<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1997
REGISTRATION NO. 333-29397
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OMTOOL, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 02-0447481
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
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8 INDUSTRIAL WAY
SALEM, NH 03079
(603) 898-8900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT L. VOELK
CHIEF EXECUTIVE OFFICER
OMTOOL, LTD.
8 INDUSTRIAL WAY
SALEM, NH 03079
(603) 898-8900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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JOHN A. MELTAUS, ESQ. PETER B. TARR, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP HALE AND DORR LLP
HIGH STREET TOWER, 125 HIGH STREET 60 STATE STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02109
(617) 248-7000 (617) 526-6000
</TABLE>
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 of 1933, please check the
following box and list the Securities Act registration 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 of 1933, check the following box and list the
Securities Act registration 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
under the Securities Act of 1933, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 15, 1997
[OMTOOL LOGO]
4,000,000 SHARES
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 3,000,000 shares
are being sold by Omtool, Ltd. ("Omtool" or the "Company") and 1,000,000 shares
are being sold by certain stockholders of the Company ("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
$8.00 and $10.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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==================================================================================================
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) STOCKHOLDERS(3)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
==================================================================================================
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters as stated herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $800,000.
(3) Certain of the Selling Stockholders and other stockholders of the Company
(also "Selling Stockholders") have granted to the Underwriters a 30-day
option to purchase an aggregate of up to an additional 600,000 shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively.
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
MONTGOMERY SECURITIES
FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER 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 SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH 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 , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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
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PAGE
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Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 14
Dividend Policy....................................................................... 14
Capitalization........................................................................ 15
Dilution.............................................................................. 16
Selected Financial Data............................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 18
Business.............................................................................. 29
Management............................................................................ 38
Certain Transactions.................................................................. 45
Principal and Selling Stockholders.................................................... 46
Description of Capital Stock.......................................................... 48
Shares Eligible for Future Sale....................................................... 52
Underwriting.......................................................................... 54
Legal Matters......................................................................... 56
Experts............................................................................... 56
Additional Information................................................................ 56
Index to Financial Statements......................................................... F-1
</TABLE>
---------------------
Omtool, Fax Sr., and the Company logo are trademarks of the Company. Trade
names and trademarks of other companies appearing in this Prospectus are the
property of their respective owners.
The Company intends to mail to all of its stockholders an annual report
containing financial statements audited by its independent accountants for each
fiscal year and quarterly reports containing unaudited financial data for each
of the first three quarters of each fiscal year.
The Company was incorporated in New Hampshire in March 1991 and was
reincorporated in Delaware in January 1996. The Company's principal executive
offices are located at 8 Industrial Way, Salem, New Hampshire 03079 and its
telephone number is (603) 898-8900. Unless otherwise indicated, all references
in this Prospectus to "Omtool" or the "Company" refer to Omtool, Ltd., a
Delaware corporation, and its predecessor Omtool, Ltd., a New Hampshire
corporation.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. Omtool's Fax Sr. product family,
licensed typically on a shrink-wrap basis, provides users with an extensive,
flexible feature set for transmitting and receiving faxes and improves an
organization's management of its fax communications processes by providing a
suite of utility and control functions. Fax Sr. can be deployed on
heterogeneous, multi-platform networks and can be integrated with both desktop
and enterprise software applications as well as e-mail and groupware systems. To
address the needs of large enterprises, Fax Sr. is modular and scaleable as
servers, clients and fax lines can be implemented and added over time. Fax Sr.
is available on the Windows NT, Hewlett Packard ("HP") UNIX and Digital
Equipment Corporation ("DEC") UNIX and VMS server operating systems, and Windows
95, Windows NT, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS clients.
Facsimile continues to be a world-wide standard for electronic
communications. With corporate communications becoming more critical and
complex, a need has arisen for a facsimile software solution which enables an
organization to automate and integrate fax communications throughout the
enterprise and address a broad range of users' faxing requirements from
person-to-person to volume broadcast transmissions. A comprehensive fax solution
must take advantage of the proliferation of personal computers in the corporate
workplace and the growth of the client/server computing environment. The
solution must also be complementary to other communications methods such as
traditional telephone and facsimile as well as emerging e-mail and groupware
solutions. Fax Sr. provides a robust and flexible facsimile solution which
addresses the multiple needs of corporate fax users and leverages the power of
advanced computing platforms.
The Company's goal is to become the leading provider of enterprise,
client/server facsimile software solutions. The Company's strategy to achieve
this goal includes extending technology leadership in the enterprise market and
increasing its market share on the Windows NT platform. The Company intends to
leverage its installed base of customers in order to promote expanded use of Fax
Sr. across more users and applications at existing customer installations. In
addition, the Company intends to expand its direct and indirect distribution
channels to increase both domestic and international sales and to form strategic
relationships with leading providers of complementary fax services and products
in order to broaden market awareness of Fax Sr. The Company has recently entered
into strategic alliances with UNIFI Communications, Inc. (formerly FAX
International) and Xpedite Systems, Inc., providers of enhanced fax carrier
services, and with Active Voice Corporation, a provider of PC-based voice mail
systems and computer-telephony integration solutions.
Omtool has licensed Fax Sr. to more than 1,500 customers worldwide,
including Alfred Berg Inc., AT&T Corp., Bloomberg Financial Markets, Boeing, Dow
Chemical, Honeywell, SmithKline Beecham and United Technologies. The Company
targets large and mid-sized corporations, organizations and government entities
as the primary market for Fax Sr. To address the broad range of its sales
opportunities, Omtool relies on the coordinated efforts of its centralized
telesales organization, its key executives and corporate account team, its
marketing department and its indirect channels, including resellers,
international distributors and systems integrators. The Company also resells
complementary hardware products and provides customer services, including
technical support. To complement its existing products and services, the Company
intends to offer enhanced consulting, configuration and installation services in
the future.
4
<PAGE> 6
THE OFFERING
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Common Stock Offered by the Company.................... 3,000,000 shares
Common Stock Offered by the Selling Stockholders....... 1,000,000 shares
Common Stock Outstanding after the Offering............ 11,428,239 shares(1)
Use of Proceeds........................................ For working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol................. OMTL
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SUMMARY FINANCIAL DATA
(in thousands, except per share data)
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
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STATEMENT OF OPERATIONS DATA:
Total revenues................................. $1,948 $3,928 $8,401 $3,271 $8,278
Gross profit................................... 1,669 3,296 6,392 2,536 6,351
Income (loss) from operations.................. (315) 417 646 288 1,080
Net income (loss).............................. (233) 416 440 187 704
Pro forma net income per common and common
equivalent share(2).......................... $ 0.04 $ 0.07
Pro forma weighted average number of common and
common equivalent shares outstanding(2)...... 9,929 9,488
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JUNE 30, 1997
------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(3)(4)
------ -------- ------------------
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BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 810 $ 810 $ 25,234
Working capital...................................... 3,413 3,413 27,723
Total assets......................................... 7,669 7,669 31,979
Long-term debt, net of current portion............... 153 153 153
Convertible redeemable preferred stock............... 5,367 -- --
Total stockholders' equity (deficit)................. (944) 4,423 28,733
</TABLE>
- ------------
(1) Based upon the number of shares of Common Stock outstanding at June 30,
1997. Excludes (i) 1,309,218 shares of Common Stock issuable upon the
exercise of stock options outstanding at June 30, 1997 at a weighted average
exercise price of $1.28 per share, of which options to purchase 321,665
shares were then exercisable and (ii) 2,114,783 shares of Common Stock
reserved for future issuance pursuant to the Company's stock plans. See
"Capitalization," "Management -- Stock Plans" and Notes 11 and 14 of Notes
to Financial Statements.
(2) Computed on the basis described in Note 2 of Notes to Financial Statements.
(3) Adjusted to give effect to the automatic conversion upon the closing of this
offering of all outstanding shares of Convertible Preferred Stock into an
aggregate of 3,037,232 shares of Common Stock.
(4) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $9.00 per
share and the application of the estimated net proceeds therefrom.
---------------------
Unless otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option; (ii)
reflects the 2-for-1 stock split of the Company's Common Stock effected in
January 1997; (iii) reflects the filing, prior to the closing of this offering,
of an Amendment to the Certificate of Incorporation of the Company increasing
the number of authorized shares of Common Stock; (iv) reflects the filing upon
the closing of this offering of the Amended and Restated Certificate of
Incorporation of the Company; and (v) gives effect to the conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock upon the
closing of this offering. See "Certain Transactions," "Description of Capital
Stock," "Underwriting" and Notes 2, 9, 10 and 14 of Notes to Financial
Statements.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
Limited Operating History. The Company was incorporated in March 1991 and
shipped its initial facsimile software products in 1991. The Company has
significantly increased its operating expenses in recent periods as it has
continued to expand its organization to support sales growth and product
development. Although the Company has experienced significant growth during the
past three years, the Company does not believe that prior growth rates are
sustainable or indicative of future operating results. There can be no assurance
that the Company will be able to increase its level of revenues or maintain
profitability in the future. Increases in operating expenses are expected to
continue and, together with pricing pressures, may result in a decrease in
operating income and operating margin percentage. The Company's limited
operating history makes the prediction of future operating results difficult or
impossible. Future operating results will depend on many factors, including,
without limitation, the degree and rate of growth of the markets in which the
Company competes and the accompanying demand for the Company's products, the
level of acceptance of the Windows NT operating system, the level of product and
price competition, the ability of the Company to establish strategic
relationships and develop and market new and enhanced products and to control
costs, the ability of the Company to expand its direct telesales force and
indirect distribution channels both domestically and internationally, and the
ability of the Company to attract and retain key personnel. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Fluctuations in Quarterly Results of Operations; Seasonality. The
Company's quarterly revenues and results of operations have fluctuated
significantly in the past and will likely fluctuate significantly in the future.
Causes of such fluctuations have included and may include, among others, the
demand for the Company's products and services, the size and timing of orders,
the number, timing and significance of new product announcements by the Company
and its competitors, the ability of the Company to develop, introduce, market
and ship new and enhanced versions of the Company's products on a timely basis,
the level of product and price competition, changes in operating expenses,
changes in average selling prices and mix of the Company's products, changes in
the Company's sales incentive strategy, the mix of direct and indirect sales,
and general economic factors. In addition, the sale of the Company's products
often involves delays because customers have tended to implement the products on
a large scale and customers also must establish certain minimum hardware
capabilities. The Company's products therefore often have a lengthy sales cycle
while the customer evaluates and receives approvals for the purchase of the
Company's products. During such sales cycles, the Company may expend substantial
funds and management effort yet receive no revenues. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fails to close as forecasted in a fiscal quarter, the Company's revenues
and operating results for such quarter could be materially adversely affected.
Any one or more of these or other factors could have a material adverse effect
on the Company's business, financial condition and results of operations. The
potential occurrence of any one or more of these factors makes the prediction of
revenues and results of operations on a quarterly basis difficult and
performance forecasts derived from such predictions unreliable.
The Company's business has experienced and is expected to continue to
experience seasonality. The Company has historically had and expects to continue
to have weaker sales in the months of July and August which may have an adverse
affect on third quarter sales. The Company believes that these fluctuations are
caused primarily by customer budgeting and purchasing patterns.
In general, revenues are difficult to forecast because the market for
enterprise, client/server facsimile software has developed and is evolving
rapidly and the Company's sales cycle, from the customer's initial evaluation
through purchase of licenses and the related support services, varies
6
<PAGE> 8
substantially from customer to customer. License fee revenues in any quarter
depend on orders received and shipped in that quarter. License fee revenues from
quarter to quarter are difficult to forecast, as no significant order backlog
exists at the end of any quarter because the Company's products typically are
shipped upon receipt of customers' orders.
A substantial portion of the Company's operating expense is related to
personnel, facilities, equipment and marketing programs. The level of spending
for such expense cannot be adjusted quickly and is therefore fixed in the short
term. The Company's expense levels for personnel, facilities, equipment and
marketing programs are based, in significant part, on the Company's expectations
of future revenues on a quarterly basis. If actual revenue levels on a quarterly
basis are below management's expectations, results of operations are likely to
be adversely affected by a similar amount because a relatively small amount of
the Company's expense varies with its revenue in the short term.
Due to all of the foregoing factors, it is likely that in some future
periods the Company's results of operations will be below the expectations of
securities analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Fax Sr. NT and the Windows NT Environment. The Company
currently derives substantially all of its revenues from licenses of Fax Sr. NT
and related services and resale of related hardware. Broad market acceptance of
Fax Sr. NT is critical to the Company's future success. As a result, any decline
in demand for or failure to achieve broad market acceptance of Fax Sr. NT as a
result of competition, technological change or otherwise, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future financial performance will depend in large part
on the successful development, introduction and customer acceptance of new and
enhanced versions of Fax Sr. NT. There can be no assurance that the Company will
continue to be successful in marketing Fax Sr. NT or any new or enhanced
versions of Fax Sr. NT. In addition, there can be no assurance that the Windows
NT operating system will not be replaced by a new or enhanced operating system.
There can be no assurance that the Company will be successful in developing
products for new or enhanced operating systems, or that such systems will not
obviate the need for the Company's products. If any new or enhanced operating
system gains widespread use and the Company fails to develop and provide its
products for this operating system on a timely basis, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Strategy."
Dependence on Client/Server Environment. The Company's enterprise,
client/server facsimile software products are intended to help organizations
efficiently manage their facsimile communications, utilizing a client/server
computing environment. The client/server market is relatively new and there can
be no assurance that organizations will move away from the use of stand-alone
fax machines or continue to adopt client/server environments, or that customers
of the Company that have begun the migration to a client/server environment will
broadly implement this model of computing. The Company's future financial
performance will depend in large part on continued growth in the market for
client/server applications, which in turn will depend in part on the growth in
the number of organizations implementing client/server computing environments.
There can be no assurance that these markets will continue to grow or that the
Company will be able to respond effectively to the evolving requirements of
these markets. If the market for client/server application products and services
does not grow in the future, or grows more slowly than the Company anticipates,
or if the Company fails to respond effectively to evolving requirements of this
market, the Company's business, financial condition and results of operations
would be materially adversely affected. See "Business -- Industry Background"
and "-- Strategy."
Intense Competition. The enterprise, client/server facsimile solution
market is intensely competitive and rapidly changing and the Company expects
competition to continue to increase. The
7
<PAGE> 9
Company believes its ability to compete successfully depends upon a number of
factors both within and beyond its control, including product performance,
reliability and features; ease of use; product scaleability; quality of support
services; price/performance; timeliness of enhancements and new product releases
by the Company and its competitors; the emergence of new computer-based
facsimile products and standards; name recognition; the establishment of
strategic alliances with industry leaders; and industry and general economic
trends.
The Company competes directly with a large number of vendors of facsimile
products, including providers of facsimile software products for client/server
networks such as RightFAX Inc. (a subsidiary of Applied Voice Technology, Inc.),
Fenestrae BV, Optus Software Inc. and Biscom, Inc. The Company also competes
with vendors offering a range of alternative facsimile solutions including
operating systems containing facsimile and document transmission features;
low-end fax modem products; desktop fax software; single-platform facsimile
software products; and customized proprietary software solutions. In addition,
providers of operating systems or business software applications may bundle
competitive facsimile solutions as part of their broader product offerings.
Many of the Company's competitors have longer operating histories and
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and market acceptance of their products and
technologies than the Company. In addition, there are relatively low barriers to
entry in the markets in which the Company operates, and new competition may
arise either from expansion by established companies or from new emerging
companies or from resellers of the Company's products. There can be no assurance
that current or potential competitors of the Company will not develop products
comparable or superior in terms of price and performance features to those
developed by the Company, adapt more quickly than the Company to new or emerging
technologies and changes in market opportunities or customer requirements,
establish alliances with industry leaders, or take advantage of acquisition
opportunities more readily than the Company. In addition, no assurance can be
given that the Company will not be required to make substantial additional
investments in connection with its research, development, engineering,
marketing, sales and customer service efforts in order to meet any competitive
threat, or that such required investments will not have a material adverse
effect on operating margins. Increased competition will result in reduction in
market share, pressure for price reductions and related reductions in gross
margins, any of which could materially adversely affect the Company's ability to
achieve its financial and business goals. There can be no assurance that in the
future the Company will be able to successfully compete against current and
future competitors. See "Business -- Competition."
Ability to Manage Growth. The Company has rapidly and significantly
expanded its operations and anticipates that significant expansion will continue
to be required in order to address potential market opportunities. The Company
anticipates significantly increasing the size of its sales and marketing,
research and development, customer support and administrative operations
following the completion of this offering. There can be no assurance that such
expansion will be successfully completed or that it will generate sufficient
revenues to cover the Company's expenses. In 1997, the Company upgraded certain
of its management information systems and the Company will need to continue to
upgrade these and other systems to accommodate its expanding operations. There
can be no assurance that the Company's expanded management information systems
will be sufficient to support the Company's continued growth. The Company will
need to continue to attract and retain highly qualified technical, sales and
managerial personnel. There can be no assurance that the Company will be able to
retain or continue to hire such personnel in the future. The inability of the
Company to effectively expand operations and manage growth, if any, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
New Products and Technological Change. The market for the Company's
products is relatively new and is characterized by rapid technological change,
evolving industry standards, changes in end-user requirements and frequent new
product introductions and enhancements. The Company's future success will depend
upon its ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments and respond to
evolving end-user require-
8
<PAGE> 10
ments. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis,
or that new products or product enhancements developed by the Company will
achieve market acceptance. In May 1997, the Company released Fax Sr. NT Version
2.0. There can be no assurance that Fax Sr. NT Version 2.0 and the enhancements
contained therein will achieve market acceptance. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products and products currently under development
obsolete and unmarketable. From time to time, the Company and its competitors
may announce new products, capabilities or technologies that have the potential
to replace or shorten the life cycle of the Company's existing product
offerings. There can be no assurance that announcements of currently planned or
other new product offerings by the Company or its competitors will not cause
customers to defer or forego the licensing of the Company's existing products
and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Research and Development."
Expansion of Indirect Channels; Potential for Channel Conflict. The
Company markets its products and services directly through telesales and
indirectly through marketing channels such as value-added resellers ("VARs"),
systems integrators and distributors. Although the Company has historically
focused its efforts on marketing through its telesales force, the Company is
increasing resources dedicated to developing and expanding indirect marketing
channels. There can be no assurance that the Company will be able to attract and
retain a sufficient number of qualified VARs, systems integrators and
distributors to market successfully the Company's products. In addition, there
can be no assurance that the Company's resellers will not develop, acquire or
market computer-based facsimile products competitive with the Company's
products. The failure to retain its VARs, systems integrators and distributors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has recently established formal reseller agreements with UNIFI
Communications, Inc. and a limited number of distributors. The Company also
resells its products on a purchase order basis through other VARs, systems
integrators and distributors. Such relationships may be terminated by either
party, at any time, and therefore, there can be no assurance that any VAR,
systems integrator or distributor will continue to represent the Company's
products. The inability to retain certain VARs, systems integrators or
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations.
Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, systems integrators and distributors may
result in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict with
each other. As the Company strives to expand its indirect distribution channels,
there can be no assurance that emerging channel conflicts will not materially
adversely affect its relationships with existing VARs, systems integrators or
distributors or adversely affect its ability to attract new VARs, systems
integrators and distributors. See "Business -- Sales and Marketing."
Risks Associated with International Expansion. Revenues outside of North
America represented approximately 5%, 7% and 8% of the Company's total revenues
for 1995, 1996 and the six months ended June 30, 1997, respectively. A key
element of the Company's strategy is to continue to increase its international
sales. The Company expects to face competition from local facsimile product
providers in their native countries. To successfully expand international sales,
the Company will need to recruit and retain additional international resellers
and distributors. In order to penetrate the international market more fully, the
Company is currently undertaking the translation of its products into several
foreign languages. There can be no assurance that the Company will be able to
complete such translation in a timely manner in order to capitalize on the
international market opportunity. There can be no assurance that the Company
will be able to maintain or increase international sales of
9
<PAGE> 11
its products or that the Company's international distribution channels will be
able to adequately market, service and support the Company's products.
International operations generally are subject to certain risks, including
dependence on independent resellers, fluctuations in foreign currency exchange
rates, compliance with foreign regulatory and market requirements, variability
of foreign economic conditions and changing restrictions imposed by United
States export laws. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of localizing products for
foreign countries, lack of acceptance of localized products in foreign
countries, longer accounts receivable payment cycles, difficulties in managing
international operations, difficulties in enforcing intellectual property rights
and the burdens of complying with a wide variety of foreign laws. Currently, the
Company does not operate sales offices outside of the United States. If the
Company establishes international sales offices, such operations will be subject
to certain additional risks, including difficulties in staffing and managing
such operations and potentially adverse tax consequences including restrictions
on the repatriation of earnings. There can be no assurance that such factors
will not have a material adverse effect on the Company's future international
sales and, consequently, the Company's business, financial condition and results
of operations. To date, all of the Company's sales have been made in United
States dollars and the Company has not engaged in any hedging transactions
through the purchase of derivative securities or otherwise. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Strategy" and "-- Sales and Marketing."
Strategic Relationships. The Company intends to pursue non-exclusive
arrangements with computer software vendors, hardware vendors and fax carrier
service providers to enhance its marketing and sales efforts, maintain its
access to leading technologies and support revenue growth. The Company expects
to rely upon such third parties for marketing and sales and lead generation.
Such third parties generally will not be contractually obligated to cooperate
with the Company. The Company expects that many such third parties will have
similar, and often more established, relationships with the Company's
competitors. If the Company is unable to develop, enhance and maintain effective
relationships with such third parties, the Company's business, financial
condition and results of operations could be materially adversely affected.
Further, there can be no assurance that such third parties, many of which will
have significantly greater financial, technical, sales, marketing and other
resources than the Company, will not develop and market computer-based facsimile
products in competition with the Company in the future, enter into joint
marketing arrangements with the Company's competitors, or otherwise reduce or
discontinue their relationships with or support of the Company. See
"Business -- Strategic Relationships."
Dependence on Hardware Revenues. As an accommodation to the Company's
customers, the Company resells certain hardware products, such as intelligent
fax boards, which are used in conjunction with the Company's software products.
Revenues from such hardware sales can amount to a significant portion of the
Company's total revenues in any period. To the extent that the size of the
Company's implementations increases, its customers may find it attractive to
purchase such hardware directly from the manufacturers of such products, with a
resultant decrease to the Company in such ancillary revenues and related
contribution to income. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Products and Services."
Risks Associated with New Product Offerings; Potential for Undetected
Errors. Software products as complex as those offered by the Company may
contain undetected errors or failures when first introduced or as new versions
are released. The Company released the latest version of Fax Sr. NT, Version
2.0, in May 1997. There can be no assurance that, despite significant testing by
the Company and by current and potential customers, errors will not be found in
Fax Sr. NT Version 2.0 or any other new products after commencement of
commercial shipments. In addition, third-party products, upon which the
Company's products are dependent, such as Windows NT, Windows 95, and other
software and various hardware components, may contain defects which could reduce
the performance of the Company's products or render the Company's products
useless. Because the Company's products
10
<PAGE> 12
integrate with third-party applications, any errors in applications deemed
critical to the use of the Company's products could adversely impact the
marketability of the Company's products. Although the Company has not
experienced material adverse effects resulting from any such errors or defects
to date, there can be no assurance that errors or defects will not be discovered
in the future, causing delays in product introduction and shipments or requiring
design modifications that could materially adversely affect the Company's
competitive position, business, financial condition and results of operations.
See "Business -- Products and Services" and "-- Research and Development."
Dependence on Proprietary Technology; Risks of Third-Party Claims for
Infringement. The Company regards its software as a trade secret and attempts
to protect it with a combination of copyright and trade secret laws, and
employee nondisclosure and assignment of invention agreements. The Company has
no patents or patents pending, and has not to date registered any copyrights or
trademarks. The Company generally licenses its products under "shrink-wrap"
licenses (i.e., licenses included as part of the product packaging). Shrink-wrap
licenses are not negotiated with or signed by individual licensees, and purport
to take effect upon the opening of the product package. Certain provisions of
such licenses, including provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed program, may be unenforceable
under the laws of many jurisdictions. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and although the Company is unable to determine the extent to which piracy of
its products exists, such piracy can be expected to be a persistent problem,
particularly in international markets. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. There can be no assurance that these protections
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
There has been substantial litigation in the software industry involving
intellectual property rights. There can be no assurance that claims of
infringement of intellectual property rights will not be asserted against the
Company and, if asserted, would not have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
inasmuch as the Company licenses certain components of its Fax Sr. product from
third parties, its exposure to copyright and other infringement actions may
increase because the Company must rely on such third parties for information as
to the origin and ownership of such licensed components. In the future,
litigation may be necessary to enforce and protect trade secrets, copyrights and
other intellectual property rights of the Company. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation could be costly and divert management's
attention, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse determinations
in such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from selling its products,
any one of which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Proprietary
Rights."
Dependence on Third Party Licensed Technology. Certain components used in
the Company's products are licensed from third parties. Should any of these
components become unavailable to the Company, the Company believes that it would
be able to obtain alternative suppliers; however, any failure to obtain such
components on a timely basis at an affordable cost, or any significant delays or
interruptions in the supply of such components, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Dependence on Key Personnel. The Company's future performance depends, in
significant part, upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement
and only certain of whom are bound by noncompetition agreements. The loss of the
services of one or more of the Company's executive officers or other key
11
<PAGE> 13
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and the Company has experienced difficulty in recruiting qualified
technical personnel. There can be no assurance that the Company will be able to
retain or continue to hire key technical, sales and managerial personnel in the
future. See "Management."
No Prior Public Market; Determination of Initial Public Offering Price;
Potential Volatility of Stock Price. Prior to this offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or continue after the offering. The initial public
offering price for the Common Stock will be determined by negotiation among the
Company, representatives of the Selling Stockholders and the representatives of
the Underwriters. Among the factors to be considered in determining the initial
public offering price will be prevailing market and economic conditions,
revenues and earnings and other financial information of the Company, the market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. These factors may not be indicative of the market
price of the Common Stock after this offering. In addition, the stock markets in
general, and the market prices for high technology companies in particular, have
historically experienced volatility that at times has been unrelated to the
operating performance of such companies. The trading price of the Common Stock
could also be subject to significant fluctuations in response to variations in
quarterly results of operations, announcements of new products or acquisitions
by the Company or its competitors, governmental regulatory action, other
developments or disputes with respect to proprietary rights, general trends in
the industry and overall market conditions, and other factors. Broad market and
industry fluctuations may materially adversely affect the market price of the
Common Stock regardless of the Company's operating performance. See
"Underwriting."
Risks Associated with Possible Acquisitions. The Company may pursue
potential acquisitions of businesses, products and technologies that could
complement or expand the Company's business. The Company currently has no plans,
commitments or agreements with respect to any material acquisitions and there
can be no assurance that the Company will be able to identify any appropriate
acquisition candidates. If the Company identifies an acquisition candidate,
there can be no assurance that the Company will be able to successfully
negotiate the terms of any such acquisition, finance such acquisition or
integrate such acquired businesses, products or technologies into the Company's
existing business and products. Furthermore, the negotiation of potential
acquisitions as well as the integration of an acquired business could cause
diversion of management's time and resources, and require the Company to use
proceeds from the offering to consummate a potential acquisition. Future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses. If any such acquisition were to occur, there can be no
assurance that, whether or not consummated, any such acquisition would not have
a material adverse effect on the Company's business, financial condition and
results of operations. See
"-- Uncertainty as to Use of Proceeds."
Uncertainty as to Use of Proceeds. The principal purposes of this offering
are to obtain additional working capital, to enhance the visibility of the
Company in its commercial markets, to create a public market for the Company's
Common Stock and to facilitate future access by the Company to public equity
markets. A portion of the net proceeds of the offering may also be used to
acquire or invest in products, technologies or businesses which broaden or
enhance the Company's current product offerings. There are no current agreements
with respect to any material acquisitions or investments. As of the date of this
Prospectus, the Company has no specific plans as to the use of the substantial
majority of the net proceeds of this offering, and will have broad discretion in
the application of such proceeds. See "Use of Proceeds."
Control by Existing Stockholders. Following this offering, the Company's
executive officers, directors and other principal stockholders, in the
aggregate, will beneficially own approximately 62.9% of the Company's
outstanding Common Stock (57.8% if the over-allotment option is exercised in
full).
12
<PAGE> 14
As a result, these stockholders, if acting together, would be able to exert
substantial influence over the Company and effectively control most matters
requiring approval by the stockholders of the Company, including the election of
directors. Further, such stockholders, if acting together, could prevent the
election of any person nominated to the Board of Directors by any other
stockholder. The voting power of these stockholders under certain circumstances
could have the effect of delaying or preventing a change in control of the
Company and could limit the price that certain investors may be willing to pay
in the future for shares of the Company's Common Stock. See "Management,"
"Principal and Selling Stockholders" and "Description of Capital Stock."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Company's Common Stock in the public market following this offering could
adversely affect the prevailing market price of the Common Stock. Immediately
after completion of the offering, the Company will have 11,428,239 shares of
Common Stock outstanding, of which the 4,000,000 shares offered hereby will be
eligible for sale without regard to volume or other limitations pursuant to Rule
144 ("Rule 144") under the Securities Act, unless purchased by "affiliates" of
the Company as that term is defined under Rule 144. The Company, its executive
officers, directors and certain current stockholders, who in the aggregate own
beneficially 7,425,572 of the remaining outstanding shares of Common Stock and
stock options exercisable for an additional 966,668 shares of Common Stock have
agreed pursuant to lock-up agreements that they will not sell or otherwise
dispose of any shares of Common Stock beneficially owned by them for a period of
180 days from the date of this Prospectus. Such agreements provide that
Robertson, Stephens & Company may, in its sole discretion and at any time
without notice, release all or a portion of the shares subject to these lock-up
agreements. Upon the expiration of these lock-up agreements, all of such
outstanding shares will become immediately eligible for sale in the public
market, subject in some cases to the volume and other restrictions of Rule 144
or Rule 701 under the Securities Act. Promptly after the date of this
Prospectus, the Company intends to register on one or more registration
statements on Form S-8 all shares of Common Stock issuable under its stock
plans. Shares covered by such registration statements will be eligible for sale
in the public market after the effective date of such registration. In addition,
the holders of 6,961,220 shares of Common Stock are entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales may have a material adverse effect on the
market price for the Common Stock. In addition, if the Company is required to
include in a Company-initiated registration shares held by such holders pursuant
to the exercise of their "incidental" registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital. See
"Management," "Principal and Selling Stockholders," "Shares Eligible for Future
Sale" and "Underwriting."
Immediate and Substantial Dilution. Purchasers in this offering will
suffer an immediate and substantial dilution of $6.49 per share in the net
tangible book value of the Common Stock from an assumed initial public offering
price of $9.00 per share. Additional dilution is likely to occur upon exercise
of options granted by the Company. See "Dilution."
Absence of Dividends. The Company has never paid cash dividends and does
not intend to pay any cash dividends in the foreseeable future. See "Dividend
Policy."
Anti-Takeover Effect of Charter and By-Law 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 could
discourage a proxy contest or make more difficult the acquisition of a
substantial block of the Company's Common Stock. Such provisions could limit the
price that investors might be willing to pay in the future for shares of the
Company's Common Stock. The Board of Directors is authorized to issue, without
stockholder approval, up to 2,000,000 shares of Preferred Stock, $0.01 par
value, of the Company (the "Preferred Stock") with voting, conversion and other
rights and preferences that may be superior to the Common Stock and that could
adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock or of rights to purchase Preferred Stock
could be used to discourage an unsolicited acquisition proposal. See
"Description of Capital Stock -- Preferred Stock" and "-- Delaware Law and
Certain Charter and By-Law Provisions; Anti-Takeover Effects."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $9.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses, are estimated to be approximately
$24,310,000. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
The principal purposes of this offering are to obtain additional working
capital, to expand the size of the Company's sales and marketing, research and
development, customer support and administrative operations, to enhance the
visibility of the Company in its commercial markets, to create a public market
for the Company's Common Stock and to facilitate future access by the Company to
public equity markets. A portion of the net proceeds of the offering may also be
used to acquire or invest in products, technologies or businesses which broaden
or enhance the Company's current product offerings. There are no current
agreements with respect to any material acquisitions or investments. As of the
date of this Prospectus, the Company has no specific plans as to the use of the
substantial majority of the net proceeds of this offering, and will have broad
discretion in the application of the proceeds. Pending any such uses, such net
proceeds will be invested in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its capital stock in the
foreseeable future. Any future declaration and payment of dividends will be
subject to the discretion of the Company's Board of Directors, will be subject
to applicable law and will depend upon the Company's results of operations,
earnings, financial condition, contractual limitations, cash requirements,
future prospects and other factors deemed relevant by the Company's Board of
Directors.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock upon the closing of this offering and (iii) on such pro forma basis as
adjusted to give effect to the sale of the 3,000,000 shares of Common Stock by
the Company offered hereby based upon an assumed initial public offering price
of $9.00 per share and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term debt, net of current portion....................... $ 153 $ 153 $ 153
------- ------- -------
Series B Convertible Redeemable Preferred Stock, $.01 par
value per share; 1,356,116 shares authorized, issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........... 5,367 -- --
------- ------- -------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value per share; 1,481,384 shares
authorized, no shares issued or outstanding, actual;
2,000,000 shares authorized, no shares issued or
outstanding, pro forma and pro forma as adjusted........ -- -- --
Series A Convertible Preferred Stock, $.01 par value per
share; 162,500 shares authorized, issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........ 2 -- --
Common Stock, $.01 par value per share; 10,000,000 shares
authorized, 5,391,007 shares issued and outstanding,
actual; 35,000,000 shares authorized, 8,428,239 shares
issued and outstanding, pro forma; 35,000,000 shares
authorized, 11,428,239 shares issued and outstanding,
pro forma as adjusted (1)............................... 54 84 114
Additional paid-in capital................................... 18 4,990 29,270
Retained earnings (deficit).................................. (1,018) (651) (651)
------- ------- -------
Total stockholders' equity (deficit).................... (944) 4,423 28,733
------- ------- -------
Total capitalization............................... $ 4,576 $ 4,576 $28,886
======= ======= =======
</TABLE>
- ------------
(1) Excludes (i) 1,309,218 shares of Common Stock issuable upon the exercise of
stock options outstanding at June 30, 1997 granted under the Company's stock
plans at a weighted average exercise price of $1.28 per share, of which
options to purchase 321,665 shares were then exercisable and (ii) 2,114,783
shares of Common Stock reserved for future issuance pursuant to the
Company's stock plans. See "Management -- Stock Plans" and Notes 11 and 14
of Notes to Financial Statements.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
was $4,294,332, or $0.51 per share of Common Stock after giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock. Pro forma net tangible book value per share is equal to the Company's
total tangible assets less total liabilities, divided by the total number of
shares of Common Stock outstanding (assuming the conversion of all outstanding
shares of Convertible Preferred Stock into Common Stock). After giving effect to
the sale by the Company of 3,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $9.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the adjusted pro forma net tangible book value of the
Company as of June 30, 1997 would have been $28,717,967, or $2.51 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.00 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $6.49 per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $9.00
Pro forma net tangible book value at June 30, 1997......... $0.51
Increase per share attributable to new investors........... 2.00
-----
Adjusted pro forma net tangible book value per share after
the offering............................................. 2.51
------
Dilution to new investors.................................. $6.49
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company at the assumed initial public offering price of $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 8,428,239 73.7% $ 5,344,300 16.5% $0.63
New investors............. 3,000,000 26.3 27,000,000 83.5 $9.00
---------- ------ ----------- ------
Total........... 11,428,239 100.0% $32,344,300 100.0%
========== ====== =========== ======
</TABLE>
- ------------
(1) Sales by Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 7,428,239 shares, or
65.0% (6,858,905 shares, or 59.9%, if the Underwriters' over-allotment
option is exercised in full) of the total number of shares of Common Stock
to be outstanding after this offering, and will increase the number of
shares held by new stockholders to 4,000,000 shares, or 35.0% (4,600,000
shares, or 40.1%, if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock to be outstanding after
the offering. See "Principal and Selling Stockholders."
The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options under the Company's stock plans. As of
June 30, 1997, 1,309,218 shares of Common Stock were issuable upon exercise of
outstanding stock options at a weighted average exercise price of $1.28 per
share, of which options to purchase 321,665 shares were then exercisable at a
weighted average exercise price of $0.25 per share. To the extent the
outstanding options are exercised and that any of the shares reserved for
issuance are issued with exercise prices below the initial public offering
price, there will be further dilution to new investors. See "Management -- Stock
Plans" and "Shares Eligible for Future Sale."
16
<PAGE> 18
SELECTED FINANCIAL DATA
The statement of operations data set forth below for each of the fiscal
years ended December 31, 1994, 1995 and 1996 and the balance sheet data as of
December 31, 1995 and 1996 have been derived from the Company's financial
statements, which statements have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this Prospectus.
The balance sheet data at December 31, 1994 is derived from the Company's
financial statements, which statements have been audited by Arthur Andersen LLP
and are not included in this Prospectus. The data presented as of and for the
years ended December 31, 1992 and 1993 are derived from the Company's unaudited
financial statements which are not included in this Prospectus. The data
presented as of June 30, 1997 and for the six months ended June 30, 1996 and
1997 are derived from unaudited financial statements included elsewhere in this
Prospectus. In the opinion of management, all unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the data for such periods. The results of operations
for the six months ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year or for any future period. The selected
financial data set forth below should be read in conjunction with the Financial
Statements and the Notes thereto and with Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
---- ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license................................. $636 $ 902 $1,486 $2,780 $5,304 $2,031 $5,486
Hardware......................................... 125 101 124 278 1,533 527 1,748
Service and other................................ 86 71 338 870 1,564 713 1,044
---- ------ ------ ------ ------ ------ ------
Total revenues............................. 847 1,074 1,948 3,928 8,401 3,271 8,278
---- ------ ------ ------ ------ ------ ------
Cost of revenues:
Software license................................. 167 9 35 104 109 50 218
Hardware......................................... 120 92 114 209 1,084 339 1,208
Service and other................................ 40 81 130 319 816 346 501
---- ------ ------ ------ ------ ------ ------
Total cost of revenues..................... 327 182 279 632 2,009 735 1,927
---- ------ ------ ------ ------ ------ ------
Gross profit............................... 520 892 1,669 3,296 6,392 2,536 6,351
---- ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing.............................. 283 499 649 1,236 2,824 1,041 2,938
Research and development ........................ 93 208 414 893 1,972 777 1,554
General and administrative....................... 140 350 721 750 950 430 779
Write-off of intangible asset.................... -- -- 200 -- -- -- --
---- ------ ------ ------ ------ ------ ------
Total operating expenses................... 516 1,057 1,984 2,879 5,746 2,248 5,271
---- ------ ------ ------ ------ ------ ------
Income (loss) from operations...................... 4 (165) (315) 417 646 288 1,080
Interest income (expense), net..................... (2) (2) 12 (1) 32 -- 29
---- ------ ------ ------ ------ ------ ------
Income (loss) before provision (benefit)
for income taxes................................. 2 (167) (303) 416 678 288 1,109
Provision (benefit) for income taxes............... -- -- (70) -- 238 101 405
---- ------ ------ ------ ------ ------ ------
Net income (loss).................................. $ 2 $ (167) $ (233) $ 416 $ 440 $ 187 $ 704
==== ====== ====== ====== ====== ====== ======
Pro forma net income per common and common
equivalent share(1).............................. $ 0.04 $ 0.07
====== ======
Pro forma weighted average number of common and
common equivalent shares outstanding(1).......... 9,929 9,488
====== ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, -------------------
------------------------------------------------ PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(2)
---- ------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ -- $ 39 $ 20 $ 551 $2,042 $ 810 $ 810
Working capital (deficit)....................... (14) (210) (305) (50) 3,313 3,413 3,413
Total assets.................................... 200 529 449 1,575 6,457 7,669 7,669
Long-term debt, net of current portion.......... 16 3 -- 21 212 153 153
Convertible redeemable preferred stock.......... -- -- -- -- 5,167 5,367 --
Total stockholders' equity (deficit)............ (4) (171) (405) 11 (1,467) (944) 4,423
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Adjusted to give effect to the automatic conversion upon the closing of this
offering of all outstanding shares of Convertible Preferred Stock into an
aggregate of 3,037,232 shares of Common Stock.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. The Company was incorporated in March
1991 and shipped its initial facsimile software products in 1991. The Company's
revenues are primarily derived from licensing the rights to use its Fax Sr.
software product directly to end users and indirectly through resellers. The
Company first achieved profitability for the year ended December 31, 1992 and
has been profitable for the last ten quarters.
Revenues from software licenses are recognized upon shipment of the
software if there are no significant post-delivery obligations and collection of
the resulting receivable is deemed probable. Payments received in advance for
services or products are initially recorded as deferred revenue. The Company
provides a 30-day money back guarantee for its Fax Sr. product and reserves for
potential product returns and allowances at the time of shipment. Historically,
the Company has adequately reserved for such potential returns and allowances.
In addition to licensing its Fax Sr. product, the Company also derives revenues
from licensing certain document imaging software products. Licensing revenues
from these imaging products accounted for 3% of total revenues in 1996 and less
than 1% of total revenues in the six months ended June 30, 1997, and the Company
does not expect this source of revenues to increase in the future.
The Company also derives revenues from the sale of hardware products such
as intelligent fax boards and fax modems. Hardware sales are undertaken as a
convenience to Fax Sr. customers and hardware is neither bundled with Fax Sr.
nor required to be purchased from the Company. Omtool primarily resells
intelligent fax boards from vendors such as Brooktrout Technology and Dialogic.
The Company purchases these hardware products as needed to ship to its customers
and the Company maintains a minimal inventory of these hardware products.
Revenue for hardware products is recognized upon shipment of the product.
Service and other revenues have consisted primarily of the sale of support
contracts. Revenue from support contracts is recognized ratably over the term of
the support contract period, which is typically one year. Although to date the
Company has not provided consulting, configuration and installation services,
the Company intends to offer these customer services in the future as warranted
by customer demand. The Company also derives revenues pursuant to contractual
obligations to support certain document imaging software products. Support
revenues attributable to these imaging products accounted for 6% of total
revenues in 1996 and 2% of total revenues in the six months ended June 30, 1997,
and the Company does not expect this source of revenues to increase in the
future.
Historically, the Company had marketed and sold its products principally
through its direct telesales force. During 1996, the Company began actively
recruiting VARs, systems integrators, resellers and distributors to expand its
indirect distribution channel. As a result, sales through the Company's indirect
distribution channels increased from 11% of total revenues in 1995 to 24% of
total revenues in 1996 to 35% of total revenues in the six months ended June 30,
1997.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................................. 76.2% 70.8% 63.1% 62.1% 66.3%
Hardware......................................... 6.4 7.1 18.3 16.1 21.1
Service and other................................ 17.4 22.1 18.6 21.8 12.6
--- --- --- --- ---
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
--- --- --- --- ---
Cost of revenues:
Software license................................. 1.8 2.7 1.3 1.5 2.6
Hardware......................................... 5.8 5.3 12.9 10.4 14.6
Service and other................................ 6.7 8.1 9.7 10.6 6.1
--- --- --- --- ---
Total cost of revenues................... 14.3 16.1 23.9 22.5 23.3
--- --- --- --- ---
Gross profit....................................... 85.7 83.9 76.1 77.5 76.7
--- --- --- --- ---
Operating expenses:
Sales and marketing.............................. 33.3 31.5 33.6 31.8 35.5
Research and development......................... 21.3 22.7 23.5 23.7 18.8
General and administrative....................... 37.0 19.1 11.3 13.2 9.4
Write-off of intangible asset.................... 10.3 -- -- -- --
--- --- --- --- ---
Total operating expenses................. 101.9 73.3 68.4 68.7 63.7
--- --- --- --- ---
Income (loss) from operations...................... (16.2) 10.6 7.7 8.8 13.0
Interest income, net............................... 0.6 -- 0.4 -- 0.4
--- --- --- --- ---
Income (loss) before provision (benefit) for income
taxes............................................ (15.6) 10.6 8.1 8.8 13.4
Provision (benefit) for income taxes............... (3.6) -- 2.9 3.1 4.9
--- --- --- --- ---
Net income (loss).................................. 12.0% 10.6% 5.2% 5.7% 8.5%
=== === === === ===
Gross profit:
Software license................................. 97.7% 96.3% 97.9% 97.5% 96.0%
Hardware......................................... 8.0 24.7 29.3 35.7 30.9
Service and other................................ 61.6 63.4 47.8 51.4 52.0
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues
Total Revenues. The Company's revenues are currently derived primarily
from fees from licensing of the Company's software products and, to a lesser
extent, from related sales of hardware and services. The Company's total
revenues were $8.3 million and $3.3 million for the six months ended June 30,
1997 and 1996, respectively, representing an increase of 153%.
Software License. The Company's software license revenues are derived
primarily from the licensing of the Company's Fax Sr. product. Software license
revenues were $5.5 million for the six months ended June 30, 1997 and $2.0
million for the six months ended June 30, 1996, or 66% and 62% of total revenues
for each respective period, representing an increase of 170%. The increase in
dollar amount was primarily due to increased market acceptance of the Company's
Fax Sr. product for the
19
<PAGE> 21
Windows NT operating system, as well as expansion of the Company's direct
telesales force and indirect sales channels.
Hardware. Hardware revenues are derived from the resale of third-party
hardware products sold to the Company's customers in conjunction with the
licensing of the Company's software. Hardware revenues were $1.7 million for the
six months ended June 30, 1997 and $527,000 for the six months ended June 30,
1996, or 21% and 16% of total revenues for each respective period, representing
an increase of 232%. The increase in hardware revenues was due primarily to the
increase of hardware unit sales accompanying increased licenses of Fax Sr. and a
change in the sales mix of third-party hardware products from lower priced modem
products to high-end multi-channel modem boards.
Service and Other. Service and other revenues are primarily comprised of
fees from maintenance contracts. Service and other revenues were $1.0 million
for the six months ended June 30, 1997 and $713,000 for the six months ended
June 30, 1996, or 13% and 22% of total revenues for each respective period,
representing an increase of 46%. The increase in dollar amount was due primarily
to the increase in maintenance revenues as a result of a larger installed
customer base.
Cost of Revenues
Software License. Cost of software license revenues consists primarily of
the costs of sublicensing third-party software products, product media, and
product duplication. Cost of software license revenues was $218,000 and $50,000
for the six months ended June 30, 1997 and 1996, respectively, representing 4%
and 2% of software license revenues for each respective period. The increase in
dollar amount was primarily due to the higher volume of products shipped during
the six months ended June 30, 1997 compared to the same period in 1996. Software
license gross margin percentages remained relatively constant at 96% for the six
months ended June 30, 1997 compared to 98% for the same period in 1996.
Hardware. Cost of hardware revenues consists primarily of the costs of
third-party hardware products. Cost of hardware revenues was $1.2 million and
$339,000 for the six months ended June 30, 1997 and 1996, respectively,
representing 69% and 64% of hardware revenues for each respective period. The
increase in dollar amount for the cost of hardware revenues for the six months
ended June 30, 1997 was due primarily to increased unit sales of hardware
products accompanying licenses of Fax Sr. and a change in the sales mix of
third-party hardware products from less expensive modem products to high-end
multi-channel modem boards. The gross margin percentage for hardware sales
decreased to 31% for the six months ended June 30, 1997 from 36% in the same
period in 1996 due to the change in the hardware sales mix.
Service and Other. Cost of service and other revenues consists primarily
of the costs incurred in providing telephone support as well as other
miscellaneous customer service-related expenses. Cost of service and other
revenues was $501,000 and $346,000 for the six months ended June 30, 1997 and
1996, respectively, representing 48% and 49% of service and other revenues for
each respective period. The increase in dollar amount of cost of service and
other revenues during the period was due primarily to the higher volume of
products shipped during the six months ended June 30, 1997 and the hiring of
incremental personnel to support such growth. The gross margin percentage for
service and other revenues remained relatively constant at 52% and 51% for the
six months ended June 30, 1997 and 1996, respectively.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions, and associated overhead costs, and the
cost of marketing programs such as direct mailings, public relations, trade
shows, seminars, and related communication costs. Sales and marketing expenses
were $2.9 million and $1.0 million for the six months ended June 30, 1997 and
1996, respectively, or 36% and 32% of total revenues for each respective period.
The increase in dollar
20
<PAGE> 22
amount and the increase in sales and marketing expenses as a percentage of total
revenues was primarily due to the Company's effort to expand its direct
telesales force and marketing organization, higher sales commissions associated
with increased revenues, and increased marketing program activities. The Company
expects sales and marketing expenses will continue to increase in absolute
terms.
Research and Development. Research and development expenses include
expenses associated with the development of new products, enhancements of
existing products and quality assurance activities, and consist primarily of
employee salaries, benefits, and associated overhead costs as well as consulting
expenses and the cost of software development tools. Research and development
expenses were $1.6 million and $777,000 for the six months ended June 30, 1997
and 1996, respectively, or 19% and 24% of total revenues for each respective
period. The increase in dollar amount was primarily attributable to the
employment of additional staff and independent contractors to develop and
enhance the Company's products and provide quality assurance. The Company
expects research and development expenses will continue to increase in absolute
terms.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses were
$779,000 and $430,000 for the six months ended June 30, 1997 and 1996,
respectively, or 9% and 13% of total revenues for each respective period. The
increase in dollar amount was primarily attributable to an increase in personnel
and the overhead costs allocated to support such personnel. General and
administrative expenses decreased as a percentage of total revenues as the
Company continued to realize operating leverage from its established
infrastructure. The Company expects general and administrative expenses will
continue to increase in absolute terms.
Interest Income (Expense), Net. Interest income (expense), net consists
principally of interest earned on cash, cash equivalents, and short-term
investments, offset by interest expense associated with equipment financing and
borrowings. Interest income (expense), net represented income of $29,000 in the
six months ended June 30, 1997, due primarily to interest income earned on
excess cash from the proceeds of the Company's 1996 private placements of its
preferred stock.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
was $405,000 and $101,000 for the six months ended June 30, 1997 and 1996,
respectively, resulting in effective tax rates of approximately 37% and 35% in
the six months ended June 30, 1997 and 1996, respectively. Income taxes in 1997
have been provided at the Company's respective federal and state statutory
rates, reduced primarily for income tax credits and the tax effect of certain
tax exempt interest income. The effective income tax rate in 1996 was lower due
primarily to utilization of net operating loss carryforwards.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues
Total Revenues. The Company's total revenues were $8.4 million and $3.9
million in 1996 and 1995, respectively, representing an increase of 114%.
Software License. Software license revenues were $5.3 million in 1996 and
$2.8 million in 1995, or 63% and 71% of total revenues for each respective
period, representing an increase of 91%. The increase in dollar amount was
primarily due to increased market acceptance of the Company's Fax Sr. product
for the Windows NT operating system, as well as expansion of the Company's
direct telesales force and indirect sales channels.
Hardware. Hardware revenues were $1.5 million in 1996 and $278,000 in
1995, or 18% and 7% of total revenues for each respective period, representing
an increase of 451%. The increase in hardware revenues was due primarily to the
increase of hardware unit sales accompanying increased licenses of Fax Sr. and a
change in the sales mix of third-party hardware products from lower priced modem
products to high-end multi-channel modem boards.
21
<PAGE> 23
Service and Other. Service and other revenues were $1.6 million in 1996
and $870,000 in 1995, or 19% and 22% of total revenues for each respective
period, representing an increase of 80%. The increase in dollar amount was due
primarily to the increase in maintenance and maintenance renewals as a result of
a larger installed customer base.
Cost of Revenues
Software License. Cost of software license revenues was $109,000 and
$104,000 in 1996 and 1995, respectively, representing 2% and 4% of software
license revenues for each respective period. The increase in dollar amount was
primarily due to the higher volume of products shipped during 1996 compared to
1995. Software license gross margin percentages remained relatively constant at
98% in 1996 compared to 96% in 1995.
Hardware. Cost of hardware revenues was $1.1 million and $209,000 in 1996
and 1995, respectively, representing 71% and 75% of hardware revenues for each
respective year. The increase in dollar amount was due primarily to increased
unit sales of hardware products accompanying licenses of Fax Sr. and a change in
the sales mix of third-party hardware products from less expensive modem
products to high-end multi-channel modem boards. The gross margin percentage for
hardware sales increased to 29% in 1996 from 25% in 1995 due to the change in
the hardware sales mix.
Service and Other. Cost of service and other revenues was $816,000 and
$319,000 in 1996 and 1995, respectively, representing 52% and 37% of service and
other revenues for each respective year. The increase in dollar amount was due
primarily to the higher volume of products shipped during 1996 and the hiring of
incremental personnel to support such growth. The gross margin percentage for
service and other revenues decreased to 48% in 1996 from 63% in 1995 due
primarily to the increase in the number of customer support personnel and
related overhead costs necessary to support a larger installed customer base.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $2.8 million and
$1.2 million in 1996 and 1995, respectively, or 34% and 32% of total revenues
for each respective period. The increase in dollar amount and the increase in
sales and marketing expenses as a percentage of total revenues was primarily due
to the Company's effort to expand its direct telesales force and marketing
organization, higher sales commissions associated with increased revenues, and
increased marketing program activities.
Research and Development. Research and development expenses were $2.0
million and $893,000 in 1996 and 1995, respectively, or 24% and 23% of total
revenues for each respective period. The increase in dollar amount was primarily
attributable to the employment of additional staff and independent contractors
to develop and enhance the Company's products and provide quality assurance.
General and Administrative. General and administrative expenses were
$950,000 and $750,000 in 1996 and 1995, respectively, or 11% and 19% of total
revenues for each respective period. The increase in dollar amount was primarily
attributable to an increase in personnel and the overhead costs allocated to
support such personnel. General and administrative expenses decreased as a
percentage of total revenues as the Company continued to realize operating
leverage from its established infrastructure.
Interest Income (Expense), Net. Interest income (expense), net represented
income of $32,000 in 1996 and expense of $1,000 in 1995. The increase in
interest income (expense), net was due primarily to interest income earned on
excess cash from the proceeds of the Company's 1996 private placements of its
preferred stock.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
was $238,000 in 1996, resulting in an effective tax rate of approximately 35%.
This rate is lower than the combined state and
22
<PAGE> 24
federal rates due to the utilization of net operating loss carryforwards and tax
credits. Net operating loss carryforwards were used to offset all federal and
state income taxes in 1995.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Total Revenues. The Company's revenues were $3.9 million and $1.9 million
in 1995 and 1994, respectively, representing an increase of 102%.
Software License. Software license revenues were $2.8 million and $1.5
million in 1995 and 1994, respectively, or 71% and 76% of total revenues for
each respective period, representing an increase of 87%. The increase in dollar
amount was due to increased market acceptance of the Company's fax software
products, the introduction of Fax Sr. for the Windows NT operating system and
expansion of the Company's direct telesales force.
Hardware. Hardware revenues were $278,000 and $124,000 in 1995 and 1994,
respectively, or 7% and 6% of total revenues for each respective period,
representing an increase of 124%. The increase in dollar amount was primarily
due to increased hardware sales accompanying increased licenses of Fax Sr.
Service and Other. Service and other revenues were $870,000 and $338,000
in 1995 and 1994, respectively, or 22% and 17% of total revenues for each
respective period, representing an increase of 157%. The increase in dollar
amount was due primarily to the increase in maintenance and maintenance renewals
as a result of a larger installed customer base.
Cost of Revenues
Software License. Cost of software license revenues was $104,000 and
$35,000 in 1995 and 1994, respectively, representing 4% and 2% of the related
software license revenues for each respective year. The increase in dollar
amount was primarily due to the higher volume of products shipped during 1995.
The software license gross margin percentage remained relatively constant at 96%
in 1995 compared to 98% in 1994.
Hardware. Cost of hardware revenues was $209,000 and $114,000 in 1995 and
1994, respectively, representing 75% and 92% of the related hardware revenues
for each respective year. The increase in dollar amount for the cost of hardware
revenues during 1995 was primarily due to increased unit sales of hardware
products accompanying licenses of Fax Sr. and to a change in the sales mix of
third-party hardware products from less expensive modem products to high end
multi-channel modem boards. The gross margin percentage for hardware sales
increased to 25% in 1995 from 8% in 1994 due primarily to a change in the
hardware sales mix.
Service and Other. Cost of service and other revenues was $319,000 and
$130,000 in 1995 and 1994, respectively, or 37% and 38% of the related service
and other revenues for each respective year. The increase in dollar amount of
cost of service and other from 1994 to 1995 was due primarily to the higher
volume of products shipped during 1995 and to the increase in the number of
customer support personnel and the hiring of incremental personnel to support
such growth. The gross margin percentage for service and other revenues remained
relatively constant at 63% in 1995 compared to 62% in 1994.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $1.2 million and
$649,000 in 1995 and 1994, respectively, or 32% and 33% of total revenues for
each respective period. The increase in dollar amount was primarily due to the
Company's effort to expand its sales and marketing organization, higher sales
commissions associated with increased revenues, and increased marketing program
activities.
23
<PAGE> 25
Research and Development. Research and development expenses were $893,000
and $414,000 in 1995 and 1994, respectively, or 23% and 21% of total revenues
for each respective period. The increase in dollar amount and as a percentage of
total revenues was primarily attributable to the employment of additional staff
and independent contractors to develop and enhance the Company's products and
quality assurance.
General and Administrative. General and administrative expenses were
$750,000 and $721,000 in 1995 and 1994, respectively, or 19% and 37% of total
revenues for each respective period. The increase in dollar amount was primarily
attributable to an increase in personnel and the overhead costs allocated to
support such personnel. General and administrative expenses decreased as a
percentage of total revenues as the Company began to realize operating leverage
from its established infrastructure.
Write-off of Intangible Assets. In 1993, the Company acquired from a third
party the rights, title and interest to two software products for a purchase
price of $300,000. In 1994, the Company recorded a charge of $200,000 to
write-off the unamortized portion of the software rights as a result of the
Company's increased focus on its Fax Sr. product line and to reflect their net
realizable value.
Interest Income (Expense), Net. Interest income (expense), net represented
expense of $1,000 in 1995 and income of $12,000 in 1994.
Provision (Benefit) for Income Taxes. Net operating loss carryforwards
were used to offset all federal and state income tax in 1995. The benefit for
income taxes in 1994 was $70,000 primarily due to federal and state net
operating loss carryforwards utilized in subsequent periods.
24
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight most recent quarters. In the opinion of
management, this information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this Prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results
when read in conjunction with the audited Financial Statements of the Company
and related Notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license......... $ 1,059 $ 660 $ 971 $1,060 $ 1,348 $1,925 $ 2,536 $2,950
Hardware................. 67 111 196 331 360 646 709 1,039
Service and other........ 254 257 324 388 418 434 456 588
------ ---- ---- ------ ------ ------ ------ ------
Total revenues.... 1,380 1,028 1,491 1,779 2,126 3,005 3,701 4,577
------ ---- ---- ------ ------ ------ ------ ------
Cost of revenues:
Software license......... 39 37 20 30 26 33 86 132
Hardware................. 48 85 151 188 252 493 494 714
Service and other........ 109 103 174 172 211 259 229 272
------ ---- ---- ------ ------ ------ ------ ------
Total cost of
revenues........ 196 225 345 390 489 785 809 1,118
------ ---- ---- ------ ------ ------ ------ ------
Gross profit............... 1,184 803 1,146 1,389 1,637 2,220 2,892 3,459
------ ---- ---- ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing...... 327 400 491 550 700 1,083 1,296 1,642
Research and
development............ 323 230 365 411 568 628 764 790
General and
administrative......... 276 163 209 221 229 291 391 388
------ ---- ---- ------ ------ ------ ------ ------
Total operating
expenses........ 926 793 1,065 1,182 1,497 2,002 2,451 2,820
------ ---- ---- ------ ------ ------ ------ ------
Income from operations..... 258 10 81 207 140 218 441 639
Interest income (expense),
net...................... (2) 7 1 -- 7 24 1 28
------ ---- ---- ------ ------ ------ ------ ------
Income before provision for
income taxes............. 256 17 82 207 147 242 442 667
Provision for income
taxes.................... -- -- 29 73 51 85 170 235
------ ---- ---- ------ ------ ------ ------ ------
Net income................. $ 256 $ 17 $ 53 $ 134 $ 96 $ 157 $ 272 $ 432
====== ==== ==== ====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 27
The following table sets forth certain unaudited consolidated quarterly
statement of operations data expressed as a percentage of total revenues for
each of the eight most recent quarters:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license........... 76.7% 64.2% 65.1% 59.6% 63.4% 64.1% 68.5% 64.4%
Hardware................... 4.9 10.8 13.2 18.6 16.9 21.5 19.2 22.7
Service and other.......... 18.4 25.0 21.7 21.8 19.7 14.4 12.3 12.9
--- --- --- --- --- --- --- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
--- --- --- --- --- --- --- -----
Cost of revenues:
Software license........... 2.8 3.6 1.3 1.7 1.2 1.1 2.3 2.9
Hardware................... 3.5 8.3 10.1 10.5 11.9 16.4 13.4 15.6
Service and other.......... 7.9 10.0 11.7 9.7 9.9 8.6 6.2 5.9
--- --- --- --- --- --- --- -----
Total cost of
revenues.......... 14.2 21.9 23.1 21.9 23.0 26.1 21.9 24.4
--- --- --- --- --- --- --- -----
Gross profit................. 85.8 78.1 76.9 78.1 77.0 73.9 78.1 75.6
--- --- --- --- --- --- --- -----
Operating expenses:
Sales and marketing........ 23.7 38.9 32.9 30.9 32.9 36.0 35.0 35.9
Research and development... 23.4 22.4 24.5 23.1 26.7 20.9 20.6 17.2
General and
administrative........... 20.0 15.8 14.1 12.5 10.8 9.7 10.6 8.5
--- --- --- --- --- --- --- -----
Total operating
expenses.......... 67.1 77.1 71.5 66.5 70.4 66.6 66.2 61.6
--- --- --- --- --- --- --- -----
Income from operations....... 18.7 1.0 5.4 11.6 6.6 7.3 14.0 14.0
Interest income (expense),
net........................ (0.1) 0.7 0.1 -- 0.3 0.8 -- 0.6
--- --- --- --- --- --- --- -----
Income before provision for
income taxes............... 18.6 1.7 5.5 11.6 6.9 8.1 11.9 14.6
Provision for income taxes... -- -- 1.9 4.1 2.4 2.9 4.6 5.2
--- --- --- --- --- --- --- -----
Net income................... 18.6% 1.7% 3.6% 7.5% 4.5% 5.2% 7.3% 9.4%
=== === === === === === === =====
</TABLE>
The Company's quarterly revenues and results of operations have fluctuated
significantly in the past and will likely fluctuate significantly in the future.
Causes of such fluctuations have included and may include, among others, the
demand for the Company's products and services, the size and timing of orders,
the number, timing and significance of new product announcements by the Company
and its competitors, the ability of the Company to develop, introduce, market
and ship new and enhanced versions of the Company's products on a timely basis,
the level of product and price competition, changes in operating expenses,
changes in average selling prices and mix of the Company's products, changes in
the Company's sales incentive strategy, the mix of direct and indirect sales,
and general economic factors. In addition, the sale of the Company's products
often involves delays because customers have tended to implement the products on
a large scale and customers also must establish certain minimum hardware
capabilities. The Company's products therefore often have a lengthy sales cycle
while the customer evaluates and receives approvals for the purchase of the
Company's products. During such sales cycles, the Company may expend substantial
funds and management effort yet receive no revenues. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fails to close as forecasted in a fiscal quarter, the Company's revenues
and operating results for such quarter could be materially adversely affected.
Any one or more of these or other factors could have a material adverse effect
on the Company's business, financial condition and results of operations. The
potential occurrence of any one or more of these factors makes the prediction of
revenues and results of operations on a quarterly basis difficult and
performance forecasts derived from such predictions unreliable. The Company's
business has experienced and is expected to continue to experience seasonality.
The Company has historically had and expects to continue to have weaker sales in
the months of July and August which may have an adverse effect on
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<PAGE> 28
third quarter sales. The Company believes that these fluctuations are caused
primarily by customer budgeting and purchasing patterns. See "Risk
Factors -- Fluctuations in Quarterly Results of Operations; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, the Company has financed its operations primarily through cash
flow from operations, borrowings under a demand line of credit and the private
sales of preferred stock. The net proceeds to the Company from the sale of its
preferred stock in 1996 were approximately $5.2 million. The Company used these
proceeds principally for working capital needs and property and equipment
additions necessary to support the Company's growth and for the repurchase of
approximately $2.0 million of Common Stock from certain officers of the Company.
See "Certain Transactions."
At June 30, 1997, the Company had cash and cash equivalents of $810,000 and
working capital of $3.4 million. The Company has entered into a loan and
security agreement with a bank which is comprised of a term loan and a line of
credit. The Company borrowed $250,000 under the term loan, which bears interest
at the bank's prime rate plus 0.5% (9.0% at June 30, 1997) and is payable in
monthly installments through December 31, 1999. At June 30, 1997, $213,000 was
outstanding under this term loan.
The line of credit permits the Company to borrow up to the lesser of $1.0
million or 70% of eligible accounts receivable (as defined) and bears interest
at the bank's prime rate plus 0.5% (9.0% at June 30, 1997). There were no
amounts outstanding under the line of credit at June 30, 1997. The term loan and
line of credit are collateralized by all of the assets of the Company and
require the Company to maintain certain financial ratios.
The Company's operating activities provided cash of $853,000 in the year
ended December 31, 1995, and used cash of $350,000 and $566,000 during the six
months ended June 30, 1997 and the year ended December 31, 1996, respectively.
Net cash provided during 1995 consisted primarily of net income from operations
and increases in accounts payable, accrued liabilities and deferred revenue,
offset by an increase in accounts receivable and prepaid expenses. Net cash used
by operations during the six months ended June 30, 1997 consisted primarily of
an increase in accounts receivable offset by net income from operations and an
increase in accrued liabilities. Net cash used by operations during 1996 was
comprised primarily of an increase in accounts receivable offset by net income
from operations and an increase in deferred revenue.
Investing activities used cash of $847,000 during the six months ended June
30, 1997, $1.4 million during 1996 and $269,000 during 1995. During these
periods, the principal uses were purchases of property and equipment and
purchases of short-term investments. The Company expects that the rate of
purchases of property and equipment will remain constant or increase as the
Company's employee base grows.
Financing activities used cash of $35,000 during the six months ended June
30, 1997, generated cash of $3.5 million in 1996 due primarily to net proceeds
from the issuance of preferred stock and used cash of $53,000 in 1995.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing cash balances, funds generated from
operations and available borrowings under its line of credit will be sufficient
to finance the Company's operations for the next twelve months. Although
operating activities may provide cash in certain periods, to the extent the
Company grows in the future, its operating and investing activities may use
cash. There can be no assurance that any necessary additional financing will be
available to the Company on commercially reasonable terms, or at all.
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<PAGE> 29
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
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<PAGE> 30
BUSINESS
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. Omtool's Fax Sr. product family,
licensed typically on a shrink-wrap basis, provides users with an extensive,
flexible feature set for transmitting and receiving faxes and improves an
organization's management of its fax communications processes by providing a
suite of utility and control functions. Fax Sr. can be deployed on
heterogeneous, multi-platform networks and can be integrated with both desktop
and enterprise software applications as well as e-mail and groupware systems. To
address the needs of large enterprises, Fax Sr. is modular and scaleable as
servers, clients and fax lines can be implemented and added over time. Fax Sr.
is available on the Windows NT, HP UNIX and DEC UNIX and VMS server operating
systems, and Windows 95, Windows NT, Windows 3.1.x, HTML, Macintosh, Motif and
MS-DOS clients. Omtool has licensed Fax Sr. to more than 1,500 customers
worldwide, including Alfred Berg Inc., AT&T Corp., Bloomberg Financial Markets,
Boeing, Dow Chemical, Honeywell, SmithKline Beecham and United Technologies.
INDUSTRY BACKGROUND
To be competitive in today's marketplace, companies must focus on improving
electronic communications within their organizations and beyond the enterprise.
Growth in electronic communication is being driven by productivity and
efficiency demands on knowledge workers, the information sharing requirements of
dispersed organizations, the emergence of the virtual enterprise to incorporate
suppliers, customers and other business partners, and the general globalization
of markets. Enterprises are responding to the need for improved communications
through the use of a combination of telephony, facsimile, e-mail and groupware
solutions. Facsimile transmission has been adopted as a world-wide standard for
electronic communication because of its ease of use, real-time transmission of
information, and consistent uniform protocol standards. According to an industry
source, an estimated 41% of the average annual telephone bills in 1996 for
Fortune 500 companies is attributable to fax costs.
A number of technological developments have emerged to create opportunities
to automate and improve fax and other corporate communications methods. These
developments include the proliferation of personal computers in the corporate
workplace, the growth of the client/server computing environment, the emergence
of the fax modem and remote access technology, the growth of wide area network
("WAN") infrastructure, including high speed T1/T3 public networks, and the
emergence of the Internet and corporate intranets. In addition, the rapid
adoption of Windows NT as a cost-effective, technologically-advanced platform
for enterprise computing is creating an environment whereby companies can
realize significant improvements in corporate communications through the use of
automation software.
Despite these technological improvements, only limited advances have been
made to automate fax communication and to coordinate and integrate communication
by fax with other communications methods. Traditional fax communication within
and beyond the enterprise continues to be prone to errors and delays in
transmission and reception due to manual copying, sending and routing processes.
Additionally, business managers and information technology ("IT") professionals
are often unable to effectively manage access and analyze and control usage
costs across this critical corporate communications medium. Because an estimated
85% of all faxed documents are created electronically, the lack of integration
between fax communication and desktop or enterprise applications causes
additional inefficiencies in the document communications and management process.
Moreover, traditional fax communication has failed to integrate with emerging
communications methods that are complementary to fax transmission, such as
e-mail and groupware, to create a coordinated communications process throughout
the extended enterprise.
Historical approaches to improving facsimile communications such as
desktop-based fax software and host-based fax applications have not provided a
comprehensive solution for the requirements of
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<PAGE> 31
the enterprise. Desktop fax applications are unable to support workgroups or
divisions within an organization, are often limited to a single desktop
operating system and do not provide complete management functions. In addition,
desktop-based fax applications are limited in that they require significant
investment by the organization in dedicated modem or fax boards in each user's
PC and a telephone line connection for each modem or fax board. Host-based fax
applications running on mainframes or minicomputers are typically expensive,
difficult to maintain and relatively inflexible to meet the changing needs of
the enterprise. In addition, host-based fax applications are difficult to
integrate in a changing technological environment.
As corporate communications have become more critical and complex, a need
has arisen for a solution to automate and integrate fax communications
throughout the enterprise and address a broad range of faxing requirements from
person-to-person to volume broadcast transmissions. Such a solution must provide
users and managers with superior functionality, provide tight integration with
applications and other communications methods such as e-mail and groupware,
leverage existing network technology and be implemented on a scaleable,
multi-platform client/server architecture to address the needs of the extended
enterprise. According to a third-party market research firm, the U.S. fax server
market, which includes revenues from software-only fax servers as well as
revenues from bundled, turnkey hardware and software fax server systems, is
expected to grow from $155 million in 1995 to $400 million in 1999.
THE OMTOOL SOLUTION
Omtool provides an open, client/server software solution, licensed
typically on a shrink-wrap basis, for automating and integrating facsimile
communications throughout the enterprise. Omtool's Fax Sr. solution provides the
following key benefits:
Comprehensive Fax Solution. Fax Sr. provides users with an extensive,
flexible feature set for transmitting, receiving and managing facsimiles. Fax
Sr. is designed to enhance an organization's management of its fax
communications processes by providing a suite of utility and control functions
for both IT staff and business managers.
Tight Integration with Desktop and Production Applications. Fax Sr.
manages the transmission of documents originating from desktop applications as
well as volume-based facsimiles generated by production applications, such as
purchase orders, invoices and shipping notices. Fax Sr. can be integrated with
off-the-shelf software applications as well as in-house custom applications.
Complementary E-mail and Groupware Functionality. Fax Sr. is designed to
connect to and complement e-mail and groupware by enabling faxes to be sent and
received through these applications. Fax Sr. supports multiple, complementary
e-mail and groupware systems, including Microsoft Mail, cc:Mail, Lotus Notes,
Microsoft Exchange and Simple Mail Transfer Protocol ("SMTP").
Leverage Existing Infrastructure Investments. Fax Sr. is designed to
operate on heterogeneous networks and enables enterprises to leverage their
existing IT server and desktop infrastructure and telecommunications
investments. Fax Sr. supports multiple, simultaneous protocols and is available
on the Windows NT, HP UNIX, and DEC UNIX and VMS server operating systems, and
Windows NT, Windows 95, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS
clients. Fax Sr. operates with existing public and leased telephone lines and,
with additional features included in Fax Sr. NT Version 2.0, enables users to
take advantage of enhanced services offered by telecommunication carriers and
specialized service providers.
Enterprise-Strength Solution. Fax Sr. is architected to be modular and
scaleable to meet the needs of worldwide enterprises. Servers, clients and fax
lines can be implemented and added over time in a Fax Sr. deployment. Fax Sr.
has been utilized as a solution for up to approximately 10,000 users within a
single customer enterprise.
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<PAGE> 32
STRATEGY
The Company's objective is to become the leading provider of enterprise
client/server facsimile software solutions. The Company seeks to achieve this
objective by implementing the following business strategy:
Maintain Technology Leadership in the Enterprise Market. The Company
intends to continue to invest in research and development to ensure that Fax Sr.
remains a robust and scaleable product for the enterprise market. The Company
strives to bring enhanced features to the market to respond to changing customer
requirements and evolving technology. The Company believes that Fax Sr. was the
first commercially available client/server facsimile solution to provide e-mail
and Microsoft Exchange integration and to incorporate least cost routing.
Continue Leadership in the Windows NT Environment. The Company believes
that Windows NT will become the dominant computing platform in the enterprise
environment. The Company believes that Fax Sr. was the first commercially
available client/server facsimile solution for the Windows NT platform, and the
Company has built a leadership position in this market. The Company intends to
focus a significant portion of its near-term product development efforts on
Windows NT-related functionality.
Leverage Installed Base of Customers. The Company believes that
significant opportunities exist to expand the use of Fax Sr. across more users
and applications at the Company's existing customer installations. The Company
intends to pursue these opportunities by providing comprehensive post-sale
customer support. In addition, the Company believes that a highly-referenceable
customer base is of critical importance in marketing its products to new
customers.
Pursue Multiple Distribution Channels. The Company believes that multiple
distribution channels are necessary to penetrate its target markets. The Company
is currently expanding its distribution network, including increasing its
telesales force, expanding its indirect channels within the United States and
internationally, and establishing a dedicated sales force to focus on sales to
large corporate accounts and post-sale relationship management.
Expand International Sales. The Company intends to expand its
international presence in order to address its target markets outside of North
America and to serve customers that operate on a multi-national basis. In 1995,
1996 and the six months ended June 30, 1997, approximately 5%, 7% and 8%,
respectively, of the Company's total revenues were derived from sales outside of
North America. In 1997, the Company plans to significantly increase its
investment in sales and marketing efforts directed toward international markets.
Pursue Strategic Relationships. The Company is seeking to form
relationships with leading providers of products and services complementary to
the Company's offerings. The Company believes that these relationships will
provide both a valuable source of sales leads and an alternative source of
implementation services. The Company also believes that these relationships will
be beneficial in exposing its products to new markets and prospective customers.
The Company has recently entered into strategic alliances with UNIFI
Communications, Inc. and Xpedite Systems, Inc., providers of enhanced fax
carrier services, and with Active Voice Corporation, a provider of PC-based
voice mail systems and computer-telephony integration solutions.
PRODUCTS AND SERVICES
Fax Sr.
Fax Sr. is a client/server software solution for automating and integrating
fax communication throughout the enterprise. As an integrated component of an
enterprise software system, Fax Sr. is designed to be deployed on heterogeneous,
multi-platform networks and to integrate with desktop and enterprise software
applications. Fax Sr. is licensed typically on a shrink-wrap basis, primarily on
the Windows NT, HP UNIX and DEC UNIX and VMS server operating systems. In 1996
and the six months
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<PAGE> 33
ended June 30, 1997, approximately 82% and 96%, respectively, of the Company's
software license revenues were derived from Fax Sr. NT. Fax Sr. can be
configured with a variety of networked clients, including Windows NT, Windows
95, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS.
The Company has versions of Fax Sr. for use on the Windows NT, HP UNIX and
DEC UNIX and VMS operating systems. Fax Sr. NT was first released in March 1995
and the current version, 2.0, was released in May 1997. Fax Sr. VMS was first
released in 1993 and the current version, 4.1, was released in March 1997. Fax
Sr. UNIX was first released in 1994 and the current version, 4.2, was released
in June 1997.
Fax Sr. is comprised of three main components: Fax Sr. Client, Fax Sr.
Server and Fax Sr. Manager. The Fax Sr. Client allows users to send and receive
faxes directly from the desktop or enterprise application. The Fax Sr. Server
controls the function of prioritizing, queuing, and transmitting outbound faxes,
while receiving and distributing inbound faxes. The Fax Sr. Manager allows for
remote monitoring, control, and analysis of fax user activity from any Windows
or Windows NT system that is connected to the network.
Fax Sr. offers a comprehensive feature set with functionality important to
users, business managers and IT professionals. Fax Sr. users can fax documents,
together with attachments, from any desktop application through the
application's print function. Alternatively, faxes may be transmitted or
received directly through e-mail. Users can create and revise shared, public and
private phonebooks for fax transmissions. Fax Sr. offers a fax broadcast
capability with immediate or delayed transmission to take advantage of off-peak
telephone line utilization and charges. Inbound faxes can be directed to a
printer, desktop personal computer or e-mail. Fax Sr. also offers remote access,
including send and receive capability, for users who are away from the office.
Fax Sr. provides tools that allow business managers and IT professionals to
effectively manage the fax communication process. Outbound faxes can be
prioritized and scheduled on the individual user level and enhanced management
security and control capabilities are provided by furnishing password protection
as well as user and location restrictions. Through least cost routing, Fax Sr.
can route fax transmissions between servers, over an organization's WAN or the
Internet, allowing long distance fax transmissions to be made as local phone
calls. Fax Sr. also offers sophisticated tools for facsimile usage analysis,
including comprehensive recordkeeping of inbound and outbound faxes. The entire
Fax Sr. environment can be managed, configured and controlled from one or more
remote workstations.
Fax Sr. can be automatically linked to enterprise data processing
applications on multiple platforms connected on an enterprise's network. Fax Sr.
provides an integrated faxing environment across an organization's computer
platforms, including both servers and desktops. Fax Sr. is scaleable as a
business' need for faxing solutions expands.
Fax Sr. NT provides incremental functionality to the feature set available
on all versions of the Fax Sr. product. Fax Sr. NT is fully integrated with
Microsoft Exchange and enables business managers to pre-approve outbound faxes
on an individual user level. Fax Sr. NT supports multiple e-mail systems and
server side rasterization of multiple desktop application formats. Fax Sr. NT
Version 2.0 contains new client and server features including the capability of
routing fax transmissions through third-party service providers, SMTP gateway
and Internet browser client support.
The Company's Fax Sr. product is licensed to its customers on a per server
basis. Pricing is based on the number of servers and facsimile telephone lines
deployed. The software list price for a deployment of one server, unlimited
clients and four telephone lines is approximately $6,500. The software list
price for a deployment of one server, unlimited clients and eight telephone
lines is approximately $9,000. The software list price for a deployment with one
server, unlimited clients and a T1 line, containing 24 telephone lines, is
approximately $17,000.
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<PAGE> 34
Hardware
The Company also resells certain hardware products, including intelligent
fax boards and fax modems, to its customers. Hardware sales are undertaken as a
convenience to Fax Sr. customers, and hardware is neither bundled with Fax Sr.
nor required to be purchased from the Company. Omtool primarily resells
intelligent fax boards from vendors such as Brooktrout Technology and Dialogic.
Customer Service
To aid in the successful deployment of the Company's products by its
customers, the Company's customer service organization provides technical
support. For an additional fee at the time of the initial licensing of the Fax
Sr. product, the Company provides support services to its customers for a period
of 12 months, including telephone support, notification of product upgrades,
minor product upgrades, functional releases and maintenance releases, technical
bulletins and replacement of damaged media. Support services may be renewed by
the customer on an annual basis. The Company currently provides annual support
services based on a percentage of its product license fee. Although to date the
Company has not provided consulting, configuration and installation services to
any significant degree, the Company intends to offer these customer services in
the future as warranted by customer demand.
Other Products
In 1995, the Company acquired the right to license and support certain
document management and imaging software products. The Company provides
technical support for customers in exchange for support contract revenues, but
does not market these products to new customers. The Company believes that the
expertise gained in supporting the document management and imaging business can
be used to provide enhancements to its core Fax Sr. product. Revenues from the
licensing and support of these products accounted for approximately 9% and 3% of
the Company's total revenues in 1996 and the six months ended June 30, 1997,
respectively, and the Company does not expect this source of revenues to
increase in the future.
SALES AND MARKETING
The Company targets large and mid-sized corporations, organizations and
government entities as the primary market for its Fax Sr. product line. To
address the broad range of its sales opportunities, the Company relies on the
coordinated efforts of its centralized telesales organization, its key
executives and corporate account team, the Company's marketing department and
its indirect channels, including resellers, international distributors and
systems integrators. The Company is presently expanding its sales organization.
The telesales group qualifies and pursues sales leads generated by Omtool's
marketing organization. The Company has historically conducted its telesales
operation from its corporate headquarters in Salem, New Hampshire and intends to
maintain the telesales function at this location. Direct sales by the Company
accounted for approximately 89%, 76% and 65%, respectively, of the Company's
total revenues in 1995, 1996 and the six months ended June 30, 1997.
Within North America, the Company also offers its Fax Sr. product line
through indirect sales channels such as VARs, systems integrators and resellers
of complementary hardware products. While product sales may be handled by third
parties, to date all customer service contracts have been maintained directly by
the Company. The Company plans to expand the number of resellers in North
America selling Fax Sr. and anticipates the percentage of its revenues derived
from indirect channels will therefore increase.
Outside of North America, the Company primarily utilizes independent
distributors to promote, license and support its products. Omtool's distributor
strategy is to engage large-volume distributors of software products to serve
customers that operate on a multi-national basis. The Company expects to
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<PAGE> 35
market Fax Sr. through independent distributors in strategic markets including
Europe and South America. In 1995, 1996 and the six months ended June 30, 1997,
sales outside of North America represented 5%, 7% and 8%, respectively, of total
revenues.
In support of its sales organization, the Company conducts comprehensive
marketing programs intended to promote and create awareness of the Company's
products and position the Company in the enterprise, client/server facsimile
software market. These efforts include product advertising, public relations,
trade show participation, educational seminar series, direct mail and
telemarketing campaigns and participation in industry programs and forums.
STRATEGIC RELATIONSHIPS
An element of the Company's strategy is the creation and development of
strategic relationships with key industry participants, including leading
providers of products and services complementary to the Company's offerings. The
Company's goals in establishing these relationships are to create marketing
alliances with entities that will endorse and promote the Company's products to
a larger potential customer base and to assist the Company in developing a
supply of aftermarket service providers, thereby leveraging the Company's
resources and enhancing its reach.
The Company has recently entered into strategic alliances with UNIFI
Communications, Inc. and Xpedite Systems, Inc., providers of enhanced fax
carrier services, and with Active Voice Corporation, a provider of PC-based
voice mail systems and computer-telephony integration solutions. The agreements
generally provide for reference sales, limited co-marketing activities and, in
the case of UNIFI and Active Voice, resale of Fax Sr. See "Risk
Factors -- Expansion of Indirect Channels; Potential for Channel Conflict" and
"-- Strategic Relationships."
CUSTOMERS
As of June 30, 1997, the Company had more than 1,500 customers worldwide.
The Company's customer base reflects the cross-industry applicability of the
Company's products and services. The following is a representative list of
certain Fax Sr. customers that have each purchased more than $20,000 in the
aggregate of the Company's products and services:
ALCOA
Alfred Berg Inc.
Ameritech
AT&T Corp.
Auto Nation USA
Bank of Bermuda
Bloomberg Financial Markets
Boeing
Cellular One-Chicago
Charles Schwab
Correctional Services Canada
CSX Technology, Inc.
Digital Equipment Corporation
Dow Chemical
Environment Canada
Ericsson Inc.
Fina Oil & Chemical
Franklin Quest Co.
GMAC Mortgage Co.
Honeywell Inc.
J.D. Edwards
Legislative Counsel Bureau
Lockheed Martin
Logicorp
Los Alamos National Lab
Mayo Foundation
Micro Warehouse
Monsanto
New Brunswick Power
Pacific Bell
Payless Cashways, Inc.
Polaroid Corp.
Quark Incorporated
Sanford C. Bernstein & Co. Inc.
SmithKline Beecham
Transquest, Inc.
Tri Valley Growers
United Technologies
World Mercantile Exchange
In 1995, Dow Chemical accounted for approximately 11% of total revenues. No
single customer accounted for 10% or more of total revenues in 1994 or 1996.
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<PAGE> 36
RESEARCH AND DEVELOPMENT
The Company has made substantial investments in research and development.
The Company believes its future performance will depend in large part on its
ability to enhance its current product line, maintain technological
competitiveness and meet an expanding range of customer requirements. Omtool
deploys its development engineers in product teams which focus on the concurrent
development of a range of product enhancements that leverage Fax Sr.'s modular
product architecture. Omtool's product development efforts are focused on
continued enhancement of existing products, development of new features and
exploring emerging technologies. The Company also continually reviews
opportunities to form alliances with third-party vendors of complementary
technologies and products in order to enhance the functionality of the Fax Sr.
product family. In the future, the Company may, based on timing and cost
considerations, explore opportunities to license or acquire technologies or
products from third parties.
Omtool is committed to enhancing Fax Sr. so that it remains a robust,
scaleable product, compatible with major emerging technologies utilized by large
enterprises. The Company is currently developing Fax Sr. NT Version 2.5, which
will include support for a JAVA client, an ActiveX client, LDAP (light-weight
directory access protocol) integration, OCR (optical character recognition) and
SNMP (simple network management protocol) capability. There can be no assurance
that the Company will be successful in developing and marketing Fax Sr. NT
Version 2.5 or other new versions or in responding to other emerging
technological developments or that any development will achieve commercial
acceptance. See "Risk Factors -- New Products and Technological Change" and
"-- Risks Associated with New Product Offerings; Potential for Undetected
Errors."
The Company is seeking and will continue to seek to hire additional skilled
development engineers. Such engineers are likely to be in short supply, and the
Company's business, financial condition and results of operations could be
adversely affected if it encounters delays in hiring or fails to retain the
required skilled engineers. The Company's research and development expense for
1994, 1995 and 1996 was approximately $414,000, $893,000 and $1,972,000,
respectively. Since its inception, the Company has not capitalized any research
and development costs. The Company plans to continue to make significant
investments in research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
The enterprise, client/server facsimile solution market is intensely
competitive and rapidly changing and the Company expects competition to continue
to increase. The Company believes its ability to compete successfully depends
upon a number of factors both within and beyond its control, including product
performance, reliability and features; ease of use; product scaleability;
quality of support services; price/performance; timeliness of enhancements and
new product releases by the Company and its competitors; the emergence of new
computer-based facsimile products and standards; name recognition; the
establishment of strategic alliances with industry leaders; and industry and
general economic trends.
The Company competes directly with a large number of vendors of facsimile
products, including providers of facsimile software products for client/server
networks such as RightFAX Inc. (a subsidiary of Applied Voice Technology, Inc.),
Fenestrae BV, Optus Software Inc. and Biscom, Inc. The Company also competes
with providers offering a range of alternative facsimile solutions including
operating systems containing facsimile and document e-mail features; low-end fax
modem products; providers of desktop fax software; single-platform facsimile
software products; and customized proprietary software solutions. In addition,
providers of operating systems or business software applications may bundle
competitive facsimile solutions as part of their broader product offerings.
Many of Omtool's competitors have longer operating histories and greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and market acceptance of their products and technologies than
the Company. In addition, there are relatively low barriers to entry in the
markets in which the Company operates, and new competition may arise either from
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<PAGE> 37
expansion by established companies or from new emerging companies or from
resellers of the Company's products. There can be no assurance that current or
potential competitors of Omtool will not develop products comparable or superior
in terms of price and performance features to those developed by the Company,
adapt more quickly than the Company to new or emerging technologies and changes
in market opportunities or customer requirements, establish alliances with
industry leaders, or take advantage of acquisition opportunities more readily
than the Company. In addition, no assurance can be given that the Company will
not be required to make substantial additional investments in connection with
its research, development, engineering, marketing, sales and customer service
efforts in order to meet any competitive threat, or that the Company will be
able to compete successfully in the future. Increased competition will result in
reductions in market share, pressure for price reductions and related reductions
in gross margins, any of which could materially and adversely affect the
Company's ability to achieve its financial and business goals. There can be no
assurance that in the future the Company will be able to successfully compete
against current and future competitors. See "Risk Factors -- Intense
Competition."
PROPRIETARY RIGHTS
The Company regards its software as a trade secret and attempts to protect
it with a combination of copyright and trade secret laws, and employee
nondisclosure and assignment of invention agreements. The Company has no patents
or patents pending, and to date has not registered any copyrights or trademarks.
The Company generally licenses its products under "shrink-wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink-wrap licenses are
not negotiated with or signed by individual licensees, and purport to take
effect upon the opening of the product package. Certain provisions of such
licenses, including provisions protecting against unauthorized use, copying,
transfer and disclosure of the licensed program, may be unenforceable under the
laws of many jurisdictions. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and although the Company is unable to determine the extent to which piracy of
its products exists, such piracy can be expected to be a persistent problem,
particularly in international markets. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. There can be no assurance that these protections
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies. See "Risk Factors -- Dependence on Proprietary
Technology; Risks of Third-Party Claims for Infringement."
There has been substantial litigation in the software industry involving
intellectual property rights. There can be no assurance that claims of
infringement of intellectual property rights will not be asserted against the
Company and, if asserted, would not have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
inasmuch as the Company licenses certain components of its Fax Sr. product from
third parties, its exposure to copyright and other infringement actions may
increase because the Company must rely on such third parties for information as
to the origin and ownership of such licensed components. In the future,
litigation may be necessary to enforce and protect trade secrets, copyrights and
other intellectual property rights of the Company. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation could be costly and divert management's
attention, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse determinations
in such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from selling its products,
any one of which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Proprietary Technology; Risks of Third-Party Claims for Infringement" and
"-- Dependence on Third Party Licensed Technology."
36
<PAGE> 38
EMPLOYEES
As of June 30, 1997, the Company employed 88 persons. The Company is not
subject to any collective bargaining agreements, has never experienced a work
stoppage and considers its relations with its employees to be good.
FACILITIES
The Company's executive offices are located in Salem, New Hampshire in a
leased facility consisting of approximately 22,500 square feet. The lease
expires on July 31, 2000, and the Company has an option to extend the lease for
a period of three years thereafter. The Company believes that such facilities
are adequate for its present operations. The Company, however, expects in the
future to expand into additional facilities.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert L. Voelk.................. 41 Chairman of the Board, Chief Executive Officer and
Director
Martin A. Schultz................ 42 President and Director
Ellen Ohlenbusch Flaherty........ 31 Vice President, Sales
Darioush Mardan.................. 32 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
Mark P. Overington............... 39 Vice President, Operations
Craig A. Randall................. 37 Vice President, Marketing
Paul E. St. Pierre............... 45 Vice President, Engineering
Richard D. Cramer (2)............ 34 Director
Bruce R. Evans (1)............... 38 Director
Anthony J. Mark (1)(2)........... 50 Director
William C. Styslinger, III....... 51 Director
</TABLE>
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Robert L. Voelk has served as Chief Executive Officer of the Company since
January 1996 and Director of the Company since August 1993. Mr. Voelk served as
President of the Company from August 1993 to January 1996. Mr. Voelk was
employed in various positions at ASA International, Ltd., a designer and
developer of proprietary vertical market software, from 1981 to 1993, most
recently serving as Executive Vice President and Director. Mr. Voelk is a
Director of ASA International, Ltd.
Martin A. Schultz, the founder of the Company, has served as President of
the Company since January 1996 and Director of the Company since inception. Mr.
Schultz founded the Company in March 1991 and served as the Company's President
from its inception through August 1993 and served as Chief Executive Officer of
the Company from March 1991 to January 1996. Mr. Schultz served as Vice
President of ASA International, Ltd. from April 1989 to January 1991.
Ellen Flaherty joined the Company in February 1994 as Vice President,
Sales. Ms. Flaherty served as Director of Sales at Laboratory Technologies
Corporation, a developer of engineering and scientific software, from May 1992
to November 1993. From 1987 to 1992, Ms. Flaherty worked for Analog Devices, a
manufacturer of linear digital and mixed-signal integrated circuits.
Darioush Mardan has served as Chief Financial Officer and Vice President,
Finance of the Company since October 1995. Mr. Mardan has also served as
Secretary and Treasurer of the Company since January 1996. Mr. Mardan was
employed in various positions by Arthur Andersen LLP, a national public
accounting firm, from August 1989 to October 1995, most recently serving as
audit manager in the firm's Boston office.
Mark P. Overington joined the Company in January 1997 as Vice President,
Operations. Mr. Overington was employed in various positions by Avid Technology,
Inc., a developer of nonlinear film, video and audio solutions, from January
1989 to December 1996, most recently serving as Vice President of Corporate
Marketing. From 1983 to 1989, Mr. Overington was employed in various positions
by Lotus Development Corporation, a software developer.
Craig A. Randall joined the Company in September 1995 as Vice President,
Marketing. Mr. Randall served as Vice President, Marketing for Simplex Time
Recorder Co., a seller of fire alarm, sound, security and other monitor and
control systems, from December 1994 to July 1995. Previously
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<PAGE> 40
Mr. Randall was employed by Racal-Datacom, Inc., a data communications company,
from November 1988 to December 1994, most recently as Division Vice President of
Product Marketing.
Paul E. St. Pierre joined the Company as Vice President, Engineering in
March 1996. Mr. St. Pierre was Director of Engineering at Avid Technology from
May 1992 to February 1996. Previously, Mr. St. Pierre was Consulting Engineer
for Digital Equipment Corporation, a computer systems, peripheral equipment and
software manufacturer, from January 1992 to May 1992. Prior to that, Mr. St.
Pierre was employed by Compass, Inc., a software engineering firm, from November
1982 to November 1991, most recently as Director of Engineering.
Richard D. Cramer became a Director of the Company in January 1996. Mr.
Cramer has served as Vice President, Sales and Marketing of CENTRA Software,
Inc., a developer and marketer of Web-Centric distance learning software, since
May 1996. Mr. Cramer served as Vice President of North American Field Operations
at Avid Technology from 1989 to 1995 and Vice President and General Manager of
the Desktop Division of Avid Technology during 1996.
Bruce R. Evans has served as a Director of the Company since July 1996.
Since 1991, Mr. Evans has been a general partner of Summit Partners, a venture
capital firm, where he has been employed since 1986. Mr. Evans serves as a
director of Pediatrix Medical Group and several privately-held companies.
Anthony J. Mark became a Director of the Company in January 1996. Mr. Mark
has served as Vice President, Product Development at CENTRA Software, Inc. since
March 1997. Mr. Mark served as Vice President and General Manager of Broadcast
Products Group from 1993 to 1995 and Vice President of Engineering from 1990 to
1993 at Avid Technology. Prior to his employment with Avid Technology, Mr. Mark
held various technical and managerial positions at companies such as Compass,
Inc., Datamark, Ltd., Lexico Enterprises and GPP GmbH.
William C. Styslinger, III became a Director of the Company in June 1997.
Mr. Styslinger has served as President, Chief Executive Officer and Director of
SeaChange International, a provider of software products to manage, store and
distribute digital video for cable television operators and telecommunications
companies, since 1993 and as Chairman of the Board of SeaChange International
since January 1995. Prior to July 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.
Mr. Evans was nominated and elected in accordance with a shareholders'
agreement, which will terminate upon the closing of this offering. See "Certain
Transactions."
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 six 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 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 elected by the Board of Directors on
an annual basis 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 March 1996, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee makes recommendations to the
Board of Directors concerning the compensation of executives and salaries of the
employees and consultants to the Company. The Compensation Committee also makes
recommendations to the Board of Directors concerning incentive compensation of
employees and directors of and consultants to the Company.
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<PAGE> 41
The current members of the Compensation Committee are Bruce R. Evans and Anthony
J. Mark. The Audit Committee recommends the engagement of auditors and is
responsible for reviewing the results and scope of audits and other services
provided by the Company's independent auditors. The current members of the Audit
Committee are Richard D. Cramer and Anthony J. Mark.
DIRECTOR COMPENSATION
Following the consummation of this offering, non-employee directors will
receive a fee of $1,000 for each meeting of the Board and $500 for each
committee meeting 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.
On January 3, 1996, the Company granted Messrs. Cramer and Mark
nonstatutory options under the 1996 Stock Option Plan to purchase 80,000 shares
of Common Stock, respectively, at an exercise price of $0.25 per share,
determined by the Board of Directors to be the fair market value at the date of
grant. The options vest in equal annual installments over a period of three
years, commencing January 3, 1997. The options become exercisable in full upon a
change in control of the Company.
On July 1, 1997 the Company granted Mr. Styslinger a nonsatutory option
under the 1996 Stock Option Plan to purchase 15,000 shares of Common Stock at an
exercise price of $8.50 per share, determined by the Board of Directors to be
the fair market value at the date of grant. The option vests in equal annual
installments over a period of three years, commencing July 1, 1998. The option
becomes exercisable in full upon a change in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1996, the Company had no separate compensation committee or
other equivalent function, and this function was performed by the Company's
Board of Directors. From March 1996 until July 1996, the Company had a
Compensation Committee comprised of Messrs. Voelk (the Chief Executive Officer
of the Company), Schultz (the President of the Company) and Mark. From July 22,
1996 until April 15, 1997, the Compensation Committee was comprised of Messrs.
Voelk, Mark and Evans. Mr. Evans is a general partner of Summit Investors III,
L.P. a stockholder of the Company, and is also a general partner of Stamps,
Woodsum & Co. IV, which is the general partner of Summit Partners IV, L.P. which
is the general partner of Summit Ventures IV, L.P., another stockholder of the
Company. Since April 15, 1997, the Compensation Committee has been comprised of
Messrs. Mark and Evans.
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<PAGE> 42
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers whose annual
salary and bonus for the year ended December 31, 1996 exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(2)
ANNUAL ------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- -------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Robert L. Voelk......................................... $176,923 $50,000 --
Chairman of the Board, Chief Executive Officer and
Director
Martin A. Schultz....................................... 176,923 50,000 --
President and Director
Ellen Flaherty.......................................... 151,635 -- 160,000
Vice President, Sales
Craig A. Randall........................................ 99,333 10,000 160,000
Vice President, Marketing
Darioush Mardan......................................... 88,019 12,000 160,000
Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
</TABLE>
- ------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
have been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonus reported for the executive officer during the year ended
December 31, 1996.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended December 31, 1996. The Company does not have
any long term incentive plans.
Option Grants
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1996 by the Company to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -------------------
NAME GRANTED(1) IN 1996 SHARE(2) DATE 5% 10%
- ----------------------- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Voelk........ -- -- -- -- -- --
Martin A. Schultz...... -- -- -- -- -- --
Ellen Flaherty......... 160,000 18.0% $0.25 1/2/06 $25,156 $63,750
Craig A. Randall....... 160,000 18.0 0.25 1/2/06 25,156 63,750
Darioush Mardan........ 160,000 18.0 0.25 1/2/06 25,156 63,750
</TABLE>
41
<PAGE> 43
- ------------
(1) Generally, the options vest in equal annual installments over a period of
three years commencing one year from the date on which the options were
granted. All of the options were granted on January 3, 1996 and become
exercisable in full upon a change in control of the Company. The option
granted to Ms. Flaherty to purchase 160,000 shares of Common Stock was
exercisable for 53,333 shares of Common Stock on January 3, 1996; the
remaining 106,667 shares vest in equal annual installments over a period of
two years commencing on January 3, 1997.
(2) All options were granted at fair market value on the date of grant as
determined by the Board of Directors of the Company.
(3) 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 the fair market value of $0.25 per share on the date of grant
(January 3, 1996) and assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. These assumptions are mandated by the rules of the
Securities and Exchange Commission and are not intended to forecast future
appreciation of the Company's stock price. The potential realizable value
computation is net of the applicable exercise price, but does not take into
account federal or state income tax consequences and other expenses of
option exercises or sales of appreciated stock. Actual gains, if any, are
dependent upon the timing of such exercise and the future performance of the
Company's Common Stock. There can be no assurance that the rates of
appreciation in this table can be achieved. This table does not take into
account any appreciation in the price of the Common Stock to date.
Option Exercises and Unexercised Option Holdings
No Named Executive Officer exercised a stock option during 1996. The
following table sets forth certain information regarding the stock options held
as of December 31, 1996 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert L. Voelk..................... -- -- -- --
Martin A. Schultz................... -- -- -- --
Ellen Flaherty...................... 53,333 106,667 $ 466,664 $ 933,336
Craig A. Randall.................... -- 160,000 -- 1,400,000
Darioush Mardan..................... -- 160,000 -- 1,400,000
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock as of December 31,
1996. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $9.00 per share, less the
applicable exercise price.
STOCK PLANS
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in January 1996. The 1996 Plan provides for the issuance of Common
Stock pursuant to the grant to employees of "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and the
grant of non-qualified stock options to consultants, directors (whether or not
an employee) and other non-employees of the Company.
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<PAGE> 44
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board has the authority to select the optionees
and determine the terms of the options granted under the 1996 Plan including:
(i) the number of shares subject to each option, (ii) when the option becomes
exercisable, (iii) the exercise price of the option (which in the case of an
incentive stock option cannot be less than the fair market value of the Common
Stock as of the date of grant), (iv) the duration of the option and (v) the
time, manner and form of payment upon exercise of an option. An option is not
transferable by the recipient except by will or by the laws of descent and
distribution. Generally, no incentive stock option may be exercised more than
three months following termination of employment. However, in the event that
termination is due to death or disability, the option is exercisable for a
maximum of one year after such termination. The vesting of all options granted
under the 1996 Plan accelerate upon a change in control of the Company.
The aggregate number of shares of Common Stock which may be issued pursuant
to the 1996 Plan is 1,500,000. As of June 30, 1997, options to purchase a total
of 1,309,218 shares of Common Stock at exercise prices ranging from $0.25 to
$8.25 per share (with a weighted average exercise price of $1.28 per share) were
outstanding under the 1996 Plan (of which 321,665 options were then exercisable)
and options for 75,999 shares of Common Stock had been exercised. On April 14,
1997, the Company's Board of Directors voted that, effective upon the closing of
this offering, no further options may be granted or issued under this plan.
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors in April 1997 and approved by the Company's
stockholders in June 1997. The 1997 Plan will take effect upon the closing of
this offering. No options have been granted under the 1997 Plan. The 1997 Plan
provides for the issuance of Common Stock pursuant to the grant to employees of
"incentive stock options" within the meaning of the Code, and the grant of
non-qualified stock options, stock awards or opportunities to make direct
purchases of stock in the Company to employees, consultants, directors and
officers of the Company. The aggregate number of shares of Common Stock which
may be issued pursuant to the 1997 Plan is 1,800,000.
The 1997 Plan is administered by the Board of Directors. Subject to the
provisions of the 1997 Plan, the Board has the authority to select the optionees
and determine the terms of the options granted, including: (i) the number of
shares subject to each option, (ii) when the option becomes exercisable, (iii)
the exercise price of the option (which in the case of an incentive stock option
cannot be less than the market price of the Common Stock as of the date of
grant), (iv) the duration of the option and (v) the time, manner and form of
payment upon exercise of an option. An option is not transferable by the
optionholder except by will or by the laws of descent and distribution.
Generally, no incentive stock option may be exercised more than 90 days
following termination of employment. However, in the event that termination is
due to death or disability, the option is exercisable for a maximum of 180 days
after such termination.
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") was adopted by the Board of Directors in April 1997
and approved by the Company's stockholders in June 1997. The 1997 Purchase Plan
will take effect in January 1998. The 1997 Purchase Plan provides for the
issuance of a maximum of 200,000 shares of Common Stock pursuant to the exercise
of nontransferable options granted to participating employees.
The 1997 Purchase Plan is administered by the Board of Directors. All
employees of the Company, except employees who own five percent or more of the
Company's stock, whose customary employment is 25 hours or more per week and
more than five months in any calendar year and who have completed at least five
months of employment are eligible to participate in the 1997 Purchase Plan.
Employees who own five percent or more of the Company's Common Stock and
directors who are not employees of the Company may not participate in the 1997
Purchase Plan. To participate in the 1997 Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than one
43
<PAGE> 45
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 1,000 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. An employee's rights under
the 1997 Purchase Plan terminate upon his or her voluntary withdrawal from the
plan at any time or upon termination of employment.
401(K) AND PROFIT SHARING PLAN
The Company maintains the Omtool 401(k) and Profit Sharing Plan (the
"401(k) Plan") qualified under Section 401(k) of the Code. All employees of the
Company are eligible to participate in the 401(k) Plan. The 401(k) Plan provides
that each participant may contribute up to 15% of the participant's annual
pre-tax compensation, but not more than the annual limit prescribed by law,
which limit was $9,500 in 1996. The Company matches by 50% an employee's
contribution subject to a maximum of 3% of an employee's base salary.
All Company contributions to the 401(k) Plan, if any, shall vest 100% after
three years of service.
EMPLOYEE AGREEMENTS
None of the Company's executive officers has an employment contract with
the Company, and their employment may be terminated at any time. However,
Messrs. Voelk and Schultz have both entered into Noncompetition, Nondisclosure
and Invention Agreements with the Company. Pursuant to the terms of these
Agreements, each of Messrs. Voelk and Schultz has agreed that he will not
directly or indirectly compete with the Company during the course of his
employment and for an additional two-year period thereafter if his employment is
terminated for any reason.
44
<PAGE> 46
CERTAIN TRANSACTIONS
SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to subscription agreements entered into in February 1996, on July
8, 1996 the Company issued an aggregate of 162,500 shares of Series A
Convertible Preferred Stock, at a purchase price of $2.00 per share, to director
Richard D. Cramer, to then director William R. Daniels, III and to T.M.
Partners, of which director Anthony J. Mark is a general partner. Upon the
closing of this offering, the Series A Convertible Preferred Stock will
automatically convert into an aggregate of 325,000 shares of Common Stock.
SALE OF SERIES B CONVERTIBLE PREFERRED STOCK
On July 22, 1996, the Company issued an aggregate of 1,356,116 shares of
Series B Convertible Preferred Stock (the "Series B Financing"), at a purchase
price of $3.687 per share, to Summit Ventures IV, L.P. and Summit Investors III,
L.P. (the "Series B Holders"). Bruce R. Evans, a director of the Company, is a
general partner of Summit Investors III, L.P. and is the general partner of
Stamps, Woodsum & Co. IV, which is a general partner of Summit Partners IV,
L.P., which is a general partner of Summit Ventures IV, L.P. Upon the closing of
this offering, the Series B Convertible Preferred Stock will automatically
convert into an aggregate of 2,712,232 shares of Common Stock.
In connection with the Series B Financing, the Company, Messrs. Voelk and
Schultz, and the Series B Holders entered into a Shareholders' Agreement dated
July 22, 1996, pursuant to which Mr. Evans was elected to the Board of
Directors. The Company and the Series B Holders also entered into a Redemption
Agreement dated July 22, 1996 pursuant to which the Company must redeem the
Series B shares if certain events have not occurred by July 22, 2003. Both such
agreements will terminate upon the closing of this offering. Pursuant to the
Series B purchase agreement, the Company granted registration rights to certain
stockholders of the Company. See "Shares Eligible for Future
Sale -- Registration Rights."
REPURCHASE OF COMMON STOCK
In July 1996, in connection with the Series B Financing, the Company
entered into Common Stock Purchase Agreements with each of Robert L. Voelk and
Martin A. Schultz, executive officers of the Company, pursuant to which it
acquired 542,496 shares of Common Stock from each at a purchase price of $1.8435
per share.
TRANSACTIONS WITH SELLING STOCKHOLDER
William R. Daniels, III, a Selling Stockholder, served as Chief Financial
Officer of the Company from May 1995 to August 1995 and served as a Director of
the Company from January 1996 to June 1997. On January 3, 1996, the Company
granted Mr. Daniels a nonstatutory option under the 1996 Plan to purchase 80,000
shares of Common Stock at an exercise price of $0.25 per share, determined by
the Board of Directors to be the fair market value at the date of grant. The
option vests in equal annual installments over a period of three years,
commencing January 3, 1997, and becomes exercisable in full upon a change in
control of the Company. Pursuant to an at-will consulting agreement, Mr. Daniels
provides advisory services to the Company in exchange for cash payments of $500
per day plus any expenses incurred in performing such services. Mr. Daniels
became an employee of Robertson, Stephens & Company LLC on June 30, 1997.
The Company believes that the terms of the foregoing transactions involving
the Company were no less favorable to the Company than could have been obtained
from unaffiliated third parties. The Company has adopted a policy whereby all
transactions between the Company and its executive officers, directors and
affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and will be approved by a majority of the
disinterested members of the Board of Directors.
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<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1997 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
Stockholder. 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.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------- SHARES TO BE ---------------------
NAME AND ADDRESS NUMBER PERCENT SOLD IN OFFERING(2) NUMBER PERCENT
- ----------------------------- --------- ------- ------------------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners(3)........... 2,712,232 32.2% 444,520 2,267,712 19.8%
600 Atlantic Avenue
Boston, MA 02110
Robert L. Voelk(4)........... 2,557,504 30.3 255,750 2,301,754 20.1
Martin A. Schultz (5)........ 2,657,504 31.5 265,750 2,391,754 20.9
Richard D. Cramer............ 51,666 * 5,167 46,499 *
Bruce R. Evans (6)........... 2,712,232 32.2 444,520 2,267,712 19.8
Anthony J. Mark.............. 76,666 * 7,666 69,000 *
William C. Styslinger, III... -- -- -- -- --
William R. Daniels (7)....... 211,466 2.5 21,147 190,319 1.7
Ellen Flaherty (8)........... 106,666 1.2 -- 106,666 *
Darioush Mardan (9).......... 53,333 * -- 53,333 *
Mark P. Overington (10)...... 40,000 * -- 40,000 *
Craig A. Randall (9)......... 53,333 * -- 53,333 *
Paul E. St. Pierre (9)....... 53,333 * -- 53,333 *
All directors and executive
officers as a group (11
persons)(11)............... 8,362,237 95.7% 978,853 7,383,384 62.9%
</TABLE>
- ------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock outstanding prior to this offering
includes (i) 8,428,239 shares outstanding as of June 30, 1997 and (ii)
shares issuable by the Company pursuant to options held by the respective
person or group which may be exercised within 60 days following June 30,
1997 ("Presently Exercisable Options"). The number of shares of Common
Stock deemed outstanding after this offering includes an additional
3,000,000 shares that are being offered for sale by the Company in this
offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission that deem shares to be
beneficially owned by any person or group who has or shares voting and
investment power with respect to such shares. Presently Exercisable Options
are deemed to be outstanding and to be beneficially owned by the person or
group holding such options for the purpose of computing the percentage
ownership of such person or group but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group.
(2) If the Underwriters exercise their over-allotment option to purchase up to
600,000 shares, then the following stockholders named in the table above
will sell up to the following number of additional shares: Ellen Flaherty,
10,667 shares; Darioush Mardan, 5,333 shares; Mark P. Overington, 4,000
shares; Craig A. Randall, 5,333 shares; Paul E. St. Pierre, 5,333 shares;
and Summit Partners, 569,334 shares.
46
<PAGE> 48
(3) Includes 2,571,042 shares held by Summit Ventures IV, L.P. and 141,190
shares held by Summit Investors III, L.P. The respective general partners
of these entities exercise sole voting and investment power with respect to
the shares owned by such entities.
(4) Includes 180,000 shares held in trust for the benefit of certain family
members; Mr. Voelk disclaims beneficial ownership of such shares.
(5) Includes 64,900 shares held in trust for the benefit of certain family
members; Mr. Schultz disclaims beneficial ownership of such shares.
(6) Includes 2,571,042 shares held by Summit Ventures IV, L.P. and 141,190
shares held by Summit Investors III, L.P. Mr. Evans is a general partner of
Summit Investors III, L.P. and is the general partner of Stamps, Woodsum &
Co. IV, which is the general partner of Summit Partners IV, L.P., which is
the general partner of Summit Ventures IV, L.P. Mr. Evans may be deemed to
share voting and investment power with respect to all shares held by the
partnerships. Mr. Evans disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest therein.
(7) Includes 6,666 Presently Exercisable Options.
(8) Consists of 106,666 Presently Exercisable Options.
(9) Consists of 53,333 Presently Exercisable Options.
(10) Consists of 40,000 shares of Common Stock issuable upon the exercise of
options, which options will become exercisable upon the closing of this
offering.
(11) Includes 306,665 Presently Exercisable Options and 2,571,042 shares held by
Summit Ventures IV, L.P. and 141,190 shares held by Summit Investors III,
L.P.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and after giving effect to the
amendment and restatement of the Company's Restated Certificate of Incorporation
immediately prior to the closing of this offering, the authorized capital stock
of the Company will consist of 35,000,000 shares of Common Stock, $0.01 par
value per share, and 2,000,000 shares of Preferred Stock, $0.01 par value per
share. Prior to this offering, there were outstanding an aggregate of 1,518,616
shares of Convertible Preferred Stock which will automatically convert into an
aggregate of 3,037,232 shares of Common Stock immediately upon the closing of
this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation as amended and restated immediately prior to the closing of this
offering which is included as an exhibit to the Registration Statement, and by
the provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 8,428,239 shares of Common Stock
outstanding held of record by 33 stockholders, after giving effect to the
conversion of all outstanding Preferred Stock upon the closing of this offering.
Based upon the number of shares outstanding as of that date and giving effect to
the issuance of the 3,000,000 shares of Common Stock offered by the Company
hereby, there will be 11,428,239 shares of Common Stock outstanding upon the
closing of this offering.
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock share ratably in the assets of the Company available for distribution to
its stockholders, subject to the preferential rights of any then outstanding
Preferred Stock. No shares of Preferred Stock will be outstanding immediately
following the closing of this offering. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All shares of Common
Stock outstanding upon the effective date of this Prospectus, and the shares
offered hereby will, upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
Prior to this offering, there were two series of Preferred Stock
outstanding consisting of 162,500 shares of Series A Preferred Stock and
1,356,116 shares of Series B Preferred Stock. All outstanding shares of Series A
and B Preferred Stock will be converted into an aggregate of 3,037,232 shares of
Common Stock upon the closing of this offering and such shares of Preferred
Stock will no longer be issued and outstanding.
Upon the closing of this offering, the Company's Board of Directors will
have the authority to issue 2,000,000 shares of Preferred Stock in one or more
series and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The Board of Directors could, without the approval of the stockholders, issue
Preferred Stock having voting or conversion rights that could adversely affect
the voting power of the holders of Common Stock, and the issuance of Preferred
Stock could be used, under certain circumstances, to render more difficult or
discourage a hostile takeover of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
48
<PAGE> 50
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 of the
corporation's voting stock.
The Company's Amended and Restated By-laws (the "By-laws") provide for the
election of directors. See "Management -- Executive Officers and Directors." 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. Messrs.
Mark and Cramer are serving for terms expiring on the date of the Company's 1998
Annual Meeting of Stockholders, Messrs. Evans and Styslinger are serving for
terms expiring on the date of the Company's 1999 Annual Meeting of Stockholders
and Messrs. Voelk and Schultz are serving for terms expiring on the date of the
Company's 2000 Annual Meeting of Stockholders.
The 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 Company's Amended and Restated Certificate of Incorporation (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
49
<PAGE> 51
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 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.
The foregoing provisions of Delaware law and the Company's Charter and
By-laws could have the effect of discouraging others from attempting hostile
takeovers of the Company and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the Common Stock that might result from
actual or rumored hostile takeover attempts. Such provisions may also have the
effect of preventing changes in the management of the Company. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests. See "Risk
Factors -- Anti-Takeover Effect of Charter and By-Law Provisions; Availability
of Preferred Stock for Issuance."
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
50
<PAGE> 52
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.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among other
things, (i) to indemnify them to the fullest extent permitted by the DGCL,
subject to specified limitations, against certain liabilities actually and
reasonably incurred by them in any proceeding in which they are a party that may
arise by reason of their status as directors, officers, employees or agents or
may arise by reason of their serving as such at the request of the Company for
another entity and (ii) to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. The Company
intends to enter into similar separate indemnification agreements with any
directors or officers who may join the Company in the future. There is no
pending litigation or proceeding involving a director, officer, employee or
other agent of the Company as to which indemnification is being sought nor is
the Company aware of any pending or threatened litigation that may result in
claims for indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
51
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,428,239 shares
of Common Stock outstanding (based upon shares of Common Stock outstanding as of
June 30, 1997, the conversion of the Company's Convertible Preferred Stock and
assuming no exercise of outstanding options). Of these shares, the 4,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below. The remaining 7,428,239 shares of
Common Stock (the "Restricted Shares") held by existing stockholders upon
completion of this offering will be "restricted" securities within the meaning
of Rule 144 and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144.
SALES OF RESTRICTED SHARES
Beginning 90 days after the date of this Prospectus, approximately 2,667
additional Restricted Shares will become eligible for sale in the public market
pursuant to Rule 144 or Rule 701 under the Securities Act. Beginning 180 days
after the date of this Prospectus, approximately 7,425,572 additional Restricted
Shares subject to lock-up agreements between the Underwriters and certain
stockholders, including officers and directors, will become eligible for sale in
the public market pursuant to Rule 144(k), Rule 144 or Rule 701. In addition,
certain existing holders of an aggregate of 6,961,220 shares of Common Stock
have the right to require registration of their shares under certain
circumstances. However, such stockholders have entered into lock-up agreements
with respect to all shares owned by them and not sold in this offering, which
provide that they will not sell or otherwise dispose of any shares of Common
Stock (except for shares sold in this offering) without the prior written
consent of Robertson, Stephens & Company LLC for a period of 180 days from the
date of this Prospectus. Robertson, Stephens & Company LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. See "-- Registration Rights" and
"Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) including an Affiliate, who has beneficially owned
shares for at least one year (including the holding period of certain prior
owners), will be entitled to sell in "brokers' transactions" or to market
makers, within any three-month period commencing 90 days after the Company
becomes subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 114,282 shares immediately after this offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks immediately preceding such sale, subject, generally, to the
filing of a Form 144 with respect to such sales and certain other limitations
and restrictions. In addition, a person (or person whose shares are aggregated),
who is not deemed to have been an Affiliate at any time during the 90 days
immediately preceding the sale and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
under Rule 144(k) without regard to the limitations described above. Further,
Rule 144A under the Securities Act as currently in effect permits the immediate
sale of restricted shares to certain qualified institutional buyers without
regard to the volume restrictions described above.
OPTIONS
In general, under Rule 701 of the Securities Act as currently in effect,
any employee, consultant or advisor of the Company who purchased shares from the
Company in connection with a compensatory stock or option plan or other written
compensatory agreement is entitled to resell such shares without having to
comply with the public-information, holding-period, volume-limitation or notice
provisions of Rule 144, and Affiliates are entitled to sell their Rule 701
shares without having to comply with
52
<PAGE> 54
Rule 144's holding-period restrictions, in each case commencing 90 days after
the Company becomes subject to the reporting requirements of Section 13 of the
Exchange Act. Rule 701 is available for stockholders of the Company as to all
shares issued pursuant to exercise of options granted prior to the offering.
As of the date of this Prospectus, the Board of Directors, subject to
stockholder approval, has authorized an aggregate of up to 3,500,000 shares of
Common Stock for issuance pursuant to the 1996 Plan, the 1997 Plan and the 1997
Purchase Plan. As of June 30, 1997, options to purchase 1,309,218 shares were
outstanding under the 1996 Plan and options to purchase 2,114,783 shares were
available for issuance under the 1996 Plan, the 1997 Plan and the 1997 Purchase
Plan. The Company intends to file one or more registration statements on Form
S-8 under the Securities Act promptly after the date of this Prospectus to
register up to 3,424,001 shares available for issuance under the 1996 Plan, the
1997 Plan and the 1997 Purchase Plan. Such registration statements are expected
to become effective upon filing. After the effective date of the applicable
registration statement, shares of Common Stock issued under the relevant plan
will be immediately eligible for sale in the public market, subject in certain
cases to the lockup restrictions described below.
LOCK-UP AGREEMENTS
Certain stockholders and all executive officers and directors of the
Company, who in the aggregate hold 7,425,572 shares of Common Stock and options
to purchase 966,668 shares of Common Stock, have agreed, pursuant to the Lock-up
Agreements, that they will not, without the prior written consent of Robertson,
Stephens & Company LLC, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock beneficially owned by them for a period of 180 days
after the date of this Prospectus.
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 6,961,220 shares of outstanding Common Stock
(the "Registrable Shares") under the terms of a certain agreement among the
Company and the Rightsholders (the "Series B Purchase Agreement"). The Series B
Purchase 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. Certain of 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 $5,000,000. 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 not been any public market for securities
of the Company. No predictions can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could adversely affect the prevailing
market price. See "Risk Factors -- Shares Eligible for Future Sale."
53
<PAGE> 55
UNDERWRITING
The Underwriters named below acting through their representatives,
Robertson, Stephens & Company LLC, Montgomery Securities and First Albany
Corporation (the "Representatives"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company and
the Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all of such shares if any are purchased:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------------------------------------------------------------- ---------
<S> <C>
Robertson, Stephens & Company LLC................................
Montgomery Securities............................................
First Albany Corporation.........................................
-------
Total.................................................. 4,000,000
=======
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price, less a concession of not more than $ per share, of
which $ per share may be reallowed to other dealers. After the initial
public offering, the public offering price, concession and reallowances to
dealers may be reduced by the Representatives.
Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase an aggregate of up to an additional 600,000 shares of Common Stock
at the same price per share as the Company and the Selling Stockholders receive
for the 4,000,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 4,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 4,000,000 shares are being
sold. The stockholders subject to such over-allotment option will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
and liability arising from breaches of representations and warranties contained
in the Underwriting Agreement.
The holders of approximately 7,425,572 shares of Common Stock have agreed
with the Representatives that, until 180 days from the date of this Prospectus,
subject to certain limited exceptions, they will not, directly or indirectly,
sell, offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable
54
<PAGE> 56
for, or any rights to purchase or acquire, shares of Common Stock, owned
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC. Robertson, Stephens & Company LLC may, in its sole discretion and without
notice, release all or any portion of the securities subject to the lock-up
agreements. See "Shares Eligible for Future Sale -- Lock-Up Agreements."
Approximately 7,425,572 of such shares will be eligible for immediate public
sale following expiration of the lock-up period, subject to Rule 144. In
addition, the Company has agreed that, until 180 days from the date of this
Prospectus, the Company will not, without the prior written consent of
Robertson, Stephens & Company LLC, subject to certain limited exceptions, sell
or otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options, or the Company's grant of options and issuance
of stock under existing employee stock option or stock purchase plans.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Certain persons participating in this offering may overallot or affect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, affecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or affecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transaction may be affected, where
permitted, on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered hereby for employees of
the Company and certain individuals who have expressed an interest in purchasing
shares of Common Stock in this offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined through negotiations between the Company,
representatives of the Selling Stockholders and the Representatives. The
material factors to be considered in such negotiations are prevailing market and
economic conditions, revenues and earnings and other financial information of
the Company, the market valuations of other companies engaged in activities
similar to those of the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors. There can be no assurance that an active or orderly trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to this offering at or above the initial trading price. See
"Risk Factors -- No Prior Public Market; Determination of Initial Public
Offering Price; Potential Volatility of Stock Price" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
55
<PAGE> 57
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and certain of the Selling Stockholders by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Certain legal matters in connection with
this offering will be passed upon for the Underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The audited financial statements and related schedule of the Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-1
(including all amendments and exhibits 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 and the
exhibits and schedules thereto, 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, reference is hereby made to the
Registration Statement including exhibits, schedules and reports filed as a part
thereof. 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, including the exhibits and schedules thereto, 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 Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, 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.
56
<PAGE> 58
OMTOOL, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997 (Unaudited and Pro
Forma)............................................................................. F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and
for the six months ended June 30, 1996 and 1997 (Unaudited)........................ F-4
Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity
(Deficit) as of December 31, 1994, 1995 and 1996, and June 30, 1997 (Unaudited).... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and
for the six months ended June 30, 1996 and 1997 (Unaudited)........................ F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Omtool, Ltd.:
We have audited the accompanying balance sheets of Omtool, Ltd. (a Delaware
corporation) as of December 31, 1995 and 1996, and the related statements of
operations, convertible redeemable preferred stock and stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omtool, Ltd. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 24, 1997
F-2
<PAGE> 60
OMTOOL, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------
(UNAUDITED)
NOTE 2
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 550,684 $2,042,100 $ 809,604 $ 809,604
Short-term investments................................. -- 930,619 1,208,062 1,208,062
Accounts receivable, less reserves of $80,000, $375,000
and $856,000 in 1995, 1996 and 1997, respectively.... 454,974 2,264,502 3,990,239 3,990,239
Inventory.............................................. -- 225,117 95,741 95,741
Prepaid expenses....................................... 141,803 113,343 291,507 291,507
Deferred tax asset..................................... 70,000 108,000 108,000 108,000
---------- ---------- ---------- ----------
Total current assets............................ 1,217,461 5,683,681 6,503,153 6,503,153
Property and equipment, net.............................. 338,622 754,398 1,132,175 1,132,175
Other assets............................................. 18,810 18,861 33,686 33,686
---------- ---------- ---------- ----------
$1,574,893 $6,456,940 $7,669,014 $7,669,014
========== ========== ========== ==========
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt...................... $ 9,849 $ 105,651 $ 111,247 $ 111,247
Accounts payable....................................... 305,762 567,749 593,512 593,512
Accrued liabilities.................................... 501,332 402,624 881,565 881,565
Income taxes payable................................... -- 257,369 338,112 338,112
Deferred revenue....................................... 450,254 1,037,538 1,165,880 1,165,880
---------- ---------- ---------- ----------
Total current liabilities....................... 1,267,197 2,370,931 3,090,316 3,090,316
---------- ---------- ---------- ----------
Long-term debt, net of current portion................... 20,598 212,237 153,032 153,032
---------- ---------- ---------- ----------
Long-term liabilities.................................... 275,615 173,877 2,875 2,875
---------- ---------- ---------- ----------
Commitments (Note 13)
Series B Convertible Redeemable Preferred Stock, $.01 par
value --
Authorized, issued and outstanding -- none in 1995;
1,356,116 shares in 1996 and 1997; none pro forma;
(at redemption value)................................ -- 5,166,667 5,366,667 --
---------- ---------- ---------- ----------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value --
Authorized -- 1,481,384 shares; issued and
outstanding -- none................................ -- -- -- --
Series A Convertible Preferred Stock, $.01 par value --
Authorized, issued and outstanding -- none in 1995;
162,500 shares in 1996 and 1997; none pro forma;
(Liquidation preference of $325,000)............... -- 1,625 1,625 --
Common Stock, $.01 par value --
Authorized -- 10,000,000; issued and outstanding --
none in 1995; 5,315,008 shares in 1996; 5,391,007
shares in 1997; 8,428,239 shares pro forma......... -- 53,150 53,910 84,282
Common Stock, no par value --
Authorized, issued and outstanding -- 600 shares in
1995; none in 1996 and 1997........................ 600 -- -- --
Additional paid-in capital............................. -- -- 18,240 4,989,493
Retained earnings (deficit)............................ 10,883 (1,521,547) (1,017,651) (650,984)
---------- ---------- ---------- ----------
Total stockholders' equity (deficit)............ 11,483 (1,466,772) (943,876) 4,422,791
---------- ---------- ---------- ----------
$1,574,893 $6,456,940 $7,669,014 $7,669,014
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 61
OMTOOL, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license............... $1,485,655 $2,780,055 $5,304,083 $2,031,392 $5,486,248
Hardware....................... 124,162 278,163 1,532,887 526,966 1,748,438
Service and other.............. 338,615 869,445 1,564,248 712,708 1,043,810
---------- ---------- ---------- ---------- ----------
Total revenues.............. 1,948,432 3,927,663 8,401,218 3,271,066 8,278,496
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Software license............... 34,874 104,031 109,151 49,948 218,090
Hardware....................... 114,168 209,495 1,083,852 338,813 1,208,436
Service and other.............. 130,066 318,626 815,828 346,312 501,260
---------- ---------- ---------- ---------- ----------
Total cost of revenues...... 279,108 632,152 2,008,831 735,073 1,927,786
---------- ---------- ---------- ---------- ----------
Gross profit................ 1,669,324 3,295,511 6,392,387 2,535,993 6,350,710
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing............ 649,291 1,235,749 2,824,287 1,041,033 2,938,218
Research and development....... 413,810 892,585 1,972,545 776,705 1,553,702
General and administrative..... 721,119 749,999 949,548 429,896 778,455
Write-off of intangible asset
(Note 8).................... 200,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses.... 1,984,220 2,878,333 5,746,380 2,247,634 5,270,375
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................ (314,896) 417,178 646,007 288,359 1,080,335
Interest income.................. 11,984 7,530 43,093 4,417 47,483
Interest expense................. (482) (8,616) (11,437) (4,398) (18,922)
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes.............. (303,394) 416,092 677,663 288,378 1,108,896
Provision (benefit) for income
taxes.......................... (70,000) -- 238,000 101,000 405,000
---------- ---------- ---------- ---------- ----------
Net income (loss)........... $ (233,394) $ 416,092 $ 439,663 $ 187,378 $ 703,896
========== ========== ========== ========== ==========
Pro forma net income per
common and common
equivalent share............... $ 0.04 $ 0.07
========== ==========
Pro forma weighted average number
of common and
common equivalent shares
outstanding.................... 9,929,167 9,487,832
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 62
OMTOOL, LTD.
STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------------------------------------
SERIES B CONVERTIBLE SERIES A
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK, COMMON STOCK, COMMON STOCK,
$0.01 PAR VALUE $0.01 PAR VALUE $0.01 PAR VALUE NO PAR VALUE
---------------------- ----------------- ------------------- ----------------- ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- --------- ------ ---------- ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... -- $ -- -- $ -- -- $ -- 600 $ 600 $ --
Net loss..................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1994..... -- -- -- -- -- -- 600 600 --
Net income................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1995..... -- -- -- -- -- -- 600 600 --
Delaware reincorporation,
exchange of no par value
for $0.01 par value common
stock...................... -- -- -- -- 6,400,000 64,000 (600) (600) --
Sale of Series A Convertible
Preferred Stock............ -- -- 162,500 1,625 -- -- -- -- 323,375
Sale of Series B Convertible
Redeemable Preferred Stock,
net of issuance costs of
$76,068.................... 1,356,116 5,000,000 -- -- -- -- -- -- (76,068)
Purchase and retirement of
common stock............... -- -- -- -- (1,084,992) (10,850) -- -- (247,307)
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock............ -- 166,667 -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1996..... 1,356,116 5,166,667 162,500 1,625 5,315,008 53,150 -- -- --
Stock options exercised
(unaudited)................ -- -- -- -- 75,999 760 -- -- 18,240
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ -- 200,000 -- -- -- -- -- -- --
Net income (unaudited)....... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, June 30, 1997
(unaudited).................. 1,356,116 $5,366,667 162,500 $1,625 5,391,007 $53,910 -- $ -- $ 18,240
========= ========== ======= ====== ========= ======= ==== ==== =======
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
(DEFICIT) (DEFICIT)
----------- -----------------
<S> <C> <C>
Balance, December 31, 1993..... $ (171,815) $ (171,215)
Net loss..................... (233,394) (233,394)
---------- ----------
Balance, December 31, 1994..... (405,209) (404,609)
Net income................... 416,092 416,092
---------- ----------
Balance, December 31, 1995..... 10,883 11,483
Delaware reincorporation,
exchange of no par value
for $0.01 par value common
stock...................... (63,400) --
Sale of Series A Convertible
Preferred Stock............ -- 325,000
Sale of Series B Convertible
Redeemable Preferred Stock,
net of issuance costs of
$76,068.................... -- (76,068)
Purchase and retirement of
common stock............... (1,742,026) (2,000,183)
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock............ (166,667) (166,667)
Net income................... 439,663 439,663
---------- ----------
Balance, December 31, 1996..... (1,521,547) (1,466,772)
Stock options exercised
(unaudited)................ -- 19,000
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ (200,000) (200,000)
Net income (unaudited)....... 703,896 703,896
---------- ----------
Balance, June 30, 1997
(unaudited).................. $(1,017,651) $ (943,876)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 63
OMTOOL, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)....................................... $(233,394) $ 416,092 $ 439,663 $ 187,378 $ 703,896
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization....................... 124,294 63,021 132,729 67,402 177,396
Write-off of intangible asset....................... 200,000 -- -- -- --
Deferred income taxes............................... (70,000) -- (38,000) -- --
Changes in assets and liabilities--
Accounts receivable............................... (88,725) (222,760) (1,809,528) (1,042,300) (1,725,737)
Inventory......................................... -- -- (225,117) (21,320) 129,376
Prepaid expenses.................................. (4,395) (132,912) 28,460 12,601 (178,164)
Accounts payable.................................. (69,935) 246,060 261,987 18,024 25,763
Accrued liabilities............................... 68,400 245,401 (98,708) (163,981) 478,941
Income taxes payable.............................. -- -- 257,369 101,280 80,743
Deferred revenue.................................. 116,643 250,421 587,284 476,602 128,342
Long-term liabilities............................. (12,121) (12,264) (101,738) (100,200) (171,002)
--------- --------- ---------- --------- ----------
Net cash provided by (used in) operating
activities.................................. 30,767 853,059 (565,599) (464,514) (350,446)
--------- --------- ---------- --------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment..................... (99,617) (268,978) (485,773) (115,808) (555,173)
Purchases of short-term investments..................... -- -- (930,619) -- (1,234,843)
Proceeds from sale of short-term investments............ -- -- -- -- 957,400
Proceeds from sale of property and equipment............ -- 14,000 -- -- --
Increase in other assets................................ (1,006) (14,410) (51) (1,254) (14,825)
--------- --------- ---------- --------- ----------
Net cash used in investing activities......... (100,623) (269,388) (1,416,443) (117,062) (847,441)
--------- --------- ---------- --------- ----------
Cash Flows from Financing Activities:
Net borrowings (repayments) on line of credit........... 50,000 (50,000) -- -- --
Proceeds from long-term debt............................ -- -- 250,000 -- --
Payments on long-term debt.............................. -- (2,623) (25,291) (14,010) (53,609)
Net proceeds from sales of Series A Convertible
Preferred Stock....................................... -- -- 325,000 325,000 --
Net proceeds from sale of Series B Convertible
Redeemable Preferred Stock............................ -- -- 4,923,932 -- --
Exercise of stock options............................... -- -- -- -- 19,000
Purchase and retirement of common stock................. -- -- (2,000,183) -- --
--------- --------- ---------- --------- ----------
Net cash provided by (used in) financing
activities.................................. 50,000 (52,623) 3,473,458 310,990 (34,609)
--------- --------- ---------- --------- ----------
Net increase (decrease) in cash and cash equivalents...... (19,856) 531,048 1,491,416 (270,586) (1,232,496)
Cash and cash equivalents, beginning of period............ 39,492 19,636 550,684 550,684 2,042,100
--------- --------- ---------- --------- ----------
Cash and cash equivalents, end of period.................. $ 19,636 $ 550,684 $ 2,042,100 $ 280,098 $ 809,604
========= ========= ========== ========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for--
Interest.............................................. $ 432 $ 8,614 $ 9,411 $ 4,398 $ 18,922
========= ========= ========== ========== ==========
Income taxes.......................................... $ -- $ 77,732 $ -- $ -- $ 324,324
========= ========= ========== ========== ==========
Supplemental Disclosure of Noncash Investing and Financing
Transactions:
Equipment acquired under capital lease obligations...... $ -- $ 33,070 $ 62,732 $ 62,732 $ --
========= ========= ========== ========== ==========
Accrued dividends on Series B Convertible Redeemable
Preferred Stock....................................... $ -- $ -- $ 166,667 $ -- $ 200,000
========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 64
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Omtool, Ltd. (the Company) designs, develops, markets and supports open,
client/server facsimile software, delivering solutions which automate and
integrate fax communication throughout the enterprise. The Company predominantly
does business in markets located within North America.
The Company is subject to a number of risks associated with emerging,
technology-oriented companies with a limited operating history, including
continued market acceptance of the Company's products, competition from
substitute products and larger companies, and the continued ability to manage
and finance the Company's anticipated future growth.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies as described in this note and elsewhere in the notes to
financial statements.
(a) Revenue Recognition
The Company generates revenue from licensing the rights to use its software
products directly to end users and indirectly through resellers. The Company
also generates revenue from sales of support contracts and consulting services
to customers who license its products and from resale of related hardware
products.
Revenues from software license agreements are recognized upon shipment of
the software, if there are no significant post-delivery obligations and if
payment is due within one year, less an allowance for estimated future returns.
If an acceptance period is required, revenues are recognized upon the earlier of
the customer's acceptance or the expiration of the acceptance period.
Revenues from support contracts are recognized ratably over the term of the
support period, which is generally one year. Service and other revenue is
primarily related to implementation services performed on a time-and-material
basis under separate service agreements related to the installation of the
Company's software products.
Service and other revenues are recognized as services are performed. If a
transaction includes both license and service elements, license fee revenues are
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and the payment
terms for licenses are not subject to acceptance criteria. In cases where
license fee payment is contingent upon the acceptance of services, revenues from
both the license and the service elements are deferred until the acceptance
criteria are met.
Cost of license revenues consists of the cost of media on which the product
is delivered and any related royalties. Cost of service revenues consists
primarily of salaries and benefits related to consulting personnel and the
customer support group.
(b) Research and Development and Software Development Costs
Software development costs are considered for capitalization when
technological feasibility is established in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software To Be Sold, Leased or Otherwise Marketed. The Company sells
software in a market that is subject to rapid technological change, new product
introductions and changing customer needs. Accordingly, the Company has
determined that it cannot determine technological feasibility until the
development state of the product is nearly complete. The time period during
which cost could be capitalized from the point of reaching technological
feasibility until
F-7
<PAGE> 65
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the time of general product release is very short and, consequently, the amounts
that could be capitalized are not material to the Company's financial position
or results of operations. Therefore, the Company charges all research and
development expenses to operations in the period incurred.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of investments in money market funds. In
accordance with SFAS No. 115, Accounting for Investments in Certain Debt and
Equity Securities, the Company's cash equivalents are classified as
held-to-maturity securities.
(d) Short-Term Investments
As of December 31, 1996 and June 30, 1997, the Company had $930,619 and
$1,208,062, respectively, invested in securities consisting of municipal bonds.
In accordance with SFAS No. 115, the Company has classified its short-term
investments as available-for-sale. These securities have been recorded at cost,
which approximates market value at December 31, 1996 and June 30, 1997.
(e) Derivative Financial Instruments and Fair Value of Financial Instruments
The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
short term investments, accounts receivable, accounts payable and debt. The
estimated fair value of these financial instruments approximates their carrying
value at December 31, 1995 and 1996 and at June 30, 1997 due to the short-term
nature of these instruments.
(f) Inventory
Inventory consists of hardware purchased for resale and is valued at the
lower of cost or net realizable value.
(g) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using accelerated and straight-line
methods over the following useful lives:
<TABLE>
<S> <C>
Computer equipment 3-5 years
Computer software 2-3 years
Furniture and equipment 5-7 years
Leasehold improvements Shorter of the life of the lease
or the estimated useful life
Equipment under capital lease Shorter of the life of the lease
or the estimated useful life
</TABLE>
The Company capitalizes expenditures that materially increase asset lives
and charges ordinary repairs and maintenance to operations as incurred.
(h) Use of Estimates in the Preparation of Financial Statements
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
F-8
<PAGE> 66
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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 periods. Actual results could differ from those
estimates.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and trade accounts receivable. The Company places its
temporary cash investments in financial institutions. The Company has not
experienced significant losses related to receivables from individual customers
or groups of customers in any specific industry or by geographic area. Due to
these factors, no additional credit risk beyond amounts provided for collection
losses is believed by management to be inherent in the Company's accounts
receivable.
For the year ended December 31, 1995, the Company had one customer that
accounted for 11% of the Company's revenues. For the years ended December 31,
1994 and 1996, and the six months ended June 30, 1996, no single customer
accounted for greater than 10% of the Company's revenues. For the six months
ended June 30, 1997, the Company had one customer that accounted for 9% of the
Company's revenues and 21% of accounts receivable as of June 30, 1997.
Revenues outside of North America were approximately $210,000, $560,000 and
$662,000 for the years ended December 31, 1995 and 1996 and for the six months
ended June 30, 1997, respectively. Revenues outside of North America were not
material in 1994.
(j) Pro Forma Presentation
The pro forma balance sheet as of June 30, 1997 reflects the automatic
conversion of all outstanding shares of Series A and Series B preferred stock
into an aggregate of 3,037,232 shares of common stock and the forfeiture of
cumulative dividends accrued on the Series B preferred stock, which will occur
upon the closing of the Company's proposed initial public offering (see Notes 9
and 10).
(k) Pro Forma Net Income per Common and Common Equivalent Share
For the year ended December 31, 1996 and the six months ended June 30,
1997, pro forma net income per common and common equivalent share is based on
the weighted average number of common and common equivalent shares outstanding
during the period, assuming the automatic conversion of all outstanding shares
of convertible preferred stock into 3,037,232 shares of common stock for all
periods presented. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common equivalent shares
issued during the 12 months immediately prior to the date of the initial filing
of the Company's registration statement have been included in the calculation of
weighted average number of common shares outstanding for all periods presented
using the treasury stock method. Fair market value for the purpose of the
calculation was assumed to be $9.00. Historical net income (loss) per share data
have not been presented, as such information is not considered to be relevant or
meaningful.
(l) Unaudited Interim Financial Statements
In the opinion of the Company's management, the June 30, 1996 and 1997
unaudited interim financial statements include all adjustments, consisting only
of normal recurring adjustments, neces-
F-9
<PAGE> 67
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
sary for a fair presentation of results for the respective interim period. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year or for any future
period.
(m) Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share, which is effective for financial statements issued
for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Computer equipment............................... $308,579 $ 596,571 $ 797,607
Computer software................................ 54,707 119,584 193,495
Furniture and equipment.......................... 35,188 155,678 354,595
Leasehold improvements........................... 21,021 33,435 114,744
Equipment under capital leases................... 33,070 95,802 95,802
-------- ---------- ----------
452,565 1,001,070 1,556,243
Less--accumulated depreciation and
amortization................................... 113,943 246,672 424,068
-------- ---------- ----------
$338,622 $ 754,398 $1,132,175
======== ========== ==========
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Accrued salaries and salary-related................. $409,784 $264,593 $ 413,778
Other accrued expenses.............................. 91,548 138,031 467,787
-------- -------- --------
$501,332 $402,624 $ 881,565
======== ======== ========
</TABLE>
(5) LINE OF CREDIT
The Company has a line of credit allowing the Company to borrow the lesser
of $1,000,000 or 70% of eligible accounts receivable, as defined. The line of
credit may be renewed annually and expires in August 1997. Borrowings under the
line of credit, collateralized by a first security interest in substantially all
assets of the Company, are payable on demand and bear interest at the bank's
prime rate (8.25% and 8.50% at December 31, 1996 and June 30, 1997,
respectively) plus 0.5% per annum. The line of credit agreement requires the
Company to maintain certain financial covenants, including a maximum debt to
tangible net worth ratio and a minimum cash flow coverage ratio, as defined. The
F-10
<PAGE> 68
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Company was in compliance with all financial covenants as of December 31, 1996
and June 30, 1997. At December 31, 1996 and June 30, 1997, there were no
borrowings under the line of credit.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- ---------
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Note payable to a bank..................... $ -- $250,000 $ 212,835
Capital lease obligations.................. 30,447 67,888 51,444
------- -------- --------
30,447 317,888 264,279
Less--current maturities................... 9,849 105,651 111,247
------- -------- --------
$20,598 $212,237 $ 153,032
======= ======== ========
</TABLE>
Maturities of long-term debt at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NOTE CAPITAL LEASE
PAYABLE OBLIGATIONS
-------- -------------
<S> <C> <C>
Period ending December 31,
1997, six months............................. $ 38,636 $ 19,228
1998......................................... 82,922 35,151
1999......................................... 91,277 4,907
-------- --------
$212,835 59,286
========
Less -- amounts representing interest........ (7,842)
--------
Present value of minimum lease payments...... $ 51,444
========
</TABLE>
The note payable to a bank bears interest at the bank's prime rate (8.25%
and 8.50% at December 31, 1996 and June 30, 1997, respectively) plus 0.5% per
annum and is payable in monthly installments, including interest, totaling
approximately $8,000 per month, through December 1999. The weighted average
interest rate for the six months ended June 30, 1997 was approximately 8.88%.
The agreement requires the maintenance of certain financial covenants, including
a maximum debt to tangible net worth ratio and a minimum cash flow coverage
ratio, as defined, and is collateralized by a security interest in substantially
all assets of the Company. The Company was in compliance with all financial
covenants as of December 31, 1996 and June 30, 1997.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, the objective of which is to recognize the amount
of current and deferred income taxes at the date of the financial statements as
a result of all differences in the tax basis and financial statement carrying
amount of assets and liabilities as measured by enacted tax laws.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- --------
<S> <C> <C>
Net operating loss carryforwards...................... $12,000 $ --
Tax credit carryforwards.............................. 37,000 --
Other temporary differences........................... 21,000 108,000
------- --------
Net deferred tax asset........................... $70,000 $108,000
======= ========
</TABLE>
F-11
<PAGE> 69
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
During 1994, the Company had generated net operating loss carryforwards for
federal and state income tax purposes of approximately $240,000, which were used
in 1995 and 1996. At December 31, 1995, the Company had $37,000 of tax credits
available to offset future federal and state income taxes which were utilized in
1996.
Under SFAS No. 109, the Company recognizes a deferred tax asset for the
future benefit of its temporary differences if it concludes that it is more
likely than not that the deferred tax asset will be realized.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate.... (34.0)% 34.0% 34.0%
Increase (decrease) in tax resulting from --
State tax provision (benefit), net of federal benefit..... (4.6) 4.6 4.6
Research and development tax credits...................... -- (12.9) (8.6)
Change in valuation allowance............................. 15.5 (26.4) --
Other..................................................... -- 0.7 5.1
---- ----
Provision (benefit) for income taxes........................ (23.1)% --% 35.1%
==== ====
</TABLE>
The provision (benefit) for income taxes in the accompanying statements of
operations consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Federal --
Current.................................. $ -- $ -- $ 210,000
Deferred................................. (53,000) -- (29,000)
-------- -------- ---------
(53,000) -- 181,000
-------- -------- ---------
State --
Current.................................. $ -- $ -- $ 66,000
Deferred................................. (17,000) -- (9,000)
-------- -------- ---------
(17,000) -- 57,000
-------- -------- ---------
Provision (benefit) for income taxes....... $(70,000) $ -- $ 238,000
======== ======== =========
</TABLE>
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis using the expected annual
effective income tax rate. The Company anticipates that the annual effective
income tax rate for 1997 will be approximately 36.5%, which is less than the
combined federal and state statutory income tax rates, primarily due to tax
credits and tax exempt interest income earned on certain of the Company's
investments.
(8) WRITE-OFF OF INTANGIBLE ASSET
In December 1993, the Company acquired from a vendor (the Vendor) the
rights, title and interest to two software products for a purchase price of
$300,000. The Company agreed to provide the Vendor with a credit of $300,000
toward the future purchase of any software product, service or support. In
December 1994, the Company recorded a charge of $200,000 to write off the
unamortized portion of the software rights, to reflect their net realizable
value. As of December 31, 1995 and 1996, approximately $275,000 and $172,000,
respectively, of the Vendor credit was outstanding and reflected
F-12
<PAGE> 70
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
as long-term liabilities in the accompanying balance sheets. As of June 30,
1997, the Vendor had utilized all of the credit.
(9) SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
In July 1996, the Company issued 1,356,116 shares of Series B Convertible
Redeemable Preferred Stock (Series B Preferred Stock) at $3.69 per share, less
offering costs of approximately $76,000, for net proceeds of approximately
$4,924,000. The Series B Preferred Stock has the following rights, preferences
and privileges:
Voting Rights
The holders of the Series B Preferred Stock are entitled to vote on all
matters and shall be entitled to the number of votes equal to the number of
shares of common stock into which each share of the preferred stock is
convertible.
Liquidation Preference
The holders of Series B Preferred Stock have preference in the event of
liquidation, dissolution or winding up of the Company at the rate of $3.69 per
share, plus all dividends which have been accrued and are unpaid, before any
distribution may be made with respect to the holders of Series A Convertible
Preferred Stock (Series A Preferred Stock) and to the holders to the common
stock.
Conversion
The Series B Preferred Stock is convertible into common stock at a rate of
two shares of common stock for every share of Series B Preferred Stock at any
time at the option of the holder of the Series B Preferred Stock. The conversion
rate is adjustable for certain dilutive events as defined. The Series B
Preferred Stock shall automatically convert into shares of common stock on the
closing of the sale of shares of common stock in a qualified public offering as
defined.
Redemption
At any time after July 22, 2000, the holders of a majority of the
outstanding shares of Series B Preferred Stock may require the Company to redeem
all of the outstanding Series B Preferred Stock in four annual installments of
25% per year at a redemption price of $3.69 per share plus any accrued but
unpaid dividends.
Dividends
Dividends are cumulative and accrue on outstanding shares of Series B
Preferred Stock at an annual rate of 8%. Additional dividends may be paid on the
Series B Preferred Stock when declared by the Board of Directors. Dividends are
payable beginning on July 22, 2000 and are forfeited upon conversion of the
Series B Preferred Stock into common stock.
(10) STOCKHOLDERS' EQUITY (DEFICIT)
On January 2, 1996, by approval of the Company's stockholders, Omtool,
Ltd., a New Hampshire corporation, was reincorporated as a Delaware corporation.
According to the terms of the merger agreement, the New Hampshire corporation
merged into the Delaware corporation in a tax-free transaction by exchanging its
outstanding common stock for the common stock of the Delaware corporation.
F-13
<PAGE> 71
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(a) Authorized Capital Stock
As of December 31, 1996 and June 30, 1997, the Company's authorized capital
stock consisted of 10,000,000 shares of common stock, $0.01 par value per share,
and 3,000,000 shares of preferred stock, $.01 par value per share. Of the
preferred stock, 162,500 shares are designated Series A Preferred Stock,
1,356,116 shares are designated Series B Preferred Stock and 1,481,384 shares
are undesignated.
(b) Recapitalization
On January 23, 1997, the Company's Board of Directors approved a
two-for-one stock split of the Company's common stock effected in the form of a
stock dividend. The accompanying financial statements and notes have been
retroactively restated for all periods presented to reflect this stock split.
(c) Series A Convertible Preferred Stock
Pursuant to subscription agreements entered into in February 1996, in July
1996, certain directors of the Company purchased 162,500 shares of Series A
Preferred Stock for an aggregate of $325,000. The holders of the Series A
Preferred Stock have the following rights, preferences and privileges:
Voting Rights
The holders of the Series A Preferred Stock are entitled to vote on all
matters and shall be entitled to the number of votes equal to the number of
shares of common stock into which each share of the preferred stock is
convertible.
Liquidation Preference
The holders of Series A Preferred Stock have preference in the event of
liquidation or dissolution of the Company, before any distributions may be made
with respect to the common stock, at the rate of $2.00 per share, plus all
dividends which have been accrued and are unpaid before any payment or
distribution shall be made to the holders of common stock or any other class of
stock ranking junior to Series A Preferred Stock.
Conversion
The Series A Preferred Stock is convertible into common stock at a rate of
two shares of common stock for every share of Series A Preferred Stock at any
time at the option of the holder of the Series A Preferred Stock. The Company
may require all holders of shares of Series A Preferred Stock to convert their
shares into shares of common stock on or after the closing of the sale of shares
of common stock in a qualified public offering as defined in the agreement.
(d) Repurchase of Common Stock
Concurrent with the issuance of the Series B Preferred Stock, as approved
by the stockholders and the Board of Directors, the Company purchased and
retired 1,084,992 shares of common stock from two of its principal stockholders
for $2,000,183.
F-14
<PAGE> 72
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(e) Reserved Common Stock
As of June 30, 1997, 4,461,233 shares of common stock were reserved for the
following:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock........................ 325,000
Conversion of Series B Preferred Stock........................ 2,712,232
Exercise of Stock Options..................................... 1,424,001
---------
4,461,233
=========
</TABLE>
(11) STOCK OPTION PLAN
(a) 1996 Stock Option Plan
On January 2, 1996, the Board of Directors adopted the 1996 Stock Option
Plan (the Plan). The Plan provides for the granting of options covering
1,500,000 shares of common stock. The Plan is administered by the Board of
Directors and allows for the granting of both incentive stock options and
non-qualified stock options. Incentive stock options under the Plan are granted
at not less than the fair market value per share of common stock on the date of
grant or 110% of fair market value for any stockholder who holds more than 10%
of the total combined voting power of all classes of stock of the Company. Under
the terms of the Plan, options vest and become exercisable as determined by the
Board of Directors and expire 10 years after the date of grant.
Stock option activity for the year ended December 31, 1996 and six months
ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1995 -- -- --
Granted................................ 1,129,400 $ 0.25 - $1.85 $ 0.39
Canceled............................... (33,000) 0.25 - 1.85 0.40
--------- -------------- ------
Outstanding, December 31, 1996.............. 1,096,400 0.25 - 1.85 0.39
Granted................................ 322,650 1.85 - 8.25 4.16
Exercised.............................. (75,999) 0.25 0.25
Canceled............................... (33,833) 0.25 - 5.50 1.98
--------- -------------- ------
Outstanding, June 30, 1997.................. 1,309,218 $ 0.25 - $8.25 $ 1.28
======== ============ ===========
Exercisable, June 30, 1997.................. 321,665 $0.25 $ 0.25
======== ============ ===========
</TABLE>
At June 30, 1997, options to purchase 114,783 shares of commons stock were
available for future grants under the Plan.
F-15
<PAGE> 73
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(b) Stock Based Compensation
In October 1995, the FASB issued SFAS No 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
to be included in the statement of operations or disclosed in the notes to the
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under the Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative under
SFAS No. 123 for options granted in 1996 using the Black-Scholes option pricing
model prescribed by SFAS No. 123. Based on the use of the Black-Scholes option
pricing model, options granted in 1996 and during the six months ended June 30,
1997 had a weighted average fair value of $0.22 and $2.40, respectively. The
weighted average assumptions are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Risk-free interest rate......................... 5.46% 6.31%
Volatility...................................... 70.0% 70.0%
Expected dividend yield......................... -- --
Expected lives.................................. 4 Years 4 Years
</TABLE>
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and pro forma net income per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Net income --
As reported................................ $439,663 $703,896
Pro forma.................................. $385,593 $618,373
Pro forma net income per share --
As reported................................ $ 0.04 $ 0.07
Pro forma.................................. $ 0.04 $ 0.07
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity may include a different expected volatility
factor and because additional option grants are expected to be made in future
years, the above pro forma disclosures are not representative of pro forma
effects on results for the future years.
(12) 401(K) AND PROFIT-SHARING PLAN
On December 1, 1995, the Company adopted a 401(k) and profit-sharing plan
(the Profit-Sharing Plan) to cover all eligible employees. The Profit-Sharing
Plan allows for voluntary contributions by eligible employees. The Company
matches 50% of eligible employee contributions up to a specified amount. The
Company contributed approximately $4,000, $69,000, and $55,000 to the
Profit-Sharing Plan for the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1997, respectively. Additional profit-sharing
contributions to the Profit-Sharing Plan are at the discretion of the Company's
management. During 1995, 1996 and the six months ended June 30, 1997, no
additional discretionary contributions were made by the Company.
F-16
<PAGE> 74
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(13) LEASE COMMITMENTS
The Company leases certain equipment and its office facility under
operating leases that expire at various times through July 2000.
Future minimum lease payments under these leases at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
Period ending December 31,
1997, six months.......................................... $114,000
1998...................................................... 218,000
1999...................................................... 189,000
2000...................................................... 108,000
--------
$629,000
========
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $50,000, $114,000, $199,000, $87,000 and $128,000 for the years
ended December 31, 1994, 1995 and 1996, and the six months ended June 30, 1996
and 1997, respectively.
(14) SUBSEQUENT EVENTS
(a) Amended and Restated Certificate of Incorporation
Effective upon the closing of the Company's initial public offering and
after giving effect to the amendment and restatement of the Company's Restated
Certificate of Incorporation immediately prior to the closing of the offering,
the authorized capital stock will consist of 35,000,000 shares of Common Stock,
$0.01 par value per share, and 2,000,000 shares of Preferred Stock, $0.01 par
value per share.
(b) 1997 Stock Plan
The Company's 1997 Stock Plan (the 1997 Plan) was adopted by the board of
directors in April 1997 and approved by the Company's stockholders in June 1997.
The 1997 Plan will take effect upon the closing of the Company's initial public
offering. No options have been granted under the 1997 Plan. The 1997 Plan
provides for the issuance of Common Stock pursuant to the grant to employees of
"incentive stock options" within the meaning of the Internal Revenue Code of
1986, as amended, and the grant of non-qualified stock options, stock awards or
opportunities to make direct purchases of stock in the Company to employees,
consultants, directors and officers of the Company. The aggregate number of
shares of Common Stock which may be issued pursuant to the 1997 Plan is
1,800,000.
(c) 1997 Employee Stock Purchase Plan
The 1997 Employee Stock Purchase Plan (the 1997 Purchase Plan) was adopted
by the board of directors in April 1997 and approved by the Company's
stockholders in June 1997. The 1997 Purchase Plan will take effect in January
1998. The 1997 Purchase Plan provides for the issuance of a maximum of 200,000
shares of Common Stock pursuant to the exercise of nontransferable options
granted to participating employees.
F-17
<PAGE> 75
[OMTOOL Logo]
<PAGE> 76
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>
Registration fee.......................................................... $ 13,939
NASD filing fee........................................................... 5,100
Nasdaq National Market listing fee........................................ 46,019
Printing and engraving expenses........................................... 150,000
Legal fees and expenses................................................... 250,000
Accounting fees and expenses.............................................. 175,000
Blue Sky fees and expenses (including legal fees)......................... 10,000
Transfer agent and registrar fees and expenses............................ 40,000
Miscellaneous............................................................. 109,942
--------
Total........................................................... $800,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Registrant's Restated
Certificate of Incorporation and By-Laws provide for indemnification of the
Registrant's directors and officers for liabilities and expenses that they may
incur in such capacities. In general, directors and officers are indemnified
with respect to actions taken in good faith in a manner reasonably believed to
be in, or not opposed to, the best interests of the Registrant, and with respect
to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Reference is made to the Registrant's
Form of Amended and Restated Certificate of Incorporation and Form of Amended
and Restated By-Laws filed as Exhibits 3.3 and 3.5 hereto, respectively.
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 to be filed as Exhibit 1.1 hereto.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among other
things, (i) to indemnify them to the fullest extent permitted by the Delaware
General Corporation Law, subject to specified limitations, against certain
liabilities actually and reasonably incurred by them in any proceeding in which
they are a party that may arise by reason of their status as directors,
officers, employees or agents or may arise by reason of their serving as such at
the request of the Company for another entity and (ii) to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Reference is made to the form of Indemnification Agreement filed as
Exhibit 4.2 hereto.
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
II-1
<PAGE> 77
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
On January 2, 1996, the Company issued an aggregate of 3,200,000 shares
(pre-split) of its Common Stock to certain stockholders upon the conversion of
an aggregate of 180 shares of Omtool Ltd., a New Hampshire corporation, in
connection with the Company's reincorporation in Delaware.
Pursuant to subscription agreements entered into in February 1996, on July
8, 1996, the Company issued an aggregate of 162,500 shares of Series A
Convertible Preferred Stock for an aggregate purchase price of $325,000.
On July 22, 1996 the Company issued an aggregate of 1,356,116 shares of
Series B Convertible Preferred Stock for an aggregate purchase price of
$5,000,000.
The Company repurchased an aggregate of 542,496 shares (pre-split) on July
22, 1996 in connection with the sale of the Series B Preferred Stock.
The Company declared a two-for-one stock split, by means of a stock
dividend, effective February 3, 1997. As a result, the holders of 2,685,170
shares received an additional 2,685,170 shares of Common Stock.
(b) Certain Grants and Exercises of Stock Options.
Since January 1996 through June 30, 1997, the Company (i) issued options
under its 1996 Plan to purchase an aggregate of 1,385,217 shares of Common
Stock, of which 1,309,218 were outstanding at June 30, 1997 and were exercisable
at a weighted average exercise price of $1.28 per share and (ii) issued an
aggregate of 75,999 shares of Common Stock at exercise prices of $0.25 per share
upon exercise of certain of such options.
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 Section 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation, as amended.
3.2 -- Form of Amendment to Certificate of Incorporation.
3.3 -- Form of Amended and Restated Certificate of Incorporation.
3.4 -- By-Laws of the Company.
3.5 -- Form of Amended and Restated By-Laws of the Company.
4.1* -- Specimen certificate representing the Common Stock.
4.2+ -- Form of Indemnification Agreement for Directors and Executive Officers
5.1* -- Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ -- 1996 Stock Option Plan.
10.2+ -- 1997 Stock Plan.
10.3+ -- 1997 Employee Stock Purchase Plan.
</TABLE>
II-2
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<S> <C> <C>
10.4+ -- Lease dated July 27, 1995 between Athena Wlasits, Sumner Darman and Norman M.
Shack, trustees of Brooks Property Trust and Omtool, Ltd.
10.5+ -- Amendment to Lease dated August 1, 1996 between Athena Wlasits, Sumner Darman
and Norman M. Shack, trustees of Brooks Property Trust and Omtool, Ltd.
10.6+ -- Demand Note dated August 30, 1996 between First NH Bank and Omtool, Ltd.
10.7+ -- Commercial Term Note dated August 30, 1996 between First NH Bank and Omtool,
Ltd.
10.8+ -- Loan and Security Agreement dated August 30, 1996 between First NH Bank and
Omtool, Ltd.
10.11+ -- Changes in Terms Agreement dated January 27, 1997 between Citizens Bank New
Hampshire, formerly First NH Bank and Omtool, Ltd.
10.12+ -- Form of Omtool Software License.
11.1 -- Statement re Computation of Earnings Per Share.
23.1 -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-4 and previously filed).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(B) FINANCIAL STATEMENTS SCHEDULES:
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.
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 provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (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 a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(2) or (3) 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 the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Salem, New Hampshire, on July 15, 1997.
OMTOOL, LTD.
By: /s/ ROBERT L. VOELK
------------------------------------
Robert L. Voelk
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------- ---------------------------------------- --------------
<C> <S> <C>
/s/ ROBERT L. VOELK Chief Executive Officer and Director July 15, 1997
- ------------------------------------- (Principal Executive Officer)
Robert L. Voelk
* President and Director July 15, 1997
- -------------------------------------
Martin A. Schultz
/s/ DARIOUSH MARDAN Vice President of Finance, Chief July 15, 1997
- ------------------------------------- Financial Officer, Treasurer, and
Darioush Mardan Secretary (Principal Financial and
Accounting Officer)
* Director July 15, 1997
- -------------------------------------
Richard D. Cramer
* Director July 15, 1997
- -------------------------------------
Bruce R. Evans
* Director July 15, 1997
- -------------------------------------
Anthony J. Mark
/s/ WILLIAM C. STYSLINGER, III Director July 15, 1997
- -------------------------------------
William C. Styslinger, III
</TABLE>
*By: /s/ ROBERT L. VOELK
---------------------------
Robert L. Voelk
Attorney-in-Fact
POWER OF ATTORNEY
I, William C. Styslinger, III, a director of Omtool, Ltd., hereby
constitute and appoint Martin A. Schultz, Robert L. Voelk and Darioush Mardan,
and each of them singly, my true and lawful attorneys, with full power to them
and each of them singly, to sign for me in my name in the capacity indicated
below, all pre-effective and post-effective amendments to this registration
statement, as well as any registration statement filed pursuant to Rule 462(b)
of the Securities Act of 1933, as amended, and generally to do all things in my
name and on my behalf in such capacity to enable Omtool, Ltd. to comply with the
provisions of the Securities Act of 1993, as amended, and all requirements of
the Securities and Exchange Commission.
<TABLE>
<C> <S> <C>
/s/ WILLIAM C. STYSLINGER, III Director July 15, 1997
- -------------------------------------
William C. Styslinger, III
</TABLE>
II-4
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Omtool, Ltd.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Omtool, Ltd. included in this Form S-1 and have
issued our report thereon dated March 24, 1997. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 16(b) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the financial statements and, in our opinion, fairly states in all material
respects, the supplemental financial data required to be set forth therein, in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 24, 1997
S-1
<PAGE> 81
SCHEDULE II
OMTOOL, LTD.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS PERIOD
- --------------------------------------------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE RESERVE
December 31, 1994................................ $50,370 $ 31,000 $ -- $ 81,370
December 31, 1995................................ 81,370 280,400 281,770 80,000
December 31, 1996................................ 80,000 354,500 59,500 375,000
</TABLE>
S-2
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation, as amended.
3.2 -- Form of Amendment to Certificate of Incorporation.
3.3 -- Form of Amended and Restated Certificate of Incorporation.
3.4 -- By-Laws of the Company.
3.5 -- Form of Amended and Restated By-Laws of the Company.
4.1* -- Specimen certificate representing the Common Stock.
4.2+ -- Form of Indemnification Agreement for Directors and Executive Officers
5.1* -- Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ -- 1996 Stock Option Plan.
10.2+ -- 1997 Stock Plan.
10.3+ -- 1997 Employee Stock Purchase Plan.
10.4+ -- Lease dated July 27, 1995 between Athena Wlasits, Sumner Darman and Norman M.
Shack, trustees of Brooks Property Trust and Omtool, Ltd.
10.5+ -- Amendment to Lease dated August 1, 1996 between Athena Wlasits, Sumner Darman
and Norman M. Shack, trustees of Brooks Property Trust and Omtool, Ltd.
10.6+ -- Demand Note dated August 30, 1996 between First NH Bank and Omtool, Ltd.
10.7+ -- Commercial Term Note dated August 30, 1996 between First NH Bank and Omtool,
Ltd.
10.8+ -- Loan and Security Agreement dated August 30, 1996 between First NH Bank and
Omtool, Ltd.
10.11+ -- Changes in Terms Agreement dated January 27, 1997 between Citizens Bank New
Hampshire, formerly First NH Bank and Omtool, Ltd.
10.12+ -- Form of Omtool Software License.
11.1 -- Statement re Computation of Earnings Per Share.
23.1 -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-4 and previously filed).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OMTOOL, LTD.
Omtool, Ltd., a corporation duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent dated July __, 1997, in accordance with the provisions of
Section 141 of the General Corporation Law of the State of Delaware, duly
adopted a resolution setting forth the proposed amendment to the Certificate of
Incorporation of the Corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED: That the Directors propose and declare it advisable that the
Corporation's Certificate of Incorporation be amended by
deleting the first paragraph of Article FOURTH in its entirety
and replacing it with the following:
"FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have authority
to issue is 38,000,000, consisting of 35,000,000 shares
of Common Stock having a par value of $.01 per share
(the "Common Stock") and 3,000,000 shares of Preferred
Stock having a par value of $.01 per share (the
"Preferred Stock")."
SECOND: That the stockholders of the Corporation duly adopted such
resolution by written consent in accordance with the provisions of Section 228
of the General Corporation Law of the State of Delaware and written notice
thereof has been given as provided in such Section 228.
THIRD: That said amendment was adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Robert L. Voelk, Chief Executive Officer, and attested to by Darioush
Mardan, Secretary, this day of July 1997.
OMTOOL, LTD.
By:
-----------------------------
Robert L. Voelk
Chief Executive Officer
ATTEST:
- ---------------------------
Darioush Mardan
Secretary
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OMTOOL, LTD.
* * * * * *
I, Martin Schultz, President of Omtool, Ltd. (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 Omtool, Ltd., as amended, 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 Omtool, Ltd.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware
19085. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc. 1209 Orange Street, Wilmington, County of New Castle,
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 37,000,000 shares,
consisting of 35,000,000 shares of Common Stock with a par value of $.01 per
share (the "Common Stock") and 2,000,000 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 the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.
<PAGE> 2
- 2 -
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 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
<PAGE> 3
- 3 -
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 a majority 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 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
<PAGE> 4
- 4 -
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 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
<PAGE> 5
- 5 -
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
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
<PAGE> 6
- 6 -
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 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
<PAGE> 7
- 7 -
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. 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
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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.
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
<PAGE> 9
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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 ____,
1997.
------------------------------
Martin Schultz
President
<PAGE> 1
Exhibit 3.4
BYLAWS
OF
OMTOOL, LTD.
Article I. Offices.
Section 1. Registered Office. The registered office of the
Corporation shall be at The Corporation Trust Company, 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware 19801.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
Article II. Meetings of Stockholders.
Section 1. Time and Place. A meeting of stockholders for any purpose may
be held at such time and place within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
with the year 1995, shall be held on the second Tuesday in May if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting,
stating the place, date, and time thereof, shall be given to each stockholder
entitled to vote at such meeting not less than ten (unless a longer period is
required by law) nor more than sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may be
called for any purpose or purposes, unless otherwise prescribed by statute or by
the Certificate of Incorporation, as amended, by the Chairman of the Board, if
any, or the President, and shall be called by the President or Secretary at the
request, in writing, of a majority of the Board of Directors or of the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special meeting,
stating the place, date, and time thereof and the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten (unless a longer period is required by law) nor
more than sixty days prior to the meeting.
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Section 6. List of Stockholders. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of the
Board. If he is not present or there is none, they shall be presided over by the
President, or, if he is not present or there is none, by a Vice President, or,
if he is not present or there is none, by a person chosen by the Board of
Directors, or, if no such person is present or has been chosen, by a chairman to
be chosen by the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
and who are present in person or represented by proxy. The Secretary of the
Corporation, or, if he is not present, an Assistant Secretary, or, if he is not
present, a person chosen by the Board of Directors, shall act as Secretary at
meetings of stockholders; if no such person is present or has been chosen, the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting who are present in
person or represented by proxy shall choose any person present to act as
secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting the call
thereof
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
(8) Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has been
called, if the meeting is a special meeting.
(9) Transaction of such other business as may properly come
before the meeting.
(10) Adjournment.
<PAGE> 3
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Section 8. Quorum and Adjournments. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation, as amended. If, however, a
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time until a quorum shall be present or represented. If the time and place of
the adjourned meeting are announced at the meeting at which the adjournment is
taken, no further notice of the adjourned meeting need be given. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat who are present in person or represented
by proxy shall have the power to adjourn the meeting from time to time for good
cause to a date that is not more than thirty days after the date of the original
meeting. Further notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At any adjourned meeting at which a quorum is present in person or
represented by proxy, any business may be transacted that might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or if, after the adjournment, a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of the stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or the Certificate of Incorporation, as amended, each
stockholder of record shall be entitled to one vote for each share of capital
stock registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except as
otherwise provided by law or the Certificate of Incorporation, as amended, all
other matters shall be determined by a vote of a majority of the shares present
in person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law or
the Certificate of Incorporation, as amended, to be taken at any meeting of
stockholders may be taken without a meeting, without prior notice if a written
consent, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present or represented by proxy and voted. Such
written consent shall be filed with the minutes of the meetings of stockholders.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing thereto.
<PAGE> 4
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Article III. Directors.
Section 1. General Powers, Number, and Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, as amended, or these Bylaws directed or required
to be exercised or performed by the stockholders. The number of directors shall
be determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until the next annual meeting and
until his successor is elected and shall qualify. Directors need not be
stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors, or
if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until the next annual
meeting of stockholders and until his successor is duly elected and shall
qualify. If there are no directors in office, any officer or stockholder may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation, as amended, or these Bylaws, at which meeting such
vacancies shall be filled.
Section 3. Removal or Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, as amended, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect on delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board of
Directors may be held without notice of such time and place as may be determined
from time to time by the Board of Directors.
<PAGE> 5
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Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by two or more
directors on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary, or two or more directors in like manner and on like notice
on the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting,
except as provided in Article XI.
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation, as amended. If a quorum is not present at any
meeting of the Board of Directors, the directors present may adjourn the meeting
from time to time, without notice other than announcement at the meeting at
which the adjournment is taken, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such compensation
for their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors meetings as may from time to time be
fixed by the Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment. The
Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
Article IV. Committees.
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
<PAGE> 6
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Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to any papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall fix. The Executive Committee shall keep regular minutes of its meetings,
which it shall deliver to the Board of Directors from time to time. The Chairman
of the Executive Committee or, in his absence, a member of the Executive
Committee chosen by a majority of the members present, shall preside at meetings
of the Executive Committee; and another member chosen by the Executive Committee
shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall constitute
a quorum for the transaction of business, and the affirmative vote of a majority
of the members present at any meeting at which there is a quorum shall be
required for any action of the Executive Committee; provided, however, that when
an Executive Committee of one member is authorized under the provisions of
Section I of this Article, that one member shall constitute a quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
Section 6. Committee Changes. The Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of, and to discharge
any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be taken
at any meeting of any committee of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
committee and such written consent is filed with the minutes of its proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment. The
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by conference telephone or similar communications
equipment by means of
<PAGE> 7
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which all persons participating in such meeting can hear each other, and
participation in such a meeting shall constitute presence in person by any such
committee member at such meeting.
Article V. Notices.
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, as amended, or these Bylaws requires that notice
be given to any director or stockholder, it shall not be construed to require
personal notice unless so specifically provided, but such notice may be given in
writing, by mail addressed to the address of the director or stockholder as it
appears on the records of the Corporation, with postage prepaid. These notices
shall be deemed to be given when they are deposited in the United States mail.
Notice to a director may also be given personally or by telephone or by telegram
sent to his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of any law, the Certificate of Incorporation, as amended, or these
Bylaws, a written waiver thereof signed by the person entitled to said notice,
whether before or after the time stated therein, shall be deemed to be
equivalent to such notice. In addition, any stockholder who attends a meeting of
stockholders in person or is represented at such meeting by proxy, without
protesting at the commencement of the meeting the lack of notice thereof to him,
or any director who attends a meeting of the Board of Directors without
protesting at the commencement of the meeting of the lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
Article VI. Officers.
Section 1. Designations. The officers of the Corporation shall be chosen
by the Board of Directors. The Board of Directors may choose a Chairman of the
Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other officers and agents that it shall deem necessary or appropriate. All
officers of the Corporation shall exercise the powers and perform the duties
that shall from time to time be determined by the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation, as amended, or these Bylaws provide otherwise.
Section 2. Term of and Removal From Office. At its first regular meeting
after each annual meeting of stockholders, the Board of Directors shall choose a
President, a Secretary, and a Treasurer. It may also choose a Chairman of the
Board, a Vice President or Vice Presidents, one or more Assistant Secretaries
and/or Assistant Treasurers, and such other officers and agents as it shall deem
necessary or appropriate. Each officer of the Corporation shall hold office
until his successor is chosen and shall qualify. Any officer elected or
appointed by the Board of Directors may be removed, with or without cause, at
any time by the affirmative vote of a majority of the directors then in office.
Removal from office, however, shall not prejudice the contract rights, if any,
of the person removed. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term by the Board of Directors.
<PAGE> 8
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Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board of Directors, and no officer shall
be prevented from receiving a salary because he is also a director of the
Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if any,
shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory, and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meetings of stockholders and of
the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the Corporation
and, subject to the direction of the Board of Directors, shall have general
charge of the business, affairs, and property of the Corporation and general
supervision over its other officers and agents. In general, he shall perform all
duties incident to the office of President and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the President
shall have full power and authority to attend, act, and vote on behalf of the
Corporation at any meeting of the security holders of other corporations in
which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 6. The Vice President. The Vice President, if any, or in the event
there be more than one, the Vice Presidents in the order designated, or in the
absence of any designation, in the order of their election, shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and the stockholders and record all votes and the proceedings
of the meetings in a book to be kept for that purpose. He shall perform like
duties for the Executive Committee or other committees, if required. He shall
give, or cause to be given, notice of all meetings of stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
from time to time be prescribed by the Board of Directors, the Chairman of the
Board, or the President, under whose supervision he shall act. He shall have
custody of the seal of the Corporation, and he, or an Assistant Secretary, shall
have authority to affix it to any instrument requiring it, and, when so affixed,
the seal may be attested by his signature or by the signature of the Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his signature.
<PAGE> 9
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Section 8. The Assistant Secretary. The Assistant Secretary, if any, or in
the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation in accord with the orders of the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of the
Board, if any, the President, and the Board of Directors, whenever they may
require it or at regular meetings of the Board, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or
in the event there shall be more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Article VII. Indemnification.
Reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware. Particular reference is made
to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person or the heirs, executors, or administrators of such
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, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, in addition to any obligation
incurred pursuant to the Corporation's Certificate of Incorporation, indemnify
the Indemnitees, and each of them in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the aforesaid
statutory provisions. The Corporation shall indemnify the Indemnitees, and each
of them in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification, it being understood that, before making
such indemnification with respect to any situation covered under this sentence,
(i) the Corporation shall promptly make or cause to be made, by any of the
methods referred to in Subsection (d) of such Section 145, a determination as to
whether each Indemnitee acted in good faith and in a
<PAGE> 10
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manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful, and (ii) that no such
indemnification shall be made unless it is determined that such Indemnitee 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 any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
unlawful.
Article VIII. Affiliated Transactions and Interested Directors.
Section 1. Affiliated Transactions. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof that authorizes
the contract or transaction or solely because his or their votes are counted for
such purpose if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his 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 the vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. 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 thereof which authorizes the contract or
transaction.
Article IX. Stock Certificates.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employee. In case any officer who
<PAGE> 11
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has signed, or whose facsimile signature was placed on, a certificate shall have
ceased to be such officer before the certificate is issued, it may nevertheless
be issued by the Corporation with the same effect as if he were such officer at
the date of its issue.
(b) All stock certificates representing shares of capital stock that are
subject to restrictions on transfer or to other restrictions may have imprinted
thereon any notation to that effect determined by the Board of Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
any transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment, or authority to
transfer, the Corporation or its transfer agent shall issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be entitled
to recognize the exclusive right of a person who is registered on its books as
the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be sent
to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board of Directors may, in advance, fix a date
as the record date for any such determination. Such date shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to the date of any other action. A determination of
stockholders of record entitled to notice to or to vote at, a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of Directors
may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
<PAGE> 12
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issuance of a new certificate, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
Article X. General Provisions.
Section 1. Dividends. Subject to the provisions of law and the Certificate
of Incorporation, as amended, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power, subject
to the provisions of law and the Certificate of Incorporation, as amended, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum that may be set aside or reserved over and above the paid-in
capital of the Corporation as a reserve for any proper purpose, and may, from
time to time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to time otherwise provided by
the Board of Directors, the fiscal year of the Corporation shall end on December
31 of each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
Article XI. Amendments.
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the whole
Board, provided that notice of the proposal to alter or repeal these Bylaws or
to adopt new Bylaws must be included in the notice of the meeting of the Board
of Directors at which such action takers place.
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED
BY-LAWS
OF
OMTOOL, LTD.
<PAGE> 2
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - STOCKHOLDERS................................................................. 1
1.1 Place of Meetings................................................................. 1
1.2 Annual Meeting.................................................................... 1
1.3 Special Meetings.................................................................. 1
1.4 Notice of Meetings................................................................ 1
1.5 Voting List....................................................................... 1
1.6 Quorum............................................................................ 2
1.7 Adjournments...................................................................... 2
1.8 Voting and Proxies................................................................ 2
1.9 Action at Meeting................................................................. 3
1.10 Introduction of Business at Meetings............................................. 3
1.11 Action without Meeting........................................................... 6
ARTICLE 2 - DIRECTORS.................................................................... 6
2.1 General Powers.................................................................... 6
2.2 Number; Election and Qualification................................................ 7
2.3 Classes of Directors.............................................................. 7
2.4 Terms in Office................................................................... 7
2.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in
the Number of Directors .............................................................. 7
2.6 Tenure............................................................................ 7
2.7 Vacancies......................................................................... 8
2.8 Resignation....................................................................... 8
2.9 Regular Meetings.................................................................. 8
2.10 Special Meetings................................................................. 8
2.11 Notice of Special Meetings....................................................... 8
2.12 Meetings by Telephone Conference Calls........................................... 8
2.13 Quorum........................................................................... 8
2.14 Action at Meeting................................................................ 9
2.15 Action by Written Consent........................................................ 9
2.16 Removal.......................................................................... 9
2.17 Committees....................................................................... 9
2.18 Compensation of Directors........................................................ 10
2.19 Amendments to Article............................................................ 10
ARTICLE 3 - OFFICERS..................................................................... 10
3.1 Enumeration....................................................................... 10
3.2 Election.......................................................................... 10
3.3 Qualification..................................................................... 10
</TABLE>
<PAGE> 3
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3.4 Tenure............................................................. 10
3.5 Resignation........................................................ 10
3.6 Vacancies.......................................................... 11
3.7 Chairman of the Board and Vice-Chairman of the Board............... 11
3.8 President.......................................................... 11
3.9 Vice Presidents.................................................... 11
3.10 Secretary and Assistant Secretaries............................... 11
3.11 Treasurer and Assistant Treasurers................................ 12
3.12 Salaries.......................................................... 12
3.13 Action with Respect to Securities of Other Corporations........... 12
ARTICLE 4 - CAPITAL STOCK................................................. 13
4.1 Issuance of Stock.................................................. 13
4.2 Certificates of Stock.............................................. 13
4.3 Transfers.......................................................... 13
4.4 Lost, Stolen or Destroyed Certificates............................. 13
4.5 Record Date........................................................ 14
ARTICLE 5 - GENERAL PROVISIONS............................................ 14
5.1 Fiscal Year........................................................ 14
5.2 Corporate Seal..................................................... 14
5.3 Notices............................................................ 14
5.4 Waiver of Notice................................................... 14
5.5 Evidence of Authority.............................................. 15
5.6 Facsimile Signatures............................................... 15
5.7 Reliance upon Books, Reports and Records........................... 15
5.8 Time Periods....................................................... 15
5.9 Certificate of Incorporation....................................... 15
5.10 Transactions with Interested Parties.............................. 15
5.11 Severability...................................................... 16
5.12 Pronouns.......................................................... 16
ARTICLE 6 - AMENDMENTS.................................................... 16
6.1 By the Board of Directors.......................................... 16
6.2 By the Stockholders................................................ 16
<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
OF
OMTOOL, LTD. (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,
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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> 6
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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.
In the election of directors, voting shall be by written ballot, and
for any other action, voting need not be by ballot except where otherwise
required by law or the Certificate of Incorporation, and 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> 7
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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.
B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been
brought before the
<PAGE> 8
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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 request inclusion of proposals in the Corporation's
proxy statement pursuant to
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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;
(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
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(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, 1997; 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, 1998; 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, 1999.
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.
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.
<PAGE> 11
- 8 -
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.
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
<PAGE> 12
- 9 -
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 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.
<PAGE> 13
- 10 -
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.
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.
<PAGE> 14
- 11 -
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 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
<PAGE> 15
- 12 -
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.
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.
<PAGE> 16
- 13 -
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.
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.
<PAGE> 17
- 14 -
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 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
<PAGE> 18
- 15 -
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 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;
<PAGE> 19
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(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 a majority 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> 1
EXHIBIT 11.1
OMTOOL, LTD.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
----------------------------
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Weighted average common stock outstanding during the period.... 5,916,793 5,372,856
Assumed conversion of outstanding preferred stock to common
stock(1)..................................................... 3,009,705 3,037,232
Shares issuable from the assumed exercise of stock options,
computed in accordance with the treasury stock method........ 773,314 848,389
Dilutive effect of common and common equivalent shares issued
subsequent to June 17, 1996, computed in accordance with the
treasury stock method(1)..................................... 229,355 229,355
----------- ----------
Pro forma weighted average number of common and common
equivalent shares outstanding................................ 9,929,167 9,487,832
=========== ==========
Net income..................................................... $ 439,663 $ 703,896
=========== ==========
Pro forma net income per common and common equivalent share.... $ 0.04 $ 0.07
=========== ==========
</TABLE>
- ---------------
(1) Pursuant to SEC Staff Accounting Bulletin No 83, common and preferred stock,
and stock options issued at prices below an assumed initial public offering
price of $9.00 per share during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement
for its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common and common share
equivalents was computed in accordance with the treasury stock method.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE AMENDMENT NO. 1 TO REGISTRATION
STATEMENT FILED ON FORM S-1 ON 7/15/97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 2,042 810
<SECURITIES> 931 1,208
<RECEIVABLES> 2,640 4,846
<ALLOWANCES> 375 856
<INVENTORY> 225 96
<CURRENT-ASSETS> 5,684 6,503
<PP&E> 1,001 1,556
<DEPRECIATION> 247 424
<TOTAL-ASSETS> 6,457 7,669
<CURRENT-LIABILITIES> 2,371 3,090
<BONDS> 212 153
5,167 5,367
2 2
<COMMON> 53 54
<OTHER-SE> (1,522) (1,018)
<TOTAL-LIABILITY-AND-EQUITY> 6,457 7,669
<SALES> 6,837 7,235
<TOTAL-REVENUES> 8,401 8,278
<CGS> 1,193 1,427
<TOTAL-COSTS> 2,009 1,928
<OTHER-EXPENSES> 5,746 5,270
<LOSS-PROVISION> 355 481
<INTEREST-EXPENSE> 11 19
<INCOME-PRETAX> 678 1,109
<INCOME-TAX> 238 405
<INCOME-CONTINUING> 440 704
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 440 704
<EPS-PRIMARY> 0.04 0.07
<EPS-DILUTED> 0.04 0.07
</TABLE>
