<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-12233
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SEACHANGE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
124 ACTON STREET
MAYNARD, MASSACHUSETTS 01754
(508) 897-0100
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
DELAWARE 3663 04-3197974
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
WILLIAM C. STYSLINGER, III
SEACHANGE INTERNATIONAL, INC.
124 ACTON STREET
MAYNARD, MASSACHUSETTS 01754
(508) 897-0100
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
WILLIAM B. SIMMONS, JR., ESQ. KEITH F. HIGGINS, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP ROPES & GRAY
HIGH STREET TOWER--125 HIGH STREET ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110
(617) 248-7563 (617) 951-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value................ $32,200,000 $2,483(2)
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a).
(2) A registration fee of $8,621 was previously paid in connection with the
initial filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 4, 1996
2,000,000 Shares
[LOGO]
COMMON STOCK
-----------
OF THE 2,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,715,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 285,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY
THE SELLING STOCKHOLDERS. PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$12.00 AND $14.00 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 4 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIESAND
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.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 300,000 additional Shares at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions, proceeds
to Company and proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Ropes & Gray, counsel for the Underwriters. It is expected that delivery of
the Shares will be made on or about , 1996 at the office of Morgan Stanley &
Co. Incorporated, New York, New York, against payment therefor in immediately
available funds.
-----------
MORGAN STANLEY & CO.
Incorporated
ALEX. BROWN & SONS
Incorporated
MONTGOMERY SECURITIES
, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
----------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 4
The Company......................... 10
Use of Proceeds..................... 10
Dividend Policy..................... 10
Capitalization...................... 11
Dilution............................ 12
Selected Consolidated Financial
Data............................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business......................... 21
Management....................... 35
Certain Transactions............. 42
Principal and Selling
Stockholders.................... 44
Description of Capital Stock..... 46
Shares Eligible for Future Sale.. 49
Underwriters..................... 51
Legal Matters.................... 52
Experts.......................... 52
Additional Information........... 52
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
----------------
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and with quarterly reports
for the first three quarters of each year containing unaudited consolidated
interim financial information.
----------------
SeaChange(TM), SeaChange SPOT System(TM) and MediaCluster(TM) are trademarks
of the Company. This Prospectus also includes trademarks and tradenames of
companies other than SeaChange International, Inc.
----------------
Except as set forth in the financial statements or as otherwise indicated
herein, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) reflects the filing, prior to the
consummation of this offering, of the Amendment to the Certificate of
Incorporation of the Company increasing the authorized shares of Common Stock;
(iii) reflects the filing upon the closing of this offering of the Amended and
Restated Certificate of Incorporation of the Company; (iv) reflects, upon the
consummation of this offering, the conversion of all outstanding shares of the
Company's Preferred Stock into shares of Common Stock; (v) reflects the 3-for-
2 split of the Company's capital stock to be effected prior to the
consummation of this offering and (vi) reflects the 100-for-1 split of the
Company's capital stock effected on August 3, 1995. See "Description of
Capital Stock," "Underwriters" and Note 8 of Notes to Consolidated Financial
Statements.
----------------
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.
2
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4/C
<PAGE>
[INSIDE FRONT COVER]
[A GRAPHIC REPRESENTATION OF THE PROCESS FOR
DIGITAL VIDEO DELIVERY APPEARS HERE]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
SeaChange is a leading provider of software-based products to manage, store
and distribute digital video for cable television operators and
telecommunications companies. The Company's products utilize its proprietary
distributed application software and standard industry components to automate
the management and distribution of short- and long-form video streams including
advertisements, movies, news updates and other video programming requiring
precise, accurate and continuous execution. The Company's digital video
products are designed to provide higher image quality and to be more reliable,
easier to use and less expensive than analog tape-based systems. In addition,
SeaChange's products enable its customers to increase revenues by offering more
targeted services such as geography-specific spot advertising and Video-On-
Demand movies.
SeaChange's products address a number of specific markets. The SeaChange SPOT
System is the leading digital advertisement and other short-form video
insertion system for the multichannel television market. The SeaChange SPOT
System encodes analog video forms such as commercials and news updates, stores
them in remote or local digital libraries, and inserts them automatically into
television network streams. The SPOT System provides high run-rate accuracy and
video image quality, permits geographic and demographic specificity of
advertisements and reduces operating costs. The Company has recently introduced
the SeaChange Movie System, which provides long-form video storage and delivery
for the Video-On-Demand and pay-per-view movie markets, and is developing the
SeaChange Programming System, a long-form video storage and delivery product
for cable television operators and telecommunications companies. The SeaChange
Media Management Software operates in conjunction with the SeaChange SPOT
System to automate and simplify complex sales, scheduling and billing processes
for the multichannel television market. The Company also sells its Video Server
100, which is designed to store and distribute video streams of various
lengths, and MediaCluster, SeaChange's proprietary software technology that
enables multiple Video Server 100s to operate together as an integrated server,
to systems integrators and value added resellers.
The Company's products are installed in over 100 geographic markets in the
United States and 6 internationally. The Company's customers include Comcast
Corporation, Continental Cablevision, NYNEX Video Services Operations Company,
Pacific Telesis Video Services, Tele-Communications, Inc., TELEWEST
Communications Group plc, Time Warner, Inc. and U S WEST, Inc.
THE OFFERING
Common Stock offered............
2,000,000 shares, including 1,715,000 shares
by the Company and 285,000 shares by the
Selling Stockholders
Common Stock to be outstanding
after this offering............ 12,752,012 shares(1)
Use of proceeds................. For general corporate purposes, including
working capital, product development and
capital expenditures. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol......................... SEAC
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
PERIOD FROM JULY 9, 1993 DECEMBER 31, JUNE 30,
(INCEPTION) THROUGH -------------------- ---------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues................ $ 213 $ 5,690 $ 23,202 $ 11,577 $ 24,354
Income (loss) from oper-
ations................. (17) 203 1,810 1,747 3,350
Net income (loss)....... (18) 155 1,211 1,129 2,122
Net income (loss) per
share(2)............... (.01) .02 .11 .10 .18
Weighted average common
shares and equivalent
common shares
outstanding(2)......... 2,632,400 9,331,940 11,507,420 11,833,660 11,514,850
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 1,369 $21,253
Total assets............................................. 23,857 43,742
Long-term liabilities.................................... -- --
Redeemable convertible preferred stock................... 4,008 --
Total stockholders' equity............................... 1,373 25,265
</TABLE>
- -------
(1) Based on shares of Common Stock outstanding as of August 31, 1996. Excludes
(i) 681,414 shares of Common Stock issuable upon exercise of options
outstanding as of August 31, 1996, of which options to purchase 41,102
shares were then exercisable and (ii) 1,591,973 shares of Common Stock
reserved for future issuance under the Company's stock plans. See
"Management--Stock Plans" and Note 9 of Notes to Consolidated Financial
Statements.
(2) For an explanation of the determination of the number of shares used in
computing net income (loss) per share, see Note 2 of Notes to Consolidated
Financial Statements.
(3) Pro forma to reflect the conversion of all issued and outstanding shares of
Preferred Stock into shares of Common Stock upon the closing of this
offering and adjusted to reflect the sale of 1,715,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $13.00 per share, after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
3
<PAGE>
RISK FACTORS
In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information presented
in this Prospectus. This Prospectus contains certain statements of a forward-
looking nature relating to future events or the future financial performance
of the Company. Prospective investors are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, particularly the matters
set forth below, which could cause actual results to differ materially from
those indicated by such forward-looking statements.
Limited Operating History and Operating Results. The Company was founded in
July 1993 and commenced shipment of its initial products in the third quarter
of 1994. Accordingly, the Company has only a limited operating history upon
which an evaluation of the Company and its prospects can be based. 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 and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
persons, and continue to upgrade its technologies and commercialize products
and services incorporating such technologies. There can be no assurance that
the Company will be successful in addressing such risks. Increases in
operating expenses are expected to continue and may result in a decrease in
operating income. There can be no assurance that the Company will continue to
sustain profitability on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results have in the past varied and in the future will be affected
by factors such as: (i) the timing and recognition of revenue from significant
orders, (ii) the seasonality of the placement of customer orders, (iii) the
success of the Company's products, (iv) increased competition, (v) changes in
the Company's pricing policies or those of its competitors, (vi) the financial
stability of major customers, (vii) new product introductions or enhancements
by competitors, (viii) delays in the introduction of products or product
enhancements by the Company, (ix) customer order deferrals in anticipation of
upgrades and new products, (x) the ability to access a sufficient supply of
sole source and third party components, (xi) the quality and market acceptance
of new products, (xii) the timing and nature of selling and marketing expenses
(such as trade shows and other promotions), (xiii) personnel changes, and
(xiv) economic conditions affecting the Company's customers. Any significant
cancellation or deferral of purchases of the Company's products could have a
material adverse effect on the Company's business, financial condition and
results of operations in any particular quarter, and to the extent significant
sales occur earlier than expected, operating results for subsequent quarters
may be adversely affected. The Company's expense levels are based, in part, on
its expectations as to future revenues, and the Company may be unable to
adjust spending in a timely manner to compensate for any revenue shortfall. If
revenues are below expectations, operating results are likely to be adversely
affected and net income may be disproportionately affected because a
significant portion of the Company's expenses do not vary with revenues.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Due to all of
the foregoing factors, in some future quarter the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
Seasonality. The Company's business has been seasonal with more orders being
placed and greater revenues being recognized in the first and second quarters
than in the third and fourth quarters. The Company believes that the
concentration of order placements in specific quarterly periods is due to
customers' buying patterns and budgeting cycles in the cable television
industry. The Company anticipates that these patterns will continue in the
future. As a result, the Company's results of operations have in the past and
likely will in the
4
<PAGE>
future vary seasonally in accordance with such purchasing activity. Due to the
relatively fixed nature of certain of the Company's costs throughout each
quarterly period, including personnel and facilities costs, the decline of
revenues in any quarter typically results in lower profitability in that
quarter and in such event, the price of the Company's Common Stock would
likely be materially adversely effected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results
of Operations."
Management of Growth. The Company has experienced growth in revenues and
expansion of its operations which have placed significant demands on the
Company's management, administrative and operational resources. Following the
audit of the Company's financial statements for the six months ended June 30,
1996, the Company received a management letter from its independent
accountants which disclosed a reportable condition with respect to inventory
controls that occurred in connection with the implementation of a new
automated accounting system in May 1996. The Company has recently hired
additional accounting and finance personnel, including a chief financial
officer and a new controller, and is implementing additional financial and
management controls, reporting systems and procedures which the Company
believes will correct such reportable condition. However, the Company believes
that further improvements in management and operational controls are needed,
and would continue to be needed to manage any future growth. Continued growth
will also require the Company to hire more technical, selling and marketing,
support and administrative personnel, expand manufacturing and customer
service capabilities, and update or expand management information systems.
There can be no assurance that the Company will be able to attract and retain
the necessary personnel to accomplish its growth strategies or that it will
not experience constraints that will adversely affect its ability to satisfy
customer demand in a timely fashion or to satisfactorily support its customers
and operations. Also, the Company may in the future acquire complementary
service or product lines, technologies or businesses, although the Company has
no present understandings, commitments or agreements with respect to any
significant acquisitions. If the Company's management is unable to manage
growth effectively or integrate any acquisition into the Company's operations
successfully, the Company's business, financial condition and results of
operations could be materially and adversely affected. See "Business--
Employees," "Management--Executive Officers and Directors" and "Use of
Proceeds."
Product Concentration. Sales of the SeaChange SPOT System have accounted for
substantially all of the Company's revenues to date, and this product and
related enhancements are expected to continue to account for a majority of the
Company's revenues at least through 1997. The Company's success depends in
part on continued sales of the SeaChange SPOT System. A decline in demand or
average selling prices for the SeaChange SPOT System product line, whether as
a result of new product introductions by others, price competition,
technological change, inability to enhance the products in a timely fashion,
or otherwise, would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Products."
Highly Competitive Market. The market for digital video products is highly
competitive. The Company currently competes against suppliers of both analog
tape-based and digital systems in the advertisement insertion market and
against both computer companies offering video server platforms and more
traditional movie application providers in the movie system market. When the
Company introduces products in the television broadcast market, the Company
expects to compete in that market against various computer companies offering
video server platforms and television equipment manufacturers. Due to the
rapidly evolving markets in which the Company competes, additional competitors
with significant market presence and financial resources, including computer
hardware and software companies and television equipment manufacturers, may
enter those markets, thereby further intensifying competition. Increased
competition could result in price reductions and loss of market share which
would adversely affect the Company's business, financial condition and results
of operations. Many of the Company's current and potential competitors have
greater financial, selling and marketing, technical and other resources than
the Company. Moreover, the Company's competitors may also foresee the course
of market developments more accurately than the Company. Although the Company
believes it has certain technological and other advantages over its
competitors, realizing and maintaining such advantages will require a
continued high level of investment by the Company in research and product
development,
5
<PAGE>
marketing and customer service and support. There can be no assurance that the
Company will have sufficient resources to continue to make such investments or
that the Company will be able to make the technological advances necessary to
compete successfully with its existing competitors or with new competitors.
See "Business--Competition."
Dependence on Emerging Digital Video Market. Cable television operators and
television broadcasters have historically relied on traditional analog
technology for video management, storage and distribution. Digital video
technology is still a relatively new technology and requires a significant
initial investment of capital. The Company's future growth will depend both on
the rate at which television operators convert to digital video systems and
the rate at which digital video technology expands to additional market
segments. There can be no assurance that the use of digital video technology
will expand among television operators or into additional markets. Any failure
by the market to accept digital video technology will have a material adverse
affect on the Company's business, financial condition and results of
operations. See "Business--Industry Background."
Risks Associated with Expansion into New Markets. To date the Company's
products have been purchased primarily by cable television operators and
telecommunications companies. The Company's success depends in part on the
penetration of new markets. In particular, the Company plans to introduce
several products for use by television broadcasters. These broadcast products
will be directed toward a market that the Company has not previously
addressed. There can be no assurance that the Company will be successful in
marketing and selling these new products to customers in the broadcast
television market. Any inability of the Company to penetrate this new market
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Products."
Risk of New Product Introductions. The Company's future success requires
that it develop and market additional products that achieve significant market
acceptance and enhance its current products. The Company has recently
introduced a new product which enables television operators to provide Video-
On-Demand and scheduled playback services to hotels and apartments. The
success of this product may depend in part on relationships with movie content
providers. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of this and other new products and enhancements, or
that its new products and enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. Announcements of currently
planned or other new product offerings may cause customers to defer purchasing
existing Company products. Moreover, there can be no assurance that, despite
testing by the Company, and by current and potential customers, errors or
failures will not be found in the Company's products, or, if discovered,
successfully corrected in a timely manner. Such errors or failures could cause
delays in product introductions and shipments, or require design modifications
that could adversely affect the Company's competitive position. The Company's
inability to develop on a timely basis new products, enhancements to existing
products or error corrections, or the failure of such new products or
enhancements to achieve market acceptance could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Products" and "--Research and Product Development."
Rapid Technological Change. The markets for the Company's products are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions and enhancements. Future technological
advances in the television and video industries may result in the availability
of new products or services that could compete with the software-based
solutions provided by the Company or reduce the cost of existing products or
services, any of which could enable the Company's existing or potential
customers to fulfill their video needs better and more cost efficiently than
with the Company's products. The Company's future success will depend on its
ability to enhance its existing digital video products, including the
development of new applications for its technology and to develop and
introduce new products to meet and adapt to changing customer requirements and
emerging technologies. There can be no assurance that the Company will be
successful in enhancing its digital video products or developing,
manufacturing and marketing new products which satisfy customer needs or
achieve market acceptance. In addition, there can be no assurance that
services, products or technologies developed by others will not render the
Company's products or technologies
6
<PAGE>
uncompetitive, unmarketable or obsolete, or that announcements of currently
planned or other new product offerings by either the Company or its
competitors will not cause customers to defer or fail to purchase existing
Company solutions. The failure of the Company to respond to rapidly changing
technologies related to digital video could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Products" and "--Research and Product Development."
Significant Concentration of Customers. The Company's customer base is
highly concentrated among a limited number of large customers, primarily due
to the fact that the cable television and telecommunications industries in the
United States are dominated by a limited number of large companies. A fairly
limited number of customers account for a significant percentage of the
Company's revenues in any year. In 1994 and 1995 and the six months ended June
30, 1996, revenues from the Company's five largest customers represented
approximately 94.7%, 90.9% and 75.1%, respectively, of the Company's total
revenues. In each of 1994, 1995 and the six months ended June 30, 1996, four
customers each accounted for more than 10% of the Company's revenues, one of
which accounted for more than 10% of the Company's revenues in each such
period. The Company's sales to specific customers tend to vary significantly
from year to year depending upon such customers' budgets for capital
expenditures and new product introductions. In addition, the Company derives a
substantial portion of its revenues from products that have a selling price in
excess of $200,000. The Company believes that revenue derived from current and
future large customers will continue to represent a significant proportion of
its total revenues. The loss of, or reduced demand for products or related
services from, any of the Company's major customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Customers."
Dependence on Sole Source Suppliers and Third Party Manufacturers. Certain
key components of the Company's products are currently purchased from a sole
supplier, including a computer chassis manufactured by Trimm Technologic Inc.,
a disk controller manufactured by Mylex Corporation, an MPEG-2 decoder card
manufactured by Vela Research, Inc. and an MPEG-2 encoder manufactured by
Optivision, Inc. The Company has in the past and may in the future experience
quality control problems and delays in the receipt of such components. The
inability to obtain sufficient key components as required, or to develop
alternative sources if and as required in the future, could result in delays
or reductions in product shipments which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the Company relies on a limited number of third parties
who manufacture certain components used in the Company's products. While to
date there has been suitable third party manufacturing capacity readily
available at acceptable quality levels, there can be no assurance that such
manufacturers will be able to meet the Company's future volume or quality
requirements or that such services will continue to be available to the
Company at favorable prices. Any financial, operational, production or quality
assurance difficulties experienced by such third party manufacturers that
result in a reduction or interruption in supply to the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
Regulation of Telecommunications and Television Industries. The
telecommunications and television industries are subject to extensive
regulation in the United States and other countries. The Company's business is
dependent upon the continued growth of such industries in the United States
and internationally. Although recent legislation has lowered the legal
barriers to entry for telecommunications companies into the United States
multichannel television market, there can be no assurance that such
telecommunications companies will successfully enter this or related markets.
Moreover, the growth of the Company's business internationally is dependent in
part on similar deregulation of the telecommunications industry abroad and
there can be no assurance that such deregulation will occur. Television
operators are also subject to extensive government regulation by the Federal
Communications Commission ("FCC") and other federal and state regulatory
agencies. These regulations could have the effect of limiting capital
expenditures by television operators and thus could have a material adverse
effect on the Company's business, financial condition and results of
operations. The enactment by federal, state or international governments of
new laws or regulations, changes in the interpretation of existing regulations
or a reversal of the trend toward deregulation in these industries could
adversely affect the Company's customers, and thereby materially adversely
affect the Company's business, financial condition and results of operations.
See "Business--Industry Background."
7
<PAGE>
Lengthy Sales Cycle. Digital video products are relatively complex and their
purchase generally involves a significant commitment of capital, with
attendant delays frequently associated with large capital expenditures and
implementation procedures within an organization. Moreover, the purchase of
such products typically requires coordination and agreement among a potential
customer's corporate headquarters and its regional and local operations. For
these and other reasons, the sales cycle associated with the purchase of the
Company's digital video products is typically lengthy and subject to a number
of significant risks, including customers' budgetary constraints and internal
acceptance reviews, over which the Company has little or no control. Based
upon all of the foregoing, the Company believes that the Company's quarterly
revenues, expenses and operating results are likely to vary significantly in
the future, that period-to-period comparisons of its results of operations are
not necessarily meaningful and that, in any event, such comparisons should not
be relied upon as indications of future performance. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of
Operations."
Dependence on Key Personnel and Hiring of Additional Personnel. The
Company's success depends to a significant degree upon the continued
contributions of its key management, engineering, selling and marketing and
manufacturing personnel, many of whom would be difficult to replace. The
Company does not have employment contracts with its key personnel. The Company
believes its future success will also depend in large part upon its ability to
attract and retain highly skilled managerial, engineering, selling and
marketing, finance and manufacturing personnel. 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 key personnel, the inability to attract or retain qualified personnel in
the future or delays in hiring required personnel, particularly software
engineers and sales 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."
Dependence on Proprietary Technology. The Company's success and its ability
to compete is dependent, in part, upon its proprietary technology. The Company
relies primarily on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality procedures and contractual provisions
to protect its proprietary rights. There can be no assurance that such
measures will be adequate to protect the Company's proprietary technology. The
Company attempts to ensure that its products and technology do not infringe
the proprietary rights of third parties. The Company received a letter in
January 1996 stating that the Company's video insertion system may be
utilizing technology patented by a third party. The Company did not respond to
such letter and has received no further communication from the holder of these
patents. There can be no assurance that the holder of these patents or other
third parties will not assert infringement claims against the Company in the
future or that any such claim will not be successful. See "Business--
Proprietary Rights."
Risks Associated with International Sales. Prior to 1996, the Company
derived no significant revenues from international operations. International
sales accounted for approximately 7% of the Company's revenues in the first
six months of 1996, and the Company expects that international sales will
account for a significant portion of the Company's business in the future.
However, there can be no assurance that the Company will be able to maintain
or increase international sales of its products. International sales are
subject to a variety of risks, including difficulties in establishing and
managing international distribution channels, in servicing and supporting
overseas products and in translating products into foreign languages.
International operations are subject to difficulties in collecting accounts
receivable, staffing and managing personnel and enforcing intellectual
property rights. Other factors that can also adversely affect international
operations include fluctuations in the value of foreign currencies and
currency exchange rates, changes in import/export duties and quotas,
introduction of tariff or non-tariff barriers and economic or political
changes in international markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Selling and
Marketing."
Concentration of Ownership. Following this offering, the Company's officers,
directors and their affiliated entities, and other holders of 5% or more of
the Company's outstanding capital stock (prior to this offering), together
will beneficially own approximately 66.8% of the outstanding shares of Common
Stock of the Company. As a result, such persons will have the ability to elect
the Company's directors and to determine the outcome of corporate actions
requiring stockholder approval, irrespective of how other stockholders of the
Company may
8
<PAGE>
vote. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company which may be favored by a
majority of the remaining stockholders, or cause a change of control not
favored by the Company's other stockholders. See "Management" and "Principal
and Selling Stockholders."
No Prior Trading Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined solely by negotiations between the Company
and the Representatives of the Underwriters and therefore may not be
indicative of prices that will prevail in the trading market after this
offering. The market price of the Company's Common Stock could be subject to
wide fluctuations in response to, and may be adversely affected by, variations
in quarterly operating results, changes in earnings estimates by analysts,
adverse earnings or other financial announcements of the Company's customers
and market conditions in the industry, as well as general economic conditions.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices for many
companies' stock and that often has been unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price.
Shares Eligible for Future Sale. Sales of substantial amounts of shares of
the Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. In addition to the
2,000,000 shares offered hereby, approximately 298,000 shares of Common Stock
outstanding as of August 31, 1996, which are not subject to 180-day lock-up
agreements (the "Lock-Up Agreements") with the representatives of the
Underwriters, will be eligible for sale in the public market in accordance
with Rule 144 or Rule 701 under the Securities Act of 1933, as amended (the
"Securities Act") beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-Up Agreements, 180 days after the date of this
Prospectus, approximately 6,530,000 additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
or Rule 701 under the Securities Act. At August 31, 1996, approximately 48,000
shares of Common Stock were issued or issuable pursuant to vested options
under the Company's stock plans. Shares issued or issuable upon exercise of
options under these plans generally will be eligible for sale in the public
market, subject to the Lock-Up Agreements. In addition, the holders of
approximately 1,093,000 shares of Common Stock will have certain rights to
registration of their shares under the Securities Act. See "Shares Eligible
for Future Sale," and "Underwriters."
Immediate and Substantial Dilution. Purchasers of shares of Common Stock
offered hereby will suffer an immediate and substantial dilution in the net
tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution."
Potential Adverse Effects of Anti-Takeover Provisions; Availability of
Preferred Stock for Issuance. The Company's Amended and Restated Certificate
of Incorporation and Amended and Restated By-Laws, contain provisions that may
make it more difficult for a third party to acquire, or discourage acquisition
bids for, the Company, including provisions that allow the Board of Directors
to take into account a number of non-economic factors, such as the social,
legal and other effects upon employees, suppliers, customers and creditors,
when evaluating offers for acquisitions of the Company. Such provisions could
limit the price that certain investors might be willing to pay in the future
for shares of the Company's Common Stock. In addition, shares of the Company's
Preferred Stock may be issued in the future without further stockholder
approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued
in the future. The issuance of Preferred Stock or of rights to purchase
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Description of Capital Stock--Delaware Law and Certain Charter and
By-Law Provisions; Anti-Takeover Effects" and "--Preferred Stock."
9
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in July 1993 under the name SeaView
Technology, Inc. and changed its name to SeaChange Technology, Inc. in
September 1993 and to SeaChange International, Inc. in March 1996. The
Company's principal executive offices are located at 124 Acton Street,
Maynard, Massachusetts, 01754 and its telephone number is (508) 897-0100. As
used in this Prospectus, the "Company" and "SeaChange" refer to SeaChange
International, Inc. and its Delaware subsidiary SeaChange Systems, Inc.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,715,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$19,884,350 ($21,032,900 if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $13.00 per
share and after deducting estimated underwriting discounts and commissions and
offering expenses. The Company expects to use the net proceeds for general
corporate purposes, including working capital, product development and capital
expenditures. A portion of the net proceeds may also be used for the
acquisition of businesses, services, products and technologies that are
complementary to those of the Company, although, as of the date of this
Prospectus, the Company has no commitments or agreements with respect to any
significant acquisitions, and no portion of the net proceeds has been
allocated for any specific acquisition. Pending such uses, the net proceeds of
this offering will be invested in investment grade, interest-bearing
securities.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain all of its future earnings for use in the
operation and expansion of the business. In addition, the Company's credit
facility prohibits the Company from paying cash dividends without the bank's
consent. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1996 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock, and
(iii) as adjusted to give effect to the sale of 1,715,000 shares of Common
Stock offered by the Company hereby, at an assumed initial public offering
price of $13.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, and
the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Series B redeemable convertible
preferred stock, $.01 par value;
1,000,000 shares of preferred
stock authorized; 650,487 shares
designated, issued and
outstanding at June 30, 1996;
none issued and outstanding pro
forma and as adjusted .......... $ 4,008 -- --
Stockholders' equity:(1)
Series A convertible preferred
stock, $.01 par value;
1,000,000 shares of preferred
stock authorized; 30,000
shares designated, 11,808
shares issued and 10,522
shares outstanding at June 30,
1996; none issued and
outstanding pro forma and as
adjusted...................... 0 -- --
Common Stock, $.01 par value,
15,000,000 shares authorized,
9,631,418 shares issued and
8,775,218 shares outstanding
actual; 50,000,000 shares
authorized, 11,892,274 shares
issued and 11,036,074 shares
outstanding pro forma;
50,000,000 shares authorized,
12,751,074 shares issued and
outstanding as adjusted(2).... 96 $ 119 $ 136
Additional paid-in capital..... 414 4,399 24,266
Retained earnings.............. 3,394 3,394 3,394
Treasury stock, 856,200 shares
of common and 1,286 shares of
Series A convertible preferred
at June 30, 1996 actual, pro
forma and as adjusted......... (2,531) (2,531) (2,531)
------------ ------------ ------------
Total stockholders' equity... 1,373 5,381 25,265
------------ ------------ ------------
Total capitalization....... $ 5,381 $ 5,381 $ 25,265
============ ============ ============
</TABLE>
- --------
(1) Gives effect to the Amendment to the Certificate of Incorporation of the
Company to be filed prior to the consummation of this offering and the
Amended and Restated Certificate of Incorporation of the Company to be
filed upon the consummation of this offering.
(2) Excludes 681,414 shares of Common Stock issuable upon exercise of stock
options outstanding as of August 31, 1996, of which options to purchase
41,102 shares were then exercisable. Also excludes an additional 1,591,973
shares of Common Stock reserved for future issuance under the Company's
stock plans. See "Management--Stock Plans" and Note 9 of Notes to
Consolidated Financial Statements.
11
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
approximately $4,758,200, or $.43 per share of Common Stock. Pro forma net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
total number of shares of Common Stock outstanding, assuming the automatic
conversion of the outstanding shares of Preferred Stock into Common Stock.
After giving effect to the sale of the 1,715,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$13.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of
the Company as of June 30, 1996 would have been $24,642,600, or $1.93 per
share. This represents an immediate increase in the pro forma net tangible
book value of $1.50 per share to existing stockholders and an immediate
dilution of $11.07 per share to new investors. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $13.00
Pro forma net tangible book value per share before the offer-
ing......................................................... $.43
Increase in pro forma net tangible book value per share at-
tributable to new investors................................. 1.50
Pro forma net tangible book value per share after the offer-
ing........................................................... 1.93
------
Dilution per share to new investors............................ $11.07
======
</TABLE>
The following table summarizes on a pro forma basis as of August 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company, and the average price
per share paid by the existing stockholders and by the new investors (at an
assumed initial public offering price of $13.00 per share before deduction of
estimated underwriting discounts and commissions and estimated offering
expenses), assuming the conversion of the outstanding shares of Preferred
Stock into Common Stock:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockhold-
ers(1)(2)............... 11,037,012 86.6% $ 1,957,105 8.1% $ .18
New investors............ 1,715,000 13.4 22,295,000 91.9 13.00
---------- ----- ----------- -----
Total.................. 12,752,012 100.0% $24,252,105 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 10,752,012, or
approximately 84.3%, and will increase the number of shares held by the
new investors to 2,000,000, or approximately 15.7% of the total number of
shares of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders."
(2) The total consideration paid to the Company reflects the repurchase of
Treasury Stock totaling $2,531,200.
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options outstanding at August 31, 1996. As of
August 31, 1996, there were options outstanding to purchase 681,414 shares of
Common Stock at a weighted average exercise price of $4.16 per share and
1,591,973 shares reserved for future issuance under the Company's stock plans.
To the extent any of these options are exercised, there will be further
dilution to new investors. See "Management--Stock Plans" and Note 9 of Notes
to Consolidated Financial Statements.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto, and with Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this Prospectus.
The consolidated statement of income data set forth below for the period ended
December 31, 1993, for the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1996 and the consolidated balance sheet data at
December 31, 1994 and 1995 and at June 30, 1996 are derived from, and are
qualified by reference to, the Company's audited consolidated financial
statements, included elsewhere in this Prospectus, which have been audited by
Price Waterhouse LLP, independent accountants. The consolidated balance sheet
data at December 31, 1993 are derived from the Company's audited consolidated
financial statements not included in this Prospectus. The consolidated
statement of income data for the six months ended June 30, 1995 are derived
from, and are qualified by reference to, the Company's unaudited consolidated
financial statements included elsewhere in this Prospectus. The unaudited
consolidated financial statements have been prepared by the Company on a basis
consistent with the Company's audited financial statements and, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations
for such period. The operating results for the six months ended June 30, 1996
are not necessarily indicative of the results to be expected for any other
interim period or any other future fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 9, 1993
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------- ---------------------
1993 1994 1995 1995 1996
------------ --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues:
Systems............... -- $ 5,037 $ 21,999 $ 11,015 $ 22,906
Services.............. -- 116 1,203 562 1,448
Software development
contract............. $ 213 537 -- -- --
--------- --------- ---------- ---------- ----------
Total revenues...... 213 5,690 23,202 11,577 24,354
--------- --------- ---------- ---------- ----------
Costs of revenues:
Systems............... -- 3,406 14,917 7,052 14,430
Services.............. -- 176 1,641 549 1,816
Software development
contract............. 112 304 -- -- --
--------- --------- ---------- ---------- ----------
Total costs of
revenues........... 112 3,886 16,558 7,601 16,246
--------- --------- ---------- ---------- ----------
Gross profit........... 101 1,804 6,644 3,976 8,108
--------- --------- ---------- ---------- ----------
Operating expenses:
Research and
development.......... 43 885 2,367 1,047 1,986
Selling and
marketing............ 16 443 1,609 781 1,910
General and
administrative....... 59 273 858 401 862
--------- --------- ---------- ---------- ----------
Total operating
expenses........... 118 1,601 4,834 2,229 4,758
--------- --------- ---------- ---------- ----------
Income (loss) from
operations............ (17) 203 1,810 1,747 3,350
Interest income
(expense), net........ (1) 7 114 47 100
--------- --------- ---------- ---------- ----------
Income (loss) before
income taxes.......... (18) 210 1,924 1,794 3,450
Provision for income
taxes................. -- 55 713 665 1,328
--------- --------- ---------- ---------- ----------
Net income (loss)...... $ (18) $ 155 $ 1,211 $ 1,129 $ 2,122
========= ========= ========== ========== ==========
Net income (loss) per
share (1)............. $ (.01) $ .02 $ .11 $ .10 $ .18
========= ========= ========== ========== ==========
Weighted average common
shares and equivalent
common shares
outstanding (1)....... 2,632,400 9,331,940 11,507,420 11,833,660 11,514,850
========= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1993 1994 1995 1996
------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 90 $ 154 $ 3,493 $ 1,369
Total assets.................................... 228 3,494 13,595 23,857
Long-term liabilities........................... 125 -- -- --
Deferred revenue................................ 72 152 767 1,835
Total liabilities............................... 246 2,977 8,644 18,476
Redeemable convertible preferred stock.......... -- -- 4,008 4,008
Total stockholders' equity (deficit)............ (18) 517 943 1,373
</TABLE>
- -------
(1) For an explanation of the determination of the number of shares used in
computing net income (loss) per share see Note 2 of Notes to Consolidated
Financial Statements.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The following discussion contains certain trend
analysis and other statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual results or events may differ materially. In evaluating such statements,
prospective investors should specifically consider the risk factors set forth
below and identified elsewhere in this Prospectus, particularly the matters
set forth under the caption "Risk Factors," which could cause actual results
to differ materially from those indicated by such forward-looking statements.
OVERVIEW
The Company shipped its first digital video insertion product, the SeaChange
SPOT System, in the third quarter of 1994. Through June 30, 1996,
substantially all of the Company's revenues were derived from the sale of
SeaChange SPOT Systems and related services to cable television operators and
telecommunications companies in the United States. Revenues from the sale of
systems is recognized upon shipment provided that there are no uncertainties
regarding customer acceptance and collection of the related receivable is
probable. If uncertainties exist, such as performance criteria beyond the
Company's standard terms and conditions, revenue is recognized upon customer
acceptance. Installation and training revenue is deferred and recognized as
these services are performed. Revenue from technical support and maintenance
contracts is deferred and recognized ratably over the period of the related
agreements, generally twelve months. Customers are billed for installation,
training and maintenance at the time of the product sale and to date, the
Company typically receives at least 50% of the total product and services
sales price at the time of the placement of the purchase order.
The Company's business has been seasonal with more product orders being
placed and greater revenues being generated in the first and second quarters
than in the third and fourth quarters. The Company believes that this
concentration of order placements in specific quarterly periods is due to
customers' buying patterns and budgeting cycles in the cable television
industry. Many television operators want new video insertion systems to be
operational in the third and fourth calendar quarters in order to be able to
respond to higher seasonal advertising demand from their customers in these
periods. The Company expects that these patterns will continue and that, at
least in the near future, the Company's revenues and results of operations
will reflect these seasonal variations.
The Company first achieved profitability in the fourth quarter of 1994. The
Company's profitability is significantly influenced by a number of factors,
including the Company's pricing, the costs of materials used in the Company's
products and the expansion of the Company's operations. The Company prices its
products and services based on its costs as well as the prices of competitive
products and services in the marketplace. Although the Company historically
has not offered discounts or promotional prices for its products and services,
in the third quarter of 1995, the Company decreased the selling price of its
first generation digital video insertion system in anticipation of the
introduction of the second generation system in January 1996. The price
decrease had a negative effect on the Company's gross margin in the last six
months of 1995 and the first six months of 1996. The costs of the Company's
products primarily consist of the costs of components and subassemblies. The
costs of such materials have generally declined over time. As a result of the
expansion of the Company's operations, operating expenses of the Company have
increased in the areas of research and development, selling and marketing, and
customer service and support and related infrastructure. The Company
anticipates the addition of personnel and related infrastructure as it seeks
to increase revenue, develop new products, enter new markets and expand
internationally.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
Consolidated Statement of Income. Gross profit shown for systems and services
revenues at the bottom of the table is stated as a percentage of related
revenues.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 9, 1993
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, --------------- -------------------
1993 1994 1995 1995 1996
------------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Systems................. -- 88.5 % 94.8 % 95.1 % 94.1%
Services................ -- 2.0 5.2 4.9 5.9
Software development
contract............... 100.0 % 9.5 -- -- --
----- ------ ------ -------- --------
Total revenues........ 100.0 100.0 100.0 100.0 100.0
----- ------ ------ -------- --------
Cost of revenues:
Systems................. -- 59.9 64.3 61.0 59.2
Services................ -- 3.1 7.1 4.7 7.5
Software development
contract............... 52.4 5.3 -- -- --
----- ------ ------ -------- --------
Total costs of reve-
nues................. 52.4 68.3 71.4 65.7 66.7
----- ------ ------ -------- --------
Gross profit.............. 47.6 31.7 28.6 34.3 33.3
----- ------ ------ -------- --------
Operating expenses:
Research and develop-
ment................... 20.2 15.5 10.2 9.0 8.2
Selling and marketing... 7.6 7.8 6.9 6.7 7.8
General and administra-
tive................... 27.7 4.8 3.7 3.5 3.5
----- ------ ------ -------- --------
Total operating ex-
penses............... 55.5 28.1 20.8 19.2 19.5
----- ------ ------ -------- --------
Income (loss) from opera-
tions.................... (7.9) 3.6 7.8 15.1 13.8
Interest income (expense),
net...................... (.5) .1 .5 .4 .4
----- ------ ------ -------- --------
Income (loss) before in-
come taxes............... (8.4) 3.7 8.3 15.5 14.2
Provision for income tax-
es....................... -- 1.0 3.1 5.7 5.5
----- ------ ------ -------- --------
Net income (loss)......... (8.4)% 2.7 % 5.2 % 9.8 % 8.7%
===== ====== ====== ======== ========
Gross profit:
Systems................. -- 32.4 % 32.2 % 36.0 % 37.0%
Services................ -- (52.0) (36.4) 2.4 (25.4)
</TABLE>
Revenues
Systems. The Company's systems revenues consist of sales of its digital
video insertion products. The Company had no systems revenues in the period
ended December 31, 1993. The Company sold its first digital video insertion
systems in the third quarter of 1994. Systems revenues increased 337% from
$5.0 million in 1994 to $22.0 million in 1995, and increased 108% from $11.0
million for the six months ended June 30, 1995 to $22.9 million for the six
months ended June 30, 1996. The increases in systems revenues resulted from
the increase in the number of the Company's digital video insertion systems
sold to television operators in the United States, partially offset in 1995
and the first six months of 1996 by the price reduction on first generation
systems. The increased systems revenues in the first six months of 1996
reflect the Company's introduction of the second generation of its video
insertion system, which significantly expanded the scalability and performance
of the Company's digital video insertion products, and the subsequent increase
in the number of systems sold.
For the years ended December 31, 1994 and 1995 and for the six months ended
June 30, 1996, sales to the Company's five largest customers represented
approximately 94.7%, 90.9% and 75.1%, respectively, of the Company's total
revenues. In each of 1994, 1995 and the six months ended June 30, 1996, four
customers each
15
<PAGE>
accounted for more than 10% of systems revenues, one of which accounted for
more than 10% of the Company's revenues in each such period. The Company
believes that revenues derived from current and future large customers will
continue to represent a significant proportion of total revenues. See "Risk
Factors--Significant Concentration of Customers" and "Business--Customers."
Services. The Company's services revenues consist of fees for installation,
training, product maintenance and technical support services. The Company had
no services revenues in the period ended December 31, 1993. Services revenues
increased 936% from $116,000 in 1994 to $1.2 million in 1995, and increased
157% from $562,000 for the six months ended June 30, 1995 to $1.4 million for
the six months ended June 30, 1996. These increases in services revenues
primarily resulted from the increase in product sales and renewals of
maintenance and support contracts related to the growing installed base of
systems.
Software Development Contract. The Company's software development contract
revenues consisted of revenues related to a software development contract
between the Company and a computer hardware company. Such revenue was
recognized pursuant to the related agreement as work was performed and defined
milestones were attained. The Company recognized revenue of $213,000 and
$537,000 for the period ended December 31, 1993 and for the year ended
December 31, 1994, respectively. The costs associated with this contract
during the period ended December 31, 1993 and the year ended December 31, 1994
were $112,000 and $304,000, respectively. The Company substantially completed
its contract obligations in 1994.
Gross Profit
Systems. Costs of systems revenues consist primarily of the cost of
purchased components and subassemblies, labor and overhead relating to the
final assembly, testing and quality control of complete systems and related
expenses. Costs of systems revenues increased 338% from $3.4 million in 1994
to $14.9 million in 1995, and 105% from $7.1 million for the six months ended
June 30, 1995 to $14.4 million for the six months ended June 30, 1996. The
increases in costs of systems revenues primarily reflect the overall growth in
systems sales, partially offset by the change in product mix upon the
introduction of the second generation video insertion product in January 1996
and the decreasing costs of components and subassemblies.
Systems gross margins were 32.4% of systems revenues in 1994 and 32.2% of
systems revenues in 1995 and increased from 36.0% of systems revenues in the
six months ended June 30, 1995, to 37.0% of systems revenues in the six months
ended June 30, 1996. While the annual systems gross margins for 1994 and 1995
were fairly consistent, quarterly systems gross margins during 1995 fluctuated
significantly. Systems gross margins for the first and second quarters were
favorably impacted as a result of improved product design and of the Company
achieving certain manufacturing efficiencies associated with the increased
sales volume. Systems gross margins for the third and fourth quarters of 1995
were negatively impacted by the price reduction described above and thus were
lower than the first two quarters of 1995. The increase in systems gross
margins from the six months ended June 30, 1995 to the six months ended June
30, 1996 reflects design improvements in the second generation video insertion
product as well as lower costs of certain purchased components and
subassemblies.
Services. Costs of services revenues consist primarily of the costs of
labor, materials and overhead relating to the installation, training, product
maintenance and technical support services provided by the Company. Costs of
services revenues increased 830% from $176,000 in 1994 to $1.6 million in
1995, and 231% from $549,000 for the six months ended June 30, 1995 to $1.8
million for the six months ended June 30, 1996. For the years ended December
31, 1994 and 1995 and the six month periods ended June 30, 1995 and 1996 costs
of services revenues exceeded or approximately equalled services revenues,
primarily as a result of the costs associated with the Company building a
service organization to support the installed base of systems.
16
<PAGE>
Operating Expenses
Research and Development. Research and development expenses consist
primarily of compensation of development personnel, depreciation of equipment,
and an allocation of related facility expenses. Research and development
expenses increased from $43,000 for the period ended December 31, 1993 to
$885,000 for 1994, 168% to $2.4 million in 1995, and 90% from $1.0 million for
the six months ended June 30, 1995 to $2.0 million for the six months ended
June 30, 1996. These increases were primarily attributable to the hiring of
additional development personnel. The Company anticipates that it will
continue to devote substantial resources to its research and development
efforts and that research and development expenses will increase in dollar
amount for the remainder of 1996 and in 1997.
Selling and Marketing. Selling and marketing expenses consist primarily of
compensation expenses, including sales commissions and travel expenses, and
certain promotional expenses. Selling and marketing expenses increased from
$16,000 for the period ended December 31, 1993 to $443,000 in 1994, 263% to
$1.6 million in 1995, and 145% from $781,000 for the six months ended June 30,
1995 to $1.9 million for the six months ended June 30, 1996. These increases
reflect the hiring of additional selling and marketing personnel, expanded
promotional activities, and increased commissions relating to increased
revenues. The Company expects that selling and marketing expenses will
continue to increase in dollar amount as the Company hires additional
personnel and expands selling and marketing activities for the remainder of
1996 and in 1997.
General and Administrative. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services as well as an
allocation of related facility expenses. General and administrative expenses
increased from $59,000 for the period ended December 31, 1993 to $273,000 for
1994, 214% to $858,000 in 1995, and 115% from $401,000 for the six months
ended June 30, 1995 to $862,000 for the six months ended June 30, 1996. These
increases were primarily due to increased staffing and associated expenses
necessary to manage and support the expansion of the Company's operations. The
Company believes that its general and administrative expenses will increase in
dollar amount for the remainder of 1996 and in 1997 as a result of an
expansion of the Company's administrative staff to support its growing
operations and as a result of expenses associated with being a public company.
Provision for Income Taxes
The Company incurred a net loss and consequently recorded no federal or
state income tax expenses for the period ended December 31, 1993. Net
operating loss carryforwards resulting from this net loss were fully utilized
in 1994 and, together with the effects of the research and development tax
credit, resulted in an effective tax rate for 1994 of 26.2%. In 1995 and for
the six months ended June 30, 1995, the Company recorded a tax provision for
federal and state income taxes at an effective rate of 37.1%. In the period
ended June 30, 1996, the Company recorded a provision for income taxes at an
effective rate of 38.5%.
17
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly information for the
six quarters ended June 30, 1996 in dollars and as a percentage of the
Company's revenues. Gross profit shown for systems and services revenues at the
bottom of the table is stated as a percentage of related revenues. This
information is derived from unaudited financial statements and has been
prepared on the same basis as the Company's audited financial statements which
appear elsewhere in this Prospectus. In the opinion of the Company's
management, this data reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information
when read in conjunction with the Company's Consolidated Financial Statements
and Notes thereto. The results for any quarter are not necessarily indicative
of future quarterly results of operations, and the Company believes that
period-to-period comparisons should not be relied upon as an indication of
future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues:
Systems................ $4,544 $6,471 $5,340 $5,644 $ 9,684 $13,222
Services............... 262 300 281 360 545 903
------ ------ ------ ------ ------- -------
Total revenues......... 4,806 6,771 5,621 6,004 10,229 14,125
------ ------ ------ ------ ------- -------
Costs of revenues:
Systems................ 2,994 4,058 3,598 4,267 6,342 8,088
Services............... 213 336 480 612 729 1,087
------ ------ ------ ------ ------- -------
Total costs of
revenues.............. 3,207 4,394 4,078 4,879 7,071 9,175
------ ------ ------ ------ ------- -------
Gross profit............ 1,599 2,377 1,543 1,125 3,158 4,950
------ ------ ------ ------ ------- -------
Operating expenses:
Research and
development........... 484 563 626 694 992 994
Selling and marketing.. 295 486 356 472 755 1,155
General and
administrative........ 208 193 234 223 294 568
------ ------ ------ ------ ------- -------
Total operating
expenses.............. 987 1,242 1,216 1,389 2,041 2,717
------ ------ ------ ------ ------- -------
Income (loss) from
operations............. 612 1,135 327 (264) 1,117 2,233
Interest income
(expense), net......... 29 18 11 56 48 52
------ ------ ------ ------ ------- -------
Income (loss) before
income taxes........... 641 1,153 338 (208) 1,165 2,285
Provision (benefit) for
income taxes........... 237 428 125 (77) 446 882
------ ------ ------ ------ ------- -------
Net income (loss)....... $ 404 $ 725 $ 213 $ (131) $ 719 $ 1,403
====== ====== ====== ====== ======= =======
<CAPTION>
AS A PERCENTAGE OF REVENUES
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Systems................ 94.5 % 95.6 % 95.0 % 94.0 % 94.7 % 93.6%
Services............... 5.5 4.4 5.0 6.0 5.3 6.4
------ ------ ------ ------ ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------- -------
Costs of revenues:
Systems................ 62.3 59.9 64.0 71.1 62.0 57.3
Services............... 4.4 5.0 8.5 10.2 7.1 7.7
------ ------ ------ ------ ------- -------
Total costs of
revenues.............. 66.7 64.9 72.5 81.3 69.1 65.0
------ ------ ------ ------ ------- -------
Gross profit............ 33.3 35.1 27.5 18.7 30.9 35.0
------ ------ ------ ------ ------- -------
Operating expenses:
Research and
development........... 10.1 8.3 11.2 11.5 9.7 7.0
Selling and marketing.. 6.2 7.2 6.3 7.9 7.4 8.2
General and
administrative........ 4.3 2.9 4.2 3.7 2.9 4.0
------ ------ ------ ------ ------- -------
Total operating
expenses.............. 20.6 18.4 21.7 23.1 20.0 19.2
------ ------ ------ ------ ------- -------
Income (loss) from
operations............. 12.7 16.7 5.8 (4.4) 10.9 15.8
Interest income
(expense), net......... .6 .3 .2 .9 .5 .4
------ ------ ------ ------ ------- -------
Income (loss) before
income taxes........... 13.3 17.0 6.0 (3.5) 11.4 16.2
Provision (benefit) for
income taxes........... 4.9 6.3 2.2 (1.3) 4.4 6.2
------ ------ ------ ------ ------- -------
Net income (loss)....... 8.4 % 10.7 % 3.8 % (2.2)% 7.0 % 10.0%
====== ====== ====== ====== ======= =======
Gross profit:
Systems................ 34.1 % 37.3 % 32.6 % 24.4 % 34.5 % 38.8%
Services............... 18.8 (11.9) (71.1) (70.0) (33.7) (20.5)
</TABLE>
18
<PAGE>
The Company has experienced significant variations in revenues, expenses and
operating results from quarter to quarter and such variations are likely to
continue. A significant portion of the Company's revenues have been generated
from a limited number of customers and it is difficult to predict the timing
of future orders and shipments to these and other customers. Customers can
cancel or reschedule shipments, and development or production difficulties
could delay shipments. See "Business--Customers."
The Company has also experienced significant variations in its quarterly
gross margins. In the third quarter of 1995, the Company decreased the selling
price of its first generation SeaChange SPOT digital video insertion system in
anticipation of the introduction of the second generation system in January
1996. This price reduction had a negative impact on the Company's systems
gross margins in the last two quarters of 1995 and the first quarter of 1996.
Quarterly services gross margins have historically fluctuated significantly
since services revenue is recognized upon the completion of installation and
training services, the timing of which may vary, while the related costs are
incurred and recognized ratably.
Operating expenses also vary with the number, timing and significance of new
product and product enhancement introductions by the Company and its
competitors, increased competition, changes in pricing policies by the Company
or its competitors, the gain or loss of significant customers, the hiring of
new personnel and general economic conditions. All of the above factors are
difficult for the Company to forecast, and these or other factors may
materially adversely effect the Company's business, financial condition and
results of operations for one quarter or a series of quarters. Only a small
portion of the Company's expenses vary with revenues in the short-term and
there would likely be a material adverse effect on the operating results of
the Company if revenues are lower than expectations.
Based upon all of the foregoing, the Company believes that quarterly
revenues and operating results are likely to vary significantly in the future
and that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors--Fluctuations in Quarterly Operating Results"
and "--Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash provided by operations and the private sale of equity securities.
Net cash provided by operating activities was $90,000, $618,000, and $2.8
million for the period ended December 31, 1993, and the years ended December
31, 1994 and 1995, respectively. The increase in 1994 was primarily the result
of an increase in customer deposits, which represent advance payments from
customers. Cash flows related to customer deposits are dependent upon the
timing, volume and size of customer orders. The increase in 1995 was primarily
attributable to the increased profitability of the Company's operations, and
increases in accounts payable and accrued expenses, partially offset by
increases in accounts receivable, related to the increase in overall product
revenues, and increased inventory procurement, in anticipation of the
introduction of the Company's second generation digital video insertion system
in early 1996. Net cash provided by operating activities for the six month
periods ended June 30, 1995 and 1996 increased from $265,000 to $905,000. The
increase is primarily the result of the increased profitability of the
Company's operations together with an increase in accounts payable and
customer deposits partially offset by increases in accounts receivable and
inventories.
The Company's investing activities used net cash of $14,000, $207,000 and
$659,000 in the period ended December 31, 1993, and the years ended December
31, 1994 and 1995, respectively, and $245,000 and $1.1 million for the six
months ended June 30, 1995 and 1996, respectively. The principal uses of cash
have been for capital expenditures related to the acquisition of computer
equipment, office furniture and other capital equipment required to support
the expansion and growth of the business. In addition, in June 1996 the
Company paid $450,000 for a software license related to software to be
sublicensed to customers.
19
<PAGE>
The Company's financing activities provided net cash of $133,000, $251,000
and $3.2 million in the period ended December 31, 1993, and the years ended
December 31, 1994 and 1995, respectively, primarily through proceeds from the
private sale of equity securities. In 1995, the cash provided by financing
activities included $4.0 million received in connection with the issuance of
the Series B Convertible Preferred Stock, partially offset by a $795,000 cash
outlay related to loans to stockholders. For the six months ended June 30,
1996, cash used in financing activities totaled $1.7 million consisting of the
repurchase of shares of the Company's Common Stock and Series A Convertible
Preferred Stock from certain employees and directors of the Company, net of
the repayment of loans to stockholders.
The Company's future capital requirements will depend on many factors,
including revenue growth, the timing and extent of spending to support
development efforts, the timing of new product introductions 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 at acceptable terms, or at all.
At June 30, 1996 the Company's principal sources of liquidity included $4.2
million of cash and cash equivalents and working capital of approximately $1.4
million. The Company believes that the net proceeds of this offering, together
with available funds and cash generated from operations will be sufficient to
meet the Company's cash requirements for at least the next twelve months. In
September 1996 the Company entered into a $6.0 million revolving line of
credit and a $1.5 million equipment line of credit (the "Lines of Credit")
with a bank. The revolving line of credit expires on September 24, 1997 and
the equipment line of credit expires on March 31, 1997. Borrowings under the
Lines of Credit are secured by substantially all of the Company's assets.
Loans made under the revolving line of credit will bear interest at a rate per
annum equal to, at the Company's option, the bank's base rate or the LIBOR
rate plus an applicable margin. Loans made under the equipment line of credit
will bear interest at a rate per annum equal to the bank's base rate. The loan
agreement relating to the Lines of Credit requires that the Company provide
the bank with certain periodic financial reports and comply with certain
financial ratios. As of September 30, 1996, the Company had not borrowed
against either of these lines.
20
<PAGE>
BUSINESS
SeaChange is a leading provider of software-based products to manage, store
and distribute digital video for cable television operators and
telecommunications companies. The Company's products utilize its proprietary
distributed application software and standard industry components to automate
the management and distribution of short- and long-form video streams
including advertisements, movies, news updates and other video programming
requiring precise, accurate and continuous execution. The Company's digital
video products are designed to provide higher image quality and to be more
reliable, easier to use and less expensive than analog tape-based systems. In
addition, SeaChange's products enable its customers to increase revenues by
offering more targeted services such as geography-specific spot advertising
and Video-On-Demand movies.
SeaChange's products address a number of specific markets. The SeaChange
SPOT System is the leading digital advertisement and other short-form video
insertion system for the multichannel television market. The SeaChange SPOT
System encodes analog video forms such as commercials and news updates, stores
them in remote or local digital libraries, and inserts them automatically into
television network streams. The SPOT System provides high run-rate accuracy
and video image quality, permits geographic and demographic specificity of
advertisements and reduces operating costs. The Company has recently
introduced the SeaChange Movie System, which provides long-form video storage
and delivery for the Video-On-Demand and pay-per-view movie markets and is
developing the SeaChange Programming System, a long-form video storage and
delivery product for cable television operators and telecommunications
companies. The SeaChange Media Management Software operates in conjunction
with the SeaChange SPOT System to automate and simplify complex sales,
scheduling and billing processes for the multichannel television market. The
Company also sells its Video Server 100, which is designed to store and
distribute video streams of various lengths, and MediaCluster, SeaChange's
proprietary software technology that enables multiple Video Server 100s to
operate together as an integrated video server, to systems integrators and
value added resellers ("VARs"). In addition, the Company is developing digital
play-to-air systems for the broadcast television industry.
The Company's products are installed in over 100 geographic markets in the
United States and 6 internationally. The Company's customers include Comcast
Corporation, Continental Cablevision, NYNEX Video Services Operations Company,
Pacific Telesis Video Services, Tele-Communications, Inc., TELEWEST
Communications Group plc, Time Warner, Inc. and U S WEST, Inc.
INDUSTRY BACKGROUND
Television operators, the largest users of professional quality video,
historically have relied on analog technology for the storage and distribution
of video streams. Analog systems, which use video tapes as the primary
mechanism for the storage and distribution of video, have substantial
limitations. Analog tapes and their associated playback mechanisms are subject
to mechanical failure and generational loss of video quality. Analog tape-
based systems also require significant manual intervention, which makes them
expensive and cumbersome to operate and also limits their flexibility for
programming changes. Finally, analog tapes are bulky and have limited storage
capacity.
Over the past decade, the limitations of analog tape-based systems have
become increasingly apparent. Changes in government regulation and increased
competition have forced television operators to seek new revenue sources and
reduce costs. In addition, television operators are increasingly seeking to
offer new and enhanced video services while simultaneously improving the
efficiency of their operations. While analog tape-based systems are sufficient
for some traditional applications, they do not meet the performance and cost
requirements of these new, targeted applications.
Cable Television Operators & Telecommunications Companies
According to industry sources, there are over 11,000 cable systems currently
in the United States, serving approximately 64 million households. In 1995,
57.3% of all cable systems provided between 30 and 53 channels
21
<PAGE>
of programming as compared to 35.9% in 1985. Because cable television
programming is sent over broadband lines, operators can segment and target
their programming to viewers in selected geographies. In addition, the
continuing growth in cable television's multiple specialized programming
networks, such as CNN, MTV and ESPN and newer networks such as Black
Entertainment Television, the Discovery Channel and Nickelodeon, allow
advertisers to target viewers in selected demographic profiles.
Despite this advantage over television broadcasters, cable television
operators historically have not realized advertising revenues in proportion to
their share of television viewers. According to industry sources, in 1995, 36%
of all television viewers were watching cable networks, yet cable television
advertising revenue accounted for only 16% of the total television advertising
revenue. In addition, advertising represents the major source of revenue for
television broadcasters, while most cable television operators derive less
than 5% of their gross revenue from advertising. The limitations of analog
tape-based technology are a major factor which has prevented cable television
operators from historically exploiting their advantages over television
broadcasters. Analog systems are difficult to manage in multichannel and
multi-zone environments, resulting in relatively poor video insertion accuracy
and high operating costs.
Video-On-Demand represents a new opportunity for cable television operators.
Industry sources project that the Video-On-Demand market will generate
approximately $1.8 billion in revenues for cable television operators in 1999.
Increased channel capacity through the installation of fiber optic cables is
providing many cable television operators with the capacity to offer Video-On-
Demand programming capability to hotels and apartments. However, these complex
applications which demand reliable, rapid and cost-effective management and
operation are not as practical or feasible with existing analog technology.
The recent deregulation of the United States telecommunications industry has
lowered the legal barriers to entry for telecommunications companies to enter
the multichannel video delivery market. Telecommunications companies are
attempting to capitalize on the new growth opportunities by acquiring existing
cable television operators and by leveraging their existing telephony networks
to establish new multichannel video delivery operations. Industry sources
estimate that to date, telecommunications companies have invested
approximately $3 billion in non-telephony video applications. However,
telecommunications companies face the same limitations as cable television
operators in cost-effectively offering targeted, value-added services with
analog tape-based systems.
Increased demand for video and audio content over the Internet will require
a substantial increase in storage capacity and bandwidth over time. The
Company believes that cable television operators and telecommunications
companies will play an integral role in providing these broadband Internet
applications. The Company also believes that in order to offer high quality
video applications over the Internet, cable television operators and
telecommunications companies will need storage and distribution products
capable of complex management and scheduling of video data streams.
Television Broadcasters
The more than 1,500 broadcast stations in the United States, including
network affiliates and independent stations, face many of the same
technological issues as cable television operators. Additionally, television
broadcasters rely on advertising for nearly all of their revenue and require
high advertisement run-rate reliability and image quality. To date, television
broadcasters have utilized tape-based systems with robotic libraries, which
are cumbersome and require high levels of maintenance and manual intervention
to ensure that the needed performance requirements are met. Also, the video
tapes in these systems need to be replaced frequently due to repeated use.
In addition, many broadcasters are contemplating the use of the cable
infrastructure for the delivery of geography-specific advertising. These
broadcasters will insert targeted advertising into their television signals
and distribute them directly, often via microwave, to cable operators'
distribution sites. If this application develops, television operators will
require video storage and delivery systems that can effectively manage and
deliver multiple television signals to targeted markets.
22
<PAGE>
Initial Digital Video Products
Over the past five years, several companies have introduced digital video
products aimed at addressing the limitations of analog tape-based systems.
These products generally have been expensive, not scalable, difficult to
program and have poor video quality. In addition, many initial digital video
products have required users to integrate several components from different
vendors to create a complete solution, which is time consuming,
technologically difficult and often results in poor system performance.
THE SEACHANGE SOLUTION
SeaChange develops, markets and supports software-based digital video
solutions designed to enhance its customers' ability to store, retrieve,
manage and distribute short- and long-form video streams, including
advertisements, movies, news updates and other video programming requiring
precise, accurate and continuous execution. The Company's solutions are based
on five core areas of functionality: (i) real-time conversion of analog video
into digital video format; (ii) storage and retrieval of video content to and
from digital libraries; (iii) scheduled distribution of video streams between
digital libraries via local and wide area data networks; (iv) delivery of
video streams over single and multiple channels; and (v) management of video
sales, scheduling, billing and execution of related business transactions.
SeaChange uses these core capabilities to provide solutions to a number of
commercial markets. The Company's products are designed to provide a
consistent set of features and benefits, including:
Viewer Targeting. The Company's digital video products enable television
operators to efficiently target viewers in specific demographic or
geographic groups. The ability to target selected viewers enables
television operators to increase revenues by offering more targeted
services. The SeaChange SPOT System offers this capability to television
operators, while the SeaChange Movie System makes it possible for
television operators to offer Video-On-Demand movies to individual hotel
rooms or apartments.
Cost Reduction. The Company's products are designed to provide its
customers operating cost reductions as compared to analog tape-based
systems due to, among other things, the elimination of video tapes and
their storage and lower operating personnel requirements. The Company is
also able to price its products on a competitive basis by using standard
operating systems and components. The Company believes that the combination
of competitive pricing of its products and reductions in the operating
costs of its customers results in attractive pay-back periods on customers'
initial capital outlay for the Company's products.
Scalability. The Company's products are scalable to the needs of a
particular cable television operator or television broadcaster whether
operating in a single channel system concentrated in one specific zone or a
system with hundreds of channels serving multiple zones and markets.
Moreover, the Company's proprietary storage technology enables the
scalability of storage of digital video from a few minutes to hundreds of
hours of video.
Reliability. The Company's products eliminate the need for traditional
mechanical tape-based systems, thereby reducing the likelihood of
breakdowns. Furthermore, through the use of redundant components and
proprietary storage technology and application software, SeaChange's
products are designed to be fault resilient, providing the high reliability
required for television operations.
Scheduling Flexibility. The digitizing and storage of video streams allows
advertisements, news updates and movies to be inserted on channels in local
communities and allows cable television operators to insert or delete video
content rapidly. This flexibility enables the provision of services such as
Video-On-Demand movies and provides advertisers and television broadcasters
the opportunity to insert new video content on short notice.
Video Image Quality. Because digital video streams do not degrade with
playback, image content and quality remain at the original professional
level even after multiple airings.
Ease of Use. The Company's products are simple to learn, require less
maintenance, and are less personnel intensive than analog systems. Due to
their innovative architecture, the Company's products offer a number of
features that simplify their use, including remote monitoring and service
and automated short- and long-form video distribution.
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STRATEGY
SeaChange's objective is to be a leader in the emerging market for the
storage, management and distribution of professional quality digital video.
The key elements of the Company's strategy are to:
Develop Long-Term Customer Relationships. The Company is focusing its
product development, marketing and direct sales efforts on developing long-
term customer relationships with cable television operators,
telecommunications companies and television broadcasters in the United
States and, more recently, internationally. The Company has formed its
customer relationships by providing software- based digital video solutions
to address customers' immediate problems, such as advertisement and other
short-form video insertion. The Company intends to continue to leverage its
customer relationships to offer new, compatible products to meet evolving
market needs, such as Video-On-Demand programming. The Company believes
that the fundamental shift from analog to digital video and the growing
emphasis on interactive technologies will continue to present opportunities
for the Company to develop, market and support its products to both its
existing customer base and to customers in additional markets.
Offer Complete Solutions. SeaChange's customers operate complex networks
that require the delivery and management of video programming across
multiple channels and target zones. SeaChange believes television operators
desire complete solutions that integrate all steps of digital video
delivery from scheduling to post-air verification and billing. To address
these needs, SeaChange provides integrated applications and support
services which are more valuable to customers than individual functional
products not specifically designed to work together. The Company believes
that providing complete solutions has been a significant factor in its
success and will be an increasingly important competitive advantage.
Establish and Maintain Technological Leadership Through Software. SeaChange
believes its competitive position is dependent in large part on the
features and performance of its application and network and storage
software. As a result, the Company focuses a majority of its research and
development efforts on introducing new software applications and improving
its current software. The Company seeks to use standard hardware components
wherever possible to maintain its focus on software development.
Provide Superior Customer Service and Support. The Company's products
operate in environments where continuous operation is critical. As a
result, the Company believes that providing a high level of service and
support gives it a competitive advantage and is a differentiating factor in
developing key customer relationships. The Company's in-depth industry and
application knowledge allows it to better understand the service needs of
its customers. As of August 31, 1996, more than 25% of the Company's
employees were dedicated to customer service and support, including project
design and implementation, installation and training. In addition, using
remote diagnostic and communications features embedded in the Company's
products, the service organization has the ability to monitor the
performance of customer installations and, in most cases, rectify problems
remotely. Customers have access to service personnel via 24-hour, seven-day
a week telephone support.
PRODUCTS
SeaChange develops digital video products and related applications for the
television industry. Its products are marketed to cable television operators,
telecommunication companies, television broadcasters, systems integrators and
VARs.
SeaChange SPOT System
The SeaChange SPOT System automates the complex process of advertisement and
other video insertion across multiple channels and geographic zones for cable
television operators and telecommunications companies. Through its proprietary
software, the SeaChange SPOT System allows cable television operators to
insert local and regional advertisements and other short-form video streams
into the time allocated for these video streams by cable television networks
such as CNN, MTV, ESPN, Black Entertainment Television, the Discovery Channel
and Nickelodeon.
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The SeaChange SPOT System is an integrated solution composed of software
applications, hardware platforms, data networks and easy to use graphical
interfaces. The SeaChange SPOT System is designed to be installed at local
cable transmission sites, known as headends, and advertising sales business
offices. The SeaChange video insertion process consists of six steps:
Encoding: The process begins with the SeaChange Encoding Station, which is
based on SeaChange's proprietary encoding software, where analog-
based short- and long-form video is digitized and compressed in
real-time using standard MPEG-2 hardware.
Storage: Digital video is then stored in a disk-based video library,
capable of storing thousands of spots, where the SeaChange SPOT
System organizes, manages and stores these video streams.
Scheduling: SeaChange's scheduling and management software coordinates with
the traffic and billing application to determine the designated
time slot, channel and geographic zone for each video stream.
Distribution:
SeaChange's strategic digital video software then copies the video
streams from the master video library and distributes them over
the operator's data network to headends, where they are stored in
video servers for future play.
Insertion: Following a network cue, the SeaChange video switch module
automatically initiates the conversion of video streams to analog
and inserts them into the network feed, where they are then seen
by television viewers.
Verification:
After the video streams run, SeaChange's proprietary software and
hardware verifies the content, accuracy, timing and placement of
such video streams to facilitate proper customer billing.
[A GRAPHIC REPRESENTATION OF THE SEACHANGE SPOT
SYSTEM VIDEO INSERTION PROCESS APPEARS HERE]
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SeaChange has developed two additional product offerings, the SeaChange Small
Market Self-Contained System and the SeaChange Small Market Remote System, that
are based on the SPOT System and target smaller cable television markets. The
SeaChange Small Market Self-Contained System is ideal for small markets
operating out of a single headend. The SeaChange Small Market Remote System
best suits customers who serve markets where a number of small remote headends
will be served from a single advertising sales operation. As the needs of Small
Market Systems customers change, the systems can be upgraded to full SeaChange
SPOT Systems.
The SeaChange SPOT System and Small Market Systems permit cable television
operators to monitor and control the entire advertisement delivery process,
regardless of the number of advertisements, network channels or distributed
geographic locations. Additionally, SeaChange has designed its systems with
remote management and diagnostic capabilities that allow problems, in most
cases, to be diagnosed and rectified using data networks without having to
travel to the customer's location. The selling price for a base SeaChange SPOT
System is approximately $250,000; to date, the largest single sale of a
SeaChange SPOT System was $2.5 million. To date, the Company has sold the
SeaChange Small Market Self-Contained System to one customer at a sales price
of $228,000. The Company introduced the SeaChange Small Market Remote System in
June 1996 and to date, the Company has not sold any such systems.
SeaChange Media Management Software
The SeaChange Media Management Software is based on software the Company has
licensed from a third party and is designed to permit television operators to
manage advertising sales, scheduling, packaging and billing operations. This
product provides advertising sales executives with: (i) management performance
reports; (ii) inventory tracking; and (iii) order entry, billing and accounts
receivable management. Media Management Software can be integrated with the
SeaChange SPOT System and is also compatible with many other advertisement
insertion systems currently in use. The Company introduced the SeaChange Media
Management Software in the second quarter of 1996 and is installing Media
Management Software for one customer for use at multiple sites with a selling
price of approximately $500,000.
Long-Form Video Products
SeaChange is developing and marketing two products for the management and
delivery of long-form video content for cable television operators and
telecommunications companies.
SeaChange Movie System. SeaChange has developed a new product, the SeaChange
Movie System, which is a platform for the storage and delivery of long-form
video streams, particularly movies. SeaChange has worked together with IPC
Interactive ("IPC"), a provider of Video-On-Demand systems, to integrate IPC's
Guestnet system and its related movie programming with the SeaChange Movie
System. The integrated system is designed to permit viewers in hotels and
apartments to choose particular movies on demand and also offers a variety of
ancillary programming services, such as local programming and advertisements.
The Company and IPC are currently negotiating joint marketing rights to the
integrated system. It is anticipated that SeaChange will be marketing the
SeaChange Movie System featuring the Guestnet movie programming to cable
television operators, acting as a sales representative for the IPC portion of
the system. IPC would also be entitled to market this product, acting as a
dealer or sales representative for the SeaChange portion of the system. The
cable television operators will then package full scale Video-On-Demand systems
for hotels and apartments.
The integrated system will consist of user interfaces and application
hardware and software, including set- top boxes and remote control devices,
provided by IPC and SeaChange's Video Server 100 technology and software
architecture for the delivery and storage of movies. The video servers will be
installed at the cable headend and the video will be delivered over a dedicated
fiber-optic line. The integrated system is designed to provide cable television
operators with a new source of revenue and a competitive advantage over the
encroaching services of direct broadcast satellite companies. The SeaChange
Movie System has been ordered by
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one customer for use with the Guestnet movie programming and the Company
expects to begin marketing the integrated system shortly after an agreement
with IPC is reached. There can be no assurance, however, that the Company and
IPC will reach agreement on a joint arrangement and failure to do so would
delay the Company's marketing of the SeaChange Movie System.
In addition, the SeaChange Movie System may be used by television operators
to provide pay-per-view movies. Pay-per-view movies are presented at regular
intervals and viewers can order and begin watching a movie at a time
convenient to them. The Company has begun marketing the Seachange Movie System
to television operators for pay-per-view movies and has received an order for
one system from a customer with a sales price of approximately $650,000.
SeaChange Programming System. The SeaChange Programming System, which
employs the same underlying technology and basic functionality of the
SeaChange SPOT System, is designed to be a platform for the delivery of long-
form video streams in a multichannel environment. The SeaChange Programming
System is designed to permit television operators to store, manage and
distribute long-form video streams, such as movies, infomercials, and other
local origination programming. The SeaChange Programming System is designed to
provide for the storage of up to a terabyte of digital video (approximately
250 feature length movies on-line), which is expected to accommodate most
current customer applications. Its proprietary software applications are
designed to enable television operators to easily schedule and manage the
automated delivery of movies, infomercials and other local programming.
The SeaChange Programming System is designed to have a number of advantages
over traditional analog tape-based systems. It is designed to provide a high
level of scheduling control to reduce personnel needs and improve scheduling
flexibility. By sharing common functions with the SeaChange SPOT System such
as encoding, scheduling, storage libraries and networks, the SeaChange
Programming System is designed to leverage a customer's existing investment in
SeaChange products. The Company intends to sell the SeaChange Programming
System in 1997.
Broadcast Television Products
SeaChange plans to introduce two offerings to the television broadcast
market in 1997.
SeaChange Extensible Disk Play-to-Air System. The SeaChange Extensible Disk
Play-to-Air System is designed to provide high quality, MPEG-2 based video
storage and playback for use with automation systems in broadcast television
stations. This product is intended to replace on-air tape decks used to store
and play back advertising from video tape cart systems and, in some cases, to
replace the cart systems themselves. The SeaChange Extensible Disk Play-to-Air
System is designed for customers in larger broadcast television markets which
use station automation systems.
The SeaChange Extensible Disk Play-to-Air System is designed to
simultaneously record, encode, store to a disk and play video content, using
industry standard MPEG-2 compression. This product is designed to seamlessly
integrate into television broadcasters' current tape-based operations and meet
the high performance requirements of television broadcasters.
SeaChange Commercial Playback System. The SeaChange Commercial Playback
System is designed to store, manage and distribute advertisements and other
short-form video streams for broadcast stations where broadcast automation
systems are not widely deployed. This product is designed to have the same
functionality and features of the SeaChange SPOT System but is designed to be
tailored for the high performance requirements of the broadcast television
environment.
The SeaChange Commercial Playback System is designed to encode
advertisements and other short-form video streams from video tape, interface
with sales and billing systems for scheduling and verification, and store and
manage large libraries of short-form video streams. The Company believes that
the SeaChange Commercial Playback System will often be a first step toward
automation for many television broadcasters.
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OEM Products
The Company currently markets two original equipment manufacturer ("OEM")
products.
Video Server 100. The Video Server 100, which is the Company's second
generation video server, is designed to store and distribute video streams of
various lengths. The Video Server 100 provides the base technology for all of
SeaChange's digital video products and is offered to systems integrators and
VARs as a platform for the storage and delivery of video in a wide range of
applications. Such video applications include library content management, the
training of corporate employees and satellite delivery.
The Video Server 100 provides custom power and packaging and software for
use in professional video applications. It has features such as RAID and
redundant power supply to ensure the continuous uninterrupted airing of video.
The Video Server 100 uses industry standard components, which differentiates
it from various video servers based on proprietary processors and specialized
hardware components and operating systems. The OEM list price of the Video
Server 100 is $32,000.
MediaCluster. The MediaCluster is SeaChange's proprietary software
technology that enables multiple Video Server 100s to operate together as an
integrated video server. While the Video Server 100 is the base technology for
short-form video applications, the MediaCluster serves as the base technology
for long-form video applications.
Through its software architecture, the MediaCluster can join multiple Video
Server 100s to support large- scale applications by storing large amounts of
video data and delivering multiple video streams, with no single point of
failure in the system. The Company currently has a patent application pending
for its MediaCluster technology. Although the MediaCluster software technology
has been integrated into the SeaChange SPOT System and the SeaChange Movie
System, the Company has not to date sold MediaCluster to any customer on a
stand-alone basis. The Company is currently marketing the first generation of
MediaCluster and plans to introduce a new version of MediaCluster in 1997.
The Company is in the process of establishing a subsidiary at its
Greenville, New Hampshire location for the manufacture, development and OEM
sale of the Video Server 100 and MediaCluster products. The Company expects
that certain employees of the Company or the subsidiary will acquire up to a
20% interest over time in the subsidiary and that the Company will own the
remaining 80%. The Company intends that the subsidiary will license the
necessary technology from the Company and will manufacture these products on a
contract basis for the Company. The subsidiary will have the right to sell
these products to OEM customers that do not compete with the Company. The
Company intends to provide administrative and management services and, at
least initially, selling and marketing and support services, to the subsidiary
on a negotiated fee basis. It is expected that the subsidiary will conduct
research and development on video server-based products, including the Video
Server 100 and MediaCluster products, and will license all developments to the
Company on a royalty-free basis. It is intended that after three years, the
Company will have the right, but not the obligation, to acquire the 20%
interest from the employees at fair market value.
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CUSTOMER SERVICE AND SUPPORT
The Company installs, maintains and supports its products in the United
States and Canada. Annual maintenance contracts are generally required for the
first year of a customer's use of the Company's products and customers are
billed for the initial maintenance fee at the time of the placement of the
purchase order. The maintenance contracts are renewable on an annual basis,
and, as of August 31, 1996, all of the Company's customers have renewed such
contracts annually. The Company also offers basic and advanced formal on-site
training for customer employees at the time of product installation. For
international customers, the Company's agents and distributors generally
provide installation, maintenance and support to their customers.
The Company offers technical support to customers, agents and distributors
on a 24-hour, seven-day a week basis. Support engineers are committed to
providing a response to technical support calls within two hours. The
Company's products are designed with remote diagnostic capabilities which
permit the support engineers to immediately begin to diagnose any problems
without having to travel to the customer's location, thereby reducing both
response time and cost. When necessary, however, support engineers are
dispatched to the customer's facility. The Company's commitment to service is
evidenced by the fact that as of August 31, 1996 more than 25% of Company
employees were providing customer service and support, including project
design and implementation, installation and training.
CUSTOMERS
The Company currently sells its products primarily to cable television
operators and telecommunications companies. In addition, the Company is
developing several products for television broadcasters. To date, the
Company's customers include the following:
CABLE TELEVISION OPERATORS
Adelphia Cable Communications Dakota Cable Communications
Antietam Cable TV, Inc. Indianapolis Interconnect
Buckeye Cablevision, Inc. Intermedia Partners
Cable Advertising Communications Jones Intercable, Inc.
(Cable Adcom) Love Communications Company of
Cable Advertising Network of Jackson
Greater St. Louis, Inc. Multimedia Cablevision, Inc.
Cablevision Systems Corporation New York Interconnect
CAMA (Cable Advertising of Metro Atlanta) Scripps-Howard Cable
Central Oregon Cable Advertising, Inc. Southwest Florida Interconnect
Charter Communications, Inc. Tele-Communications, Inc. (TCI)
Coaxial Communications Time Warner, Inc.
Comcast Corporation TKR Cable Company
Continental Cablevision
Cox Communications, Inc. SYSTEMS INTEGRATORS AND VARS
TELECOMMUNICATIONS COMPANIES International Business Machines
Corporation
Bell Atlantic Video Services Roscor Corporation
GTE Corporation United Video Satellite Group
Lucent Technologies
MCI Telecommunications Corporation
NYNEX Video Services Operations Company
Pacific Telesis Video Services
TELEWEST Communications Group plc
TELE-TV Systems
U S WEST, Inc.
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As of September 30, 1996, the Company had an installed base of more than 100
digital video insertion systems in the United States and 6 internationally. The
following map illustrates installations of SeaChange SPOT Systems.
SEACHANGE SPOT SYSTEM INSTALLATIONS
[A GRAPHIC REPRESENTATION OF SEACHANGE SPOT SYSTEM INSTALLATIONS ON A MAP
WITH SYMBOLS DESIGINATING THE SITE OF EXISTING INSTALLED SYSTEMS APPEARS HERE]
The Company's customer base is highly concentrated among a limited number of
large customers, primarily due to the fact that the cable and
telecommunications industries in the United States are dominated by a limited
number of large companies. A significant portion of the Company's revenues in
any given fiscal period have been derived from substantial orders placed by
these large organizations. In 1994 and 1995 and the first six months of 1996,
revenues from the Company's five largest customers represented approximately
94.7%, 90.9% and 75.1%, respectively, of the Company's total revenues.
Customers accounting for more than 10% of total revenues have consisted of
Continental Cablevision, Cox Communications, Inc., Digital Equipment
Corporation and Time Warner, Inc. in 1994; Continental Cablevision, Tele-
Communications, Inc., Time Warner, Inc. and Cox Communications, Inc. in 1995;
and Tele-Communications, Inc., Comcast Corporation, Time Warner, Inc. and U S
WEST, Inc./CAMA (Cable Advertising of Metro Atlanta) in the first six months of
1996. The Company expects that it will continue to be dependent upon a limited
number of customers for a significant portion of its revenues in future
periods. As a result of this customer concentration, the Company's business,
financial condition and results of operations could be materially adversely
affected by the failure of anticipated orders to materialize and by deferrals
or cancellations of orders as a result of changes in customer requirements or
new product announcements or introductions. See "Risk Factors--Significant
Concentration of Customers."
The Company does not believe that its backlog at any particular point in time
is indicative of future revenue levels.
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SELLING AND MARKETING
The Company sells and markets its products in the United States primarily
through a direct field sales organization and internationally primarily
through independent agents and distributors, complemented by a coordinated
marketing effort of the Company's marketing group. Direct sales activities in
the United States are conducted from the Company's Massachusetts headquarters
and three field offices. The Company also markets certain of its products,
namely the Video Server 100 and MediaCluster, to systems integrators and VARs.
As of August 31, 1996, the Company's selling and marketing organization
consisted of 12 people.
In light of the complexity of the Company's digital video products, the
Company primarily employs a consultative direct sales process. Working closely
with customers to understand and define their needs enables the Company to
obtain better information regarding market requirements, enhance its expertise
in its customers' industries, and more effectively and precisely convey to
customers how the Company's solutions address the customer's specific needs.
In addition to the direct sales process, customer references and visits by
potential customers to sites where the Company's products are in place are
often critical in the sales process.
The Company uses several marketing programs focused on the Company's
targeted markets to support the sale and distribution of its products. The
Company uses exhibitions at a limited number of prominent industry trade shows
and conferences and presentations at technology seminars to promote awareness
of the Company and its products. The Company also publishes technical articles
in trade and technical journals and product promotional literature.
RESEARCH AND PRODUCT DEVELOPMENT
Management believes that the Company's success will depend to a substantial
degree upon its ability to develop and introduce in a timely fashion new
products and enhancements to its existing products that meet changing customer
requirements in the Company's current and new markets. The Company has in the
past made, and intends to continue to make, substantial investments in product
and technological development. Through its direct sales process the Company
monitors changing customer needs, changes in the marketplace and emerging
industry standards, and is therefore better able to focus its research and
development efforts to address such evolving industry requirements.
The Company's research and development expenditures totaled approximately
$43,000, $885,000 and $2.4 million for the period ended December 31, 1993 and
for the years ended December 31, 1994 and 1995, respectively, and
approximately $2.0 million for the first six months of 1996. At August 31,
1996, 41 employees were engaged in research and product development. The
Company believes that the experience of its product development personnel is
an important factor in the Company's success. The Company performs its
research and product development activities at its headquarters and in offices
in Greenville, New Hampshire and Atlanta, Georgia. The Company has
historically expensed its direct research and development costs as incurred.
The Company has a variety of new products being developed and tested,
including long-form video products for cable television operators and
telecommunications companies, digital play-to-air systems for television
broadcasters and the next version of its MediaCluster software. There can be
no assurance that the Company will be able to successfully develop and market
such products, or to identify, develop, manufacture, market or support other
new products or enhancements to its existing products successfully or on a
timely basis, that new Company products will gain market acceptance, or that
the Company will be able to respond effectively to product announcements by
competitors or technological changes. See "Risk Factors--Risk of New Product
Introductions."
MANUFACTURING
The Company's manufacturing operations are located at facilities in Acton,
Massachusetts and in Greenville, New Hampshire. The manufacturing operations
in Massachusetts consist primarily of component and subassembly procurement,
system integration and final assembly, testing and quality control of the
complete
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systems. The Company's operations in New Hampshire consist primarily of
component and subassembly procurement, video server integration and final
assembly, testing and quality control of the video servers. The Company relies
on independent contractors to manufacture components and subassemblies to the
Company's specifications. Each of the Company's products undergoes testing and
quality inspection at the final assembly stage.
The Company attempts to use standard parts and components available from
multiple vendors. Certain components used in the Company's products, however,
are currently purchased from a single source, including a computer chassis
manufactured by Trimm Technologic Inc., a disk controller manufactured by
Mylex Corporation, an MPEG-2 decoder card manufactured by Vela Research, Inc.
and an MPEG-2 encoder manufactured by Optivision, Inc. While the Company
believes that there are alternative suppliers available for the foregoing
components, the Company believes that the procurement of such components from
alternative suppliers would take anywhere from 45-120 days. There can be no
assurance that such alternative components would be functionally equivalent or
would be available on a timely basis or on similar terms. The Company
purchases several other components from a single supplier, although the
Company believes that alternative suppliers for such components are readily
available on a timely basis. The Company generally purchases sole source or
other components pursuant to purchase orders placed from time to time in the
ordinary course of business and has no written agreements or guaranteed supply
arrangements with its sole source suppliers. The Company has experienced
quality control problems and supply shortages for sole source components in
the past and there can be no assurance that the Company will not experience
significant quality control problems or supply shortages for these components
in the future. The Company has begun to increase its inventory of these
components. However, any interruption in the supply of such single source
components could have a material adverse effect on the Company's business,
financial condition and results of operations. Because of the Company's
reliance on these vendors, the Company may also be subject to increases in
component costs which could adversely affect the Company's business, financial
condition and results of operations. See "Risk Factors--Dependence on Sole
Source Suppliers and Third Party Manufacturers."
COMPETITION
The markets in which the Company competes are characterized by intense
competition, with a large number of suppliers providing different types of
products to different segments of the markets. The Company currently competes
principally on the basis of: (i) the breadth of its products' features and
benefits, including the ability to precisely target viewers in specific
geographic or demographic groups, and the flexibility, scalability,
professional quality, ease of use, reliability and cost effectiveness of its
products; and (ii) the Company's reputation and the depth of its expertise,
customer service and support. While the Company believes that it currently
competes favorably overall with respect to these factors and that its ability
to provide software-based solutions to manage, store and distribute digital
video differentiates the Company from its competitors, there can be no
assurance that the Company will be able to continue to compete successfully
with respect to such factors.
In the digital advertisement insertion market, the Company generally
competes with Channelmatic Inc., a subsidiary of Indenet Inc., Sony
Corporation, Digital Equipment Corporation, Starnet Inc., Texscan Corporation,
a subsidiary of TSX Corporation, and various suppliers of traditional analog
tape-based systems. In the market for long-form video products, the Company
competes against various computer companies offering video server platforms
such as Hewlett-Packard Company, Digital Equipment Corporation, and Silicon
Graphics, Inc., and more traditional movie application providers like The
Ascent Entertainment Group, Panasonic Company, and Lodgenet Entertainment. In
addition, the SeaChange Media Management Software competes against certain
products of Columbine Cable Systems, Inc., Cable Computerized Management
Systems, Inc., a subsidiary of Indenet Inc., CAM Systems, Inc., a subsidiary
of Starnet Inc., Visiontel, Inc. and various suppliers of sales, scheduling
and billing products. When the Company introduces a product for the television
broadcast market, the Company expects to compete against Tektronix, Inc., BTS
Inc., a division of Robert Bosch GMBH, Hewlett-Packard Company, Sony
Corporation, Silicon Graphics, Inc., Sun Microsystems, Inc. and ASC
Incorporated. The Company expects the competition in each of these markets to
intensify.
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Many of the Company's current and prospective competitors have significantly
greater financial, technical, manufacturing, sales, marketing and other
resources than the Company. As a result, these competitors may be able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. Moreover, these companies may introduce
additional products that are competitive with those of the Company or enter
into strategic relationships to offer complete solutions, and there can be no
assurance that the Company's products would compete effectively with such
products.
Although the Company believes that it has certain technological and other
advantages over its competitors, maintaining such advantages will require
continued investment by the Company in research and development, selling and
marketing and customer service and support. In addition, as the Company enters
new markets, distribution channels, technical requirements and levels and
bases of competition may be different than those in the Company's current
markets. There can be no assurance that the Company will be able to compete
successfully against either current or potential competitors in the future.
See "Risk Factors--Highly Competitive Market."
PROPRIETARY RIGHTS
The Company's success and its ability to compete is dependent, in part, upon
its proprietary technology. Although the Company has filed one patent
application for its MediaCluster technology, it does not hold any issued
patents and currently 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 a patent will be issued with
respect to the pending application or that, if issued, the validity of such
patent would be upheld. Nor can there be any assurance that the steps taken by
the Company to protect its intellectual property 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 addition, the laws of some foreign
countries in which the Company's products are or may be distributed 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. The Company
attempts to ensure that its products do not infringe any existing proprietary
rights of others. The Company received a letter in January 1996 stating that
the Company's video insertion system may be utilizing technology patented by a
third party. The Company did not respond to such letter and has received no
further communication from the holder of these patents. The Company does not
believe that its products infringe such patents. There can be no assurance
that the holder of these patents or other third parties will not assert
infringement claims against the Company in the future based on patents or
trade secrets, or that any 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 result in significant litigation costs and
expenses or an award of substantial damages. In the event of a successful
claim of infringement, the Company and its customers may be required to obtain
one or more licenses from third parties or to develop alternative
technologies. 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, or would be able to develop alternative technologies. 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 "Risk
Factors--Dependence on Proprietary Technology."
The SeaChange Media Management Software is based on software the Company
licensed from Summit Software Systems, Inc. of Boulder, Colorado in May 1996.
The Company has been granted a perpetual, nonexclusive license to such
software in return for the payment of an up-front license fee and royalties
for sales occurring prior to June 1998.
33
<PAGE>
EMPLOYEES
As of August 31, 1996, the Company employed 104 persons, including 41 in
research and development, 28 in customer service and support, 12 in selling
and marketing, 12 in manufacturing and 11 in finance and administration. None
of the Company's employees is represented by a collective bargaining
arrangement, and the Company believes that its relations with its employees
are good.
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, professional services, customer
support and product development personnel. The loss of any of the key
management or technical personnel could have a material adverse effect on the
Company. The Company believes that its future success will depend in large
part upon its ability to attract and retain highly-skilled managerial, sales,
professional services, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel. Competition for qualified personnel in the
Company's industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Key Personnel."
FACILITIES
The Company's corporate headquarters, which is also its principal
administrative, selling and marketing, customer service and support and
product development facility, is located in Maynard, Massachusetts and
consists of approximately 27,000 square feet under a lease which expires on
March 31, 1998, with an annual base rent for 1996 of approximately $107,000.
The Company plans to lease an additional 10,000 square feet in the same
building beginning in January 1997 and to move its manufacturing facility,
currently located in 4,800 square feet of leased space in Acton,
Massachusetts, to such space. The Company leases a facility of approximately
9,000 square feet in Greenville, New Hampshire that is used for the
development and final assembly of its video servers, and a facility of
approximately 1,400 square feet in Atlanta, Georgia that is used for research
and development. The Company also leases small sales and support offices in
Burlingame, California and St. Louis, Missouri. The Company believes its
existing and planned facilities are adequate for its current needs and that
suitable additional or substitute space will be available as needed.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
believes that it is not currently involved in any legal proceedings the
resolution of which, individually or in the aggregate, would have a material
adverse effect on the Company's business, financial condition or results of
operation.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William C. Styslinger, III..... 50 President, Chief Executive Officer,
Chairman of the Board and Director
Edward J. McGrath.............. 44 Vice President, Engineering, Chief
Technical Officer, Secretary and Director
Edward J. Delaney, Jr.......... 36 Vice President, Sales and Marketing
Thomas Franeta................. 41 Vice President, Business Development
Alan R. Lathrop ............... 44 Vice President, Software Engineering
Bruce E. Mann.................. 48 Vice President, Network Storage Engineering
Beat Marti..................... 50 Vice President, Customer Services
Joseph S. Tibbetts, Jr. ....... 44 Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Martin R. Hoffmann (1)(2)...... 64 Director
Paul H. Saunders (1)(2)........ 41 Director
Carmine Vona (1)(2)............ 58 Director
</TABLE>
- --------
(1) Member of the Compensation and Option Committee
(2) Member of the Audit Committee
William C. Styslinger, III, a founder of the Company, has served as the
President, Chief Executive Officer and a Director since the Company's
inception in July 1993 and as Chairman of the Board since January 1995. Prior
to forming the Company in 1993, Mr. Styslinger was employed at Digital
Equipment Corporation since March 1978, most recently as manager of the Cable
Television Business Unit from October 1991 to May 1993.
Edward J. McGrath, a founder of the Company, has served as Secretary since
the Company's inception in July 1993, and as Vice President, Engineering,
Chief Technical Officer and a Director since August 1993. Mr. McGrath served
as the Treasurer of the Company from its inception to June 1996. Prior to
forming the Company in 1993, Mr. McGrath was employed in various positions at
Digital Equipment Corporation since November 1976, most recently as Director
of Engineering of the Cable Television Business Unit from March 1992 to May
1993, and prior to that, from March 1989 to March 1992, as Group Manager--
Silicon Systems Engineering.
Edward J. Delaney, Jr. joined the Company in February 1994 as Vice
President, Sales and Marketing. Prior to joining the Company, Mr. Delaney
spent 12 years with Digital Equipment Corporation in a variety of positions,
including Marketing and Operations Manager for Digital's Cable Television
Business Unit, marketing manager of media products for the Asia/Pacific
region, executive assistant to the Vice President of United States sales, and
sales manager.
Thomas Franeta has served as Vice President, Business Development of the
Company since June 1996. Prior to that, Mr. Franeta served as Vice President--
Eastern Region Sales from March 1994 to June 1996. Before joining the Company,
from November 1981 to February 1994, Mr. Franeta held several management
positions at Digital Equipment Corporation, most recently as a Corporate
Account Manager in the Financial Industry Business.
Alan R. Lathrop joined the Company in October 1993 as Vice President,
Software Engineering. Prior to joining the Company, Mr. Lathrop served as
Technical Director for Logica North America, Northeast Division, a software
consulting company, from January 1993 to October 1993. Prior to that, from
August 1991 to January 1993, Mr. Lathrop was a Consulting Software Engineer at
Digital Equipment Corporation.
35
<PAGE>
Bruce E. Mann joined the Company in September 1994 as Vice President,
Network Storage Engineering. Mr. Mann has been selected to be the President of
SeaChange Systems, the subsidiary the Company is in the process of
establishing to develop and manufacture video server-based products. Prior to
joining the Company, Mr. Mann served as Director of Network Technology at
Ungermann- Bass, Inc., a subsidiary of Tandem Computers Inc., from March 1993
to September 1994. Prior to that, from September 1976 to March 1993 Mr. Mann
was an engineer at Digital Equipment Corporation, most recently as Senior
Consulting Engineer.
Beat Marti joined the Company in July 1994 as Vice President, Customer
Services. Prior to joining the Company, Mr. Marti held various positions at
Digital Equipment Corporation from January 1973 to July 1994, most recently as
an engineering manager of various software development groups.
Joseph S. Tibbetts, Jr. joined the Company in June 1996 as Vice President,
Finance and Administration, Chief Financial Officer and Treasurer. Prior to
joining the Company, Mr. Tibbetts was employed in various positions by Price
Waterhouse LLP from July 1976 to June 1996, most recently serving as Partner
from July 1986 to June 1996 and the National Director of the Software Services
Group from July 1989 to June 1996.
Martin R. Hoffmann has served as Director of the Company since January 1995.
Mr. Hoffmann has served as Of Counsel to Skadden, Arps, Slate, Meagher & Flom
since January 1996. From April 1995 to January 1996, Mr. Hoffmann maintained a
law practice and business consulting practice. He was a Visiting Senior Fellow
at the Center for Policy, Industry and Industrial Development at Massachusetts
Institute of Technology from May 1993 to April 1995, prior to which, from
April 1989, he served as Vice President and General Counsel for Digital
Equipment Corporation. Mr. Hoffmann is a member of the Board of Directors of
Castle Energy Corporation, an oil and gas refining and exploration company.
Paul H. Saunders has served as a Director of the Company since July 1995.
Mr. Saunders has been the Chairman and Chief Executive Officer of James River
Capital Corporation, a money management firm, from January 1995 to the
present. Prior to that, Mr. Saunders was Managing Director of the Managed
Futures Department at Kidder Peabody & Co. Incorporated from April 1983 to
January 1995. Mr. Saunders is a director of Centaur, a company involved in the
development and manufacturing of veterinary diagnostic and therapeutic
healthcare products.
Carmine Vona has served as a Director of the Company since January 1995. Mr.
Vona has been President and Chief Executive Officer of Vona Information
Systems, a consulting firm, since June 1996. Prior to that Mr. Vona was
Executive Vice President and Managing Director for worldwide technology at
Bankers Trust Co. from November 1969 to June 1996. From August 1986 to June
1996 Mr. Vona was Chairman of BT-FSIS, a software development company and a
wholly-owned subsidiary of Bankers Trust Co.
The Company's By-laws provide for the Company's Board of Directors to be
comprised of as many directors as are designated from time to time by the
Board of Directors or by the stockholders of the Company. The Board is
currently comprised of five members. Each director holds office until his
successor is duly elected and qualified, or until his earlier death,
resignation or removal. Prior to this offering, the Company's stockholders
approved an amendment and restatement of the Company's By-laws, as amended, to
take effect upon the consummation of this offering, that includes a provision
to establish a classified Board of Directors. See "Description of Capital
Stock--Delaware Law and Certain Charter and By-Law Provisions; Anti-Takeover
Effects."
Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors, and serve until their successors have
been duly elected and qualified. There are no family relationships among any
of the executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
In January 1995 the Board of Directors established a Compensation Committee,
later renamed the Compensation and Option Committee, and an Audit Committee.
The Compensation and Option Committee
36
<PAGE>
makes recommendations concerning the salaries and incentive compensation of
management and key employees of the Company and administers the Company's
stock plans. The Audit Committee is responsible for reviewing the results and
scope of audits and other services provided by the Company's independent
accountants and reviewing the Company's internal controls.
DIRECTOR COMPENSATION
Following the consummation of this offering, non-employee directors will
receive a fee of $1,000 for each meeting of the Board of Directors that they
attend in person and will be reimbursed for their reasonable out-of- pocket
expenses incurred in attending such meetings. No director who is an employee
of the Company will receive separate compensation for services rendered as a
director. Non-employee directors are also eligible for participation in the
Company's 1996 Non-Employee Director Stock Option Plan. See "Management--Stock
Plans."
In June 1995 the Company sold 11,251 shares of Common Stock of the Company
to each of Mr. Hoffmann and Mr. Vona, each a director of the Company, for a
price of $.023 per share. In August 1995, the Company sold 5,625 shares of
Common Stock of the Company to Mr. Saunders, a director of the Company, for a
purchase price of $.50 per share.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information with
respect to the compensation paid to or accrued by the Company for services
rendered during the year ended December 31, 1995 by the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers whose annual salary and bonus for the fiscal year ended December 31,
1995 exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG- TERM
ANNUAL COMPENSATION
COMPENSATION(2) AWARDS(3)(4)
--------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY OPTIONS (#)
- ------------------------------ --------------- ------------
<S> <C> <C>
William C. Styslinger, III
President and Chief Executive Officer............ $145,000 27,000
Edward J. McGrath
Vice President, Engineering and Chief Technology
Officer.......................................... 124,978 18,000
Bruce E. Mann
Vice President, Network Storage Engineering...... 121,348 --
Alan R. Lathrop
Vice President, Software Engineering............. 121,000 5,250
Edward J. Delaney, Jr.
Vice President, Sales and Marketing.............. 109,375 15,000
</TABLE>
- --------
(1) Joseph S. Tibbetts, Jr. joined the Company as Vice President, Finance and
Administration, Chief Financial Officer and Treasurer in June 1996. Mr.
Tibbetts' annual base salary will be $200,000. In addition, in June 1996
the Company granted Mr. Tibbetts options to purchase 186,825 shares of
Common Stock at an exercise price of $7.33 per share.
(2) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executive Officers
which are available generally to all salaried employees of the Company and
certain perquisites and other personal benefits, securities or property
received by the Named Executive Officers which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this
table.
37
<PAGE>
(3) Represents stock options granted under the Company's 1995 Stock Option
Plan. The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
1995.
(4) The Company has sold stock subject to restrictions on vesting to the Named
Executive Officers at a purchase price equal to the then fair market value
of such stock. The number and value of all unvested stock holdings by each
of the Named Executive Officers as of the year ended December 31, 1995 are
as set forth below. Since there was no public trading market for the
Common Stock as of December 31, 1995, the values of the unvested shares
have been calculated on the basis of the fair market value of the
Company's Common Stock at the end of 1995 ($4.195 per share), as
determined by the Board of Directors. Mr. Styslinger--720,000 shares,
$3,020,640; Mr. McGrath--720,000 shares, $3,020,640; Mr. Mann--270,000
shares, $1,132,740; Mr. Lathrop--450,000 shares, $1,887,900; and Mr.
Delaney--960,000 shares, $4,027,520.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1995 to the Named
Executive Officers. The Company did not grant any stock appreciation rights
("SARs") during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
PERCENT OF REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------
NAME GRANTED(1) YEAR(2) SHARE(3) DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William C. Styslinger,
III.................... 27,000 8.3% $1.36 10/20/00 $ 10,145 $ 22,418
Edward J. McGrath....... 18,000 5.5 1.36 10/20/00 6,763 14,945
Bruce E. Mann........... -- -- -- -- -- --
Alan R. Lathrop......... 5,250 1.6 1.23 10/20/05 4,072 10,319
Edward J. Delaney, Jr... 15,000 4.6 1.36 10/20/00 5,636 12,454
</TABLE>
- --------
(1) Options granted become exercisable at the rate of 20% after one year and
an additional 5% after each subsequent quarter.
(2) Based on an aggregate of 327,114 shares subject to options granted to
employees of the Company in 1995.
(3) The exercise price per share of the option granted to Mr. Lathrop was
equal to the fair market value of the Common Stock on the date of grant,
as determined by the Board of Directors, and the exercise price per share
of the options granted to Messrs. Styslinger, McGrath and Delaney were
equal to 110% of the fair market value of the Common Stock on the date of
grant, as determined by the Board of Directors.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date, and are not intended to forecast possible future
appreciation, if any, in the price of the Company's Common Stock. The
gains shown are net of the option exercise price, but do not include
deductions for federal or state income taxes or other expenses associated
with the exercise of the options or the sale of the underlying shares. The
actual gains, if any, on the stock option exercises will depend on the
future performance of the Common Stock, the optionholder's continued
employment through the option period and the date on which the options are
exercised.
38
<PAGE>
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive
Officers as of December 31, 1995. No SARs or stock options were exercised
during the fiscal year ended December 31, 1995 by any Named Executive Officer.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William C. Styslinger,
III...................... -- 27,000 -- $76,554
Edward J. McGrath......... -- 18,000 -- 51,036
Bruce E. Mann............. -- -- -- --
Alan R. Lathrop........... -- 5,250 -- 15,550
Edward J. Delaney, Jr..... -- 15,000 -- 42,530
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, as permitted by the rules of the Securities and
Exchange Commission, these values have been calculated on the basis of the
fair market value of the Company's Common Stock at the end of 1995 ($4.195
per share), as determined by the Board of Directors, less the applicable
exercise price.
Certain executive officers of the Company hold certain of their shares of
Common Stock pursuant to Stock Restriction Agreements, which generally provide
for five year annual vesting of such shares of Common Stock and acceleration
of vesting upon the death of the stockholder. Upon the termination of the
stockholder's business relationship with the Company, the Company has a right
to repurchase the shares owned by the stockholder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 1995, the Company had no separate compensation or stock
option committee or other board committee performing equivalent functions, and
these functions were performed by the Company's Board of Directors. No stock
options were granted prior to the formation of the Compensation and Option
Committee of the Board of Directors.
STOCK PLANS
1995 Stock Option Plan. The Company's 1995 Stock Option Plan was adopted by
the Board in September 1995 and approved by the Company's stockholders in
October 1995. An Amended and Restated 1995 Stock Option Plan was adopted by
the Board in September 1996 and approved by the Company's stockholders in
September 1996 (the "1995 Plan"). Under the terms of the 1995 Plan, the
Company is authorized to grant incentive ("ISO") and non- qualified stock
options (collectively, "Stock Options") to employees, directors and officers
of and consultants to the Company. The aggregate number of shares of Common
Stock which may be issued pursuant to the Plan is 1,950,000.
The 1995 Plan is administered by the Compensation and Option Committee of
the Board of Directors, which currently consists of three disinterested
directors, Martin R. Hoffmann, Paul H. Saunders and Carmine Vona. Subject to
the provisions of the 1995 Plan, the Compensation and Option Committee has the
authority to select the optionees and determine the terms of the Stock Options
granted under the 1995 Plan, including: (i) the number of shares subject to
each Stock Option, (ii) when the Stock Option becomes exercisable, (iii) the
exercise price of the Stock Option, which in the case of an ISO cannot be less
than the fair market value of the Common
39
<PAGE>
Stock as of the date of grant, or not less than 110% of the fair market value
in the case of ISO's granted to an employee or officer holding 10% or more of
the voting stock of the Company, (iv) the duration of the Stock Option and (v)
the time, manner and form of payment upon exercise of a Stock Option. A Stock
Option is not transferable by the recipient except by will or by the laws of
descent and distribution or in the case of non-qualified stock options only to
the extent set forth in the agreement relating to such option. Generally, no
ISO may be exercised more than 90 days following termination of employment.
However, in the event that termination is due to death or disability, the
Stock Option is exercisable for a maximum of 180 days after such termination.
As of August 31, 1996, options to purchase a total of 671,289 shares of
Common Stock at exercise prices ranging from $.50 to $9.33 per share (with a
weighted average exercise price of $4.11 per share) were outstanding under the
1995 Plan (of which 37,727 options were then exercisable) and options for
6,617 shares of Common Stock had been exercised.
1996 Non-Employee Director Stock Option Plan. The 1996 Non-Employee Director
Stock Option Plan (the "Director Option Plan") was adopted by the Board of
Directors in June 1996 and approved by the Company's stockholders in June
1996. The Director Option Plan provides for the grant of options to purchase a
maximum of 30,000 shares of Common Stock of the Company to non-employee
directors of the Company.
The Director Option Plan is administered by the Compensation and Option
Committee of the Board of Directors. Under the Director Option Plan, each
director who is not an employee of the Company will receive upon the later of
(i) the date of approval of the Plan by the Stockholders of the Company, (ii)
the date of his or her initial election to the Board, or (iii) the date such
person first becomes a non-employee director (the "Grant Date") an option to
purchase 3,375 shares of Common Stock. Options granted under the Director
Option Plan will vest as to 33 1/3% of the shares underlying the option
immediately upon the date of the grant, and will vest as to an additional 8
1/3% of the shares underlying the option at the end of each of the next 8
quarters, provided that the optionee remains a director at the time of vesting
of the installments. Each non-employee director will also receive, on each
three-year anniversary of such director's Grant Date, an additional option to
purchase 3,375 shares of Common Stock, vesting in accordance with the
aforementioned schedule, provided that such director continues to serve on the
Board of Directors at the time of grant. All options granted under the
Director Option Plan have an exercise price equal to the fair market value of
the Common Stock on the date of grant and a term of ten years from the date of
grant. Options may not be transferred except by will or by the laws of descent
and distribution or pursuant to a domestic relations order and generally are
exercisable to the extent vested only while the optionee is serving as a
director or within 90 days after the optionee ceases to serve as a director of
the Company. However, if an optionee ceases to serve as a director of the
Company due to death or disability, all of the director's options become fully
vested and are exercisable until the scheduled expiration date of the option.
All unvested options granted under the Director Option Plan shall become fully
exercisable in the event of any "Change in Control" of the Company, as defined
in the Plan. An aggregate of 10,125 options have been granted to date under
the Director Option Plan. On June 28, 1996 options for 3,375 shares were
granted pursuant to the Director Option Plan to each of Messrs. Hoffmann,
Saunders and Vona at an exercise price of $7.33 per share.
1996 Employee Stock Purchase Plan. The 1996 Employee Stock Purchase Plan
(the "1996 Purchase Plan") was adopted by the Board of Directors in September
1996 and approved by the Company's stockholders in September 1996. The 1996
Purchase Plan provides for the issuance of a maximum of 300,000 shares of
Common Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The 1996 Purchase Plan is administered by the Compensation and Option
Committee of the Board of Directors. All employees of the Company whose
customary employment is more than 20 hours per week and for more than five
months in any calendar year are eligible to participate in the 1996 Purchase
Plan. Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of the Company's stock and directors who
are not employees of the Company may not participate in the 1996 Purchase
Plan. To participate in the 1996 Purchase Plan, an employee must authorize the
Company to deduct an amount
40
<PAGE>
(not less than one percent nor more than ten percent of a participant's total
cash compensation) from his or her pay during six- month periods commencing on
January 1 and July 1 of each year (each a "Plan Period"), but in no case shall
an employee be entitled to purchase more than 750 shares in any Plan Period.
The exercise price for the option for each Plan Period is 85% of the lesser of
the market price of the Common Stock on the first or last business day of the
Plan Period. If an employee is not a participant on the last day of the Plan
Period, such employee is not entitled to exercise his or her option, and the
amount of his or her accumulated payroll deductions will be refunded. Options
granted under the 1996 Purchase Plan may not be transferred or assigned. An
employee's rights under the 1996 Purchase Plan terminate upon his or her
voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 1996 Purchase Plan.
401(K) PLAN
In January 1994, the Company adopted a Section 401(k) Retirement Savings
Plan (the "401(k) Plan"). The 401(k) Plan is a tax-qualified plan covering
Company employees who are over 21 years of age and elect to participate in the
401(k) Plan. All Company contributions to the 401(k) Plan, if any, shall vest
20% after two years of service, and 20% for each additional year of service.
41
<PAGE>
CERTAIN TRANSACTIONS
Since being established in July 1993, the Company has sold shares of Common
Stock to a number of executive officers, directors and holders of more than 5%
of the Company's outstanding Common Stock. In July 1993, the Company sold
1,200,000 shares of Common Stock to Mr. Styslinger and 1,200,000 shares to Mr.
McGrath, in each case at a purchase price of $.00013 per share. In October
1993, the Company sold 150,000 shares of Common Stock to each of Mr. McGrath
and Mark Sanders at a price per share of $.00013. In April 1994, the Company
sold 1,350,000 shares of Common Stock to Mr. Delaney, 574,950 shares to Mr.
Franeta, 81,450 shares to Mr. Sanders and 75,000 shares to Mr. Styslinger, in
each case at a purchase price of $.00067 per share. Also in April 1994, the
Company sold 750,000 shares of Common Stock to Mr. Lathrop, 600,000 shares to
Mr. Sanders and 300,000 shares to Mr. Styslinger, in each case at a purchase
price of $.00013. In May 1994, the Company sold 150,000 shares of Common Stock
to Mr. Styslinger at a purchase price of $.00067. In November and December
1994, the Company sold 150,000 shares of Common Stock to Mr. Mann and 150,000
shares to Mr. Marti, respectively in each case at a purchase price of $.023
per share. In June 1995, the Company sold 11,250 shares of Common Stock to Mr.
Hoffmann, 150,000 shares to Mr. Mann and 11,250 shares to Mr. Vona, in each
case at a purchase price of $.023 per share. In August 1995, the Company sold
5,625 shares of Common Stock to Mr. Saunders at a purchase price of $.50 per
share.
In June 1994, the Company sold shares of Series A Convertible Preferred
Stock, at a common equivalent purchase price of $.167 per share, to investors
that included the following directors and officers or their family members:
Mr. Delaney's wife's IRA--150,000 shares; Mr. Hoffmann--150,000 shares; Mr.
Saunders--300,000 shares; and Mr. Styslinger's IRA--150,000 shares. Also in
June 1994, the Company sold shares of Series A Convertible Preferred Stock, at
a common equivalent purchase price of $.233 per share, to the following
directors or officers or their family members: Mr. Franeta--25,050 shares; Mr.
Saunders--642,900 shares; and Mr. Vona's sons--300,000 shares. All of the
above share numbers represent the number of shares of Common Stock into which
the shares of Series A Convertible Preferred Stock are convertible.
In October and November 1995, the Company sold shares of Series B
Convertible Preferred Stock, at a purchase price of $6.293 per share, to
investors that included the following directors and holders of more than 5% of
the Company's outstanding Common Stock: Summit Investors II and affiliated
entities--512,699 shares; Mr. Hoffmann--3,204 shares; and members of Mr.
Vona's family--6,409 shares. The purchasers of Series B Convertible Preferred
Stock have certain rights to register the shares of Common Stock issuable upon
conversion of such Series B Convertible Preferred Stock. Based on the
conversion price in effect as a result of this offering and as adjusted to
give effect to the 3-for-2 split of the Company's Common Stock, shares of
Series B Convertible Preferred Stock will convert into shares of Common Stock
upon the consummation of the offering at a rate of 1.0493 shares of Common
Stock for every 1 share of Series B Convertible Preferred Stock outstanding.
In January 1996, the Company repurchased shares of Common Stock and Series A
Preferred Stock from stockholders at a purchase price of $4.195 and $419.50
per share, respectively, including the following executive officers, directors
and holders of more than 5% of the Company's outstanding Common Stock (all of
the following share numbers representing the number of shares of Common Stock
repurchased or the number of shares of Common Stock into which the shares of
Series A Preferred Stock repurchased are convertible): Mr. Delaney--150,000
shares; Mr. Lathrop--112,500 shares; Mr. Sanders--60,000 shares; and Mr.
Saunders--192,900 shares. Also in January 1996, Messrs. Styslinger and McGrath
sold an aggregate of 98,946 and 135,000 shares of Common Stock, respectively,
to the holders of Series B Convertible Preferred Stock at a purchase price of
$4.195 per share pursuant to the exercise of a call to a Put and Call
Agreement entered into in October 1995. The purchasers included the following
directors or holders of 5% of the Company's outstanding Common Stock (all of
the following share numbers representing the aggregate number of shares
purchased from Messrs. Styslinger and McGrath by such purchaser): Summit
Investors II and related entities--184,391 shares; Mr. Hoffmann--1,155 shares;
and members of Mr. Vona's family--2,305 shares.
42
<PAGE>
In October 1995, the Company made loans to employees, including to the
following executive officers, directors and holders of more than 5% of the
Company's outstanding Common Stock in the following amounts: Mr. Lathrop--
$125,000; Mr. McGrath--$200,000; Mr. Sanders--$50,000, Mr. Delaney--$160,000
and Mr. Styslinger--$90,000. All of the loans had an annual interest rate of
5.9% and were secured by a pledge of shares of Common Stock. All of such loans
were repaid in January 1996.
In connection with Mr. Tibbetts joining the Company in June 1996, the
Company agreed that in the event the Company terminates his employment without
cause or Mr. Tibbetts terminates his employment with the Company involuntarily
(including in each case, a termination by the Company's successor after the
acquisition of the Company, or its business or assets) (i) at any time prior
to June 30, 1997, the Company or its successor, as applicable, will pay Mr.
Tibbetts severance equal to 12 months salary continuation at his then current
base salary and (ii) thereafter, the Company or its successor, as applicable,
will pay Mr. Tibbetts severance equal to six months salary continuation at his
then current base salary, and in each case, vesting under his stock option
agreements will be accelerated by 12 months or six months, under (i) and (ii)
above, respectively. In addition, the Company agreed that, upon the request of
Mr. Tibbetts, it would loan him up to $50,000 at any time prior to June 30,
1997 and an additional $50,000 at any time prior to June 30, 1998. Any such
loan will have a five year term and will bear interest equal to the then
current Applicable Federal Rate determined under Section 1274(d) of the
Internal Revenue Code. No such loan has been requested or made at this time.
Prior to joining the Company, Mr. Tibbetts was a partner at Price Waterhouse
LLP, the Company's independent accountants since the inception of the Company
and was the audit partner for the audits of the Company's 1993 and 1994
consolidated financial statements.
The Company has adopted a policy that all transactions between the Company
and its officers, directors, principal stockholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 31, 1996 and as adjusted
to reflect the sale of the shares offered hereby by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer of the
Company, (iii) all directors and executive officers of the Company as a group,
and (iv) each Selling Shareholder. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law. Except as
otherwise provided below, the address of each person listed below is c/o
SeaChange International, Inc., 124 Acton Street, Maynard MA 01754.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) SHARES OFFERING(1)
----------------------- BEING -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------------ ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
William C. Styslinger,
III(2)................. 1,781,454 16.1% -- 1,781,454 14.0%
Edward J. Delaney,
Jr.(3)................. 1,353,000 12.3 -- 1,353,000 10.6
Edward J. McGrath(4).... 1,218,600 11.0 -- 1,218,600 9.6
Mark Sanders(5)......... 772,141 7.0 -- 772,141 6.1
Paul H. Saunders(6)..... 757,031 6.9 -- 757,031 5.9
Summit Partners(7) ..... 722,364 6.5 239,851 482,513 3.8
Alan R. Lathrop(8)...... 638,550 5.8 -- 638,550 5.0
Thomas Franeta(9)....... 600,001 5.4 -- 600,001 4.7
Carmine Vona(10)........ 319,881 2.9 -- 319,881 2.5
Bruce E. Mann........... 300,000 2.7 -- 300,000 2.4
Advent Internation-
al(11)................. 180,595 2.1 45,149 135,446 1.1
Martin R. Hoffmann(12).. 167,174 1.5 -- 167,174 1.3
Beat Marti(13).......... 151,050 1.4 -- 151,050 1.2
Joseph S. Tibbetts,
Jr.(14)................ 30,000 * -- 30,000 *
All executive officers
and directors as a
group
(11 persons)(15)(16)... 7,316,741 66.0 -- 7,316,741 57.2
</TABLE>
- --------
*Less than 1% of the outstanding Common Stock
(1) Applicable percentage of ownership as of August 31, 1996 is based upon
shares of Common Stock and shares of Common Stock issuable upon
conversion of all outstanding shares of the Company's Preferred Stock.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days after August 31, 1996
are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage of any other person.
(2) Includes 150,000 shares of Common Stock owned by First Trust, Trustee
f/b/o William C. Styslinger, III, IRA which are issuable upon the
conversion of shares of Series A Preferred Stock, 64,286 shares of Common
Stock owned by Thomas and Emily Franeta as Trustees of The Styslinger
Family Trust, 2,142 shares of Common Stock held by Thomas Franeta as
Custodian for Kimberly J. Styslinger, and 5,400 shares of Common Stock
issuable upon the exercise of stock options, which options are
exercisable within 60 days of August 31, 1996. Mr. Styslinger disclaims
beneficial ownership of the shares held by The Styslinger Family Trust
and by Thomas Franeta as Custodian for Kimberly J. Styslinger.
(3) Includes 150,000 shares of Common Stock owned by First Trust, Trustee
f/b/o Kathryn H. Delaney, IRA which are issuable upon the conversion of
shares of Series A Preferred Stock, 360,000 shares of Common Stock held
by The Delaney Family Limited Partnership of which Mr. Delaney is both a
general and a limited partner, and 3,000 shares of Common Stock issuable
upon the exercise of stock options, which options are exercisable within
60 days of August 31, 1996. Mr. Delaney disclaims beneficial ownership of
the shares held by his wife's IRA.
(4) Includes 300,000 shares of Common Stock held by The McGrath Family
Limited Partnership of which Mr. McGrath is both a general and a limited
partner, and 3,600 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 31,
1996.
(5) Includes 690 shares of Common Stock issuable upon the exercise of stock
options, which options are exercisable within 60 days of August 31, 1996.
44
<PAGE>
(6) Includes 617,144 shares of Common Stock issuable upon the conversion of
shares of Series A Preferred Stock, 64,286 shares of Common Stock owned
by Richard R. Saunders, Jr. as Trustee for The Paul H. Saunders
Irrevocable Trust Agreement No. 1 For The Benefit Of J. Brock Saunders,
64,286 shares of Common Stock owned by Richard R. Saunders, Jr. as
Trustee for The Paul H. Saunders Irrevocable Trust Agreement No. 1 For
The Benefit Of Paul H. Saunders, 2,142 shares of Common Stock owned by
Craig E. Chason as Trustee for The Paul H. Saunders Irrevocable Trust
Agreement No. 2 For The Benefit Of J. Brock Saunders, 2,142 shares of
Common Stock owned by Craig E. Chason as Trustee of The Paul H. Saunders
Irrevocable Trust Agreement No. 2 For The Benefit Of Paul H. Saunders,
and 1,406 shares of Common Stock issuable upon the exercise of stock
options, which options are exercisable within 60 days of August 31, 1996.
Mr. Saunders disclaims beneficial ownership of the shares held by the
various trusts noted above.
(7) Includes 350,242 shares owned by Summit Ventures III, L.P., 350,242
shares owned by Summit Ventures IV, L.P. and 21,880 shares owned by
Summit Investors II, L.P., in each case prior to the sale of shares in
this offering, of which 260,839, 260,839 and 16,295 shares, respectively,
are issuable upon the conversion of shares of Series B Preferred Stock.
The respective general partners of these entities exercise sole voting
and investment power with respect to the shares owned by such entities.
The address of Summit Partners is 600 Atlantic Avenue, Boston, MA 02210.
(8) Includes 1,050 shares of Common Stock issuable upon the exercise of stock
options, which options are exercisable within 60 days of August 31, 1996.
(9) Includes 25,050 shares of Common Stock issuable upon the conversion of
shares of Series A Preferred Stock. Does not include shares held by Mr.
Franeta as the trustee of various trusts for the benefit of members of
the Styslinger family. See Note 2 above.
(10) Includes (i) 1,406 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 31,
1996, (ii) 922 shares of Common Stock held by each of his sons Joseph C.
Vona and Salvatore Vona, (iii) 150,000 shares of Common Stock issuable
upon the conversion of shares of Series A Preferred Stock held by each of
his two sons, and (iv) 2,690 shares of Common Stock issuable upon the
conversion of shares of Series B Preferred Stock held by each of his two
sons. Mr. Vona disclaims beneficial ownership of those shares held by his
sons.
(11) Includes 36,120 shares owned by Adtel Limited Partnership, 903 shares
owned by Advent International Investors II Limited Partnership, 36,120
shares owned by Advent Partners Limited Partnership, 36,120 shares owned
by Adwest Limited Partnership and 71,332 shares owned by Golden Gate
Development & Investment Limited Partnership, in each case prior to the
sale of shares in this offering, of which 26,899, 673, 26,899, 26,899 and
53,125, respectively, are issuable upon the conversion of shares of
Series B Preferred Stock. The respective general partners of these
entities exercise sole voting and investment power with respect to the
shares owned by such entities. The address of Advent International is 101
Federal Street, Boston, MA 02108.
(12) Includes 150,000 shares of Common Stock issuable upon the conversion of
shares of Series A Preferred Stock, 3,362 shares of Common Stock issuable
upon the conversion of shares of Series B Preferred Stock and 1,406
shares of Common Stock issuable upon the exercise of stock options, which
options are exercisable within 60 days of August 31, 1996.
(13) Includes 1,050 shares of Common Stock issuable upon the exercise of stock
options, which options are exercisable within 60 days of August 31, 1996.
(14) Includes 30,000 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 31,
1996.
(15) Includes 48,318 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 31,
1996.
(16) The above table assumes no exercise of the over-allotment option. If the
Underwriters exercise their over-allotment option in full, the number of
shares sold, the number of shares beneficially owned and the percentage
of ownership after the offering for each of the persons listed in the
above table would be: (a) William C. Styslinger, III--32,821, 1,748,633,
13.7%; (b) Edward J. Delaney, Jr.--36,000, 1,317,000, 10.3%; (c) Edward
J. McGrath--61,650, 1,156,950, 9.1%; (d) Mark Sanders--23,130, 749,011,
5.9%; (e) Paul H. Saunders--0, 757,031, 5.9%; (f) Summit Partners--0,
482,513, 3.8%; (g) Alan R. Lathrop--6,000, 632,550, 5.0%; (h) Thomas
Franeta--0, 600,001, 4.7%; (i) Carmine Vona--0, 319,881, 2.5%; (j) Bruce
E. Mann--0, 300,000, 2.4%; (k) Advent International--0, 135,446, 1.1%;
(l) Martin R. Hoffmann--0, 167,174, 1.3%; (m) Beat Marti--0, 151,050,
1.2%; (n) Joseph S. Tibbetts, Jr.--0, 30,000, *; and (o) all executive
officers and directors as a group (11 persons)--136,471, 7,180,270,
56.1%. In addition, if the over-allotment option is exercised in full,
seven other Selling Stockholders, who are all employees of the Company,
who beneficially own in the aggregate 1,122,060 shares or 10.2% prior to
the offering will sell an aggregate of 45,399 shares of Common Stock.
Such Selling Stockholders would beneficially own in the aggregate
1,076,661 or 8.4% after the offering.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock of
the Company will consist of 50,000,000 shares of Common Stock, $.01 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share.
Prior to this offering, there were outstanding an aggregate of 10,522 shares
of Series A Preferred Stock and 650,487 shares of Series B Preferred Stock
which will automatically convert into an aggregate of 1,578,300 and 682,556
shares of Common Stock, respectively, upon the closing of this offering.
The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Amended and Restated
Certificate of Incorporation (the "Charter") and Amended and Restated By-laws
(the "By-laws"), filed as exhibits to the Registration Statement of which this
Prospectus is a part. Such Charter and By-laws will be effective upon the
closing of this offering.
COMMON STOCK
As of August 31, 1996, there were 11,037,012 shares of Common Stock
outstanding held by approximately 60 stockholders of record. Based upon the
number of shares outstanding as of that date and giving effect to the issuance
of the 1,715,000 shares of Common Stock offered by the Company hereby, there
will be 12,752,012 shares of Common Stock outstanding upon the closing of this
offering. In addition, as of August 31, 1996, there were outstanding stock
options for the purchase of a total of 681,414 shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to vote in such
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities of the Company, subject to the prior rights of any
outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights, nor are they entitled to the
benefit of any sinking fund. The outstanding shares of Common Stock are, and
the shares offered by the Company in this offering will be, when issued and
paid for, validly issued, fully paid and nonassessable. The rights, powers,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future. Upon
the closing of this offering, there will be no shares of Preferred Stock
outstanding.
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of to 5,000,000 shares of Preferred Stock, in one or
more series. Each such series of Preferred Stock shall have such number of
shares, designations, preferences, voting powers, qualifications and special
or relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to the rights of holders of any Preferred Stock issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of Common
Stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of Preferred Stock.
46
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section
203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained such status
with the approval of the Board of Directors or the business combination is
approved in a prescribed manner, or certain other conditions are satisfied. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more
for the corporation's voting stock.
The By-laws provide for the election of directors. See "Management--
Executive Officers." The By-laws provide that (i) the number of directors
shall be determined from time to time by resolution adopted by a majority of
the Board of Directors, (ii) vacancies on the Board of Directors may be filled
by the Board unless and until filled by the stockholders, and (iii) directors
may be removed only for cause by the vote of the holders of at least 75% of
the shares then entitled to vote at an election of directors.
The By-laws provide for a classified Board of Directors consisting of three
classes of directors having staggered terms of three years each, with each of
the classes being as nearly equal as possible. A single class of directors is
elected each year at the Company's annual meeting of stockholders. Subject to
transition provisions, each director elected at each such meeting will serve
for a term ending on the date of the third annual meeting of stockholders
after his election and until his successor has been elected and duly
qualified. Mr. Styslinger is serving for a term expiring on the date of the
Company's 1997 Annual Meeting of Stockholders, Messrs. Hoffmann and McGrath
are serving for terms expiring on the date of the Company's 1998 Annual
Meeting of Stockholders and Messrs. Saunders and Vona are serving for terms
expiring on the date of the Company's 1999 Annual Meeting of Stockholders.
The Company's By-laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before
a meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a notice
must be delivered not less than 120 days nor more than 150 days prior to the
first anniversary of the date of the proxy statement delivered to stockholders
in connection with the preceding year's annual meeting, provided, however,
that if either (i) the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary, or (ii) if no proxy statement was
delivered to stockholders in connection with the preceding year's annual
meeting, such notice must be delivered not earlier than 90 days prior to such
annual meeting and not later than the later of (i) 60 days prior to the annual
meeting or (ii) 10 days following the date on which public announcement of the
date of such annual meeting is first made by the Company. With respect to
special meetings called by the Company for the purpose of electing directors,
the stockholder's notice must generally be delivered not more than 90 days
prior to such meeting and not later than the later of 60 days prior to such
meeting or 10 days following the day on which public announcement of such
meeting is first made by the Company. The notice must contain, among other
things, certain information about the stockholder delivering the notice and,
as applicable, background information about each nominee or a description of
the proposed business to be brought before the meeting.
The Charter empowers the Board of Directors, when considering a tender offer
or merger or acquisition proposal, to take into account any factors that the
Board of Directors determines to be relevant, including, without limitation,
(i) the interests of the Company's stockholders, including the possibility
that these interests might be best served by the continued independence of the
Company, (ii) whether the proposed transaction might violate federal or state
laws, (iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Company, but also to the market price for the capital
stock of the Company over a period of years, the estimated price that might be
achieved in a negotiated sale of the Company as a whole or in part or through
orderly liquidation, the premiums over market price for the securities of
other corporations in similar transactions, current political, economic and
other factors
47
<PAGE>
bearing on securities prices and the Company's financial condition and future
prospects, and (iv) the social, legal and economic effects upon employees,
suppliers, customers, creditors and others having similar relationships with
the Company, upon the communities in which the Company conducts its business
and upon the economy of the state, region and nation.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
The Charter and By-laws also provide that any action required or permitted
to be taken by the stockholders of the Company may be taken only at a duly
called annual or special meeting of the stockholders, and may not be taken by
written consent. The Charter and By-laws provide that special meetings of
stockholders may be called only by the Chairman of the Board of Directors, a
majority of the Board of Directors or the President of the Company. These
provisions could have the effect of delaying until the next annual
stockholders meeting stockholder actions which are favored by the holders of a
majority of the then outstanding voting securities of the Company. These
provisions may also discourage another person or entity from making a tender
offer for the Company's Common Stock, because such person or entity, even if
it acquired a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors
or approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
The Charter requires the affirmative vote of the holders of at least 75% of
the outstanding voting stock of the Company to amend or repeal any of the
foregoing Charter provisions, and to reduce the number of authorized shares of
Common Stock and Preferred Stock. A 75% vote of stockholders is required for
the stockholders to adopt, amend or repeal any By-law provisions. The By-laws
may also be amended or repealed by a majority vote of the Board of Directors
subject to any limitations set forth in the By-laws.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter contains certain provisions permitted under the DGCL relating to
the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty,
except in certain circumstances involving certain wrongful acts, such as (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derives an
improper personal benefit. These provisions do not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief, such as
an injunction or recession, in the event of a breach of a director's fiduciary
duty. These provisions will not alter a director's liability under federal
securities laws. The Company's Charter also contains provisions indemnifying
the directors and officers of the Company to the fullest extent permitted by
the DGCL. The Company believes that these provisions will assist the Company
in attracting and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,752,012 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 2,000,000 shares (2,300,000 shares if the over-allotment
option is exercised in full) to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule
144") under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 10,752,012 shares of Common Stock outstanding upon completion
of this offering are deemed "Restricted Shares" under Rule 144 or Rule 701
under the Securities Act. Subject to the lock-up agreements described below
(the "Lock-up Agreements"), approximately 6,386,000 Restricted Shares will be
eligible for sale in the public market pursuant to Rule 144 or Rule 701
beginning 90 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Common Stock
(approximately 127,520 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of
such sale is filed, provided certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, Affiliates must comply with the restrictions and requirements of
Rule 144, other than the two-year holding period requirement, in order to sell
shares of Common Stock which are not restricted securities. Under Rule 144(k),
a person who is not an Affiliate and has not been an Affiliate for at least
three months prior to the sale and who has beneficially owned Restricted
Shares for at least three years may resell such shares without compliance with
the foregoing requirements. In meeting the two and three year holding periods
described above, a holder of Restricted Shares can include the holding periods
of a prior owner who was not an Affiliate. The two and three year holding
periods described above do not begin to run until the full purchase price or
other consideration is paid by the person acquiring the Restricted Shares from
the issuer or an Affiliate. Rule 701 provides that currently outstanding
shares of Common Stock acquired under the Company's employee compensation
plans may be resold by persons, other than Affiliates, beginning 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144 without compliance with its two-
year minimum holding period, subject to certain limitations.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 to become eligible for resale in the public market. This
proposal if adopted would increase the number of shares of Common Stock
eligible for resale in the public market following this offering. No assurance
can be given concerning whether or when the proposal will be adopted by the
Securities and Exchange Commission.
OPTIONS
Rule 701 also provides that the shares of Common Stock acquired on the
exercise of currently outstanding options issued under the Company's stock
plans may be resold by persons, other than Affiliates, beginning 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144 without compliance with its two-
year minimum holding period, subject to certain limitations. Subject to the
Lock-up Agreements, approximately 681,400 additional shares, of which options
to purchase 41,102 shares were exercisable as of August 31, 1996, will be
available under such provisions.
49
<PAGE>
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock otherwise issuable pursuant to the
Company's various stock plans that do not qualify for an exemption under Rule
701 from the registration requirements of the Securities Act. Such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the public
markets to the extent applicable.
LOCK-UP AGREEMENTS
Subject to certain limited exceptions, the Company, the executive officers
and directors, the Selling Stockholders and certain other stockholders and the
Selling Stockholders have agreed not to sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any security convertible into or
exchangeable or exercisable for Common Stock) without the prior written consent
of Morgan Stanley & Co. Incorporated for a period of 180 days from the date of
this Prospectus. In addition, for a period of 180 days from the date of this
Prospectus, except as required by law, the Company has agreed that its Board of
Directors will not consent to any offer for sale, sale or other disposition, or
any transaction which is designed or could be expected, to result in, the
disposition by any person, directly or indirectly, of any shares of Common
Stock without the prior written consent of Morgan Stanley & Co. Incorporated.
See "Underwriters."
REGISTRATION RIGHTS
After the completion of this offering, certain stockholders of the Company
(the "Rightsholders") will be entitled to require the Company to register under
the Securities Act up to a total of 1,092,753 shares of outstanding Common
Stock (the "Registrable Shares") under the terms of a certain agreement among
the Company and the Rightsholders (the "Registration Agreement"). The
Registration Agreement provides that in the event the Company proposes to
register any of its securities under the Securities Act at any time or times,
the Rightsholders, subject to certain exceptions, shall be entitled to include
Registrable Shares in such registration. However, the managing underwriter of
any such offering may exclude for marketing reasons some or all of such
Registrable Shares from such registration. The Rightsholders have, subject to
certain conditions and limitations, additional rights to require the Company to
prepare and file a registration statement with respect to their Registrable
Shares and the Company is required to use its best efforts to effect such
registration if the aggregate offering price of such proposed offering is at
least $10,000,000. Furthermore, such holders may require the Company to file
additional registration statements on Form S-3 subject to certain conditions
and limitations. The Company is generally required to bear the expenses of all
such registrations, except underwriting discounts and commissions.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made as to the effect, if any, that
market sales of shares of Common Stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for the
Common Stock. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely effect prevailing market prices
for the Common Stock and could impair the Company's future ability to obtain
capital through an offering of equity securities.
50
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus, the Underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Alex. Brown & Sons Incorporated and
Montgomery Securities are acting as Representatives (the "Underwriters"), have
severally agreed to purchase, and the Company and the Selling Stockholders
have agreed to sell to them, the respective number of shares of Common Stock
set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Alex. Brown & Sons Incorporated...................................
Montgomery Securities.............................................
---
Total...........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to
take and pay for all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price which represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, this offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable for 30 days from the date of the Prospectus, to purchase
up to an additional 300,000 shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option to purchase solely for
the purpose of covering over-allotments, if any, made in connection with this
offering. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered by the Underwriters hereby.
Subject to certain limited exceptions, the Company and the executive
officers and directors of the Company, the Selling Stockholders and certain
other stockholders have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not (a) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are then owned by
such person or are thereafter acquired), or (b) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transactions described in clause (a) or (b) of this paragraph is to be settled
by delivery of such Common Stock or such other securities, in cash or for a
period of 180 days after the date of this Prospectus.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
51
<PAGE>
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives of the
Underwriters. Among the factors to be considered in determining the initial
public offering price are the future prospects of the Company and its industry
in general, net revenue, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
certain other ratios, and market prices of securities and certain financial
operating information of companies engaged in activities similar to those of
the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
June 30, 1996 and for the period July 9, 1993 (inception) through December 31,
1993, for the years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1996 included in this Prospectus and the financial statement
schedule included in the Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement may be inspected without charge at
the principal office of the Commission in Washington, D.C. and copies of all
or any part of which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.
52
<PAGE>
SEACHANGE INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet as of December 31, 1994 and 1995, June 30, 1996
and pro forma June 30, 1996 (unaudited)................................... F-3
Consolidated Statement of Income for the period from July 9, 1993
(inception) through December 31, 1993, for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited) and
1996...................................................................... F-4
Consolidated Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity for the period from July 9, 1993 (inception) through
June 30, 1996 and pro forma June 30, 1996 (unaudited)..................... F-5
Consolidated Statement of Cash Flows for the period from July 9, 1993
(inception) through December 31, 1993, for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited) and
1996...................................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SeaChange International, Inc.
The 3-for-2 stock split described in Note 8 of the consolidated financial
statements has not been consummated at October 4, 1996. When it has been
consummated, we will be in the position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of redeemable convertible
preferred stock and stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of SeaChange
International, Inc. and its subsidiaries at June 30, 1996 and December 31,
1995 and 1994, and the results of their operations and their cash flows for
the six months ended June 30, 1996, the years ended December 31, 1995 and
1994 and the period from July 9, 1993 (inception) through December 31,
1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
Price Waterhouse LLP
Boston, Massachusetts
September 12, 1996
F-2
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $ 870,700 $ 6,184,100 $ 4,213,100 $ 4,213,100
Accounts receivable, net of
allowance for doubtful
accounts of $40,000 at
December 31, 1995 and
$60,000 at June 30, 1996.. 1,375,200 3,335,200 8,067,700 8,067,700
Inventories................ 790,700 2,438,500 6,874,900 6,874,900
Prepaid expenses........... 28,300 27,700 352,100 352,100
Deferred income taxes...... 66,000 151,000 337,000 337,000
---------- ----------- ----------- -----------
Total current assets...... 3,130,900 12,136,500 19,844,800 19,844,800
Property and equipment,
net........................ 352,900 1,433,100 3,355,500 3,355,500
Other assets................ 9,900 25,400 657,000 657,000
---------- ----------- ----------- -----------
$3,493,700 $13,595,000 $23,857,300 $23,857,300
========== =========== =========== ===========
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to
stockholders.............. $ 8,000 $ -- $ -- $ --
Accounts payable........... 1,070,400 3,139,700 7,405,300 7,405,300
Accrued expenses........... 242,500 1,935,500 2,027,000 2,027,000
Customer deposits.......... 1,382,700 2,082,200 7,209,100 7,209,100
Deferred revenue........... 152,100 766,600 1,834,700 1,834,700
Income taxes payable....... 121,000 720,000 -- --
---------- ----------- ----------- -----------
Total current
liabilities.............. 2,976,700 8,644,000 18,476,100 18,476,100
---------- ----------- ----------- -----------
Commitments (Note 10)
Series B redeemable
convertible preferred
stock, $.01 par value;
1,000,000 shares of
preferred stock authorized;
650,487 shares designated,
issued and outstanding at
December 31, 1995 and June
30, 1996, at issuance
price, net of issuance
costs; none outstanding on
a pro forma basis at
June 30, 1996 (unaudited).. -- 4,008,100 4,008,100 --
---------- ----------- ----------- -----------
Stockholders' Equity:
Series A convertible
preferred stock, $.01 par
value; 1,000,000 shares of
preferred stock
authorized; 30,000 shares
designated, 11,808 shares
issued at December 31,
1994 and 1995 and June 30,
1996, at issuance price;
none outstanding on a pro
forma basis at June 30,
1996 (unaudited).......... 100 100 100 --
Common stock, $.01 par
value; 15,000,000 shares
authorized; 9,309,615
shares, 9,625,740 shares,
9,631,418 shares and
11,892,274 shares issued
at December 31, 1994 and
1995, June 30, 1996 and
June 30, 1996 on a pro
forma basis (unaudited),
respectively.............. 93,100 96,300 96,400 119,000
Additional paid-in
capital................... 366,700 373,600 414,200 4,399,800
Retained earnings.......... 60,700 1,271,500 3,393,600 3,393,600
Treasury stock, 424,950
shares of common at
December 31, 1994 and
1995; 856,200 shares of
common and 1,286 shares of
Series A convertible
preferred at June 30, 1996
and on a pro forma basis
at June 30, 1996
(unaudited), respectively,
at cost................... (3,600) (3,600) (2,531,200) (2,531,200)
Notes receivable from
stockholders.............. -- (795,000) -- --
---------- ----------- ----------- -----------
Total stockholders'
equity................... 517,000 942,900 1,373,100 5,381,200
---------- ----------- ----------- -----------
$3,493,700 $13,595,000 $23,857,300 $23,857,300
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JULY 9, 1993
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- -----------------------
1993 1994 1995 1995 1996
------------ ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Systems................ $ -- $5,037,000 $21,999,300 $11,014,700 $22,906,200
Services............... -- 116,100 1,203,300 562,700 1,448,000
Software development
contract.............. 213,100 536,900 -- -- --
---------- ---------- ----------- ----------- -----------
213,100 5,690,000 23,202,600 11,577,400 24,354,200
---------- ---------- ----------- ----------- -----------
COSTS OF REVENUES:
Systems................ -- 3,405,600 14,916,900 7,052,000 14,429,700
Services............... -- 176,500 1,641,000 549,000 1,816,400
Software development
contract.............. 111,700 303,700 -- -- --
---------- ---------- ----------- ----------- -----------
111,700 3,885,800 16,557,900 7,601,000 16,246,100
---------- ---------- ----------- ----------- -----------
Gross profit............ 101,400 1,804,200 6,644,700 3,976,400 8,108,100
---------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and
development........... 43,000 884,700 2,367,300 1,047,100 1,986,600
Selling and marketing.. 16,200 443,700 1,608,600 780,600 1,909,900
General and
administrative........ 59,000 273,000 858,400 401,500 862,000
---------- ---------- ----------- ----------- -----------
118,200 1,601,400 4,834,300 2,229,200 4,758,500
---------- ---------- ----------- ----------- -----------
Income (loss) from
operations............ (16,800) 202,800 1,810,400 1,747,200 3,349,600
Interest income
(expense), net......... (1,100) 7,000 113,400 47,000 100,900
---------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes.......... (17,900) 209,800 1,923,800 1,794,200 3,450,500
Provision for income
taxes.................. -- 55,000 713,000 665,100 1,328,400
---------- ---------- ----------- ----------- -----------
Net income (loss)...... $ (17,900) $ 154,800 $ 1,210,800 $ 1,129,100 $ 2,122,100
========== ========== =========== =========== ===========
Net income (loss) per
share.................. $ (.01) $ .02 $ .11 $ .10 $ .18
========== ========== =========== =========== ===========
Weighted average common
shares and equivalent
common shares
outstanding............ 2,632,400 9,331,940 11,507,420 11,833,660 11,514,850
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 9, 1993 (INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
SERIES B
REDEEMABLE CONVERTIBLE
PREFERRED STOCK
------------------------
NUMBER OF
SHARES AMOUNT
------------------------
<S> <C> <C>
Issuance of
common stock..... -- $ --
Net loss......... -- --
--------- ------------
Balance at
December 31,
1993............ -- --
Issuance of
common stock..... -- --
Conversion of
notes payable to
Series A
preferred stock.. -- --
Issuance of
Series A
preferred stock.. -- --
Purchase of
treasury stock... -- --
Net income....... -- --
--------- ------------
Balance at
December 31,
1994............ -- --
Issuance of
common stock..... -- --
Issuance of
Series B
preferred stock,
net of issuance
costs of
$85,500.......... 650,487 4,008,100
Loans to
stockholders..... -- --
Net income....... -- --
--------- ------------
Balance at
December 31,
1995............ 650,487 4,008,100
Issuance of
common stock
pursuant to
exercise of stock
options.......... -- --
Compensation
expense
associated with
stock options.... -- --
Purchase of
treasury stock... -- --
Net income....... -- --
--------- ------------
Balance at June
30, 1996........ 650,487 4,008,100
Pro forma effect
of conversion of
preferred stock
into common stock
(unaudited)...... (650,487) (4,008,100)
--------- ------------
Pro forma
balance at June
30, 1996
(unaudited)..... -- $ --
========= ============
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------------------------------------------------------
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED NOTES TOTAL
----------------- ------------------- ADDITIONAL EARNINGS RECEIVABLE STOCKHOLDERS'
NUMBER OF NUMBER OF PAR PAID-IN (ACCUMULATED TREASURY FROM EQUITY
SHARES AMOUNT SHARES VALUE CAPITAL DEFICIT) STOCK STOCKHOLDERS (DEFICIT)
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock..... -- $ -- 3,150,000 $ 31,500 $ -- $ (31,100) $ -- $ -- $ 400
Net loss......... -- -- -- -- -- (17,900) -- -- (17,900)
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
Balance at
December 31,
1993............ -- -- 3,150,000 31,500 -- (49,000) -- -- (17,500)
Issuance of
common stock..... -- -- 6,159,615 61,600 -- (45,100) -- -- 16,500
Conversion of
notes payable to
Series A
preferred stock.. 5,000 -- -- -- 128,500 -- -- -- 128,500
Issuance of
Series A
preferred stock.. 6,808 100 -- -- 238,200 -- -- -- 238,300
Purchase of
treasury stock... -- -- -- -- -- -- (3,600) -- (3,600)
Net income....... -- -- -- -- -- 154,800 -- -- 154,800
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
Balance at
December 31,
1994............ 11,808 100 9,309,615 93,100 366,700 60,700 (3,600) -- 517,000
Issuance of
common stock..... -- -- 316,125 3,200 6,900 -- -- -- 10,100
Issuance of
Series B
preferred stock,
net of issuance
costs of
$85,500.......... -- -- -- -- -- -- -- -- --
Loans to
stockholders..... -- -- -- -- -- -- -- (795,000) (795,000)
Net income....... -- -- -- -- -- 1,210,800 -- -- 1,210,800
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
Balance at
December 31,
1995............ 11,808 100 9,625,740 96,300 373,600 1,271,500 (3,600) (795,000) 942,900
Issuance of
common stock
pursuant to
exercise of stock
options.......... -- -- 5,678 100 4,400 -- -- -- 4,500
Compensation
expense
associated with
stock options.... -- -- -- -- 36,200 -- -- -- 36,200
Purchase of
treasury stock... -- -- -- -- -- -- (2,527,600) 795,000 (1,732,600)
Net income....... -- -- -- -- -- 2,122,100 -- -- 2,122,100
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
Balance at June
30, 1996........ 11,808 100 9,631,418 96,400 414,200 3,393,600 (2,531,200) -- 1,373,100
Pro forma effect
of conversion of
preferred stock
into common stock
(unaudited)...... (11,808) (100) 2,260,856 22,600 3,985,600 -- -- -- 4,008,100
--------- ------- ---------- -------- ---------- ------------ ------------ ------------ -------------
Pro forma
balance at June
30, 1996
(unaudited)..... -- $ -- 11,892,274 $119,000 $4,399,800 $3,393,600 $(2,531,200) $ -- $ 5,381,200
========= ======= ========== ======== ========== ============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED SIX MONTHS ENDED
JULY 9, 1993 DECEMBER 31, JUNE 30,
(INCEPTION) THROUGH ------------------------ ------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)..... $ (17,900) $ 154,800 $ 1,210,800 $ 1,129,100 $ 2,122,100
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 800 38,900 230,200 80,400 528,000
Compensation expense
associated with stock
options.............. -- -- -- -- 36,200
Deferred income
taxes................ -- (66,000) (85,000) 45,000 (186,000)
Changes in assets and
liabilities:
Accounts receivable.. -- (1,375,200) (2,035,000) (2,066,300) (4,732,500)
Inventories.......... -- (962,200) (2,223,800) (1,237,500) (6,161,900)
Prepaid expenses and
other assets........ (6,400) (31,800) (14,900) (200) (333,100)
Accounts payable..... 5,200 1,065,000 2,069,300 682,200 4,265,600
Accrued expenses..... 36,400 209,800 1,693,000 897,200 (108,500)
Customer deposits.... -- 1,382,700 699,500 25,000 5,126,900
Deferred revenue..... 71,700 80,500 614,500 293,700 1,068,100
Income taxes
payable............. -- 121,000 599,000 416,500 (720,000)
--------- ----------- ----------- ----------- -----------
Net cash provided by
operating
activities......... 89,800 617,500 2,757,600 265,100 904,900
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of software.. -- -- -- -- (450,000)
Purchases of property
and equipment........ (13,900) (207,300) (659,400) (244,700) (697,800)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (13,900) (207,300) (659,400) (244,700) (1,147,800)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance (repayment)
of notes payable..... 8,000 -- (8,000) (8,000) --
Proceeds from issuance
of convertible
preferred stock,
net.................. -- 238,300 4,008,100 -- --
Proceeds from issuance
of convertible notes
payable.............. 125,000 -- -- -- --
Proceeds from issuance
of common stock...... 400 16,500 10,100 7,300 4,500
Purchase of treasury
stock................ -- (3,600) -- -- (2,022,600)
(Loans to) repayments
from stockholders.... -- -- (795,000) -- 290,000
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 133,400 251,200 3,215,200 (700) (1,728,100)
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 209,300 661,400 5,313,400 19,700 (1,971,000)
Cash and cash
equivalents, beginning
of period............. -- 209,300 870,700 870,700 6,184,100
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................ $ 209,300 $ 870,700 $ 6,184,100 $ 890,400 $ 4,213,100
========= =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid......... $ 1,100 $ 3,700 $ -- $ -- $ --
========= =========== =========== =========== ===========
Income taxes paid..... $ -- $ -- $ 180,000 $ 180,000 $ 2,562,400
========= =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH ACTIVITY:
Conversion of notes
payable plus accrued
interest to Series A
convertible preferred
stock................ -- 128,500 -- -- --
Receipt of computer
equipment in lieu of
cash payment of
accounts receivable
from customer........ -- -- 75,000 -- --
Transfer of items
originally classified
as inventories to
fixed assets......... -- 171,500 576,000 41,100 1,725,500
Purchase of treasury
stock in lieu of cash
payment of notes
receivable from
stockholders......... -- -- -- -- 505,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company develops software-based products to manage, store and distribute
digital video. Through June 30, 1996, substantially all of the Company's
revenues have been derived from sales of digital video insertion systems (the
"SeaChange SPOT System") to cable television operators and telecommunications
companies in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated.
Revenue Recognition
Revenue from the sale of systems is recognized upon shipment provided that
there are no uncertainties regarding customer acceptance and collection of the
related receivable is probable. If uncertainties exist, such as performance
criteria beyond the Company's standard terms and conditions, revenue is
recognized upon customer acceptance. Installation and training revenue is
deferred and recognized as these services are performed. Revenue from
technical support and maintenance contracts is deferred and recognized ratably
over the period of the related agreements, generally twelve months. Customer
deposits represent advance payments from customers for systems.
Revenue from the software development contract was recognized pursuant to
the related agreement as work was performed and defined milestones were
attained. Nonrefundable payments received under the contract prior to the
attainment of defined milestones were recorded as deferred revenue.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. To minimize
this risk, the Company evaluates customers' financial condition and requires
advance payments from the majority of its customers. At December 31, 1995 and
June 30, 1996, the Company had an allowance for doubtful accounts of $40,000
and $60,000, respectively, to provide for potential credit losses and such
losses to date have not exceeded management's expectations.
For the years ended December 31, 1994 and 1995 and for the six months ended
June 30, 1996, certain customers accounted for more than 10% of the Company's
revenues. Individual customers accounted for 50%, 18%, 11% and 10% of revenues
in 1994; 29%, 29%, 16% and 12% in 1995; and 26%, 19%, 13% and 10% in the six-
month period ended June 30, 1996.
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-7
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in U.S. government securities that are subject to
minimal credit and market risk.
At December 31, 1995 and June 30, 1996, the Company's cash equivalents
include approximately $4,700,000 and $4,200,000 of U.S. government securities,
respectively. These securities are classified as held-to-maturity and are
stated at amortized cost, which approximates fair market value.
Property and Equipment
Property and equipment consist of office and computer equipment, leasehold
improvements, demonstration equipment and spare components and assemblies used
to service the Company's installed base. Demonstration equipment consists of
systems manufactured by the Company for use in the Company's marketing and
selling efforts. Property and equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the term of the respective leases by use of the straight-line method.
Maintenance and repair costs are expensed as incurred.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily of
components and subassemblies and finished products held for sale. Rapid
technological change and new product introductions and enhancements could
result in excess or obsolete inventory. To minimize this risk, the Company
evaluates inventory levels and expected usage on a periodic basis and records
valuation allowances as required.
The Company is dependent upon certain vendors for the manufacture of
significant components of its digital advertising insertion system. If these
vendors were to become unwilling or unable to continue to manufacture these
products in required volumes, the Company would have to identify and qualify
acceptable alternative vendors. The inability to develop alternate sources, if
required in the future, could result in delays or reductions in product
shipments.
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products are
expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to
establishing technological feasibility and capitalized thereafter until the
product is released for sale. Software development costs eligible for
capitalization to date have not been material to the Company's financial
statements. Costs associated with acquired software rights are capitalized if
technological feasibility of the software has been established.
At June 30, 1996, other assets includes $623,000 of purchased software, net
of amortization. The software is amortized over its estimated economic life of
two years and the related amortization expense for the six months ended June
30, 1996 totaled $27,000 and is included in the cost of systems revenues.
Stock Compensation
The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." In January 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." (See Note 9.)
F-8
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs were
$0, $34,800, $173,900 and $119,000 for the period ended December 31, 1993, the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996,
respectively.
Net Income (Loss) Per Share
Net income (loss) per share was determined by dividing net income (loss) by
the weighted average number of common shares and common share equivalents
outstanding during the period. Common share equivalents are comprised of
common stock options and convertible preferred stock and have been included in
the calculation to the extent their effect is dilutive, except that pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
share equivalents issued at prices below the anticipated initial public
offering price in the twelve months preceding the anticipated initial public
offering have been included in the calculation for all periods presented,
including the period July 9, 1993 (inception) through December 31, 1993, in
which the Company incurred a net loss.
Unaudited Pro Forma Information
The unaudited pro forma information at June 30, 1996 included in the
consolidated balance sheet and the consolidated statement of redeemable
convertible preferred stock and stockholders' equity reflects the automatic
conversion of the Series A and Series B preferred stock into 2,260,532 shares
of common stock upon the closing of the Company's anticipated initial public
offering.
Interim Financial Data
The interim financial data for the six months ended June 30, 1995 is
unaudited. In the opinion of management, this interim financial data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of operations for this interim period.
The interim financial data for the six months ended June 30, 1996 is not
necessarily indicative of the results of operations for the full year.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Components and assemblies....................... $546,700 $2,261,100 $4,434,900
Finished products............................... 244,000 177,400 2,440,000
-------- ---------- ----------
$790,700 $2,438,500 $6,874,900
======== ========== ==========
</TABLE>
F-9
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ------------------- JUNE 30,
(YEARS) 1994 1995 1996
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Office furniture and equipment...... 5 $ 34,900 $ 108,300 $ 264,600
Computer equipment.................. 3 357,700 1,156,300 1,875,800
Demonstration equipment............. 3 -- -- 830,000
Service and spare components........ 5 -- 350,000 1,050,400
Leasehold improvements.............. 1-3 -- 47,700 45,100
-------- ---------- ----------
392,600 1,662,300 4,065,900
Less--Accumulated depreciation...... 39,700 229,200 710,400
-------- ---------- ----------
$352,900 $1,433,100 $3,355,500
======== ========== ==========
</TABLE>
Depreciation expense was $800, $38,900, $230,200 and $501,000 for the period
ended December 31, 1993, the years ended December 31, 1994 and 1995 and the
six months ended June 30, 1996, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Accrued software license fees................... $164,000 $ 444,000 $ 445,900
Accrued sales and use taxes..................... 53,100 1,247,800 614,800
Other accrued expenses.......................... 25,400 243,700 966,300
-------- ---------- ----------
$242,500 $1,935,500 $2,027,000
======== ========== ==========
</TABLE>
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current provision:
Federal....................................... $116,000 $652,000 $1,232,400
State......................................... 5,000 146,000 282,000
-------- -------- ----------
121,000 798,000 1,514,400
-------- -------- ----------
Deferred benefit:
Federal....................................... (51,000) (65,000) (139,000)
State......................................... (15,000) (20,000) (47,000)
-------- -------- ----------
(66,000) (85,000) (186,000)
-------- -------- ----------
$ 55,000 $713,000 $1,328,400
======== ======== ==========
</TABLE>
F-10
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Inventory basis difference......................... $20,000 $ 55,300 $229,000
Allowance for doubtful accounts.................... -- 15,700 24,000
Deferred revenue................................... 61,000 92,100 111,000
------- -------- --------
Total deferred tax assets........................ 81,000 163,100 364,000
Deferred tax liabilities............................. 15,000 12,100 27,000
------- -------- --------
Net deferred tax assets.............................. $66,000 $151,000 $337,000
======= ======== ========
</TABLE>
The income tax provision computed using the federal statutory income tax
rate differs from the Company's effective tax rate primarily due to the
following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
-------------- JUNE 30,
1994 1995 1996
------ ------ ----------
<S> <C> <C> <C>
Statutory U.S. federal tax rate....................... 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit............... 1.7 4.4 4.4
Utilization of operating loss carryforwards........... (0.5) -- --
Research and development tax credits.................. (10.9) (2.8) --
Foreign sales corporation exempt income............... -- -- (0.4)
Nondeductible expenses................................ 1.9 1.5 0.5
Other................................................. -- -- --
------ ----- ----
26.2% 37.1% 38.5%
====== ===== ====
</TABLE>
7. PREFERRED STOCK
Voting Rights
Stockholders of both classes of convertible preferred stock are entitled to
votes equal to the number of common shares into which the shares of preferred
stock are convertible.
Dividends
Cash dividends on the Series A convertible preferred stock ("Series A
Stock") and the Series B redeemable convertible preferred stock ("Series B
Stock") (collectively, "Convertible Preferred Stock") are payable no later
than any dividends are paid on common stock and must be at least equal to the
per share amount paid or set aside for the common stock. As of June 30, 1996,
no dividends have been declared.
Conversion
The Convertible Preferred Stock is convertible into common stock at the
option of the holder, at any time, however, the Series B Stock may not be
converted prior to certain events. The Series A Stock conversion rate is one
hundred and fifty shares of common stock for one share of Series A Stock. The
Series B Stock conversion rate is a maximum of 2.625 shares of common stock
for one share of Series B Stock, based on a formula. The Series A Stock is
automatically convertible into common stock upon the closing of an initial
public offering in which net proceeds to the Company equal or exceed
$5,000,000. The Series B Stock is automatically convertible
F-11
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
into common stock upon the closing of an initial public offering in which net
proceeds to the Company equals or exceeds $15,000,000 and in which the price
paid by the public for such shares are at least twice the then conversion
value per share. The unaudited pro forma information at June 30, 1996,
included in the consolidated financial statements, assumes the conversion of
each share of Series B Stock into 1.0493 shares of Common Stock.
Redemption
If the Company has not consummated an initial public offering prior to
October 31, 2000, holders of at least 30% of the Series B Stock have the right
to require the Company to repurchase any or all of their shares. In addition,
if such request is made the Company must offer to redeem all shares of the
Series B Stock. The redemption price shall be the fair market value as of the
date of redemption, as agreed upon in good faith by the Company and the
stockholders. The Company may issue interest-bearing promissory notes in
satisfaction of its redemption obligation, to the extent that the aggregate
redemption price exceeds 50% of its working capital as of the redemption date.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the affairs of
the Company, the convertible preferred stockholders are entitled to receive
prior to and in preference to the common stockholders, an amount equal to the
greater of (i) in the case of the Series A Stock, $35.00 per share plus
declared but unpaid dividends and (ii) in the case of Series B Stock, $7.802
per share plus declared but unpaid dividends at a rate of 6% compounded
annually or (iii) such amount per share as would have been payable had each
share of Series A Stock or Series B Stock been converted into common stock
immediately prior to such liquidation, dissolution or winding up. Any
remaining assets of the Company shall be distributed ratably to all other
stockholders.
Stock Authorization
Upon the closing of the Company's anticipated public offering, the Board of
Directors will be authorized to issue from time to time up to an aggregate of
5,000,000 shares of preferred stock, in one or more series. Each such series
of preferred stock shall have the number of shares, designations, preferences,
voting powers, qualifications and special or relative rights or privileges to
be determined by the Board of Directors, including, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.
8. COMMON STOCK
Stock Splits
Effective August 3, 1995, the Company's Board of Directors approved a 100-
for-1 stock split of the Company's common stock. All shares of common stock,
common stock options, preferred stock conversion ratios and per share amounts
included in the accompanying consolidated financial statements have been
adjusted to give retroactive effect to the stock split for all periods
presented.
On September 11, 1996, the Board of Directors authorized a 3-for-2 stock
split of the Company's common stock. This split will become effective prior to
the consummation date of the Company's initial public offering. All shares of
common stock, common stock options, preferred stock conversion ratios and per
share amounts included in the accompanying consolidated financial statements
have been adjusted to give retroactive effect to the stock split for all
periods presented.
F-12
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Restriction Agreements
The holders of 7,075,800 common shares have entered into stock restriction
and repurchase agreements under which the Company has the right to repurchase
unvested common shares at the original issuance price and vested common shares
at fair value upon termination of a business relationship with the Company.
Common shares subject to these agreements vest ratably over a five-year period
and, at June 30, 1996, 4,571,430 of such shares are unvested. In addition, the
Company has a right of first refusal to repurchase any vested shares offered
for sale by the holder.
Stock Repurchase
During January 1996, the Company repurchased 431,250 shares of its common
stock and 1,286 shares of Series A Stock from certain employees and directors
of the Company. Of the common stock repurchased, 21,750 shares were held by
the stockholders for less than six months from the time the shares became
vested. Accordingly, compensation expense was recorded for the difference
between the repurchase price and the original purchase price paid by the
stockholders. Compensation expense recorded as a result of this transaction
was $91,000.
Notes Receivable from Stockholders
The principal amount of the notes receivable from certain stockholders at
December 31, 1995 was payable at the earlier of (i) six months from the date
of issuance or (ii) the closing of any sale to a third party or redemption by
the Company of pledged shares of the Company's common stock or preferred
stock. Interest on the principal amount outstanding accrued at a rate of 5.9%
per annum. These loans were secured by common stock held by the noteholders
and, consequently, the loans are reflected as an offset to stockholders'
equity at December 31, 1995. In January 1996, the notes were settled in
connection with the repurchase by the Company of the common shares and Series
A preferred shares noted above.
Reserved Shares
At June 30, 1996, the Company has 3,285,828 shares and 1,954,448 shares of
common stock reserved for issuance upon the conversion of the convertible
preferred stock and the exercise of common stock options, respectively.
9. STOCK PLANS
1995 Stock Option Plan
The Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option
Plan") provides for the grant of incentive stock options and nonqualified
stock options for the purchase of up to an aggregate of 1,950,000 shares of
the Company's common stock by officers, employees, consultants and directors
of the Company. The Board of Directors is responsible for administration of
the 1995 Stock Option Plan. The Board of Directors determines the term of each
option, option exercise price, number of shares for which each option is
granted and the rate at which each option is exercisable. Options generally
vest ratably over five years. The Company may not grant an employee incentive
stock options with a fair value in excess of $100,000 that is first
exercisable during any one calendar year.
F-13
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incentive stock options may be granted to employees at an exercise price per
share of not less than the fair value per common share on the date of the
grant (not less than 110% of the fair value in the case of holders of more
than 10% of the Company's voting stock). Nonqualified stock options may be
granted to any officer, employee, director or consultant at an exercise price
per share, as determined by the Company's Board of Directors.
Options granted under the 1995 Stock Option Plan generally expire ten years
from the date of the grant (five years for incentive stock options granted to
holders of more than 10% of the Company's voting stock).
Director Stock Option Plan
In June 1996, the Company's Board of Directors adopted and the stockholders
approved a director stock option plan (the "Director Option Plan") which
provides for the grant of options to full time directors of the Company to
purchase a maximum of 30,000 shares of common stock. Under the Director Option
Plan, each participating director will receive an option to purchase 3,375
shares of common stock. Options granted under the Director Option Plan will
vest as to 33 1/3% of the shares underlying the option immediately upon the
date of the grant, and will vest as to an additional 8 1/3% of the shares
underlying the option at the end of each of the next 8 quarters, provided that
the optionee remains a director. Directors will also receive, on each three-
year anniversary of such director's option grant date, an additional option to
purchase 3,375 shares of common stock, provided that such director continues
to serve on the Board of Directors. All options granted under the Director
Option Plan have an exercise price equal to the fair value of the common stock
on the date of grant and a term of ten years from the date of grant.
Employee Stock Purchase Plan
In September 1996, the Company's Board of Directors adopted and the
stockholders approved an employee stock purchase plan (the "1996 Stock
Purchase Plan") which provides for the issuance of a maximum of 300,000 shares
of common stock to participating employees who meet eligibility requirements.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of the Company's stock and directors who are
not employees of the Company may not participate in the 1996 Stock Purchase
Plan. The exercise price of the option is 85% of the lesser of the market
price of the common stock on the first or last business day of each six-month
plan period.
Transactions under the 1995 Stock Option Plan and the Director Option Plan
during the year ended December 31, 1995 and the six months ended June 30, 1996
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period....... -- -- 327,120 $ .92
Granted................................ 327,120 $ .92 379,360 6.36
Exercised.............................. -- -- (5,680) .79
Cancelled.............................. -- -- (31,000) 1.20
-------- --------
Outstanding at period end................ 327,120 669,800
======== ========
Options exercisable at period end........ -- 33,710
-------- --------
Weighted average fair value of options
granted during the period............... $ .32 $ 2.96
======== ========
</TABLE>
F-14
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In August 1996, the Company granted 17,625 options with an exercise price of
$9.33. In September 1996, 25,275 options were granted with an exercise price
of $10.67.
The following table summarizes information about employee and director stock
options outstanding at June 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1996 CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ -------------- ---------------- --------------
<S> <C> <C> <C>
$ .50.......................... 134,070 9.2 $ .50
1.23-1.36.................... 159,390 9.3 1.28
4.19-5.00.................... 112,440 9.6 4.44
6.67-7.33.................... 263,900 10.0 7.21
-------
669,800
=======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-----------------------------
NUMBER WEIGHTED
EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1996 EXERCISE PRICE
- ------------------------ -------------- --------------
<S> <C> <C>
$ .50........................................... 30,330 $ .50
1.23-1.36..................................... -- --
4.19-5.00..................................... -- --
6.67-7.33..................................... 3,380 7.33
------
33,710
======
</TABLE>
Fair Value Disclosures
Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed in FAS 123, the Company's
net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Net income:
As reported........................................... $1,210,800 $2,122,100
Pro forma............................................. 1,207,800 2,103,500
Net income per share:
As reported........................................... $ .11 $ .18
Pro forma............................................. .10 .18
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.89% to 6.00% for options granted during the year ended
December 31, 1995 and 5.36% to 6.34% for options granted during the six months
ended June 30, 1996; and a weighted average expected option term of 5 years
for both periods.
F-15
<PAGE>
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro
forma disclosures are not representative of pro forma effects of reported net
income for future years.
10. COMMITMENTS
The Company leases its operating facilities and certain office equipment
under noncancelable operating leases which expire at various dates through
1998. Rental expense under operating leases was approximately $4,600 for the
period July 9, 1993 (inception) through December 31, 1993, $53,000 and
$154,000 for the years ended December 31, 1994 and 1995, respectively, and
$136,000 for the six months ended June 30, 1996. Future minimum lease payments
as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
Six months ending December 31, 1996................................ $174,400
1997............................................................... 409,300
1998 (and thereafter).............................................. 95,500
--------
$679,200
========
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement savings plan. Participation in the
plan is available to full-time employees who meet eligibility requirements.
Eligible employees may contribute up to 15% of their salary, subject to
certain limitations. Company contributions to the plan may be made at the
discretion of the Board of Directors. Through June 30, 1996, the Company made
no contributions.
F-16
<PAGE>
(LOGO)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC Registration fee............................................ $ 11,104
NASD filing fee................................................. 3,720
Nasdaq National Market listing fee.............................. *
Printing and engraving expenses................................. 100,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 350,000
Blue Sky fees and expenses (including legal fees)............... 15,000
Transfer agent and registrar fees and expenses.................. 5,000
Miscellaneous................................................... *
--------
Total......................................................... $850,000
========
</TABLE>
The Company will bear all expenses shown above.
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation incorporates
substantially the provisions of the Delaware General Corporation Law of the
State of Delaware providing for indemnification of directors, officers,
employees and agents of the Company against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that such person is or was
an officer, director, employee, agent or controlling stockholder of the
Company. In addition, the Company is authorized to enter into indemnification
agreements with its directors and officers providing mandatory indemnification
to them to the maximum extent permissible under Delaware law.
As permitted under Delaware law, the Company's Amended and Restated
Certificate of Incorporation provides for the elimination of the personal
liability of a director to the corporation and its stockholders for monetary
damages arising from a breach of the director's fiduciary duty of care. The
provision is limited to monetary damages, applies only to a director's actions
while acting within his capacity as a director, and does not entitle the
Company to limit director liability for any judgment resulting from (a) any
breach of the director's duty of loyalty to the Company or its stockholders;
(b) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (c) paying an illegal dividend
or approving an illegal stock repurchase; or (d) any transaction from which
the director derived an improper benefit. In addition, Section 145 of the
Delaware General Corporation Law provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by
the corporation for reasonable expenses, including counsel fees, if in the
case of other than derivative suits, he has acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation (and in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful). In the case of a derivative
suit, an officer, employee or agent of the corporation who is not protected by
the Certificate of Incorporation may be indemnified by the corporation for
reasonable expenses, including attorneys' fees, if he has acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
the case of a derivative suit in respect of any claim as to which an officer,
employee or agent has been adjudged to be liable to the corporation unless the
Delaware Court of Chancery or the court in which such action or suit was
brought shall determine that such person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, agent or controlling stockholder who is
successful on the merits in defense of a suit against him. The above
description gives effect to the Amended and Restated Certificate of
Incorporation of the Company to be filed upon the consummation of this
offering.
II-1
<PAGE>
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). Reference
is made to the form of Underwriting Agreement filed as Exhibit 1.1 hereto. In
addition, certain Selling Stockholders are parties to indemnification
agreements with the Company whereby such Selling Stockholders have agreed,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Act.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has sold and issued the following securities during the past
three years:
(1) Since inception, the Company issued an aggregate of 8,543,360 shares
of Common Stock to certain employees and directors of the Company at prices
from $.00013 to $.50.
(2) In June 1994, the Company issued an aggregate of 11,808 shares of
Series A Convertible Preferred Stock to 8 investors at a purchase price
ranging from $25.00 to $35.00 per share.
(3) In October 1995, the Company issued an aggregate of 650,487 shares of
Series B Convertible Preferred Stock to 12 investors at a purchase price of
$6.293 per share.
(4) In August 1995, the Company's Board of Directors declared a one
hundred-for-one stock split in the form of a stock dividend on the Common
Stock.
(5) Effective upon the closing of this offering, the Company's 10,522
outstanding shares of Series A Preferred Stock and 650,487 shares of Series
B Preferred Stock will automatically be converted into 1,578,300 and
682,556 shares of Common Stock, respectively.
(6) The Registrant from time to time has granted stock options to
purchase shares of Common Stock to employees, directors and consultants,
41,102 of which are exercisable as of August 31, 1996.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Sections 2(3) and 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase Common Stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Certificate of Incorporation of the Company.
3.2 --Form of Amendment to Certificate of Incorporation of the Company
to be filed prior to the consummation of the public offering.
3.3 --Form of Amended and Restated Certificate of Incorporation to be
filed upon the consummation of the public offering.
3.4** --By-laws of the Company.
3.5 --Form of Amended and Restated By-laws of the Company to be in
effect upon the consummation of the public offering.
4.1* --Specimen certificate representing the Common Stock.
4.2** --Series B Preferred Stock Purchase Agreement, dated October 26,
1995 between the Company and the persons listed on Schedule 1.1
attached thereto.
4.3** --Form of Stock Restriction Agreement.
4.4** --Form of Stock Restriction Agreement Amendment.
5.1* --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --Amended and Restated 1995 Stock Option Plan.
10.2** --1996 Non-Employee Director Stock Option Plan.
10.3** --Lease Agreement dated March 10, 1995 between Thomas B. O'Brien,
Trustee of Jelric Realty Trust u/d/t dated 9/18/68 and the
Company.
10.4** --Sublease Agreement dated March 19, 1996 between IPL Systems,
Inc. and the Company.
10.5** --Indenture of Lease dated October 1, 1995 between Alden T.
Greenwood and the Company.
10.6** --Letter Agreement dated as of June 12, 1996 between Joseph S.
Tibbetts, Jr. and the Company.
10.7** --License Agreement dated May 30, 1996 between Summit Software
Systems, Inc. and the Company.
10.8 --Loan and Security Agreement, dated September 25, 1996, between
the Company and BayBank, N.A.
10.9 --Working Capital Line of Credit-Master Note, dated September 25,
1996, between the Company and BayBank, N.A.
10.10 --Equipment Line of Credit-Master Note, dated September 25, 1996,
between the Company and BayBank, N.A.
11.1** --Statement re: computation of earnings per share.
23.1 --Consent of Price Waterhouse LLP.
23.2* --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1).
24.1** --Power of Attorney (see page II-6).
27.1** --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(B) FINANCIAL STATEMENTS SCHEDULE:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) 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) that for
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (3) that for the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and
this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO FORM S-1 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF MAYNARD,
MASSACHUSETTS, ON THE 4TH DAY OF OCTOBER, 1996.
SeaChange International, Inc.
/s/ Joseph S. Tibbetts, Jr.
By: _________________________________
JOSEPH S. TIBBETTS, JR. VICE
PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL
OFFICER AND TREASURER
POWER OF ATTORNEY AND SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE(S) DATE
President, Chief
* Executive Officer, October 4, 1996
- ------------------------------------- Chairman of the Board
WILLIAM C. STYSLINGER, III and Director
(Principal Executive
Officer)
/s/ Joseph S. Tibbetts, Jr.
- ------------------------------------- Vice President, October 4, 1996
JOSEPH S. TIBBETTS, JR. Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal
Financial and
Accounting Officer)
Director
* October 4, 1996
- -------------------------------------
MARTIN R. HOFFMANN
Director
* October 4, 1996
- -------------------------------------
EDWARD J. MCGRATH
Director
* October 4, 1996
- -------------------------------------
PAUL SAUNDERS
Director
* October 4, 1996
- -------------------------------------
CARMINE VONA
/s/ Joseph S. Tibbetts, Jr.
By: ____________________________
JOSEPH S. TIBBETTS, JR. ATTORNEY-IN-
FACT
II-5
<PAGE>
SCHEDULE II
SEACHANGE INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND AND END OF
DESCRIPTION PERIOD EXPENSES WRITE-OFFS PERIOD
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Period from July 9, 1993
(inception) through December
31, 1993....................... $ -- $ -- $-- $ --
Year ended December 31, 1994.... -- -- -- --
Year ended December 31, 1995.... 40,000 -- -- 40,000
Six months ended June 30, 1996.. 40,000 20,000 -- 60,000
Allowance for obsolete inventory:
Period from July 9, 1993
(inception) through December
31, 1993....................... -- -- -- --
Year ended December 31, 1994.... -- -- -- --
Year ended December 31, 1995.... -- 56,200 -- 56,200
Six months ended June 30, 1996.. 56,200 413,800 -- 470,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Certificate of Incorporation of the Company.
3.2 --Form of Amendment to Certificate of Incorporation of the Company
to be filed prior to the consummation of the public offering.
3.3 --Form of Amended and Restated Certificate of Incorporation to be
filed upon the consummation of the public offering.
3.4** --By-laws of the Company.
3.5 --Form of Amended and Restated By-laws of the Company to be in
effect upon the consummation of the public offering.
4.1* --Specimen certificate representing the Common Stock.
4.2** --Series B Preferred Stock Purchase Agreement, dated October 26,
1995 between the Company and the persons listed on Schedule 1.1
attached thereto.
4.3** --Form of Stock Restriction Agreement.
4.4** --Form of Stock Restriction Agreement Amendment.
5.1* --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --Amended and Restated 1995 Stock Option Plan.
10.2** --1996 Non-Employee Director Stock Option Plan.
10.3** --Lease Agreement dated March 10, 1995 between Thomas B. O'Brien,
Trustee of Jelric Realty Trust u/d/t dated 9/18/68 and the
Company.
10.4** --Sublease Agreement dated March 19, 1996 between IPL Systems,
Inc. and the Company.
10.5** --Indenture of Lease dated October 1, 1995 between Alden T.
Greenwood and the Company.
10.6** --Letter Agreement dated as of June 12, 1996 between Joseph S.
Tibbetts, Jr. and the Company.
10.7** --License Agreement dated May 30, 1996 between Summit Software
Systems, Inc. and the Company.
10.8 --Loan and Security Agreement, dated September 25, 1996, between
the Company and BayBank, N.A.
10.9 --Working Capital Line of Credit-Master Note, dated September 25,
1996, between the Company and BayBank, N.A.
10.10 --Equipment Line of Credit-Master Note, dated September 25, 1996,
between the Company and BayBank, N.A.
11.1** --Statement re: computation of earnings per share.
23.1 --Consent of Price Waterhouse LLP.
23.2* --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1).
24.1** --Power of Attorney (see page II-6).
27.1** --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 1.1
________________________________________________________________________
____________ Shares
SEACHANGE INTERNATIONAL, INC.
COMMON STOCK ($.01 PAR VALUE PER SHARE)
UNDERWRITING AGREEMENT
_________, 1996
MORGAN STANLEY & CO. INCORPORATED
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
______________________________________________________________________
<PAGE>
_________, 1996
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Montgomery Securities
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
SeaChange International, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule II
hereto (the "Underwriters"), and certain shareholders of the Company (the
"Selling Shareholders") named in Schedule I hereto severally propose to sell to
the several Underwriters, an aggregate of ___________ shares of the common stock
($.01 par value per share) of the Company (the "Firm Shares"), of which
__________ shares are to be issued and sold by the Company and __________ shares
are to be sold by the Selling Shareholders, each Selling Shareholder selling the
amount set forth opposite such Selling Shareholder's name in Schedule I hereto.
The Company also proposes to issue and sell to the several Underwriters not
more than an additional __________ shares of its common stock ($.01 par value
per share) (the "Additional Shares") if and to the extent that you, as Managers
of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common stock
($.01 par value per share) of the Company to be outstanding after giving effect
to the sales contemplated hereby are hereinafter referred to as the "Common
Stock." The Company and the Selling Shareholders are hereinafter sometimes
collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the
<PAGE>
"Securities Act"), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus." If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
I. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to and agrees with each of the Underwriters that:
(a). The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b). (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph 1(b) do not apply to statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c). The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d). Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly
-2-
<PAGE>
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(e). This Agreement has been duly authorized, executed and
delivered by the Company.
(f). The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g). The shares of Common Stock (including the Shares to be sold
by the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable.
(h). The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of
this Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i). The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(j). There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k). There are no legal or governmental proceedings pending or,
to the best of the Company's knowledge after due inquiry, threatened to
which the Company or any of its subsidiaries is a party or to which any of
the properties of
-3-
<PAGE>
the Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(l). Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied
when so filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m). The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n). The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole. The Company, in its reasonable
judgment, has concluded that any costs or liabilities associated with the
effect of Environmental Laws on its business, operations and properties
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(o). Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) the Company
and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction
not in the ordinary course of business; (ii) the Company has not purchased
any of its outstanding capital stock, nor declared, paid or otherwise made
any dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term
-4-
<PAGE>
debt of the Company and its consolidated subsidiaries, except in each case
as would not reasonably be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries taken as a whole
or as described in or contemplated by the Prospectus.
(p). The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them which is material to the business of
the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases or subleases with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries,
in each case except as described in or contemplated by the Prospectus.
(q). The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, in the Company's
reasonable judgment, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(r). No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in or contemplated
by the Prospectus, or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(s). The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are
-5-
<PAGE>
engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(t). The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
(u). The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v). The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as part of
the Registration Statement and the Prospectus are independent accountants
as required by the Securities Act. The consolidated financial statements of
the Company and its subsidiaries (together with the related notes thereto)
included in the Registration Statement present fairly the financial
position and results of operations of the Company and its subsidiaries at
the respective dates and for the respective periods to which they apply,
subject to normal year-end adjustments. Such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as otherwise
stated therein. The pro forma financial information of the Company and its
subsidiaries included in the Registration Statement has been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma
-6-
<PAGE>
financial statements, has been properly compiled on the bases described
therein and, in the opinion of the Company and its subsidiaries, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(w). The Shares have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
(x). Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement, and the right of each person who is a party to any contract,
agreement or understanding so described to include such securities pursuant
to the Registration Statement has been effectively satisfied or waived.
(y). The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
2. Representations and Warranties of the Selling Shareholders. Each
----------------------------------------------------------
of the Selling Shareholders acting severally and not jointly represents and
warrants to and agrees with each of the Underwriters that:
(a). This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b). The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations under,
this Agreement, the Custody Agreement signed by such Selling Shareholder
and ChaseMellon Shareholder Services, L.L.C., as Custodian, relating to the
deposit of the Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as
such Selling Shareholder's attorneys-in-fact to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney") will not contravene any
provision of applicable law, or the certificate of incorporation or by-laws
of such Selling Shareholder (if such Selling Shareholder is a corporation),
or the partnership agreement of such Selling Shareholder (if such Selling
Shareholder is a partnership), or any agreement or other instrument binding
upon such Selling Shareholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Shareholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Shareholder of its obligations under this
Agreement
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<PAGE>
or the Custody Agreement or Power of Attorney of such Selling Shareholder,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(c). Such Selling Shareholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Shareholder and
the legal right and power, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement and the Power of
Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder.
(d). The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Shareholder and are
valid and binding agreements of such Selling Shareholder.
(e). Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass title to such Shares free
and clear of any security interests, claims, liens, equities and other
encumbrances.
(f). If the Selling Shareholder is an officer or director of the
Company, (i) the Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph 2(f) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(g). For each Selling Shareholder other than those making a
representation and warranty pursuant to paragraph 2(f) above, all
information relating to such Selling Shareholder furnished to the Company
in writing by or on behalf of such Selling Shareholder for use in the
Registration Statement and the Prospectus is, and on the Closing Date will
be, true, correct, and complete, and does not, and on the Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading.
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<PAGE>
3. Agreements to Sell and Purchase. Each Seller, severally and not
-------------------------------
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a one
time right to purchase, severally and not jointly, up to __________ Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period commencing on the date hereof and ending 180 days after the date of
the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (provided that such shares or
securities are either now owned by such Seller or are hereafter acquired prior
to or in connection with the offering of the Shares under this Agreement) or
(ii) enter into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing, (C) the issuance by the
Company of shares of Common Stock other than upon
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<PAGE>
the exercise of an option or warrant referred to in clause (B) or options to
purchase shares of Common Stock pursuant to the Company's existing stock option
and purchase plans, (D) the transfer of shares of Common Stock by a Selling
Shareholder as a gift or gifts; and (E) the transfer of shares of Common Stock
by a Selling Shareholder to the Selling Shareholder's affiliates, as such term
is defined in Rule 405 under the Securities Act; provided, that, in the case of
-------- ----
clause (C) (other than with respect to options not exercisable and shares
subject to restrictions that will not vest within the 180 day period), (D) or
(E) above, the recipient(s), donee(s) or transferee(s), respectively, agrees in
writing as a condition precedent to such issuance, gift or transfer to be bound
by the terms of this paragraph. In addition, each Selling Shareholder, agrees
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that
------------------------
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$_______ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of $_______ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $______ a share, to any
Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by
--------------------
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 A.M., New York City
time, on ___________,1996, or at such other time on the same or such other date,
not later than _______________, 1996, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date." The closing of the offering and sale of the Firm Shares will be held at
the offices of Ropes & Gray, One International Place, Boston, Massachusetts.
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 A.M., local time, on the date specified in the notice described in Section
3 or on such other date, in any event not later than ____________, 1996, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Option Closing Date." The closing of the
offering and sale of the Additional Shares will be held at the offices of Ropes
& Gray, One International Place, Boston, Massachusetts.
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<PAGE>
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
-------------------------------------------
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [________________] (New York time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a). Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i). if any of the Company's securities are rated by any
"nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act,
there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any such securities; and
(ii). there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b). The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
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<PAGE>
The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.
(c). The Underwriters shall have received on the Closing Date an
opinion of Testa, Hurwitz & Thibeault, LLP, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i). the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in _____, _____ and _____, which are the only
jurisdictions in which the Company maintains an office or owns or
leases property;
(ii). each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing _____, _____ and _____,
which are the only jurisdictions in which such subsidiary maintains an
office or owns or leases property;
(iii). the authorized capital stock of the Company conforms as
to legal matters to the description thereto contained in the
Prospectus under the caption "Description of Capital Stock" and the
Shares have been duly authorized for quotation on the Nasdaq National
Market;
(iv). the shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(v). the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive rights under the General Corporation Law of the State of
Delaware or, to such counsel's knowledge, similar rights granted by
contract;
(vi). this Agreement has been duly authorized, executed and
delivered by the Company;
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<PAGE>
(vii). the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law (except that
counsel need express no opinion as to state securities or blue sky
laws) or the certificate of incorporation or by-laws of the Company
or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or, to
the best of such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under
this Agreement, except that counsel need express no opinion as to
state securities or blue sky laws;
(viii). no shares of Common Stock are required pursuant to any
agreement or other right to be registered under the Registration
Statement, and no person has the right to require such registration,
except such rights that have either been satisfied or validly waived;
(ix). the statements (A) in the Prospectus under the captions
"Risk Factors -- Potential Adverse Effects of Anti-Takeover
Provisions," "Management -- Director Compensation," "--Executive
Compensation," "--Stock Plans," "Description of Capital Stock,"
"Shares Eligible for Future Sale," and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present in all material
respects the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x). after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(xi). the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
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<PAGE>
(xii). such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial statements
and schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion) comply
as to form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder, (B) has
no reason to believe that (except for financial statements and
schedules and other financial and statistical data as to which such
counsel need not express any belief) the Registration Statement and
the prospectus included therein at the time the Registration Statement
became effective contained any 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 and (C) has no
reason to believe that (except for financial statements and schedules
and other financial and statistical data as to which such counsel need
not express any belief) the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
d. The Underwriters shall have received on the Closing Date an
opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Selling
Shareholders, dated the Closing Date, to the effect that:
(i). this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders;
(ii). the execution and delivery by each Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, this Agreement and the Custody Agreement and Powers of Attorney
of such Selling Shareholder will not contravene any provision of
applicable law, or the certificate of incorporation or by-laws of such
Selling Shareholder (if such Selling Shareholder is a corporation) or
the certificate of partnership or partnership agreement (if such
Selling Shareholder is a partnership), or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
such Selling Shareholder or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Shareholder, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by
such Selling Shareholder of its obligations under this Agreement or
the Custody Agreement or Power of Attorney of such Selling
Shareholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with offer and sale of
the Shares;
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<PAGE>
(iii). each of the Selling Shareholders is the record owner of
the Shares to be sold by such Selling Shareholder and has the legal
right and power, and all authorization and approval required by law,
to enter into this Agreement and the Custody Agreement and Power of
Attorney of such Selling Shareholder and to sell, transfer and deliver
the Shares to be sold by such Selling Shareholder;
(iv). the Custody Agreement and the Power of Attorney of each
Selling Shareholder have been duly authorized, executed and delivered
by such Selling Shareholder and are valid and binding agreements of
such Selling Shareholder;
(v). each Underwriter that is a "bona fide purchaser" within
the meaning of Article 8 of the Massachusetts Uniform Commercial Code
(the "Code") will acquire, upon payment for the Shares as provided in
this Agreement, its interest in the Shares, free of any adverse claim,
as defined in the Code.
(e). The Underwriters shall have received on the Closing Date an
opinion of Fish & Richardson, patent counsel for the Company, dated the
Closing Date, in form and substance reasonably satisfactory to the
Underwriters, with respect to such matters as the Underwriters may
reasonably request.
(f). The Underwriters shall have received on the Closing Date an
opinion of Ropes & Gray, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraphs (v), (vi), (viii)
(but only as to the statements in the Prospectus under "Description of
Capital Stock" and "Underwriters") and (xii) of paragraph (c) above.
With respect to subparagraph (xii) of paragraph (c) above, Testa, Hurwitz &
Thibeault, LLP and Ropes & Gray may state that their opinion and belief are
based upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified. With respect to paragraph (d) above, Testa,
Hurwitz & Thibeault, LLP may rely upon an opinion or opinions of counsel for any
Selling Shareholders and, with respect to factual matters and to the extent such
counsel deems appropriate, upon the representations of each Selling Shareholder
contained herein and in the Custody Agreement and Power of Attorney of such
Selling Shareholder and in other documents and instruments; provided that (A)
each such counsel for the Selling Shareholders is satisfactory to your counsel,
(B) a copy of each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of such Custody Agreements
and Powers of Attorney and of any such other documents and instruments shall be
delivered to you and shall be in form and substance satisfactory to your counsel
and (D) shall state in their opinion that they are justified in relying on each
such other opinion.
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<PAGE>
The opinions of Testa, Hurwitz & Thibeault, LLP described in paragraphs (c)
and (d) above (and any opinions of counsel for any Selling Shareholder referred
to in the immediately preceding paragraph) shall be rendered to the Underwriters
at the request of the Company or one or more of the Selling Shareholders, as the
case may be, and shall so state therein.
(g). The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Price Waterhouse LLP independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(h). The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
------------------------
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a). To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 A.M. local time on the business day next succeeding
the date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b). Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which
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<PAGE>
you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c). If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d). To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e). To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering the
twelve-month period ending December 31, 1997 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f). Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the performance of its obligations
under this Agreement, including: (i) the fees, disbursements and expenses
of the Company's counsel and the Company's accountants in connection with
the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 7(d)
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<PAGE>
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (iv) all
filing fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares
by the National Association of Securities Dealers, Inc., (v) all fees and
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and
expenses incident to listing the Shares on the Nasdaq National Market, (vi)
the cost of printing certificates representing the Shares, (vii) the costs
and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of
the Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided in
this Section, Section 9 entitled "Indemnity and Contribution", and the last
paragraph of Section 11 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
8. Expenses of Selling Shareholders. Each Selling Shareholder,
--------------------------------
severally and not jointly, agrees to pay or cause to be paid all taxes, if any,
on the transfer and sale of the Shares being sold by such Selling Shareholder.
9. Indemnity and Contribution.
--------------------------
(a). The Company and each Selling Shareholder who is a director
or officer of the Company (as designated with an asterisk "*" on Schedule
I) on the date of this Agreement jointly and severally, agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls
any Underwriter within the meaning of either Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged
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<PAGE>
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(b). Each Selling Shareholder severally agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal
or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only insofar as such losses, claims, damages or liabilities are caused by
any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any such Selling Shareholder
furnished to the Company in writing by such Selling Shareholder expressly
for use therein.
(c). Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company or
any Selling Shareholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Underwriter furnished
to the Company in writing by such Underwriter through you expressly for use
in the Registration Statement, any preliminary prospectus, the Prospectus
or any amendments or supplements thereto.
(d). The aggregate liability of any Selling Shareholder under the
representations and warranties contained in Section 2(g) hereof and for
-19-
<PAGE>
indemnification under Section 9 shall in no event exceed the net proceeds
received by such Selling Shareholder from the Underwriters in the offering
of the Shares; provided, however, that the aggregate liability of any
Selling Shareholder under the representations and warranties contained in
Section 2(f) hereof and for indemnification under Section 9(a) shall in no
event exceed the lesser of (i) the net proceeds received by such Selling
Shareholder from the Underwriters in the offering of the Shares and (ii)
that proportion of the total of such losses, claims, damages and
liabilities equal to the proportion of the Shares being sold by such
Selling Shareholders to the total Shares being sold hereunder
(e). In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this
Section 9, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel)
for (i) all Underwriters and all persons, if any, who control any
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, (ii) the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either such Section and (iii)
all Selling Shareholders and all persons, if any, who control any Selling
Shareholder within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of the
Underwriters, such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated. In the case of any such separate firm for the Company,
and such directors, officers and control persons of the Company, such firm
shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Shareholders and such controlling persons of
the Selling Shareholders, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Shareholders under the
Powers of
-20-
<PAGE>
Attorney. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding 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 claims that are the subject matter
of such proceeding.
(f). To the extent the indemnification provided for in paragraph
(a), (b) or (c) of this Section 9 is unavailable to a indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand from the offering of the
Shares 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 in clause (i) above but
also the relative fault of the indemnifying party or parties on the one
hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claim damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand in connection with the offering
of the Shares shall be deemed to be in the same respective proportions as
the net proceeds from the offering of the Shares (before deducting
expenses) received by each Seller and the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Sellers on the one hand and
the Underwriters on the other hand 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 Sellers or by the Underwriters
-21-
<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section
9 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(g). The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph
(e) of this Section 9. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 9, (i) no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, (ii) no Selling Shareholder covered by
paragraph (a) of this Section 9 shall be required to contribute in respect
of any losses, claims, damages or liabilities covered by such paragraph (a)
any amount by which the excess of the lesser of (A) the net proceeds
received by such Selling Shareholder from the Underwriters in the offering
of the Shares and (B) that proportion of the total of such losses, claims,
damages and liabilities equal to the proportion of the Shares being sold by
such Selling Shareholders to the total Shares being sold hereunder exceeds
the amount of indemnification payments made by such Selling Shareholder
pursuant to paragraph (a) of this Section 9, and (iii) no Selling
Shareholder shall be required to contribute in respect of any losses,
claims, damages or liabilities covered by paragraph (b) of this Section 9
any amount in excess of the difference between the product of the number of
Shares sold by such Selling Shareholder and the initial public offering
price of the Shares as set forth in the Prospectus, and the amount of any
indemnification payments made by such Selling Shareholder pursuant to
paragraph (b) of this Section 9. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The remedies provided for in this
Section 9 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in
equity.
(h). The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholders contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii)
-22-
<PAGE>
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
--------------------------------------
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
--------
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you, the Company and
the Selling Shareholders for the purchase of such Firm Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholders.
-23-
<PAGE>
In any such case either you or the relevant Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
SEACHANGE INTERNATIONAL, INC.
By____________________________
Name:
Title:
The Selling Shareholders
named in Schedule I hereto,
acting severally
-24-
<PAGE>
By__________________________________
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Montgomery Securities
Acting severally on behalf
of themselves and the
several Underwriters named
herein.
By: Morgan Stanley & Co.
Incorporated
By:__________________________
Name:
Title:
-25-
<PAGE>
SCHEDULE I
Number of
Firm Shares
Selling Shareholder To Be Sold
- ------------------------------------------------------------
[NAMES OF SELLING SHAREHOLDERS]
__________________
Total
[*=director or officer]
-26-
<PAGE>
SCHEDULE II
Number of
Firm Shares
Underwriter To Be Purchased
- -----------------------------------------------------------------
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Montgomery Securities
[NAMES OF OTHER UNDERWRITERS]
_________________
Total
-27-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SEACHANGE INTERNATIONAL, INC.
SeaChange International, 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 AS FOLLOWS:
FIRST: That the Board of Directors of the Corporation, at a meeting held
on September 6, 1996, duly adopted a resolution (i) proposing an amendment to
the Certificate of Incorporation of the Corporation, (ii) declaring such
amendment to be advisable and in the best interests of the Corporation, and
(iii) directing that such amendment be submitted to the stockholders of the
Corporation for approval thereby. The resolution setting forth the amendment
and directing that such amendment be submitted to the stockholders is as
follows:
RESOLVED: That, subject to stockholder approval, the Board of Directors of
the Corporation has determined that it is advisable and in the best
interest of all of the Corporation's stockholders to increase the
authorized capital stock of this Corporation from 10,000,000 shares
of Common Stock, $.01 par value per share, to 15,000,000 shares;
that in order to effect said increase the proper officers of this
Corporation are hereby authorized and directed to prepare, execute
and file with the Secretary of State of the State of Delaware an
appropriate Certificate of Amendment to the Certificate of
Incorporation of this Corporation; and that the Board of Directors
is hereby authorized to issue all or any part of the authorized but
unissued capital stock of this Corporation at such times, to such
persons, upon such terms, and for such consideration as the Board
may in its discretion determine.
RESOLVED: That a Written Consent in Lieu of Meeting of Stockholders
authorizing the increase in the authorized capital stock of this
Corporation be submitted to the stockholders of the Corporation for
their consideration and approval.
SECOND: That the stockholders of the Corporation duly approved such
proposed amendment by written consent in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
THIRD: That in accordance with the aforementioned resolution, the
Certificate of Incorporation of this Corporation is hereby amended by deleting
the first sentence of Article
<PAGE>
FOURTH thereof in its entirety and replacing it with a new sentence so that, as
amended, the first sentence of Article FOURTH shall read as follows:
"The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 16,000,000, of which (i)
15,000,000 shares shall be Common Stock, par value of One Cent ($.01) per
share ("Common Stock"); and (ii) 1,000,000 shares shall be of preferred
stock, par value One Cent ($.01) per share ("Preferred Stock"), of which
30,000 shares are designated as Series A Preferred Stock, 650,487 shares
are designated as Series B Preferred Stock, and 319,513 shares are
undesignated Preferred Stock."
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, SeaChange International, Inc. has caused this
certificate to be signed by William C. Styslinger, III, its President and
attested by William B. Simmons, Jr., its Assistant Secretary, as of this __ day
of __________, 1996.
SEACHANGE INTERNATIONAL, INC.
By:___________________________
William C. Styslinger, III
President
ATTEST:
By: _____________________________
William B. Simmons, Jr.
Assistant Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SEACHANGE INTERNATIONAL, INC.
INCORPORATED JULY 9, 1993
AS SEAVIEW TECHNOLOGY, INC.
* * * * * *
I, William C. Styslinger, III, President of SeaChange International, Inc.
(the "Corporation"), a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, do hereby certify that the
Certificate of Incorporation of SeaChange International, Inc., as amended,
originally incorporated under the name Seaview Technology, Inc., has been
further amended, and restated as amended, in accordance with provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware,
and, as amended and restated, is set forth in its entirety as follows:
FIRST. The name of the Corporation is SeaChange International, Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 55,000,000 shares, consisting
of 50,000,000 shares of Common Stock with a par value of $.01 per share (the
"Common Stock") and 5,000,000 shares of Preferred Stock with a par value of $.01
per share (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions of the Preferred Stock and Common Stock are as
follows:
A. COMMON STOCK
------------
1. GENERAL. All shares of Common Stock will be identical and will
-------
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of
<PAGE>
- 2 -
the holders of the Common Stock are subject to and qualified by the rights of
holders of the Preferred Stock.
2. DIVIDENDS. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
4. VOTING RIGHTS. Except as otherwise required by law or this Amended
-------------
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held of record by such holder on
the books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. Except as otherwise
required by law or provided herein, holders of Common Stock shall vote together
with holders of the Preferred Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.
B. PREFERRED STOCK
---------------
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the undesignated Preferred Stock in one or more series,
each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions (a "Certificate of Designation") shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or
<PAGE>
- 3 -
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock of the Corporation at
such price or prices or at such rates of exchange and with such adjustments, if
any; (v) entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or (vi) entitled to such other preferences, powers, qualifications,
rights and privileges, all as the Board of Directors may deem advisable and as
are not inconsistent with law and the provisions of this Amended and Restated
Certificate of Incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
1. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors of the Corporation.
2. The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the By-laws of the Corporation, subject to any
limitation thereof contained in the By-laws. The stockholders shall also have
the power to adopt, amend or repeal the By-laws of the Corporation; provided,
--------
however, that, in addition to any vote of the holders of any class or series of
- -------
stock of the Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
seventy-five percent (75 %) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt, amend or repeal any provision of the By-laws of the
Corporation.
3. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting.
4. Special meetings of stockholders may be called at any time only
by the President, the Chairman of the Board of Directors (if any) or a majority
of the Board of Directors. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
5. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH. No director (including any advisory director) of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability; provided, however, that, to the extent provided
by applicable law, this provision shall not eliminate the liability of a
director (i) for any breach of the director's duty of loyalty to the
<PAGE>
- 4 -
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer for any equity
security of the Corporation or (b) to effect a business combination, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation as whole, be authorized to give due consideration
to any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(i) the interests of the Corporation's stockholders, including the
possibility that these interests might be best served by the continued
independence of the Corporation;
(ii) whether the proposed transaction might violate federal or state laws;
(iii) not only the consideration being offered in the proposed transaction,
in relation to the then current market price for the outstanding capital
stock of the Corporation, but also to the market price for the capital stock
of the Corporation over a period of years, the estimated price that might be
achieved in a negotiated sale of the Corporation as a whole or in part or
through orderly liquidation, the premiums over market price for the
securities of other corporations in similar transactions, current political,
economic and other factors bearing on securities prices and the Corporation's
financial condition and future prospects; and
(iv) the social, legal and economic effects upon employees, suppliers,
customers, creditors and others having similar relationships with the
Corporation, upon the communities in which the Corporation conducts its
business and upon the economy of the state, region and nation.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
NINTH.
1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE
-------------------------------------------------------------------
CORPORATION. The Corporation shall indemnify each person who was or is a party
- -----------
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all
<PAGE>
- 5 -
such persons being referred to hereafter as an "Indemnitee"), or by reason of
any action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
<PAGE>
- 6 -
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---- ----------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purpose hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and
<PAGE>
- 7 -
information as is reasonably available to the Indemnitee and is reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification or advancement of expenses. Any such indemnification or
advancement of expenses shall be made promptly, and in any event within 60 days
after receipt by the Corporation of the written request of the Indemnitee,
unless with respect to requests under Section 1, 2 or 5 the Corporation
determines, by clear and convincing evidence, within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1 or 2, as the case may be. Such determination shall be made in each instance by
(a) a majority vote of the directors of the Corporation who are not at that time
parties to the action, suit or proceeding in question ("disinterested
directors"), even though less than a quorum, (b) if there are no such
disinterested directors, or if such disinterested directors so direct, by
independent legal counsel (who may be regular legal counsel to the corporation)
in a written opinion, (c) a majority vote of a quorum of the outstanding shares
of stock of all classes entitled to vote for directors, voting as a single
class, which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, or (d) a court of
competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of the
State of Delaware or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee.
<PAGE>
- 8 -
Nothing contained in this Article shall be deemed to prohibit, and the
Corporation is specifically authorized to enter into, agreements with officers
and directors providing indemnification rights and procedures different from
those set forth in this Article. In addition, the Corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the Corporation or other persons serving
the Corporation and such rights may be equivalent to, or greater or less than,
those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of the State of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by an applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of the State of Delaware shall
have the respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of the State
----------------------
of Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
<PAGE>
- 9 -
TENTH. The Corporation reserves the right to amend or repeal any provision
contained in this Amended and Restated Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation, provided, however,
-------- -------
that in addition to any vote of the holders of any class or series of stock of
the Corporation required by law, this Amended and Restated Certificate of
Incorporation or a Certificate of Designation with respect to a series of
Preferred Stock, the affirmative vote of the holders of shares of voting stock
of the Corporation representing at least seventy-five percent (75%) of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to (i) reduce or eliminate the
number of authorized shares of Common Stock or the number of authorized shares
of Preferred Stock set forth in Article FOURTH or (ii) amend or repeal, or adopt
any provision inconsistent with, Parts A and B of Article FOURTH and Articles
FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH and this Article TENTH of this Amended and
Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Amended and Restated Certificate of
Incorporation are true under the penalties of perjury this ____ day of ____,
1996.
______________________________
William C. Styslinger, III
President
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED
BY-LAWS
OF
SEACHANGE INTERNATIONAL, INC.
<PAGE>
BY-LAWS
-------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1 - Stockholders............................................ 1
Section 1.1 Place of Meetings................................ 1
Section 1.2 Annual Meeting................................... 1
Section 1.3 Special Meetings................................. 1
Section 1.4 Notice of Meetings............................... 1
Section 1.5 Voting List...................................... 1
Section 1.6 Quorum........................................... 2
Section 1.7 Adjournments..................................... 2
Section 1.8 Voting and Proxies............................... 2
Section 1.9 Action at Meeting................................ 3
Section 1.10 Introduction of Business at Meeting.............. 3
Section 1.11 Action without Meeting........................... 6
ARTICLE 2 - Directors............................................... 6
Section 2.1 General Powers................................... 6
Section 2.2 Number; Election and Qualification............... 7
Section 2.3 Classes of Directors............................. 7
Section 2.4 Terms in Office.................................. 7
Section 2.5 Allocation of Directors Among
Classes in the Event of Increases
or Decreases in the Number of
Directors........................................ 7
Section 2.6 Tenure........................................... 8
Section 2.7 Vacancies........................................ 8
Section 2.8 Resignation...................................... 8
Section 2.9 Regular Meetings................................. 8
Section 2.10 Special Meetings................................. 8
Section 2.11 Notice of Special Meetings....................... 8
Section 2.12 Meetings by Telephone Conference Calls........... 9
Section 2.13 Quorum........................................... 9
Section 2.14 Action at Meeting................................ 9
Section 2.15 Action by Consent................................ 9
Section 2.16 Removal.......................................... 9
Section 2.17 Committees....................................... 9
Section 2.18 Compensation of Directors........................ 10
Section 2.19 Amendments to Article............................ 10
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 3 - Officers................................................ 10
Section 3.1 Enumeration...................................... 10
Section 3.2 Election......................................... 10
Section 3.3 Qualification.................................... 10
Section 3.4 Tenure........................................... 10
Section 3.5 Resignation and Removal.......................... 11
Section 3.6 Vacancies........................................ 11
Section 3.7 Chairman of the Board and Vice-
Chairman of the Board............................ 11
Section 3.8 President........................................ 11
Section 3.9 Vice Presidents.................................. 11
Section 3.10 Secretary and Assistant Secretaries.............. 12
Section 3.11 Treasurer and Assistant Treasurers............... 12
Section 3.12 Salaries......................................... 12
Section 3.13 Action with Respect to Securities of
Other Corporations............................... 13
ARTICLE 4 - Capital Stock........................................... 13
Section 4.1 Issuance of Stock................................ 13
Section 4.2 Certificates of Stock............................ 13
Section 4.3 Transfers........................................ 13
Section 4.4 Lost, Stolen or Destroyed Certificates........... 14
Section 4.5 Record Date...................................... 14
ARTICLE 5 - General Provisions...................................... 14
Section 5.1 Fiscal Year...................................... 14
Section 5.2 Corporate Seal................................... 14
Section 5.3 Notices.......................................... 14
Section 5.4 Waiver of Notice................................. 15
Section 5.5 Evidence of Authority............................ 15
Section 5.6 Facsimile Signatures............................. 15
Section 5.7 Reliance upon Books, Reports and Records......... 15
Section 5.8 Time Periods..................................... 15
Section 5.9 Certificate of Incorporation..................... 15
Section 5.10 Transactions with Interested Parties............. 15
Section 5.11 Severability..................................... 16
Section 5.12 Pronouns......................................... 16
</TABLE>
<PAGE>
-iii-
<TABLE>
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<S> <C>
ARTICLE 6 - Amendments................................................ 16
Section 6.1 By the Board of Directors.......................... 16
Section 6.2 By the Stockholders................................ 16
</TABLE>
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
SEACHANGE INTERNATIONAL, INC. (the "Corporation")
ARTICLE 1 - STOCKHOLDERS
------------------------
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Chairman of the Board (if any), the board of directors of the
Corporation (the "Board of Directors") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Chairman
of the Board (if any), Board of Directors or the President (which date shall not
be a legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Chairman of the Board, the Board of Directors or the
President and stated in the notice of the meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
----------------
any time by the Chairman of the Board (if any), a majority of the Board of
Directors or the President and shall be held at such place, on such date and at
such time as shall be fixed by the Board of Directors or the person calling the
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the Corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
-----------
Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting,
<PAGE>
- 2 -
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present. This list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority on
behalf of beneficial owners of such shares who have not submitted a proxy with
respect to such shares) on some or all of the matters before the stockholders,
but which shares would otherwise be entitled to vote at the meeting ("Broker
Non-Votes") shall be counted, for the purpose of determining the presence or
absence of a quorum, both (a) toward the total voting power of the shares of
capital stock of the Corporation and (b) as being represented by proxy. If a
quorum has been established for the purpose of conducting the meeting, a quorum
shall be deemed to be present for the purpose of all votes to be conducted at
such meeting, provided that where a separate vote by a class or classes, or
series thereof, is required, a majority of the voting power of the shares of
such class or classes, or series, present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the voting power of the shares of stock
entitled to vote who are present, in person or by proxy, may adjourn the meeting
to another place, date, or time.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
------------------
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate of
Incorporation or these By-laws), may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for such
stockholder by written proxy executed by such stockholder or his or her
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the
<PAGE>
- 3 -
Corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period. Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this Section 1.8 may be
substituted or used in lieu of the original writing or transmission for any and
all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or reproduction shall be a
complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law or the Certificate of Incorporation, may take place
via a voice vote. Any vote not taken by voice shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
1.9 ACTION AT MEETING. When a quorum is present at any meeting of
-----------------
stockholders, the holders of a majority of the stock present or represented and
voting on a matter (or if there are two or more classes of stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on such
matter) shall decide any matter to be voted upon by the stockholders at such
meeting (other than the election of directors), except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-Laws. Any election of directors by the stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote at such
election, except as otherwise provided by the Certificate of Incorporation. For
the purposes of this paragraph, Broker Non-Votes represented at the meeting but
not permitted to vote on a particular matter shall not be counted, with respect
to the vote on such matter, in the number of (a) votes cast, (b) votes cast
affirmatively, or (c) votes cast negatively.
1.10 INTRODUCTION OF BUSINESS AT MEETINGS.
A. ANNUAL MEETINGS OF STOCKHOLDERS.
-------------------------------
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this Section 1.10, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this
Section 1.10.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 1.10, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and
such other business must otherwise be a proper matter for stockholder
action. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the
<PAGE>
- 4 -
close of business on the one hundred twentieth (120th) day nor earlier
than the close of business on the one hundred fiftieth (150th) day prior
to the first anniversary of the date of the proxy statement delivered to
stockholders in connection with the preceding year's annual meeting
provided, however, that if either (i) the date of the annual meeting is
more than thirty (30) days before or more than sixty (60) days after
such an anniversary date or (ii) no proxy statement was delivered to
stockholders in connection with the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at
the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner and (ii) the class
and number of shares of capital stock of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 1.10 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least seventy (70) days
prior to the first anniversary of the preceding year's annual meeting
(or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days
prior to such annual meeting), a stockholder's notice required by this
Section 1.10 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the
Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
<PAGE>
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B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) provided that
the Board of Directors has determined that directors shall be elected
at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the special
meeting, who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 1.10. If the
Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice
of meeting, if the stockholder's notice required by paragraph (A)(2)
of this Section 1.10 shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the
ninetieth (90th) day prior to such special meeting nor later than the
later of (x) the close of business on the sixtieth (60th) day prior to
such special meeting or (y) the close of business on the tenth (10th)
day following the day on which public announcement is first made of
the date of such special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
C. GENERAL.
-------
(1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 1.10 shall be eligible to
serve as directors and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting
in accordance with the procedures set forth in this Section 1.10.
Except as otherwise provided by law, the Certificate of Incorporation
or these By-Laws, the chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be,
in accordance with the procedures set forth in this Section 1.10 and,
if any proposed nomination or business is not in compliance herewith,
to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section 1.10, "public
announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 1.10, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth herein. Nothing in
this Section 1.10 shall be deemed to affect any rights (i) of
stockholders to
<PAGE>
- 6 -
request inclusion of proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
1.11 ACTION WITHOUT MEETING. Stockholders of the Corporation may not
----------------------
take any action by written consent in lieu of a meeting. Notwithstanding any
other provision of law, the Certificate of Incorporation or these By-Laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Section 1.11.
ARTICLE 2 - DIRECTORS
---------------------
2.1 GENERAL POWERS. The business and affairs of the Corporation shall
--------------
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the Corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the Board
of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(c) authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, to borrow funds and guarantee obligations,
and to do all things necessary in connection therewith;
(d) remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers, employees, consultants and
agents of the Corporation and its subsidiaries as it may determine;
<PAGE>
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(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents of
the Corporation and its subsidiaries as it may determine; and
(h) adopt from time to time regulations, not inconsistent herewith, for
the management of the Corporation's business and affairs.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
(or, if so determined by the Board of Directors pursuant to Section 10 hereof,
at a special meeting of stockholders), by such stockholders as have the right to
vote on such election. Directors need not be stockholders of the Corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is
--------------------
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class.
2.4 TERMS IN OFFICE. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending December 31, 1996; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending December
31, 1997; and each initial director in Class III shall serve for a term ending
on the date of the annual meeting next following the end of the Corporation's
fiscal year ending December 31, 1998.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
------------------------------------------------------------------
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors, subject to the
second sentence of Section 2.3. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. No decrease in the number of directors constituting the whole Board of
Directors shall shorten the term of an incumbent Director.
<PAGE>
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2.6 TENURE. Notwithstanding any provisions to the contrary contained
------
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.7 VACANCIES. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement thereof, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, if any, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next election of directors of the class for which such director was
chosen and until his or her successor is elected and qualified, or until his or
her earlier death, resignation or removal.
2.8 RESIGNATION. Any director may resign by delivering his or her
-----------
written resignation to the Corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
2.9 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
2.10 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board (if any), the President, two or more
directors, or by one director in the event that there is only a single director
in office.
2.11 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or
delivering written notice by facsimile transmission or by hand, to his or her
last known business or home address at least 48 hours in advance of the meeting,
or (iii) by mailing written notice to his or her last known business or home
address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
<PAGE>
- 9 -
2.12 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
--------------------------------------
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall be deemed
to constitute presence in person at such meeting.
2.13 QUORUM. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the total number of the whole Board of Directors constitute a quorum.
In the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
2.14 ACTION AT MEETING. At any meeting of the Board of Directors at
-----------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.15 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
-------------------------
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.16 REMOVAL. Unless otherwise provided in the Certificate of
-------
Incorporation, any one or more or all of the directors may be removed, only for
cause, by the holders of at least seventy-five percent (75%) of the shares then
entitled to vote at an election of directors.
2.17 COMMITTEES. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. 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
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine or as provided herein, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in
<PAGE>
- 10 -
such rules, its business shall be conducted as nearly as possible in the same
manner as is provided in these By-Laws for the Board of Directors. Adequate
provisions shall be made for notice to members of all meeting of committees.
One-third (1/3) of the members of any committee shall constitute a quorum unless
the committee shall consist of one (1) or two (2) members, in which event one
(1) member shall constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
2.18 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.19 AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
---------------------
the Certificate of Incorporation or these By-Laws, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of a least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 2.
ARTICLE 3 - OFFICERS
--------------------
3.1 ENUMERATION. The officers of the Corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including, but not limited to,
a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing such officer, or until his or her earlier death,
resignation or removal.
<PAGE>
- 11 -
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
-----------------------
or her written resignation to the Chairman of the Board (if any), to the Board
of Directors at a meeting thereof, to the Corporation at its principal office or
to the President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his or her resignation or removal, or any right to damages
on account of such removal, whether his or her compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the Corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Chairman
----------------------------------------------------
of the Board, if any, shall preside at all meetings of the Board of Directors
and stockholders at which he or she is present and shall perform such duties and
possess such powers as are designated by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he or she shall, in the absence
or disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be designated by the Board of
Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
---------
Board of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, and provided
that there is no Chairman of the Board or that the Chairman and Vice-Chairman,
if any, are not available, the President shall preside at all meetings of the
stockholders, and, if a director, at all meetings of the Board of Directors.
Unless the Board of Directors has designated another officer as the Chief
Executive Officer, the President shall be the Chief Executive Officer of the
Corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe. The
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be
<PAGE>
- 12 -
subject to all the restrictions upon the President. The Board of Directors may
assign to any Vice President the title of Executive Vice President, Senior Vice
President or any other title selected by the Board of Directors. Unless
otherwise determined by the Board of Directors, any Vice President shall have
the power to enter into contracts and otherwise bind the Corporation in matters
arising in the ordinary course of the Corporation's business.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
-----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds of
the Corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts for such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
Corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the Corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
<PAGE>
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3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
-------------------------------------------------------
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE 4 - CAPITAL STOCK
-------------------------
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation
---------------------
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by such stockholder in the Corporation. Each such certificate shall be
signed by, or in the name of the Corporation by, the Chairman or Vice-Chairman,
if any, of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. Any or all of the signatures on such certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the Corporation shall have conspicuously noted on the
face or back of such certificate either the full text of such restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate representing such shares,
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
<PAGE>
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4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the
President may require for the protection of the Corporation or any transfer
agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or, to the extent permitted by the
Certificate of Incorporation and these By-laws, to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other action
to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting (to the extent
permitted by the Certificate of Incorporation and these By-laws) when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
------------------------------
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
-----------
resolution of the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
--------------
be approved by the Board of Directors.
5.3 NOTICES. Except as otherwise specifically provided herein or
-------
required by law or the Certificate of Incorporation, all notices required to be
given to any stockholder, director, officer, employee or agent of the
Corporation shall be in writing and may in every instance be effectively given
by hand delivery to the recipient thereof, by depositing such notice in the
mails, postage paid, or by sending such notice by prepaid telegram or facsimile
transmission. Any such
<PAGE>
- 15 -
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received shall be deemed to be the
time of the giving of the notice.
5.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, facsimile transmission
or any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
Corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of such action.
5.6 FACSIMILE SIGNATURES. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
----------------------------------------
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
5.8 TIME PERIODS. In applying any provision of these By-Laws that
------------
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
5.9 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
----------------------------
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
5.10 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
------------------------------------
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because such director or officer is present at or
participates in the
<PAGE>
- 16 -
meeting of the Board of Directors or a committee of the Board of Directors which
authorizes the contract or transaction or solely because his, her or their votes
are counted for such purpose, if:
(1) The material facts as to his or her 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 or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his or her 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
(3) 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 of the Board of Directors, 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.
5.11 SEVERABILITY. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.12 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the persons or persons so designated may require.
ARTICLE 6 - AMENDMENTS
----------------------
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in
-------------------------
these By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws
may be adopted, by the affirmative vote of a majority of the directors present
at any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these By-
-------------------
Laws, these By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of seventy-five percent (75%) of
the shares of the capital stock of the Corporation issued and outstanding and
entitled to vote at any regular meeting of stockholders, or at any special
meeting of stockholders, provided notice of such alteration, amendment, repeal
or adoption of new by-laws shall have been stated in the notice of such special
meeting.
<PAGE>
EXHIBIT 10.1
SEACHANGE INTERNATIONAL, INC.
AMENDED AND RESTATED
--------------------
1995 STOCK OPTION PLAN
----------------------
1. PURPOSE. The purpose of this Amended and Restated 1995 Stock Option
-------
Plan (the "Plan") is to encourage employees of SeaChange International, Inc.
(the "Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations"), and other individuals who render
services to the Company or a Related Corporation, by providing opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" ("ISOs") under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") and options which do not
qualify as ISOs ("Non-Qualified Options"). Both ISOs and Non-Qualified Options
are referred to hereafter individually as an "Option" and collectively as
"Options." As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation," respectively, as those terms are
defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
---------------------------
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
---------------------------------
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee").Hereinafter, all references in
this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each
Option by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee shall have the authority to (i)
determine to whom (from among the class of employees eligible under
paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among
the class of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options) Non-Qualified Options may be granted; (ii) determine
the time or times at which Options shall be granted; (iii) determine the
exercise price of shares subject to each Option, which price shall not be
less than the minimum price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) extend the
period during which outstanding Options may be exercised; (vii) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to Options and the nature of such restrictions, if any; and (viii)
interpret the Plan and prescribe and rescind rules and regulations relating
to it. If the Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under Section 422 of the
Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Option granted under it
shall be final unless otherwise determined by the Board. The Committee may
from time to time adopt such rules and regulations for carrying out the
Plan as it may deem advisable. No member of the Board or the Committee
shall be liable for any action
<PAGE>
- 2 -
or determination made in good faith with respect to the Plan or any Option
granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members
-----------------
as its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts
by a majority of the members of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by a majority
of the members of the Committee (if consistent with applicable state law),
shall constitute the valid acts of the Committee. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. GRANT OF OPTIONS TO BOARD MEMBERS. Options may be granted to
---------------------------------
members of the Board. All grants of Options to members of the Board shall
in all respects be made in accordance with the provisions of this Plan
applicable to other eligible persons. Members of the Board who either (i)
are eligible to receive grants of Options pursuant to the Plan or (ii) 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 to himself or herself of
Options, but any such member may be counted in determining the existence of
a quorum at any meeting of the Board during which action is taken with
respect to the granting to such member of Options.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion,
------------------------------
may take such action as may be necessary to ensure that Options granted
under the Plan qualify as "qualified performance-based compensation" within
the meaning of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the following (i) if the
Board determines that Options granted under the Plan generally shall
constitute Performance-Based Compensation, the Plan shall be administered,
to the extent required for such Options to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with an exercise
price less than the fair market value per share of Common Stock are granted
under the Plan and the Board determines that such Options should constitute
Performance-Based Compensation, such Options shall be made exercisable only
upon the attainment of a pre-established, objective performance goal
established by the Committee, and such grant shall be submitted for, and
shall be contingent upon shareholder approval and (iii) Options granted
under the Plan may be subject to such other terms and conditions as are
necessary for compensation recognized in connection with the exercise or
disposition of such Option or the disposition of Common Stock acquired
pursuant to such Option, to constitute Performance-Based Compensation.
<PAGE>
- 3 -
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
-----------------------------
of the Company or any Related Corporation. Non-Qualified Options may be granted
to any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO or a Non-Qualified Option. The granting of any Option to any
individual or entity shall neither entitle that individual or entity to, nor
disqualify such individual or entity from, participation in any other grant of
Options.
4. STOCK. The stock subject to Options shall be authorized but unissued
-----
shares of Common Stock of the Company, par value $0.01 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is
1,300,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the shares subject to such
Option shall again be available for grants of Options under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 910,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF OPTIONS. Options may be granted under the Plan at any
-------------------
time after August 25, 1995 and prior to August 24, 2005. The date of grant of
an Option under the Plan will be the date specified by the Committee at the time
it grants the Option; provided, however, that such date shall not be prior to
the date on which the Committee acts to approve the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-------------------------------------
A. PRICE FOR NON-QUALIFIED OPTIONS. Subject to Paragraph 2D
-------------------------------
(relating to compliance with Section 162(m) of the Code), the exercise
price per share specified in the agreement relating to each Non-Qualified
Option granted under the Plan shall in no event be less than the minimum
legal consideration required therefor under the laws of any jurisdiction in
which the Company or its successors in interest may be organized.
B. PRICE FOR ISOs. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on
<PAGE>
- 4 -
the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
-----------------------------------------
employee may be granted Options treated as ISOs only to the extent that, in
the aggregate under this Plan and all incentive stock option plans of the
Company and any Related Corporation, ISOs do not become exercisable for the
first time by such employee during any calendar year with respect to stock
having a fair market value (determined at the time the ISOs were granted)
in excess of $100,000. The Company intends to designate any Options granted
in excess of such limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date,
the last business day for which such prices or quotes are available prior
to the date of grant and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the
Nasdaq National Market. If the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be
deemed to be the fair value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of
the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs
9 and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the
-------
date of grant or shall become exercisable thereafter in such installments
as the Committee may specify.
<PAGE>
- 5 -
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
-----------------------
accelerate the date on which any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of
an optionee, accelerate the permitted exercise date of any installment of
any Option granted to any employee as an ISO (and not previously converted
into a Non-Qualified Option pursuant to paragraph 16) if such acceleration
would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
-------------------------
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate after the passage of
three months from the date of termination of his or her employment, but in no
event later than on their specified expiration dates, except to the extent that
such ISOs (or unexercised installments thereof) have been converted into Non-
Qualified Options pursuant to paragraph 16. For purposes of this paragraph 9,
employment shall be considered as continuing uninterrupted during any bona fide
leave of absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute or by contract. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under this paragraph 9, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any optionee the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
10. DEATH; DISABILITY.
-----------------
A. DEATH. If an ISO optionee ceases to be employed by the Company
-----
and all Related Corporations by reason of his or her death, any ISO owned
by such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary
who has acquired the ISO by will or by the laws of
<PAGE>
- 6 -
descent and distribution, until the earlier of (i) the specified expiration
date of the ISO or (ii) 180 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her
on the date of termination of employment, to the extent of the number of
shares with respect to which he or she could have exercised it on that
date, until the earlier of (i) the specified expiration date of the ISO or
(ii) 180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code
or any successor statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
-------------
optionee except by will, or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Options
other than ISOs shall be transferable to the extent set forth in the agreement
relating to such Option.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger or other reorganization in
which the holders of the
<PAGE>
- 7 -
outstanding voting stock of the Company immediately preceding the
consummation of such event, shall, immediately following such event, hold,
as a group, less than a majority of the voting securities of the surviving
or successor entity, or in the event of a sale of all or substantially all
of the Company's assets or otherwise (each, an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations
of the Company hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares then subject
to such Options either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value
of which shall not materially exceed the fair market value of the shares of
Common Stock subject to such Options immediately preceding the Acquisition;
or (ii) upon written notice to the optionees, provide that all Options must
be exercised, to the extent then exercisable or to be exercisable as a
result of the Acquisition, within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to
the extent then exercisable or to be exercisable as a result of the
Acquisition) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he or she would have received if he or she had exercised
such Option prior to such recapitalization or reorganization.
D. MODIFICATION OF ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs or would cause adverse
tax consequences to the holders, it may refrain from making such
adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
-----------------------
issuance by the Company 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
<PAGE>
- 8 -
respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other
than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under
-----------------
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described
-----------
in subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Options which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of a Option shall not
have the rights of a shareholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. The 1995 Stock Option Plan was adopted by
--------------------------
the Board on August 25, 1995 and approved by the stockholders of the Company on
October 23, 1995. This Plan was adopted by the Board on September 6, 1996,
subject, with respect to the validation of ISOs granted under the Plan in excess
of 468,500 shares, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders of the Amended and Restated Plan is not obtained prior
to September 6, 1997, any grants of ISOs under the Plan in excess of 468,500
<PAGE>
- 9 -
shares made prior to that date will be rescinded. The Plan shall expire at the
end of the day on August 24, 2005 (except as to Options outstanding on that
date). Subject to the provisions of paragraph 5 above, Options may be granted
under the Plan prior to the date of stockholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the stockholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased
(except by adjustment pursuant to paragraph 13); (b) the provisions of paragraph
3 regarding eligibility for grants of ISOs may not be modified; (c) the
provisions of paragraph 6(B) regarding the exercise price at which shares may be
offered pursuant to ISOs may not be modified (except by adjustment pursuant to
paragraph 13); and (d) the expiration date of the Plan may not be extended.
Except as otherwise provided in this paragraph 15, in no event may action of the
Board or stockholders alter or impair the rights of an optionee, without such
optionee's consent, under any Option previously granted to such optionee.
16. MODIFICATIONS OF ISOs; CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS.
--------------------------------------------------------------------
Subject to Paragraph 13D, without the prior written consent of the holder of an
ISO, the Committee shall not alter the terms of such ISO (including the means of
exercising such ISO) if such alteration would constitute a modification (within
the meaning of Section 424(h)(3) of the Code). The Committee, at the written
request or with the written consent of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but shall not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. Upon the taking of such action, the
Company shall issue separate certificates to the optionee with respect to
Options that are Non-Qualified Options and Options that are ISOs.
17. APPLICATION Of FUNDS. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
<PAGE>
- 10 -
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to an
arm's-length transaction, the making of a Disqualifying Disposition (as defined
in paragraph 18), the vesting or transfer of restricted stock or securities
acquired on the exercise of a Option hereunder, or the making of a distribution
or other payment with respect to such stock or securities, the Company may
withhold taxes in respect of amounts that constitute compensation includible in
gross income. The Committee in its discretion may condition (i) the exercise of
an Option, (ii) the transfer of a Non-Qualified Stock Option, or (iii) the
vesting or transferability of restricted stock or securities acquired by
exercising an Option, on the optionee's making satisfactory arrangement for such
withholding. Such arrangement may include payment by the optionee in cash or by
check of the amount of the withholding taxes or, at the discretion of the
Committee, by the optionee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by optionees in connection with the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
-------------
instruments evidencing Options shall be governed by the laws of the Commonwealth
of Massachusetts, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
<PAGE>
Exhibit 10.8
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT BAYBANK, N.A.
------------------------------------------
- --------------------------------------------------------------------------------
September 25, 1996
THIS AGREEMENT is made between
BAYBANK, N.A. (hereinafter, the "LENDER"), a national banking
association with offices at 7 New England Executive Park, Burlington,
Massachusetts 01803
and
SEACHANGE INTERNATIONAL, INC. (hereinafter, the "BORROWER"), a
Delaware corporation with its principal executive offices at 124 Acton Street,
Maynard, Massachusetts in consideration of the mutual covenants contained herein
and benefits to be derived herefrom.
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT.
- --------------------------------
1-1. Establishment of Revolving Working Capital Credit.
-------------------------------------------------
(a) The Lender hereby establishes a revolving working capital line of
credit (hereinafter, the "WORKING CAPITAL LINE") in the Borrower's favor
pursuant to which the Lender, subject to, and in accordance with, the within
Agreement, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower as provided herein. The
amount of the Working Capital Line shall be determined by the Lender by
reference to Working Capital Line Availability (as defined below), as determined
by the Lender from time to time hereafter. All loans made by the Lender under
this Agreement, and all of the Borrower's other Liabilities (as defined below)
to the Lender under or pursuant to this Agreement, are payable as provided in
Article 12 hereof.
(b) As used herein, the term "WORKING CAPITAL LINE AVAILABILITY"
refers at any time to the lesser of (i) or (ii), below, where:
(i) Is up to: Six Million Dollars ($6,000,000.00) (the "Working
Capital Line Amount").
(ii) Is
(A) 80% of the face amount of each of the Borrower's
domestic based Acceptable Accounts (as defined below),
<PAGE>
plus
(B) 70% of the face amount of each of the Borrower's blue-
chip international Acceptable Accounts (defined herein) with a Standard & Poors
(or similar rating organization acceptable to Lender) rating of no less than
A1P1. Notwithstanding the foregoing, the amount computed in (b)(ii)(B) shall not
exceed either (1) $1,000,000.00, or (2) twenty-five percent (25%) of the amount
of the Working Capital Line Availability (as defined herein).
(c) Working Capital Line Availability shall be based upon Borrowing
Certificates furnished as provided in Section 8-3, below, the Compliance
Certificate furnished as provided in Section 8-10, below, or such other
information which may be required by the Bank.
(d) The proceeds of borrowings under the Working Capital Line shall be
used solely for working capital purposes of the Borrower.
(e) The Lender shall not be obligated to issue letters of credit in
the aggregate amount of more than Two Million Dollars ($2,000,000.00)
outstanding at any time during the term of this Loan. The amounts of such
letters of credit shall be considered loans made hereunder.
1-2. Establishment of Revolving Equipment Line of Credit.
---------------------------------------------------
(a) The Lender hereby establishes a revolving equipment line of credit
(hereinafter, the "EQUIPMENT LINE") in the Borrower's favor pursuant to which
the Lender, subject to, and in accordance with, the within Agreement, shall make
loans and advances and otherwise provide financial accommodations to and for the
account of the Borrower as provided herein. The amount of the Equipment Line
shall be determined by the Lender by reference to Equipment Line Availability
(as defined below), as determined by the Lender from time to time hereafter.
All loans made by the Lender under this Agreement, and all of the Borrower's
other Liabilities (as defined below) to the Lender under or pursuant to this
Agreement, are payable as provided in Article 12 hereof.
(b) As used herein, the term "EQUIPMENT LINE AVAILABILITY" refers at
any time to the lesser of (i) or (ii), below, where:
(i) Is up to: One Million Five Hundred Thousand Dollars
($1,500,000.00) (the "Equipment Line Amount").
(ii) Is (A) 80% of the lesser of (1) the price shown on the
invoices for such amounts, or (2) actual cost, excluding, in each case, any
associated "soft" charges (including, without limitation, professional fees,
installation fees, extended warranty charges, training, and the like).
-2-
<PAGE>
(c) Equipment Line Availability shall also be based upon the
Compliance Certificate furnished as provided in Section 8-10, below, or such
other information which may be required by the Bank.
(d) The proceeds of borrowings under the Equipment Line shall be used
solely for the purchase of computer equipment, furniture, and other general
fixed assets, subject to the Lender's prior approval in each instance and also
subject to the granting of first perfected security interests, acceptable to the
Lender, in the Acquired Assets.
1-3. Advances in Excess of Availability. The Lender does not have
----------------------------------
any obligation to make any loan or advance, or otherwise to provide any credit
for the benefit of the Borrower such that the outstanding principal balance of
the Loan Account (defined below) would exceed Availability. The making of
loans, advances, and credits and the providing of financial accommodations by
the Lender in excess of Availability is for the benefit of the Borrower and does
not limit the obligations of the Borrower hereunder; such loans constitute
Liabilities. The making of any such loans, advances, and credits and the
providing of financial accommodations in excess of Availability on any one
occasion shall not obligate the Lender to make any such loans, credits, or
advances or to provide any financial accommodation on any other occasion nor to
permit such loans, credits, or advances to remain outstanding.
1-4. Risks of Value of Assets. The Lender's reference to a given
------------------------
asset for monitoring concerning the Lender's making of loans, credits, and
advances and the providing of financial accommodations under the Revolving
Credit shall not be deemed a determination by the Lender relative to the actual
value of the asset in question. All risks of the creditworthiness of all
Accounts and Accounts Receivable are and remain upon the Borrower. Reference by
the Lender to a particular Account owed by a particular Account Debtor for
guidance and/or monitoring shall not obligate the Lender to rely upon any other
Account owed by the same Account Debtor to be acceptable for the Lender or to
continue to rely upon that account. All Collateral (defined below) secures the
prompt, punctual, and faithful performance of the Liabilities whether or not
relied upon by the Lender in connection with the making of loans, credits, and
advances and the providing of financial accommodations under the Revolving
Credit.
1-5. Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request loans and advances under the Revolving
Credit from time to time hereunder, in each instance in accordance with the
terms of this Agreement or such procedures as may from time to time be
acceptable to the Lender.
(b) With respect to loans and advances:
(i) The Borrower may request a Libor Rate Loan (as defined herein)
by making such request in writing, at least two (2) business days prior to any
disbursement hereunder;
-3-
<PAGE>
(ii) The Borrower may request any Base Rate Loan (as defined
herein) by making such request, in writing, by 12:00 noon on the day before such
disbursement is requested hereunder; and
(iii) There may be partial conversions of the outstanding balances
hereunder to loans of another type, subject to the restrictions herein.
(c) Subject to the terms and conditions contained herein, the Borrower
may elect from time to time to convert a loan of one type to a loan of another
type provided that (i) with respect to any such conversion to a Libor Rate Loan,
written notice of such election shall be given to the Lender at least two (2)
Business Days' prior to such election, and (ii) with respect to any conversion
to, or rollover of, a Libor Rate Loan, the Borrower may only convert to or
rollover such loans in minimum amounts of $1,000,000.00, and, if greater, in
minimum increments of $250,000.00, and (iii) with respect to any conversion from
a Libor Rate Loan, such conversion may only be effective at the expiration of
the subject Interest Period.
(d) The Lender, subject to the terms and conditions of the within
Agreement, will provide the Borrower with the loan so requested, as follows:
(i) Each request for a Libor Rate Loan under the Working Capital
Line shall be in minimum amounts of $1,000,000.00, and if greater, in
$250,000.00 increments.
(ii) Each request for a Base Rate Loan shall be in minimum amounts
of $250,000.00.
(iii) Provided that there is sufficient Availability to support
the same, (but subject, however, to Subsection 1-5(g), below (which deals with
the effect of a Suspension Event)), a loan or advance under the Revolving Credit
so requested by the Borrower shall be made by the transfer of the proceeds of
such loan or advance to an account maintained by the Borrower with the Lender.
(iv) A loan or advance shall be deemed to have been made under the
Revolving Credit upon the charging of the amount of such loan to the Loan
Account.
(v) There shall not be any recourse to, nor liability of, the
Lender on account of any of the following:
(A) any delay in the Lender's making of any loan or advance
requested under the Revolving Credit.
(B) any delay in the proceeds of any such loan or advance
constituting collected funds; or
(C) any delay in the receipt, and/or any loss, of funds
which constitute a loan or advance under the Revolving Credit, the wire transfer
of which was properly
-4-
<PAGE>
initiated by the Lender in accordance with wire instructions provided to the
Lender by the Borrower.
(vi) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(e) A request by the Borrower for any financial accommodation under
the Revolving Credit shall be irrevocable and shall constitute certification by
the Borrower that as of the date of such request, each of the following is true
and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished the
Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached any
of its covenants contained in this Agreement, unless the Bank is advised of such
breach, in writing, contemporaneously with such request for financial
accommodation.
(iii) Each representation which is made herein or in any of the
Loan Documents (defined below) is then true and complete as of and as if made on
the date of such request.
(iv) No Suspension Event (defined herein) is then extant.
(f) The Borrower shall immediately become indebted to the Lender for
the amount of each loan under or pursuant to this Agreement when such loan is
deemed to have been made.
(g) Upon the occurrence from time to time of any Suspension Event, the
Lender may suspend advances under the Revolving Credit immediately and shall not
be obligated, during such suspension, to make any loans or to provide any
financial accommodation hereunder, except that letters of credit previously
issued and outstanding shall remain outstanding until their stated expiration.
1-6. The Loan Account.
----------------
(a) An account (hereinafter, the "LOAN ACCOUNT") may be opened on the
books of the Lender, in which Loan Account a record may be kept of all loans
made by the Lender to the Borrower under or pursuant to this Agreement and of
all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs,
-5-
<PAGE>
expenses, and other debits owed the Lender on account of the Liabilities and of
all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable ON
DEMAND. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit whether or not such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance under
the Revolving Credit any interest, fee, service charge, or other payment to
which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-8(c),
below. Any amount which is added to the principal balance of the Loan Account
as provided in this Subsection shall bear interest at the interest rate
applicable from time to time to the unpaid principal balance of the Loan
Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within thirty (30) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-7. The Master Notes. The obligation to repay loans and advances
-----------------
under the Revolving Credit, with interest as provided herein, shall be evidenced
by notes (hereinafter, the "MASTER NOTES") in the forms executed by the Borrower
this date. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender upon receipt of a
certification by the Lender as to the loss, mutilation, or destruction of said
Master Note or Notes.
1-8. Payment of Loan Account.
-----------------------
(a) Working Capital Line. The Borrower may repay all or any portion
--------------------
of the principal balance of the Working Capital Line from time to time until the
termination of the Working Capital Line (as to which, see Article 12, below).
-6-
<PAGE>
(b) Equipment Line. The Borrower may repay all or any portion of the
--------------
principal balance of the Equipment Line from time to time until the termination
of the Equipment Line (as to which, see Article 12, below). Any advances made
by the Lender after such date, if any, shall be payable ON DEMAND. The Borrower
shall repay the outstanding principal and interest under the Equipment Line
beginning on the first day of the seventh (7th) calendar month after the
execution of this Agreement, and continuing on the first day of every calendar
month thereafter, in thirty (30) monthly payments of (i) principal, which
payments shall be computed by the Lender based upon (A) the then outstanding
principal balance of the Equipment Line, and (B) an amortization schedule of
equal monthly principal payments over thirty (30) months, plus (ii) interest on
the outstanding principal balance of the Equipment Line. The final payment
shall be equal to the principal amount outstanding, together with all other
amounts outstanding under the Equipment Line.
(c) The Borrower, without notice or demand from the Lender, shall pay
the Lender that amount, from time to time, which is necessary so that the
principal balance of the subject Loan Account does not exceed the applicable
Availability.
(d) The Borrower shall repay the then entire unpaid balance of the
Loan Account as provided in Article 12 hereof.
1-9. Interest.
--------
(a) Calculation. The unpaid amount of each loan advance credited to
-----------
the Loan Account shall bear interest, until repaid (calculated based upon a 360-
day year and actual days elapsed), at the applicable interest rate specified
below:
(i) Working Capital Line. Except as otherwise provided below, all
--------------------
loans and advances made to the Borrower under the Working Capital Line shall
bear interest, until repaid, at the Borrower's option (to be exercised as
provided below) (the "Interest Rate Option") of either:
(1) the Lender's "Base Rate" of interest (as defined below)
(each advance under the Revolving Credit bearing interest calculated based on a
Base Rate is hereinafter individually referred to as a "Base Rate Loan" and
collectively referred to as the "Base Rate Loans"), or
(2) a per annum interest rate equal to the aggregate of the
Libor Rate (as defined below) plus two hundred twenty-five (225) basis points,
determined two (2) Libor Business Days prior to the commencement of the
applicable Interest Period (as defined below) for either thirty (30), sixty
(60), or ninety (90) days, for principal amounts outstanding and/or to be
advanced under the Working Capital Line (each advance under the Working Capital
Line bearing interest calculated based upon a Libor Rate is hereinafter referred
to individually as a "Libor Rate Loan" and collectively as "Libor Rate Loans"
and the term selected for any Libor Rate Loan shall be referred to as the
"Interest Period"). Unless the Borrower notifies the Lender in writing by 10:00
a.m. Boston, Massachusetts time at least two (2) Libor Business Days before the
last day of the Interest Period of a Libor Rate Loan, that Borrower elects to
roll over such
-7-
<PAGE>
Libor Rate Loan for an additional thirty (30), sixty (60), ninety (90) days, at
the aggregate of the then current Libor Rate plus two hundred twenty-five (225)
----
basis points, such Libor Rate Loan, unless an Event of Default (as defined
herein) is then existing under the Working Capital Line, shall convert to a Base
Rate Loan under the Working Capital Line on the first day following the end of
such Interest Period.
(ii) Equipment Line. Except as otherwise provided below, all
advances made to the Borrower under the Equipment Line shall bear interest until
repaid, at the Lender's "Base Rate" of interest (as defined herein).
(iii) Availability of Libor Rate. Notwithstanding anything to the
--------------------------
contrary contained herein, if there exists any period of time for which a Libor
Rate is not available, for any reason as determined by the Lender, all such
requests for Libor Rate Loans under the Working Capital Line shall accrue
interest (based upon a 360-day year and actual day months) at the Lender's Base
Rate.
(iv) Election of Libor Rate or Base Rate. The Borrower shall elect
-----------------------------------
either a Libor Rate Loan or a Base Rate Loan at the time of each borrowing
request, pursuant to the terms and conditions of Section 1-5, above. Subject to
other restrictions contained in this Agreement, the Borrower may elect to treat
part of a Working Capital Line as a Libor Rate Loan, and/or a Base Rate Loan.
(v) Indemnification. The Borrower hereby indemnifies the Lender
---------------
and agrees to hold the Lender harmless from and against any loss, cost, or
expense (including loss of anticipated profits) that the Lender may sustain or
incur as a consequence of (a) default by the Borrower in payment of any interest
on a Libor Rate Loan as and when due and payable, including any such loss or
expense arising from interest or fees payable by the Lender to lenders of funds
obtained by it in order to maintain a Libor Rate Loan, or (b) the making of any
principal payment (whether voluntarily or after acceleration by the Lender
pursuant to its rights hereunder) of a Libor Rate Loan on a day that is not the
last day of the applicable Interest Period with respect thereto, including
interest or fees payable by the Lender to lenders of funds obtained by it in
order to maintain any such Libor Rate Loan.
(vi) Restrictions. All of the forgoing provisions relating to
------------
Interest Period are subject to the following:
(1) If any Interest Period with respect to a Libor Rate Loan
would otherwise end on a day that is not a Libor Business Day (as defined
herein), that Interest Period shall be extended to the next succeeding Libor
Business Day and interest shall accrue during such extension;
(2) The Borrower may not request an Interest Period relating
to any Libor Rate Loan that would otherwise extend beyond the maturity date of
the Working Capital Line.
-8-
<PAGE>
(b) Interest Payments. All interest payments under the Revolving
-----------------
Credit, including all Libor Rate Loans, shall be payable in arrears on the first
day of each month.
(c) Event of Default. Upon the occurrence of an Event of Default (as
----------------
defined below) and while such Event of Default remains uncured, as provided
herein, the outstanding balance of loans and advances under the Revolving
Credit shall accrue interest at the aggregate of the Lender's Base Rate plus
four percent (4.0%) per annum.
(d) Prepayment Premium. The Borrower shall have the right to prepay,
------------------
in whole or in part, at any time or times, without penalty or premium, any loans
or advances hereunder, with the exception of Libor Rate Loans.
1-10. Facility Fee.
-------------
(a) As compensation for the Lender's commitment included herein to
make loans and advances to the Borrower and as compensation for the Lender's
maintenance of sufficient funds available for such purpose, the Lender shall
earn a FACILITY FEE (so referred to herein), which fee shall be paid quarterly,
on a calendar year basis, in arrears, for each of the Working Capital Line and
the Equipment Line, in an amount equal to one quarter of one percent (.25%) per
annum of the average unused portion of the Working Capital Line Amount and
Equipment Line Amount (computed on a daily basis), as determined by the Lender,
for the subject quarter.
(b) The Borrower shall not be entitled to any credit, rebate or
repayment of any Facility Fee previously earned by the Lender pursuant to this
Section notwithstanding any termination of the within Agreement or suspension or
termination of the Lender's obligation to make loans and advances hereunder.
1-11. Lender's Discretion.
-------------------
(a) Each reference in the Loan Documents to the Lender's exercise of
discretion or the like shall be to the Lender's exercise of its judgement in
accordance with its standard practice, in good faith (which shall be presumed),
based upon the Lender's consideration of any such factors as the Lender, taking
into account information of which the Lender then has actual knowledge,
believes:
(i) Will or reasonably could be expected to affect the value of
the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information delivered
to the Lender by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with the
requirements of the within Agreement.
-9-
<PAGE>
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a Bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgment in accordance with its standard
practice, the Lender also may take into account any of the following factors:
(i) The current financial and business climate of the industry in
which the Borrower competes (having regard for the Borrower's position in that
industry).
(ii) General economic conditions which have a material effect on
the Borrower's cost structure.
(iii) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the Lender's failure to have acted in a
reasonable manner in the Lender's exercise of discretion shall be the
Borrower's.
1-12. Charging of Borrower's Account. In addition to the Lender's
------------------------------
rights set forth in Section 1-6, above, and the Lender's right of set off set
forth in Section 13-14, below, the Borrower authorizes the Lender, without
notice, to charge any account which the Borrower maintains with the Lender for
any payments due from the Borrower to the Lender on account of the Liabilities.
Notwithstanding the foregoing, the Lender shall provide the Borrower with prior
notice with respect to scheduled payments of principal and interest hereunder.
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest. To secure the Borrower's prompt,
--------------------------
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Lender a continuing security
interest in and to, and assigns to the Lender, the following, and each item
thereof, whether now owned or now due, or in which the Borrower has an interest,
or hereafter acquired, arising, or to become due, or in which the Borrower
obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in
which the Lender may in the future be granted a security interest, is referred
to herein as the "COLLATERAL"):
(a) All Accounts and Accounts Receivable.
(b) All Inventory.
(c) All Contract Rights.
(d) All General Intangibles.
-10-
<PAGE>
(e) All Equipment.
(f) All Goods.
(g) All Fixtures.
(h) All Chattel Paper.
(i) All books, records, and information relating to the Collateral
and/or to the operation of the Borrower's business, and all rights of access to
such books, records, and information, and all property in which such books,
records, and information are stored, recorded, and maintained.
(j) All Instruments, Documents of Title, Documents, policies and
certificates of insurance, Securities, deposits, deposit accounts, impressed
accounts, compensating balances, money, cash, or other property;
(k) All insurance proceeds, refunds, and premium rebates, including,
without limitation, proceeds of fire and credit insurance, whether any of such
proceeds, refunds, and premium rebates arise out of any of the foregoing or
otherwise.
(l) All liens, guaranties, rights, remedies, and privileges pertaining
to any of the foregoing (a through j) including the right of stoppage in
transit.
2-2. Extent and Duration of Security Interest. The within grant of a
----------------------------------------
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS.
- -----------------------
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE ACCOUNTS":
(a) Such of the Borrower's Accounts and Accounts Receivable (as
defined below) as arise in the ordinary course of the Borrower's business for
goods sold and/or services rendered by the Borrower, which Accounts and Accounts
Receivable have been determined by the Lender to be satisfactory and have been
earned by performance and are owed to the Borrower by such of the Borrower's
trade customers as the Lender determines to be satisfactory, in the Lender's
sole discretion in each instance.
(b) The following is a partial listing of those types of accounts or
accounts receivable which are not Acceptable Accounts:
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<PAGE>
(i) Any which is more than sixty (60) days past due as shown on
the agings of the Borrower's accounts receivable furnished the Lender from time
to time (each of which agings shall be prepared in accordance with generally
accepted auditing standards).
(ii) Any which is owed by any Account Debtor (as defined herein)
with respect to which twenty percent (20.0%) or more of whose accounts are not
Acceptable Accounts hereunder.
(iii) Any which, when aggregated with all of the accounts of that
Account Debtor, exceeds twenty percent (20.0%) of the then aggregate of
Acceptable Accounts.
(iv) Any which arises out of the sale by the Borrower of goods
consigned or delivered to the Borrower or to the Account Debtor on sale or
return terms (whether or not compliance has been made with Section 2-326 of the
Uniform Commercial Code).
(v) Any which arises out of any sale made on a basis other than
upon terms usual to the business of the Borrower.
(vi) Any which arises out of any sale made on a "bill and hold,"
dating, a pre-billed basis, or delayed shipping basis.
(vii) Any which is owed by any Account Debtor whose principal
place of business is not within the continental United States or the District of
Columbia, except those accounts receivable approved by the Lender in writing.
(viii) Any which is owed by any Related Entity.
(ix) Any as to which the Account Debtor holds or is entitled to
any claim, counterclaim, set off, or chargeback.
(x) Any which is evidenced by a promissory note.
(xi) Any which is due and payable to the Borrower in more than
thirty (30) days from invoice.
(xii) Any which is owed by any person employed by, or a
salesperson of, the Borrower.
(xiii) Any which the Lender in its sole discretion considers
unacceptable for any reason.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE": include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
credit card receivables, notes, drafts, acceptances, and other forms of
obligations and receivables and rights to payment for credit extended and for
goods sold or leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the UCC; all Inventory
which gave rise thereto, and all rights associated with such Inventory,
including the right of stoppage in transit;
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<PAGE>
all reclaimed, returned, rejected or repossessed Inventory (if any) the sale of
which gave rise to any Account.
"ACCOUNT DEBTOR": has the meaning given that term in the UCC.
"ACQUIRED ASSETS": is defined as such equipment to be purchased by the
Borrower with the proceeds from the Equipment Line.
"AFFILIATE": means, with respect to any two Persons, a relationship in
which (a) one holds, directly or indirectly, not less than Twenty Five Percent
(25%) of the capital stock, beneficial interests, partnership interests, or
other equity interests of the other; or (b) one has, directly or indirectly,
Control of the other; or (c) not less than Twenty Five Percent (25%) of their
respective ownership is directly or indirectly held by the same third Person.
"AVAILABILITY": is defined as the amounts available for borrowing,
separately, under the Working Capital Line and/or the Equipment Line, as more
particularly described in Sections 1-1(b) and 1-2(b).
"BASE RATE": the Base Rate or Prime Rate announced from time to time
by the Lender. Any change in such Base Rate shall be effective, for purposes of
the calculation of interest due hereunder, when made effective generally by the
Lender.
"BASE RATE LOAN" or "BASE RATE LOANS": are defined in Section 1-9.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BORROWER": is defined in the Preamble.
"BUSINESS DAY": any day other than (a) a Saturday, Sunday; (b) a day
on which the Lender is not open to the general public to conduct business; or
(c) a day on which banks in Boston, Massachusetts generally are not open to the
general public for the purpose of conducting commercial banking business.
"CHATTEL PAPER": has the meaning given that term in the UCC.
"COLLATERAL": is defined in Section 2-1.
"COMPLIANCE CERTIFICATE": is defined in Section 8-10.
"CONTRACT RIGHTS": includes, without limitation, "contract rights" as
now or formerly defined in the UCC and also any right to payment under a
contract not yet earned by performance and not evidenced by an instrument or
Chattel Paper.
"CONTROL": Person(s) shall be deemed to Control another Person if
such Person(s) directly or indirectly possess the power to direct or cause the
direction of the management and policies of such other Person, whether through
ownership of voting securities, by contract, or otherwise.
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<PAGE>
"COSTS OF COLLECTION": includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the administration
of the Liabilities and/or the Loan Documents, including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender,
which costs and expenses are directly or indirectly related to or in respect of
the Lender's: administration and management of the Liabilities; negotiation,
documentation, and amendment of any Loan Document; or efforts to preserve,
protect, collect, or enforce the Collateral, the Liabilities, and/or the
Lender's Rights and Remedies and/or any of the Lender's rights and remedies
against or in respect of any guarantor or other person liable in respect of the
Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection are Liabilities, and at the Lender's option may bear
interest at the highest post-default rate which the Lender may charge the
Borrower hereunder as if such had been lent, advanced, and credited by the
Lender to, or for the benefit of, the Borrower.
"CURRENT LIABILITIES": the total of all indebtedness of the Borrower
which properly may be classified as current liabilities in accordance with GAAP
(defined below).
"DEBT": the aggregate amount of indebtedness of the Borrower which
may be classified as "liabilities" in accordance with GAAP.
"DOCUMENTS": has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": has the meaning given that term in the UCC.
"EMPLOYEE BENEFIT PLAN": as defined in ERISA.
"ENCUMBRANCE": each of the following:
(a) security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any of the
foregoing); the interest of a lessor under a Capital Lease; conditional sale or
other title retention agreement; sale of accounts receivable or chattel paper;
or other arrangement pursuant to which any Person is entitled to any preference
or priority with respect to the property or assets of another Person or the
income or profits of such other Person or which constitutes an interest in
property to secure an obligation; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the UCC or comparable
law of any jurisdiction.
(c) The placement, location, storage, or warehousing of any Inventory
at any place, location, or space where the owner of such place, location, or
space has not provided the Lender with a Landlord's Waiver reasonably
satisfactory to the Lender.
"ENVIRONMENTAL LAWS":
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(a) any and all federal, state, local or municipal laws, rules,
orders, regulations, statutes, ordinances, codes, decrees or requirements which
regulates or relates to, or imposes any standard of conduct or liability on
account of or in respect to environmental protection matters, including, without
limitation, Hazardous Materials, as is now or hereafter in effect; and
(b) the common law relating to damage to Persons or property from
Hazardous Materials.
"EQUIPMENT": includes, without limitation, "equipment" as defined in
the UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds, store fixtures, furniture, and
other goods, property, and assets which are used and/or were purchased for use
in the operation or furtherance of the Borrower's business, and any and all
accessions, additions thereto, and substitutions therefor.
"EQUIPMENT LINE": is defined in Section 1-2.
"EQUIPMENT LINE AMOUNT": is defined in Section 1-2(b).
"EQUIPMENT LINE AVAILABILITY": is defined in Section 1-2.
"EQUIPMENT LINE MATURITY DATE": is defined in Section 12 .
"ERISA": the Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": is defined in Article 9.
"FACILITY FEE": is defined in Section 1-9.
"FIXED COSTS": is defined as the mandatory principal payments due (to
any lender) within the next twelve (12) months, plus fixed minimum rents with
respect to real property or equipment due over the next twelve (12) months, plus
payments due or capital and operating leases over the next twelve (12) months,
all calculated in accordance with GAAP.
"FIXTURES": has the meaning given that term in the UCC.
"GAAP": principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in respect of
which reference to GAAP is being made.
"GENERAL INTANGIBLES": includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to
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<PAGE>
the Borrower; credit memoranda in favor of the Borrower; warranty claims; tax
refunds and abatements; insurance refunds and premium rebates; all means and
vehicles of investment or hedging, including, without limitation, options,
warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other
agreement; literary rights; rights to performance; royalties; license and/or
franchise fees; rights of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and other intellectual
property; developmental ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals;
technical data; computer software programs (including the source and object
codes therefor), computer records, computer software, rights of access to
computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets rights,
copyrights, mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all good will relating thereto; applications for
registration of the foregoing; and all other general intangible property of the
Borrower in the nature of intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by the Borrower.
"GOODS": has the meaning given that term in the UCC.
"HAZARDOUS MATERIALS": any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any of the
foregoing) are defined or regulated as a hazardous material in or under any
Environmental Law and (b) oil in any state.
"INDEBTEDNESS": all indebtedness and obligations of or assumed by any
Person: (i) in respect of money borrowed (including any indebtedness which is
non-recourse to the credit of such Person but which is secured by an Encumbrance
on any asset of such Person) or evidenced by a promissory note, bond, debenture
or other written obligation to pay money; (ii) for the payment, deferred for
more than Thirty (30) days, of the purchase price of goods or services (other
than current trade liabilities of such Person incurred in the ordinary course of
business and payable in accordance with customary practices); (iii) in
connection with any letter of credit or acceptance transaction (including,
without limitation, the face amount of all letters of credit and acceptances
issued for the account of such Person or reimbursement on account of which such
Person would be obligated); (iv) in connection with the sale or discount of
accounts receivable or chattel paper of the Borrower; (v) on account of deposits
or advances; and (vi) as lessee under Capital Leases. "Indebtedness" of any
Person shall also include: (x) Indebtedness of others secured by an Encumbrance
on any asset of such Person, whether or not such Indebtedness is assumed by such
Person; (y) Any guaranty, endorsement, suretyship or other undertaking pursuant
to which that Person may be liable on account of any obligation of any
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<PAGE>
third party; and (z) the Indebtedness of a partnership or joint venture in which
such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON": is defined in Section 13-11.
"INSTRUMENTS": has the meaning given that term in the UCC.
"INTEREST PERIOD": is defined in Section 1-9.
"INVENTORY": includes, without limitation, "inventory" as defined in
the UCC and also all: packaging, advertising, and shipping materials related to
any of the foregoing, and all names or marks affixed or to be affixed thereto
for identifying or selling the same; Goods held for sale or lease or furnished
or to be furnished under a contract or contracts of sale or service by the
Borrower, or used or consumed or to be used or consumed in the Borrower's
business; Goods of said description in transit: returned, repossessed and
rejected Goods of said description; and all documents (whether or not
negotiable) which represent any of the foregoing.
"LEASE": any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use or occupancy
of any space.
"LENDER": is defined in Preamble.
"LENDER'S RIGHTS AND REMEDIES": is defined in Section 10-6.
"LETTER OF CREDIT": is any letter of credit issued by the Lender at
the request of the Borrower.
"LIABILITIES": includes, without limitation, all and each of the
following, whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance, indebtedness, note,
obligation, overdraft, or amount now or hereafter owing by the Borrower to the
Lender (including all future advances whether or not made pursuant to a
commitment by the Lender), whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct, Indirect,
absolute, contingent, or of any other type, nature, or description, or by reason
of any cause of action which the Lender may hold against the Borrower.
(c) All notes and other obligations of the Borrower now or hereafter
assigned to or held by the Lender, each of every kind, nature, and description.
(d) All interest, fees, and charges and other amounts which may be
charged by the Lender to the Borrower and/or which may be due from the Borrower
to the Lender from time to time.
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(e) All costs and expenses incurred or paid by the Lender in respect
of any agreement between the Borrower and the Lender or instrument furnished by
the Borrower to the Lender (including, without limitation, Costs of Collection,
attorneys' reasonable fees, and all court and litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the Lender and
any and all obligations of the Borrower to act or to refrain from acting in
accordance with any agreement between the Borrower and the Lender or instrument
furnished by the Borrower to the Lender.
"LIBOR BUSINESS DAY": is defined as any day on which the Lender is
open for business, and commercial lenders are open for international business
(including dealings in dollar deposits) in the London interbank market as may be
selected by the Lender in its sole discretion acting in good faith.
"LIBOR OFFER RATE: means, for any Interest Period, that rate of
interest (rounded upwards, if necessary to the next 1/100th of 1%) determined by
the Lender to be the prevailing rate per annum at which deposits in United
States Dollars are offered to the Lender two (2) Libor Business Days prior to
the beginning of such Interest Period, by first-class banks in the London
Interbank Market in which the Lender regularly participates for delivery on the
first day of such Interest Period for the number of days comprised therein, in
an amount comparable to the amount of the Libor Rate Loan to which such Interest
Period applies.
"LIBOR RATE": means that per annum rate equal to the decimal
equivalent of a fraction, the numerator of which equals the Libor Offer Rate (as
defined herein) and the denominator of which equals an amount equal to (i) one
(1) minus (ii) the Reserve Percentage (as defined herein). Upon the Borrower's
request, the Lender will report to the Borrower, two (2) Libor Business Days
prior to the beginning of any Interest Period, the Libor Rate available to the
Borrower for such Interest Period.
"LIBOR RATE LOAN" or "LIBOR RATE LOANS": is defined in Section 1-9.
"LIQUID ASSETS": is defined as the aggregate of the Borrower's (i)
cash and currency on hand and on deposit, demand deposits and checks held, plus
(ii) short term, highly liquid investments made that are readily convertible to
known amounts of cash, plus (iii) marketable securities, plus (iv) Acceptable
Accounts, less allowances for doubtful Accounts.
"LOAN ACCOUNT": is defined in Section 1-6.
"LOAN DOCUMENTS": the within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 4, below, and each other
instrument or document from time to time executed and/or delivered in connection
with the arrangements contemplated hereby, as each may be amended from time to
time.
"MASTER NOTES": is defined in Section 1-7.
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<PAGE>
"NET WORTH": is defined as the difference between (i) the aggregate
amount of the Borrower's assets and (ii) the aggregate amount of all liabilities
of the Borrower, each of which (assets, and liabilities) are determined in
accordance with GAAP.
"NEGATIVE VARIANCE": a result or condition which is worse than that
which is projected or required by the standard against which the result or
condition is being referenced.
"NET PROFIT": is defined as the aggregate gross revenue after taxes
and other income, including, without limitation, interest income, minus the
aggregate of (i) costs of goods sold, (ii) salary, administration, and general
expenses, and (iii) any other items that are properly treated as expenses under
GAAP.
"OFFICER'S CERTIFICATE": is defined in Section 8-7.
"OPERATING CASH FLOW": shall be equal to the Borrower's net profit,
plus depreciation, plus amortization, and other non-cash charges less unfinanced
capital expenditures made during such period, each calculated in accordance with
GAAP.
"PERSON": any natural person, and any corporation, trust,
partnership, joint venture, or other enterprise or entity.
"PROCEEDS": include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in Sections 2-1, above.
"RECEIPTS": all cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": refers to that portion of the Collateral
which consists of the Borrower's Accounts, Accounts Receivable, Contract Rights,
General Intangibles, Chattel Paper, Instruments, Documents of Title, Documents,
Securities, letters of credit for the benefit of the Borrower, and Bankers'
acceptances held by the Borrower, and any rights to payment.
"RELATED ENTITY": refers to (a) any Affiliate; and (b) any
corporation, trust, partnership, joint venture, or other enterprise which: is a
parent, brother-sister, subsidiary, or affiliate, of the Borrower; could have
such enterprise's tax returns or financial statements consolidated with the
Borrower's; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue
Code of 1986, as amended from time to time) of which the Borrower is a member;
Controls or is Controlled by the Borrower or any Affiliate of the Borrower.
"REQUIREMENT OF LAW": as to any Person: (a)(i) all statutes, rules,
regulations, orders, or other requirements having the force of law and (ii) all
court orders and injunctions, arbitrator's decisions, and/or similar rulings, in
each instance ((i) and (ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other body which has or
claims jurisdiction over such Person, or any property of such Person, or of any
other Person for whose conduct such Person would be responsible; (b) that
Person's charter, certificate
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of incorporation, articles of organization, and/or other organizational
documents, as applicable; and (c) that Person's by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.
"RESERVE PERCENTAGE": means the decimal equivalent of that rate
applicable to the Lender under regulations issued from time to time by the
Lender's federal banking regulator or the Board of Governors of the Federal
Reserve system for determining the maximum reserve requirement of the Lender
with respect to so- called "Euro Currency Liabilities" as defined in such
regulations. The Reserve Percentage applicable to any advances under the
Revolving Credit shall be based upon that in effect two (2) Libor Business Days
prior to the subject Interest Period.
"REVOLVING CREDIT": is defined, individually and collectively, as the
Working Capital Line and the Equipment Line.
"SECURITIES": has the meaning given that term in the UCC.
"SUSPENSION EVENT": any occurrence which (i) is an Event of Default;
or (ii) would become an Event of Default if the notice and/or the running of the
period of time specified for that occurrence were to be given and/or were to run
and such occurrence were not cured within any applicable grace period.
"TANGIBLE NET WORTH": is defined as the difference between (a) Net
Worth (as defined above), and (b) the value of all assets of the Borrower
defined as intangible assets under GAAP, including, without limitation,
capitalized software, good will, and patents owned by the Borrower.
"TERMINATION DATE": is defined as the applicable Working Capital Line
Maturity Date and the Equipment Line Maturity Date.
"UCC": the Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"WORKING CAPITAL LINE": is defined in Section 1-1.
"WORKING CAPITAL LINE AMOUNT": is defined in Section 1-1(b).
"WORKING CAPITAL LINE AVAILABILITY": is defined in Section 1-1.
"WORKING CAPITAL LINE MATURITY DATE": is defined in Section 12.
ARTICLE 4 - CONDITIONS PRECEDENT.
- --------------------------------
Precedent to the effectiveness of this Agreement, the establishment of
the financing arrangements contemplated hereby, and the making of the first loan
under the Revolving Credit, the documents respectively described in Sections 4-1
through and including 4-5, each in form and substance satisfactory to the Lender
shall have been delivered to the Lender, and the
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conditions respectively described in Sections 4-6 through and including 4-8,
shall have been satisfied:
4-1. Corporate Due Diligence.
-----------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Delaware.
(b) Certificates of due qualification, in good standing, issued by the
Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's Secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
4-2. Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
4-3. Landlord's Waivers. Waivers (each in form reasonably satisfactory to
------------------
the Lender) by each of the Borrower's landlords.
4-4. Additional Documents. Such additional instruments and documents as the
--------------------
Lender or its counsel reasonably may require or request.
4-5. Officer's Certificate. Certificate executed by the President of the
---------------------
Borrower, in form of presentation acceptable to the Lender, to be delivered at
the execution of this Agreement, stating that the representations and warranties
made by the Borrower to the Lender in the Loan Documents and in the Certificate
are true and complete as of the date of such Certificate, and that no event has
occurred which is or which, solely with the giving of notice or passage of time
(or both) would be an Event of Default.
4-6. Representations and Warranties. Each of the representations
------------------------------
made by or on behalf of the Borrower in this Agreement or in any of the other
Loan Documents or in any other report, statement, document, or paper provided by
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4-7. No Event of Default. No event shall have occurred, or failed to
-------------------
occur, which occurrence or which failure constitutes, or which, solely with the
passage of time or the giving of notice (or both) would constitute, an Event of
Default.
4-8. No Adverse Change. No event shall have occurred or failed to
-----------------
occur, which occurrence or failure is or is reasonably likely to result in a
materially adverse effect upon the Borrower's financial condition, operating
results, or cash flows from the Borrower's financial condition at March 31,
1996.
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4-9. Financial Reports. The delivery to the Lender of unqualified
-----------------
financial statements audited by Price Waterhouse for the period ending December
31, 1995 with no material change from the company prepared financial statements
for the same period.
4-10. UCC-Termination. The termination of all prior UCC-1 Financing
---------------
Statements (including, without limitation, Silicon Valley Bank).
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
- -------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes those representations, warranties, and covenants included
in the within Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay
--------------------------------------
each Liability when due and shall promptly, punctually, and faithfully perform
each other Liability.
5-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a Delaware corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be desirable or necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver to the Lender all and singular the Loan Documents to which
the Borrower is a party and has all requisite corporate power to perform all and
singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security and mortgage interests by the Borrower as contemplated hereby) ; and
the Borrower's performance under those of the Loan Documents to which it is a
party; the borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
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(ii) Do not contravene in any material respect any provision
of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of, or
the obligation to create or impose, any Encumbrance upon any assets of the
Borrower pursuant to any Requirement of Law or obligation, except pursuant to
the Loan Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5-3. Maintain Accounts. To permit the Lender to monitor the
-----------------
Borrower's financial performance and condition, the Borrower shall maintain the
Borrower's primary depository and operating accounts with the Lender.
5-4. Trade Names.
-----------
(a) EXHIBIT 5-4, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets, over the previous two (2) year period.
(b) Except (i) upon not less than twenty-one (21) days prior written
notice given the Lender, and (ii) in compliance with all other provisions of the
within Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-4.
(c) To the best of the Borrower's knowledge, the conduct by the
Borrower of the Borrower's business does not infringe on the patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
(d) To the best of the Borrower's knowledge, the Borrower owns and
possesses, or has the right to use all patents, industrial designs, trademarks,
trade names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, and other intellectual or
proprietary property of any third Person necessary for the Borrower's conduct of
the Borrower's business.
5-5. Locations. The Collateral, and the books, records, and papers
---------
of Borrower pertaining thereto, are kept and maintained solely at the chief
executive offices of the Borrower stated in the Preamble of this Agreement, and
at those locations which are listed on EXHIBIT 5-
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<PAGE>
5, annexed hereto, which EXHIBIT includes all service bureaus with which any
such records are maintained and the names and addresses of each of the
Borrower's landlords. Except (i) to accomplish sales of Inventory in the
ordinary course of business or (ii) to utilize such of the Collateral as is
removed from such locations in the ordinary course of business (such as motor
vehicles), the Borrower shall not remove any Collateral from said chief
executive offices or those locations listed on EXHIBIT 5-5 without prior
notification to the Lender and further provided that there is no Event of
Default existing hereunder.
5-6. Title to Assets. The Borrower is, and shall hereafter remain,
---------------
the owner of the all of its present and future assets free and clear of all
Encumbrances.
5-7. Indebtedness. The Borrower does not and shall not hereafter have
------------
any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) Purchase money liens, and equipment leases, in the maximum amount
of $750,000.00 (total liability). Such Indebtedness (if any) is listed on
EXHIBIT 5-7, annexed hereto.
(c) Ordinary trade indebtedness incurred in the normal course of the
Borrower's business.
5-8. Insurance Policies.
------------------
(a) EXHIBIT 5-8, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be reasonably satisfactory to
the Lender. All insurance carried by the Borrower shall provide for a minimum
of twenty (20) days' written notice of cancellation to the Lender and all such
insurance which covers the Collateral shall include an endorsement in favor of
the Lender, which endorsement shall provide that the insurance, to the extent of
the Lender's interest therein, shall not be impaired or invalidated, in whole or
in part, by reason of any act or neglect of the Borrower or by the failure of
the Borrower to comply with any warranty or condition of the policy. In the
event of the failure by the Borrower to maintain insurance as required herein,
the Lender, at its option, may obtain such insurance, provided, however, the
Lender's obtaining of such insurance shall not constitute a cure or waiver of
any Event of Default occasioned by the Borrower's failure to have maintained
such insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
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(c) The Borrower shall advise the Lender of each claim made by the
Borrower under any policy of insurance which covers the Collateral (with the
exception of claims up to the aggregate amount of $50,000.00) and will permit
the Lender, at the Lender's option in each instance, to the exclusion of the
Borrower, to conduct the adjustment of each such claim (and of all claims
following the occurrence of any Suspension Event). The Borrower hereby appoints
the Lender as the Borrower's attorney in fact to obtain, adjust, settle, and
cancel any insurance described in this section and to endorse in favor of the
Lender any and all drafts and other instruments with respect to such insurance.
The within appointment, being coupled with an interest, is irrevocable until
this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender. The Lender shall not be liable on account of
any exercise pursuant to said power except for any exercise in actual willful
misconduct and bad faith. The Lender may apply any proceeds of such insurance
against the Liabilities, whether or not such have matured, in such order of
application as the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance now or hereafter obtained by the Borrower and assigned to the Lender.
5-9. Licenses. EXHIBIT 5-9, annexed hereto, is a schedule of all
---------
license, distributor, franchise, and similar agreements issued to, or to which
the Borrower is a party. Each of such agreements is in full force and effect.
No party to any such agreement is in default or violation of any such agreement
and the Borrower has not received any notice or threat of cancellation of any
such agreement.
5-10. Leases. EXHIBIT 5-10, annexed hereto, is a schedule of all
-------
presently effective Leases and Capital Leases. Each of such Leases and Capital
Leases is in full force and effect. No party to any such Lease or Capital Lease
is in default or violation of any such Lease or Capital Lease and the Borrower
has not received any notice or threat of cancellation of any such Lease or
Capital Lease. The Borrower hereby authorizes the Lender at any time upon or
after the occurrence of an Event of Default, or with the Borrower's prior
consent, to contact any of the Borrower's landlords in order to confirm the
Borrower's continued compliance with the terms and conditions of the Lease(s)
between the Borrower and that landlord and to discuss such issues, concerning
the Borrower's occupancy under such Lease(s), as the Lender may determine.
5-11. Material Contracts. EXHIBIT 5-11, annexed hereto, is a
-------------------
schedule of all Material Contracts. Each Material Contract is in full force and
effect. No party to any such Material Contract is in default or violation of
any provision thereof and the Borrower has not received any notice or threat of
cancellation of any such agreement.
5-12. Requirements of Law. The Borrower is in compliance with, and
--------------------
shall hereafter comply with and use its assets in compliance with, all
Requirements of Law. The Borrower has not received any notice of any violation
of any Requirement of Law (whether or not such violation is material), which
violation has not been cured or otherwise remedied.
5-13. Maintain Properties. The Borrower shall:
--------------------
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<PAGE>
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i) The sale of Inventory in compliance with the within
Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
5-14. Pay Taxes.
---------
(a) (i) The federal income tax returns of the Borrower have been
filed with the Internal Revenue Service (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year ending
December 31, 1995, and all deficiencies, assessments, and other amounts asserted
as a result of such examinations have been fully paid or settled. No agreement
is extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes. No issue has been raised by
the Internal Revenue Service which, by application of similar principles,
reasonably could be expected to result in the assertion of a deficiency for any
fiscal year open for examination, assessment, or claim by the Internal Revenue
Service.
(ii) All returns of the Borrower for state and local income, excise,
sales, and other taxes have been filed, except as provided in EXHIBIT 5-14,
attached hereto, for all fiscal years through and including the Borrower's
taxable year December 31, 1995, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes.
No issue has been raised in any such examination which, by application of
similar principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
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<PAGE>
(iii) There are no examinations of or with respect to the Borrower
presently being conducted by the Internal Revenue Service or any state taxing
authority.
(b) The Borrower has, and hereafter shall: pay, as they become due and
payable, all taxes and unemployment contributions and other charges of any kind
or nature levied (unless contested by the Borrower in good faith and in
accordance with such requirements and rules of the relevant taxing authority,
provided notice of same is delivered to the Lender), assessed or claimed against
the Borrower or the Collateral by any person or entity whose claim could result
in an Encumbrance upon any asset of the Borrower or by any governmental
authority; properly exercise any trust responsibilities imposed upon the
Borrower by reason of withholding from employees' pay; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file.
(c) At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-15. No Margin Stock. The Borrower is not engaged in the business
---------------
of extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G.U.T. and X. of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of
any borrowing from the Lender will be used at any time to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
5-16. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed upon the Borrower on account thereof pursuant to ERISA.
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<PAGE>
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
5-17. Hazardous Materials.
-------------------
(a) To the best of the Borrower's knowledge, the Borrower has never:
(i) been legally responsible for any release or threat of release of any
Hazardous Material or (ii) received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of release
of any Hazardous Material from any such site or vessel.
(b) The Borrower shall: (i) dispose of any Hazardous Material only
in compliance with all Environmental Laws and (ii) not store on any site or
vessel occupied or operated by the Borrower and not transport or arrange for the
transport of any Hazardous Material, except if such storage or transport is in
the ordinary course of the Borrower's business and is in compliance with all
Environmental Laws.
(c) The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-18. Litigation. Except as set forth on EXHIBIT 5-18, there is not
----------
presently pending or, to the best of the Borrower's knowledge, threatened by or
against the Borrower any suit, action, proceeding, or investigation which, if
determined adversely to the Borrower, would have a material adverse effect upon
the Borrower's financial condition or ability to conduct its business as such
business is presently conducted or is contemplated to be conducted in the
foreseeable future. The Borrower shall promptly notify the Lender of the
commencement of any suit, action, proceeding, or investigation brought against
the Borrower (except to the extent all such suits, actions, proceedings, or
investigations do not equal more than $50,000.00, in the aggregate).
5-19. Stock; Dividends and Investments. The Borrower shall not
--------------------------------
(a) Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock.
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<PAGE>
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock, except in accordance with the Borrower's employee stock option
and restricted stock plans, provided that the Borrower is in compliance with all
other terms and conditions of this Agreement and except that the Borrower may
retire all treasury stock held as of June 30, 1996.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
(h) Sell any of the Borrower's capital stock, or rights to purchase
any of the Borrower's capital stock, for amounts in excess of $5,000,000.00, in
the aggregate, without either (i) obtaining the Lender's prior written consent,
or (ii) providing written notice of such event to the Lender, and paying in full
all of the Liabilities.
5-20. Loans. The Borrower shall not make any loans or advances to,
-----
nor acquire the Indebtedness of, any Person, provided, however, the foregoing
does not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of the Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
the Borrower.
(c) Loans to employees of the Borrower in the aggregate amount of up
to $100,000.00.
5-21. Protection of Assets. The Lender, at the Lender's discretion,
--------------------
and from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral, provided notice is given to the Borrower and Borrower is not
contesting such tax or Encumbrance. The Lender shall not have any obligation to
undertake any of the foregoing and shall have no liability on account of any
action so undertaken except where there is a specific finding in a judicial
proceeding (in which the Lender has had an opportunity to
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<PAGE>
be heard), from which finding no further appeal is available, that Lender had
acted in actual bad faith or in a grossly negligent manner. The Borrower shall
pay to the Lender, on demand, or the Lender, in its discretion, may add to the
Loan Account, all amounts paid or incurred by the Lender pursuant to this
section. The obligation of the Borrower to pay such amounts is a Liability.
5-22. Line of Business. The Borrower shall not engage in any business
----------------
other than the business in which it is currently engaged or a business
reasonably related thereto.
5-23. Affiliate Transactions. The Borrower shall not make any payment,
----------------------
nor give any value to any Related Entity except for goods and services
actually purchased by the Borrower from, or sold by the Borrower to, such
Related Entity for a price which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended; and
(b) not differ from that which would have been charged in an arms
length transaction.
5-24. Additional Assurances.
----------------------
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the loan arrangement contemplated hereby
(Article 4), will be not be subject to a perfected security interest in favor of
the Lender (subject only to those Encumbrances (if any) described on EXHIBIT 5-
6, annexed hereto) to secure the Liabilities and will not hereafter acquire any
asset or any interest in property which is not, immediately upon such
acquisition, subject to such a perfected security interest in favor of the
Lender to secure the Liabilities (subject only to Encumbrances (if any)
permitted pursuant to Section 5-6, above).
(b) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interest
in the Collateral; and to comply with all applicable statutes and laws; and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein. A
carbon, photographic, or other reproduction of this Agreement or of any
financing statement or other instrument executed pursuant to this Section shall
be sufficient for filing to perfect the security interests granted herein.
5-25. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the
Borrower, including, without limitation, for fiscal years ending on December 31,
1993, December 31, 1994, and December 31, 1995, have been prepared in accordance
with GAAP consistently applied and
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<PAGE>
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of the
within Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the Lender's execution of the within Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-26. Other Covenants. The Borrower shall not indirectly do or cause
---------------
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
- --------------------------------------------
6-1. Adjustments and Allowances. The Borrower may grant such allowances
--------------------------
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
provided, however (a) the Borrower shall furnish the Lender with those reports
described in Section 8-3 below, with respect to any such adjustments or
allowances and (b) the authority granted the Borrower pursuant to this Section
may be limited or terminated by the Lender at any time in the Lender's
discretion.
6-2. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Lender, upon or after the occurrence of an Event of Default
hereunder, and at the expense of the Borrower in each instance, may verify the
validity, amount, and all other matters with respect to the Receivables
Collateral directly with Account Debtors (including, without limitation, by
forwarding balance verification requests to the Borrower's Account Debtors), and
with the Borrower's accountants, collection agents, and computer service
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<PAGE>
bureaus (each of which is hereby authorized and directed to cooperate in full
with the Lender and to provide the Lender with such information and materials as
the Lender may request).
(c) The Borrower has no knowledge of any impairment of the validity
or collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(d) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-3. Notification to Account Debtors. The Lender shall have the
-------------------------------
right, upon the occurrence of an Event of Default which is not waived or is not
cured to the satisfaction of the Lender, to notify any of the Borrower's Account
Debtors to make payment directly to the Lender and to collect all amounts due on
account of the Collateral.
6-4. Returned Inventory.
------------------
(a) The Borrower will provide the Lender with written notice promptly
upon the occurrence of any event described in Subsection 6-4(b), below, and,
after the occurrence of an Event of Default, shall hold any Inventory which is
subject to such event for such disposition as the Lender may direct. If the
Lender does not issue specific instructions to the Borrower concerning such
Inventory within Five (5) days of the giving of such written notice, the
Borrower may dispose thereof in such manner as the Borrower reasonably may deem
to accord with sound business practice (subject to any requirements of
applicable law and subject to the Lender's security interest in any Collateral
that may arise from the resale or other disposition thereof by the Borrower),
provided, however, in the event any such Inventory consists of perishable items,
the Borrower may dispose of such perishables in accordance with the provisions
of this Section without awaiting instructions from the Lender in respect
thereto.
(b) Subsection (a) of this Section relates to any of the following
Inventory:
(i) For any quarter, any Inventory, in excess of ten percent
(10.0%) of the Borrower's revenues for the prior quarter which is returned by
any Account Debtor to the Borrower (whether or not such return has been agreed
to by the Borrower) and is not in turn returned by the Borrower to such Account
Debtor.
(ii) Any which is repossessed by the Borrower.
(iii) Any which is downgraded in quality or has its marketability
otherwise affected.
(iv) Any which is detained from, or refused entry into, or
required to be removed from the United States by the appropriate governmental
authorities.
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<PAGE>
6-5. Inventory Quality. All Inventory now owned or hereafter acquired
-----------------
by the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances). No tangible
personal property of the Borrower is or will be stored or entrusted with a
bailee or other third party, except as required in the ordinary course of the
Borrower's business with prior notice to the Lender.
ARTICLE 7 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
- -------------------------------------------------
7-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
-------------------------------
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, which appointment shall be effective only upon
---------
the occurrence of an Event of Default hereunder, which is not waived or cured to
the satisfaction of the Lender, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by the within appointment include but
are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in Bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or Banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
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<PAGE>
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
7-2. No Obligation to Act. The Lender shall not be obligated to do
--------------------
any of the acts or to exercise any of the powers authorized by Section 7-1
herein, but if the Lender elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which
proceeding the Lender has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been
grossly negligent or in actual bad faith.
ARTICLE 8 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS.
- --------------------------------------------------------------------------
8-1. Maintain Records. The Borrower shall at all times
----------------
(a) Keep proper books of account, in which full, true, and accurate
entries shall be made of all of the Borrower's transactions, all in accordance
with GAAP applied consistently with prior periods to fairly reflect the
financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Keep accurate current records of the Collateral including,
without limitation, accurate current stock, cost, and sales records of its
Inventory, accurately and sufficiently itemizing and describing the kinds,
types, and quantities of Inventory and the cost and selling prices thereof.
(c) Retain independent certified public accountants who are
satisfactory to the Lender and instruct such accountants to fully cooperate
with, and be available to, the Lender to discuss the Borrower's financial
performance, financial condition, operating results, controls, and such other
matters, within the scope of the retention of such accountants, as may be raised
by the Lender.
(d) Not change the Borrower's fiscal year (from fiscal year end of
December 31).
(e) Not change the Borrower's taxpayer identification number.
8-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender, and the Lender's representatives, shall have
the right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records,
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electronically stored data, papers, and files. The Borrower shall make all of
the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to (no more than once every fiscal quarter, provided there is no
Event of Default then existing hereunder):
(i) Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, which
information or data is in the possession of the Borrower or any service bureau,
contractor, accountant, or other person, and directs any such service bureau,
contractor, accountant, or other person fully to cooperate with the Lender and
the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
8-3. Borrowing Base Certificate. At such time or times as the Lender
--------------------------
may request, but no less frequently than monthly at any time any Liabilities are
outstanding hereunder, the Borrower shall provide the Lender with a Borrowing
Base Certificate (in such form as the Lender may specify from time to time),
which Certificate shall include a Schedule of all Receivables Collateral which
has come into existence since the date of such Schedule then most recently
provided to the Lender.
8-4. Monthly Reports. Monthly, for each month of the Borrower's fiscal
---------------
year (including the last month) within forty-five (45) days of the close
of the subject month, a detailed accounts receivable aging report, Borrowing
Base Certificate (defined in Section 8-3 above) (only if amounts are outstanding
under the Revolving Credit), balance sheet, income statement, and statement of
cash flow. The Borrower shall provide the Lender, on a monthly basis, with
copies of all written information and materials delivered to the Board of
Directors of the Borrower, during the subject month.
8-5. Quarterly Reports. Quarterly, within forty-five (45) days
-----------------
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Lender with an Compliance Certificate (as defined in Section 8-10
below) indicating the status of the Financial Covenants described in Section 8-
10 below.
8-6. Annual Reports.
--------------
(a) Annually, within ninety (90) days of the Borrower's fiscal year
end, audited financial statements, certified by an independent accounting firm
acceptable to the Bank, including a balance sheet, income statement, statement
of cash flow, together with an Compliance Certificate (defined in Section 8-10
below) and a certificate from said accounting firm as to the status of the
Financial Covenants (defined in Section 8-10 below).
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<PAGE>
(b) The Borrower shall also provide the Bank, prior to the close of
Borrower's fiscal year end, with a management prepared pro forma balance sheet,
income statement, and cash flow statement, broken down by quarter for the
following fiscal year. Such pro forma financial statement shall also be
provided to the Lender within ten (10) days of any modification thereto.
8-7. Officer's Certificates. The Borrower shall cause the Borrower's
----------------------
President or Chief Financial Officer to provide a Certificate with those
monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however, to usual year end
adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 8-10, below.
8-8. Additional Financial Information. In addition to the foregoing,
--------------------------------
the Borrower promptly shall provide the Lender with such other and additional
information concerning the Borrower, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
8-9. Audits. The Lender may from time to time conduct commercial
------
finance audits of the Borrower's books and records (in each event, at the
Borrower's expense not to exceed $4,200.00 per year, except upon or after the
occurrence of an Event of Default hereunder), on an annual basis, or in
connection with the modification or amendment of this Agreement, or at any time
upon or after the occurrence of an Event of Default hereunder. The Borrower
shall cooperate in allowing the Lender to complete its first field examination
hereunder on or before August 15, 1996.
8-10. Financial Performance Covenants. The Borrower shall observe
-------------------------------
and comply with those financial performance covenants set forth on EXHIBIT 8-10,
annexed hereto, which shall be tested on a quarterly basis. The Borrower shall
provide the Lender with a Compliance Certificate (so referred to herein)
indicating the status of the financial performance requirements, within thirty
(30) days of the close of each fiscal quarter. The Compliance Certificates
shall be in form or presentation acceptable to the Lender.
ARTICLE 9 - EVENTS OF DEFAULT.
- -----------------------------
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<PAGE>
The occurrence of any event described in this Article 9 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 9-10, or the existence of certain facts or
events that, but for the passage of time or the giving of notice or both, would
result in the occurrence of an Event of Default hereunder, any and all
Liabilities shall become due and payable without any further act on the part of
the Lender. Upon the occurrence of any Event of Default, or the entry of any
order for relief with respect to the Borrower under the Bankruptcy Code, any and
all Liabilities of the Borrower to the Lender shall become immediately due and
payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise.
9-1. Failure to Pay Revolving Credit. The failure by the Borrower to
-------------------------------
pay any amount when due under the Revolving Credit.
9-2. Failure to Make Other Payments. The failure by the Borrower to
------------------------------
pay when due (or upon demand, if payable on demand) any payment Liability other
than under the Revolving Credit.
9-3. Failure to Perform Covenant or Liability. The failure by the
----------------------------------------
Borrower to promptly, punctually, faithfully and timely perform or discharge, or
to comply with, any covenant to or with the Lender or any Liability.
9-4. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete when given.
9-5. Acceleration of Other Debt. Breach of Lease. The occurrence of
-------------------------------------------
any event such that any Indebtedness of the Borrower to any creditor other than
the Lender has been accelerated or any Lease has been terminated (whether or not
the subject creditor or lessor takes any action on account of such occurrence).
9-6. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
9-7. Casualty Loss. Non-Ordinary Course Sales. The occurrence of any
----------------------------------------
(a) uninsured loss, theft, damage, or destruction of or to any material portion
of the Collateral, or (b) sale (other than sales in the ordinary course of
business) of any material portion of the Collateral.
9-8. Judgment. Restraint of Business.
--------------------------------
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<PAGE>
(a) The service of process upon the Lender or any Participant seeking
to attach, by trustee, mesne, or other process, any of the Borrower's funds on
deposit with, or assets of the Borrower in the possession of, the Lender or such
Participant.
(b) The entry of any judgment against the Borrower, which judgment,
if such judgment is a monetary judgment, is uninsured to the extent of
$50,000.00 or more dollars or is not satisfied within fifteen (15) days of its
entry, or, if such judgment is a non-monetary judgment, is not appealed from
(with execution or similar process stayed), within twenty (20) days of its
entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
9-9. Business Failure. Any act by, against, or relating to the
----------------
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
9-10. Bankruptcy. The failure by the Borrower to generally pay the
----------
debts of the Borrower as they mature; adjudication of Bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to The Bankruptcy Code or any
other federal Bankruptcy law; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure (however, it shall
not be an Event of Default hereunder until the earlier of (x) the entry of an
order for relief is entered against the Borrower, or (y) the expiration of sixty
(60) days without dismissal of such complaint, application, or petition if such
complaint, application, or petition filed against the Borrower was not filed by
or at the direction of the Borrower or any related entity, and is being
diligently contested).
9-11. Indictment - Forfeiture. The indictment of, or institution of,
-----------------------
any legal process or proceeding against the Borrower, or any Person who has
management or policy authority with respect to the Borrower, under any federal,
state, municipal, and other civil or criminal statute, rule, regulation, order,
or other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower (or such other Person) and/or the imposition of any stay or other
order, the effect of which could be to restrain in any material way the conduct
by the Borrower of its business in the ordinary course.
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<PAGE>
9-12. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower to the validity of
any Loan Document or the applicability or enforceability of any Loan Document
strictly in accordance with the subject Loan Document's terms or which seeks to
void, avoid, limit, or otherwise adversely affect any security interest created
by or in any Loan Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
9-13. Executive Management. A change in the identity, authority, or
---------------------
responsibilities of a majority of the Persons having management or policy
authority with respect to the Borrower from that existing at the execution of
the within Agreement.
9-14. Change in Control. Any change in the ownership of the capital
------------------
stock of the Borrower such that those Persons who, at the execution of the
within Agreement, Control the Borrower, no longer so Control the Borrower.
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default not cured to the satisfaction of the Lender
and at any time thereafter.
10-1. Rights of Enforcement. The Lender shall have all of the rights
---------------------
and remedies of a secured party upon default under the UCC, in addition to which
the Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the taking
of possession of any of the Collateral.
(b) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(c) To take possession of all or any portion of the Collateral.
(d) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(e) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
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<PAGE>
10-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least ten (10) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such
written notice shall satisfy all requirements for notice to the Borrower which
are imposed under the UCC or other applicable law with respect to the Lender's
exercise of the Lender's rights and remedies upon default.
(c) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(d) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 10 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
10-3. Occupation of Business Location. In connection with the
-------------------------------
Lender's exercise of the Lender's rights under this Article, the Lender may
enter upon, occupy, and use any premises owned or occupied by the Borrower, and
may exclude the Borrower from such premises or portion thereof as may have been
so entered upon, occupied, or used by the Lender. The Lender shall not be
required to remove any of the Collateral from any such premises upon the
Lender's taking possession thereof, and may render any Collateral unusable to
the Borrower. In no event shall the Lender be liable to the Borrower for use or
occupancy by the Lender of any premises pursuant to this Article, nor for any
charge (such as wages for the Borrower's employees and utilities) incurred in
connection with the Lender's exercise of the Lender's Rights and Remedies.
10-4. Grant of Nonexclusive License. The Borrower hereby grants to
-----------------------------
the Lender a royalty free nonexclusive irrevocable license to use, apply, and
affix any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder, upon or after the occurrence of an Event of Default
hereunder, including, without limitation, in connection with any completion of
the manufacture of Inventory or sale or other disposition of Inventory.
10-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
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<PAGE>
10-6. Rights and Remedies. The rights, remedies, powers, privileges,
-------------------
and discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender's Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and
any person, at any time, shall preclude the other or further exercise of the
Lender's Rights and Remedies. No waiver by the Lender of any of the Lender's
Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Lender's Rights and Remedies and all of the Lender's rights, remedies, powers,
privileges, and discretions under any other agreement or transaction are
cumulative, and not alternative or exclusive, and may be exercised by the Lender
at such time or times and in such order of preference as the Lender in its sole
discretion may determine. The Lender's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.
ARTICLE 11 - NOTICES.
- --------------------
11-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: BayBank, N.A.
7 New England Executive Park
Burlington, Massachusetts 01803
Attention: Stephen C. Buzzell
Vice President
With a copy to: Riemer & Braunstein
7 New England Executive Park
Burlington, Massachusetts 01803
Attention: David A. Ephraim, Esquire
If to the Borrower: SeaChange International, Inc.
124 Acton Street
Maynard, Massachusetts 01754
Attention: Mr. Joseph S. Tibbetts, Jr.
With a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Attention: William B. Simmons, Esquire
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<PAGE>
11-2. Notice Given.
------------
(a) Notices shall be deemed given at the sooner of when actually
received or (i) if by mail: Three (3) days following deposit in the United
States mail, postage prepaid; (ii) By overnight express delivery: the Business
Day following the day when sent; (iii) By hand: If delivered on a Business Day
after 9:00 AM and no later than Three (3) hours prior to the close of customary
business hours of the recipient, when delivered (otherwise, at the opening of
the then next Business Day); and (iv) By Facsimile transmission: If sent on a
Business Day after 9:00 AM and no later than Three (3) hours prior to the close
of customary business hours of the recipient, one (1) hour after being sent
(otherwise, at the opening of the then next Business Day).
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 12 - TERM OF AGREEMENT.
- ------------------------------
12-1. Termination Of Revolving Credit and Agreement.
---------------------------------------------
(a) The Working Capital Line shall be terminated upon the sooner of
(the "WORKING CAPITAL LINE MATURITY DATE"):
(i) the entry of any order for relief with respect to the
Borrower under the Bankruptcy Code; or
(ii) at the Lender's option, upon or after the occurrence of an
Event of Default, as defined hereunder; or
(iii) September 24, 1997.
(b) The Equipment Line shall be terminated upon the sooner of (the
"EQUIPMENT LINE MATURITY DATE"):
(i) the entry of any order for relief with respect to the
Borrower under the Bankruptcy Code; or
(ii) at the Lender's option, upon or after the occurrence of an
Event of Default, as defined hereunder; or
(iii) March 31, 1997.
(c) All amounts borrowed or advanced under the Working Capital Line
shall be due and payable on the Working Capital Line Maturity Date.
(d) All amounts, borrowed or advanced under the Equipment Line,
shall be repaid as provided in Section 1-8(b) hereof.
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<PAGE>
(e) The within Agreement shall continue in full force and effect
applicable to all Liabilities until all Liabilities have been paid and/or
satisfied in full and the within Agreement is specifically terminated in writing
by a duly authorized officer of the Lender.
ARTICLE 13 - GENERAL.
- --------------------
13-1. Protection of Collateral. The Lender shall have no duty as to
------------------------
the collection or protection of the Collateral beyond the safe custody of such
of the Collateral as may come into the possession of the Lender and shall have
no duty as to the preservation of rights against prior parties or any other
rights pertaining thereto.
13-2. Successors and Assigns. This Agreement shall be binding upon
----------------------
the Borrower and the Borrower's representatives, successors, and assigns and
shall enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
13-3. Severability. Any determination that any provision of this
------------
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
13-4. Amendments. Course of Dealing.
------------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined (any of which changes may be made by the Lender
in its discretion) shall obligate the Lender to continue to determine
Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofor made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and
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<PAGE>
consequently may be rescinded by the Lender in the event that any of such
representations or warranties was not true and complete in all material respects
when given.
13-5. Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement
shall be affected by any disability or incapacity suffered by the Borrower and
each shall survive the same. All powers conferred upon the Lender by this
Agreement, being coupled with an interest, shall be irrevocable until this
Agreement is terminated.
13-6. Application of Proceeds. The proceeds of any collection, sale,
-----------------------
or disposition of the Collateral, or of any other payments received hereunder,
shall be applied toward the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable to the
Lender for any deficiency remaining following such application.
13-7. Lender's Costs and Expenses. The Borrower shall pay on demand
---------------------------
all Costs of Collection and all reasonable expenses of the Lender in connection
with the preparation, execution, and delivery of this Agreement and of any other
Loan Documents, whether now existing or hereafter arising, and all other
reasonable expenses which may be incurred by the Lender in preparing or amending
this Agreement and all other agreements, instruments, and documents related
thereto, or otherwise incurred with respect to the Liabilities. The Borrower
specifically authorizes the Lender to pay all such fees and expenses and in the
Lender's discretion, to add such fees and expenses to the Loan Account in
accordance with the terms of this Agreement.
13-8. Copies and Facsimiles. This Agreement and all documents which
---------------------
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, photostatic, microfilm, micro-
card, miniature photographic, xerographic, or similar process, and the Lender
may destroy any document so reproduced. Any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
13-9. Massachusetts Law. This Agreement and all rights and
-----------------
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the laws of The Commonwealth of Massachusetts.
13-10. Consent to Jurisdiction.
-----------------------
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<PAGE>
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Middlesex County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all process upon
------
it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Borrower at the Borrower's
address for notices as specified herein, such service to become effective five
(5) Business Days after such mailing.
(c) The Borrower WAIVES, at the option of Lender, any objection
------
based on forum non conveniens and any objection to venue of any action or
--------------------
proceeding instituted under any of the Loan Documents and consents to the
granting of such legal or equitable remedy as is deemed appropriate by the
Court.
(d) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought in the Superior Court of
Middlesex County Massachusetts or in the United States District Court, District
of Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall
have exclusive jurisdiction with respect to any such action.
13-11. Indemnification. The Borrower shall indemnify, defend, and
---------------
hold the Lender and any employee, officer, or agent of the Lender (each, an
"INDEMNIFIED PERSON") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the Lender's relationship with
the Borrower or any other guarantor or endorser of the Liabilities (each of
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. The within indemnification shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
13-12. Rules of Construction.
---------------------
(a) The following rules of construction shall be applied in the
interpretation, construction, and enforcement of this Agreement and of the other
Loan Documents:
-45-
<PAGE>
(i) Words in the singular include the plural and words in the
plural include the singular.
(ii) Headings (indicated by being underlined) and the Table of
----------
Contents are solely for convenience of reference and do not constitute a part of
the instrument in which included and do not affect such instrument's meaning,
construction, or effect.
(iii) The words "includes" and "including" are not limiting.
(iv) The words "may not" are prohibitive and not permissive.
(v) The word "or" is not exclusive.
(vi) Terms which are defined in one section of an instrument
are used with such definition throughout the instrument in which so defined.
(vii) The symbol "$" refers to United States Dollars.
(viii) References to "herein", "hereof", and "within" are to
this entire Loan Agreement and not merely the provision in which such reference
is included.
(ix) Except as otherwise specifically provided, all references
to time are to Boston time.
(x) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder, unless otherwise provided (A) the day
of the act, event, or default from which the designated period of time begins to
run shall not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (B) the period so
computed shall end at 5:00 PM on the relevant Business Day.
(b) The Loan Documents shall be construed and interpreted in a
harmonious manner, provided, however, in the event of any inconsistency between
the provisions of the within Agreement and any other Loan Document, the
provisions of the within Agreement shall govern and control.
13-13. Intent. It is intended that
------
(a) This Agreement take effect as a sealed instrument.
(b) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
(c) The Lender's consent to any action of the Borrower which is
prohibited unless such consent is given may be given or refused by the Lender in
its sole discretion.
-46-
<PAGE>
13-14. Right of Set-Off. Any and all deposits or other sums at any
----------------
time credited by or due to the undersigned from the Lender and any cash,
securities, instruments or other property of the undersigned in the possession
of the Lender, whether for safekeeping or otherwise (regardless of the reason
the Lender had received the same) shall at all times constitute security for all
Liabilities and for any and all obligations of the undersigned to the Lender,
and may be applied or set off against the Liabilities and against the
obligations of the undersigned to the Lender including, without limitation,
those arising hereunder, at any time, whether or not such are then due and
whether or not other collateral is then available to the Lender.
13-15. Maximum Interest Rate. Regardless of any provision of any
----------------------
Loan Document, the Lender shall never be entitled to contract for, charge,
receive, collect, or apply as interest on any Liability, any amount in excess of
the maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
13-16. Waivers.
-------
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Subsection (b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
------
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand and notice,
both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay, stay,
limitation, hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be
-47-
<PAGE>
imposed pursuant to Section 362 of the Bankruptcy Code) with respect to any
action which the Lender may or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive
damages.
SEACHANGE INTERNATIONAL, INC.
("BORROWER")
By: /s/ Joseph S. Tibbetts, Jr.
---------------------------
Print Name: Joseph S. Tibbetts, Jr.
------------------------
Title: Vice President, Finance and
---------------------------
Administration, Chief Financial Officer and
-------------------------------------------
Treasurer
---------
BAYBANK, N.A.
("LENDER")
By: /s/ Stephen C. Buzzell
----------------------
Print Name: Stephen C. Buzzell
---------------------
Title: Vice President
-------------------
-48-
<PAGE>
EXHIBITS
--------
The following Exhibits to this Loan and Security Agreement are
respectively described in the Section indicated below. Those schedules for
which no information has been inserted or provided shall be deemed to read
"None."
<TABLE>
<S> <C> <C>
Exhibit 5-2 Related Entities (S)5-2
Exhibit 5-4 Trade Names (S)5-4
Exhibit 5-5 Other Locations (S)5-5
Exhibit 5-7 Indebtedness (S)5-7
Exhibit 5-8 Insurance Policies (S)5-8
Exhibit 5-9 Licenses (S)5-9
Exhibit 5-10 Leases (S)5-10
Exhibit 5-11 Material Contracts (S)5-11
Exhibit 5-14 Tax Liabilities Not Filed (S)5-14
Exhibit 5-18 Litigation (S)5-18
Exhibit 8-10 Financial Covenants (S)8-10
</TABLE>
-49-
<PAGE>
EXHIBIT 8-10
------------
FINANCIAL COVENANTS
-------------------
1. No Losses. The Borrower shall not show a loss, on a quarterly or annual
---------
basis.
2. Quick Ratio. The Borrower shall not permit the ratio computed by
-----------
dividing (A) Liquid Assets (as defined herein), by (B) the Borrower's Current
Liabilities (as defined herein), to be less than the following amounts for the
following periods:
Fiscal Quarter Ending Quick Ratio
--------------------- -----------
June 30, 1996 0.40:1
September 30, 1996 0.40:1
December 31, 1996 0.80:1
March 31, 1997, and
thereafter 1.50:1
3. Debt to Tangible Net Worth. The Borrower shall not permit the ratio of
--------------------------
the Borrower's Debt (as defined herein) to Tangible Net Worth (as defined
herein) to exceed the following amounts for the following periods:
Fiscal Quarter Ending Debt to Tangible Net Worth
--------------------- --------------------------
June 30, 1996 4.50:1
September 30, 1996 4.50:1
December 31, 1996 3.50:1
March 31, 1997, and
thereafter 0.75:1
4. Tangible Net Worth. The Borrower shall have a Tangible Net Worth (as
------------------
defined herein) of at least $4,000,000.00 by June 30, 1996, and thereafter, Net
Worth shall be no less than the aggregate of (a) $4,000,000.00, and (b) seventy-
five percent (75.0%) of cumulative Net Profit (without offsetting for any
losses), and (c) ninety-five percent (95.00%) of any equity investment (net of
expenses) made thereafter.
5. Limitation on Purchase Money Liens and Equipment Leases. The
-------------------------------------------------------
Borrower shall not have outstanding, at any time, equipment leases or purchase
money liens which have a total liability, at any time, of more than $750,000.00.
-50-
<PAGE>
6. Minimum Cash Flow Coverage. The Borrower shall not permit the
--------------------------
ratio of Operating Cash Flow to the total Fixed Charges to be less than the
following amounts for the following periods, on a rolling four (4) quarter
basis:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -------
<S> <C>
June 30, 1996, and thereafter 1.5:1.0
</TABLE>
-51-
<PAGE>
Exhibit 10.9
WORKING CAPITAL LINE OF CREDIT
MASTER NOTE BAYBANK, N.A.
_______________________________________________________________________________
Burlington, Massachusetts
Date: September 25, 1996
FOR VALUE RECEIVED, the undersigned, SeaChange International, Inc., a
Delaware corporation with its principal executive offices at 124 Acton Street,
Maynard, Massachusetts 01754 (the "BORROWER") promises to pay to the order of
BayBank, N.A., a national banking association with offices at 7 New England
Executive Park, Burlington, Massachusetts 01803 (with any subsequent holder, the
"LENDER") the aggregate unpaid principal balance of loans and advances made by
the Lender to the Borrower pursuant to the Working Capital Line of Credit
established pursuant to the Loan and Security Agreement of even date (as such
may be amended hereafter, the "LOAN AGREEMENT") between the Lender and the
Borrower, with interest, at the rate and payable in the manner, stated therein.
This is the "Master Note" to which reference is made in the Loan Agreement,
and is subject to all terms and provisions thereof. The principal of, and
interest on, this Note shall be payable as provided in the Loan Agreement and
shall be subject to acceleration as provided therein.
The Lender's books and records concerning the Lender's loans and advances
pursuant to the Working Capital Line of Credit, the accrual of interest thereon,
and the repayment of such loans and advances, shall be prima facie evidence of
the indebtedness to the Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of the
Lender's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
- 1 -
<PAGE>
The Borrower, and each endorser and guarantor of this Note, respectively
waives presentment, demand, notice, and protest, and also waives any delay on
the part of the holder hereof. Each assents to any extension or other
indulgence (including, without limitation, the release or substitution of
collateral) permitted by the Lender with respect to this Note and/or any
collateral given to secure this Note or any extension or other indulgence with
respect to any other liability or any collateral given to secure any other
liability of the Borrower or any other person obligated on account of this note.
This Note shall be binding upon the Borrower, and each endorser and
guarantor hereof, and upon their respective heirs, successors, assigns, and
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees, and assigns.
The liabilities of the Borrower, and of any endorser or guarantor of this
Note, are joint and several; provided, however, the release by the Lender of or
any one or more such person, endorser or guarantor shall not release any other
person obligated on account of this Note. Each reference in this Note to the
Borrower, any endorser, and any guarantor, is to such person individually and
also to all such persons jointly. No person obligated on account of this Note
may seek contribution from any other person also obligated unless and until all
liabilities, obligations and indebtedness to the Lender of the person from whom
contribution is sought have been satisfied in full.
The Borrower will pay on demand all attorneys' reasonable fees and
reasonable out-of-pocket expenses incurred by the Lender's attorneys, and all
reasonable costs incurred by the Lender in the administration of the Borrower's
liabilities, obligations, and indebtedness to the Lender, including, without
limitation, reasonable costs and expenses associated with travel on behalf of
the Lender, which costs and expenses are directly or indirectly related to or in
respect of the Lender's: administration and management of such liabilities,
obligations, and indebtedness; negotiation of the form of, and any amendment to,
the within Note; or efforts to preserve, protect, collect, or enforce any
- 2 -
<PAGE>
collateral which secures any such liabilities, obligations, and indebtedness,
and/or the Lender's rights and remedies against the Borrower or against or in
respect of any guarantor or other person liable in respect of the such
liabilities, obligations, and indebtedness (whether or not suit is instituted in
connection with such efforts). Such amounts, if not so paid on demand, may bear
interest at the option of the Lender the highest post-default rate which the
Lender may charge the Borrower hereunder.
The Borrower and each endorser and guarantor hereof each authorizes the
Lender to complete this Note if delivered incomplete in any respect.
Any and all deposits or other sums at any time credited by or due to the
undersigned from the Lender and any cash, securities, instruments or other
property of the undersigned in the possession of the Lender, whether for
safekeeping or otherwise (regardless of the reason the Lender had received the
same) shall at all times constitute security for all Liabilities and for any and
all obligations of the undersigned to the Lender, and may be applied or set off
against the Liabilities and against the obligations of the undersigned to the
Lender including, without limitation, those arising hereunder, at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender.
This Note shall be governed by the laws of The Commonwealth of
Massachusetts and shall take effect as a sealed instrument.
The Borrower makes the following waiver knowingly, voluntarily, and
intentionally, and understands that the Lender, in the establishment and
maintenance of the Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO,
WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR
- ------
ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT
OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
- 3 -
<PAGE>
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON,
AND THE LENDER.
WITNESS: SEACHANGE INTERNATIONAL, INC.
The ("BORROWER")
/s/ Jennifer A. Post
- --------------------
By: /s/Joseph S. Tibbetts, Jr.
--------------------------
Name: Joseph S. Tibbetts, Jr.
-----------------------
Title: Vice President, Finance and
Administration, Chief Financial Officer
and Treasurer
- 4 -
<PAGE>
Exhibit 10.10
EQUIPMENT LINE OF CREDIT
MASTER NOTE BAYBANK, N.A.
_____________________________________________________________________________
Burlington, Massachusetts
Date: September 25, 1996
FOR VALUE RECEIVED, the undersigned, SeaChange International, Inc., a
Delaware corporation with its principal executive offices at 124 Acton Street,
Maynard, Massachusetts 01754 (the "BORROWER") promises to pay to the order of
BayBank, N.A., a national banking association with offices at 7 New England
Executive Park, Burlington, Massachusetts 01803 (with any subsequent holder, the
"LENDER") the aggregate unpaid principal balance of loans and advances made by
the Lender to the Borrower pursuant to the Equipment Line of Credit established
pursuant to the Loan and Security Agreement of even date (as such may be amended
hereafter, the "LOAN AGREEMENT") between the Lender and the Borrower, with
interest, at the rate and payable in the manner, stated therein.
This is the "Master Note" to which reference is made in the Loan Agreement,
and is subject to all terms and provisions thereof. The principal of, and
interest on, this Note shall be payable as provided in the Loan Agreement and
shall be subject to acceleration as provided therein.
The Lender's books and records concerning the Lender's loans and advances
pursuant to the Equipment Line of Credit, the accrual of interest thereon, and
the repayment of such loans and advances, shall be prima facie evidence of the
indebtedness to the Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of the
Lender's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
- 1 -
<PAGE>
The Borrower, and each endorser and guarantor of this Note, respectively
waives presentment, demand, notice, and protest, and also waives any delay on
the part of the holder hereof. Each assents to any extension or other
indulgence (including, without limitation, the release or substitution of
collateral) permitted by the Lender with respect to this Note and/or any
collateral given to secure this Note or any extension or other indulgence with
respect to any other liability or any collateral given to secure any other
liability of the Borrower or any other person obligated on account of this note.
This Note shall be binding upon the Borrower, and each endorser and
guarantor hereof, and upon their respective heirs, successors, assigns, and
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees, and assigns.
The liabilities of the Borrower, and of any endorser or guarantor of this
Note, are joint and several; provided, however, the release by the Lender of or
any one or more such person, endorser or guarantor shall not release any other
person obligated on account of this Note. Each reference in this Note to the
Borrower, any endorser, and any guarantor, is to such person individually and
also to all such persons jointly. No person obligated on account of this Note
may seek contribution from any other person also obligated unless and until all
liabilities, obligations and indebtedness to the Lender of the person from whom
contribution is sought have been satisfied in full.
The Borrower will pay on demand all attorneys' reasonable fees and
reasonable out-of-pocket expenses incurred by the Lender's attorneys, and all
reasonable costs incurred by the Lender in the administration of the Borrower's
liabilities, obligations, and indebtedness to the Lender, including, without
limitation, reasonable costs and expenses associated with travel on behalf of
the Lender, which costs and expenses are directly or indirectly related to or in
respect of the Lender's: administration and management of such liabilities,
obligations, and indebtedness; negotiation of the form of, and any amendment to,
the within Note; or efforts to preserve, protect, collect, or enforce any
- 2 -
<PAGE>
collateral which secures any such liabilities, obligations, and indebtedness,
and/or the Lender's rights and remedies against the Borrower or against or in
respect of any guarantor or other person liable in respect of the such
liabilities, obligations, and indebtedness (whether or not suit is instituted in
connection with such efforts). Such amounts, if not so paid on demand, may bear
interest at the option of the Lender the highest post-default rate which the
Lender may charge the Borrower hereunder.
The Borrower and each endorser and guarantor hereof each authorizes the
Lender to complete this Note if delivered incomplete in any respect.
Any and all deposits or other sums at any time credited by or due to the
undersigned from the Lender and any cash, securities, instruments or other
property of the undersigned in the possession of the Lender, whether for
safekeeping or otherwise (regardless of the reason the Lender had received the
same) shall at all times constitute security for all Liabilities and for any and
all obligations of the undersigned to the Lender, and may be applied or set off
against the Liabilities and against the obligations of the undersigned to the
Lender including, without limitation, those arising hereunder, at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender.
This Note shall be governed by the laws of The Commonwealth of
Massachusetts and shall take effect as a sealed instrument.
The Borrower makes the following waiver knowingly, voluntarily, and
intentionally, and understands that the Lender, in the establishment and
maintenance of the Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO,
WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR
- ------
ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT
OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
- 3 -
<PAGE>
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON,
AND THE LENDER.
WITNESS: SEACHANGE INTERNATIONAL, INC.
The ("BORROWER")
/s/ Jennifer A. Post
- --------------------
By: /s/ Joseph S. Tibbetts, Jr.
---------------------------
Name: Joseph S. Tibbetts, Jr.
-----------------------
Title: Vice President, Finance and
Administration, Chief Financial Officer
and Treasurer
- 4 -
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 12, 1996,
relating to the consolidated financial statements of SeaChange International,
Inc., which appears in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedule for the period July 9, 1993
(inception) through June 30, 1996 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the consolidated
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data."
Price Waterhouse LLP
Boston, Massachusetts
October 4, 1996
