOLDERS. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK. IT IS ANTICIPATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $10.00 AND $12.00 PER SHARE.
FOR INFORMATION RELATING TO THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL OFFERING PRICE TO THE PUBLIC,
SEE "UNDERWRITING." THE COMMON STOCK HAS BEEN
APPROVED FOR LISTING ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "DIGL."
--------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 7
HEREIN.
-------------
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 COMPANY(1) STOCKHOLDERS
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
PER SHARE........................... $ $ $ $
TOTAL(2)............................ $ $ $ $
</TABLE>
(1) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT
$1,000,000.
(2) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE FOR 30 DAYS
FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE A MAXIMUM OF 600,000
ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS OF SHARES. IF THE
OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ ,
UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ , AND PROCEEDS TO
COMPANY WILL BE $ .
--------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS WHEN, AS
AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THEIR RIGHT
TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE SHARES OF COMMON
STOCK WILL BE READY FOR DELIVERY ON OR ABOUT , 1996, AGAINST PAYMENT IN
IMMEDIATELY AVAILABLE FUNDS.
CS FIRST BOSTON
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[PHOTOGRAPH]
DIGITAL LIGHTWAVE and the rectangular design logo are trademarks of the
Company for which registration has been applied. "ASA 312," "NPP 155H" and "NIU
130" are trademarks of the Company. All other trademarks or trade names referred
to in this Prospectus are the property of their respective owners.
--------------
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 TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNT OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS
FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE FINANCIAL STATEMENTS AND THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. CERTAIN TERMS CONTAINED HEREIN HAVE THE RESPECTIVE MEANINGS SET
FORTH IN THE GLOSSARY AT PAGE G-1. UNLESS OTHERWISE INDICATED, ALL INFORMATION
CONTAINED IN THIS PROSPECTUS: (I) GIVES EFFECT TO A TWO FOR THREE REVERSE SPLIT
OF THE COMMON STOCK EFFECTED ON OCTOBER 30, 1996; AND (II) ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "DESCRIPTION OF
CAPITAL STOCK" AND "UNDERWRITING."
THE COMPANY
Digital Lightwave develops, manufactures and sells advanced computer systems
that provide information concerning the performance of telecommunications
networks and transmission equipment. The Company believes that there is a
growing need on the part of its customers, which include telecommunications
service providers and network equipment manufacturers, to obtain such
information in order to verify and manage the transmission of voice, data and
video and to plan and implement network expansion more effectively. The
Company's product, the ASA 312, is a portable software-based network information
computer that is designed to outperform conventional hardware-based network test
instruments. The ASA 312 is "user friendly," lightweight, compact and easily
operated through a touch sensor over a full color display. The Company believes
that the ASA 312 is the only integrated product that enables users to understand
and process information, simultaneously and without interruption, from
telecommunications networks utilizing: (i) the legacy T-Carrier protocol at
rates DS-1 and DS-3; (ii) the fiber optic SONET protocol at rates OC-1, OC-3,
OC-3c and OC-12; and (iii) the ATM protocol. The Company plans to utilize the
core technologies employed in the ASA 312 to develop a family of on-line remote
access network information products.
The Company began shipping the ASA 312 in February 1996. The customers which
have purchased the ASA 312 thus far include: (i) InterExchange Carriers
("IXCs"), such as MCI Telecommunications Corp. ("MCI"); (ii) Regional Bell
Operating Companies ("RBOCs"), such as Pacific Telesis Group ("PacTel"); (iii)
Competitive Access Providers ("CAPs"), such as U.S. South Communications Inc.
("U.S. South"); (iv) independent telephone companies, such as GTE Corp. ("GTE");
(v) network equipment manufacturers, such as Tellabs Operations, Inc.
("Tellabs"); (vi) equipment leasing companies, such as AT&T Capital Services
Corp. ("AT&T Capital"); and (vii) the U.S. Department of Defense.
INDUSTRY OVERVIEW
Over the past several years, traffic volume generated by LANs, WANs,
wireless networks and the Internet has placed substantial demands on the public
telecommunications network. In order to satisfy the substantially increased
demand for capacity, bandwidth and enhanced data services, telecommunications
service providers have added newer, higher capacity fiber optic cable to their
existing infrastructure. Domestic telecommunications service providers have
added high speed fiber optic SONET transmission equipment to the installed base
of legacy T-Carrier transmission equipment. With the transition to SONET
transmission equipment, the number of equipment manufacturers has increased and
new entrants have gained significant market share. In addition, IXCs, RBOCs,
CAPs and independent telephone companies have begun to compete actively in local
and long distance markets as a result of deregulation of the domestic
telecommunications industry.
In light of these developments, the Company believes that the following
factors are shaping the demand for advanced products that process and deliver
telecommunications network information: (i) telecommunications service providers
face competitive pressure to install high performance network transmission and
cross-connect equipment to provide greater bandwidth and quality of service to
their customers; (ii) telecommunications service providers may seek to monitor
on a continuous basis the transmissions passing through their network elements
in order to offer the consistent and reliable quality of service necessary to
charge premium rates; and (iii) equipment manufacturers will be subjected to
more exacting standards in designing, engineering and manufacturing their
products. The Company believes that
3
<PAGE>
these factors have created a need for technology that provides
telecommunications service providers with enhanced access to information
concerning their networks and provides equipment manufacturers with a more
reliable means of measuring the performance of their products.
BACKGROUND AND STRATEGY
In 1991, the Company's founder assembled a group of engineers with prior
shared experience in the development of optical multiplexers to design and
develop software, firmware and hardware technology to provide network
information solutions. The Company produced prototypes of the ASA 312 in late
1994 and in 1995, developed advanced feature sets for the ASA 312 in
collaboration with leading telecommunications service providers and equipment
manufacturers. The Company started shipping the ASA 312 in February 1996 and has
shipped 102 units to 20 different customers. The Company believes that the ASA
312 will assist the Company in securing a position as a technological leader in
the development of network information solutions.
The Company has developed a growth strategy which is designed to increase
its market share and expand distribution across a wide range of customers. The
key elements of the Company's strategy for growth include:
-INCREASE DOMESTIC SALES. The Company intends to increase sales of the ASA
312 by recruiting additional internal sales staff to broaden its customer
base and obtain repeat orders. In addition, the Company plans to enter the
existing domestic market for on-line T-Carrier remote access products and
obtain an early market position as a supplier of on-line SONET and ATM
remote access products. Further, the Company intends to supplement its
direct sales network and develop strategic OEM partnering relationships
with network equipment manufacturers.
-PENETRATE INTERNATIONAL MARKETS. The Company believes that significant
demand exists outside the United States for products such as the ASA 312
and the Company's planned on-line remote access products and intends to
design and develop versions of these products for international markets.
-ESTABLISH TECHNOLOGY LEADERSHIP. The Company believes that the ASA 312
offers superior performance over competing products. The Company intends to
continue to devote significant resources to research and development in an
effort to establish its existing and planned products as leaders in network
information technology. The Company also intends to broaden its product
line by licensing or acquiring selected technologies that are outside the
scope of its research and development activities.
The Company was incorporated in California on October 12, 1990, under the
name Digital Lightwave, Inc., and reincorporated in Delaware on March 18, 1996,
through its merger into a newly formed Delaware corporation. Unless the context
otherwise requires, as used in this Prospectus the "Company" and "Digital
Lightwave" refer to the Company and its predecessor entity. The Company's
principal executive offices are located at 601 Cleveland Street, Fifth Floor,
Clearwater, Florida 34615; its telephone and facsimile numbers are 813.442.6677
and 813.442.5660; its e-mail address is [email protected]; and its Web site
address is http://www.lightwave.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company.......................... 3,140,000 shares
The Selling Stockholders............. 860,000 shares
Total.............................. 4,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 25,658,917 shares (1)
Use of Proceeds........................ Working capital, retirement of short-term
obligations and other general corporate purposes,
including new product development, expansion of
domestic and international distribution
capabilities and possible funding of the
acquisition of complementary businesses, products
or technologies. The Company will not receive any
proceeds from the sale of Common Stock by the
Selling Stockholders.
Nasdaq National Market Symbol.......... DIGL
</TABLE>
- --------------
(1) Excludes 3,286,667 shares of Common Stock issuable upon the exercise of
outstanding employee stock options granted prior to the date hereof and
1,713,333 shares of Common Stock which are reserved for issuance pursuant to
employee stock options which may be granted in the future.
5
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Sales.................................... $ -- $ -- $ -- $ -- $ 3,037
Gross profit............................. -- -- -- -- 1,885
Operating income (loss).................. (545) (1,568) (2,725) (1,894) (1,713)
Net interest income (expense)............ (41) (114) (613) (367) (414)
Net income (loss)........................ $ (587) $ (1,683) $ (3,334) $ (2,261) $ (2,320)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss) per share.............. $ (.01) $ (.04) $ (.08) $ (.05) $ (.10)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares
outstanding (1)......................... 43,345,871 43,345,871 41,744,634 43,345,871 23,594,079
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital...................................................................... $ 2,263 $ 33,385
Total assets......................................................................... 6,055 36,427
Total debt........................................................................... 750 --
Total stockholders' equity........................................................... 3,237 34,359
</TABLE>
- --------------
(1) On November 30, 1995, 19,215,686 shares of Common Stock were purchased by
the Company from a former stockholder pursuant to an option granted to the
Company by the former stockholder in February 1995. See "Certain
Transactions -- Transactions with Former Stockholder." Pursuant to the
requirements of the Securities and Exchange Commission, Common Stock and
stock options and warrants to purchase shares of Common Stock issued by the
Company during the 12 months prior to the initial public offering date have
been included in the calculation of the weighted average shares outstanding
for all periods presented using the treasury stock method based upon an
assumed initial public offering price of $11.00 per share.
(2) Adjusted to reflect the sale of 3,140,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00 per
share (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company).
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. 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 SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THE ACCURACY OF WHICH IS SUBJECT TO MANY RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."
LIMITED OPERATING HISTORY; CUMULATIVE LOSSES
The Company was incorporated in October 1990 and commenced shipment of its
initial and current product, the ASA 312, in February 1996. Since its inception,
the Company has incurred substantial costs to develop and enhance its
technology, to create, introduce and enhance its product offerings, to establish
marketing and distribution relationships, to recruit and train a sales and
marketing group, and to build an administrative organization. As a consequence,
the Company has incurred operating losses in each fiscal quarter and year since
inception. As of September 30, 1996, the Company had an accumulated deficit of
$9.3 million. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new, unproven and rapidly
evolving markets. There can be no assurance that the Company will be successful
in addressing such risks. The limited operating history of the Company makes the
prediction of future results of operations difficult or impossible, and
therefore, there can be no assurance that the Company will sustain growth or
achieve profitability.
UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S EXISTING PRODUCT AND PLANNED
PRODUCTS; DEPENDENCE ON SINGLE PRODUCT
The market for network information systems is in an early stage of
development and there is uncertainty regarding the size and scope of the market.
While the Company has developed hardware, firmware and software which it expects
to introduce in on-line remote access products, the Company currently derives
all of its sales from its initial product, the ASA 312. The Company expects that
sales of the ASA 312 product will continue to account for a substantial portion
of the Company's sales for the foreseeable future. Broad market acceptance of
the ASA 312 is, therefore, critical to the Company's future success. Factors
that may affect the market acceptance of the ASA 312 include the availability
and price of competitive products which carry out certain of the functions
performed by the ASA 312 and the success of the sales efforts of the Company.
Most of the companies to which the Company offers the ASA 312 typically conduct
extensive evaluations prior to ordering products in quantities, resulting in
long lead times to complete sales of the ASA 312. The Company's future
performance will also depend on the successful development, introduction and
market acceptance of new and enhanced products. See "Business -- Industry
Development," "-- Technology," "-- Products," "-- Product Development" and "--
Competition."
CUSTOMER CONCENTRATION
The Company's customer base at the present time consists primarily of a
limited number of telecommunications service providers and equipment
manufacturers. These companies have accounted, and are expected to account, for
a major portion of the Company's sales. Any reduction or delay in sales of the
ASA 312 to its principal customers or the loss of one or more of the Company's
principal customers could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will retain its current principal customers, that its
current principal customers will require additional quantities of the ASA 312 or
that the Company will be able to establish new customer relationships. For the
nine months ended September 30, 1996, sales to MCI, PacTel and Tellabs accounted
for 31%, 18% and 13% of total sales, respectively. The Company does not
anticipate that its sales to these customers will continue to be as significant
in future periods and the success of the Company is therefore dependent upon
broadening its customer base to maintain or increase its level of sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customers."
7
<PAGE>
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCT INTRODUCTIONS
The market for the Company's products is expected to be characterized by
frequent new product introductions, rapidly changing technology and continued
emergence of new industry standards, any of which could adversely affect sales
of the Company's products or render the Company's existing products obsolete.
The Company's success will depend upon its ability to develop and introduce, in
a timely fashion, new products and enhancements to its existing products that
meet changing customer requirements and emerging industry standards. The
development of new, technologically advanced products and the enhancement of
existing products is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological developments
and market trends. There can be no assurance that the Company will be able to
identify, develop, manufacture, market or support new or enhanced products
successfully or on a timely basis, that new products of the Company will gain
market acceptance or that the Company will be able to respond effectively to
product announcements by competitors, technology changes or emerging industry
standards. Failure of the Company, for technological or other reasons, to
develop and introduce new products and product enhancements in a timely and
cost-effective manner or to anticipate and respond adequately to changing market
conditions, as well as any significant delay in product development or
introduction, could cause customers to delay or decide against purchase of the
Company's products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
introduction or announcement by the Company, or by one or more of its
competitors, of products embodying new technologies or features could render the
Company's existing products obsolete or unmarketable or cause customers to defer
or cancel purchases of existing products of the Company. Any such occurrence
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business -- Technology," "--
Products," and "-- Product Development."
COMPETITION
The market for the ASA 312 and the Company's planned products is intensely
competitive and subject to rapid technological change, frequent product
introductions with improved price/performance characteristics and continued
emergence of new industry standards. Hewlett Packard Co. ("Hewlett-Packard"),
Tektronix Inc. ("Tektronix"), Dynatec Corp. ("Dynatec") and Wandel & Goltermann
Technologies, Inc. ("Wandel & Goltermann"), among others, manufacture test
instruments utilized to check the status of one transmission speed or protocol
at a time and Applied Digital Access Inc. ("Applied Digital Access") and
Hekimian Laboratories, Inc. ("Hekimian"), among others, produce on-line remote
monitoring products utilized to test the integrity of T-Carrier signals within
specific network equipment. In addition to its current competitors, the Company
anticipates that it will face competition from other companies as the market for
its products grows and as it releases additional and enhanced products.
Furthermore, many of the Company's large competitors offer customers a broader
product line than the Company currently offers or can be expected to offer. Many
of the Company's current and potential competitors have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and a larger installed
customer base, than the Company. As a result, these competitors are able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. In addition, competitors with larger installed
customer bases may have a competitive advantage over the Company when selling
similar products or alternative network information solutions to such customers.
Increased competition could result in significant price competition, reduced
profit margins or loss of market share, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully against current and future competitors. See "Business --
Competition."
SUBSTANTIAL INCREASE IN MANUFACTURING OPERATIONS; DEPENDENCE ON CONTRACT
MANUFACTURING AND LIMITED SOURCE SUPPLIERS
The Company is in the process of substantially increasing its flow of
materials, contract manufacturing capacity and internal test and quality
functions to respond to anticipated customer demand for the ASA 312 and to
reduce its order lead times. Any inability to increase product flow would limit
the Company's revenue, could adversely affect the Company's competitive position
and could result in cancellation of orders. The
8
<PAGE>
Company's operational strategy relies on outsourcing of manufacturing. The
Company currently subcontracts component procurement and kitting and printed
circuit board assembly to a single company (Q-1 Technologies) that specializes
in those services. The Company is seeking to secure additional sources of
supply, including additional contract manufacturers. Certain key components used
in the manufacture of the ASA 312 are currently purchased only from single or
limited sources. At present, the Company's only single-sourced component is a
SONET overhead terminator. Limited-source components utilized in the ASA 312
include a single board computer, a power supply, a touch sensor and controller,
plastic housing units and other discrete components.
The Company has experienced and may in the future experience, problems with
its various component suppliers, such as inferior quality, insufficient
quantities and late delivery. There can be no assurance that such problems will
not generate material liabilities for the Company or adversely impact the
Company's relations with its customers. In addition, the Company may in the
future experience pricing pressure from its contract manufacturers. There can be
no assurance that the Company will manage its contract manufacturers effectively
or that these manufacturers will meet the Company's future requirements for
timely delivery of products of sufficient quality and quantity. The Company
intends to introduce certain new products and product enhancements in 1997,
which may require that the Company rapidly achieve volume production by
coordinating its efforts with those of its suppliers and contract manufacturers.
The inability of the Company's contract manufacturers to provide adequate
supplies of high-quality products or the loss of any of the Company's contract
manufacturers could cause a delay in the Company's ability to fulfill orders
while the Company identifies a replacement manufacturer and could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Production."
DEPENDENCE ON KEY PERSONNEL AND HIRING OF ADDITIONAL PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, finance and
manufacturing personnel, certain of whom would be difficult to replace. In
particular, the Company believes that its future success is highly dependent on
Dr. Bryan J. Zwan, its Chairman, Chief Executive Officer and President. The
Company does not intend to maintain key man life insurance covering its key
personnel. Most of the Company's executive officers joined the Company within
the past two years and, therefore, have been involved only with the most recent
operating activity of the Company. The Company's success will depend to a
significant extent on the ability of these executive officers to integrate
themselves into the Company's daily operations and for all personnel to work
effectively together as a team. The Company believes its future success will
also depend in large part upon its ability to attract and retain highly skilled
management, engineering, sales and marketing, finance and manufacturing
personnel. In particular, the Company requires additional technical personnel
with expertise in SDH signaling standards to develop international versions of
its products and requires domestic regional and international management level
sales personnel to pursue increased domestic and international market share.
Competition for such personnel is intense and there can be no assurance that the
Company will be successful in attracting and retaining such personnel. The loss
of the services of any of the Company's key personnel, the inability to attract
or retain qualified personnel in the future or delays in hiring required
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Employees" and
"Management -- Executive Officers and Directors."
MANAGEMENT OF GROWTH
The Company has significantly expanded its operations over the past year and
the success of the Company is dependent upon its continued expansion,
particularly in hiring additional technical and customer support personnel,
developing its sales and marketing network and expanding its manufacturing
capacity. There may be only a limited number of persons with the requisite
skills to serve in these positions and it may become increasingly difficult for
the Company to hire such personnel. Future expansion by the Company may also
significantly strain the Company's management, marketing, manufacturing,
financial and other resources. There can be no assurance that the Company's
systems, procedures and controls will be adequate to support the Company's
future operations. Failure to manage the Company's growth properly could have a
material adverse effect on the Company's business, financial condition and
results of operations.
9
<PAGE>
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company may in the future undertake acquisitions that could present
challenges to the Company's management, such as integrating and incorporating
new operations, product lines, technologies and personnel. If the Company's
management is unable to manage these challenges, the Company's business,
financial condition or results of operations could be materially and adversely
affected. Any acquisition, depending on its size, could result in the use of a
significant portion of the Company's available cash, or if such acquisition is
made utilizing the Company's securities, could result in significant dilution to
the Company's stockholders. Acquisitions involve a number of special risks
including possible adverse short-term effects on the Company's operating
results, the realization of acquired intangible assets and the loss of key
employees of the acquired companies. The Company does not have pending any
negotiations or agreements with respect to any such acquisition.
RISK OF PRODUCT DEFECTS
Products as complex as those offered by the Company frequently contain
undetected software or hardware errors when first introduced or as new versions
are released. Such errors have occurred in the past and, despite testing by the
Company and by current and potential customers, the Company expects that such
errors will be found from time to time in new or enhanced products after
commencement of commercial shipments. Moreover, there can be no assurance that,
once detected, such errors can be corrected in a timely manner or without
substantial expense. The occurrence of such errors could result in the delay or
loss of market acceptance of the Company's products, the diversion of
engineering and other resources from the Company's product development efforts,
warranty expense and the loss of credibility with its customers, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ANTICIPATED FLUCTUATIONS IN OPERATING RESULTS
It is anticipated that as the Company matures, the Company's sales and
operating results may fluctuate from quarter to quarter and from year to year
due to a combination of factors, many of which are outside the control of the
Company, including, among others (i) the timing and amount of significant orders
from the Company's customers, (ii) the ability to obtain sufficient supplies of
sole or limited source components for the Company's products, (iii) the ability
to attain and maintain production volumes and quality levels for its products,
(iv) the mix of distribution channels and products, (v) new product
introductions by the Company's competitors, (vi) the Company's success in
developing, introducing and shipping product enhancements and new products,
(vii) pricing actions by the Company or its competitors, (viii) changes in
material costs and (ix) general economic conditions. Any unfavorable changes in
these or other factors could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
only recently commenced sales of the ASA 312, the Company does not anticipate
that its backlog at the beginning of each quarter will be sufficient to achieve
expected revenue for that quarter. To achieve its revenue objectives, the
Company expects that it will have to obtain orders during a quarter for shipment
in that quarter. As a result of all of the foregoing, there can be no assurance
that the Company will be able to achieve or sustain profitability on a quarterly
or annual basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success and its ability to compete is dependent in part upon
its proprietary technology. Although the Company has applied for several patents
on elements of its core technology, the Company currently does not hold any
patents and relies on a combination of contractual rights, trade secrets and
copyright laws to establish and protect its proprietary rights in its products.
There can be no assurance that the patents for which the Company has applied
will be issued or that steps taken by the Company to protect its technology will
be adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. In the event that protective
measures are not successful, the Company's business, financial condition and
results of operations could be materially and adversely affected. In addition,
the
10
<PAGE>
Company's growth strategy includes a plan to enter international markets, and
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of intellectual property rights of others. Given that
patent applications in the United States are not publicly disclosed until the
patent issues, applications may have been filed which, if issued as patents,
could relate to the Company's products. The Company is subject to the risk of
claims and litigation alleging infringement of the intellectual property rights
of others. Although the Company believes that its technology does not infringe
on the proprietary rights of others and has not received any notice of claimed
infringements, there can be no assurance that third parties will not assert
infringement claims against the Company in the future based on patents or trade
secrets or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could obtain an award of substantial damages. In the event of a successful claim
of infringement, the Company, its customers and end-users may be required to
obtain one or more licenses from third parties. There can be no assurance that
the Company or its customers could obtain necessary licenses from third parties
at a reasonable cost or at all. The defense of any lawsuit could result in
time-consuming and expensive litigation, damages, license fees, royalty payments
and restrictions on the Company's ability to sell its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Intellectual Property."
PRODUCT CERTIFICATIONS
The Company's products must meet industry standards and receive
certification for connection to certain public telecommunications networks prior
to their sale. In the United States, the Company's products must comply with
various regulations promulgated by the Federal Communications Commission ("FCC")
and Underwriters Laboratories. Internationally, the Company's products must
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the Consultative Committee on
International Telegraph and Telephony. In addition, certain products must be
certified by Bell Communications Research, Inc. ("Bellcore") to be commercially
viable. Although the Company's products have not been denied any regulatory
approvals or certifications to date, any future inability to obtain on a timely
basis or retain domestic or foreign regulatory approvals or certifications or to
comply with existing or evolving industry standards could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Industry Development."
CONTROL BY PRINCIPAL STOCKHOLDER
Following the Offering, the Company's Chairman and Chief Executive Officer,
together with entities affiliated with him, will beneficially own approximately
78% of the Company's outstanding Common Stock (approximately 76% if the
Underwriters' over-allotment option is exercised in full). Accordingly, he will
be able to elect the Company's directors, will retain the voting power to
approve all matters requiring stockholder approval and will continue to have
significant influence over the affairs of the Company, including the power to
delay or prevent a change in control of the Company. See "Management" and
"Principal and Selling Stockholders."
FACTORS INHIBITING TAKEOVER
Certain provisions of the Company's charter documents, including provisions
limiting the ability of stockholders to take action by written consent and
limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice, and provisions establishing
supermajority affirmative voting requirements as a prerequisite to certain
extraordinary corporate transactions, may have the effect of delaying or
preventing changes in control or management of the Company, which could have an
adverse effect on the market price of the Company's Common Stock. In addition,
the Company's Board of Directors will be divided into three classes, each of
which serves for a staggered three-year term, which may make it more difficult
for a third party to gain control of the Company's Board of Directors. The Board
of Directors
11
<PAGE>
has authority to issue up to 20,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any further vote or action by the stockholders. The rights
of the holders of the Company's Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock could have the effect
of delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights, senior to the Common Stock, and, as a result, the issuance of such
Preferred Stock could have a material adverse effect on the market value of the
Common Stock. In addition, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined by such statute. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Company's
Common Stock. On the date of this Prospectus, no shares other than the 4,000,000
shares offered hereby will be eligible for sale in the public market. All
directors and officers of the Company and each of the Selling Stockholders have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of CS First Boston Corporation. Beginning 180 days
after the date of this Prospectus, assuming that CS First Boston Corporation
does not consent to any sales prior to such time, an additional 20,000,000
shares subject to such agreements will become eligible for sale in the public
market subject to compliance with the provisions of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). Such 20,000,000
shares are held by Dr. Zwan, the Company's Chairman of the Board, Chief
Executive Officer and President, who is an "affiliate" of the Company, and may,
therefore, only be sold by Dr. Zwan in the public market in compliance with the
volume limitations of Rule 144. At various times thereafter, an additional
1,658,917 shares will become eligible for sale in the public market. See "Shares
Eligible for Future Sale," "Description of Capital Stock" and "Underwriting."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
The Common Stock purchased by the existing stockholders for an aggregate of
$14.2 million prior to the date of this Prospectus would have a market value of
$247.7 million based upon the assumed initial public offering price of $11.00
per share. Existing stockholders will be selling 22% of the shares of Common
Stock offered hereby (approximately 19% if the Underwriters' over-allotment
option is exercised in full). See "Principal and Selling Stockholders."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The principal reasons for making the Offering at the present
time are to obtain additional working capital and for general corporate
purposes, to create a public market for the Common Stock of the Company and to
facilitate future access to the public market. However, there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the Offering. The initial public offering price will be
determined by negotiations between the Company and the Underwriters based on
several factors and may not be indicative of the market price of the Common
Stock after the Offering. 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 results of operations and
other factors. 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 stocks of technology companies. These broad market
fluctuations may adversely effect the market price of the Company's Common
Stock. See "Underwriting."
DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the net tangible book value per share of the Common
Stock. Therefore, purchasers of Common Stock offered hereby will incur an
immediate and substantial dilution, and may incur additional dilution upon the
exercise of outstanding stock options. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated (at an
assumed initial public offering price of $11.00 per share) to be approximately
$31.1 million ($37.3 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use the net proceeds of the Offering
for the retirement of $750,000 of its 18% subordinated promissory notes due May
31, 1997, working capital and other general corporate purposes, including an
estimated $5.5 million for equipment and personnel to support accelerated
product development and an estimated $3.0 million to enhance the Company's
domestic and international distribution capabilities. The Company may also use a
portion of the net proceeds of the Offering to fund acquisitions of
complementary businesses, products or technologies, although there are no
current agreements or negotiations with respect to any such acquisitions.
Pending use of the net proceeds, the Company will invest the net proceeds in
short-term investment grade securities. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
The amounts and timing of expenditures may vary significantly depending upon
numerous factors, including the rate of progress in the Company's current
product development efforts, the magnitude of additional product development
efforts of the Company, technological advances, the status of competitive
products and the availability of alternative methods of financing. Accordingly,
management will have broad discretion in the use of the proceeds of the Offering
to the Company. The Company anticipates that its existing capital resources,
including the proceeds of the Offering, will be adequate to satisfy its capital
needs through 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has not declared or paid dividends on its Common Stock since the
inception of the Company. The Company currently intends to retain any earnings
for use in developing and growing its business and does not anticipate paying
any cash dividends on its Common Stock in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis and (ii) on an as adjusted basis to
give effect to the sale by the Company of 3,140,000 shares of Common Stock
offered hereby based upon an assumed initial public offering price of $11.00 per
share and the application of the estimated net proceeds therefrom. This table
should be read in conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................................... $ 750 $ --
--------- ------------
Long-term obligations..................................................................... $ -- $ --
Stockholders' equity:
Preferred Stock, $.0001 par value; authorized 20,000,000 shares; 0 shares issued........ -- --
Common Stock, $.0001 par value; authorized 200,000,000 shares; issued and outstanding,
22,518,917 shares (actual) and 25,658,917 shares (as adjusted) (1)..................... 2 3
Additional paid in capital.............................................................. 14,242 45,363
Accumulated deficit..................................................................... (9,307) (9,307)
Stockholder loan........................................................................ (1,700) (1,700)
--------- ------------
Total stockholders' equity............................................................ 3,237 34,359
--------- ------------
Total capitalization................................................................ $ 3,237 $ 34,359
--------- ------------
--------- ------------
</TABLE>
- --------------
(1) Excludes 5,000,000 shares of Common Stock reserved for future issuance under
the Company's Option Plan, including 3,286,667 shares of Common Stock
issuable pursuant to employee stock options outstanding as of the date of
this Prospectus. See "Principal and Selling Stockholders," "Management --
Option Plan" and Note 10 of Notes to Financial Statements.
14
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
approximately $3.2 million, or $.14 per share of Common Stock. Net tangible book
value per share is equal to the Company's tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale of 3,140,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company (resulting in estimated net proceeds of
$31.1 million), the pro forma net tangible book value of the Company as of
September 30, 1996 would have been approximately $34.4 million, or $1.34 per
share. This represents an immediate increase of $1.20 per share to existing
stockholders and an immediate dilution of $9.66 per share to purchasers of
Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 11.00
Net tangible book value per share at September 30, 1996............ $ .14
Increase attributable to the Offering.............................. 1.20
---------
Pro forma net tangible book value per share after the Offering....... 1.34
---------
Dilution per share to purchasers in the Offering (1)................. $ 9.66
---------
---------
</TABLE>
The following table summarizes on pro forma basis as of September 30, 1996
the number of shares of Common Stock acquired from the Company, the aggregate
consideration paid and the average price per share paid by existing stockholders
and to be paid by investors purchasing Common Stock from the Company in the
Offering (at an assumed initial public offering price of $11.00 per share and
before deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION (1) AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2)............. 22,518,917 87.8% $ 14,243,203 29.2% $ .63
New investors (2)........................ 3,140,000 12.2 34,540,000 70.8 11.00
------------ ----- ------------- -----
Total................................ 25,658,917 100.0% $ 48,783,203 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- --------------
(1) As of the date of this Prospectus, there were employee stock options
outstanding to purchase a total of 3,286,667 shares of Common Stock. If all
such options outstanding at September 30, 1996 were exercised, the dilution
per share to new investors in the Offering would be decreased by $.64 per
share to a total of $9.02 per share and the average price per share paid by
the Company's existing stockholders would be $1.44. See "Capitalization,"
"Management -- Option Plan" and Note 10 of Notes to Financial Statements.
(2) Sales by Selling Stockholders in the Offering will reduce the number of
shares held by existing stockholders to 21,658,917 shares, or approximately
84.4% of the total shares of Common Stock outstanding, and will increase the
number of shares held by new investors to 4,000,000 shares, or approximately
15.6% of the total shares of Common Stock outstanding after the Offering.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data for the years ended December 31, 1993,
1994 and 1995, the nine months ended September 30, 1996, as of December 31, 1994
and 1995 and as of September 30, 1996 are derived from the Financial Statements
of the Company, which have been audited by Coopers & Lybrand L.L.P., independent
certified accountants, and are included in this Prospectus. The following
selected financial data for the period from inception, October 12, 1990 through
December 31, 1991, for the year ended December 31, 1992 and as of December 31,
1991, 1992 and 1993 are derived from the Financial Statements of the Company
which have been audited by Coopers & Lybrand L.L.P., independent certified
accountants, and which are not included in this Prospectus. The selected
financial data for the nine months ended September 30, 1995 are derived from
unaudited financial statements prepared by the Company. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and the results of operations for this period. Operating results for
the nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1996. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of the Company and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- ---------------------------
1991(1) 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- 1995 --------------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales........................ $ -- $ -- $ -- $ -- $ -- $ -- $ 3,037
Cost of sales................ -- -- -- -- -- -- (1,152)
--------- --------- --------- --------- --------- ----------- --------------
Gross profit................. -- -- -- -- -- -- 1,885
Operating expenses:
Research and development... 124 366 439 1,241 1,508 1,169 1,653
Selling, general and
administrative............ -- 77 106 327 1,217 725 1,945
--------- --------- --------- --------- --------- ----------- --------------
Total operating expenses..... 124 443 545 1,568 2,725 1,894 3,598
Operating income (loss)...... (124) (443) (545) (1,568) (2,725) (1,894) (1,713)
Interest income (expense).... (1) (16) (41) (114) (613) (367) (414)
Other income (expense)....... -- -- -- -- 4 -- (193)
--------- --------- --------- --------- --------- ----------- --------------
Income (loss) before income
taxes....................... (125) (459) (586) (1,682) (3,334) (2,261) (2,320)
Provision for income taxes... -- (1) (1) (1) -- -- --
--------- --------- --------- --------- --------- ----------- --------------
Net income (loss)............ $ (125) $ (460) $ (587) $ (1,683) $ (3,334) $ (2,261) $ (2,320)
--------- --------- --------- --------- --------- ----------- --------------
--------- --------- --------- --------- --------- ----------- --------------
Net income (loss) per
share....................... $ -- $ (.01) $ (.01) $ (.04) $ (.08) $ (.05) $ (.10)
--------- --------- --------- --------- --------- ----------- --------------
--------- --------- --------- --------- --------- ----------- --------------
Weighted average shares
outstanding (2)............. 43,345,871 43,345,871 43,345,871 43,345,871 41,744,634 43,345,871 23,594,079
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................. $ (43) $ (104) $ (725) $ (1,939) $ (8,595) $ 2,263
Total assets............................... 15 299 194 332 1,277 6,055
Short-term notes payable................... -- 257 555 1,602 7,897 750
Long-term debt............................. -- -- -- 500 -- --
Total stockholders' equity (deficit)....... (30) (58) (645) (2,328) (8,163) 3,237
</TABLE>
- ------------------
(1) Period cumulative from inception, October 12, 1990, through December 31,
1991.
(2) On November 30, 1995, 19,215,686 shares of Common Stock were purchased by
the Company from a former stockholder pursuant to an option granted to the
Company by the former stockholder in February 1995. See "Certain
Transactions -- Transactions with Former Stockholder." Pursuant to the
requirements of the Securities and Exchange Commission, Common Stock and
stock options and warrants to purchase shares of Common Stock issued by the
Company during the 12 months prior to the initial public offering date have
been included in the calculation of the weighted average shares outstanding
for all periods presented using the treasury stock method based upon an
assumed initial public offering price of $11.00 per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS OF
THE COMPANY AND THE NOTES THERETO, AND OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS
REGARDING FUTURE TRENDS, THE ACCURACY OF WHICH IS SUBJECT TO MANY RISKS AND
UNCERTAINTIES. SUCH TRENDS, AND THEIR ANTICIPATED IMPACT UPON THE COMPANY, COULD
DIFFER MATERIALLY FROM THOSE PRESENTED IN THIS PROSPECTUS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company manufactures and sells the ASA 312 network information computer
and has other products in design and development. The ASA 312 and the Company's
planned products are based on the Company's core software, firmware and hardware
technology which was developed over a five year period. In February 1996, the
Company commenced sales of the ASA 312. To date, the Company has not entered
into long term agreements or blanket purchase orders for the sale of its
products, but generally obtains purchase orders for immediate shipment and other
cancelable purchase commitments. The Company's sales during a particular quarter
are, therefore, highly dependent upon orders placed by customers during the
quarter. Consequently, sales may fluctuate significantly from quarter to quarter
due to the timing and amount of orders from customers, among other factors.
The Company allocates all of its fixed production costs to the cost of goods
sold of those products shipped during a given period. Accordingly, gross profit
may fluctuate significantly from period to period as a result of the change in
overall sales volumes. Gross profit may be affected in the future by the
introduction of new products which generate differing gross margins and the
sales mix during a given period. In addition, the Company plans to pursue OEM
relationships with respect to the sale of certain of its on-line remote access
products in development. The Company has not negotiated any such arrangements
but anticipates that its pricing to OEM partners would be less than with respect
to direct sales resulting in lower gross margins in connection with these
arrangements. However, sales and marketing expenses are generally lower in the
case of sales to OEM partners.
The Company believes that its operating expenses will continue to increase
as a result of a variety of factors including: (i) increased research and
development expenses associated with the completion of the products in
development and the continued enhancement of existing products; and (ii)
increased selling, general and administrative expenses associated with continued
expansion of sales and marketing capabilities, product advertising and
promotion. The Company recognizes research and development expenses when
incurred.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
SALES. Sales of the ASA 312 increased from $0 for the nine months ended
September 30, 1995 to $3.0 million for the nine months ended September 30, 1996
reflecting the initiation of sales of the ASA 312 during the first quarter of
1996. Total sales of $185,000, $1.1 million and $1.7 million were made during
the first, second and third quarters of 1996, respectively. During the nine
months ended September 30, 1996, sales to MCI, PacTel and Tellabs accounted for
31%, 18% and 13% of sales, respectively. The Company does not anticipate that
the sales to these customers will continue to be as significant in future
periods and is therefore dependent upon broadening its customer base to maintain
or increase its level of sales.
COST OF GOODS SOLD. Cost of goods sold increased from $0 for the nine
months ended September 30, 1995 to $1.2 million for the nine months ended
September 30, 1996. Gross margin on the sale of ASA 312 units during the nine
months ended September 30, 1996 was 62%. Cost of goods sold includes direct
costs of subassemblies and components, fixed costs of the Company's production
department, indirect costs, and contract services. Fixed production costs
amounted to $319,000 for the nine months ended September 30, 1996.
17
<PAGE>
OPERATING EXPENSES. Operating expenses increased 90% from $1.9 million for
the nine months ended September 30, 1995 to $3.6 million for the nine months
ended September 30, 1996 as a result of increases in research and development
and selling, general and administrative expenses. Research and development
expense increased 41% from $1.1 million for the nine months ended September 30,
1995 to $1.7 million for the nine months ended September 30, 1996 primarily as a
result of adding engineering personnel to expand the Company's technology and to
develop new products. Selling, general and administrative expenses increased
168% from $725,000 for the nine months ended September 30, 1995 to $2.0 million
for the nine months ended September 30, 1996 primarily due to facility
expansion, employment of managerial and support staff and commissions directly
related to sales.
NET INTEREST EXPENSE. Net interest expense increased 13% from $367,000 for
the nine months ended September 30, 1995 to $414,000 for the nine months ended
September 30, 1996 primarily due to servicing short-term debt, all but $750,000
of which had been retired as of the date of this Prospectus.
NET OTHER EXPENSE. Net other expense increased from $0 for the nine months
ended September 30, 1995 to $193,000 for the nine months ended September 30,
1996, primarily due to nonrecurring extension fee payments associated with short
term indebtedness of the Company which had been retired prior to the date of
this Prospectus.
1995 COMPARED TO 1994
OPERATING EXPENSES. Operating expenses increased 74% from $1.6 million for
1994 to $2.7 million for 1995 as a result of increases in research and
development and selling, general and administrative expenses. Research and
development expense increased 22% from $1.2 million for 1994 to $1.5 million for
1995 as a result of additional personnel costs incurred to support the
development of enhancements to new applications for and pre-production costs
related to the ASA 312. Selling, general and administrative expense increased
272% from $327,000 for 1994 to $1.2 million for 1995 due to increased
administrative personnel and costs associated with the introduction of the ASA
312 at trade shows.
NET INTEREST EXPENSE. Net interest expense increased 438% from $114,000 for
1994 to $613,000 for 1995 primarily as a result of the incurrence of
indebtedness to finance operations.
1994 COMPARED TO 1993
OPERATING EXPENSES. Operating expenses increased 188% from $545,000 for
1993 to $1.6 million for 1994 as a result of increases in research and
development and selling, general and administrative expenses. Research and
development expense increased 183% from $439,000 for 1993 to $1.2 million for
1994 primarily as a result of an increase in technical personnel to support
development of the Company's technology, the purchase of components to
manufacture prototype products and product design expenses associated with the
ASA 312. Selling, general and administrative expenses increased 209% from
$106,000 for 1993 to $327,000 for 1994, primarily as a result of increased
personnel and employee relocation costs.
NET INTEREST EXPENSE. Net interest expense increased 178% from $41,000 for
1993 to $114,000 for 1994 primarily as a result of reliance on external debt to
finance operations.
LIQUIDITY AND CAPITAL RESOURCES
Operating expenses through December 31, 1995 were financed primarily with
borrowings. As of December 31, 1995, the Company had incurred indebtedness of
$7.9 million, all of which was short-term. During the nine months ended
September 30, 1996, the Company sold 2,518,917 shares of Common Stock in private
transactions, including the issuance of 1,283,003 shares upon the exercise of
outstanding options and warrants for an aggregate of $13.7 million and issued
$750,000 in 18% unsecured subordinated promissory notes due May 31, 1997 (the
"Notes"). The proceeds of the sale of such Common Stock were used for working
capital and to retire all of the Company's indebtedness other than the Notes.
The Company's working capital position improved from a deficit of $8.6 million
as of December 31, 1995 to $2.3 million as of September 30, 1996 primarily due
to the issuance of Common Stock, increases in accounts receivable and decreases
in short-term obligations.
18
<PAGE>
The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. As a result of the substantial quarterly increase in sales, trade
accounts receivable increased to $1.4 million as of September 30, 1996. The
Company's future capital requirements will depend on many factors, including the
rate of revenue growth, the timing and extent of spending to support product
development efforts and expansion of sales and marketing, the timing of
introductions of new products and enhancements to existing products and market
acceptance of the Company's products. There can be no assurance that additional
equity or debt financing, if required, will be available on acceptable terms or
at all.
Management estimates that capital expenditures will be approximately $1.2
million in the fourth quarter of 1996 and $4.0 million in 1997, and that these
amounts will be used for the purchase of equipment related to product
development and automation of production operations, for the purchase of tooling
for plastic injection production molds, for ASA 312 production and for
furniture, fixtures and equipment in connection with leasing additional space
for the Company's operations.
The Company believes that the net proceeds of the Offering and anticipated
cash flow from operations will be sufficient to fund the Company's working
capital and capital expenditure requirements at budgeted levels through 1997.
RECENT PRONOUNCEMENT
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including stock options. SFAS No. 123 defines and encourages
the use of the fair value method of accounting for employee stock-based
compensation. Continuing use of the intrinsic value based method of accounting
prescribed in Accounting Principles Board Opinion No. 25 ("APB 25") for
measurement of employee stock-based compensation is allowed with pro forma
disclosures of net income and net income per share as if the fair value method
of accounting had been applied. SFAS No. 123 is effective for transactions
entered into for years after December 15, 1995. The Company has determined that
it will continue to use the method of accounting prescribed in APB 25 for
measurement of employee stock-based compensation, and will begin providing the
required pro forma disclosures in its financial statements for the year ended
December 31, 1996 as allowed by SFAS No. 123. In the opinion of management, SFAS
No. 123 is not expected to have a material impact on the Company's financial
statements.
QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents unaudited quarterly operating results for each
of the Company's quarters since January 1, 1996. This information has been
prepared by the Company on a basis consistent with the Company's financial
statements and includes all adjustments, consisting only of normal recurring
accruals in
19
<PAGE>
accordance with generally accepted accounting principles. Such quarterly results
are not necessarily indicative of future operating results. This information
should be read in conjunction with the Financial Statements of the Company and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, JUNE 30, SEPTEMBER 30,
1996 % OF SALES 1996 % OF SALES 1996
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sales................................................ $ 185 100% $ 1,129 100% $ 1,723
Gross profit......................................... 60 32% 732 65% 1,093
Operating expenses:
Research and development........................... 464 251% 522 46% 667
Selling, general and administrative................ 421 227% 591 52% 933
----------- --- ----------- --- ------
Total operating expenses............................. 885 478% 1,113 98% 1,600
Operating income (loss).............................. (825) (381) (507)
Interest income (expense)............................ (309) (88) (17)
Other income (expense)............................... 2 3 (198)
----------- ----------- ------
Net income (loss).................................... $ (1,132) $ (466) $ (722)
----------- ----------- ------
----------- ----------- ------
Net income (loss) per share.......................... $ (0.05) $ (0.02) $ (0.03)
----------- ----------- ------
----------- ----------- ------
<CAPTION>
% OF SALES
-----------
<S> <C>
Sales................................................ 100%
Gross profit......................................... 63%
Operating expenses:
Research and development........................... 39%
Selling, general and administrative................ 54%
---
Total operating expenses............................. 93%
Operating income (loss)..............................
Interest income (expense)............................
Other income (expense)...............................
Net income (loss)....................................
Net income (loss) per share..........................
</TABLE>
20
<PAGE>
BUSINESS
Digital Lightwave develops, manufactures and sells advanced computer systems
that provide information concerning the performance of telecommunications
networks and transmission equipment. The Company believes that there is a
growing need on the part of its customers, which include telecommunications
service providers and network equipment manufacturers, to obtain such
information in order to verify and manage the transmission of voice, data and
video and to plan and implement network expansion more effectively. The
Company's product, the ASA 312, is a portable software-based network information
computer that is designed to outperform conventional hardware-based network test
instruments. The ASA 312 is "user friendly," lightweight, compact, and easily
operated through a touch sensor over a full color display. The Company believes
that the ASA 312 is the only integrated product that enables users to understand
and process information, simultaneously and without interruption, from
telecommunications networks utilizing: (i) the legacy T-Carrier protocol at
rates DS-1 and DS-3; (ii) the fiber optic SONET protocol at rates OC-1, OC-3,
OC-3c and OC-12; and (iii) the ATM protocol. The Company plans to utilize the
core technologies employed in the ASA 312 to develop a family of on-line remote
access network information products.
The Company began shipping the ASA 312 in February 1996. The customers which
have purchased the ASA 312 include: (i) IXCs, such as MCI; (ii) RBOCs, such as
PacTel; (iii) CAPs, such as U.S. South; (iv) independent telephone companies,
such as GTE; (v) network equipment manufacturers, such as Tellabs; (vi)
equipment leasing companies, such as AT&T Capital; and (vii) the U.S. Department
of Defense.
INDUSTRY DEVELOPMENT
Over the past several years, LANs and WANs have evolved to satisfy the
computing demands of an increasing base of users for a variety of applications,
from e-mail to video conferencing. LANs and WANs have expanded in terms of
traffic volume, number of workstations and diversity of locations, becoming
increasingly important conduits through which business is conducted. During the
same time, there has been a rapid increase in the number of Web sites on and
utilization of the Internet as well as the continued growth of wireless
networks. Traffic volume generated by LANs, WANs, wireless networks and the
Internet has placed substantial demands on the public telecommunications
network. In order to satisfy the substantially increased demand for capacity,
bandwidth and enhanced data services, telecommunications service providers have
added newer, higher capacity fiber optic cable to their existing infrastructure.
Domestic service providers have added high speed fiber optic SONET
transmission equipment to the installed base of legacy T-Carrier transmission
equipment, while international service providers have installed SDH transmission
equipment with high-speed transmission capabilities similar to SONET. These
optical transmission protocols (referred to as SONET in North America and SDH
elsewhere) provide a powerful transport technology which can carry legacy
T-Carrier signals at the more rapid SONET transmission rates as well as enhanced
data services utilizing the ATM protocol. SONET/SDH is designed to allow
individual synchronous packages to be added to or dropped from broadband
transmissions without the need to multiplex or demultiplex the transmissions,
thereby reducing infrastructure costs and increasing efficiency. The Company
anticipates that as a result of growing customer demand for high speed
end-to-end performance to support enhanced data services, SONET, ATM and other
advanced transport technologies will ultimately replace T-Carrier systems given
the more efficient transport and reduced cost of transmission associated with
such technologies. With the transition to SONET transmission equipment, the
number of telecommunications equipment manufacturers has increased and new
entrants have gained significant market share. In addition, IXCs, RBOCs, CAPs
and independent telephone companies have begun to compete actively in local and
long-distance markets as a result of deregulation of the domestic
telecommunications industry.
In light of these developments, the Company believes that:
-Telecommunications service providers face competitive pressure to install
high performance network transmission and cross-connect equipment to
provide greater bandwidth and quality of service to their customers.
21
<PAGE>
-Telecommunications service providers may seek to monitor on a continuous,
"real-time" basis the transmissions passing through their network elements
in order to offer the consistent and reliable quality of service necessary
to charge premium rates. In addition, large end-users of telecommunications
services may also require network information products to monitor service
received from the public telecommunications network and to manage private
WANs.
-Equipment manufacturers will be subjected to more exacting standards in
designing, engineering and manufacturing their products.
THE DIGITAL LIGHTWAVE SOLUTION
The Company's objective is to develop a series of products which: (i) assist
telecommunications service providers with the installation and management of
network transmission and cross-connect equipment; (ii) enable telecommunications
service providers to monitor network elements continuously in order to assure
consistent and reliable quality of service; and (iii) assist equipment
manufacturers in designing, engineering and manufacturing their products.
In February 1996, the Company began shipping the ASA 312, a network
information computer that identifies, processes and reports in real time the
status of any single bit or any specified group of bits within high speed
digital transmissions. The ASA 312 enables users to multiplex and demultiplex,
process and report information simultaneously regarding T-Carrier, SONET and ATM
transmissions. The Company plans to develop and offer: (i) the ASA 312E, a
modified version of the ASA 312 to serve international markets; (ii) the NIC, a
notebook size fully programmable network information computer; (iii) on-line
remote access products which can be permanently installed at network elements to
gather and report network information on a continuous, "real time" basis; (iv) a
series of on-line remote access products to serve international markets; and (v)
a family of products to provide information regarding the service quality
delivered to LANs and WANs from the public network. See "-- Product Development"
for a description of the stage of development of each of the Company's planned
products.
The following table sets forth the customers which the Company intends to
target with the ASA 312 and the other products which it plans to develop.
<TABLE>
<CAPTION>
DIGITAL LIGHTWAVE GLOBAL NETWORK INFORMATION SOLUTIONS
PRODUCT FAMILY TARGET CUSTOMERS
<S> <C>
Network Information Computers
ASA 312 Installers and technicians for North American
telecommunications service providers; equipment
manufacturers
ASA 312E* Installers and technicians for international
telecommunications service providers; equipment
manufacturers
NIC* Domestic and international network engineers, architects,
network planners and managers of telecommunications service
providers
On-line Remote Access Strategic planners for telecommunications service providers
Products*
LAN/WAN Edge Products* LAN/WAN technical managers
</TABLE>
* In development. See "-- Product Development."
The Company believes that the ASA 312 and the Company's other planned
products will assist users in determining on a continuous, "real-time" basis the
quality of service, character of content, source and destination of traffic and
level of congestion, as well as complete directional and status information, for
telecommunications transmissions. Utilizing this information, telecommunications
service providers will be better able to: (i) verify that each network element
is functional, has been installed properly, is communicating properly with all
other network elements and has the capacity to handle peak loads; (ii) provide,
without service interruption, control and maintenance of transmission and
cross-connect equipment; (iii) plan for the growth and development of their
networks; and (iv) store and manage network information.
22
<PAGE>
COMPANY STRATEGY
The Company has developed a growth strategy which is designed to increase
its market share and expand distribution across a wide range of customers. The
key elements of the Company's strategy for growth include:
INCREASE DOMESTIC SALES. The Company will seek to increase sales of the ASA
312 by recruiting additional internal sales staff to broaden its customer base
and obtain repeat orders from existing customers. In addition, the Company plans
to enter the existing domestic market for on-line T-Carrier remote access
products and obtain an early market position as a supplier of on-line SONET and
ATM remote access products. Futher, the Company intends to supplement its direct
sales network and develop strategic OEM partnering relationships with network
equipment manufacturers. Further, the Company plans to obtain an early market
position as a supplier of on-line SONET and ATM remote access products.
PENETRATE INTERNATIONAL MARKET. The Company believes that significant
demand exists outside the United States for products such as the ASA 312 and the
Company's planned on-line remote access products and intends to design and
develop versions of these products for international markets. The Company plans
to augment its technical staff with approximately eight engineers to complete
international versions of the ASA 312 and to develop new products for
simultaneous release globally thereafter.
ESTABLISH TECHNOLOGY LEADERSHIP. The Company believes that the ASA 312
offers superior performance over competing products and intends to continue to
devote significant resources to research and development in an effort to
establish its existing and planned products as leaders in network information
technology. The Company also intends to broaden its product line by licensing or
acquiring selected technologies that are outside the scope of its research and
development activities.
TECHNOLOGY
The following core technologies are used in the ASA 312 and provide a basis
for certain of the Company's products in development: (i) a software operating
environment which runs over a MS-DOS platform; (ii) programs which operate the
Company's firmware and hardware; (iii) graphical user interface programs running
in a windowed environment; (iv) Network Protocol Translators ("NPTs"), which are
modular gate arrays that supply discrete network information from signals at
specific bandwidths and on specific protocols; and (v) Network Protocol
Processors ("NPPs"), which are modular hardware platforms for the processing of
various ranges of bandwidth and protocols.
The Company's software is written in object oriented code and provides users
of the ASA 312 with access to an intuitive graphical user interface. The open
architecture of the Company's software establishes a platform for the
development of additional features and applications.
NPTs supply information as to each bit or specified groups of bits being
transmitted in order to identify and process information concerning the overhead
and payload carried by network transmissions. NPTs are combined with a
microprocessor, discrete integrated circuits and other firmware in NPPs. NPPs
interface, frame and process network information from a number of protocols and
transmission speeds. NPPs also can insert user-programmable payloads and
user-specified overhead into a transmission.
23
<PAGE>
The graphic presented below illustrates the hardware architecture of NPPs
and their combination with other core hardware and firmware technology utilized
in the ASA 312 and the planned series of the Company's network information
computers.
The NPPs consist of hardware and
firmware which isolate and process
information regarding
telecom munications traffic.
[GRAPHIC]
The non-blocking switch matrix is a
high speed gate array managed by a
microprocessor with dedicated RAM
which allows users to switch and
direct signals among different NPPs.
The system microprocessor is
provided by a single board computer
host running proprietary software.
In order to allow its customers to work simultaneously with different
bandwidths and protocols, the Company has developed a non-blocking switch matrix
and applications software which allow the Company's customers to "frame up" on a
given signal and multiplex or demultiplex the signal into different transmission
speeds and protocols. These functions allow customers to derive information
concerning the functioning of the network under various existing or potential
conditions.
The following reproduction of the graphical user interface used to access
the switch matrix depicts the manner in which customers can simultaneously break
down high speed signals into their components, route traffic, combine lower
speed signals into higher speed signals, change signals from one protocol to
another and generate signals so that the functioning of network elements under
different conditions can be simulated and assessed.
[GRAPHIC]
24
<PAGE>
PRODUCTS
The Company currently manufactures and sells the ASA 312, a "user friendly,"
portable computer which is designed to enable users to access and process
information concerning the performance of telecommunications networks and
transmission equipment. The ASA 312 was designed to compete against existing
network test instruments by incorporating their functions into a software-based
information processing system. The Company believes that the ASA 312 represents
the first of a new class of products which the Company calls "network
information computers." With the ASA 312, telephone companies and other
operators of large telecommunications networks, as well as manufacturers of
network transmission and cross-connect equipment, are able to (i) verify and
manage information concerning the transmission of voice, data and video traffic
and (ii) plan for and implement network expansion more effectively.
Telecommunications equipment manufacturers also use the ASA 312 in designing,
engineering and manufacturing their products as well as in providing ongoing
customer support. The ASA 312 has a suggested list price of $37,500 when
equipped with T-Carrier and SONET capabilities, and $47,500 when ATM
capabilities are also included, which prices are at or below the price of the
test instruments with which the ASA 312 competes.
The following table sets forth certain features of the ASA 312 which the
Company believes provide superior performance over the test instruments with
which the ASA 312 is designed to compete, based upon the descriptions of the
capabilities of the currently available test instruments set forth in the
catalogs and manuals for such products:
<TABLE>
<S> <C>
FEATURE CUSTOMER BENEFIT
Software-based Provides for custom features and field upgrades.
One simple menu format for all Easy to learn. Easy to set-up.
protocols
Touch sensor over full color windowed Easy to use by personnel of all levels of aptitude.
graphics Intuitive graphical user interface. Clear display of
data.
Transmitting and receiving of signals Can review multiple network elements simultaneously.
at all of the protocols Reduces overall task time.
simultaneously
Multiplexing/Demultiplexing Can review simultaneously the interaction between
multiple network elements. Allows formulation of new
diagnostic procedures.
Switch matrix Facilitates configuration of the product for dropping
and inserting traffic from, into and between
different protocols.
Remote operation Provides complete, direct and identical operation of
the product at a remote site.
Ethernet interface Provides operation of the product via LAN.
Laptop profile/lightweight Truly portable.
PCMCIA card for expanded memory Can display long-term history graphs. Provides
recallable setups. Can store significant amounts of
data.
Non-volatile memory Saves data when turned off.
Software calibration Allows calibration by the customer which reduces cost
and down-time.
</TABLE>
The ASA 312 competes against the test instruments currently available on the
market, which are hardware based, work with one transmission speed or protocol
at a time, cannot simultaneously switch and multiplex or demultiplex different
signals to derive information concerning embedded signals, cannot store a
significant amount of data and which the Company believes are generally more
difficult to use than the ASA 312.
25
<PAGE>
The ASA 312 processes, interleaves and transports T-Carrier, SONET and ATM
protocols. The ASA 312 generates, transmits, receives and processes T-Carrier
electronic signals and SONET and ATM fiber optic signals and provides access to
T-Carrier signals and overhead and SONET and ATM status and control overhead.
The Company believes that the ASA 312 is the only integrated product that
enables users to understand and process information, simultaneously and without
interruption, from networks utilizing the legacy T-Carrier protocols at rates
DS-1 and DS-3 and the fiber optic SONET protocol at rates OC-1, OC-3, OC-3c and
OC-12, as well as from networks transporting enhanced data services utilizing
the ATM protocol integrated into a single lightweight, compact unit. The ASA
312's graphical user interface is a touch sensor over a large color display
which provides simple and intuitive windowed graphics and menus. The ASA 312 may
be accessed remotely by modem or through direct connection to an Ethernet LAN so
that an operator can control, from any workstation, the functions of a remote
ASA 312.
CUSTOMERS
The Company has sold a total of 102 units of the ASA 312 to 20 customers,
including each of the following:
IXCS
MCI Telecommunications Corp.
Sprint Corp.
RBOCS
Ameritech Corporation
Pacific Telesis Group
SBC Communications Inc.
INDEPENDENT TELEPHONE COMPANIES
GTE Corp.
Sprint Centel
EQUIPMENT LEASING COMPANIES
AT&T Capital Corp.
GE Capital TMS
McGrath Rentelco
CAPS
Five Star Telecom Inc.
MRC Telecommunications Inc.
Toledo Area Telecommunications Services, Inc. U.S. South Communications, Inc.
EQUIPMENT MANUFACTURERS
Alcatel Network Systems, Inc.
Hekimian Laboratories, Inc.
Hitachi Telecom Technologies Co., Ltd.
NEC America, Inc.
Tellabs Operations, Inc.
GOVERNMENT AGENCIES
U.S. Department of Defense
In most instances, customers designate the ASA 312 as standard operating
equipment prior to purchase. In addition, as to most of the above customers, the
ASA 312 has been designated as standard operating equipment by AT&T Corp.
("AT&T") and US WEST Communications, Inc. ("US West"). On August 1, 1996
Ameritech Corporation completed a "request for qualifications" procedure
evaluating the ASA 312 and the competitive products, designated the ASA 312 as
its standard operating equipment for evaluating SONET systems and entered into a
three-year agreement (the "Ameritech Agreement") for the purchase of the ASA
312. While neither Ameritech, AT&T or US West are obligated to purchase ASA
312s, such approvals enable employees of these companies to purchase the ASA
312, subject to budgetary and other constraints.
The Company has pursued a policy of involving key customers in the
evaluation of products in development and continually solicits suggestions from
customers regarding additional desirable features of products which it has
introduced or plans to develop. Because the Company's products are software
based, the Company has generally been able to satisfy requests for additional
feature sets through field software upgrades made by the Company.
During the nine months ended September 30, 1996, sales to MCI, PacTel and
Tellabs accounted for 31%, 18% and 13% of total sales, respectively. There can
be no assurance regarding the amount or timing of purchases by MCI, PacTel,
Tellabs or any other customer in any future period. Broad acceptance of the ASA
26
<PAGE>
312 and future products is critical to the Company's future success and is
subject to substantial uncertainties. See "Risk Factors -- Uncertain Market
Acceptance of the Company's Existing Product and Planned Products, Dependence on
Single Product" and "--Customer Concentration."
SALES, MARKETING AND CUSTOMER SUPPORT
SALES. The Company markets the ASA 312 to telecommunications service
providers and network equipment manufacturers through an internal sales force
(currently consisting of 12 employees). The Company's internal sales force
includes managers based at the Company's principal executive offices and a
regional sales staff. In addition, the Company has retained a limited number of
independent non-exclusive representative firms which have experience in the sale
of telecommunications equipment.
The primary roles of the Company's internal sales force are (i) to ensure
that existing and potential customers in each territory are being regularly
contacted, (ii) to differentiate the features and capabilities of the Company's
products from competitive offerings, (iii) to assist customers with the
implementation of the Company's products and (iv) to serve as a direct link to
assure quality and timely customer support. In addition, the Company believes
that its investment in its internal sales staff helps the Company to monitor
changing customer requirements, as well as the development of industry
standards. The Company intends to continue to augment its internal sales
organization to promote the Company's products and to ensure direct contact with
the Company's current and potential customers.
MARKETING. In marketing the ASA 312. the Company focuses on the divisions
of telecommunications service providers that are responsible for planning and
installing extensions of the network. In contrast, the Company has directed its
preliminary marketing efforts relating to its planned on-line remote access
products towards the strategic planning divisions of telecommunications service
providers. The Company seeks to build awareness of its products through a
variety of marketing channels and methodologies. The Company participates in
industry trade shows and conferences and makes direct mailings to targeted
potential customers. The Company has also established a direct telemarketing
staff to identify opportunities for the Company's internal sales staff.
CUSTOMER SUPPORT. The Company is dedicated to providing comprehensive
customer support. All service, repair and technical support of the ASA 312 are
performed in-house utilizing sub-assemblies and components obtained from the
Company's regular sources of supply. The Company's technical support engineers
are trained in the hardware and software incorporated in the ASA 312, as well as
the networks and transmission equipment operated by its customers. The Company
offers technical support to its customers 24 hours a day, 7 days a week, via an
800 hotline and through paging systems for all support personnel. The Company
offers a three-year limited warranty on all components of its products, other
than the laser transmitter unit, which has a one-year limited warranty, and
software and firmware, which have a 90-day limited warranty.
PRODUCT DEVELOPMENT
The Company believes that its future success depends on its ability to
achieve technological leadership which will require ongoing enhancements of the
ASA 312 and the development of new applications and products that meet a wide
range of customer needs. Accordingly, the Company intends to continue to make
substantial investments in the development of new technologies, the
commercialization of new products building on the Company's existing
technological base and the enhancement and development of additional
applications for the ASA 312. The Company plans to establish and maintain a
budget for research and development expense at a minimum of 9% of sales during
each fiscal year.
The Company has organized its product development efforts into three main
groups as follows: (i) the microelectronics group is devoted to the further
development of hardware and firmware technologies; (ii) the software development
group is devoted to developing new applications software for emerging signaling
speeds and protocols and providing greater processing power for the Company's
hardware platforms; and (iii) the hardware development group is devoted to
reducing further the size and weight of the Company's products, designing
printed circuit boards for new applications and developing enhancements to
streamline production. The Company intends to increase the size of its technical
staff by adding microelectronic and software engineers, including those with
particular understanding of international transmission protocols and standards.
27
<PAGE>
Described below are various planned products of the Company currently in the
preliminary stages of development. With respect to each of these, product
definitions, including proposed features and functions, have been established,
components have been specified and pricing has preliminarily been established to
seek responses from potential customers. However, prototypes for these products
have not yet been assembled.
MODIFIED VERSIONS OF THE ASA 312. The Company currently plans to develop:
(i) a factory installed OC-48 option for the ASA 312; and (ii) the ASA 312E, a
modified version of the ASA 312 to serve international markets.
NIC. The Company plans to develop the "NIC," a notebook-size network
information computer which is planned to contain various customer selected NPPs.
Different series of NICs will include various NPP cards that will interface with
transmission speeds ranging from 64 Kbps to 2.4 Gbps for T-Carrier, PDH, SONET,
SDH and ATM protocols. The Company plans to design the NIC to enable users to
access not only the network information provided by the NPPs, but also to write
programs using this data. For example, the Company intends to design the NIC to
be able to extract data from a particular network element, to search for a
particular condition (such as a certain level of data congestion at the network
element) and to intervene actively to alter the way in which traffic is routed.
The NIC will be designed to provide the means to transfer data derived from the
NPPs to a conventional computing environment of word processing and spreadsheet
programs for storage, processing and reporting.
ON-LINE REMOTE ACCESS PRODUCTS. The Company intends to use the hardware and
firmware technology utilized in the ASA 312 to develop a family of on-line
remote access products for sale to telecommunications service providers and
equipment manufacturers. Specifically, the Company plans to design NPPs as rack-
mountable cards for permanent installation at any network element to assist
telecommunications service providers in monitoring a wide range of transmission
speeds and T-Carrier, SONET, SDH and ATM protocols from a remote location. The
remote operator will be able to access the NPPs via the operator's Ethernet LAN
or through the Internet. These products will feature an intuitive, graphical
user interface software and will be designed to allow customers to use their own
computers (or the NIC for fully programmable monitoring) while still accessing
the graphical interface found on the ASA 312.
The Company also plans to design the on-line remote access products for
integration into network transmission and cross-connect equipment on an OEM
basis prior to installation or as a system enhancement subsequent to
installation of a network element. These products will be designed to report
information concerning the transmissions at a specific network element in "real
time" and break out low speed signals so that telecommunications service
providers can evaluate embedded protocols within a high speed optical signal.
NPP 155H. The Company plans to develop the "NPP 155H", a hand-held ATM
network analyzer, which is intended to be used in the installation and
maintenance of ATM switches and routers. This product will be designed with
intended capabilities at both the physical layer and the ATM cell layer. It will
be configured with a DS-3, OC-3 or 155 Mbps UTP interface.
NIU 130. The Company plans to develop the "NIU 130", a T-3 network
interface unit, which is intended to provide the terminal interface between the
network provider and customer premises equipment. The NIU 130 also will be
designed to provide positive indication of customer service turn up, as well as
testing and problem arbitration of network service and customer equipment. In
addition, the NIU 130 will be designed to monitor the network signal performance
on site and to respond to standard far-end alarm and control (FEAC) codewords.
PRODUCTION
The Company's manufacturing operations consist primarily of material
planning and procurement, final assembly, software loading, testing and quality
assurance. The Company's operational strategy relies on outsourcing of
manufacturing to reduce fixed costs and to provide flexibility in meeting market
demand. The Company currently subcontracts component procurement and kitting and
printed circuit board assembly to
28
<PAGE>
a company that specializes in these services. The Company takes the printed
circuit board-based modules produced by its contract manufacturer and inserts
them into product enclosures in combination with the Company's software.
In connection with its outsourcing strategy, the Company is seeking to
secure additional sources of supply, including additional contract subassembly
and component manufacturers. The Company has experienced in the past, and may in
the future experience, problems with its contract manufacturers, in areas such
as quality, quantity and on-time delivery. In addition, the Company may in the
future experience pricing pressure from its contract manufacturers.
The Company uses a rolling six-month forecast based on anticipated product
orders to determine its general materials and component requirements. Lead times
for materials and components ordered by the Company vary significantly, and
depend on factors such as the specific supplier, purchase terms and demand for a
component at a given time. Currently, the Company acquires materials and orders
certain standard subassemblies based on the Company's forecast. Upon receipt of
firm orders from customers, the Company assembles fully-configured systems and
subjects them to a number of tests before shipment. If orders do not match
forecasts, the Company may have excess or inadequate inventory of certain
materials and components.
Although the Company generally uses standard parts and components for the
ASA 312, several key components used in the manufacture of the ASA 312 are
currently purchased only from single or limited sources. At present, the
Company's only single-sourced component is a SONET overhead terminator.
Limited-sourced components used in the ASA 312 include a single board computer,
a power supply, a touch sensor and controller, plastic housing units and other
discrete components. The Company generally does not have long-term agreements
with any of these single or limited sources of supply. Any interruption in the
supply of any of these components, or the inability of the Company to procure
these components from alternate sources at acceptable prices and within a
reasonable time, could have a material adverse effect upon the Company's
business, financial condition and results of operations. Qualifying additional
suppliers is time consuming and expensive and the likelihood of errors is
greater with new suppliers. See "Risk Factors -- Substantial Increase in
Manufacturing Operations; Dependence Upon Contract Manufacturing and Limited
Source Suppliers."
BACKLOG
The Company's backlog at September 30, 1996 was approximately $306,000.
Variations in the size and delivery schedules of purchase orders received by the
Company, as well as changes in customers' delivery requirements, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that its backlog cannot be considered a meaningful indicator of
future financial results.
COMPETITION
The market in which the ASA 312 is sold and certain of its planned on-line
remote access products are intended to be sold is intensely competitive and
subject to rapid change as a result of technological developments and other
factors. The Company believes that the principal competitive factors in its
market are technical resources and expertise relating to a wide range of
bandwidth and protocols, product features, reliability, price, timeliness of new
product introductions, timely adoption of emerging industry standards, service,
support, size, name recognition and installed base.
The Company believes that there are four current principal competitors which
offer products which compete with the ASA 312, including Hewlett-Packard,
Tektronix, Dynatec and Wandel & Goltermann, and less than ten other companies
which offer on-line remote access products, which are currently limited to T-
Carrier transmissions and do not provide the capability to monitor fiber optic
transmissions, the principal of which are Applied Digital Access and Hekimian.
The companies that offer test instruments in competition with the ASA 312 do not
offer on-line remote access products. Accordingly, the Company believes that
there are currently no competitors that provide an integrated comprehensive
solution to on-line performance monitoring transmission speeds from DS-1 through
OC-12 and no providers of portable equipment which cover the full range of
features offered by the ASA 312. However, such competitors and certain
prospective
29
<PAGE>
competitors have significantly longer operating histories, larger customer
bases, greater name recognition and technical, financial, manufacturing and
marketing resources than the Company. In addition, a number of these competitors
have long established relationships with the Company's customers and potential
customers. The Company believes it is likely that competitors will enter the
market for most if not all of the products which the Company will offer. See
"Risk Factors -- Competition."
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, copyright and trademark
protection and non-disclosure agreements to protect its core technology.
Although the Company has pursued and intends to continue to pursue patent
protection of certain aspects of its technology that it considers important, the
Company believes that its success will be largely dependent on its reputation
for technology, product innovation, affordability, marketing ability and
response to customers' needs. As of the date of this Prospectus, the Company had
pending two U.S. patent applications covering certain aspects of its technology.
There can be no assurance that the Company will be granted any patents or that,
if any patents are granted, they will provide the Company with significant
protection or will not be challenged.
The Company believes that the rapid rate of technological change and the
relatively long development cycle for integrated circuits are also significant
factors in the protection of the Company's intellectual property. The Company's
NPTs incorporate unique system architectures that have been developed based on a
broad understanding of public and private networks, signaling protocols and
network information requirements of the Company's customer base. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements and proprietary information and inventions agreements with its
employees and suppliers, and limits access to and distribution of its
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's technology without
authorization. Accordingly, there can be no assurance that the Company will be
successful in protecting its intellectual property or that the Company's rights
will preclude competitors from developing products or technology equivalent or
superior to that of the Company.
The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. Although the Company is not aware of any infringement or claimed
infringement by its products or technology of the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future or that any such assertions will not result in
costly litigation or require the Company to obtain a license to intellectual
property rights of such parties. There can be no assurance that any such
licenses would be available on terms acceptable to the Company, if at all.
Furthermore, litigation could result in substantial cost to and diversion of
efforts by the Company regardless of outcome. Any infringement claims or
litigation against the Company could materially and adversely affect the
Company's business, financial condition and results of operations. In addition,
the Company's growth strategy includes a plan to enter international markets and
the laws of some foreign countries do not protect the Company's proprietary
rights regarding its products to the same extent as do the laws of the United
States. See "Risk Factors -- Dependence on Proprietary Technology."
FACILITIES
The Company occupies 15,824 square feet of office and engineering space in
Clearwater, Florida, with rent payable in the amount of $266,000 per year plus a
portion of operating expenses. This facility is leased through January 31, 1998.
The Company has an option to extend the term of the lease for an additional
three-year period.
REGULATION
The Company's products must meet industry standards and receive
certification for connection to certain public telecommunications networks prior
to their sale. In the United States, the Company's products must comply with
various regulations promulgated by the FCC and Underwriters Laboratories.
Internationally, the Company's products must comply with standards established
by telecommunications authorities in various countries as well as with
recommendations of the Consultative Committee on International Telegraph and
Telephony. In addition, certain products must be certified by Bell
Communications
30
<PAGE>
Research, Inc. in order to be commercially viable. Although the Company's
products have not been denied any regulatory approvals or certifications to
date, any future inability to obtain on a timely basis or retain domestic or
foreign regulatory approvals or certifications or to comply with existing or
evolving industry standards could have a material adverse effect on the
Company's business, financial condition and results of operations.
The telecommunications industry is subject to regulation in the United
States and other countries. Federal and state regulatory agencies, including the
FCC and the various state Public Utility Commissions ("PUCs") and Public Service
Commissions regulate most of the Company's domestic customers. In February 1996,
the Telecommunications Act of 1996 (the "Telecom Act") was passed. The Telecom
Act allows IXCs, RBOCs, CAPs, independents and electric utility companies to
compete with each other to provide local and long-distance service. The Company
believes that the Telecom Act will increase the demand for systems, software and
services as telecommunications service providers respond to the changing
competitive environment by constructing new or enhancing existing networks.
In addition, the FCC and a majority of the states have enacted or are
considering regulations based upon alternative pricing methods. Under
traditional rate of return pricing, telecommunications service providers were
limited to a stated percentage of profit on their investment. Under the new
method of pricing, many PUCs have relaxed or eliminated the profit cap in return
for the carrier's promise to reduce or hold service prices at current levels. In
some states, the PUCs and the carriers have further agreed, in order to win
relaxation of profit limits, that the carriers would invest large sums to
upgrade the digital and optical capabilities of the network. The Company
believes that the new methods of price regulation could increase the demand for
its products.
Outside the United States, telecommunications networks are primarily owned
by the government or are strictly regulated by the government. Although
potential growth rates of some international markets are higher than those of
the United States, access to such markets is often difficult due to the
established relationships between the government-owned or controlled
telecommunications operating company and its traditional indigenous suppliers.
However, there has been a global trend towards privatization and deregulation of
the state-owned telecommunications operations. The Company believes that the
current trend of privatization and deregulation will continue and that such
trend could enhance the Company's international opportunities.
LITIGATION
The Company is not a party to any material litigation and is not aware of
any pending or threatened material litigation.
EMPLOYEES
The Company employs a full-time staff of 71, of which 19 are engineering
personnel, 12 are production personnel, 12 are internal sales staff and 28 are
administrative personnel. The Company has agreements with all employees covering
assignment of inventions and patents to the Company and confidentiality, as well
as a comprehensive security agreement. The Company believes that its
relationship with its employees is good.
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --------- -----------------------------------------
<S> <C> <C>
Bryan J. Zwan............................... 48 Chairman of the Board,
Chief Executive Officer, President and
Director
Seth P. Joseph.............................. 41 Senior Executive Vice President and
Director
Elizabeth W. Weigand........................ 39 Executive Vice President-- Operations
Beth A. Morris.............................. 42 Chief Financial Officer and
Vice President--Finance
Bruce A. Bonini............................. 39 Vice President--Sales
Eric A. Mitchell............................ 35 Vice President--National Account Sales
Tom V. Williams............................. 43 Vice President--Manufacturing
Kenneth T. Myers............................ 42 Vice President--Advanced Products
Denise Licciardi............................ 36 Vice President--Administration
Daniel Lorch................................ 44 Vice President--Customer Development
Robert Goransson............................ 36 Vice President--Qualifications
Doug C. Dohring............................. 38 Director
</TABLE>
DR. ZWAN founded the Company in February 1991 and has served as Chairman of
the Board, Chief Executive Officer and a Director since the Company's inception
and served as its President from inception until March 1996 and since October
1996. From 1987 to 1991, Dr. Zwan was Chief Executive Officer of Digital
Photonics, Inc. ("DPI"), a SONET multiplexer manufacturer which he founded in
1987. DPI was purchased in December 1990 by Digital Transmission Systems, Inc.,
a manufacturer of digital cross-connect equipment and DS1 modems. From 1985 to
1987, Dr. Zwan was Vice President at DSC Communications Corporation, a global
provider of telecommunication transmission, cross-connect and network access
equipment. Dr. Zwan was a member of the Research Facility Staff at the
Massachusetts Institute of Technology for two years, and holds a Ph.D. in
Physics from Rice University and B.S. degrees in Physics and Chemistry from the
University of Houston.
MR. JOSEPH has been Senior Executive Vice President and a Director of the
Company since September 1996. For more than the five years prior to September
1996, he was a partner in the law firm of Baker & McKenzie, during which time he
concentrated on corporate finance, merger and acquisition transactions and
providing general corporate advice.
MS. WEIGAND has been Executive Vice President--Operations of the Company
since September 1994. Prior to joining the Company, from August 1992 to
September 1994, Ms. Weigand served as office administrator of a dental practice.
From March 1991 to August 1992, Ms. Weigand was Director of Sales at Kenfil
Distribution, Inc., a software distributor where she managed a staff of regional
sales managers and account executives and structured dealer marketing programs
and volume purchase agreements.
MS. MORRIS has been Chief Financial Officer and Vice President--Finance of
the Company since January 1996. Prior to joining the Company as Controller in
January 1995, from 1989 through October 1994, Ms. Morris was the Controller of
Tredegar Molded Products Co. Technical Center, a division of Tredegar
Industries, Inc., dedicated to project management and product development, where
she performed various administrative functions in accounting, purchasing and
human resources. Ms. Morris is a Certified Public Accountant in the State of
Florida.
32
<PAGE>
MR. BONINI has been Vice President--Sales of the Company since September
1996, having joined the Company in August 1996. From August 1991 to August 1996,
Mr. Bonini was the senior sales executive of the Laser Precision Division of GN
Nettest, Inc., a global supplier of portable and on-line telecommunications test
and measurement equipment, having held other positions with such firm from
August 1987 to August 1991.
MR. MITCHELL has been Vice President--National Account Sales of the Company
since September 1996, having served as Vice President--Sales of the Company from
April 1995 to September 1996. From October 1992 to March 1995, Mr. Mitchell was
the National Sales Manager and then President of Crown Herald, Inc., a
manufacturer of imprinted corporate products, where he was initially responsible
for various sales and marketing activities and later for all phases of
operations. Prior to that, from March 1989 to October 1992, Mr. Mitchell was
Regional Manager of Penn Corporation, a manufacturer of imprinted corporate
products.
MR. WILLIAMS has been Vice President--Manufacturing of the Company since
April 1995. Prior to joining the Company, from March 1994 to April 1995, Mr.
Williams was an independent consultant to Lockheed Martin Corporation, a defense
contractor. From February 1991 to March 1994, Mr. Williams was a Program Manager
at Group Technologies Corporation, a manufacturer of computers and electronic
products.
MR. MYERS has been Vice President--Advanced Products of the Company since
June 1996, having served as Engineering and Design Manager since joining the
Company in September 1991. Prior to joining the Company, Mr. Myers was the Chief
Engineer at DPI from 1987 to 1991.
MS. LICCIARDI has been Vice President--Administration of the Company since
September 1996. Prior to joining the Company, Ms. Licciardi was Vice
President--Administration at Real World Corporation, a software supplier from
April 1984 until September 1996.
MR. LORCH has been Vice President--Customer Development of the Company since
June 1996. Prior to joining the Company, from 1980 to June 1996, he served as
Chief Executive Officer and President of Digital Engineering, Inc., a nationwide
field service and computer maintenance company.
MR. GORANSSON has been Vice President--Qualifications of the Company since
August 1996, having previously served as Quality Assurance Manager of the
Company from March 1996 to August 1996. Prior to joining the Company, he served
as Project Manager at Ericsson Network Systems, a manufacturer of telephone
switching systems, from April 1981 until March 1996.
MR. DOHRING was elected as a Director of the Company in June 1996. He serves
as Chairman of the Board of The Dohring Company, Inc., a firm founded by Mr.
Dohring which provides market research and consulting services. In 1995, The
Dohring Company had 75 employees and ranked 54th on Advertising Age's list of
the top 100 market research firms in the nation. Mr Dohring served as President
of the Company from March 1996 to October 1996. From its inception in 1986 until
March 1996, he served as Chief Executive Officer of The Dohring Company, Inc.
BOARD OF DIRECTORS
The Board of Directors currently consists of three members, Messrs. Zwan,
Joseph and Dohring. The Company's Bylaws provide that the Board of Directors can
fix the authorized number of directors from time to time between one and nine.
Upon consummation of the Offering, the Board of Directors will consist of five
members (at least two of whom will not be employees of, or otherwise affiliated
with, the Company) and will be classified into three classes. The Company's
Certificate of Incorporation (the "Certificate") provides that one class of two
members, Messrs. Zwan and Joseph, will be elected originally for a term expiring
at the annual meeting of stockholders to be held in 1997, another class of two
members, including Mr. Dohring, will be elected originally for a term expiring
at the annual meeting of stockholders to be held in 1998 and another class of
one member will be elected originally for a term expiring at the annual meeting
of stockholders to be held in 1999, with each class to hold office until its
successor is elected and qualified. At each annual meeting of stockholders, the
successors to the class of directors whose term then expires will be elected to
hold office for a term expiring at the annual meeting of stockholders held
subsequently in three years. The Board of Directors will establish committees,
including compensation and audit committees, each of which will report to the
Board of Directors.
33
<PAGE>
Executive officers are appointed by, and serve at, the discretion of the
Board of Directors. There are no family relationships among any of the directors
or executive officers of the Company.
COMPENSATION OF DIRECTORS
During 1995, directors did not receive compensation for serving as members
of the Board of Directors. Directors of the Company who are not officers or
employees of the Company will receive an annual fee of $10,000. Directors are
reimbursed for travel and other expenses relating to attendance at meetings of
the Board of Directors or committees.
EXECUTIVE COMPENSATION
The following table shows, for 1995, the cash and other compensation awarded
to, earned by or paid to Dr. Zwan and each other executive officer who earned in
excess of $100,000 for all services in all capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER
NAME AND PRINCIPAL POSITIONS SALARY(1) BONUS COMPENSATION
- -------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Bryan J. Zwan ............................................................ $ 300,000 $ -- $ --
Chairman of the Board and
Chief Executive Officer
Al G. Zwan ............................................................... 220,000 -- --
Former Executive Vice President
Elizabeth W. Weigand ..................................................... 140,000 -- --
Executive Vice President
Kenneth T. Myers ......................................................... 100,000 -- --
Engineering and Design Manager
</TABLE>
- --------------
(1) Amounts include salary paid during 1995 and deferred salary.
(2) Mr. Al G. Zwan resigned as Executive Vice President of the Company in
February 1996.
OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") became effective on
March 5, 1996. The purpose of the Option Plan is to attract and retain qualified
personnel, to provide additional incentives to employees, officers and
consultants of the Company and to promote the success of the Company's business.
A reserve of 5,000,000 shares of the Company's Common Stock has been established
for issuance under the Option Plan. The Option Plan is administered by the Board
of Directors who may delegate the administration of the plan to a committee of
the Board of Directors. The Board of Directors now has, and such committee would
have, complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an incentive stock option or a non-statutory
option, the vesting schedule to be in effect for the option grant and the
maximum term for which any granted option is to remain outstanding.
Each option granted under the Option Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options granted under the Option Plan may be exercised only
for fully vested shares. The exercise price of incentive stock options and
non-statutory stock options granted under the Option Plan must be at least 100%
and 85%, respectively, of the fair market value of the stock subject to the
option on the date of grant (or 110% with respect to holders of more than 10% of
the voting power of the Company's outstanding stock). The Board of Directors or,
when appointed, such committee, has the authority to determine the fair market
value of the stock. The purchase price is payable immediately upon the exercise
of the option. Such payment may be made in cash, in outstanding shares of Common
Stock held by the participant, through a promissory note payable in installments
over a period of years or any combination of the foregoing.
The Board of Directors may amend or modify the Option Plan at any time,
provided that no such amendment or modification may adversely affect the rights
and obligations of the participants with respect
34
<PAGE>
to their outstanding options or vested shares without their consent. In
addition, no amendment of the Option Plan may, without the approval of the
Company's stockholders (i) modify the class of individuals eligible for
participation, (ii) increase the number of shares available for issuance, except
in the event of certain changes to the Company's capital structure, or (iii)
extend the term of the Option Plan. The Option Plan will terminate on March 4,
2006, unless sooner terminated by the Board of Directors.
As of the date of this Prospectus, the Company had outstanding options under
the Option Plan for an aggregate of 3,286,667 shares of Common Stock. As of the
date of this Prospectus, Bryan J. Zwan, Al G. Zwan, Elizabeth W. Wiegand and
Kenneth T. Meyers, the persons referred to in the Summary Compensation Table
above, had been granted options under the Option Plan for 0, 0, 250,000 and
250,000 shares of Common Stock, respectively.
EMPLOYMENT AGREEMENT
On September 30, 1996, the Company entered into an employment agreement with
Mr. Joseph (the "Employment Agreement"). The Employment Agreement provides for
Mr. Joseph's employment as Senior Executive Vice President of the Company at a
base salary of $250,000, with eligibility to receive an incentive bonus as
determined by the compensation committee of the Board of Directors. The
Employment Agreement provides for an initial term of five years with one
automatic five-year renewal unless terminated by either the Board of Directors
or Mr. Joseph in writing at least 180 days prior to a renewal at the end of the
initial term. The Employment Agreement contains confidentiality and noncompete
provisions by Mr. Joseph in favor of the Company. In the event of the
termination of Mr. Joseph, other than for cause, Mr. Joseph will be entitled to
severance payments in various fractions or multiples of annual compensation (in
no case exceeding three times annual compensation) depending upon whether the
termination is made following death or disability of Mr. Joseph, a change in
control of the Company or termination without cause by the Company.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Equity (Deficit)............................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Digital Lightwave, Inc.
We have audited the accompanying balance sheets of Digital Lightwave, Inc.
(the Company) as of December 31, 1994 and 1995, and September 30, 1996, and the
related statements of operations, stockholders' equity (deficit), and cash flows
for the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digital Lightwave, Inc. as
of December 31, 1994 and 1995, and September 30, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1993, 1994 and
1995 and for the nine months ended September 30, 1996, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Tampa, Florida
October 21, 1996
F-2
<PAGE>
DIGITAL LIGHTWAVE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 26 $ 72 $ 2,456
Receivables........................................................ -- 10 1,391
Notes receivable................................................... -- -- 44
Inventories........................................................ 97 622 714
Prepaid expenses and other assets.................................. 25 48 383
------------ ------------ -------------
Total current assets............................................. 148 752 4,988
Property and equipment, net.......................................... 172 515 1,048
Other assets......................................................... 12 10 19
------------ ------------ -------------
$ 332 $ 1,277 $ 6,055
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities........................... $ 449 $ 1,278 $ 1,811
Notes payable...................................................... 1,500 7,695 750
Notes payable -- related party..................................... 102 202 --
Capital lease obligation, current portion.......................... 36 172 164
------------ ------------ -------------
Total current liabilities........................................ 2,087 9,347 2,725
Notes payable........................................................ 500 -- --
Capital lease obligation............................................. 73 88 93
Other long-term liabilities.......................................... -- 5 --
------------ ------------ -------------
Total liabilities................................................ 2,660 9,440 2,818
------------ ------------ -------------
Commitments (Notes 6, 7, 8, and 10)
Stockholders' equity (deficit):
Preferred stock, $.0001 par value; authorized 20,000,000 shares; no
shares issued or outstanding...................................... -- -- --
Common stock, $.0001 par value; authorized 200,000,000 shares;
issued and outstanding 39,215,686, 20,000,000, and 22,518,917
shares, respectively.............................................. 4 2 2
Additional paid-in capital......................................... 523 522 14,242
Accumulated deficit................................................ (2,855) (6,987) (9,307)
------------ ------------ -------------
(2,328) (6,463) 4,937
Less: Note receivable from stockholder............................. -- (1,700) (1,700)
------------ ------------ -------------
Total stockholders' equity (deficit)............................. (2,328) (8,163) 3,237
------------ ------------ -------------
Total liabilities and stockholders' equity (deficit)........... $ 332 $ 1,277 $ 6,055
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DIGITAL LIGHTWAVE, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------- ----------------------------
1993 1994 1995 1996
------------- ------------- ------------- 1995 -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.................................... $ -- $ -- $ -- $ -- $ 3,037
Cost of goods sold....................... -- -- -- -- 1,152
------------- ------------- ------------- ------------- -------------
Gross profit......................... -- -- -- -- 1,885
------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development............... 439 1,241 1,509 1,169 1,653
General and administrative............. 106 179 1,017 569 897
Sales and marketing.................... -- 67 199 156 1,048
Relocation............................. -- 81 -- -- --
------------- ------------- ------------- ------------- -------------
Total operating expenses............. 545 1,568 2,725 1,894 3,598
------------- ------------- ------------- ------------- -------------
Operating income (loss).................. (545) (1,568) (2,725) (1,894) (1,713)
Interest income.......................... 2 1 8 3 143
Interest expense......................... (43) (115) (621) (370) (557)
Other income (expense), net.............. -- -- 4 -- (193)
------------- ------------- ------------- ------------- -------------
Income (loss) before
income taxes........................ (586) (1,682) (3,334) (2,261) (2,320)
Provision for income taxes............... (1) (1) -- -- --
------------- ------------- ------------- ------------- -------------
Net income (loss).................... $ (587) $ (1,683) $ (3,334) $ (2,261) $ (2,320)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss) per share............ $ (0.01) $ (0.04) $ (0.08) $ (0.05) $ (0.10)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common and
common equivalent
shares outstanding...................... 43,345,871 43,345,871 41,744,634 43,345,871 23,594,079
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DIGITAL LIGHTWAVE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
-------------------------- PAID-IN FROM
SHARES AMOUNT CAPITAL (DEFICIT) STOCKHOLDER TOTAL
------------- ----------- -------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.................... 39,215,686 4 523 (585) -- (58)
NET LOSS.................................... -- -- -- (587) -- (587)
------------- --- -------------- --------- ----------- -------------
BALANCE, DECEMBER 31, 1993.................. 39,215,686 4 523 (1,172) -- (645)
NET LOSS.................................... -- -- -- (1,683) -- (1,683)
------------- --- -------------- --------- ----------- -------------
BALANCE, DECEMBER 31, 1994.................. 39,215,686 4 523 (2,855) -- (2,328)
PURCHASE AND RETIREMENT OF COMMON STOCK,
NOVEMBER................................... (19,215,686) (2) (1) (798) -- (801)
NOTE RECEIVABLE FROM STOCKHOLDER............ -- -- -- -- (1,700) (1,700)
NET LOSS.................................... -- -- -- (3,334) -- (3,334)
------------- --- -------------- --------- ----------- -------------
BALANCE, DECEMBER 31, 1995.................. 20,000,000 2 522 (6,987) (1,700) (8,163)
ISSUANCE OF COMMON STOCK IN EXCHANGE FOR
DEBT....................................... 1,013,924 -- 5,321 -- -- 5,321
SALE OF COMMON STOCK........................ 221,992 -- 2,100 -- -- 2,100
ISSUANCE OF COMMON STOCK UPON EXERCISE OF
STOCK OPTIONS.............................. 31,334 -- 39 -- -- 39
ISSUANCE OF COMMON STOCK UPON EXERCISE OF
WARRANTS................................... 1,251,667 -- 6,260 -- -- 6,260
NET LOSS.................................... -- -- -- (2,320) -- (2,320)
------------- --- -------------- --------- ----------- -------------
BALANCE, SEPTEMBER 30, 1996................. 22,518,917 $ 2 $ 14,242 $ (9,307) $ (1,700) $ 3,237
------------- --- -------------- --------- ----------- -------------
------------- --- -------------- --------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DIGITAL LIGHTWAVE, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (587) $ (1,683) $ (3,334) $ (2,261) $ (2,320)
Adjustments to reconcile net loss to net cash used by
operating activities:
Interest expense converted to equity................. -- -- -- -- 113
Depreciation and amortization........................ 41 59 102 69 128
Loss on disposal of property......................... -- 43 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in receivables................. -- -- (10) (2) (1,425)
(Increase) decrease in inventories................. -- (97) (526) (304) (81)
(Increase) decrease in prepaid expenses and other
assets............................................ -- (29) (21) 7 (345)
Increase (decrease) in accounts payable and accrued
liabilities....................................... 91 241 760 986 406
--------- --------- --------- ----------- -----------
Net cash used by operating activities............ (455) (1,466) (3,029) (1,505) (3,524)
--------- --------- --------- ----------- -----------
Cash flows for investing activities:
Purchases of property and equipment.................... (40) (93) (173) (145) (516)
--------- --------- --------- ----------- -----------
Net cash used by investing activities............ (40) (93) (173) (145) (516)
--------- --------- --------- ----------- -----------
Cash flows from financing activities:
Stockholder borrowings................................. -- -- (1,700) -- --
Proceeds from notes payable............................ 300 2,000 5,696 1,683 1,750
Principal payments on notes payable.................... -- (300) -- -- 2,400
Proceeds from notes payable, related party............. 146 152 100 -- --
Principal payments on notes payable, related party..... (130) (305) -- -- (202)
Principal payments, capital lease obligation........... (16) (19) (47) (58) (148)
Cash paid for common stock............................. -- -- -- -- 2,624
Purchase and retirement of common stock................ -- -- (801) -- --
--------- --------- --------- ----------- -----------
Net cash provided by financing activities........ 300 1,528 3,248 1,625 6,424
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..... (195) (31) 46 (25) 2,384
Cash and cash equivalents at beginning of period......... 252 57 26 26 72
--------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period............... $ 57 $ 26 $ 72 $ 1 $ 2,456
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplementary information:
Cash paid for interest................................. $ 12 $ 88 $ 154
--------- --------- ---------
--------- --------- ---------
Noncash investing and financing activities:
Capital lease obligation............................... $ 92 $ 51 $ 246 $ 246 $ 17
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Accrued interest converted to equity................... $ -- $ -- $ -- $ -- $ 92
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Fixed asset additions included in accounts payable at
period end............................................ $ -- $ -- $ 25 $ -- $ --
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL -- Digital Lightwave, Inc. (the "Company") was incorporated on
October 12, 1990. The Company commenced business on February 15, 1991 to develop
and manufacture network information systems.
BASIS OF PRESENTATION -- The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has incurred cumulative losses of approximately $9.3 million and has working
capital of approximately $2.3 million and a stockholders' equity of
approximately $3.2 million at September 30, 1996. Funding for the Company's
losses has been provided by the Company's stockholders.
INTERIM FINANCIAL INFORMATION -- The unaudited financial statements as of
September 30, 1996, and for the nine months ended September 30, 1996 and 1995
(unaudited) include, in the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the Company's
financial position, results of operations, and cash flows. Operating results for
the nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
CASH EQUIVALENTS -- The Company considers all highly liquid investments with
an initial maturity of three months or less to be cash equivalents.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out) or market. The costs of certain inventory units are charged to
expense if the Company determines that the units will be used for demonstration
purposes.
REVENUE RECOGNITION -- Revenue is recognized at the date of shipment as the
Company has no further significant obligations.
PROPERTY AND EQUIPMENT -- The Company's property and equipment, including
certain assets under capital leases, are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided using
the straight-line method over estimated useful lives of 5-7 years, or over the
lesser of the term of the lease or the estimated useful life of assets under the
capital lease. Maintenance and repairs are expensed as incurred while renewals
and betterments are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation and amortization, and any resulting gain or loss is included in the
results of operations.
RESEARCH AND DEVELOPMENT -- The Company recognizes research and development
expenses, including the development of software, firmware and hardware, when
incurred. The Company has not historically capitalized any costs associated with
the development of software, firmware or hardware since it has not undertaken to
document at the time of such development the feasibility of such technology.
INCOME TAXES -- The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and the tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
COMPUTATION OF NET LOSS PER SHARE -- Net loss per common and common
equivalent share for the years ended December 31, 1993, 1994 and 1995 and for
the nine months ended September 30, 1995
F-7
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(unaudited) and September 30, 1996 have been computed using the weighted average
number of common and common equivalent shares outstanding using the treasury
stock method, as adjusted for the common stock conversion described in Note 10
for all periods presented is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1993 1994 1995 1996
------------ ------------ ------------ 1995 ------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common stock outstanding 41,240,978 41,240,978 39,639,741 41,240,978 21,489,186
Weighted average common stock equivalents
outstanding 2,104,893 2,104,893 2,104,893 2,104,893 2,104,893
------------ ------------ ------------ ------------ ------------
Shares used in net loss per share
computation 43,345,871 43,345,871 41,744,634 43,345,871 23,594,079
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
Pursuant to the requirements of the Securities and Exchange Commission,
common stock, stock options, and warrants issued by the Company during the
twelve months immediately preceding the initial public offering date have been
included in the calculation of the weighted average shares outstanding for all
periods presented using the treasury stock method based on the estimated initial
public offering price. Accordingly, weighted average common stock outstanding
includes 1,558,594 shares of common stock issued during the nine months ended
September 30, 1996 shown as outstanding for all periods presented. Weighted
average common stock equivalents outstanding includes 3,305,414 common stock
equivalent shares for options and warrants issued during the nine months ended
September 30, 1996.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents. As of December 31, 1994 and 1995 and September 30, 1996,
substantially all of the Company's cash balances, including amounts representing
outstanding checks, were deposited with what management believes to be
high-quality financial institutions.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENT -- SFAS No. 123, "Accounting for Stock-Based
Compensation" establishes financial accounting and reporting standards for
stock-based employee compensation plans, including stock options. SFAS No. 123
defines and encourages the use of the fair value method of accounting for
employee stock-based compensation. Continuing use of the intrinsic value based
method of accounting prescribed in Accounting Principles Board Opinion No. 25
("APB 25") for measurement of employee stock-based compensation is allowed with
pro forma disclosures of net income and net income per share as if the fair
value method of accounting had been applied. SFAS No. 123 is effective for
transactions entered into for years after December 15, 1995. The Company has
determined that it will continue to use the method of accounting prescribed in
APB 25 for measurement of employee stock-based compensation, and will begin
providing the required pro forma disclosures in its financial statements for the
year ended December 31, 1996 as allowed by SFAS No. 123. In the opinion of
management, SFAS No. 123 is not expected to have a material impact on the
Company's financial statements.
F-8
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECLASSIFICATIONS -- Certain reclassifications have been made to 1994
balance sheet amounts in order to conform with 1995 presentations. The
reclassifications had no impact on the results of operations for 1994.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials.............................................. $ 97 $ 418 $ 343
Work-in-progress........................................... -- 204 346
Finished goods............................................. -- -- 25
------------ ------------ -------------
$ 97 $ 622 $ 714
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Test equipment............................................. $ 211 $ 211 $ 323
Computer equipment and software............................ 27 304 588
Tooling.................................................... -- 119 171
Office furniture, fixtures and equipment................... 8 56 269
------------ ------------ -------------
246 690 1,351
Less: accumulated depreciation and amortization............ (74) (175) (303)
------------ ------------ -------------
$ 172 $ 515 $ 1,048
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Equipment under capital lease and related accumulated amortization, included
above, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Test equipment............................................. $ 143 $ 143 $ 143
Computer equipment and software............................ -- 246 394
------------ ------------ -------------
143 389 537
Less: accumulated amortization............................. (61) (133) (194)
------------ ------------ -------------
$ 82 $ 256 $ 343
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-9
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts payable........................................... $ 195 $ 486 $ 744
Accrued audit/consulting fees.............................. 12 25 4
Deferred compensation...................................... 99 548 233
Accrued warranty........................................... -- -- 30
Advance from stockholder................................... -- -- 400
Payable to stockholders.................................... 14 14 179
Accrued sales commissions.................................. -- -- 142
Accrued interest........................................... 88 154 11
Accrued vacation........................................... 20 31 51
Accrued payroll taxes...................................... 16 13 4
Other...................................................... 5 7 13
------------ ------------ -------------
$ 449 $ 1,278 $ 1,811
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-10
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1993 and
1994 represents minimum California franchise taxes.
The tax effected amounts of temporary differences consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Deferred tax assets:
Deferred compensation............................................ $ 37 $ 206 $ 88
Other............................................................ 7 11 21
Valuation allowance.............................................. (44) (213) (107)
------------ ------------ -------------
Total current deferred tax asset............................... -- 4 2
------------ ------------ -------------
------------ ------------ -------------
Net current deferred tax asset............................... -- 4 2
------------ ------------ -------------
------------ ------------ -------------
Non-current:
Deferred tax assets:
Net operating loss carryforward.................................. 741 1,854 2,825
Research and experimentation credit.............................. 119 142 18
Other............................................................ -- -- 142
Valuation allowance.............................................. (856) (1,953) (2,930)
------------ ------------ -------------
Total non-current deferred tax asset........................... 4 43 55
------------ ------------ -------------
Deferred tax liability:
Property related................................................... (4) (47) (57)
------------ ------------ -------------
Total deferred tax liability..................................... (4) (47) (57)
------------ ------------ -------------
Net non-current deferred tax asset........................... -- -- --
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Management believes that it is more likely than not that the tax benefit
associated with these deferred tax assets will not be realized and therefore as
of September 30, 1996, the Company has established a valuation allowance of
approximately $3,037,000. The result is an increase in the valuation allowance
from December 31, 1995 of approximately $870,000.
As of September 30, 1996, the Company had net operating loss carryforwards
of approximately $8,215,000 for tax purposes. Due to certain change of ownership
requirements of Section 382 of the Internal Revenue Code ("IRC"), utilization of
the Company's net operating losses incurred prior to July 1, 1993 is expected to
be limited to approximately $7,500 per year. This limitation in conjunction with
the expiration period for these pre-July 1, 1993 net operating losses results in
the Company's total net operating losses available being limited to
approximately $7,507,000. Loss carryforwards will expire during the years 2005
and 2011.
As of September 30, 1996, the Company also had general business credit
carryforwards of approximately $142,000, which expire between the years 2008 and
2011. These credits are also subject to the Section 382 annual limitation.
Approximately $15,000 of these credits are subject to the Section 382 annual
limitation.
F-11
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES: (CONTINUED)
Following is a reconciliation of the applicable federal income tax as
computed at the federal statutory tax rate to the actual income taxes reflected
in the statement of operations (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996
------------- ------------- ------------ SEPTEMBER 30, ---------------
1995
---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at U.S. federal income tax rate.... $ (200) $ (572) $ (1,134) $ (769) $ (789)
State income tax, net of federal
benefit............................... (21) (61) (121) (82) (84)
IRC Section 382 limitation............. 86 -- -- -- --
Valuation allowance increase........... 164 695 1,266 873 870
Research and experimentation credit.... (29) (91) (22) (22) --
Other.................................. -- 29 11 -- 3
----- ----- ------------ ----- -----
Provision for income taxes........... -- -- -- -- --
----- ----- ------------ ----- -----
----- ----- ------------ ----- -----
</TABLE>
6. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, collateralized by 46% of the outstanding shares of
common stock, and guaranteed by the Company's sole stockholder at
December 31, 1995; interest at prime, interest and principal due and
payable September 6, 1996; total credit facilities $1,500,000....... $ 1,500 $ 1,500 $ --
Note payable, collateralized by 46% of the outstanding shares of
common stock, and guaranteed by the Company's sole stockholder at
December 31, 1995; interest at prime, interest and principal due and
payable September 6, 1996; total credit facilities $1,500,000....... 500 900 --
Notes payable, guaranteed by the Company's sole stockholder at
December 31, 1995, interest at 16% and principal due and payable at
various dates in January, February, and March of 1996 (1)(2)........ -- 2,100 --
Note payable, collateralized by 51% of the entire class of common
stock; interest at 16%, interest payable monthly, principal due and
payable September 20, 1996; total credit facilities $2,500,000
(2)................................................................. -- 1,900 --
Note payable, guaranteed by the Company's sole stockholder at
December 31, 1995; interest at 53% with payments of principal due as
follows: $200,000 on January 8, 1996, $300,000 on January 31, 1996
and $200,000 on February 15, 1996 (1)(2)............................ -- 700 --
Notes payable, unsecured, interest at 9% and principal due and
payable upon demand; convertible to equity upon approval by both
parties (2)......................................................... -- 250 --
</TABLE>
F-12
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
Note payable, guaranteed by the Company's sole stockholder at
December 31, 1995, interest at 50%, interest and principal due and
payable June 21, 1996 (1)........................................... -- 100 --
<S> <C> <C> <C>
Note payable, guaranteed by the Company's sole stockholder at
December 31, 1995, interest at 50%, interest and principal due and
payable June 22, 1996 (1)........................................... -- 100 --
Note payable, unsecured, interest at 35% and principal due and
payable on January 10, 1996......................................... -- 75 --
Note payable, guaranteed by the Company's sole stockholder at
December 31, 1995, interest at 50%, interest and principal due and
payable July 11, 1996 (1)........................................... -- 70 --
Notes payable, unsecured, subordinated to all secured debt and any
future lines of credit up to $2 million, interest at 18%, interest
due and payable August 30, 1996, November 30, 1996, February 29,
1997, and May 31, 1997; principal due and payable May 31, 1997...... -- -- 750
------------ ------------ -------------
2,000 7,695 750
Less current portion................................................. 1,500 7,695 750
------------ ------------ -------------
$ 500 $ -- $ --
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
- ------------------------
(1) The notes, excluding $100,000 allowed the holder to exchange the debt prior
to April 30, 1996 for stock ownership equivalent to 5,667 shares for each
$51,000 of notes payable outstanding as of the date of conversion.
Approximately $2,631,000 of the notes, including principal and interest,
were converted into 292,865 shares of Common Stock. See Note 10.
(2) During March and April 1996, the Company entered into subscription
agreements to exchange the outstanding balance on certain notes on the date
of conversion to common stock at a range between $1.32 and $5.00 per share.
Approximately $2,868,200 of the notes, including principal and interest,
were converted into 721,030 shares of Common Stock. See Note 10.
Notes payable-related party consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, uncollateralized; interest at 9%, interest
payable on demand, principal due on demand................... $ 102 $ 102 --
Note payable, uncollateralized; interest at 9%, interest
payable on demand, principal due on demand................... -- 100 --
--
----- -----
$ 102 $ 202 --
--
--
----- -----
----- -----
</TABLE>
The prime rate was 8.5% at December 31, 1994 and 1995 and was 8.25% at
September 30, 1996.
F-13
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LEASES:
The Company is obligated under various noncancelable leases for equipment
and office space. Future minimum lease commitments under operating and capital
leases were as follows as of September 30, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ----------------------------------------------------------------------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Three months ended December 31, 1996............................................... $ 58 $ 90
Year ended December 31, 1997....................................................... 155 365
Year ended December 31, 1998....................................................... 62 47
Year ended December 31, 1999....................................................... 27 7
----- -----
302 $ 509
----- -----
-----
Less: amount representing interest................................................. 45
-----
Present value of minimum lease payments............................................ 257
Less: current portion.............................................................. 164
-----
$ 93
-----
-----
</TABLE>
Total rental expense was approximately $37,000 $66,100 and $147,900 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $109,200
(unaudited) and $164,900 for the nine months ended September 30, 1995 and 1996,
respectively.
8. COMMITMENTS:
At September 30, 1996, the Company had contractual commitments to purchase
certain inventory items totaling approximately $1,789,500.
9. RELATED PARTY TRANSACTIONS:
During February 1995, the Company entered into a Stock Purchase Option (the
Option) with a former stockholder to repurchase the 19,215,686 shares of the
then outstanding class of common stock held by the former stockholder for a
purchase price of $2,500,000. The purchase price was subsequently reduced to
$800,522. On November 30, 1995, the Company exercised the option and immediately
retired the shares of treasury stock acquired. The exercise is reflected in the
accompanying statement of stockholder's equity (deficit) for the year ended
December 31, 1995. In addition, the $2.0 million included in notes payable-
related party as of December 31, 1994 has been reclassified to notes payable to
reflect the termination of the stockholder status in accordance with the
exercise of the option. These notes were satisfied prior to September 30, 1996.
During December 1995, the remaining stockholder borrowed $1,700,000 from the
Company. This note accrues interest at 9% with interest payments being made on a
monthly basis. The principal sum and any accrued interest thereon is due and
payable in December 1997. The note is included in the accompanying financial
statements as an increase in stockholders' deficit as of December 31, 1995. In
addition, the stockholder loaned the Company $100,000 during December 1995.
These notes, including interest, were satisfied prior to September 30, 1996.
10. COMMON STOCK, STOCK OPTIONS, AND WARRANTS:
STOCK OPTIONS -- During 1995, the Company entered into option agreements
with certain parties to purchase an aggregate of up to $701,000 worth of shares
of common stock at the price to the public per share, in the event of an initial
public offering of common stock of the Company, at an aggregate purchase price
equal to $154,500. Subsequent to year-end, the Company terminated several
agreements which reduced the aggregate shares subject to such options to
$470,000, at an aggregate price equal to $39,000 as of April 30, 1996. The
options were exercised during July 1996.
F-14
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
SUBORDINATED NOTE -- On January 2, 1996, the Company issued (i) its 16%
Subordinated Promissory Note due January 2, 1999 in the original principal
amount of $1 million, and (ii) warrants to purchase 200,000 shares of Common
Stock at an exercise price of $5.00 per share. The warrants terminate on the
earlier to occur of: (i) thirty (30) days following the filing of a registration
statement for an underwritten initial public offering of the Common Stock of the
Company, (ii) thirty (30) days following an announcement of a change in control
of the Company; or (iii) January 2, 1999. On August 27, 1996, the noteholder
surrendered the Subordinated Promissory Note in exercise of the warrants.
CORPORATE MERGER -- Pursuant to an Agreement and Plan of Merger (the Merger)
dated January 9, 1996, Digital Lightwave, Inc., a California corporation merged
into Digital Lightwave, Inc., a Delaware corporation, effective March 18, 1996.
The merger increased the number of shares of common stock authorized from
1,000,000, no par value, to 80,000,000, $.0001 par value. In connection with the
merger, the Company also authorized 20,000,000 shares of $.0001 par value
preferred stock. Each share of outstanding common stock of the California
corporation was converted into 3,921.5686 shares of common stock of the Delaware
corporation. All applicable share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect these events.
Effective July 25, 1996, the Board of Directors authorized an increase in
the number of authorized shares of common stock from 80,000,000 shares to
200,000,000 shares.
ISO EMPLOYEE STOCK OPTION PLAN -- The Company's 1996 Stock Option Plan (the
Option Plan) became effective on March 5, 1996. A reserve of 5,000,000 shares of
the Company's common stock has been established for issuance under the Option
Plan. As of September 30, 1996, 1,646,667 options were granted at $5.00 and
1,640,000 options were granted at $9.00. The Option Plan will terminate on
February 28, 2006, unless sooner terminated by the Board.
SUBSCRIPTION AGREEMENTS -- The Company entered into subscription agreements
(the Agreements) with certain noteholders for the issuance of an aggregate of
782,898 shares of common stock for the surrender of the outstanding balance on
the notes (excluding certain accrued interest) of an aggregate of $4,074,000.
Pursuant to the Agreements, the Company issued warrants to purchase 1,050,000
and 18,747 shares of common stock at an exercise price of $5.00 and $9.00 per
share, respectively. The warrants expire on the earlier of (i) three years from
their respective dates of issuance; (ii) thirty (30) days following the filing
of a registration statement for an underwritten initial public offering of the
common stock of the Company, or (iii) a change of control of the Company. As of
September 30, 1996, 1,050,000 and 1,667 shares of Common Stock had been issued
upon the exercise of warrants at a price of $5.00 and $9.00 per share,
respectively.
On May 29, 1996, the Company entered into a subscription agreement with an
institutional investor for the issuance of 66,667 shares of common stock at a
price of $18.00 per share. In the event that on or before May 23, 1997 the
Company completes an initial public offering of its Common Stock, then the price
of the shares shall be adjusted by: (i) payment by the stockholder to the
Company in the amount equal to the excess, if any, over $18.00 per share of the
price to the public per share times 75% (the 75% price), or by (ii) a payment by
the Company to stockholder equal to the excess, if any, of $18.00 per share over
the 75% price. The Company has recorded a liability of $400,000 as of September
30, 1996, based upon management's estimate of the expected payment to the
institutional investor.
F-15
<PAGE>
DIGITAL LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
PRIVATE PLACEMENT -- During the period March 13, 1996 through April 30,
1996, the Company sold 155,326 shares of common stock, par value $.0001 per
share, at a price of $9.00 per share.
REVERSE SPLIT -- As of October 30, 1996, the Company effected a two for
three reverse split of its outstanding Common Stock. All share amounts included
herein have been adjusted to give historical effect to such reverse split for
all periods presented.
11. SIGNIFICANT CUSTOMERS
For the nine months ended September 30, 1996, sales to three customers
accounted for approximately 62% of total sales.
F-16
<PAGE>
GLOSSARY
ADD/DROP - Adding is including a lower transmission rate signal in a higher
transmission rate signal. For example, an OC-3 signal can be added to an OC-12
signal without altering the OC-3 signal. Dropping is removing a lower
transmission rate signal from a higher transmission rate signal.
ASYNCHRONOUS - Signals that are not generated from the same timing reference
and are therefore not identical in frequency.
ATM (ASYNCHRONOUS TRANSFER MODE) - An information transfer standard that is
one of a general class of technologies that relay traffic by way of an address
contained within the first five bytes of a standard 53-byte-long packet or cell.
The ATM format can be used by many different information systems, including the
public telecommunications network, WANs and LANs, to deliver traffic at varying
rates, permitting the efficient delivery of enhanced data services and
multimedia, which is a mix of voice, video and data.
BANDWIDTH - The range of frequencies that can be transmitted through a
medium, such as glass fibers, without distortion. The greater the bandwidth, the
greater the information-carrying capacity of such medium.
BIT - A contraction of the term binary digit which represents a single digit
of information expressed as a 0 or 1, high or low, or yes or no.
BROADBAND - A communications system that can transmit large quantities of
voice, data and video. Examples of broadband communication systems include DS-3,
which can transmit 672 simultaneous voice conversations and higher speed fiber
optic systems or a broadcast television station signal, which can transmit high
resolution audio and video signals into the home. Broadband connectivity is also
an essential element for interactive multimedia applications.
CAP (COMPETITIVE ACCESS PROVIDER) - A company that provides its customers
with an alternative to the RBOC for local transport of private line, special
access and interstate transport of telecommunications service.
CROSS-CONNECT EQUIPMENT - Distribution system equipment used to terminate
and administer communication circuits. In a wire cross connect, jumper wires or
patch cords are used to make circuit connections. In an optical cross connect,
fiber patch cords are used.
DEMULTIPLEX - The process of separating two or more signals that were
previously multiplexed.
DIGITAL - A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies (both
fiber and microwave) employ a sequence of these pulses to represent information
as opposed to the continuously variable analog signal. The precise digital
numbers minimize distortion (such as graininess or snow in the case of video
transmission, or static or other background distortion in the case of audio
transmission)
DS-1, DS-3 - Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-1 service has a bit rate of 1.544 Mbps and can
transmit 24 simultaneous voice conversations. DS-3 service has a bit rate of 45
megabits per second and can transmit 672 simultaneous voice conversations.
E-MAIL OR ELECTRONIC MAIL - The transmission of memoranda and messages over
a network. Users can send e-mail to a single recipient or broadcast it to
multiple users.
ETHERNET - A protocol commonly used on LANs.
ENHANCED DATA SERVICES - Products and services designed for the transport
and delivery of integrated information to include voice, data and video and any
combination thereof.
FEAC (FAR END ALARM AND CONTROL) - A special sequence of bits which enable
telecommunications service providers to control the functioning of a remote
network element.
FCC - Federal Communications Commission.
G-1
<PAGE>
FIBER OPTIC - A transmission medium consisting of a core of glass or plastic
surrounded by a protective cladding, strengthening material and outer jacket
which guides light pulses introduced into the fiber by a laser.
FIRMWARE - Software that is contained permanently in a hardware device and
which can be rewritten.
GATE ARRAY - A circuit that has a number of logical circuits arranged in an
array, or regular pattern, normally customized to suit a specific application.
GIGABIT PER SECOND (GBPS) - One billion bits of information per second. The
information carrying capacity (i.e., bandwidth) of a circuit may be measured in
"gigabits per second."
GRAPHICAL USER INTERFACE - A type of display format that enables the user to
choose commands, start programs and see lists of files and other options by
pointing to pictorial representations and lists of menu items on the screen.
INTEGRATED CIRCUIT (MICROPROCESSOR) - A series of miniaturized
interconnected electronic circuits inseparably associated within a silicon or
geranium substitute.
INTERNET - The name used to refer to the world's largest internetwork,
consisting of thousands of networks joined by the Internet suite of protocols.
IXC (INTEREXCHANGE CARRIER) - A company providing long distance services or
service within local access and transport areas on an intrastate or interstate
basis.
KILOBIT PER SECOND (KBPS) - One thousand bits of information per second. The
information-carrying capacity (i.e., bandwidth) of a circuit may be measured in
"kilobits per second."
LAN (LOCAL AREA NETWORK) - A group of computers and other devices dispersed
over a relatively limited area and connected by a communications link that
enables any device to interact with any other on the network.
LEGACY - Older generations of transmission technologies which continue to be
utilized in telecommunications networks.
MAPPING - A procedure of loading data into a group of bits of data (which
are marked off with flags to indicate the beginning and end of the group) such
that specific pieces of data can be located within the group of bits by network
equipment.
MEGABIT PER SECOND (MBPS) - One million bits of information per second. The
information-carrying capacity (i.e., bandwidth) of a circuit may be measured in
"megabits per second."
MULTIPLEX - The process of combining two or more signals for transmission
over the same circuit or channel at the same time.
NETWORK ELEMENT - A functional entity in a network, such as a multiplexer, a
switch interface or a digital cross-connect.
NETWORK PROTOCOL PROCESSORS (NPPS) - Modular hardware platforms for the
processing of various ranges of bandwidths and protocols.
NETWORK PROTOCOL TRANSLATORS (NPTS) - Modular gate arrays that supply
discrete network information from signals at specific bandwidths and on specific
protocols.
NON-BLOCKING SWITCH MATRIX - An internal switch in a system that has the
ability to switch multiple transmissions to different circuits simultaneously
without causing congestion internally in the switch.
NON-VOLATILE MEMORY - A type of memory that does not lose its content when
power is turned off or lost. It can be used as a virtual hard disk.
OC-1, OC-3, OC-3C, OC-12, OC-48 - Optical carrier signaling rates, measured
in bits transmitted per second. The basic rate for OC-1 is 51.840 Mbps. All
higher levels are direct multiples of OC-1 (e.g., OC-12 = 12 times 51.840 Mbps)
G-2
<PAGE>
OEM (ORIGINAL EQUIPMENT MANUFACTURER) - The customer of a component
manufacturer, which integrates the components into the products sold by the
customer in the ordinary course of its business.
OVERHEAD - Information carried in network transmissions, other than payload,
including routing information, error-checking characters and status and
operational information.
PAYLOAD - User transmitted data, including voice, data and/or video content,
which may include network management and accounting information.
PCMCIA (PERSONAL COMPUTER MEMORY CARD INTERNATIONAL ASSOCIATION) CARD - A
credit card sized card that plugs directly into a computer. The card can have
many different functions, such as providing additional memory, modem
capabilities, LAN connections, and interfaces.
PDH (PLESIOCHRONOUS DIGITAL HIERCHY) - Two or more signals that are not
generated from the same timing reference but are nominally at the same frequency
to a defined degree of precision.
PROTOCOL - A specific set of rules, procedures or conventions relating to
the format and timing of data transmission between two devices.
RAM - Random access memory.
RBOCS (REGIONAL BELL OPERATING COMPANIES) - The seven local telephone
companies (formerly part of AT&T) established by court decree in 1982.
REMOTE ACCESS PRODUCTS - Products that can be accessed through an Ethernet
interface, a modem, a GPIB (General Purpose Interface Bus) or other nework
interfaces to operate them from remote workstations.
SDH (SYNCHRONOUS DIGITAL HIERARCHY) - An electronics and network
architecture utilized on most continents other than North America for variable
bandwidth products which enables transmission of voice, video and data
(multimedia) at very high speeds.
SOFTWARE CALIBRATION - Calibration of equipment using software functions
that measure and adjust through software controllable parameters.
SONET (SYNCHRONOUS OPTICAL NETWORK TECHNOLOGY) - An electronics and network
architecture utilized primarily in North America for variable-bandwidth products
which enables transmission of voice, video, and data (multimedia) at very high
speeds.
SWITCH - A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
SWITCH MATRIX - A series of gate arrays which provide for the routing of
signals from one circuit path to another.
T-CARRIER OR T-1 OR T-3 - Insulated copper wire cables which carry
electrically transmitted digital signals. A T-1 cable carries a DS-1 signal
(1.544 Mbps), and a T-3 cable carries a DS-3 signal (45 Mbps). Also, a generic
name for any of several digitally multiplexed carrier systems originally
designed to carry digitalized voice signals.
TEST INSTRUMENTS - Equipment that measures the conditions of a signal on a
fiber or metallic cable, which measures level, frequencies and faults in signal
information.
UTP (UNSHIELDED TWISTED PAIR) - A type of cable that is common for telephone
and data traffic to the end user.
WAN (WIDE AREA NETWORK) - A group of LANs dispersed over a relatively wide
area and interconnected on dedicated telecommunication lines.
WEB OR WORLD WIDE WEB OR WWW - An Internet network that links documents by
providing hypertext links from server to server. It allows a user to jump from
document to related document no matter where it is stored on the internet. World
Wide Web client programs, or Web browsers, allow users to "browse" the Web.
G-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. 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 TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Use of Proceeds................................. 13
Dividend Policy................................. 13
Capitalization.................................. 14
Dilution........................................ 15
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 17
Business........................................ 21
Management...................................... 32
Principal and Selling Stockholders.............. 36
Certain Transactions............................ 37
Description of Capital Stock.................... 38
Shares Eligible For Future Sale................. 41
Underwriting.................................... 42
Notice to Canadian Residents.................... 43
Legal Matters................................... 44
Experts......................................... 44
Additional Information.......................... 44
Index to Financial Statements................... F-1
Glossary........................................ G-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, 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.
[LOGO]
4,000,000 Shares
Common Stock
($.0001 per share)
P R O S P E C T U S
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of certain estimated
expenses incurred in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 19,034
NASD filing fee................................................... $ 6,100
Nasdaq National Market listing fee................................ $ 50,000
Blue Sky fees and expenses........................................ 10,000
Printing and engraving expenses................................... *
Legal fees and expenses........................................... $ 400,000
Accounting fees and expenses...................................... *
Registrar and Transfer Agent's fees and expenses.................. *
Miscellaneous..................................................... *
---------
Total........................................................... $ *
---------
---------
</TABLE>
- --------------
* To be completed by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and Nasdaq National Market listing fee are estimated. The
Company intends to pay all expenses of registration with respect to shares being
sold by the Selling Stockholders hereunder, with the exception of underwriting
discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under the Delaware General Corporation Law to
indemnify all directors and officers to the extent provided in such statute. The
Company's Certificate of Incorporation provides that the Company shall indemnify
its directors to the fullest extent permitted by law either now or hereafter.
The Company has also entered into an agreement with each of its directors and
certain of its officers wherein it has agreed to indemnify each of them to the
fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.01 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Company against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) The Registrant granted options to the persons identified below as
follows:
(a) On March 17, 1995, Digital Lightwave, Inc., a California corporation
(the "Predecessor"), granted an option, solely in the event of an initial
public offering (an "IPO") to purchase $150,000 worth of shares of Common
Stock at a price equal to 50% of the IPO effective price per share to
Michael Baum and George Murgatroyd in reliance on Sections 3(b) and 4(2) of
the Securities Act;
II-1
<PAGE>
(b) On June 19, 1995, the Predecessor granted an option, solely in the
event of an IPO of the Predecessor, to purchase $400,000 worth of shares of
Common Stock at a price equal to 1% of the IPO effective price per share to
Stanley P. Zurn in reliance on Sections 3(b) and 4(2) of the Securities Act;
(c) On June 22, 1995, the Predecessor granted an option, solely in the
event of an IPO of the Predecessor, to purchase $30,000 worth of shares of
Common Stock at a price equal to 50% of the IPO effective price per share to
Edward F. Guignon in reliance on Sections 3(b) and 4(2) of the Securities
Act;
(d) On June 23 1995, the Predecessor granted an option, solely in the
event of an IPO of the Predecessor, to purchase $30,000 worth of shares of
Common Stock at a price equal to 50% of the IPO effective price per share to
Paul J. Hedlund in reliance on Sections 3(b) and 4(2) of the Securities Act;
(e) On July 12 1995, the Predecessor granted an option, solely in the
event of an IPO of the Predecessor, to purchase $21,000 worth of shares of
Common Stock at a price equal to 50% of the IPO effective price per share to
Margaret A. Guignon in reliance on Sections 3(b) and 4(2) of the Securities
Act;
(f) On August 15, 1995, the Predecessor granted an option to purchase
200,000 shares of Common Stock to Michael Baum and Paul J. Hedlund upon
conversion of a promissory note evidencing a loan made by such persons to
the Registrant in reliance on Sections 3(b) and 4(2) of the Securities Act;
and
(g) On September 7, 1995, the Predecessor granted an option, solely in
the event of an IPO of the Predecessor, to purchase $70,000 worth of shares
of Common Stock at a price equal to 50% of the IPO effective price per share
to Tony Charles Lonstein in reliance on Sections 3(b) and 4(2) of the
Securities Act.
(2) On January 2, 1996, the Registrant issued a three-year subordinated
promissory note in the original principal amount of $1 million and a warrant to
purchase 200,000 shares of Common Stock at an exercise price of $5.00 per share
to Renato Kasinsky, a citizen and resident of Brazil, in reliance on Regulation
S promulgated under the Securities Act.
(3) On March 12, 1996, the Registrant issued an aggregate of 521,030 shares
of Common Stock and warrants to purchase 1,050,002 shares of Common Stock at an
exercise price of $5.00 per share to several noteholders of the Company, other
than those described in paragraph (1) above, in consideration of the
satisfaction of indebtedness of the Registrant in an aggregate amount of
$2,605,041 in reliance on Sections 3(b) and 4(2) of the Securities Act.
(4) On March 18, 1996, the Registrant issued 20,000,000 shares of Common
Stock to the sole stockholder of the Predecessor, upon the effective date of the
merger between the Registrant and the Predecessor in reliance on Section 3(a)(9)
of the Securities Act.
(5) On March 28, 1996, the Registrant issued 200,000 shares of Common Stock
for an aggregate purchase price of $263,192 to the persons identified in
subparagraph 1(f) above pursuant to the exercise of their option to purchase
shares of Common Stock described in subparagraph 1(f) in satisfaction of the
indebtedness evidencing their loan to the Registrant in reliance on Sections
3(b) and 4(2) of the Securities Act.
(6) Between March 31, 1996 and May 15, 1996, the Registrant issued an
aggregate of 448,212 shares of Common Stock to 57 persons for an aggregate of
$4,033,710 (consisting of cash subscriptions and the surrender of $2,449,000 of
the Company's indebtedness) in reliance on Sections 3(b) and 4(2) of the
Securities Act. Holders of the options described in subparagraphs 1(a), 1(c),
1(d) and 1(e) above surrendered such options in exchange for warrants
exercisable for an aggregate of 18,748 shares of Common Stock at a price of
$9.00 per share.
II-2
<PAGE>
(7) On May 27, 1996, the Registrant issued 66,667 shares of Common Stock to
Bulldog Capital Partners for an aggregate purchase price of $1,200,000 in
reliance on Sections 3(b) and 4(2) of the Securities Act.
(8) On May 31, 1996, the Company issued an aggregate of $750,000 of its 18%
subordinated promissory notes due May 31, 1997 to 11 persons in reliance on
Sections 3(b) and 4(2) of the Securities Act.
(9) On July 29, 1996, the Registrant issued 26,668 shares of Common Stock
for an aggregate purchase price of $4,000 to the person identified in
subparagraph (1)(b) above pursuant to the exercise of his option to purchase
shares of Common Stock in reliance on Sections 3(b) and 4(2) of the Securities
Act.
(10) On July 29, 1996, the Registrant issued 4,667 shares of Common Stock for
an aggregate purchase price of $35,000 to the person identified in subparagraph
1(g) above pursuant to the exercise of his option to purchase shares of Common
Stock in reliance on Sections 3(b) and 4(2) of the Securities Act.
(ii) During August and September 1996, the Registrant issued an aggregate of
1,051,669 shares of Common Stock upon the exercise of warrants described in
items (3) and (6) above in reliance on Sections 3(b) and 4(2) of the Securities
Act and issued 200,000 shares of Common Stock upon the exercise of the warrants
described in item (2) above in reliance on Regulation S of the Securities Act.
No underwriting discounts or commissions were paid in connection with any of
the foregoing transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.01 -- Form of Underwriting Agreement
3.01 -- Certificate of Incorporation of Registrant
3.02 -- Amended and Restated By-laws of Registrant
4.01 -- Specimen Certificate for the Common Stock
5.01 -- Opinion of Baker & McKenzie**
10.01 -- Executive Employment Agreement dated September 30, 1996 between Registrant and Seth P. Joseph**
10.02 -- Lease Agreement dated October 7, 1994 between Registrant and Atrium at Clearwater, Limited*
10.03 -- First Lease Agreement Amendment dated February 16, 1996 between Registrant and Atrium at
Clearwater, Limited*
10.04 -- Form of Indemnification Agreement between Registrant and officers and directors of Registrant*
10.05 -- Digital Lightwave, Inc. 1996 Stock Option Plan
23.01 -- Consent of Baker & McKenzie (included in Exhibit 5.01)**
23.02 -- Consent of Coopers & Lybrand L.L.P.
24.01 -- Power of Attorney (as set forth on the signature page of the Registration Statement)*
27.01 -- Financial Data Schedule
</TABLE>
- --------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
None
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(1) 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.
(2) 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 provisions described in Item 14 , or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel 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.
(3) The undersigned Registrant hereby undertakes:
(a) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
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 the registration
statement as of the time it was declared effective.
(b) That for the purposes 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
"Securities Act"), the Registrant certifies that it 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 Clearwater, Florida, on
the 1st day of November, 1996.
DIGITAL LIGHTWAVE, INC.
By: /s/ BRYAN J. ZWAN
-----------------------------------
Bryan J. Zwan
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
NAME TITLE DATE
- ------------------------------------------------------ ------------------------------ -------------------------
Chairman of the Board, Chief
/s/ BRYAN J. ZWAN Executive Officer, President
------------------------------------------- and Director (Principal November 1, 1996
Bryan J. Zwan Executive Officer)
Chief Financial Officer,
/s/ BETH A. MORRIS* Secretary and Treasurer
------------------------------------------- (Principal Financial and November 1, 1996
Beth A. Morris Accounting Officer)
/s/ DOUG C. DOHRING*
------------------------------------------- Director November 1, 1996
Doug C. Dohring
/s/ SETH P. JOSEPH
------------------------------------------- Senior Executive Vice November 1, 1996
Seth P. Joseph President and Director
*By: /s/ BRYAN J. ZWAN
---------------------------------------
Bryan J. Zwan, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGES
- --------- ------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
1.01 -- Form of Underwriting Agreement
3.01 -- Certificate of Incorporation of the Registrant
3.02 -- Amended and Restated By-Laws of Registrant
4.01 -- Specimen Certificate for the Common Stock
10.05 -- Digital Lightwave, Inc. 1996 Stock Option Plan
23.02 -- Consent of Coopers & Lybrand L.L.P.
27.01 -- Financial Data Schedule
</TABLE>
<PAGE>
K&S DRAFT: 10/31/96
4,000,000 SHARES
DIGITAL LIGHTWAVE, INC.
COMMON STOCK,
$.0001 PAR VALUE
UNDERWRITING AGREEMENT
__________, 1996
CS FIRST BOSTON CORPORATION
As Representative of the Several Underwriters
Park Avenue Plaza
New York, N.Y. 10055
Dear Sirs:
1. INTRODUCTORY. Digital Lightwave, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule A hereto (the "Underwriters") 3,140,000 shares of its Common Stock,
$.0001 par value per share (the "Securities") and the stockholders listed in
Schedule B hereto (the "Selling Stockholders") propose severally and not jointly
to sell an aggregate of 860,000 outstanding shares of the Securities (such
4,000,000 shares of Securities being hereinafter referred to as the "Firm
Securities"). The Company also proposes to sell to the Underwriters, at the
option of the Underwriters, an aggregate of not more than 600,000 additional
shares of its Securities, as set forth below (such 600,000 additional shares
being hereinafter referred to as the "Optional Securities"). The Firm Securities
and the Optional Securities are herein collectively referred to as the "Offered
Securities." This Underwriting Agreement, as amended, supplemented or modified
from time to time is referred to herein as the "Agreement." The Company and the
Selling Stockholders hereby agree with the Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement on Form S-1 (No. 333-9457) relating to
the Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission (the "Commission") and either
(A) has been declared effective under the Securities Act of 1933, as
amended (the "Act"), and is not proposed to be amended or (B) is proposed
to be amended by amendment or post-effective amendment. If such
registration statement (the "initial registration statement") has been
declared effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)")
under the Act and, if so filed, has become effective upon filing pursuant
to such Rule and the Offered Securities all have been duly
<PAGE>
registered under the Act pursuant to the initial registration statement
and, if applicable, the additional registration statement or (B) such an
additional registration statement is proposed to be filed with the
Commission pursuant to Rule 462(b) and will become effective upon filing
pursuant to such Rule and upon such filing the Offered Securities will all
have been duly registered under the Act pursuant to the initial
registration statement and such additional registration statement. If the
Company does not propose to amend the initial registration statement or if
an additional registration statement has been filed and the Company does
not propose to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment (if
any) to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c)
("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or, if
filed prior to the execution and delivery of this Agreement, the additional
registration statement means (A) if the Company has advised the
Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or
the most recent post-effective amendment thereto (if any) filed prior to
the execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c), or
(B) if the Company has advised the Representatives that it proposes to file
an amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended by
such amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement has
not been filed prior to the execution and delivery of this Agreement but
the Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration statement
pursuant to the General Instructions of the Form on which it is filed and
including all information (if any) deemed to be a part of the initial
registration statement as of its Effective Time pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as amended
at its Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all information
(if any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "Additional Registration Statement". The Initial Registration
Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and individually
as a "Registration Statement". The form of prospectus relating to the
Offered Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be prepared
or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission ("Rules and Regulations")
and did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
2
<PAGE>
necessary to make the statements therein not misleading, (B) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all material respects
to the requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (C) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations, and none of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make
the statements therein (and, in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading. If the Effective
Time of the Initial Registration Statement is subsequent to the execution
and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements of the
Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein (and, in the case of the Prospectus, in light of the circumstances
under which such statements were made) not misleading, and no Additional
Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or the Prospectus (or any supplements thereto) based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in Section
7(c).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure, individually or in the aggregate, to be so qualified would not
have a material adverse effect upon the condition, financial or otherwise,
results of operations, business affairs or business prospects of the
Company.
(iv) The Company has no subsidiaries and owns no securities, directly
or indirectly, of any entity.
(v) The Company's authorized capitalization is as described in the
Prospectus; all outstanding shares of capital stock of the Company have
been duly authorized and are validly issued, fully paid and nonassessable
and conform to the description thereof contained in the Prospectus; the
Offered Securities have been duly authorized and, when issued and delivered
against payment therefor as provided herein, will be validly issued, fully
paid and nonassessable and conform to the description thereof contained in
the Prospectus; the stockholders of the Company have no preemptive rights
with respect to the Securities; except as described in the Prospectus,
there are no other rights to subscribe for or purchase any shares of
capital stock issued by the Company; and, except as described in the
Prospectus, there are no outstanding securities or
3
<PAGE>
obligations of the Company convertible into, exercisable for or
exchangeable for any capital stock of the Company.
(vi) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
the transactions contemplated hereby.
(vii) No person or entity has any right, not effectively satisfied or
waived, to require the Company to include any securities with the
Securities registered pursuant to a Registration Statement; no person or
entity has any right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person; and, except as described in the Prospectus,
no person or entity has any right to require the Company to include such
securities with securities to be registered pursuant to any other
registration statement filed by the Company under the Act.
(viii) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market, subject to notice of issuance.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required to be obtained or
made by the Company for the consummation of the transactions contemplated
by this Agreement in connection with the sale of the Offered Securities by
the Company, except such as have been obtained and made for registration of
the Offered Securities under the Act and such as may be required by the
National Association of Securities Dealers, Inc. or under state or foreign
securities laws.
(x) The execution, delivery and performance of this Agreement and the
sale of the Offered Securities by the Company will not result in a breach
or violation of any of the terms and provisions of the charter or bylaws of
the Company. The execution, delivery and performance of this Agreement and
the sale of the Offered Securities by the Company will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the
Company or any of its properties, or any agreement or instrument to which
the Company is a party or by which the Company is bound or to which any of
the properties of the Company is subject, which breach violation or default
would, individually or in the aggregate have a material adverse effect on
the Company.
(xi) This Agreement has been duly authorized, executed and delivered
by the Company.
(xii) Except as disclosed in the Prospectus, the Company has good and
marketable title to all real properties and all other properties and assets
owned by it, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with the
use made or to be made thereof; and except as disclosed in the Prospectus,
the Company holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with
the use made or to be made thereof.
(xiii) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it as described in the Prospectus,
except for certificates, authorities or permits that are not material
4
<PAGE>
and do not interfere with the conduct of the business of the Company; and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the Company.
(xiv) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that might have a material
adverse effect on the Company; the Company is not engaged in any unfair
labor practice; and no unfair labor practice complaint is pending or, to
its best knowledge, threatened against the Company.
(xv) Except as disclosed in the Prospectus, the Company owns
trademarks, trade names and other rights to inventions, know-how, patents,
patent applications, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights")
necessary to operate its business as now conducted by it and as proposed to
be conducted, each as described in the Prospectus; to the best knowledge of
the Company, the Company has not infringed, and is not infringing, and the
Company has not received any notice of claimed infringement with respect
to, any intellectual property rights of others; and to the best knowledge
of the Company there is no infringement by others of the intellectual
property rights of the Company.
(xvi) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any of
its properties that, if determined adversely to the Company, would
individually or in the aggregate have a material adverse effect on the
condition (financial or otherwise), business, properties or results of
operations of the Company, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement, or
which are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are, to the Company's
knowledge, threatened or contemplated.
(xvii) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company as of the dates shown and its results of operations and cash flows
for the periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the United
States applied on a consistent basis.
(xviii) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event that may
result in a prospective material adverse change, in the condition
(financial or otherwise), business, properties or results of operations of
the Company; there have been no transactions entered into by the Company,
other than in the ordinary course of business, which are material with
respect to the Company; and, except as disclosed in or contemplated by the
Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(xix) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus, or to be filed
as an exhibit to the Registration Statement, that is not described or filed
as required.
5
<PAGE>
(xx) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(xxi) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes, and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(b) Each Selling Stockholder severally and not jointly represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
(defined below) will have, valid and unencumbered title to the Offered
Securities to be delivered by such Selling Stockholder on such Closing Date
and full right, power and authority to enter into this Agreement and to
sell, assign, transfer and deliver the Offered Securities to be delivered
by such Selling Stockholder on such Closing Date hereunder; and upon the
delivery of and payment for such Offered Securities on such Closing Date,
the several Underwriters will acquire valid and unencumbered title to the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the Rules and Regulations and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, (B) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all material respects to the requirements of the Act and the Rules and
Regulations did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (C) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional Registration
Statement in which the Prospectus is included, each Registration Statement
and the Prospectus will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and none of such
documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein (and, in case
of the Prospectus, in light of the circumstances under which they were
made) not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement: on
the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all material
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein (and, in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus (or any
supplements thereto) based upon written information furnished to the
6
<PAGE>
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is
that described as such in Section 7(c).
(iii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by such Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in
connection with the sale of the Offered Securities sold by such Selling
Stockholder, except such as have been obtained and made for registration of
the Offered Securities under the Act and such as may be required by the
National Association of Securities Dealers, Inc., or under any foreign or
state securities laws;
(iv) The execution, delivery and performance of the Custody Agreement
and this Agreement and the consummation of the transactions therein and
herein contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or any court
having jurisdiction over such Selling Stockholder or any their properties
or any agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound or to which any of the
properties of such Selling Stockholder is subject; and
(v) Each of this Agreement, the Power of Attorney and related Custody
Agreement with respect to each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and
constitutes a valid and legally binding obligation of each such Selling
Stockholder enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights, to general equity principles and to applicable laws and public
policy considerations which may limit rights to indemnity or contribution
thereunder.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and each Selling Stockholder
agree, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Stockholder, at a purchase price of $ per share, the
respective number of shares of Firm Securities (rounded up or down, as
determined by CS First Boston Corporation ("CS First Boston") in its discretion,
in order to avoid fractions) obtained by multiplying 3,140,000 Firm Securities
in the case of the Company and the number of Firm Securities set forth opposite
the name of such Selling Stockholder in Schedule B hereto, in the case of a
Selling Stockholder, in each case, by a fraction the numerator of which is the
number of Firm Securities set forth opposite the name of such Underwriter in
Schedule A hereto and the denominator of which is the total number of Firm
Securities.
Certificates in negotiable form for the Offered Securities to be sold by
the Selling Stockholders hereunder have been placed in custody, for delivery
under this Agreement, under Custody Agreements made with American Stock Transfer
and Trust Company, as custodian ("Custodian"). Each Selling Stockholder agrees
that the shares represented by the certificates held in custody for such Selling
Stockholder under such Custody Agreements are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling Stockholder
for such custody are to that extent irrevocable, and that the obligations of the
Selling Stockholders hereunder shall not be terminated by operation of law,
whether by the death of any individual Selling Stockholder or the occurrence of
any other event, or in the case of a trust, by the death of any trustee or
trustees or the termination of such trust. If any individual Selling
Stockholder or any such trustee or trustees should die, or if any other such
event
7
<PAGE>
should occur, or if any of such trusts should terminate, before the delivery of
the Offered Securities hereunder, certificates for such Offered Securities shall
be delivered by the Custodian in accordance with the terms and conditions of
this Agreement as if such death or other event or termination had not occurred,
regardless of whether or not the Custodian shall have received notice of such
death or other event or termination.
The Company and the Custodian will deliver the Firm Securities to the
Representatives for the accounts of the Underwriters, against payment of the
purchase price in federal reserve funds immediately available by wire transfer
to the account of the Company at a bank acceptable to CS First Boston, payable
to the Company in the case of 3,140,000 shares of Firm Securities and in federal
reserve funds immediately available by wire transfer to the account of the
Custodian payable to the Custodian in the case of 860,000 shares of Firm
Securities, at the office of King & Spalding, Atlanta, Georgia, at 10:00 A.M.,
New York time, on , or at such other time not later than
seven full business days thereafter as CS First Boston and the Company
determine, such time being herein referred to as the "First Closing Date." The
certificates for the Firm Securities so to be delivered, will be in definitive
form, in such denominations and registered in such names as CS First Boston
requests upon reasonable notice and will be made available for checking and
packaging at the above office of King & Spalding at least 24 hours prior to the
First Closing Date.
In addition, upon written notice from CS First Boston given to the Company
from time to time not more than 30 days subsequent to the date of the
Prospectus, the Underwriters may purchase all or less than all of the Optional
Securities at the purchase price per Security to be paid for the Firm
Securities. The Company agrees to sell to the Underwriters the number of shares
of Optional Securities specified in such notice and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Securities set forth opposite such
Underwriter's name bears to the total number of shares of Firm Securities
(subject to adjustment by CS First Boston to eliminate fractions) and may be
purchased by the Underwriters only for the purpose of covering over-allotments
made in connection with the sale of the Firm Securities. No Optional Securities
shall be sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CS First Boston to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CS
First Boston but shall be not later than five full business days after written
notice of election to purchase Optional Securities is given. The Company will
deliver the Optional Securities being purchased on each Optional Closing Date to
the Representatives for the accounts of the several Underwriters, against
payment of the purchase price therefor in federal reserve funds immediately
available by wire transfer to the account of the Company at a bank acceptable to
CS First Boston, payable to the Company. The certificates for the Optional
Securities being purchased on each Optional Closing Date, will be in definitive
form, in such denominations and registered in such names as CS First Boston
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the above office of King & Spalding
at a reasonable time in advance of such Optional Closing Date.
8
<PAGE>
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
The Company agrees with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CS First Boston,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement. The Company will advise CS First Boston promptly
of any such filing pursuant to Rule 424(b). If the Effective Time of the
Initial Registration Statement is prior to the execution and delivery of
this Agreement and an additional registration statement is necessary to
register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and delivery,
the Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission pursuant
to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, on or prior to the time
the Prospectus is printed and distributed to any Underwriter, or will make
such filing at such later date as shall have been consented to by CS First
Boston.
(b) The Company will advise CS First Boston promptly of any proposal
to amend or supplement the initial or any additional registration statement
as filed or the related prospectus or the Initial Registration Statement,
the Additional Registration Statement (if any) or the Prospectus and will
not effect such amendment or supplementation without CS First Boston's
consent, which shall not be unreasonably withheld; and the Company will
also advise CS First Boston promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company will
promptly notify CS First Boston of such event and will promptly prepare and
file with the Commission, at its own expense, an amendment or supplement
which will correct such statement or omission or an amendment which will
effect such compliance. Neither CS First Boston's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
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(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (three of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CS First Boston requests. The Prospectus shall
be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CS First Boston
designates and will continue such qualifications in effect so long as
required to complete the distribution of the Offered Securities, provided
that the Company shall not be required to qualify as a foreign corporation
or to consent to service of process under the laws of any such jurisdiction
(except service of process with respect to the offering and sale of the
Offered Securities).
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report or definitive proxy statement of the Company filed with the
Commission under the Securities Exchange Act of 1934, as amended, or mailed
to stockholders, and (ii) from time to time, such other information of a
public nature concerning the Company as CS First Boston may reasonably
request.
(h) For a period of 180 days after the date of the Prospectus, the
Company will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Commission a registration
statement under the Act relating to, any additional shares of its
Securities or securities convertible into or exchangeable or exercisable
for any shares of its Securities, or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, without the prior
written consent of CS First Boston, except issuances of Securities pursuant
to the conversion or exchange of convertible or exchangeable securities or
the exercise of warrants or options, in each case outstanding on the date
hereof, grants of employee stock options pursuant to the terms of a plan in
effect on the date hereof and issuances of Securities pursuant to the
exercise of such options.
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The Company and each Selling Stockholder, severally and not jointly, agree
with the several Underwriters that the Company will pay all expenses incident to
the performance of the obligations of the Company and such Selling Stockholder,
as the case may be (except for the underwriting discounts and commissions
payable with respect to the Selling Stockholders' shares sold in the Offering,
which each Selling Stockholder will bear in proportion to amounts sold), under
this Agreement, and will reimburse the Underwriters (if and to the extent
incurred by them) for any filing fees and other expenses (including fees and
disbursements of counsel) incurred by them in connection with qualification of
the Offered Securities for sale under the laws of such jurisdictions as CS First
Boston designates and the printing of memoranda relating thereto, for the filing
fee of the National Association of Securities Dealers, Inc. relating to the
Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities, for any
transfer taxes on the sale by the Selling Stockholders of the Offered Securities
to the Underwriters and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
Each Selling Stockholder agrees, severally and not jointly, to deliver to
CS First Boston, attention: Transactions Advisory Group, on or prior to the
First Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
Each Selling Stockholder agrees, severally and not jointly, for a period of
180 days after the date of the Prospectus, not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any additional shares of
the Securities of the Company or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the intention to
make any such offer, sale, pledge or disposition, without the prior written
consent of CS First Boston.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Coopers & Lybrand
L.L.P., confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements examined by
them and included in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
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(ii) on the basis of a reading of the latest available
interim financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date not
more than five days prior to the date of this Agreement, there
was any change in the capital stock or any increase in short-term
indebtedness or long-term debt of the Company or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in net current assets or net assets, as
compared with amounts shown on the latest balance sheet included
in the Prospectus; or
(B) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year, and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in net sales or net operating income or in the
total or per share amounts of income before extraordinary items
or net income;
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company subject to the internal controls of the Company's accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statements is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statements is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the post-
effective amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
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<PAGE>
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CS First Boston. If the Effective Time of the Additional Registration
Statement (if any) is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than 10:00
P.M., New York time, on the date of this Agreement or, if earlier, the time
the Prospectus is printed and distributed to any Underwriter, or shall have
occurred at such later date as shall have been consented to by CS First
Boston. If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Prospectus shall
have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing Date,
no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company, any Selling Stockholder or
the Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or otherwise),
business, properties or results of operations of the Company which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the sale
of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Act), or any public announcement that any such organization has
under surveillance or review its rating of any debt securities of the
Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange or any setting of minimum prices
for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Baker & McKenzie, counsel for the Company, to the effect
that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
each jurisdiction in which it is known to such counsel to own or lease
property or conduct business and in which the failure, individually or
in the aggregate, to be so qualified would have a material adverse
effect on the Company.
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<PAGE>
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Securities of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; the stockholders of the Company have no preemptive rights
with respect to the Offered Securities; and, to the best knowledge of
such counsel, there are no other rights to subscribe for or purchase
any shares of capital stock issued by the Company and (except as
described in the Prospectus) no outstanding securities or obligations
of the Company convertible into, exercisable for or exchangable for
any capital stock of the Company.
(iii) To the best knowledge of such counsel, no person or entity
has any right, not effectively satisfied or waived, to require the
Company to include any securities with the Securities registered
pursuant to a Registration Statement; no person or entity has any
right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be
owned by such person; and, except as described in the Prospectus, no
person or entity has any right to require the Company to include such
securities with securities to be registered pursuant to any other
registration statement filed by the Company under the Act.
(iv) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or, to such counsel's knowledge,
any court is required to be obtained or made by the Company in
connection with the sale of the Offered Securities by the Company
other than registration of the Offered Securities Under the Act
(except such counsel will not express an opinion as to any necessary
qualification under the state securities or blue sky laws of the
various jurisdictions in which the Offered Securities are being
offered by the Underwriters or the review of the terms of the public
offering of the Offered Securities by the NASD).
(v) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of
the charter or bylaws of the Company. The execution, delivery and
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any of its
properties, or any agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the
properties of the Company is subject, of which such counsel is aware,
which, breach, default or violation would have a material adverse
effect on the Company.
(vi) To the best knowledge of such counsel, there are no pending
actions, suits or proceedings against or affecting the Company or any
of its properties that, if determined adversely to the Company, would
individually or in the aggregate have a material adverse effect on the
condition (financial or otherwise), business, properties or results of
operations of the Company, or would materially and adversely affect
the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale
of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
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<PAGE>
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Initial Registration Statement was declared effective
under the Act as of the date specified in such opinion, the Additional
Registration Statement (if any) was filed and became effective under
the Act as of the date specified in such opinion, the Prospectus
either was filed with the Commission pursuant to subparagraph (1) or
(4) of Rule 424(b) on the date specified therein or was included in
the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of a Registration
Statement or any part thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under
the Act, and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(ix) The statements in the Registration Statement and the
Prospectus under the captions "Business -- Regulation," "Description
of Capital Stock" and "Shares Eligible For Future Sale," insofar as
they are descriptions of laws, regulations and rules, of legal and
governmental proceedings or of contracts, agreements, leases and other
legal documents known to such counsel, or refer to statements of law
or legal conclusions, are complete and accurate in all material
respects.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company
and the Representatives and counsel to the Underwriters at which the
contents of the Registration Statement and Prospectus and related
matters were discussed and, although such counsel has not undertaken
to investigate or verify independently and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus
(except as otherwise expressly set forth herein), on the basis of the
foregoing, no facts have come to such counsel's attention that caused
such counsel to believe that any part of the Registration Statement
(other than the financial statements and notes thereto and other
financial, statistical and accounting data or schedules included
therein, or omitted therefrom, as to which such counsel need express
no opinion), as amended or supplemented, at the time such part of the
Registration Statement became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or the Prospectus (other than the financial statements and
notes thereto and other financial, statistical and accounting data or
schedules included therein, or omitted therefrom, as to which such
counsel expresses no opinion), as amended or supplemented, on the date
of filing thereof with the Commission and on the date hereof,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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(e) The Representatives shall have received the opinion contemplated
in the Power of Attorney executed and delivered by each Selling Stockholder
and an opinion, dated such Closing Date, of Holland & Knight, counsel for
the Selling Stockholders, to the effect that:
(i) Each Selling Stockholder had valid and unencumbered title to
the Offered Securities delivered by such Selling Stockholder on such
Closing Date and had full right, power and authority to sell, assign,
transfer and deliver the Offered Securities delivered by such Selling
Stockholder on such Closing Date hereunder; and the several
Underwriters have acquired valid and unencumbered title to the Offered
Securities purchased by them from the Selling Stockholders on such
Closing Date hereunder;
(ii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or, to such counsel's knowledge,
any court is required to be obtained or made by any Selling
Stockholder for the consummation of the transactions contemplated by
the Custody Agreement or this Agreement in connection with the sale of
the Offered Securities sold by the Selling Stockholders, other than
the registration of the Offered Securities under the Act or approval
of the terms of the public offering of the Offered Security by the
NASD (except such counsel will not express an opinion as to any
necessary qualification under the state securities or blue sky laws of
the various jurisdictions in which the Offered Securities are being
offered by the Underwriters);
(iii) The execution, delivery and performance of the Custody
Agreement and this Agreement and the consummation of the transactions
therein and herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any agreement or instrument to which any Selling
Stockholder is a party or by which any Selling Stockholder is bound or
to which any of the properties of any Selling Stockholder is subject,
of which such counsel is aware;
(iv) The Power of Attorney and related Custody Agreement with
respect to each Selling Stockholder has been duly authorized, executed
and delivered by or on behalf of such Selling Stockholder and
constitute valid and legally binding obligations of each such Selling
Stockholder enforceable in accordance with their respective terms,
except (a) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity, (b) as
enforceability of any indemnification provisions may be limited under
federal and state securities or blue sky laws or public policy,
(c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses,
including without limitation concepts of reasonableness, materiality,
good faith and fair dealing and to the discretion of the court before
which any proceeding therefor may be brought, and (d) to the extent
that certain waivers of rights are void as against public policy; and
(v) This Agreement has been duly authorized, executed and
delivered by each Selling Stockholder.
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(f) The Representatives shall have received from King & Spalding,
counsel for the Underwriters, such opinion or opinions, dated such Closing
Date, with respect to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the Representatives
may require, and the Selling Stockholders and the Company shall have
furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters.
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice-President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied in all material respects
with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date; no stop
order suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of any
applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or otherwise), business, properties or
results of operations of the Company except as set forth in or contemplated
by the Prospectus or as described in such certificate.
(h) The Representatives shall have received a letter, dated such
Closing Date, of Coopers & Lybrand L.L.P. which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than five days prior to such
Closing Date for the purposes of this subsection.
The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CS First Boston may in its sole
discretion waive on behalf of the Underwriters compliance with any conditions to
the obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue
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statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below; and provided, further, that such indemnity with respect to any untrue
statement or omission of a material fact contained in any preliminary
prospectus, shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased the
shares that are subject thereof if such person did not receive a copy of the
Prospectus (or the Prospectus as supplemented) at or prior to the confirmation
of the sale of such shares to such person in any case where delivery is required
under the Act and such untrue statement or omission of a material fact contained
in any preliminary prospectus was corrected in the Prospectus (or the Prospectus
as supplemented).
(b) The Selling Stockholders severally, and not jointly, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information provided in writing by such Selling Stockholder, upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or any Underwriter
by a Selling Stockholder specifically for use therein) and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that each Selling Stockholder will not be liable in any such case to the extent
that any such loss, claim, damage or liability (i) arises out of or is based
upon an untrue statement or alleged untrue statement in or omission from any of
such documents in reliance upon and conformity with written information
furnished to the Company by an Underwriter through the Representatives
specifically for use therein, or (ii) is in excess of the net proceeds of the
Offering received by such Selling Stockholder.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and the Selling Stockholders against any losses, claims,
damages or liabilities to which the Company or the Selling Stockholders may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company and any Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by any Underwriter consists of the following information in the
Prospectus furnished on behalf of each Underwriter: the last paragraph at the
bottom of the cover page concerning the terms of
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the offering by the Underwriters, the legend concerning over-allotments and
stabilizing on the inside front cover page and the concession and reallowance
figures and statement regarding discretionary sales appearing in the fourth and
fifth paragraphs, respectively, under the caption "Underwriting."
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action. An indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and each Selling Stockholder on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and each Selling Stockholder on
the one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and each Selling Stockholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and such Selling Stockholder bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, a Selling
Stockholder or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price
19
<PAGE>
at which the Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section shall be in addition to any liability which the Company and the Selling
Stockholders may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on any Closing Date
and the aggregate number of shares of Offered Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of shares of Offered Securities that the Underwriters are
obligated to purchase on such Closing Date, CS First Boston may make
arrangements satisfactory to the Company and the Selling Stockholders for the
purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CS First Boston, the Company and the Selling Stockholders for the purchase of
such Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased
previously. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers, the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Stockholders shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholders, and the Underwriters pursuant to Section 7 shall remain in effect,
and if any Offered Securities have been purchased hereunder the representations
and
20
<PAGE>
warranties in Section 2 and all obligations under Section 5 shall also remain in
effect. If the purchase of the Offered Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of this
Agreement pursuant to Section 8 or the occurrence of any event specified in
clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed or delivered and confirmed to the
Representatives, c/o CS First Boston Corporation, Park Avenue Plaza, New York,
N.Y. 10055, Attention: Investment Banking Department - Transactions Advisory
Group, with a copy to King & Spalding, 191 Peachtree Street, N.E., Atlanta, GA
30303-1763, Attn: Jeffrey M. Stein, Esq., or, if sent to the Company, will be
mailed or delivered and confirmed to it at 601 Cleveland Street, Fifth Floor,
Clearwater, FL 34615, Attention: Brian J. Zwan, with a copy to Baker & McKenzie,
The Wells Fargo Plaza, 12th Floor, 101 West Broadway, San Diego, California
92101-9890, Attn: John J. Hentrich, Esq., or, if sent to the Selling
Stockholders or any of them, will be mailed, delivered or telegraphed and
confirmed to the Selling Stockholders at the addresses set forth on Schedule B
below each Selling Stockholder's name, with a copy to Holland & Knight, 400
North Ashley Drive, Suite 2300, Tampa, Florida 33602-4300, Attn: Chester E.
Bacheller, Esq.; provided, however, that any notice to an Underwriter pursuant
to Section 7 will be mailed or delivered and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective personal representatives and
successors and the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder.
12. REPRESENTATION. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives, jointly or by
CS First Boston, will be binding upon all the Underwriters. _____________,
__________ and ___________ (the "Attorneys") will act for the Selling
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by the Attorneys will be binding upon all the
Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company and each Selling Stockholder hereby submit to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
21
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company three counterparts
hereof, whereupon this Agreement will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
THE SELLING STOCKHOLDERS: By:.....................................
[Name]
Attorney-in-fact
THE COMPANY: DIGITAL LIGHTWAVE, INC.
By:.....................................
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
CS FIRST BOSTON CORPORATION
Acting on its behalf and as the
Representative of the several Underwriters.
By:...............................
Name:
Title:
<PAGE>
SCHEDULE A
NUMBER OF
FIRM SECURITIES
UNDERWRITER TO BE PURCHASED
----------- ---------------
CS First Boston Corporation............................
-------------
Total . . . . . . . . . . . . 4,000,000
-------------
-------------
<PAGE>
SCHEDULE B
NUMBER OF
FIRM SECURITIES
SELLING STOCKHOLDER TO BE SOLD
- ------------------- ---------------
Norton S. Karno 300,000
Ellenburg Capital Corp. 225,334
Paul Hedlund 69,453
Michael J. Baum 66,801
Stanley P. Zurn 40,000
David A. Wagner or Patricia Flanagan Wagner 11,638
George W. Murgatroyd 5,986
Edward F. and Angela M. Guignon 6,339
Stanley P. Zurn 8,001
Robert Welch 8,001
Jakob Kryszek 6,334
Alfred J. Cade 4,667
ASK Brown Trust 4,667
Nicholas Brown 3,267
Frank & Jean Dufek 3,134
Carl R. Gratz Residuary Trust 3,134
Venture Tech Investors 2,934
First Trust Corp. TTEE for Bert Rettner 1,701
Ruth Cantley 2,334
Tony Lonstein 2,801
Monte Factor TTEE under the will of Ted H. Factor 1,867
Frank G. McGuire III/Jordon Trust 1,400
George J. Baxter 1,400
Sean Lilly 1,334
Margaret A. Guignon 1,053
-------
Total...................................... 860,000
-------
-------
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
DIGITAL LIGHTWAVE, INC.
DIGITAL LIGHTWAVE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That by unanimous written consent of the Board of Directors of the
Corporation, resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of the Corporation, declaring said amendment to
be advisable and recommended for approval by meeting or written consent of the
stockholders of the Corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation be amended by
changing Section (a) of Article FOURTH, so that as amended Section (a)
of Article FOURTH shall be and read as follows:
"FOURTH: (a) General. The aggregate number of shares
which the Corporation is authorized to issue is 220,000,000
shares, of which 20,000,000 shall be shares of Preferred
Stock, par value $.0001 per share (the "Preferred Stock"),
and 200,000,000 shall be shares of Common Stock, par value
$.0001 per share (the "Common Stock").
Effective at the time of the filing with the Secretary
of State of the State of Delaware of the Certificate of
Amendment to the Certificate of Incorporation of the
Corporation on October 31, 1996, setting forth the amendment
set forth herein (the "Effective Time"), each three (3)
shares of Common Stock issued and outstanding immediately
prior to the Effective Time shall, automatically and without
any action on the part of the respective holders thereof, be
reclassified into and become two (2) shares of Common Stock
and each stock certificate that, immediately prior to the
Effective Time, represented three (3) shares of Common Stock
shall, from and after the Effective Time, represent two (2)
<PAGE>
shares of Common Stock (the "Reverse Stock Split"). No fractional
shares of Common Stock will be issued in connection with the Reverse
Stock Split and each such fractional share shall be rounded up to the
nearest whole share of Common Stock."
SECOND: That pursuant to and in accordance with Section 228 of the General
Corporation Law of the State of Delaware, the proposed amendment was duly
approved by the written consent of the holders of a majority of the outstanding
shares of Common Stock of the Corporation and prompt written notice has or will
be given to all stockholders of record of the Corporation who have not consented
to the amendment set forth herein.
THIRD: That the foregoing amendment has been duly adopted in accordance
with the provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, Digital Lightwave, Inc. has caused this certificate to
be signed by Bryan J. Zwan, its Chief Executive Officer, and attested to by Beth
A. Morris, its Secretary, this 31st day of October, 1996.
By: /s/ Bryan J. Zwan
-----------------------
Bryan J. Zwan
Chief Executive Officer
ATTEST: /s/ Beth A. Morris
------------------
Beth A. Morris
Secretary
<PAGE>
DIGITAL LIGHTWAVE, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.
The registered office of the Corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES.
The Corporation also may 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
STOCKHOLDERS
SECTION 1. STOCKHOLDER MEETINGS.
(a) TIME AND PLACE OF MEETINGS. Meetings of the stockholders shall be
held at such times and places, either within or without the State of Delaware,
as may from time to time be fixed by the Board of Directors and stated in the
notices or waivers of notice of such meetings.
(b) ANNUAL MEETING. The annual meeting of the stockholders shall be held
during the third week of the month of May in each year as designated by the
Board of Directors, or at such other date as may be designated by the Board of
Directors, for the election of directors and the transaction of such other
business properly brought before such annual meeting of the stockholders and
within the powers of the stockholders.
(c) SPECIAL MEETINGS. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time only by the
Chairman of the Board of Directors, or the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors. Business
transacted at any special meeting of the stockholders shall be limited to the
purposes stated in the notice of such meeting.
(d) NOTICE OF MEETINGS. Except as otherwise provided law, the Certificate
of Incorporation or these Bylaws, written notice of each meeting of the
stockholders shall be given not less than ten days nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat,
directed to such stockholder's address as it appears upon the
<PAGE>
books of the Corporation, such notice to specify the place, date, hour and
purpose or purposes of such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail, postage prepaid,
addressed to the stockholder at his address as it appears on the stock ledger of
the Corporation. When a meeting of the stockholders is adjourned to another
time and/or place, notice need not be given of such adjourned meeting if the
time and place thereof are announced at the meeting of the stockholders at which
the adjournment is taken, unless the adjournment is for more than thirty days or
unless after the adjournment a new record date is fixed for such adjourned
meeting, in which event a notice of such adjourned meeting shall be given to
each stockholder of record entitled to vote thereat. Notice of the time, place
and purpose of any meeting of the stockholders may be waived in writing either
before or after such meeting and will be waived by any stockholder by such
stockholder's attendance thereat in person or by proxy. Any stockholder so
waiving notice of such a meeting shall be bound by the proceedings of any such
meeting in all respects as if due notice thereof had been given.
(e) QUORUM. Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than a majority of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the affirmative vote of the majority of
such quorum shall be deemed the act of the stockholders. If a quorum shall fail
to attend any meeting of the stockholders, the presiding officer of such meeting
may adjourn such meeting from time to time to another place, date or time,
without notice other than announcement at such meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting of the stockholders as originally noticed. The foregoing
notwithstanding, if a notice of any adjourned special meeting of the
stockholders is sent to all stockholders entitled to vote thereat which states
that such adjourned special meeting will be held with those present in person or
by proxy constituting a quorum, then, except as otherwise required by law, those
present at such adjourned special meeting of the stockholders shall constitute a
quorum and all matters shall be determined by a majority of the votes cast at
such special meeting.
SECTION 2. DETERMINATION OF STOCKHOLDERS ENTITLED TO NOTICE AND TO VOTE.
To determine the stockholders entitled to notice of any meeting of the
stockholders or to vote thereat, the Board of Directors may fix in advance a
record date as provided in Article VII, Section 1 of these Bylaws, or if no
record date is fixed by the Board of Directors, a record date shall be
determined as provided by law.
SECTION 3. VOTING.
(a) Except as otherwise required by law, the Certificate of Incorporation
or these Bylaws, each stockholder present in person or by proxy at a meeting of
the stockholders shall be entitled to one vote for each full share of stock
registered in the name of such stockholder at the
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<PAGE>
time fixed by the Board of Directors or by law as the record date of the
determination of stockholders entitled to vote at such meeting.
(b) Every stockholder entitled to vote at a meeting of the stockholders
may do so either (i) in person or (ii) by one or more agents authorized by a
written proxy executed by the person or such stockholder's duly authorized
agent, whether by manual signature, typewriting, telegraphic or facsimile
transmission or otherwise. Every proxy must be executed in writing (which shall
include telegraphing or facsimile transmission) by the stockholder or by his
duly authorized agent, but no proxy shall be voted on after eleven (11) months
from its date, unless the proxy provides for a longer period.
(c) Voting may be by voice or by ballot as the presiding officer of the
meeting of the stockholders shall determine. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
(d) In advance of or at any meeting of the stockholders, the Chairman of
the Board or Chief Executive Officer may appoint one or more persons as
inspectors of election (the "Inspectors") to act at such meeting. Such
Inspectors shall take charge of the ballots at such meeting. After the
balloting on any question, the Inspectors shall count the ballots cast and make
a written report to the secretary of such meeting of the results. Subject to
the direction of the presiding officer of the meeting, the duties of such
Inspectors may further include without limitation: determining the number of
shares outstanding and the voting power of each; the shares represented at the
meeting; the existence of a quorum; the authenticity, validity, and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes of consents and determining when the
polls shall close; determining the result; and doing such acts as may be proper
to conduct the election or vote with fairness to all stockholders. An Inspector
need not be a stockholder of the Corporation and any officer of the Corporation
may be an Inspector on any question other than a vote for or against such
officer's election to any position with the Corporation or on any other
questions in which such officer may be directly interested. If there are three
or more Inspectors, the determination, report or certificate of a majority of
such Inspectors shall be effective as if unanimously made by all Inspectors.
SECTION 4. LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the Corporation shall
prepare and make available, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to such meeting, either
at a place within the city where such meeting is to be held and which place
shall be specified in the notice of such meeting, or, if not so specified at the
place where such meeting is to be held. The list
-3-
<PAGE>
also shall be produced and kept at the time and place of the meeting of the
stockholders during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 5. ACTION BY CONSENT OF STOCKHOLDERS.
Any action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of such stockholders and may
not be effected by any consent in writing by such stockholders; provided,
however, that any action required to be taken by the stockholders of the
Corporation may be effected by a consent to such action signed by the holders of
a majority of the class of stock entitled to vote thereon if approved by a
two-thirds vote of the Continuing Directors, as such term is defined in the
Certificate of Incorporation. All such consents shall be filed with the
corporate records.
SECTION 6. CONDUCT OF MEETINGS.
The presiding officer of the meeting shall have full and complete authority
to determine the agenda, to set the procedures and order the conduct of
meetings, all as deemed appropriate by such person in his sole discretion with
due regard to the orderly conduct of business.
SECTION 7. NOTICE OF AGENDA MATTERS.
If a stockholder wishes to present to the Chairman of the Board or the
Chief Executive Officer an item for consideration as an agenda item for any
annual or special meeting of stockholders, he must give timely notice to the
Secretary of the Corporation and give a brief description of the business
desired to be brought before the meeting and any other information relating to
the agenda item that is required to be disclosed pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended ("Rule 14a-8"); PROVIDED,
HOWEVER, an item for consideration as an agenda item for any special meeting
will be considered only if the item is one of the purposes described in the
special meeting notice required by Section 222 of the General Corporation Law of
Delaware. To be timely, (i) for any annual meeting of stockholders, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than one hundred twenty
days nor more than one hundred eighty days prior to the anniversary date of the
Company's notice of annual meeting provided with respect to the previous year's
annual meeting; PROVIDED, HOWEVER, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
thirty calendar days from the date contemplated by the previous year's proxy
statement, the stockholder's notice must be delivered to or mailed and received
not later than the close of business on the tenth day following the date on
which notice of the date of the annual meeting is given to stockholders or made
public, whichever first occurs, and (ii) for any special meeting of
stockholders, a stockholder's notice by must be delivered to or mailed and
received not later than the close of business on the tenth day following the
date on which notice of the date of the special meeting is given to stockholders
or made public, whichever first occurs. No item submitted for
-4-
<PAGE>
consideration as an agenda item will be considered for any meeting unless
submitted in accordance with the procedures set forth in this paragraph and the
applicable requirements under Rule 14a-8.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS.
Unless otherwise restricted by law, the Certificate of Incorporation or
these Bylaws as to action which shall be authorized or approved by the
stockholders, and subject to the duties of directors as prescribed by these
Bylaws, all corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be controlled by, the
Board of Directors. Without prejudice to such general powers, but subject to
the same limitations, the directors shall have the following powers:
(a) To select and remove all the other officers, agents and employees of
the Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Certificate of Incorporation or these Bylaws, fix
their compensation and require from them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
Corporation and to make such rules and regulations therefor not inconsistent
with law, the Certificate of Incorporation or these Bylaws, as they may deem
best.
(c) To change the principal office for the transaction of the business of
the Corporation from one location to another as provided in Article I, Section
2, hereof; to designate any place within or without the State of Delaware for
the holding of any stockholders' meeting or meetings and to adopt, make and use
a corporate seal, and to prescribe the forms of certificates of stock, and to
alter the form of such seal and of such certificates from time to time, as in
their judgment they may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law.
(d) To authorize the issue of shares of stock of the Corporation from time
to time, upon such terms as may be lawful, in consideration of money paid, labor
done or services actually rendered, debts or securities cancelled, or tangible
or intangible property actually received or, in the case of shares issued as a
dividend, against amounts transferred from surplus to stated capital.
(e) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds,
-5-
<PAGE>
debentures, deeds of trust, mortgages, pledges, hypothecation or other evidences
of debt and securities therefor.
(f) To adopt and put into effect such stock purchase plans and stock
option plans, both of general and restricted stock option plan character, as
they may deem advisable for the benefit of employees of the Corporation, and to
issue stock in accordance with and pursuant to any such plan.
SECTION 2. ELECTION OF DIRECTORS.
(a) NUMBER, QUALIFICATION AND TERM OF OFFICE. The authorized number of
directors of the Corporation shall be fixed from time to time by the Board of
Directors, but shall not be less than one nor more than nine. The exact number
of directors shall be determined from time to time, either by a resolution or
Bylaw provision duly adopted by a majority of the whole Board of Directors.
Directors need not be stockholders.
(b) RESIGNATION. Any director may resign from the Board of Directors at
any time by giving written notice to the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or if the time when
such resignation shall become effective shall not be so specified, then such
resignation shall take effect immediately upon its receipt by the Secretary;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(c) NOMINATION OF DIRECTORS. Nominations of persons for election to the
Board of Directors of the Corporation at any annual or special meeting of
stockholders may be made only either by or at the direction of:
(i) the Board of Directors or any nominating committee
or person appointed by the Board of Directors, or
(ii) any stockholder of the Corporation entitled to
vote for the election of directors at the meeting who
complies with the procedure set forth in this paragraph;
provided, however, that nominations of persons for election
to the Board at a special meeting may be made only if the
election of directors is one of the purposes described in
the special meeting notice required by Section 222 of the
General Corporation Law of Delaware. Nominations of persons
for election at annual meetings, other than nominations made
by or at the direction of the Board, shall be made pursuant
to timely notice in writing to the Secretary of the
Corporation. To be timely, (A) for any annual meeting of
stockholders, a stockholder's notice must be delivered to or
mailed
-6-
<PAGE>
and received at the principal executive offices of the Corporation not
less than one hundred twenty days nor more than one hundred eighty
days prior to the anniversary date of the Company's notice of annual
meeting provided with respect to the previous year's annual meeting;
provided, however, that if no annual meeting was held in the previous
year or the date of the annual meeting has been changed to be more
than forty-five calendar days from the date contemplated by the
previous year's proxy statement, the stockholder's notice must be
received not later than the close of business on the tenth day
following the date on which notice of the date of the annual meeting
is given to stockholders or made public, whichever first occurs, and
(B) for any special meeting of stockholders, a stockholder's notice
must be delivered to or mailed and received not later than the close
of business on the tenth day following the date on which notice of the
date of the special meeting is given to stockholders or made public,
whichever first occurs. The stockholder's notice to the secretary
shall set forth (A) as to each person whom the stockholder proposes to
nominate for election or re-election as a director at the annual
meeting, (1) the name, age, business address and residence address of
the proposed nominee, (2) the principal occupation or employment of
the proposed nominee, (3) the class and number of shares of capital
stock of the Corporation that are beneficially owned by the proposed
nominee, and (4) any other information relating to the proposed
nominee that is required to be disclosed in solicitation for proxies
for election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934, as amended, and (B) as to the stockholder giving
the notice of nominees for election at the meeting, (1) the name and
record address of the stockholder, and (2) the class and number of
shares of capital stock of the Corporation that are beneficially owned
by the stockholder. The Corporation may require any proposed nominee
for election at the meeting of stockholders to furnish any other
information as may reasonably be required by the Corporation to
determine the eligibility of the proposed nominee to serve as a
director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with
the procedures set forth in this paragraph. The Chair of the meeting
shall, if the facts warrant, determine and declare to the meeting that
a nomination was not made in accordance with the requirements of this
paragraph, and if the Chair should so determine, the Chair
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<PAGE>
shall so declare to the meeting and the defective nomination shall be
disregarded.
(d) PREFERRED STOCK PROVISIONS. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of stock issued by the
Corporation having a preference over the Common Stock as to dividends or upon
liquidation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of the stockholders, the elections
term of office, filling of vacancies, nomination, terms of removal and other
features of such directorships shall be governed by the terms of Article Fourth
of the Certificate of Incorporation and the resolution or resolutions
establishing such class or series adopted pursuant thereto.
SECTION 3. MEETINGS OF THE BOARD OF DIRECTORS.
(a) REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held without call at the following times:
(i) at such times as the Board of Directors shall from
time to time by resolution determine; and
(ii) one-half hour prior to any special meeting of the
stockholders and immediately following the adjournment of
any annual or special meeting of the stockholders.
Notice of all such regular meetings hereby is dispensed with.
(b) SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chief Executive Officer or the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors. Notice of
the time and place of special meetings of the Board of Directors shall be given
by the Secretary or an Assistant Secretary of the Corporation, or by any other
officer authorized by the Board of Directors. Such notice shall be given to
each director personally or by mail, messenger, telephone, facsimile or
telegraph at such director's business or residence address. Notice by mail
shall be deposited in the United States mail, postage prepaid, not later than
the third day prior to the date fixed for such special meeting. Notice by
telephone, facsimile or telegraph shall be sent, and notice given personally or
by messenger shall be delivered, at least twenty-four hours prior to the time
set for such special meeting. Notice of a special meeting of the Board of
Directors need not contain a statement of the purpose of such special meeting.
(c) ADJOURNED MEETINGS. A majority of directors present at any regular or
special meeting of the Board of Directors or any committee thereof, whether or
not constituting a quorum, may adjourn any meeting from time to time until a
quorum is present or otherwise.
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<PAGE>
Notice of the time and place of holding any adjourned meeting shall not be
required if the time and place are fixed at the meeting adjourned.
(d) PLACE OF MEETINGS. Unless a resolution of the Board of Directors or
the written consent of all members of the Board of Directors given either before
or after the meeting and filed with the Secretary of the Corporation designates
a different place within or without the State of Delaware, meetings of the Board
of Directors, both regular and special, shall be held at the Corporation's
principal executive offices.
(e) PARTICIPATION BY TELEPHONE. Members of the Board of Directors or any
committee may participate in any meeting of the Board of Directors or committee
through the use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another, and such
participation shall constitute presence in person at such meeting.
(f) QUORUM. At all meetings of the Board of Directors or any committee
thereof, a majority of the total number of directors of the entire then
authorized Board of Directors or such committee shall constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any such meeting at which there is a quorum shall be the act of the Board of
Directors or any committee, except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws. A meeting of the Board
of Directors or any committee at which a quorum initially is present may
continue to transact business notwithstanding the withdrawal of directors so
long as any action is approved by at least a majority of the required quorum for
such meeting.
(g) WAIVER OF NOTICE. The transactions of any meeting of the Board of
Directors or any committee, however called and noticed or wherever held, shall
be as valid as though had at a meeting duly held after regular call and notice,
if a quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, or a consent to hold
such meeting, or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 5. ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the Board of Directors at
any meeting or at any meeting of a committee may be taken without a meeting if
all members of the Board of Directors or such committee consent in writing and
the writing or writings are filed with the minutes of the proceedings of the
Board of Directors or such committee.
SECTION 6. COMPENSATION OF DIRECTORS.
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<PAGE>
Unless otherwise restricted by law, 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,
for 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 preclude a director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees of the Board of Directors may be allowed like compensation for
attending committee meetings.
SECTION 7. COMMITTEES OF THE BOARD.
(a) COMMITTEES. The Board of Directors may, by resolution adopted by a
majority of the Board of Directors, designate one or more committees of the
Board of Directors, each Committee to consist of one or more directors. Each
such Committee, to the extent permitted by law, the Certificate of Incorporation
and these Bylaws, shall have and may exercise such of the powers of the Board of
Directors in the management and affairs of the Corporation as may be prescribed
by the resolutions creating such committee. 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. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members 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. The Board of Directors shall have the power, at any time for any
reason, to change the members of any such committee, to fill vacancies, and to
discontinue any such committee.
(b) MINUTES OF MEETINGS. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
(c) AUDIT COMMITTEE. From and after the annual meeting of stockholders in
1996, the Board of Directors shall appoint an Audit Committee consisting of at
least two directors, none of whom shall be employees of the Corporation. The
Audit Committee shall review the financial affairs and procedures of the
Corporation from time to time with management and meet with the auditors of the
Corporation to review the financial statements and procedures.
SECTION 8. INTERESTED DIRECTORS.
In addition to the statutory and corporate common law of Delaware, no
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other Corporation partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or
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<PAGE>
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; (ii) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.
(a) NUMBER. The officers of the Corporation shall be chosen by the
Board of Directors and may include a Chairman of the Board of Directors (who
must be a director as chosen by the Board of Directors) and shall include a
Chief Executive Officer, a President, one or more Vice Presidents (if so elected
by the Board of Directors), a Secretary, a Chief Financial Officer and a
Treasurer. The Board of Directors also may appoint one or more Assistant
Secretaries or Assistant Treasurers and such other officers and agents with such
powers and duties as it shall deem necessary. Any Vice President may be given
such specific designation as may be determined from time to time by the Board of
Directors. Any number of offices may be held by the same person, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws.
The Board of Directors may delegate to any other officer of the Corporation the
power to choose such other officers and to describe their respective duties and
powers.
(b) ELECTION AND TERM OF OFFICE. The officers shall be elected annually
by the Board of Directors at its regular meeting following the annual meeting of
the stockholders and each officer shall hold office until the next annual
election of officers and until such officer's successor is elected and
qualified, or until such officer's death, resignation or removal. Any officer
may be removed at any time, with or without cause, by a vote of the majority of
the whole Board of Directors. Any vacancy occurring in any office may be filled
by the Board of Directors.
(c) SALARIES. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors or a Committee thereof from time to time.
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<PAGE>
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors, if there be a chairman, shall
preside at all meetings of the stockholders and the Board of Directors and shall
have such other power and authority as may from time to time be assigned by the
Board of Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall be the senior executive officer of the
Corporation and shall preside at all meetings of the stockholders and the Board
of Directors (if a Chairman of the Board has not been elected) and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. Subject to the provisions of these Bylaws and to the direction of the
Board of Directors, the Chief Executive Officer shall have the general and
active management of the business of the Corporation, may execute all contracts
and any mortgages, conveyances or other legal instruments in the name of and on
behalf of the Corporation, but this provision shall not prohibit the delegation
of such powers by the Board of Directors to some other officer, agent or
attorney-in-fact of the Corporation.
SECTION 4. PRESIDENT.
In the event the Corporation does not appoint a Chief Executive Officer,
the President shall assume all of the duties and responsibilities of the Chief
Executive Officer, subject to the provisions of the Bylaws and the direction of
the Board of Directors. In all other respects, the President shall be the chief
operating officer of the Corporation, responsible for the day to day operation
of the Corporation and other functions as may be delegated by the Board of
Directors or Chief Executive Officer.
SECTION 5. VICE PRESIDENTS.
In the absence or disability of the Chief Executive Officer and President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the Chief Executive Officer and President, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the Chief Executive Officer and President. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors or these Bylaws.
SECTION 6. SECRETARY AND ASSISTANT SECRETARIES.
The Secretary shall record or cause to be recorded, in books provided for
the purpose, minutes of the meetings of the stockholders, the Board of Directors
and all committees of the Board of Directors; see that all notices are duly
given in accordance with the provisions of these
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<PAGE>
Bylaws as required by law; be custodian of all corporate records (other than
financial) and of the seal of the Corporation, and have authority to affix the
seal to all documents requiring it and attest to the same; give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors; and, in general, shall perform all duties incident to the
Office of Secretary and such other duties as may, from time to time, be assigned
to him by the Board of Directors or by the Chief Executive Officer or President.
At the request of the Secretary, or in the Secretary's absence or disability,
any Assistant Secretary shall perform any of the duties of the Secretary and,
when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Secretary.
SECTION 7. TREASURER AND ASSISTANT TREASURERS.
The Treasurer shall be the Chief Financial Officer of the Corporation, and
shall keep or cause to be kept the books of account of the Corporation and shall
render statements of the financial affairs of the Corporation in such form and
as often as required by the Board of Directors or the Chief Executive Officer or
President. The Treasurer, subject to the order of the Board of Directors, shall
have custody of all funds and securities of 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.
He shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements. The Treasurer shall
perform all other duties commonly incident to his office and shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer or President shall designate from time to time. At the
request of the Treasurer, or in the Treasurer's absence or disability, any
Assistant Treasurer may perform any of the duties of the Treasurer and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the Treasurer. Except where by law the signature of the Treasurer is
required, each of the Assistant Treasurers shall possess the same power as the
Treasurer to sign all certificates, contracts, obligations and other instruments
of the Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. ACTIONS AGAINST DIRECTORS AND OFFICERS.
The Corporation shall indemnify to the full extent permitted by, and in the
manner permissible under, the laws of the State of Delaware any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that such person
or such person's testator or intestate is or has a director or officer of the
Corporation or any predecessor of the Corporation, or served any other
enterprise as a director or officer at the request of the Corporation or any
predecessor of the Corporation.
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<PAGE>
SECTION 2. CONTRACT.
The provisions of Section 1 of this Article V shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while such 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 based in whole or in part upon any
such state of facts.
SECTION 3. NON-EXCLUSIVITY.
The rights of indemnification provided by this Article V shall not be
deemed exclusive of any other rights to which any director or officer of the
Corporation may be entitled apart from the provisions of this Article V.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Board of Directors in its discretion shall have the power on behalf of
the Corporation to indemnify any person, other than a director or officer, made
a party to any action, suit or proceeding by reason of the fact that such person
or such person's testator or intestate, is or was an employee or agent of the
Corporation.
SECTION 5. INSURANCE.
Upon a resolution or resolutions duly adopted by the Board of Directors of
the Corporation, the Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation against any liability asserted against such person and incurred by
him in any capacity, or arising out of his capacity as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of applicable law, the Certificate of Incorporation or
these Bylaws.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES.
Unless otherwise provided by a resolution of the Board of Directors, the
shares of the Corporation shall be represented by a certificate. The
certificates of stock of the Corporation shall be numbered and shall be entered
in the books of the Corporation as they are issued. They shall exhibit the
Holder's name and number of shares and shall be signed by or in the name of the
Corporation by (a) the Chairman of the Board of Directors, the Chief Executive
Officer,
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<PAGE>
President or any Vice President and (b) the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary. Any or all of the signatures on a
certificate may be facsimile. In case any officer of the Corporation transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issuance.
SECTION 2. CLASSES OF STOCK.
(a) 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 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 the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate 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 or rights.
(b) Within a reasonable time after the issuance or transfer of
uncertified stock, the Corporation shall send to the registered owner thereof a
written notice containing the information required to be set forth or stated on
certificates pursuant to applicable law (including Sections 151, 156, 202(a), or
218(a) of the General Corporation Law of the State of Delaware) or 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 or rights.
SECTION 3. TRANSFER.
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. Upon receipt of
proper transfer instructions from the registered owner of uncertificated shares
such uncertificated shares shall be cancelled, issuance of new equivalent
uncertificated shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
Corporation.
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<PAGE>
SECTION 4. RECORD OWNER.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the laws of the State of
Delaware.
SECTION 5. LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates or
uncertificated shares to be issued in place of any certificate or certificates
theretofore issued by the 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 or uncertificated shares, 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 certificate or certificates,
or his legal representative, to advertise the same in such manner as the Board
of Directors shall require and 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.
ARTICLE VII
MISCELLANEOUS
SECTION 1. RECORD DATE.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days prior to the date of
such meeting nor more than sixty days prior to any other action. If not fixed
by the Board of Directors, the record date shall be determined as provided by
law.
(b) A determination of stockholders of record entitled to notice of or
to vote at a meeting of the stockholders shall apply to any adjournments of the
meeting, unless the Board of Directors files a new record date for the adjourned
meeting.
(c) Holders of stock on the record date are entitled to notice and to
vote or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be,
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<PAGE>
notwithstanding any transfer of the shares on the books of the Corporation after
the record date, except as otherwise provided by agreement or by law, the
certificate of Incorporation or these Bylaws.
SECTION 2. EXECUTION OF INSTRUMENTS.
The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other persons, to execute any
corporate instrument or document or to sign the corporate name without
limitation, except where otherwise provided by law, the Certificate of
Incorporation or these Bylaws. Such designation may be general or confined to
specific instances.
SECTION 3. VOTING OF SECURITIES OWNED BY THE CORPORATION.
All stock and other securities of other corporations held by the
Corporation shall be voted, and all proxies with respect thereto shall be
executed, by the person so authorized by resolution of the Board of Directors,
or, in the absence of such authorization, by the Chief Executive Officer or
President.
SECTION 4. CORPORATE SEAL.
The Corporation shall have a corporate seal in such form as shall be
prescribed and adopted by the Board of Directors.
SECTION 5. CONSTRUCTION AND DEFINITIONS.
Unless the contest requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of the State of
Delaware and the Certificate of Incorporation shall govern the construction of
these Bylaws.
SECTION 6. AMENDMENTS.
Subject to the provisions of the Certificate of Incorporation and these
Bylaws, these Bylaws may be altered, amended or repealed at any annual meeting
of the stockholders (or at any special meeting thereof duly called for that
purpose) by a majority vote of the shares represented and entitled to vote
thereat; provided, that in the notice of any such meeting, notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the Board of Directors may by
majority vote of the whole Board of Directors amend these Bylaws, or enact such
other Bylaws as in their judgment may be advisable for the regulation of the
conduct of the affairs of the Corporation.
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<PAGE>
COMMON STOCK COMMON STOCK
NUMBER SHARES
DL
[LOGO] DIGITAL LIGHTWAVE
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 253855 10 0
THIS CERTIFIES THAT
SPECIMEN
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE, OF
DIGITAL LIGHTWAVE, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless 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:
[SEAL of Digital Lightwave, Inc.]
SPECIMEN SPECIMEN
SECRETARY CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
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:
<TABLE>
<S> <S>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________ Custodian _________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act_________________________
survivorship and not as tenants (State)
in common
UNIF TRF MIN ACT -- ______ Custodian (until age_____)
(Cust)
______ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
</TABLE>
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 POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common 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, STOCKBROCKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIPS IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
THE DIGITAL LIGHTWAVE, INC.
1996 STOCK OPTION PLAN
1. PURPOSE.
The DIGITAL LIGHTWAVE, INC. 1996 Stock Option Plan (the "Plan") is
intended to provide to officers, directors, key employees and consultants of the
corporation an opportunity to acquire a proprietary interest in the corporation,
to encourage such key individuals to remain in the employ of or to contract with
the corporation, and to attract and retain new employees, consultants, and
directors with outstanding qualifications. Pursuant to the Plan, the
corporation may grant to officers, directors, consultants, and key employees of
the corporation options to purchase shares of common stock of the corporation
upon such terms and conditions as provided herein.
2. DEFINITIONS.
"AFFILIATE" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain, owns
at least 50% of the total voting power of one of the other corporations.
(a) "BOARD" shall mean the Board of Directors of the Corporation.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the committee appointed by the Board to
administer the Plan, or if no such committee is appointed, the Board.
(d) "COMMON STOCK" shall mean the voting common stock of the
Corporation.
(e) "CONSULTANT" shall mean any person who, or any employee of any
firm which, is engaged by the Company or any Affiliate to render consulting
services and is compensated for such consulting services, and any non-employee
director of the Company whether compensated for such services or not.
(f) "CORPORATION" shall mean DIGITAL LIGHTWAVE, INC., a Delaware
corporation.
(g) "EFFECTIVE DATE" shall mean March 5, 1996.
(h) "EMPLOYEE" shall mean any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or by any Affiliate. For purposes of the Plan and only for purposes
of the Plan, and in regard to
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Nonstatutory Stock Options but not for Incentive Stock Options, a Consultant or
director of the Corporation or any Affiliate shall be deemed to be an Employee,
and service as a Consultant or director with the Corporation or any Affiliate
shall be deemed to be employment, but no Incentive Stock Option shall be granted
to a Consultant or director who is not an employee of the Corporation or any
Affiliate within the meaning of Section 3401 of the Code and the regulations
thereunder. In the case of a non-employee director or Consultant, the
provisions governing when a termination of employment has occurred for purposes
of the Plan shall be set forth in the written stock option agreement between the
Optionee and the Corporation, or, if not so set forth, the Committee shall have
the discretion to determine when a termination of "employment" has occurred for
purposes of the Plan.
(i) "ESCROW AGENT" shall mean the person selected by the Corporation,
if any, to hold the stock certificates representing Shares issued in the name of
an Optionee pursuant to such Optionee's exercise of an Option.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "EXERCISE PRICE" shall mean the price per Share at which an
Option may be exercised, as determined by the Committee and as specified in the
Optionee's stock option agreement.
(l) "FAIR MARKET VALUE" shall mean the value of each Share as
determined by the Board.
(m) "INCENTIVE STOCK OPTION" shall mean an Option of the type
described in Section 422(b) of the Code.
(n) "JOINT ESCROW INSTRUCTIONS" shall mean joint escrow instructions
entered into between Optionee and the Corporation in such form as may be
approved by the Committee from time to time.
(o) "NONSTATUTORY STOCK OPTION" shall mean an Option of the type not
described in Section 422(b) or 423(b) of the Code.
(p) "OPTION" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(q) "OPTIONEE" shall mean any person who holds an Option pursuant to
the Plan.
(r) "PLAN" shall mean this stock option plan as it may be amended
from time to time.
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(s) "PURCHASE PRICE" shall mean at any particular time the Exercise
Price times the number of Shares for which an Option is being exercised.
(t) "SHARE" shall mean one share of authorized Common Stock.
3. ADMINISTRATION.
(a) THE COMMITTEE.
(i) The Board may administer the Plan or appoint a Committee to
administer the Plan. The Committee shall consist of not less than two members
who may also be members of the Board. Members of the Board or the Committee who
are either eligible for Options or have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself or herself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Committee and shall
be excluded in determining unanimity of an act in writing, for any action which
is taken with respect to the granting of an Option to such member.
(ii) If the Corporation registers any class of any equity
security pursuant to Section 12 of the Exchange Act, from the effective date of
such registration until six months after the termination of such registration,
the Plan shall be administered by a Committee of directors which shall consist
of not less than two members, who during the one year prior to service as an
administrator of the Plan, shall not have been granted or awarded equity
securities pursuant to the Plan or any other plan of the Corporation or any of
its Affiliates except as permitted under Rule 16b-3 under the Exchange Act which
provides that participation in a formula plan meeting the conditions of Rule
16(b)(3)(c)(2)(ii) or in an ongoing securities acquisition plan meeting the
conditions in Rule 16(b)(3)(d)(2)(i) shall not disqualify a member of the
Committee from serving as an administrator of the Plan. In addition, an
election to receive an annual retainer fee in either cash or an equivalent
amount of securities, or partly in cash and partly in securities, shall not
disqualify a member of the Committee from serving as an administrator of the
Plan.
The Board may from time to time designate individuals as ineligible to
participate in the Plan for a specified period in order to become eligible to be
a member of the Committee.
(b) POWERS OF THE COMMITTEE.
Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion and on behalf of the Corporation:
(i) to grant Options;
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(ii) to determine the Exercise Price per Share of Options to be
granted;
(iii) to determine the Employees to whom, and the time or times
at which, Options shall be granted and the number of Shares for which an Option
will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and regulations
relating to the Plan;
(vi) to determine the terms and provisions of each Option
granted and, with the consent of the holder thereof, modify or amend each
Option;
(vii) to accelerate or defer, with the consent of the Optionee,
the exercise date of any Option;
(viii) to authorize any person to execute on behalf of the
Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;
(ix) with the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an Option previously granted
by the Committee; and
(x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) BOARD'S DETERMINATION OF FAIR MARKET VALUE.
The Board shall have the authority to determine, upon review of
relevant information, the Fair Market Value of the Common Stock, subject to the
provisions of the Plan and irrespective of whether the Board has appointed a
Committee to administer the Plan. The Board may delegate this authority to the
Committee.
(d) COMMITTEE'S INTERPRETATION OF THE PLAN.
The interpretation and construction by the Committee of any
provision of the Plan or of any Option granted hereunder shall be final and
binding on all parties claiming an interest in an Option granted under the Plan.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option.
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(e) ALL COMMITTEE ACTIONS TO BE IN WRITING.
Any and all actions of the Committee taken in exercise of the
powers granted to it in this Section 3 shall be in writing.
4. PARTICIPATION.
(a) ELIGIBILITY.
The Optionees shall be such persons as the Committee may select
from among the Employees, provided that Consultants are not eligible to receive
Incentive Stock Options.
(b) TEN PERCENT SHAREHOLDERS.
Any Employee who owns Stock possessing more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation or
any Affiliate shall not be eligible to receive an Option unless:
(i) the Exercise Price of the Shares subject to such Option when
granted is at least 110% of the Fair Market Value of such Shares, and
(ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.
(c) STOCK OWNERSHIP.
For purposes of Section 4(b), in determining stock ownership, an
Employee shall be considered as owning the stock owned, directly or indirectly,
by or for his or her brothers and sisters, spouse, ancestors, and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned proportionately
by or for its shareholders, partners, or beneficiaries, respectively. Stock
with respect to which such Employee or any other person holds an Option shall be
disregarded.
(d) OUTSTANDING STOCK.
For purposes of Section 4(b), the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
the Option to the Optionee but shall not include any share for which an Option
is exercisable by any person.
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5. SHARES.
(a) SHARES SUBJECT TO THIS PLAN.
The aggregate number of Shares which may be issued upon exercise
of Options under the Plan shall not exceed 5,000,000 shares of Common Stock,
subject to adjustment pursuant to Section 9 hereof. Notwithstanding the
adjustment provisions set forth in Section 9 hereof, the reverse stock split
approved by the Board of Directors and the majority stockholder of the
Corporation on 0ctober 31, 1996, shall not reduce the 5,000,000 Shares which may
be issued upon exercise of Options under the Plan as set forth in this
subsection (a).
(b) OPTIONS NOT TO EXCEED SHARES AVAILABLE.
The number of Shares for which an Option is exercisable at any
time shall not exceed the number of Shares remaining available for issuance
under the Plan. If any Option expires or is terminated, the number of Shares
for which such Option was exercisable may be made exercisable pursuant to other
Options under the Plan. If the Corporation reacquires any Shares pursuant to
Sections 11 or 12, hereof, such Shares may again be made exercisable pursuant to
an Option. The limitations established by this Section 5(b) shall be subject to
adjustment in the manner provided in Section 9 hereof upon the occurrence of an
event specified therein.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENTS.
Options shall be evidenced by written stock option agreements
between the Optionee and the Corporation in such form as the Committee shall
from time to time determine. No Option or purported Option shall be a valid and
binding obligation of the Corporation unless so evidenced in writing.
(b) NUMBER OF SHARES.
Each stock option agreement shall state the number of Shares for
which the Option is exercisable and shall provide for the adjustment thereof in
accordance with Section 9 hereof.
(c) VESTING.
An Optionee may not exercise his or her Option for any Shares
until the Option, in regard to such Shares, has vested. Each stock option
agreement shall include a vesting schedule which shall show when the Option
becomes exercisable provided, each Option shall vest at a rate of at least
twenty percent (20%) per year over a period of five (5) years with
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the first 20% becoming exercisable on the first anniversary of the date the
Options were granted. The vesting schedule shall not impose upon the
Corporation or any Affiliate any obligation to retain the Optionee in its employ
or under contract for any period or otherwise change the employment-at-will
status of an Optionee who is an employee of the Corporation or any Affiliate.
(d) LAPSE OF OPTIONS.
Each stock option agreement shall state the time or times when
the Option covered thereby lapses and becomes unexercisable in part or in full.
An Option shall lapse on the earliest of the following events (unless otherwise
determined by the Committee and reflected in an option agreement):
(i) The tenth anniversary of the date of granting the Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date the Optionee ceases to
be an Employee due to total and permanent disability;
(iv) On the date provided in Section 6(h)(i), unless with
respect to a Nonstatutory Stock Option, the Committee otherwise extends such
period before the applicable expiration date;
(v) On the date provided in Section 9 for a transaction
described in such Section;
(vi) The date the Optionee files or has filed against him or her
a petition in bankruptcy; or
(vii) The expiration date specified in an Optionee's stock
option agreement.
(e) EXERCISE PRICE.
Each stock option agreement shall state the Exercise Price for
the Shares for which the Option is exercisable. Subject to Section 4(b), the
Exercise Price of an Incentive Stock Option and a Nonstatutory Stock Option
shall, when granted, be not less than 100% and 85% of the Fair Market Value of
the Shares for which the Option is exercisable, respectively, and not less than
the par value of the Shares.
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(f) MEDIUM AND TIME OF PAYMENT.
The Purchase Price shall be payable in full in cash upon the
exercise of an Option but the Committee may allow the Optionee to pay the
Purchase Price:
(i) by surrendering Shares in good form for transfer, owned by
the Optionee and having a Fair Market Value on the date of exercise equal to the
Purchase Price;
(ii) by delivery of a full recourse promissory note ("Note")
made by the Optionee in the amount of the Purchase Price, bearing interest,
compounded semiannually, at a rate not less than the rate determined under
Section 7872 of the Code to insure that no "foregone interest", as defined in
such section, will accrue, together with the delivery of a duly executed
standard form security agreement securing the Note by a pledge of the Shares
purchased; or
(iii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law as long as the sum of the cash so paid, the Fair
Market Value of the Shares so surrendered, and the amount of any Note equals the
Purchase Price.
The Committee or a stock option agreement may prescribe
requirements with respect to the exercise of Options, including the submission
by the Optionee of such forms and documents as the Committee may require and,
the delivery by the Optionee of cash sufficient to satisfy applicable
withholding requirements. The Committee may vary the exercise requirements and
procedures from time to time to facilitate, for example, the broker-assisted
exercise of Options.
(g) NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee or the Optionee's conservator or legal
representative and shall not be assignable or transferable except pursuant to a
qualified domestic relations order as defined by the Code. In the event of the
Optionee's death, the Option shall not be transferable by the Optionee other
than by will or the laws of descent and distribution.
(h) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR DISABILITY.
(i) If an Optionee ceases to be an Employee for any reason other
than his or her death or disability, the Optionee shall have the right, subject
to the provisions of this Section 6, to exercise any Option held by the Optionee
at any time within thirty (30) days after his or her termination of employment,
but not beyond the otherwise applicable term of the Option and only to the
extent that on such date of termination of employment the Optionee's right to
exercise such Option had vested.
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(ii) For purposes of this Section 6(h), the employment
relationship shall be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the
case of an Incentive Stock Option, employment shall be deemed to terminate on
the date the Optionee ceases active employment with the Corporation or any
Affiliate, unless the Optionee's reemployment rights are guaranteed by statute
or contract.
(i) DEATH OF OPTIONEE.
If an Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised an Option
under Section 6(h), any Option granted to the Optionee may be exercised, to the
extent it had vested at the time of death and subject to the Plan, at any time
within 12 months after the Optionee's death, by the executors or administrators
of his or her estate or by any person or persons who acquire the Option by will
or the laws of descent and distribution, but not beyond the otherwise applicable
term of the Option.
(j) DISABILITY OF OPTIONEE.
If an Optionee ceases to be an Employee due to becoming totally
and permanently disabled within the meaning of Section 22(e)(3) of the Code, any
Option granted to the Optionee may be exercised to the extent it had vested at
the time of cessation and, subject to the Plan, at any time within 12 months
after the Optionee's termination of employment, but not beyond the otherwise
applicable term of the Option.
(k) RIGHTS AS A SHAREHOLDER.
An Optionee, or a transferee of an Optionee, shall have no rights
as a shareholder of the Corporation with respect to any Shares for which his or
her Option is exercisable until the date of the issuance of a stock certificate
for such Shares. No adjustment shall be made for dividends, ordinary or
extraordinary or whether in currency, securities, or other property,
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 9 hereof.
(l) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS.
Within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options or accept the cancellation of outstanding
Options for the granting of new Options in substitution therefor.
Notwithstanding the preceding sentence, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option previously granted.
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(m) OTHER PROVISIONS.
The stock option agreements authorized under the Plan may contain
such other provisions which are not inconsistent with the terms of the Plan,
including, without limitation, restrictions upon the exercise of the Option, as
the Committee shall deem advisable.
Without limiting the generality of the foregoing, a stock option
agreement under the Plan may provide for accelerated vesting upon specified
corporate events (e.g., events specified in Section 9 hereof) or for waiver of
the option termination provision of Section 9(c) hereof, but in no event may an
option term be extended beyond the date indicated in Section 8.
7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOS.
In accordance with section 422(d) of the Code, to the extent that the
Fair Market Value of Shares (determined for each Share as of the date of grant
of the Option covering such Share) subject to Options granted under this Plan
(or any other plan of the Corporation or any Affiliate) which are designated as
Incentive Stock Options and which become exercisable by an Optionee for the
first time during a single calendar year exceeds $100,000, the Option(s) (or
portion thereof) covering such Shares shall be recharacterized (to the extent of
such excess over $100,000) as a Nonstatutory Stock Option(s). In determining
which Option(s) shall be treated as Nonstatutory Stock Options under the
preceding sentence, the Options shall be taken into account in the order
granted, with the result that a later granted Option shall be recharacterized as
a Nonstatutory Stock Option prior to such recharacterization of a previously
granted Option.
8. TERM OF PLAN.
Options may be granted pursuant to the Plan until ten years following
the Effective Date, and all Options which are outstanding on such date shall
remain in effect until they are exercised or expire by their terms. The Plan
shall expire for all purposes on the date 20 years following the Effective Date.
9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) REORGANIZATIONS.
The number of Shares covered by the Plan, as provided in
Section 5 hereof, and the number of Shares for which each Option is exercisable
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from the payment of a Common Stock dividend, a stock
split, a reverse stock split, a stock dividend, recapitalization, combination or
reclassification of the Corporation's stock or any other event which results in
an increase or decrease in the number of issued Shares effected without receipt
of consideration by the Corporation, and the Exercise Price shall be
proportionately increased in the event the number of Shares subject to such
Option are decreased and shall be proportionately
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decreased in the event the number of Shares subject to such Option are
increased. For the purposes of this paragraph, conversion of any convertible
securities of the Corporation shall not be deemed to have been "effected without
receipt of consideration." Adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares subject to an Option.
(b) LIQUIDATION.
In the event of the dissolution or liquidation of the
Corporation, each Option shall terminate immediately prior to the consummation
of such action. The Committee shall notify the Optionee not less than fifteen
(15) days prior to the proposed consummation of a pending dissolution or
liquidation, and the Option shall be exercisable as to all Shares which are
vested prior to expiration until immediately prior to the consummation of such
action.
(c) MERGER.
Except as otherwise expressly provided in an Optionee's stock
option agreement, in the event of (i) a proposed merger of the Corporation with
or into another corporation, as a result of which the Corporation is not the
surviving corporation and (ii) the Option is not assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case each Option shall terminate immediately
prior to the consummation of such transaction. The Committee shall notify the
Optionee not less than fifteen (15) days prior to the proposed consummation of
such transaction, and the Option shall be exercisable as to all Shares which are
vested prior to expiration and until immediately prior to the consummation of
such transaction.
(d) DETERMINATION BY COMMITTEE.
All adjustments described in this Section 9 shall be made by the
Committee, whose determination shall be conclusive and binding on all persons.
(e) LIMITATION ON RIGHTS OF OPTIONEE.
Except as expressly provided in this Section 9, no Optionee shall
have any rights by reason of any payment of any stock dividend, stock split or
reverse stock split or any other increase or decrease in the number of shares of
stock of any class, or by reason of any reorganization, consolidation,
dissolution, liquidation, merger, exchange, split-up or reverse split-up, or
spin-off of assets or stock of another corporation. Any issuance by the
Corporation of Shares, Options or securities convertible into Shares or Options
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of the Shares for which an Option is
exercisable. Notwithstanding the foregoing, if the Corporation
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shall enter into a transaction affecting the Corporation's capital stock or
distributions to the holders of its capital stock for which a revision in the
terms of each Option is not required pursuant to this Section 9, the Committee
shall have the right, but not the obligation, to revise the terms of each Option
in a manner the Committee, in its sole discretion, deems fair and reasonable
given the transaction involved. If necessary or appropriate in connection with
such transaction, the Committee may declare that any Option shall terminate as
of a date fixed by the Committee and give each Optionee the right to exercise
his Option in whole or in part, including exercise as to Shares to which the
Option would not otherwise be exercisable.
(f) NO RESTRICTION ON RIGHTS OF CORPORATION.
The grant of an Option shall not affect or restrict in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to merge or
consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
10. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE.
No Share shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:
(i) The Corporation and the Optionee have taken all actions
required to exempt the issuance of the Shares from the registration requirements
under the Securities Act of 1933, as amended (the "Act"), or the Corporation and
the Optionee shall determine that the registration requirements of the Act do
not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and
(iii) Any other applicable provision of state or Federal law has
been satisfied.
(b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF OPTIONEE; LEGENDS.
Regardless of whether the offering and sale of Shares has been
registered under the Act or has been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge, or other transfer of such Shares, including the placement of
appropriate legends on stock certificates, if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Act, the securities laws
of any state, or any other law. If the sale of Shares is not registered under
the Act and the Corporation shall determine that the
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registration requirements of the Act apply to such sale, but an exemption is
available which requires an investment representation or other representation,
the Optionee shall be required, as a condition to purchasing Shares by exercise
of his or her Option, to represent that such Shares are being acquired for
investment, and not with a view to the sale or distribution thereof, except in
compliance with the Act, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Stock certificates
evidencing Shares acquired pursuant to an unregistered transaction to which the
Act applies shall bear a restrictive legend substantially in the following form
and such other restrictive legends as are required or deemed advisable under the
Plan or the provisions of any applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED
UNDER THE SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH ANY DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION
OR QUALIFICATION IS NOT REQUIRED."
The Corporation shall also place legends on stock certificates representing its
right of repurchase under Section 11 hereof and the right of first refusal under
Section 12 hereof. Any determination by the Corporation and its counsel in
connection with any of the matters set forth in this Section 10 shall be
conclusive and binding on all persons.
(c) REGISTRATION OR QUALIFICATION OF SECURITIES.
The Corporation may, but shall not be obligated to, register or
qualify the sale of Shares under the Act or any other applicable law. In
connection with any such registration or qualification, the Corporation shall
provide each Optionee with such information required pursuant to all applicable
laws and regulations.
(d) EXCHANGE OF CERTIFICATES.
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold hereunder is no longer
required, the Optionee or
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the holder of such certificate shall be entitled to exchange such certificate
for a certificate representing the same number of Shares but lacking such
legend.
11. RIGHT OF REPURCHASE.
(a) REPURCHASE RIGHT.
At the Committee's discretion, Shares issued pursuant to the
exercise of an Option may be subject to a right, but not an obligation, of
repurchase by the Corporation (the "Right of Repurchase"), at the price
specified in Section 11(b), if the Optionee ceases to be an Employee for any
reason ("Employment Termination") at any time after the grant of the Option
pursuant to which such Shares were issued. Shares issued by the Corporation
shall only be transferable by the Optionee subject to the Right of Repurchase,
and the Corporation shall legend the Right of Repurchase on the stock
certificates evidencing such Shares and shall take such other steps as it deems
necessary to ensure compliance with this restriction. The Corporation's rights
under this Section 11(a) shall be freely assignable, in whole or in part.
(b) REPURCHASE PRICE.
The price per Share at which the Corporation may exercise the
Right of Repurchase under Section 11(a) (the "Repurchase Price") shall be the
higher of the Exercise Price of each Share as paid by the Optionee, or Fair
Market Value of the Shares on the date the Corporation sends the notice to the
Optionee of its exercise of its Right of Repurchase pursuant to Section 11(a).
(c) REPURCHASE PROCEDURE.
The Corporation may exercise its Right of Repurchase by sending a
written notice to the Optionee and to the Escrow Agent, if any, of its taking
such action and specifying the number of Shares being repurchased. The
Corporation's Right of Repurchase shall terminate if not exercised by written
notice from the Corporation to the Optionee within ninety (90) days of the date
on which the Corporation learns of the Employment Termination or the last date
any Option granted to such Optionee is exercised, which ever is later. If the
Corporation exercises its Right of Repurchase, the Optionee, or if applicable,
the Escrow Agent, shall deliver to the Corporation every stock certificate
representing the Shares being repurchased, together with appropriate Assignments
Separate from Certificates, and the Corporation shall then promptly pay the
total Repurchase Price in cash to the Optionee, or if applicable, to the Escrow
Agent, for delivery to the Optionee.
(d) ELECTION TO DEFER PURCHASE OF INCENTIVE STOCK OPTION SHARES.
(i) Notwithstanding the preceding provisions of this Section 11,
an Optionee whose Shares were issued pursuant to an Incentive Stock Option may
elect to defer the
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<PAGE>
Corporation's repurchase of such Shares pursuant to this Section 11 until the
holding period requirements of Section 422(a) of the Code are met. Such
election shall be in writing in such form as the Committee may require and shall
be delivered to the Corporation and to the Escrow Agent by certified mail no
later than seven (7) days after the date on which the Optionee receives notice
that the Corporation elects to exercise its Right of Repurchase. Such election
shall pertain to all such Shares issued to the Optionee and shall be
irrevocable.
(ii) With respect to an Optionee who makes the election
described in subsection 11(d)(i), the Corporation shall repurchase such Shares
on or before the date which is ninety (90) days following the earlier of the
date on which the Optionee dies or the date on which the holding period
requirements of Section 422(a) of the Code are met. The Repurchase Price of
each such Share determined under Section 11(b) shall be calculated by
substituting for the Optionee's Employment Termination date the earlier of the
date on which the Optionee dies or the date on which such holding period
requirements are met.
(e) ESCROW.
To facilitate the consummation of the Corporation's Right of
Repurchase under this Section 11, at the request of the Committee, the Optionee
and the Corporation shall execute Joint Escrow Instructions and the Optionee
shall deliver and deposit with the Escrow Agent named in the Joint Escrow
Instructions two "Assignments Separate from Certificate", together with all
certificates evidencing the Shares of Common Stock issued to the Optionee
pursuant to the Plan, duly endorsed in blank. The Escrow Agent shall hold such
documents and deliver the same to the Corporation pursuant to the Joint Escrow
Instructions and in accordance with the terms of this Section 11, as applicable.
(f) BINDING EFFECT.
The Corporation's Right of Repurchase shall inure to the benefit
of its successors and assigns and shall be binding upon any representative,
executor, administrator, heir, or legatee of the Optionee.
(g) PAYMENT OF NET AMOUNT OWING.
Notwithstanding anything to the contrary contained herein, if the
Corporation determines to exercise its rights of repurchase pursuant to this
Section before any Shares have been issued as a result of an exercise of an
Option, in lieu of issuing any Shares, the Corporation shall have the right, but
not the obligation, to pay to the Optionee the net amount owing to the Optionee.
15
<PAGE>
(h) TERMINATION OR RIGHT OF REPURCHASE.
Notwithstanding any other provision of this Section 11, in the
event that the Common Stock is listed on any United States securities exchange
or traded on any formal over-the-counter market in general use in the United
States at the time the Optionee would otherwise be required to transfer his or
her Shares, the Corporation shall no longer have the Right of Repurchase, and
the Optionee shall have no obligation to comply with this Section 11.
12. RIGHT OF FIRST REFUSAL.
(a) RIGHT OF FIRST REFUSAL.
At the Committee's discretion, shares issued pursuant to the
exercise of an Option may be subject to a requirement that if an Optionee
proposes to sell, pledge, or otherwise transfer any Shares acquired pursuant to
exercise of an Option, or any interest in such Shares, to any person or entity,
the Corporation shall have a right of first refusal (the "Right of First
Refusal") with respect to such Shares. Any Optionee desiring to transfer Shares
subject to the Right of First Refusal shall give a written notice (the "Transfer
Notice") to the Corporation describing fully the proposed transfer, including
the number of Shares proposed to be transferred, the proposed transfer price,
and the name and address of the proposed transferee. The Transfer Notice shall
be signed both by the Optionee and by the proposed transferee and must
constitute a binding commitment of both parties to the transfer of the Shares.
The Corporation shall have the right to purchase the Shares subject to the
Transfer Notice on the terms of the proposal referred to in the Transfer Notice,
subject to any change in such terms permitted under Section 12(b) hereof, by
delivery of a notice of exercise of the Right of First Refusal within 30 days
after the date the Transfer Notice is received by the Corporation. The
Corporation's rights under this Section 12(a) shall be freely assignable, in
whole or in part.
(b) TRANSFER OF SHARES.
If the Corporation fails to exercise the Right of First Refusal
within 30 days after the date on which it receives the Transfer Notice, the
Optionee may, not later than six months following receipt of the Transfer Notice
by the Corporation, consummate a transfer of the Shares subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice. Any
proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by the Optionee,
shall again be subject to the Right of First Refusal and shall again require
compliance with the procedure described in Section 12(a). If the Corporation
exercises its Right of First Refusal, the Optionee shall immediately endorse and
deliver to the Corporation every stock certificate representing the Shares being
purchased, and the Corporation shall then promptly pay the purchase price in
accordance with the terms set forth in the Transfer Notice.
16
<PAGE>
(c) REPURCHASE PAYMENT.
The amount payable to an Optionee pursuant to the Corporation's
exercise of the Right of First Refusal shall be paid to the Optionee in
accordance with the terms and conditions of the Transfer Notice or may, at the
election of the Corporation, be paid in full in cash.
(d) BINDING EFFECT.
The Corporation's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be binding upon any transferee
of the Shares, other than a transferee acquiring Shares in a transaction with
respect to which the Corporation failed to exercise its Right of First Refusal
(a "Free Transferee") or a transferee of a Free Transferee.
(e) TERMINATION OF RIGHT OF FIRST REFUSAL.
Notwithstanding any other provision of this Section 12, if the
Common Stock is listed on any United States securities exchange or traded on any
formal over-the-counter market in general use in the United States at the time
the Optionee desires to transfer his or her Shares, the Corporation shall no
longer have the Right of First Refusal, and the Optionee shall have no
obligation to comply with this Section 12.
13. EXERCISE OF UNVESTED OPTIONS.
The Committee may grant any Optionee the right to exercise any Option
prior to the complete vesting of such Option. Without limiting the generality
of the foregoing, the Committee may provide that if an Option is exercised prior
to having completely vested, the Shares issued upon such exercise shall remain
subject to vesting at the same rate as under the Option so exercised and shall
be subject to a right, but not an obligation, of repurchase by the Corporation
with respect to all unvested Shares if the Optionee ceases to be an Employee for
any reason. For the purposes of facilitating the enforcement of any such right
of repurchase, at the request of the Committee, the Optionee shall enter into
the Joint Escrow Instructions with the Corporation and deliver every certificate
for his or her unvested Shares with a stock power executed in blank by the
Optionee and by the Optionee's spouse, if required for transfer.
14. AMENDMENT OF THE PLAN.
The Board or the Committee may, from time to time, terminate, suspend
or discontinue the Plan, in whole or in part, or revise or amend it in any
respect whatsoever including, but not limited to, the adoption of any
amendment(s) deemed necessary or advisable to qualify the Options under rules
and regulations promulgated by the Securities and Exchange Commission with
respect to Employees who are subject to the provisions of Section 16 of the
Securities Exchange Act of 1934, as amended, or to correct any defect or supply
any omission or
17
<PAGE>
reconcile any inconsistency in the Plan or in any Option granted thereunder,
without approval of the shareholders of the Corporation, but without the
approval of the Corporation's shareholders, no such revision or amendment shall:
(i) Increase the number of Shares subject to the Plan, other
than any increase pursuant to Section 9;
(ii) Materially modify the requirements as to eligibility for
participation in the Plan;
(iii) Materially increase the benefits accruing to Optionees
under the Plan;
(iv) Extend the term of the Plan; or
(v) Amend this Section 14 to defeat its purpose.
No amendment, termination or modification of the Plan shall affect any Option
theretofore granted in any material adverse way without the consent of the
Optionee.
15. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general corporate
purposes.
16. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of all classes of the outstanding shares present and
entitled to vote at the first meeting of shareholders of the Corporation
following the adoption of the Plan or by written consent, and in no event later
than one (1) year following the Effective Date. Prior to such approval, Options
may be granted but shall not be exercisable. Any amendment described in
Section 14 (i) to (iv) shall also be subject to approval by the Corporation's
shareholders.
17. WITHHOLDING OF TAXES.
In the event the Corporation or an Affiliate determines that it is
required to withhold Federal, state, or local taxes in connection with the
exercise of an Option or the disposition of Shares issued pursuant to the
exercise of an Option, the Optionee or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required to
make arrangements satisfactory to the Corporation or the Affiliate to enable it
to satisfy such withholding requirements. Alternatively, the Corporation may
issue or transfer Shares net of the number of Shares sufficient to satisfy
withholding tax requirements. For
18
<PAGE>
withholding tax purposes, the Shares will be valued on the date the withholding
obligation is incurred.
18. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall be
construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or any
Affiliate to terminate such individual's employment at any time with or without
cause. The grant of an Option shall not entitle the Optionee to, or disqualify
the Optionee from, participation in the grant of any other Option under the Plan
or participation in any other benefit plan maintained by the Corporation or any
Affiliate.
19. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED
RIGHTS.
In adopting and maintaining this Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertakings with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Committee, except as expressly provided herein.
20. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Optionee's Option, and any
other documents and records which an Optionee is entitled by law to inspect
shall be open to inspection by the Optionee and his or her duly authorized
representative at the office of the Committee at any reasonable business hour.
21. INFORMATION TO OPTIONEES.
Each Optionee shall be provided with such information regarding the
Corporation as the Committee from time to time deems necessary or appropriate;
provided however, that each Optionee shall at all times be provided with such
information as is required to be provided from time to time pursuant to
applicable regulatory requirements, including, but not limited to, any
applicable requirements of the Securities and Exchange Commission and other
state securities agencies.
19
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
NONSTATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this _____ day of ____
_______, 1996, pursuant to the DIGITAL LIGHTWAVE, INC. 1996 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected ______________
("the Optionee") to receive the following grant of a nonstatutory stock option
("Stock Option") to purchase shares of the common stock of DIGITAL LIGHTWAVE,
INC. (the "Corporation"), on the terms and conditions set forth below to which
Optionee accepts and agrees:
1. Stock Options Granted:
Number of Shares Subject to Option _______________
Date of Grant _______________
Vesting Commencement Date _______________
Exercise Price Per Share _______________
Expiration Date _______________
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
Shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan. This Stock Option is intended by the Corporation and the
Optionee to be a Nonstatutory Stock Option and does not qualify for any special
tax benefits to the Optionee and is not subject to Section 7 of the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan. All Shares
of the Corporation's common stock issued pursuant to the exercise of this Stock
Option shall be subject to the Corporation's Right of Repurchase and Right of
First Refusal as set forth in Sections 11 and 12 of the Plan.
20
<PAGE>
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in part at any
time prior to the end of the first full calendar year following the Vesting
Commencement Date.
(b) Optionee may exercise the Stock Option as to 20% of the Shares at
the end of the first full calendar year following the Vesting Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional 20% of
the Shares at the end of each full calendar year thereafter following the
Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
Shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a Share, or for any share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option is conditioned upon the Optionee's representation,
which Optionee hereby confirms as of the date of this Agreement and which
Optionee must confirm as of the date of any exercise of all or any part of the
Stock Option, that:
(a) Optionee understands that both this Stock Option and any shares
purchased upon its exercise are securities, the issuance of which require
compliance with state and Federal securities laws;
(b) Optionee understands that neither the Options nor the Shares have
been registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
investment intention in acquiring these securities; that Optionee's intention is
to hold these securities for Optionee's own benefit for an indefinite period;
that Optionee has no present intention of selling or transferring any part
thereof (recognizing that the Stock Option is not transferable) and that certain
restrictions may exist on transfer of the Shares issued upon exercise of the
Stock Option;
21
<PAGE>
(c) Optionee understands that the Shares issued upon exercise of this
Stock Option, in addition to other restrictions on transfer, must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that Rule 701 and Rule 144, two
exemptions from registration which may be available, are only available after
the satisfaction of certain conditions and require the presence of a U.S. public
market for such Shares; that no certainty exists that a U.S. public market for
the Shares will exist, and that otherwise Optionee may have to sell the Shares
pursuant to another exemption from registration which exemption may be difficult
to satisfy; and
(d) The Corporation shall not be under any obligation to issue any
Shares upon the exercise of this Stock Option unless and until the Corporation
has determined that:
(i) it and Optionee have taken all actions required to register
such Shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which such Shares are listed has been satisfied; and
(iii) all other applicable provisions of state and Federal law
have been satisfied.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE DIGITAL LIGHTWAVE, INC.
By: By:
--------------------- --------------------------
(signature) (signature)
Its: Its:
--------------------- --------------------------
(Type or Print Name) (Type or Print Name)
Address:
--------------
--------------
--------------
22
<PAGE>
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this _____ day
of _____ , 1996, pursuant to the DIGITAL LIGHTWAVE, INC. 1996 Stock Option Plan
(the "Plan"). The Committee administering the Plan has selected
_________________ ("the Optionee") to receive the following grant of an
incentive stock option ("Stock Option") to purchase shares of the common stock
of DIGITAL LIGHTWAVE, INC. (the "Corporation"), on the terms and conditions set
forth below to which Optionee accepts and agrees:
1. Stock Options Granted:
Number of Shares Subject to Option ___________
Date of Grant ___________
Vesting Commencement Date ___________
Exercise Price Per Share ___________
Expiration Date ___________
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire,
and all rights to exercise it shall terminate on the Expiration Date, except
that the Stock Option may expire earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan. All shares
of the Corporation's common stock issued pursuant to the exercise of this Stock
Option shall be subject to the Corporation's Right of Repurchase and Right of
First Refusal as set forth in Sections 11 and 12 of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
23
<PAGE>
(a) The Stock Option may not be exercised in whole or in part at any
time prior to the end of the first full calendar year following the Vesting
Commencement Date.
(b) Optionee may exercise the Stock Option as to 20% of the Shares at
the end of the first full calendar year following the Vesting Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional 20% of
the Shares at the end of each full calendar year thereafter following the
Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a Share, or for any Share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option is conditioned upon the Optionee's representation,
which Optionee hereby confirms as of the date of this Agreement and which
Optionee must confirm as of the date of any exercise of all or any part of the
Stock Option, that:
(a) Optionee understands that both this Stock Option and any Shares
purchased upon its exercise are securities, the issuance of which require
compliance with state and Federal securities laws;
(b) Optionee understands that neither the Options nor the Shares have
been registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
investment intention in acquiring these securities; that Optionee's intention is
to hold these securities for Optionee's own benefit for an indefinite period;
that Optionee has no present intention of selling or transferring any part
thereof (recognizing that the Stock Option is not transferable) and that certain
restrictions may exist on transfer of the Shares issued upon exercise of the
Stock Option;
24
<PAGE>
(c) Optionee understands that the Shares issued upon exercise of this
Stock Option, in addition to other restrictions on transfer, must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that Rule 701 and Rule 144, two
exemptions from registration which may be available, are only available after
the satisfaction of certain conditions and require the presence of a U.S. public
market for such Shares; that no certainty exists that a U.S. public market for
the Shares will exist, and that otherwise Optionee may have to sell the Shares
pursuant to another exemption from registration which exemption may be difficult
to satisfy; and
(d) The Corporation shall not be under any obligation to issue any
shares upon the exercise of this Stock Option unless and until the Corporation
has determined that:
(i) it and Optionee have taken all actions required to register
such Shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which such Shares are listed has been satisfied; and
(iii) all other applicable provisions of state and Federal law
have been satisfied.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE DIGITAL LIGHTWAVE, INC.
By: By:
----------------------- ---------------------------
(signature) (signature)
Its: Its:
----------------------- --------------------------
(Type or Print Name) (Type or Print Name)
Address:
----------------
----------------
----------------
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-9457) of our report, dated October 21, 1996, on our audits of the financial
statements of Digital Lightwave, Inc. We also consent to the reference to our
firm under the captions "Experts" and "Selected Financial Data."
/s/ Coopers & Lybrand L.L.P.
Tampa, FL
November 1, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2156
<SECURITIES> 0
<RECEIVABLES> 1435
<ALLOWANCES> 0
<INVENTORY> 714
<CURRENT-ASSETS> 4988
<PP&E> 1351
<DEPRECIATION> 303
<TOTAL-ASSETS> 6055
<CURRENT-LIABILITIES> 2725
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 3235
<TOTAL-LIABILITY-AND-EQUITY> 6055
<SALES> 3037
<TOTAL-REVENUES> 3037
<CGS> 1152
<TOTAL-COSTS> 1152
<OTHER-EXPENSES> 3098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2320)
<EPS-PRIMARY> .1
<EPS-DILUTED> .1
</TABLE>
