<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OMTOOL, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 02-0447481
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
8 INDUSTRIAL WAY
SALEM, NH 03079
(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:
<TABLE>
<S> <C>
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
<S> <C> <C> <C> <C>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... 4,600,000 $10.00 $46,000,000 $15,861
==========================================================================================================
</TABLE>
(1) Includes 600,000 shares which the Underwriters have the option to purchase
from certain stockholders of the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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 JUNE 17, 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 (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $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.
<TABLE>
<CAPTION>
==================================================================================================
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)...................... $ $ $ $
==================================================================================================
</TABLE>
(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
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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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.
Tradenames 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.x, HTML, OS/2, 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.
Omtool has licensed Fax Sr. to more than 1,500 customers worldwide,
including Alfred Berg Inc., AT&T Corp., Bloomberg Financial Markets, 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
<TABLE>
<S> <C>
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............ 11,407,572 shares(1)
Use of Proceeds........................................ For working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol................. OMTL
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $1,948 $3,928 $8,401 $1,491 $3,701
Gross profit................................... 1,669 3,296 6,392 1,146 2,892
Income (loss) from operations.................. (315) 417 646 81 441
Net income (loss).............................. (233) 416 440 53 272
Pro forma net income per common and common
equivalent share(2).......................... $ 0.04 $ 0.03
Pro forma weighted average number of common and
common equivalent shares outstanding(2)...... 9,928 9,484
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
------ -------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,151 $1,151 $25,500
Working capital......................................... 3,263 3,263 27,573
Total assets............................................ 6,910 6,910 31,220
Long-term debt, net of current portion.................. 182 182 182
Convertible redeemable preferred stock.................. 5,267 -- --
Total stockholders' equity (deficit).................... (1,281) 3,986 28,296
</TABLE>
- ------------
(1) Based upon the number of shares of Common Stock outstanding at March 31,
1997. Excludes (i) 1,261,485 shares of Common Stock issuable upon the
exercise of stock options outstanding at March 31, 1997 at a weighted
average exercise price of $0.78 per share, of which options to purchase
342,331 shares were then exercisable and (ii) 2,183,183 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 of the Company's Amended and Restated
Certificate of Incorporation increasing the number of authorized shares of
capital stock; and (iv) 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
depends 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 customer's orders.
A substantial portion of the Company's operating expense is related to
personnel, facilities and 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% of the Company's total revenues for 1995
and 7% for 1996. 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 its products or that the Company's international
9
<PAGE> 11
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 integrate with third-party applications,
any errors in applications deemed critical to the use of the
10
<PAGE> 12
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
employees could have a material adverse effect on the Company's business,
financial condition and
11
<PAGE> 13
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 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 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,
and 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 business, 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 63.0% of the Company's
outstanding Common Stock (57.9% if the over-allotment option is exercised in
full). As a result, these stockholders, if acting together, would be able to
exert substantial influence over the
12
<PAGE> 14
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 11,407,572 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 7,305,572 of the remaining outstanding shares of Common Stock and
stock options exercisable for an additional 986,668 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 7,061,220 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 $6.52 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 estimated 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
March 31, 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>
MARCH 31, 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....................... $ 182 $ 182 $ 182
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........... 5,267 -- --
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, 5,370,340 shares issued and outstanding,
actual; 35,000,000 shares authorized, 8,407,572 shares
issued and outstanding, pro forma; 35,000,000 shares
authorized, 11,407,572 shares issued and outstanding,
pro forma as adjusted (1)............................... 54 84 114
Additional paid-in capital................................... 13 4,985 29,265
Retained earnings (deficit).................................. (1,350) (1,083) (1,083)
------- ------- -------
Total stockholders' equity (deficit).................... (1,281) 3,986 28,296
------- ------- -------
Total capitalization............................... $ 4,168 $ 4,168 $28,478
======= ======= =======
</TABLE>
- ------------
(1) Excludes (i) 1,261,485 shares of Common Stock issuable upon the exercise of
stock options outstanding at March 31, 1997 granted under the Company's
stock plans at a weighted average exercise price of $0.78 per share, of
which options to purchase 342,331 shares were then exercisable and (ii)
2,183,183 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 March 31, 1997
was $3,947,317, or $0.47 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 March 31, 1997 would have been $28,295,693, or $2.48 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.01 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $6.52 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 March 31, 1997........ $0.47
Increase per share attributable to new investors........... 2.01
-----
Adjusted pro forma net tangible book value per share after
the offering............................................. 2.48
------
Dilution to new investors.................................. $6.52
======
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 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..... 8,407,572 73.7% $ 5,339,133 16.5% $0.64
New investors............. 3,000,000 26.3 27,000,000 83.5 $9.00
---------- ------ ----------- ------
Total........... 11,407,572 100.0% $32,339,133 100.0%
========== ====== =========== ======
</TABLE>
- ------------
(1) Sales by Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 7,407,572 shares, or
64.9% (6,807,572 shares, or 59.7%, 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 35.1% (4,600,000
shares, or 40.3%, 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
March 31, 1997, 1,261,485 shares of Common Stock were issuable upon exercise of
outstanding stock options at a weighted average exercise price of $0.78 per
share, of which options to purchase 342,331 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 March 31, 1997 and for the three months ended March 31, 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 three months ended March 31, 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
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 $ 971 $2,536
Hardware......................................... 125 101 124 278 1,533 196 709
Service and other................................ 86 71 338 870 1,564 324 456
---- ------ ------ ------ ------ ------ ------
Total revenues............................. 847 1,074 1,948 3,928 8,401 1,491 3,701
---- ------ ------ ------ ------ ------ ------
Cost of Revenues:
Software license................................. 167 9 35 104 109 20 86
Hardware......................................... 120 92 114 209 1,084 151 494
Service and other................................ 40 81 130 319 816 174 229
---- ------ ------ ------ ------ ------ ------
Total cost of revenues..................... 327 182 279 632 2,009 345 809
---- ------ ------ ------ ------ ------ ------
Gross profit............................... 520 892 1,669 3,296 6,392 1,146 2,892
---- ------ ------ ------ ------ ------ ------
Operating Expenses:
Sales and marketing.............................. 283 499 649 1,236 2,824 491 1,296
Research and development ........................ 93 208 414 893 1,972 365 764
General and administrative....................... 140 350 721 750 950 209 391
Write-off of intangible asset.................... -- -- 200 -- -- -- --
---- ------ ------ ------ ------ ------ ------
Total operating expenses................... 516 1,057 1,984 2,879 5,746 1,065 2,451
---- ------ ------ ------ ------ ------ ------
Income (loss) from operations...................... 4 (165) (315) 417 646 81 441
Interest income (expense), net..................... (2) (2) 12 (1) 32 1 1
---- ------ ------ ------ ------ ------ ------
Income (loss) before provision (benefit)
for income taxes................................. 2 (167) (303) 416 678 82 442
Provision (benefit) for income taxes............... -- -- (70) -- 238 29 170
---- ------ ------ ------ ------ ------ ------
Net income (loss).................................. $ 2 $ (167) $ (233) $ 416 $ 440 $ 53 $ 272
==== ====== ====== ====== ====== ====== ======
Pro forma: (1)
Net income per common and common
equivalent share............................... $ 0.04 $ 0.03
====== ======
Shares used in computing net
income per share............................... 9,928 9,484
====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, -----------------
------------------------------------------------ PRO
1992 1993 1994 1995 1996 ACTUAL FORMA
---- ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ -- $ 39 $ 20 $ 551 $2,042 $1,151 $1,151
Working capital (deficit).......................... (14) (210) (305) (50) 3,313 3,263 3,263
Total assets....................................... 200 529 449 1,575 6,457 6,910 6,910
Long-term debt, net of current portion............. 16 3 -- 21 212 182 182
Convertible redeemable preferred stock............. -- -- -- -- 5,167 5,267 --
Total stockholders' equity (deficit)............... (4) (171) (405) 11 (1,467) (1,281) 3,986
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
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 1991
and shipped its initial products at that time. The Company's revenues are
primarily derived from licensing the rights to use its Fax Sr. software products
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 nine 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. products 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 the
Company expects this source of revenues to decline 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 the Company expects this source of revenues to decline 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.
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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................................. 76.3% 70.8% 63.1% 65.1% 68.5%
Hardware......................................... 6.4 7.1 18.3 13.2 19.2
Service and other................................ 17.3 22.1 18.6 21.7 12.3
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Software license................................. 1.8 2.7 1.3 1.3 2.3
Hardware......................................... 5.8 5.3 12.9 10.1 13.4
Service and other................................ 6.7 8.1 9.7 11.7 6.2
----- ----- ----- ----- -----
Total cost of revenues................... 14.3 16.1 23.9 23.1 21.9
----- ----- ----- ----- -----
Gross profit....................................... 85.7 83.9 76.1 76.9 78.1
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.............................. 33.3 31.5 33.6 32.9 35.0
Research and development......................... 21.3 22.7 23.5 24.5 20.6
General and administrative....................... 37.0 19.1 11.3 14.1 10.6
Write-off of intangible asset.................... 10.3 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses................. 101.9 73.3 68.4 71.5 66.2
----- ----- ----- ----- -----
Income (loss) from operations...................... (16.2) 10.6 7.7 5.4 11.9
Interest income, net............................... 0.6 -- 0.4 0.1 --
----- ----- ----- ----- -----
Income (loss) before provision (benefit) for income
taxes............................................ (15.6) 10.6 8.1 5.5 11.9
Provision (benefit) for income taxes............... (3.6) -- 2.9 1.9 4.6
----- ----- ----- ----- -----
Net income (loss).................................. 12.0% 10.6% 5.2% 3.6% 7.3%
===== ===== ===== ===== =====
Gross profit:
Software license................................. 97.6% 96.3% 97.9% 97.9% 96.6%
Hardware......................................... 8.1 24.8 29.3 23.0 30.3
Service and other................................ 61.5 63.3 47.8 46.3 49.8
</TABLE>
THREE MONTHS ENDED MARCH 31, 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 $3.7 million and $1.5 million for the three months ended March 31,
1997 and 1996, respectively, representing an increase of 148%.
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 $2.5 million for the three months ended March 31, 1997 and
$971,000 for the three months ended March 31, 1996, or 69% and 65% of total
revenues for each respective period, representing an increase of 161%. The
increase in dollar amount was primarily due to increased market acceptance of
the Company's Fax Sr. product for
19
<PAGE> 21
the 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 $709,000 for the
three months ended March 31, 1997 and $196,000 for the three months ended March
31, 1996, or 19% and 13% of total revenues for each respective period,
representing an increase of 261%. 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 $456,000 for
the three months ended March 31, 1997 and $324,000 for the three months ended
March 31, 1996, or 12% and 22% of total revenues for each respective period,
representing an increase of 41%. 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 $86,000 and $20,000
for the three months ended March 31, 1997 and 1996, respectively, representing
3% 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 three months ended March 31, 1997 compared to the same period in
1996. Software license gross margin percentages remained relatively constant at
97% for the three months ended March 31, 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 $494,000 and
$151,000 for the three months ended March 31, 1997 and 1996, respectively,
representing 70% and 77% of hardware revenues for each respective period. The
increase in dollar amount for the cost of hardware revenues for the three months
ended March 31, 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
increased to 30% for the three months ended March 31, 1997 from 23% 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 $229,000 and $174,000 for the three months ended March 31, 1997 and
1996, respectively, representing 50% and 54% 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 three months ended March 31, 1997 and the hiring of
incremental personnel to support such growth. The gross margin percentage for
service and other revenues increased to 50% for the three months ended March 31,
1997 from 46% for the same period in 1996 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 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 $1.3 million and $491,000 for the three months ended March 31, 1997 and
1996, respectively, or 35% and 33% 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 $764,000 and $365,000 for the three months ended March 31, 1997
and 1996, respectively, or 21% and 25% 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
$391,000 and $209,000 for the three months ended March 31, 1997 and 1996,
respectively, or 11% and 14% 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 and cash equivalents, offset by interest
expense associated with equipment financing and borrowings.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
was $170,000 and $29,000 for the three months ended March 31, 1997 and 1996,
respectively, resulting in effective tax rates of approximately 38% and 35% in
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. 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 seven 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,
1995 1995 1996 1996 1996 1996 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license............... $ 1,059 $ 660 $ 971 $1,060 $ 1,348 $1,925 $ 2,536
Hardware....................... 67 111 196 331 360 646 709
Service and other.............. 254 257 324 388 418 434 456
------- ------ ------- ------ ------- ------ -------
Total revenues.......... 1,380 1,028 1,491 1,779 2,126 3,005 3,701
------- ------ ------- ------ ------- ------ -------
Cost of revenues:
Software license............... 39 37 20 30 26 33 86
Hardware....................... 48 85 151 188 252 493 494
Service and other.............. 109 103 174 172 211 259 229
------- ------ ------- ------ ------- ------ -------
Total cost of
revenues.............. 196 225 345 390 489 785 809
------- ------ ------- ------ ------- ------ -------
Gross profit..................... 1,184 803 1,146 1,389 1,637 2,220 2,892
------- ------ ------- ------ ------- ------ -------
Operating expenses:
Sales and marketing............ 327 400 491 550 700 1,083 1,296
Research and development....... 323 230 365 411 568 628 764
General and administrative..... 276 163 209 221 229 291 391
------- ------ ------- ------ ------- ------ -------
Total operating
expenses.............. 926 793 1,065 1,182 1,497 2,002 2,451
------- ------ ------- ------ ------- ------ -------
Income from operations........... 258 10 81 207 140 218 441
Interest income (expense), net... (2) 7 1 -- 7 24 1
------- ------ ------- ------ ------- ------ -------
Income before provision for
income taxes................... 256 17 82 207 147 242 442
Provision for income taxes....... -- -- 29 73 51 85 170
------- ------ ------- ------ ------- ------ -------
Net income....................... $ 256 $ 17 $ 53 $ 134 $ 96 $ 157 $ 272
======= ====== ======= ====== ======= ====== =======
</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 seven most recent quarters:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1996 1996 1996 1996
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license............................ 76.7% 64.2% 65.1% 59.6% 63.4% 64.1%
Hardware.................................... 4.9 10.8 13.2 18.6 16.9 21.5
Service and other........................... 18.4 25.0 21.7 21.8 19.7 14.4
----- ----- ----- ----- ----- -----
Total revenues....................... 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
Hardware.................................... 3.5 8.3 10.1 10.5 11.9 16.4
Service and other........................... 7.9 10.0 11.7 9.7 9.9 8.6
----- ----- ----- ----- ----- -----
Total cost of revenues............... 14.2 21.9 23.1 21.9 23.0 26.1
----- ----- ----- ----- ----- -----
Gross profit.................................. 85.8 78.1 76.9 78.1 77.0 73.9
----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing......................... 23.7 38.9 32.9 30.9 32.9 36.0
Research and development.................... 23.4 22.4 24.5 23.1 26.7 20.9
General and administrative.................. 20.0 15.8 14.1 12.5 10.8 9.7
----- ----- ----- ----- ----- -----
Total operating expenses............. 67.1 77.1 71.5 66.5 70.4 66.6
----- ----- ----- ----- ----- -----
Income from operations........................ 18.7 1.0 5.4 11.6 6.6 7.3
Interest income (expense), net................ (0.1) 0.7 0.1 -- 0.3 0.8
----- ----- ----- ----- ----- -----
Income before provision for income taxes...... 18.6 1.7 5.5 11.6 6.9 8.1
Provision for income taxes.................... -- -- 1.9 4.1 2.4 2.9
----- ----- ----- ----- ----- -----
Net income.................................... 18.6% 1.7% 3.6% 7.5% 4.5% 5.2%
===== ===== ===== ===== ===== =====
</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
26
<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 March 31, 1997, the Company had cash and cash equivalents of $1.2
million and working capital of $3.3 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 March 31, 1997) and is
payable in monthly installments through December 31, 1999. At March 31, 1997,
$232,000 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 March 31, 1997). There were no
amounts outstanding under the line of credit at March 31, 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 $173,000 and $853,000
in the three months ended March 31, 1997 and the year ended December 31, 1995,
respectively and used cash of $566,000 during 1996. Net cash provided during the
three months ended March 31, 1997 consisted primarily of net income from
operations and increases in accrued liabilities offset by an increase in
accounts receivable and a decrease in income taxes payable. 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 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 $1.1 million during the three months
ended March 31, 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 $14,000 during the three months ended
March 31, 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.
27
<PAGE> 29
RECENTLY ISSUED ACCOUNTING STANDARD
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.
28
<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.x, HTML, OS/2, 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,
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 industry
sources, 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
29
<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.x, HTML, OS/2, 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.
30
<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
and 1996, approximately 5% and 7%, 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.
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,
approximately 82% of the Company's software license revenues were derived from
Fax Sr. NT. Fax Sr. can be
31
<PAGE> 33
configured with a variety of networked clients, including Windows NT, Windows
95, Windows 3.x, HTML, OS/2, 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 Fax Sr. products. 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. products are 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.
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
32
<PAGE> 34
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 9% of the Company's total
revenues in 1996 and the Company expects this source of revenues to decline 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's
telesales personnel accounted for approximately 89% and 76%, respectively, of
the Company's total revenues in 1995 and 1996.
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 market
Fax Sr. through independent distributors in strategic markets including Europe
and South America. In 1995 and 1996, sales outside of North America represented
5% and 7%, respectively, of total revenues.
33
<PAGE> 35
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. The agreements generally provide for reference sales, limited
co-marketing activities and, in the case of UNIFI, resale of Fax Sr.
CUSTOMERS
As of March 31, 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 J.D. Edwards
Alfred Berg Inc. Legislative Counsel Bureau
Ameritech Lockheed Martin
AT&T Corp. Logicorp
Auto Nation USA Los Alamos National Lab
Bank of Bermuda Mayo Foundation
Bloomberg Financial Markets Micro Warehouse
Cellular One-Chicago Monsanto
Charles Schwab New Brunswick Power
Correctional Services Canada Pacific Bell
CSX Technology, Inc. Payless Cashways, Inc.
Digital Equipment Corporation Polaroid Corp.
Dow Chemical Quark Incorporated
Environment Canada Sanford C. Bernstein & Co. Inc.
Ericsson Inc. SmithKline Beecham
Fina Oil & Chemical Transquest, Inc.
Franklin Quest Co. Tri Valley Growers
GMAC Mortgage Co. United Technologies
Honeywell Inc. 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.
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,
34
<PAGE> 36
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
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
35
<PAGE> 37
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 -- 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 Rights;
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 form
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 Rights; Risks of Third-Party Claims for Infringement."
EMPLOYEES
As of March 31, 1997, the Company employed 85 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.
36
<PAGE> 38
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.
37
<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
</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
38
<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. Mr. St. Pierre's most recent position at Compass, Inc.
was 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
Desktop Division 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.
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 five members. Each director holds office until his successor is
duly elected and qualified, or until his earlier death, resignation or removal.
Prior to this offering, the Company's stockholders approved an amendment and
restatement of the Company's By-laws 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. 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.
39
<PAGE> 41
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.
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 the consummation of this offering, the Compensation Committee will be
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. Upon the consummation of this offering, the
Compensation Committee will be comprised of Messrs. Mark and Evans.
40
<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 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.
42
<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, or not less than 110% of the fair market value in
the case of incentive stock options granted to an employee or officer holding
10% or more of the voting stock of the Company, (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 of 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 March 31, 1997, options to purchase a total
of 1,261,485 shares of Common Stock at exercise prices ranging from $0.25 to
$7.75 per share (with a weighted average exercise price of $0.78 per share) were
outstanding under the 1996 Plan (of which 342,331 options were then exercisable)
and options for 55,332 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
directors Richard D. Cramer and William R. Daniels 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.
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.
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.
45
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 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 32.3% 444,520 2,267,712 19.9%
600 Atlantic Avenue
Boston, MA 02110
Robert L. Voelk(4)........... 2,557,504 30.4 255,750 2,301,754 20.2
Martin A. Schultz (5)........ 2,657,504 31.6 265,750 2,391,754 21.0
Richard D. Cramer............ 51,666 * 5,167 46,499 *
Bruce R. Evans (6)........... 2,712,232 32.3 444,520 2,267,712 19.9
Anthony J. Mark.............. 76,666 * 7,666 69,000 *
William R. Daniels (7)....... 211,466 2.7 21,147 190,319 1.7
Ellen Flaherty (8)........... 106,666 1.3 -- 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 (10
persons)(11)............... 8,362,237 96.0% 1,000,000 7,383,384 63.0%
</TABLE>
- ------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock outstanding prior to this offering
includes (i) 8,407,572 shares outstanding as of March 31, 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 March 31,
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 shareholders 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 26,666 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 March 31, 1997, there were 8,407,572 shares of Common Stock
outstanding held of record by 31 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 11,407,572 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, Mr. Evans is serving for a term 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 proposed transaction, in
relation to the then current market price for the outstanding capital stock of
49
<PAGE> 51
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 11,407,572 shares
of Common Stock outstanding (based upon shares of Common Stock outstanding as of
March 31, 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 of 1933, as amended (the "Act"),
except that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 ("Rule 144") under the Act ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below. The
remaining 7,407,572 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 2,000
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 7,305,572 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,
the remaining 100,000 Restricted Shares will become eligible for sale at various
times following such 180 day period in the public market pursuant to Rule 144.
In addition, certain existing holders of an aggregate of 7,061,220 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 "Certain
Transactions -- 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 114,076 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 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
52
<PAGE> 54
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 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 March 31, 1997, options to purchase 1,261,485 shares were
outstanding under the 1996 Plan and options to purchase 2,183,183 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 3,444,668 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 7,305,572 shares of Common Stock and options
to purchase 986,668 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 7,061,220 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 and other stockholders of the Company
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 7,305,572 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
54
<PAGE> 56
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable 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 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 7,305,572 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. See
"Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Shareholders
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 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
conditions, certain financial information of the Company in recent periods,
market valuations of other companies that the Company, representatives of the
Selling Stockholders and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this preliminary 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 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.
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 March 31, 1997 (Unaudited and
Pro Forma)......................................................................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and
for the three months ended March 31, 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 March 31, 1997 (Unaudited)... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and
for the three months ended March 31, 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
----------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
---------- ---------- ---------- ----------
(UNAUDITED)
NOTE 2
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 550,684 $2,042,100 $1,151,456 $ 1,151,456
Short-term investments................................. -- 930,619 1,603,707 1,603,707
Accounts receivable, less reserves of $80,000, $375,000
and $600,000 in 1995, 1996 and 1997, respectively.... 454,974 2,264,502 2,572,035 2,572,035
Inventory.............................................. -- 225,117 197,667 197,667
Prepaid expenses....................................... 141,803 113,343 198,257 198,257
Deferred tax asset..................................... 70,000 108,000 108,000 108,000
---------- ---------- ---------- -----------
Total current assets............................ 1,217,461 5,683,681 5,831,122 5,831,122
Property and equipment, net.............................. 338,622 754,398 1,060,171 1,060,171
Other assets............................................. 18,810 18,861 18,862 18,862
---------- ---------- ---------- -----------
$1,574,893 $6,456,940 $6,910,155 $ 6,910,155
========== ========== ========== ===========
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt...................... $ 9,849 $ 105,651 $ 108,198 $ 108,198
Accounts payable....................................... 305,762 567,749 558,964 558,964
Accrued liabilities.................................... 501,332 402,624 831,466 831,466
Income taxes payable................................... -- 257,369 103,112 103,112
Deferred revenue....................................... 450,254 1,037,538 966,710 966,710
---------- ---------- ---------- -----------
Total current liabilities....................... 1,267,197 2,370,931 2,568,450 2,568,450
---------- ---------- ---------- -----------
Long-term debt, net of current portion................... 20,598 212,237 182,024 182,024
---------- ---------- ---------- -----------
Long-term liabilities.................................... 275,615 173,877 173,988 173,988
---------- ---------- ---------- -----------
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 5,266,667 --
---------- ---------- ---------- -----------
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; 5,370,340
shares in 1997; 8,407,572 shares pro forma......... -- 53,150 53,703 84,076
Common Stock, no par value --
Authorized, issued and outstanding -- 600 shares in
1995; none in 1996 and 1997........................ 600 -- -- --
Additional paid-in capital............................. -- -- 13,280 4,984,532
Retained earnings (deficit)............................ 10,883 (1,521,547) (1,349,582) (1,082,915)
---------- ---------- ---------- -----------
Total stockholders' equity (deficit)............ 11,483 (1,466,772) (1,280,974) 3,985,693
---------- ---------- ---------- -----------
$1,574,893 $6,456,940 $6,910,155 $ 6,910,155
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 61
OMTOOL, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license............... $1,485,655 $2,780,055 $5,304,083 $ 970,968 $2,536,303
Hardware....................... 124,162 278,163 1,532,887 196,154 708,591
Service and other.............. 338,615 869,445 1,564,248 324,282 455,743
---------- ---------- ---------- ---------- ----------
Total revenues.............. 1,948,432 3,927,663 8,401,218 1,491,404 3,700,637
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Software license............... 34,874 104,031 109,151 20,448 86,067
Hardware....................... 114,168 209,495 1,083,852 151,176 493,927
Service and other.............. 130,066 318,626 815,828 173,973 228,503
---------- ---------- ---------- ---------- ----------
Total cost of revenues...... 279,108 632,152 2,008,831 345,597 808,497
---------- ---------- ---------- ---------- ----------
Gross profit................ 1,669,324 3,295,511 6,392,387 1,145,807 2,892,140
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing............ 649,291 1,235,749 2,824,287 490,554 1,296,483
Research and development....... 413,810 892,585 1,972,545 365,306 763,786
General and administrative..... 721,119 749,999 949,548 208,728 390,591
Write-off of intangible asset
(Note 8).................... 200,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses.... 1,984,220 2,878,333 5,746,380 1,064,588 2,450,860
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................ (314,896) 417,178 646,007 81,219 441,280
Interest income.................. 11,984 7,530 43,093 2,817 18,663
Interest expense................. (482) (8,616) (11,437) (1,902) (17,978)
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes.............. (303,394) 416,092 677,663 82,134 441,965
Provision (benefit) for income
taxes.......................... (70,000) -- 238,000 29,000 170,000
---------- ---------- ---------- ---------- ----------
Net income (loss)........... $ (233,394) $ 416,092 $ 439,663 $ 53,134 $ 271,965
========== ========== ========== ========== ==========
Pro forma net income per
common and common
equivalent share............... $ 0.04 $ 0.03
========== ==========
Pro forma weighted average number
of common and
common equivalent shares
outstanding.................... 9,927,805 9,483,500
========== ==========
</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>
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)................ -- -- -- -- 55,332 553 -- -- 13,280
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ -- 100,000 -- -- -- -- -- -- --
Net income (unaudited)....... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ----- -------
Balance, March 31, 1997
(unaudited).................. 1,356,116 $5,266,667 162,500 $1,625 5,370,340 $53,703 -- $ -- $ 13,280
========= ========== ======= ====== ========= ======= ==== ===== =======
<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)................ -- 13,833
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ (100,000) (100,000)
Net income (unaudited)....... 271,965 271,965
----------- -----------
Balance, March 31, 1997
(unaudited).................. $(1,349,582) $(1,280,974)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 63
OMTOOL, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
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 $ 53,134 $ 271,965
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization......................... 124,294 63,021 132,729 32,000 71,392
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) (654,361) (307,533)
Inventory........................................... -- -- (225,117) -- 27,450
Prepaid expenses.................................... (4,395) (132,912) 28,460 37,176 (84,915)
Accounts payable.................................... (69,935) 246,060 261,987 15,807 (8,785)
Accrued liabilities................................. 68,400 245,401 (98,708) (165,569) 428,842
Income taxes payable................................ -- -- 257,369 28,720 (154,257)
Deferred revenue.................................... 116,643 250,421 587,284 103,478 (70,828)
Long-term liabilities............................... (12,121) (12,264) (101,738) 27 111
--------- --------- ---------- --------- ----------
Net cash provided by (used in) operating
activities.................................... 30,767 853,059 (565,599) (549,588) 173,442
--------- --------- ---------- --------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (99,617) (268,978) (485,773) (72,193) (377,165)
Purchases of short-term investments....................... -- -- (930,619) -- (673,088)
Proceeds from sale of property and equipment.............. -- 14,000 -- -- --
Increase in other assets.................................. (1,006) (14,410) (51) -- --
--------- --------- ---------- --------- ----------
Net cash used in investing activities........... (100,623) (269,388) (1,416,443) (72,193) (1,050,253)
--------- --------- ---------- --------- ----------
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) (4,995) (27,666)
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................................. -- -- -- -- 13,833
Purchase and retirement of common stock................... -- -- (2,000,183) -- --
--------- --------- ---------- --------- ----------
Net cash provided by (used in) financing
activities.................................... 50,000 (52,623) 3,473,458 320,005 (13,833)
--------- --------- ---------- --------- ----------
Net increase (decrease) in cash and cash equivalents........ (19,856) 531,048 1,491,416 (301,776) (890,644)
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 $ 248,908 $ 1,151,456
========= ========= ========== ========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for--
Interest................................................ $ 432 $ 8,614 $ 9,411 $ 1,902 $ 17,978
========= ========= ========== ========= ==========
Income taxes............................................ $ -- $ 77,732 $ -- $ -- $ 324,324
========= ========= ========== ========= ==========
Supplemental Disclosure of Noncash Investing and Financing
Transactions:
Equipment acquired under capital lease obligations........ $ -- $ 33,070 $ 62,732 $ 33,834 $ --
========= ========= ========== ========= ==========
Accrued dividends on Series B Convertible Redeemable Pre-
ferred Stock............................................ $ -- $ -- $ 166,667 $ -- $ 100,000
========= ========= ========== ========= ==========
</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 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 March 31, 1997, the Company had $930,619 and
$1,603,707, 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 March 31, 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 March 31, 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 three months ended March 31, 1996, no single customer
accounted for greater than 10% of the Company's revenues. For the three months
ended March 31, 1997, the Company had one customer that accounted for 18% of the
Company's revenues and 8% of accounts receivable as of March 31, 1997.
Revenues outside of North America were approximately $210,000, $560,000 and
$370,000 for the years ended December 31, 1995 and 1996 and for the three months
ended March 31, 1997, respectively. Revenues outside of North America were not
material in 1994.
(j) Pro Forma Presentation
The pro forma balance sheet as of March 31, 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 three months ended March 31,
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 March 31, 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 three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year or for
any future period.
(m) Recently Issued Accounting Standard
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.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Computer equipment............................... $308,579 $ 596,571 $ 692,385
Computer software................................ 54,707 119,584 159,232
Furniture and equipment.......................... 35,188 155,678 331,818
Leasehold improvements........................... 21,021 33,435 98,998
Equipment under capital leases................... 33,070 95,802 95,802
-------- ---------- ----------
452,565 1,001,070 1,378,235
Less--accumulated depreciation and
amortization................................... 113,943 246,672 318,064
-------- ---------- ----------
$338,622 $ 754,398 $1,060,171
======== ========== ==========
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ---------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Accrued salaries and salary-related................. $409,784 $264,593 $416,974
Other accrued expenses.............................. 91,548 138,031 414,492
-------- -------- --------
$501,332 $402,624 $831,466
======== ======== ========
</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 March 31, 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
Company was in compliance with all financial covenants as of December 31, 1996
and March 31, 1997. At December 31, 1996 and March 31, 1997, there were no
borrowings under the line of credit.
F-10
<PAGE> 68
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- ---------
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Note payable to a bank..................... $ -- $250,000 $231,592
Capital lease obligations.................. 30,447 67,888 58,630
------- -------- --------
30,447 317,888 290,222
Less--current maturities................... 9,849 105,651 108,198
------- -------- --------
$20,598 $212,237 $182,024
======= ======== ========
</TABLE>
Maturities of long-term debt at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
NOTE CAPITAL LEASE
PAYABLE OBLIGATIONS
-------- -------------
<S> <C> <C>
Period ending December 31,
1997, nine months............................ $ 57,347 $ 28,842
1998......................................... 82,910 35,151
1999......................................... 91,335 4,856
-------- --------
$231,592 68,849
========
Less -- amounts representing interest........ (10,219)
--------
Present value of minimum lease payments...... $ 58,630
========
</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 March 31, 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 three months ended March 31, 1997 was approximately 8.75%.
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 March 31, 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 38.5%, which approximates the combined federal
and state statutory income tax rates.
(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 and March 31, 1997, approximately
$275,000, $172,000 and $171,000, respectively, of the Vendor credit was
outstanding and reflected as long-term liabilities in the accompanying balance
sheets.
F-12
<PAGE> 70
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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.
(a) Authorized Capital Stock
As of December 31, 1996 and March 31, 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,
F-13
<PAGE> 71
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
$.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.
(e) Reserved Common Stock
As of March 31, 1997, 4,481,900 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..................................... 1,444,668
---------
4,481,900
=========
</TABLE>
F-14
<PAGE> 72
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(11) STOCK OPTION PLAN
(a) 1996 Stock 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 three months
ended March 31, 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................................ 230,250 1.85 - 7.75 2.54
Exercised.............................. (55,332) 0.25 0.25
Canceled............................... (9,833) 0.25 - 5.50 1.91
--------- -------------- -----
Outstanding, March 31, 1997................. 1,261,485 $ 0.25 - $7.75 $0.78
========= ============== =====
Exercisable, March 31, 1997................. 342,331 $0.25 $0.25
========= ============== =====
</TABLE>
At March 31, 1997, options to purchase 183,183 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 had a weighted average fair value of
$0.22. The weighted average assumptions are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Risk-free interest rate....................... 5.46% 6.24%
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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Net income --
As reported.............................. $439,663 $271,965
Pro forma................................ $385,593 $241,166
Pro forma net income per share --
As reported.............................. $ 0.04 $ 0.03
Pro forma................................ $ 0.04 $ 0.03
</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 $31,000 to the
Profit-Sharing Plan for the years ended December 31, 1995 and 1996, and the
three months ended March 31, 1997, respectively. Additional profit-sharing
contributions to the Profit-Sharing Plan are at the discretion of the Company's
management. During 1995 and 1996, and the three months ended March 31, 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 March 31, 1997 are as
follows:
<TABLE>
<S> <C>
Period ending December 31,
1997, nine months......................................... $170,000
1998...................................................... 218,000
1999...................................................... 189,000
2000...................................................... 108,000
--------
$685,000
========
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $50,000, $114,000, $199,000, $43,000 and $64,000 for the years
ended December 31, 1994, 1995 and 1996, and the three months ended March 31,
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 meanings of the Internal Revenue Code of
1986, 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.......................................................... $ 15,861
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............................................................. 108,020
--------
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 3.2 and 3.4 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 "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 March 31, 1997, the Company (i) issued options
under its 1996 Stock Plan to purchase an aggregate of 1,316,817 shares of Common
Stock, exercisable at a weighted average exercise price of $0.76 per share and
(ii) issued an aggregate of 55,332 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 Amended and Restated Certificate of Incorporation.
3.3 -- By-Laws of the Company.
3.4 -- 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 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).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(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 registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salem, New Hampshire, on June 17,
1997.
OMTOOL, LTD.
By: /s/ ROBERT L. VOELK
--------------------------------------
Robert L. Voelk
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Omtool, Ltd., hereby
severally constitute and appoint Martin A. Schultz, Robert L. Voelk and Darioush
Mardan, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us in our names in the capacities
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 our names and on our behalf in such capacities to enable Omtool, Ltd.
to comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ ROBERT L. VOELK Chief Executive Officer and June 17, 1997
- ------------------------------------------ Director (Principal
Robert L. Voelk Executive Officer)
/s/ MARTIN A. SCHULTZ President and Director June 17, 1997
- ------------------------------------------
Martin A. Schultz
/s/ DARIOUSH MARDAN Vice President of Finance, June 17, 1997
- ------------------------------------------ Chief Financial Officer,
Darioush Mardan Treasurer, and Secretary
(Principal Financial and
Accounting Officer)
/s/ RICHARD D. CRAMER Director June 17, 1997
- ------------------------------------------
Richard D. Cramer
/s/ BRUCE R. EVANS Director June 17, 1997
- ------------------------------------------
Bruce R. Evans
/s/ ANTHONY J. MARK Director June 17, 1997
- ------------------------------------------
Anthony J. Mark
</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 Amended and Restated Certificate of Incorporation.
3.3 -- By-Laws of the Company.
3.4 -- 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 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).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.2
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
<PAGE> 8
- 8 -
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
- 9 -
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 3.3
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.
<PAGE> 2
-2-
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
-3-
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
-4-
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
-5-
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
-6-
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
-7-
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
-8-
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
-9-
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
-10-
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
-11-
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
-12-
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 3.4
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
-ii-
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,
<PAGE> 5
- 2 -
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present. This list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority on
behalf of beneficial owners of such shares who have not submitted a proxy with
respect to such shares) on some or all of the matters before the stockholders,
but which shares would otherwise be entitled to vote at the meeting ("Broker
Non-Votes") shall be counted, for the purpose of determining the presence or
absence of a quorum, both (a) toward the total voting power of the shares of
capital stock of the Corporation and (b) as being represented by proxy. If a
quorum has been established for the purpose of conducting the meeting, a quorum
shall be deemed to be present for the purpose of all votes to be conducted at
such meeting, provided that where a separate vote by a class or classes, or
series thereof, is required, a majority of the voting power of the shares of
such class or classes, or series, present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the voting power of the shares of stock
entitled to vote who are present, in person or by proxy, may adjourn the meeting
to another place, date, or time.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate of
Incorporation or these By-laws), may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for such
stockholder by written proxy executed by such stockholder or his or her
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the
<PAGE> 6
- 3 -
Corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period. Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this Section 1.8 may be
substituted or used in lieu of the original writing or transmission for any and
all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or reproduction shall be a
complete reproduction of the entire original writing or transmission.
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
- 4 -
close of business on the one hundred twentieth (120th) day nor
earlier than the close of business on the one hundred fiftieth
(150th) day prior to the first anniversary of the date of the proxy
statement delivered to stockholders in connection with the preceding
year's annual meeting; provided, however, that if either (i) the
date of the annual meeting is more than thirty (30) days before or
more than sixty (60) days after such an anniversary date or (ii) no
proxy statement was delivered to stockholders in connection with the
preceding year's annual meeting, notice by the stockholder to be
timely must be so delivered not earlier than the close of business
on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th)
day prior to such annual meeting or the close of business on the
tenth (10th) day following the day on which public announcement of
the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required
to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and
(c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class
and number of shares of capital stock of the Corporation that are
owned beneficially and held of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 1.10 to the contrary, in the event
that the number of directors to be elected to the Board of Directors
of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding
year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary
date, at least seventy (70) days prior to such annual meeting), a
stockholder's notice required by this Section 1.10 shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive office of the Corporation not
later than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
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
- 5 -
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
<PAGE> 9
- 6 -
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
<PAGE> 10
- 7 -
(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
- 16 -
(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 4.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") dated as of ______ __,
1997, by and between Omtool, Ltd., a Delaware corporation (the "Company"), and
___________, a director [and/or officer] of the Company (the "Indemnitee"):
WITNESSETH:
WHEREAS, the Indemnitee is presently serving as a director [and/or
officer] of the Company, and the Company desires the Indemnitee to continue in
such capacity; and
WHEREAS, the Indemnitee is willing, subject to certain conditions
(including the execution and performance of this Agreement by the Company), to
continue in that capacity;
NOW, THEREFORE, to induce the Indemnitee to continue to serve in his
present capacity and in consideration of these premises and the mutual
agreements set forth in this Agreement, the Company and the Indemnitee agree as
follows:
1. Continued Service. The Indemnitee will continue to serve as a
director [and/or officer] of the Company so long as he is duly elected and
qualified in accordance with the Company's restated by-laws (the "By-Laws") or
until he resigns in writing or is removed from office in accordance with
applicable law.
2. Initial Indemnity. (a) The Company shall indemnify the Indemnitee
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including any proceeding before
any administrative or legislative body or agency) (other than an action by or in
the right of the Company), by reason of the fact that he is or was or had agreed
to become a director and officer of the Company, or is or was serving or had
agreed to serve at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against any and all costs, expenses (including attorneys' fees),
judgments, liabilities and/or amounts paid in settlement actually and reasonably
incurred by or imposed upon the Indemnitee in connection therewith and any
appeal therefrom if the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, or unless such
indemnification is prohibited by the General Corporation Law of the State of
Delaware ("DGCL"). The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendre or its
equivalent shall not, of itself, create a presumption that the Indemnitee did
not satisfy the foregoing standard of conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding
<PAGE> 2
-2-
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that he is or was or had agreed to become a director of the Company,
or is or was serving or had agreed to serve at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against costs, expenses (including attorneys'
fees), judgments, liabilities and/or amounts paid in settlement actually and
reasonably incurred by or imposed upon him in connection with the defense or
settlement thereof or 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 Company and except that no indemnification shall be made if such
indemnification is prohibited by the DGCL or in respect of any claim, issue or
matter as to which the Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent that the court in which such action, suit
or proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
(c) To the extent that the Indemnitee has been successful on the
merits or otherwise, including without limitation the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred to in
Sections 2(a) or 2(b) hereof or in defense of any claim, issue or matter
therein, he shall be indemnified against costs, expenses (including attorneys'
fees), judgments, liabilities and/or amounts paid in settlement actually and
reasonably incurred by or imposed upon him in connection therewith.
(d) Any indemnification under Sections 2(a) or 2(b) hereof (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination in accordance with Section 4 hereof or any
applicable provision of the Restated Certificate of Incorporation of the Company
(the "Charter"), By-Laws, other agreement, resolution or otherwise. Such
determination shall be made (i) by the Board of Directors of the Company (the
"Board") by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (ii) if such a quorum of
disinterested directors is not available or so directs, by independent legal
counsel (designated in the manner provided below in this subsection (d)) in a
written opinion or (iii) by the stockholders of the Company (the
"Stockholders"). Independent legal counsel shall be designated by vote of a
majority of the disinterested directors; provided, however, that if the Board is
unable or fails to so designate, such designation shall be made by the
Indemnitee subject to the approval of the Company (which approval shall not be
unreasonably withheld). Independent legal counsel shall not be any person or
firm who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or the Indemnitee in an action to determine the Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees and expenses of such
independent legal counsel and to indemnify fully such counsel against costs and
expenses (including attorneys' fees) actually and reasonably incurred by such
counsel in connection with this Agreement or the opinion of such counsel
pursuant hereto.
(e) All expenses (including attorneys' fees) including by the
Indemnitee in his capacity as a director or officer of the Company in defending
a civil or criminal action, suit or
<PAGE> 3
-3-
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding in the manner prescribed by Section 4(b) hereof.
(f) The Company shall not adopt any amendment to the Charter or
By-Laws the effect of which would be to deny, diminish or encumber the
Indemnitee's rights to indemnity pursuant to the Charter, By-Laws, the DGCL or
any other applicable law as applied to any act or failure to act occurring in
whole or in part prior to the date (the "Effective Date") upon which the
amendment was approved by the Board of Directors or the Stockholders, as the
case may be. In the event that the Company shall adopt any amendment to the
Articles or By-Laws the effect of which is to so deny, diminish or encumber the
Indemnitee's rights to indemnity, such amendment shall apply only to acts or
failures to act occurring entirely after the Effective Date thereof unless the
Indemnitee shall have voted in favor of such adoption as a director or holder of
record of the Company's voting stock, as the case may be.
3. Additional Indemnification. (a) Without limiting any right which
the Indemnitee may have pursuant to Section 2 hereof, the Charter, the By-Laws,
the DGCL, any policy of insurance or otherwise, but subject to the limitations
on the maximum permissible indemnity which may exist under applicable law at the
time of any request for indemnity hereunder determined as contemplated by
Section 3(a) hereof, the Company shall indemnify the Indemnitee against any
amount which he is or becomes legally obligated to pay relating to or arising
out of any claim made against him because of any act, failure to act or neglect
or breach of duty, including any actual or alleged error, misstatement or
misleading statement, which he commits, suffers, permits or acquiesces in while
acting in his capacity as a director and officer of the Company, or, at the
request of the Company, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The payments
which the Company is obligated to make pursuant to this Section 3 shall include
without limitation judgments, liabilities, amounts paid as settlements, costs
and expenses, of legal actions, suits or proceedings and appeals therefrom, and
expenses of appeal, attachment or similar bonds; provided, however, that the
Company shall not be obligated under this Section 3(a) to make any payment in
connection with any claim against the Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by applicable law from paying which
results in a final, nonappealable order; or
(ii) to the extent based upon or attributable to the
Indemnitee gaining in fact a personal profit to which he was not legally
entitled, including without limitation profits made from the purchase and sale
by the Indemnitee of equity securities of the Company which are recoverable by
the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934,
and profits arising from transactions in publicly traded securities of the
Company which were effected by the Indemnitee in violation of Section 10(b) of
the Securities Exchange Act of 1934, including Rule 10b-5 promulgated
thereunder.
The determination of whether the Indemnitee shall be entitled to indemnification
under this Section 3(a) may be, but shall not be required to, be made in
accordance with Section 4(a)
<PAGE> 4
-4-
hereof. If that determination is so made, it shall be binding upon the Company
and the Indemnitee for all purposes.
(b) Expenses (including without limitation attorneys' fees)
incurred by Indemnitee in defending any actual or threatened civil or criminal
action, suit or proceeding shall be paid by the Company in advance of the final
disposition thereof as authorized in accordance with Section 4(b) hereof.
4. Certain Procedures Relating to Indemnification and Advancement of
Expenses.
(a) Except as otherwise permitted or required by the Charter,
By-Laws or DGCL, for purposes of pursuing his rights to indemnification under
Sections 2(a), 2(b) or 3(a) hereof, as the case may be, the Indemnitee shall be
required to (i) submit to the Board a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto and made
a part hereof (the "Indemnification Statement") averring that he is entitled to
indemnification hereunder; and (ii) present to the Company reasonable evidence
of all expenses for which payment is requested. Submission of an Indemnification
Statement to the Board shall create a presumption that the Indemnitee is
entitled to indemnification under Sections 2(a), 2(b) or 3(a) hereof, as the
case may be, and the Board shall be deemed to have determined that the
Indemnitee is entitled to such indemnification unless within 30 calendar days
after submission of the Indemnification Statement the Board shall determine by
vote of a majority of the directors at a meeting at which a quorum is present,
based upon clear and convincing evidence (sufficient to rebut the foregoing
presumption), and the Indemnitee shall have received notice within such period
in writing of such determination, that the Indemnitee is not so entitled to
indemnification, which notice shall disclose with particularity the evidence in
support of the Board's determination. The foregoing notice shall be sworn to by
all persons who participated in the determination and voted to deny
indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of the Indemnitee to
indemnification under this Agreement, and any determination by the Board that
the Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to judicial
review as provided in Section 7 hereof.
(b) For purposes of determining whether to authorize advancement
of expenses pursuant to Section 2(e) or 3(b) hereof, the Indemnitee shall submit
to the Board a sworn statement of request for advancement of expenses
substantially in the form of Exhibit 2 attached hereto and made a part hereof
(the "Undertaking"), averring that (i) he has reasonably incurred or will
reasonably incur actual expenses in defending an actual civil or criminal
action, suit, proceeding or claim and (ii) he undertakes to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company under this Agreement or otherwise. Upon receipt of an Undertaking,
the Board shall within 10 calendar days authorize immediate payment of the
expenses stated in the Undertaking, whereupon such payments shall immediately be
made by the Company. No security shall be required in connection with any
Undertaking and any Undertaking shall be accepted without reference to the
Indemnitee's ability to make repayment.
<PAGE> 5
-5-
5. Subrogation; Duplication of Payments. (a) In the event of payment
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to make
any payment in connection with any claim made against the Indemnitee to the
extent the Indemnitee has actually received payment (under any insurance policy,
the Charter, the By-Laws or otherwise) of the amounts otherwise payable
hereunder.
6. Enforcement. (a) If a claim for indemnification made to the
Company pursuant to Section 4 hereof is not paid in full by the Company within
30 calendar days after a written claim has been received by the Company, the
Indemnitee may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim.
(b) In any action brought under Section 5(a) hereof, it shall be a
defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
Undertaking has been tendered to the Company) that the Indemnitee has not met
the standards of conduct which make it permissible under the Charter, By-Laws or
DGCL for the Company to indemnify the Indemnitee for the amount claimed, but the
burden of proving such defense shall be on the Company. Neither the failure of
the Company (including the Board, independent legal counsel or the Stockholders)
to have made a determination prior to commencement of such action that
indemnification of the Indemnitee is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Charter, By-Laws or
DGCL, nor an actual determination by the Company (including the Board,
independent legal counsel or the Stockholders) 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.
(c) It is the intent of the Company that the Indemnitee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder. Accordingly, if it should appear to the
Indemnitee that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
any action to declare this Agreement void or unenforceable, or institutes any
action, suit or proceeding designed (or having the effect of being designed) to
deny, or to recover from, the Indemnitee the benefits intended to be provided to
the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time to retain counsel of his choice, at the expense of the Company as
hereinafter provided, to represent the Indemnitee in connection with the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs
and expenses (including
<PAGE> 6
-6-
attorneys' fees ) reasonably incurred by the Indemnitee (i) as a result of the
Company's failure to perform this Agreement or any provision thereof or (ii) as
a result of the Company or any person contesting the validity or enforceability
of this Agreement or any provision thereof as aforesaid.
7. Merger or Consolidation. In the event that the Company shall be a
constituent corporation in a consolidation, merger or other reorganization, the
Company, if it shall not be the surviving, resulting or other corporation
therein, shall require as a condition thereto the surviving, resulting or
acquiring corporation to agree to indemnify the Indemnitee to the full extent
provided in Sections 2 and 3 hereof. Whether or not the Company is the
resulting, surviving or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
8. Nonexclusivity and Severability. (a) The right to indemnification
provided by this Agreement shall not be exclusive of any other rights to which
the Indemnitee may be entitled under the Charter, By-Laws, the DGCL, any other
statute, insurance policy, agreement, vote of stockholders or directors or
otherwise, both as to actions in his official capacity and as to actions in
another capacity while holding such office, and shall continue after the
Indemnitee has ceased to be a director or officer.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
10. Modification; Survival. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be modified only by an instrument in writing signed by both parties hereto.
The provisions of this Agreement shall survive the death, disability, or
incapacity of the Indemnitee or the termination of the Indemnitee's service as a
director and officer of the Company and shall inure to the benefit of the
Indemnitee's executors and administrators.
11. Certain Terms. For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans; and references to
"serving at the request of the Company" shall include any service as a
director, officer, employee or agent of the Company which imposes duties on, or
involves services by, the Indemnitee with respect to an employee benefit plan,
its participants or beneficiaries; references to the masculine shall include
the feminine; references to the singular shall include the plural and vice
versa; and if the Indemnitee acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
<PAGE> 7
-7-
employee benefit plan he shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referenced to herein.
12. Binding Effect; Successors and Assigns. This Agreement shall bind
and inure to the benefit of the successors, heirs, personal and legal
representatives and assigns of the parties hereto, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all,
substantially all or a substantial part of the business or assets of the
Company. The Company shall require and cause any successor (whether direct or
indirect, and whether by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part of the business or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place.
13. Consent to Jurisdiction. The Company and the Indemnitee each
hereby irrevocably consent to the non-exclusive jurisdiction of the Court of
Chancery of Delaware for any purpose in connection with any action or proceeding
which arises out of or relates to this Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
Omtool, Ltd.
By:___________________________
______________________________
______________________________
Printed Name
<PAGE> 8
Exhibit 1
INDEMNIFICATION STATEMENT
STATE OF ___________________)
) SS
COUNTY OF __________________)
I, [NAME], being first duly sworn, do depose and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement dated as of ________ __, 1997 between Omtool, Ltd., a
Delaware corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, expenses (including
attorneys' fees), judgments, liabilities and/or amounts paid in settlement, all
of which (collectively, "Liabilities") have been or will be incurred by me in
connection with an actual or threatened action, suit or proceeding to which I am
a party or am threatened to be made a party.
3. With respect to all matters related to any such action, suit or
proceeding, I am entitled to be indemnified as herein contemplated pursuant to
the aforesaid Indemnity Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
______________________________________
______________________________________
______________________________________.
______________________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ______ day of _____________, 199_.
_________________________
[Seal]
My commission expires the _____ day of _______________, 19__.
<PAGE> 9
Exhibit 2
UNDERTAKING
STATE OF ___________________)
) SS
COUNTY OF __________________)
I, ____________________, being first duly sworn, do depose and say
as follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement dated as of ________ __, 1997 between Omtool, Ltd., a Delaware
corporation (the "Company"), and the undersigned.
2. I am requesting advancement of certain costs and expenses which I
have incurred or will incur in defending an actual or pending civil or criminal
action, suit, proceeding or claim.
3. I hereby undertake to repay this advancement of costs and expenses
if it shall ultimately be determined that I am not entitled to be indemnified by
the Company under the aforesaid Indemnity Agreement or otherwise.
4. The costs and expenses for which advancement is requested are, in
general, all expenses related to _____________
_______________________________________________________________
_______________________________________________________________.
______________________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ______ day of _____________, 199_.
______________________________
[Seal]
My commission expires the _____ day of ______________, 19__.
<PAGE> 1
Exhibit 10.1
OMTOOL, LTD.
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of OMTOOL, LTD. and of its affiliated corporations
upon whose judgment, initiative and efforts the Corporation depends for the
successful conduct of its business, to acquire a closer identification of their
interests with those of the Corporation by providing them with opportunities to
purchase stock in the Corporation pursuant to options granted hereunder, thereby
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain involved with the Corporation. Any employee, consultant or
advisor designated to participate in the Plan is referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
<PAGE> 2
-2-
2.5 "Committee" means one or more committees of not less than two
members of the Board appointed by the Board to administer the Plan.
2.6 "Corporation" means OMTOOL, LTD., a Delaware corporation, or its
successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after January 2,
1996.
2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422 of the code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1996 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934, as amended, or any successor provision.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
<PAGE> 3
-3-
2.15 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee, if one or
more have been appointed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan. No member of the Board or a Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any options granted under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On or after registration of
the Stock under the Securities Exchange Act of 1934, as amended, the Board shall
delegate the power to select directors and officers to receive Awards under the
Plan, and the timing, pricing and amount of such Awards to a Committee, all
members of which shall be "disinterested persons" within the meaning of Rule
16b-3 under the Act.
<PAGE> 4
-4-
3.2 Powers. The board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price
<PAGE> 5
-5-
specified in Article V of this Plan; (d) to determine the time or times when
each Option shall become exercisable and the duration of the exercise period
(including the acceleration of any exercise period), which shall not exceed the
maximum period specified in Article V; (e) to determine whether each Option
granted shall be an Incentive Stock Option or a Non-qualified Option; and (f) to
waive compliance by a Participant with any obligation to be performed by him
under an Option, to waive any condition or provision of an Option, and to amend
or cancel any Option (and if an Option is canceled, to grant a new Option on
such terms as the Board may specify), except that the Board may not take any
action with respect to an outstanding option that would adversely affect the
rights of the Participant under such Option without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power of
the Board to make adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d) (1) of the Code.
<PAGE> 6
-6-
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 750,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Board, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock
<PAGE> 7
-7-
held by the Corporation as treasury shares, including shares purchased in the
open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the date of granting thereof if such option is
granted to any employee who at the time such option is granted owns more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation.
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided
<PAGE> 8
-8-
that no Incentive Stock Option shall be granted hereunder to any Employee if at
the time of grant the Employee, directly or indirectly, owns Stock possessing
more than 10% of the combined voting power of all classes of stock of the
Corporation and its Affiliated Corporations unless the Incentive Stock Option
price equals not less than 110% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted. In the case of
Non-Qualified Stock Options, the exercise price shall not be less than par
value.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
<PAGE> 9
-9-
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may
<PAGE> 10
-10-
determine. Until such person has been issued a certificate or certificates for
the shares so purchased, he or she shall possess no rights of a record holder
with respect to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include
<PAGE> 11
-11-
additional shares covered by such Option; and (ii) unless the Board shall
otherwise provide in the instrument evidencing any Option, upon any such
cessation of employment, such remaining rights to purchase shall in any event
terminate upon the earlier of (A) the expiration of the original term of the
Option; or (B) where such cessation of employment is on account of disability,
the expiration of one year from the date of such cessation of employment and,
otherwise, the expiration of three months from such date. For purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board,
<PAGE> 12
-12-
additional shares covered by such Option may become subject to purchase
immediately upon the death of the optionee.
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, as amended, and any successor
provision, at least six months must elapse from the date of acquisition of an
Option by a Reporting Person to the date of disposition of such Option (other
than upon exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and
<PAGE> 13
-13-
directed to take any and all action necessary or advisable from time to time to
carry out the terms of such instruments.
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
<PAGE> 14
-14-
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be canceled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
of classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
<PAGE> 15
-15-
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on January 2, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided,
<PAGE> 16
-16-
however, that no Options may be granted under this Plan on or after the tenth
anniversary of the effective date hereof.
ARTICLE XIII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but are not limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the consent of the optionee, may also terminate any portion of any Incentive
Stock Option that has not been exercised at the time of such termination.
<PAGE> 17
-17-
ARTICLE XIV
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVII) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before
<PAGE> 18
-18-
the later of (a) two years after the date the employee was granted the Incentive
Stock Option or (b) one year after the date the employee acquired Stock by
exercising the Incentive Stock Option. If the employee has died before such
stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware
(without regard to the conflict of law principles thereof). In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
<PAGE> 1
Exhibit 10.2
OMTOOL, LTD.
1997 STOCK PLAN
1. PURPOSE. The purpose of the Omtool, Ltd. 1997 Stock Plan (the
"Plan") is to encourage key employees of Omtool, Ltd. (the "Company") and of any
present or future parent or subsidiary of the Company (collectively, "Related
Corporations") and other individuals who render services to the Company or a
Related Corporation, by providing opportunities to participate in the ownership
of the Company and its future growth through (a) the grant of options which
qualify as "incentive stock options" ("ISOs") under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options
which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in
the Company ("Awards"); and (d) opportunities to make direct purchases of stock
in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred
to hereafter individually as an "Option" and collectively as "Options." Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or, subject
to paragraph 2(D) (relating to compliance with Section 162(m) of the Code), by a
committee appointed by the Board (the "Committee"). Hereinafter, all references
in this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable state law), and subject to the
terms of the Plan, the Committee shall have the authority to (i) determine to
whom (from among the class of employees eligible under paragraph 3 to receive
ISOs) ISOs shall be granted, and to whom (from among the class of individuals
and entities eligible under paragraph 3 to receive Non-Qualified Options and
Awards and to make Purchases) Non-Qualified Options, Awards and authorizations
to make Purchases may be granted; (ii) determine the time or times at which
Options or Awards shall be granted or Purchases made; (iii) determine the
purchase price of shares subject to each Option or Purchase, which prices shall
not be less than the minimum price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) extend the
period during which outstanding Options may be exercised; (vii) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to Options, Awards and Purchases and the nature of such restrictions, if
any, and (viii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary, under Section 422 of
the Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the Committee
of any provisions of the Plan or of any Stock Right granted
<PAGE> 2
-2-
under it shall be final unless otherwise determined by the Board. The Committee
may from time to time adopt such rules and regulations for carrying out the Plan
as it may deem advisable. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of
its members as its chairman, and shall hold meetings at such time and places as
it may determine. A majority of the Committee shall constitute a quorum and acts
of a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights
may be granted to members of the Board. All grants of Stock Rights to members of
the Board shall in all respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Members of the Board who either
(i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself or
herself of Stock Rights, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to the granting to such member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its
discretion, may take such action as may be necessary to ensure that Stock Rights
granted under the Plan qualify as "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the following (i) if the
Board determines that Stock Rights granted under the Plan generally shall
constitute Performance-Based Compensation, the Plan shall be administered, to
the extent required for such Stock Rights to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price
less than the fair market value per share of Common Stock are granted under the
Plan and the Board determines that such Options should constitute
Performance-Based Compensation, such options shall be made exercisable only upon
the attainment of a pre-established, objective performance goal established by
the Committee, and such grant shall be submitted for, and shall be contingent
upon shareholder approval and (iii) Stock Rights granted under the Plan may be
subject to such other terms and conditions as are necessary for compensation
recognized in connection with the exercise or disposition of such Stock Right or
the disposition of Common Stock acquired pursuant to such Stock Right, to
constitute Performance-Based Compensation.
<PAGE> 3
-3-
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify such individual or entity
from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized
but unissued shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 1,800,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 1,260,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan at any time on or after the closing of the Company's initial public
offering of its Common Stock registered under the Securities Act of 1933, as
amended, and prior to April 14, 2007. The date of grant of a Stock Right under
the Plan will be the date specified by the Committee at the time it grants the
Stock Right; provided, however, that such date shall not be prior to the date on
which the Committee acts to approve the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES.
Subject to paragraph 2(D) (relating to compliance with Section 162(m) of the
Code), the exercise price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of stock granted
in any Award or authorized as a Purchase, under the Plan may be less than the
fair market value of the Common Stock of the Company on the date of grant;
provided that, in no event shall such exercise price or such purchase price be
less than the minimum legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors in interest may be
organized.
<PAGE> 4
-4-
B. PRICE FOR ISOS. The exercise price per share
specified in the agreement relating to each ISO granted under the Plan shall not
be less than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
eligible employee may be granted Options treated as ISOs only to the extent
that, in the aggregate under this Plan and all incentive stock option plans of
the Company and any Related Corporation, ISOs do not become exercisable for the
first time by such employee during any calendar year with respect to stock
having a fair market value (determined at the time the ISOs were granted) in
excess of $100,000. The Company intends to designate any Options granted in
excess of such limitation as Non-Qualified Options, and the Company shall issue
separate certificates to the optionee with respect to Options that are
Non-Qualified Options and Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time
an Option is granted under the Plan, the Company's Common Stock is publicly
traded, "fair market value" shall be determined as of the date of grant or, if
the prices or quotes discussed in this sentence are unavailable for such date,
the last business day for which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall mean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
<PAGE> 5
-5-
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable
on the date of grant or shall become exercisable thereafter in such installments
as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable, it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the
right to accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of an
optionee, accelerate the permitted exercise date of any installment of any
Option granted to any employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to paragraph 16) if such acceleration would
violate the annual vesting limitation contained in Section 422(d) of the Code,
as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
<PAGE> 6
-6-
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or her death, any ISO
owned by such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, until the
earlier of (i) the specified expiration date of the ISO or (ii) 180 days from
the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed
by the Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment, for the number of shares for which he or she
could have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code or any successor statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee shall be exercisable only by such optionee.
Stock Rights other than ISOs shall be transferable to the extent set forth in
the agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to such optionee
hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be
<PAGE> 7
-7-
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting stock of the
Company immediately preceding the consummation of such event, shall, immediately
following such event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the event of a sale of
all or substantially all of the Company's assets or otherwise (each, an
"Acquisition"), the Committee or the board of directors of any entity assuming
the obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for the continuation
of such Options by substituting on an equitable basis for the shares then
subject to such Options either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value of
which shall not materially exceed the fair market value of the shares of Common
Stock subject to such Options immediately preceding the Acquisition; or (ii)
upon written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable or to be exercisable as a result of
the Acquisition, within a specified number of days of the date of such notice,
at the end of which period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to such Options (to the extent then exercisable or
to be exercisable as a result of the Acquisition) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing,
any adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
<PAGE> 8
-8-
F. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be
issued under the Plan and the optionee shall receive from the Company cash in
lieu of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board
on April 14, 1997, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to April 14,
<PAGE> 9
-9-
1998, any grants of ISOs under the Plan made prior to that date will be
rescinded. The Plan shall expire at the end of the day on April 14, 2007
(except as to Options outstanding on that date). Subject to the provisions of
paragraph 5 above, Options may be granted under the Plan prior to the date of
stockholder approval of the Plan. The Board may terminate or amend the Plan in
any respect at any time, except that, without the approval of the stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan may not be increased (except by adjustment pursuant
to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (c) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); and (d) the
expiration date of the Plan may not be extended. Except as otherwise provided in
this paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without such grantee's consent, under any Stock
Right previously granted to such grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of shares pursuant to Options granted and Purchases authorized
under the Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting
an ISO granted under the Plan, each optionee agrees to notify the Company in
writing immediately after such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
<PAGE> 10
-10-
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and
the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
<PAGE> 1
Exhibit 10.3
OMTOOL, LTD.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1 - PURPOSE.
This 1997 Employee Stock Purchase Plan (the "Plan") is intended to
encourage stock ownership by all eligible employees of Omtool, Ltd. (the
"Company"), a Delaware corporation, and its participating subsidiaries (as
defined in Article 17) so that they may share in the growth of the Company by
acquiring or increasing their proprietary interest in the Company. The Plan is
designed to encourage eligible employees to remain in the employ of the Company
and its participating subsidiaries. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 2 - ADMINISTRATION OF THE PLAN.
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
ARTICLE 3 - ELIGIBLE EMPLOYEES.
All employees of the Company or any of its participating subsidiaries
whose customary employment is more than 25 hours per week and for more than five
months in any calendar year and who have completed at least five months of
service shall be eligible to receive options
<PAGE> 2
-2-
under the Plan to purchase common stock of the Company, and all eligible
employees shall have the same rights and privileges hereunder. Persons who are
eligible employees on the first business day of any Payment Period (as defined
in Article 5) shall receive their options as of such day. Persons who become
eligible employees after any date on which options are granted under the Plan
shall be granted options on the first day of the next succeeding Payment Period
on which options are granted to eligible employees under the Plan. In no event,
however, may an employee be granted an option if such employee, immediately
after the option was granted, would be treated as owning stock possessing five
percent or more of the total combined voting power or value of all classes of
stock of the Company or of any parent corporation or subsidiary corporation, as
the terms "parent corporation" and "subsidiary corporation" are defined in
Section 424(e) and (f) of the Code. For purposes of determining stock ownership
under this paragraph, the rules of Section 424(d) of the Code shall apply, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by the employee.
ARTICLE 4 - STOCK SUBJECT TO THE PLAN.
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued common stock, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 200,000, subject to adjustment as provided in
Article 12. If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject thereto
shall again be available under the Plan.
ARTICLE 5 - PAYMENT PERIOD AND STOCK OPTIONS.
The first Payment Period during which payroll deductions will be
accumulated under the Plan shall commence on the later to occur of January 1,
1998 and the first day of the first calendar month following effectiveness of
the Form S-8 registration statement filed with the Securities and Exchange
Commission covering the shares to be issued pursuant to the Plan and shall end
on June 30, 1998. For the remainder of the duration of the Plan, Payment Periods
shall consist of the six-month periods commencing on January 1 and July 1 and
ending on June 30 and December 31 of each calendar year.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 1,000 shares, on condition that
such employee remains eligible to participate in the Plan throughout the
remainder of such Payment Period. The participant shall be entitled to exercise
the option so granted only to the extent of the participant's accumulated
payroll deductions on the last day of such Payment Period. If the participant's
accumulated payroll deductions on the last day of the Payment Period would
enable the participant to purchase more than 1,000 shares except for the
1,000-share limitation, the excess of the amount of the accumulated payroll
deductions over the aggregate purchase price of the 1,000 shares shall be
promptly refunded to
<PAGE> 3
-3-
the participant by the Company, without interest. The Option Price per share for
each Payment Period shall be the lesser of (i) 85% of the average market price
of the Common Stock on the first business day of the Payment Period and (ii) 85%
of the average market price of the Common Stock on the last business day of the
Payment Period, in either event rounded up to the nearest cent. The foregoing
limitation on the number of shares subject to option and the Option Price shall
be subject to adjustment as provided in Article 12.
For purposes of the Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock on the
NASDAQ National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the average of the closing bid and asked prices
last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market; or (iv) if the Common Stock is not publicly traded, the fair
market value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
For purposes of the Plan, the term "business day" means a day on which
there is trading on the NASDAQ National Market or the aforementioned national
securities exchange, whichever is applicable pursuant to the preceding
paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or
legal holiday in New Hampshire.
No employee shall be granted an option which permits the employee's right
to purchase stock under the Plan, and under all other Section 423(b) employee
stock purchase plans of the Company and any parent or subsidiary corporations,
to accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined on the date or dates that options on such stock were granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code. If the participant's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable the participant to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the participant by the Company, without interest.
ARTICLE 6 - EXERCISE OF OPTION.
Each eligible employee who continues to be a participant in the Plan on
the last day of a Payment Period shall be deemed to have exercised his or her
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose of the Plan as
the participant's accumulated payroll deductions on such date will pay for at
the Option Price, subject to the 1,000-share limit of the option and the Section
423(b)(8) limitation described in Article 5. If the individual is not a
participant on the last day of a Payment Period, then he or she shall not be
entitled to exercise his or her option.
<PAGE> 4
-4-
Only full shares of Common Stock may be purchased under the Plan. Unused payroll
deductions remaining in a participant's account at the end of a Payment Period
by reason of the inability to purchase a fractional share shall be carried
forward to the next Payment Period.
ARTICLE 7 - AUTHORIZATION FOR ENTERING THE PLAN.
An employee may elect to enter the Plan by filling out, signing and
delivering to the Company an authorization:
A. Stating the percentage to be deducted regularly from the
employee's pay;
B. Authorizing the purchase of stock for the employee in each
Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name or names in which stock purchased
for the employee is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten days before the
first day of the next succeeding Payment Period and shall take effect only if
the employee is an eligible employee on the first business day of such Payment
Period.
Unless a participant files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the participant has on file
under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for each participant's account the
amounts deducted from his or her pay. No interest will be paid on these amounts.
ARTICLE 8 - MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS.
An employee may authorize payroll deductions in an amount (expressed as a
whole percentage) not less than one percent (1%) but not more than ten percent
(10%) of the employee's total compensation, including base pay or salary and any
overtime, bonuses or commissions.
ARTICLE 9 - CHANGE IN PAYROLL DEDUCTIONS.
Deductions may not be increased or decreased during a Payment Period.
However, a participant may withdraw in full from the Plan.
<PAGE> 5
-5-
ARTICLE 10 - WITHDRAWAL FROM THE PLAN.
A participant may withdraw from the Plan (in whole but not in part) at any
time prior to the last day of a Payment Period by delivering a withdrawal notice
to the Company.
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten days before the first day of the next Payment
Period in which he or she wishes to participate. The employee's re-entry into
the Plan becomes effective at the beginning of such Payment Period, provided
that he or she is an eligible employee on the first business day of the Payment
Period.
ARTICLE 11 - ISSUANCE OF STOCK.
Certificates for stock issued to participants shall be delivered as soon
as practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan shall be issued only in the name of the
participant, or if the participant's authorization so specifies, in the name of
the participant and another person of legal age as joint tenants with rights of
survivorship.
ARTICLE 12 - ADJUSTMENTS.
Upon the happening of any of the following described events, a
participant's rights under options granted under the Plan shall be adjusted as
hereinafter provided:
A. In the event that the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or
if, upon a reorganization, split-up, liquidation, recapitalization or
the like of the Company, the shares of Common Stock shall be exchanged
for other securities of the Company, each participant shall be
entitled, subject to the conditions herein stated, to purchase such
number of shares of Common Stock or amount of other securities of the
Company as were exchangeable for the number of shares of Common Stock
that such participant would have been entitled to purchase except for
such action, and appropriate adjustments shall be made in the purchase
price per share to reflect such subdivision, combination or exchange;
and
B. In the event the Company shall issue any of its shares as a
stock dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each
participant upon exercising such an option shall be entitled to receive
(for the purchase price paid upon such exercise) the shares as to which
the participant is exercising his or her option and, in addition
thereto (at no additional cost), such number of shares of the class or
classes in which such stock dividend or dividends were declared or
paid, and such amount of cash in lieu of fractional shares, as is equal
to the number of shares thereof and the amount of cash in lieu of
fractional shares, respectively, which the participant would have
received if the participant had been the holder of the shares as to
<PAGE> 6
-6-
which the participant is exercising his or her option at all times
between the date of the granting of such option and the date of its
exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under the Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Common Stock in connection with the Acquisition, (b) shares of stock of the
successor corporation, or a parent or subsidiary of such corporation, or (c)
such other securities as the Successor Board deems appropriate, the fair market
value of which shall not materially exceed the fair market value of the shares
of Common Stock subject to such options immediately preceding the Acquisition;
or (ii) terminate each participant's options in exchange for a cash payment
equal to the excess of (a) the fair market value on the date of the Acquisition,
of the number of shares of Common Stock that the participant's accumulated
payroll deductions as of the date of the Acquisition could purchase, at an
option price determined with reference only to the first business day of the
applicable Payment Period and subject to the 1,000-share, Code Section 423(b)(8)
and fractional-share limitations on the amount of stock a participant would be
entitled to purchase, over (b) the result of multiplying such number of shares
by such option price.
The Committee or Successor Board shall determine the adjustments to be
made under this Article 12, and its determination shall be conclusive.
ARTICLE 13 - NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS.
An option granted under the Plan may not be transferred or assigned and
may be exercised only by the participant.
ARTICLE 14 - TERMINATION OF EMPLOYEE'S RIGHTS.
Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, layoff,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund,
<PAGE> 7
-7-
without interest, the entire balance of his or her payroll deduction account
under the Plan. Notwithstanding the foregoing, eligible employment shall be
treated as continuing intact while a participant is on military leave, sick
leave or other bona fide leave of absence, for up to 90 days, or for so long as
the participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.
If a participant's payroll deductions are interrupted by any legal
process, a withdrawal notice will be considered as having been received from the
participant on the day the interruption occurs.
ARTICLE 15 - TERMINATION AND AMENDMENTS TO PLAN.
The Plan may be terminated at any time by the Company's Board of Directors
but such termination shall not affect options then outstanding under the Plan.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purpose of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to the amount of payroll deductions accumulated on behalf of each
participant that would otherwise be used to purchase stock, and the Plan shall
terminate. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded, without
interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under
the Securities Exchange Act of 1934 to become inapplicable to the Plan.
ARTICLE 16 - LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN.
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his or her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
ARTICLE 17 - PARTICIPATING SUBSIDIARIES.
The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to
<PAGE> 8
-8-
time by the Board of Directors to participate in the Plan. The Board of
Directors shall have the power to make such designation before or after the Plan
is approved by the stockholders.
ARTICLE 18 - OPTIONEES NOT STOCKHOLDERS.
Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the shares
covered by an option until such shares have been actually purchased by the
employee.
ARTICLE 19 - APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.
ARTICLE 20 - NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
By electing to participate in the Plan, each participant agrees to notify
the Company in writing immediately after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
ARTICLE 21 - WITHHOLDING OF ADDITIONAL INCOME TAXES.
By electing to participate in the Plan, each participant acknowledges that
the Company and its participating subsidiaries are required to withhold taxes
with respect to the amounts deducted from the participant's compensation and
accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 7
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the participant's
accumulated payroll deductions and apply the net amount to the purchase of
Common Stock, unless the participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding
<PAGE> 9
-9-
obligations. Each participant further acknowledges that the Company and its
participating subsidiaries may be required to withhold taxes in connection with
the disposition of stock acquired under the Plan and agrees that the Company or
any participating subsidiary may take whatever action it considers appropriate
to satisfy such withholding requirements, including deducting from compensation
otherwise payable to such participant an amount sufficient to satisfy such
withholding requirements or conditioning any disposition of Common Stock by the
participant upon the payment to the Company or such subsidiary of an amount
sufficient to satisfy such withholding requirements.
ARTICLE 22 - GOVERNMENTAL REGULATIONS.
The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify shares of Common Stock issued under the Plan on its stock ownership
records and send tax information statements to employees and former employees
who transfer title to such shares.
ARTICLE 23 - GOVERNING LAW.
The validity and construction of the Plan shall be governed by the laws of
Delaware, without giving effect to the principles of conflicts of law thereof.
ARTICLE 24 - APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY.
The Plan was adopted by the Board of Directors on April 14, 1997 and was
approved by the stockholders of the Company in June, 1997.
<PAGE> 1
Exhibit 10.4
LEASE
AGREEMENT OF LEASE made as of this 27th day of July, 1995, by and
between Athena Wlasits, Sumner Darman, and Norman M. Shack, as they are Trustees
of Brooks Property Trust, u/d/t dated December 22, 1992, and thereafter amended,
said trust having an usual place of business at One Branch Street, Methuen,
Essex County, MA (hereinafter, "Landlord") and Omtool Limited, a duly organized
corporation with an usual place of business at 8A Industrial Way, Salem, NH
03079 (hereinafter, "Tenant").
1. Leased Premises. Landlord, for and in consideration of the
rents, covenants and agreements hereinafter specified to be paid, kept and
performed by the Tenant, hereby leases to Tenant that portion of a building
being known as "Building A" of the Brookview Industrial Condominium, a
Condominium created by Declaration dated November 30, 1988, recorded at
Rockingham County Registry of Deeds at Book 2770, Page 2921 and thereafter
amended of record (the "Condominium"). The Condominium is located at 8A
Industrial Way, Salem, NH. Said leased premises consists of approximately 15,000
square feet, within said building (the "Building") which is located on that
certain parcel of land as more particularly described in "Exhibit A" annexed
hereto and made a part hereof, comprising the Condominium. Said portion of the
Building is shown on "Exhibit B" annexed hereto and made a part hereof to be
hereinafter referred to as the "leased premises" or "leased property." The
parties hereto acknowledge and agree that the leased premises constitutes all of
Unit 1, located in said Building A, and that Tenant accepts and occupies the
said leased premises in its present condition, AS-IS, with no warranties of any
nature from Landlord, other than those which are set forth in this Lease.
2. Term. The term of this Lease shall be five (5) years,
beginning on August 1, 1995 and ending on July 31, 2000.
Tenant is hereby granted the option to extend this Lease for
one (1) additional successive period of three (3) years, the term of which is to
commence on the first day following the expiration date of this Lease (the
"Extension Period"). Tenant shall provide Landlord, at least six (6) months
prior to the said lease expiration date, written notice of its intent to
exercise its rights hereunder. The extension of this Lease shall be under the
same terms and conditions hereof, with the exception of the annual basic rent,
which shall be as more particularly provided in Section 3 below.
3. Rent; Taxes. The Tenant shall pay to Landlord for the leased
premises an annual basic rent in the amounts as follows:
Years 1 through 3, inclusive: Ninety thousand and 00/100
($90,000.00) Dollars, payable in equal monthly installments in the sum of Seven
Thousand Five Hundred and 00/100 ($7,500.00) Dollars in advance on the first day
of each month during the term hereof.
Years 4 and 5: Ninety Three Thousand Seven Hundred Fifty and
00/100 ($93,750.00) Dollars, payable in equal monthly installments in the sum of
Seven Thousand Eight
<PAGE> 2
-2-
Hundred Twelve and 50/100 ($7,812.50) Dollars in advance on the first day of
each month during the term hereof.
During the Extension Period, the Tenant shall pay to Landlord
for the leased premises an annual basic rent in the amount of Ninety Seven
Thousand Five Hundred and 00/100 ($97,500.00) Dollars, payable in equal monthly
installments in the sum of Eight Thousand One Hundred Twenty Five and 00/100
($8,125.00) Dollars in advance on the first day of each month during the term
hereof.
Rent due from Tenant shall be prorated for any partial month
during the term hereof.
Such foregoing annual rent shall, for the purposes hereof, be
called the "basic rent" or "basic annual rent" for such portions of the term
during which such is in effect.
Together with the above basic rent, the Tenant shall also pay
all of the real estate and other municipal taxes levied against the leased
premises during the term of this Lease, including any extension thereof. The
real estate taxes levied against the leased premises shall mean one hundred
(100%) percent of all such amounts as shall be finally determined to be due to
the Town of Salem, NH, after deducting abatement, refund or rebates, if any.
Real estate taxes and special assessments, if any, which may be amortized over a
period of time, shall be amortized over the longest period permitted by law. At
its sole expense, Tenant may seek an abatement of such real estate taxes, in
which case Landlord shall cooperate with Tenant in initiating and pursuing any
proceedings which may be required in order to obtain such abatement.
If Landlord is escrowing tax payments with an institutional
holder of a first mortgage on the parcel of which the leased premises are a
part, Tenant shall pay its share of the taxes to such institutional holder at
the same time as Landlord is required so to do and as often as monthly, if so
required by such lender. If Landlord is not escrowing its tax payments with an
institutional lender, then Tenant shall pay its tax obligations hereunder to
Landlord or to the taxing authority directly before such taxes accrue penalty or
interest, but in no event sooner than twenty (20) days after Tenant shall have
received a copy of the applicable tax bill.
In the event Landlord neglects to pay its share of the taxes
in accordance with the terms hereof, if any, Tenant may pay (but is not
obligated to pay) the same for Landlord's account and deduct the amount of such
payment from the next installments of rent payable hereunder.
Landlord agrees to forward each tax bill received by it to
Tenant promptly upon receipt.
Any and all taxes, premiums or other costs or expenses which
the Tenant is required to pay hereunder (as hereinabove or as elsewhere
hereinafter set forth), together with all interest and penalties that may accrue
by reason of Tenant's failure to pay same in violation of the foregoing
provisions, shall be deemed to be additional rent and, in the event of
non-payment by Tenant, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for the nonpayment of the basic rent.
<PAGE> 3
-3-
4. Use. Tenant may use and occupy the leased premises for any
lawful purpose and shall not use nor knowingly permit any part of the leased
property to be used for any unlawful purposes.
Landlord represents and warrants that the leased premises are
in the Salem Industrial Park District and are properly zoned for industrial park
district uses (including, without limitation, general office use) and that the
applicable dimensional, lot area coverage and parking requirements have been
complied with in connection with the construction of the Building thereon.
5. Compliance with Laws. At its sole expense, Tenant shall comply
with all laws, orders, and regulations of federal, state, municipal and other
governmental or quasi-governmental authorities related to the manner in which
Tenant makes use of the leased property, and/or with any directions of any
public officer made pursuant thereto, which shall impose any duty upon the
Landlord or the Tenant with respect to the leased property (other than for
general office use). Landlord covenants that the leased property, including the
Building and parking areas thereon, are, or will be, on the commencement date of
the term hereof, in full compliance with all such laws, orders and regulations
and directions. At its sole expense, Tenant shall obtain all licenses or permits
which may be required for the conduct of its business within the terms of this
Lease, or for the making of repairs, alterations, improvements, or additions,
and the Landlord, where necessary, will join with the Tenant in applying for all
such permits or licenses.
6. Covenant of Quiet Enjoyment. Landlord warrants that Tenant,
upon the payment of the rent herein reserved and upon the performance of all the
terms of this Lease, at all times during the Lease term and during any extension
or renewal term, shall peaceably and quietly enjoy the leased property without
any disturbance from the Landlord or from any other person claiming by, through
or under the Landlord, or by superior title.
7. Tenant's Repairs and Maintenance. During the term hereof,
Tenant shall, at its own expense, make such repairs and replacements to so much
of the leased premises as Tenant is required to maintain as hereinafter set
forth, which are necessary to maintain the same in as good order and condition
as that which existed at the commencement of the term of this Lease, reasonable
wear and tear, damage by fire or other casualty, eminent domain takings,
defective workmanship, materials or equipment provided by Landlord in the
original construction of the Building, damage arising by settling of the
Building or any improvements on the leased property erected by Landlord for
Tenant and Landlord's failure to make any repairs required by it under the
Lease, excepted.
The property Tenant shall be required to maintain shall
include the interior of the leased premises, the pipes, HVAC and heating
systems, plumbing system, window glass if uninsured, fixtures, and all other
appliances, equipment, and appurtenances exclusively servicing the leased
premises.
With regard to the pipes, plumbing system, fixtures and all
other appliances and appurtenances exclusively servicing the leased premises,
and all equipment used in connection with the same, the Tenant's obligations
shall be limited to only those items which are located in
<PAGE> 4
-4-
the interior of the leased premises. Landlord represents and warrants that the
pipes, plumbing system, fixtures and all other appliances and appurtenances
exclusively servicing the leased premises and all equipment used in connection
with the same are in good working order as of the commencement date of this
Lease.
8. Landlord's Repairs and Maintenance. Landlord agrees that it
will make all repairs, replacements, and alterations to the leased property
which Landlord is required to maintain as hereinafter set forth, and which may
be necessary to maintain the same in good repair and condition, provided
however, notwithstanding anything in this Lease to the contrary, Tenant, and not
Landlord, shall make all repairs, replacements and alterations to the property
which Landlord is required to maintain which may be required as the result of a
default or failure of repairs, replacements, alterations or other improvements
or installations made by Tenant.
The property which Landlord is required to maintain consists
of the structural parts of the Building of which the leased property is a part,
including, without limitation, the foundation, roof, gutters, downspouts,
exterior walls, window frames, door frames, slab floors and, to the extent not
included in the foregoing, all utilities, conduits, fixtures and equipment
serving the said Building but located outside of the leased property (but
excluding all uninsured against plate glass and doors), the walkways, curbs,
landscaped areas and parking areas located on the parcel of land on which the
Building of which the leased premises are a part is located. Such property shall
be deemed to include part replacements (subject to the provisions of Section 7.
above), capital repairs and replacement of the HVAC system, pipes, plumbing
system, heating system, and all other systems for which Tenant is not
responsible servicing the leased premises. In addition thereto, Landlord will
make any repairs to the property Tenant is required to maintain that are
required as a result of Landlord's negligence or failure to repair the property
Landlord is required to maintain hereunder, excluding negligent acts by Tenant
or Tenant's agents, invitees or employees.
Notwithstanding the foregoing, it is agreed that Tenant shall
pay to Landlord, as additional rent for said premises, such sum of money as
represents 9.3048% of the amounts reasonably expended or incurred by the
organization of unit owners of the Condominium (or Landlord acting in its stead)
in maintaining and routine repairing all said walkways, curbs, parking areas and
landscape areas referred to in the immediately preceding paragraph, excluding
replacements and capital improvements. Such additional rent shall be payable by
Tenant not more than semi-annually, within thirty (30) days of billing by
Landlord therefor.
In connection with the percentage named in the preceding
paragraph, the Landlord warrants that the leased premises represents not less
than 9.3048% of the total percentage interest of ownership of the Condominium,
as such is established by the terms and Provisions of the Declaration of
Brookview Industrial Condominium.
9. Condition of Premises at End of Term. At the expiration or
sooner termination of the term of this Lease, Tenant shall vacate the leased
property, leaving same in the same good order and repair as such property shall
have been received, subject to the exceptions set forth in Section 7, and shall
remove all of it property therefrom (subject to other provisions relating to
such property elsewhere herein contained), so that the Landlord can repossess
the leased property
<PAGE> 5
-5-
not later than midnight on the date upon which this Lease or any extension
thereof ends, whether upon notice or by otherwise as for the breach of any
condition or covenant of this Lease.
The parties hereto covenant and agree that upon such vacation
by Tenant, occurring at any time prior to or upon the termination of this Lease
or any extension thereof, the additions, alterations, or improvements which have
been installed by the Tenant in the leased premises as fixtures attached
thereto, may become the property of the Landlord without any further document of
title being deemed necessary. Notwithstanding same, Tenant may remove from the
leased property all materials, non-fixture equipment, trade fixtures, and items
of personal property of every other sort or nature located within the leased
premises, provided that such property is removed without substantial injury to
the leased premises. No injury shall be considered substantial if it is promptly
corrected by restoration to the condition prior to the installation of such
property, if so requested by the Landlord. Any such property not removed shall
become the property of the Landlord.
10. Alterations to the Leased Premises. No structural alteration,
addition, or improvement to the leased premises shall be made by the Tenant
without the written consent of the Landlord, which consent shall not be
unreasonably withheld.
Landlord acknowledges Tenant may from time to time further
alter the premises as permitted herein or consented to or install fixtures and
equipment. Landlord agrees that such alterations or fixtures may be attached to
walls, floors and ceilings by nails, screws or similar means and that the
removal of the same may cause marks or discoloration of walls, ceilings or
floors, all of which shall be considered ordinary wear and tear for which Tenant
is not responsible to Landlord. As provided in Section 9 above, such fixtures
and equipment shall remain the property of the Tenant unless such is not removed
by Tenant upon termination of this Lease.
11. Utilities. Tenant shall pay all charges for gas, electricity,
light, heat, power, and telephone or other communication service used, rendered,
or supplied upon or in connection with the leased property. Tenant shall pay to
the Landlord or to the Town of Salem, NH or to any other governmental authority
for the account of Landlord, the rent or charge which may, during the term, be
assessed or imposed for the water and sewer use charges used or consumed in or
on the leased property, whether determined by meter or otherwise, as soon as and
when the same may be assessed or imposed.
Tenant shall indemnify the Landlord against any liability or
damages on any of aforesaid account or items.
12. Default. If Tenant shall default in the payment of any rent,
additional rent, or any other sum of money payable by Tenant to Landlord and if
Tenant shall fail to cure said default within ten (10) days after receipt of
written notice of same from Landlord, or if Tenant shall default in the
performance or observance of any other non-monetary type or manner of agreement
or condition on its part to be performed or observed and if Tenant shall fail to
cure said default within thirty (30) days after receipt of written notice of
said default from Landlord (or if said default shall reasonably require longer
than thirty (30) days to cure, if Tenant shall fail to commence to cure said
default within a reasonable time after receipt of notice thereof and
<PAGE> 6
-6-
prosecute the curing of the same to completion with due diligence), or if the
Tenant's estate herein created shall be taken on execution or other process of
law, or if a petition in bankruptcy or for the appointment of a receiver shall
be filed by the Tenant, or if Tenant shall be adjudicated bankrupt or insolvent,
or if a receiver or other similar officer shall be appointed to take charge of
the Tenant's property and shall not be discharged within forty-five (45) days,
or if any assignment shall be made by the Tenant of its property for the benefit
of creditors, then, and in any of said cases, this Lease (if the Landlord so
elects) shall thereupon become null and void, and the Landlord shall have the
right to reenter or repossess the leased property, either by summary
proceedings, surrender, or otherwise, without breach of the peace, and
dispossess and remove therefrom the Tenant, or other occupants thereof and their
effects, without being liable to any prosecution therefor. In such case, the
Landlord may, at its option, relet the leased property or any part thereof, as
the agent of the Tenant and the Tenant shall pay the Landlord the difference
between the rent hereby reserved and agreed to be paid by the Tenant for the
portion of the term remaining at the time of reentry or repossession and the
amount, if any, received or to be received under such reletting for such portion
of the term. Landlord shall use its best efforts to mitigate damages hereunder.
Any violation or attempted violation or threatened violation
of any condition of this Lease by the Tenant, or anyone claiming under the
Tenant, shall be remediable by injunction, which shall be a cumulative remedy in
addition to every other remedy given by this Lease or by existing or future
laws.
13. Landlord's Right to Enter Premises. The Landlord and its
representatives may enter the leased property at any reasonable time after
24-hours notice for the purpose of inspecting the leased property, performing
any work which the Landlord is required or elects to undertake or which is made
necessary by reason of the Tenant's default under the terms of this Lease,
exhibiting the leased property for sale, lease (if within 90 days of the
termination date of this Lease), mortgage financing, or posting notices of
nonresponsibility under any mechanic's lien law, provided that, in performing
any such work, Landlord shall do so in such a manner as to minimize any
interference with Tenant's operations to the extent reasonably feasible and
further provided no access shall be had to any area where such access would
violate any Federal security or secrecy regulations or enable Landlord or its
representatives to learn Tenant's trade secrets. Landlord may enter without such
notice in the event of an emergency.
14. Damage, Fire or Casualty. In the event of damage to or
destruction of the leased property by fire or casualty, the Landlord (acting
either through the association of unit owners of the Condominium or on its own
account), at its sole expense, shall promptly restore the leased property
(including any property which shall have become the property of the Landlord
pursuant to the provisions of Section 9 above) as nearly as possible to its
condition prior to such damage or destruction. All insurance proceeds received
by the Landlord pursuant to the provisions of this Lease, less the cost (if any)
of such recovery, shall be held in trust by the institutional mortgagee holding
a first mortgage on the premises or, if there is none, such proceeds shall be
turned over to Landlord and shall be held in trust by Landlord and applied by
the Landlord to the payment of such restoration as such restoration progresses.
In the event of fire or other casualty damaging or otherwise adversely affecting
the leased premises, there shall be an abatement, proration, and/or reduction in
the rental due hereunder, which shall be computed from the date of the damage to
the
<PAGE> 7
-7-
date of such restoration, and to be based upon the nature and extent to which
such damage shall interfere with the Tenant's use of the leased premises.
If the Building of which the leased property is a part or the
leased premises is destroyed or so damaged by fire or other casualty to the
extent of more than fifty (50%) percent of its insurance value, or if during the
last year preceding the expiration of the term of this Lease the Building of
which the leased property is a part or the leased premises is damaged or
destroyed to the extent of more than twenty-five (25%) percent of the insurable
value, or if the net insurance proceeds are not adequate to repair or restore
the premises in the manner herein provided, or if the repairs to the Building or
leased premises cannot be completed within 120 days or, if the leased premises
remains untenantable for a period of 120 days, the Landlord or Tenant may
terminate this Lease on notice of at least ten (10) days and no more than thirty
(30) days. Such notice shall be given within sixty (60) days after the
occurrence of the event entitling such notice to be given. If the Lease shall so
terminate, all basic and additional rent shall be apportioned to the date of
destruction and all insurance proceeds shall belong to the Landlord.
Any disbursement of insurance proceeds by a holder of a
mortgage shall be deemed to have been by the Landlord.
Except as provided hereinabove in this clause, if the leased
property or any part thereof or the furniture, furnishings and fixtures therein,
shall be destroyed or damaged, such fact shall not affect the provisions of this
Lease, any law, rule, or regulation to the contrary notwithstanding, and the
Tenant's obligations under this Lease, including the payment of basic rent,
additional rent, and other charges, shall continue without abatement of any
kind.
15. Fire Insurance. Landlord (acting either through the
association of unit owners of the Condominium or on its own account) shall be
obliged to keep the Building of which the leased premises are a part insured
against loss or damage by fire, with extended coverage endorsement in any amount
sufficient to prevent coinsurance under the terms of the applicable policies
but, in any event, in an amount not less than 80% of the full insurable value as
determined from time to time. The term "full insurable value" shall mean actual
replacement cost (exclusive of the cost of excavation, foundations, and
footings) without deduction for physical depreciation. Such insurance shall be
issued by financially responsible insurers duly authorization to do business in
the State of New Hampshire. Such policy or policies shall name Landlord and any
mortgagee as Insured parties and loss payees, and shall provide it is not
cancelable except on ten (10) days' prior written notice to all named parties. A
certificate of insurance shall be furnished upon request to Tenant.
Notwithstanding the foregoing, it is agreed that Tenant shall
pay to Landlord, as additional rent for said leased premises, such sum of money
as represents 9.3048% percent of the amount reasonably expended or incurred by
the organization of unit owners of the Condominium (or Landlord in its stead)
for maintaining in force the insurance as provided in the immediately preceding
paragraph. Such additional rent shall be payable by Tenant not more than
semiannually as and when billed by Landlord therefor.
<PAGE> 8
-8-
In connection with the percentage named in the preceding
paragraph, the Landlord warrants that the leased premises represent not less
than 9.3048% percent of the total percentage interest of ownership as such is
established by the terms and provisions of the Declaration of Brookview
Industrial Condominium.
In connection with the various charges required by the
provisions of this Lease as additional rent, so-called, the Tenant shall be
entitled to receive (upon written request therefor) a verified copy of the
financial records of the Brookview Industrial Condominium Association, which
records shall include the annual budget and a record of expenditures on such
account.
16. Eminent Domain. If the leased property, or any part thereof,
is taken by eminent domain, then, at the option of either Landlord or Tenant,
this Lease shall expire on the date when the leased property shall be so taken
and the rent shall be apportioned as of that date. In the event of any such
taking, Tenant shall have the right at its election to continue to occupy all or
part of the leased premises to the extent permitted by law between the date of
such taking and the time when physical possession of the leased premises shall
be taken subject to the provisions of this Lease insofar as reasonably
applicable to such occupancy, but the amount charged Tenant by any such taking
authority or its assigns for rent or occupancy shall be deducted from the rent
paid or payable by Tenant hereunder. Notwithstanding the foregoing, nothing
herein shall prohibit Tenant, to the extent permitted by law, from prosecuting
its own claim for such damages sustained through such taking as the law may
provide to Tenant in its capacity as Tenant, including compensation for moving
expenses, fixtures and "special damages," so-called, so long as the same do not
infringe upon or diminish the damages sought by Landlord. If Tenant shall not be
entitled by law to prosecute such a claim in its own name, it may do so in, the
name of Landlord. In the event that Tenant does not elect to terminate this
lease pursuant to this Section following a taking of less than the entire leased
premises, Landlord (acting either through the association of unit owners of the
Condominium or on its own account) shall promptly restore the remaining portion
thereof so as to constitute an integral rental unit and the rental due hereunder
shall be equitably abated.
17. Utility Easements. Landlord shall have the right to grant
easements in areas of the leased property for installation of utilities,
provided that the use of such easement in areas for such purposes does not
interfere with the operation of the Tenant's business in the leased property or
its use of the parking areas and walkways appurtenant thereto. The Tenant shall
not be entitled to any compensation or abatement of rent if the use of the
parking areas and walkways appurtenant thereto. The Tenant shall not be entitled
to any compensation or abatement of rent if the use of such easement areas does
not materially interfere with the operation of the Tenant's business or its use
of the parking areas and walkways appurtenant thereto.
18. Assignment and Subletting. Tenant shall not assign, mortgage,
or encumber this Lease, nor sublet or permit the leased property or any part
thereof to be used by others, without the prior written consent of the Landlord
in each instance, which consent shall not be unreasonably withheld. If this
Lease is assigned, or if the leased property or any part thereof is sublet or
occupied by anybody other than the Tenant, the Landlord may, after default by
the Tenant, collect rent from the assignee, subtenant, or occupant and apply the
net amount collected to the rent herein reserved. No such assignment,
subletting, occupancy, or collection shall be
<PAGE> 9
-9-
deemed a waiver of this covenant, nor shall the Landlord's acceptance of the
assignee, subtenant, or occupant as tenant be deemed the Landlord's release of
the Tenant from the further performance by the Tenant of the covenants in this
Lease. The consent by the Landlord to any one assignment or subletting shall not
be construed to relieve the Tenant from obtaining the consent in writing of the
Landlord to any further assignment or subletting.
19. Subordination to Mortgages; Estoppel Certificates. This Lease
shall be subject and subordinate at all times to the lien of existing mortgages
and of mortgages which hereafter may be made a lien on the leased property,
provided that so long as the Tenant is not in default in the payment of rent or
additional rent or in the performance of any of the terms of the Lease beyond
any grace periods provided herein, the Tenant's possession of the leased
property and the Tenant's rights and privileges under the Lease shall not be
diminished or interfered with by any Mortgagee. Tenant agrees to execute any and
all instruments reasonably required to effect such subordination upon request of
Landlord or any mortgagee in interest.
In the event any mortgage is foreclosed for any reason, and
the Mortgagee succeeds to the interest of the Landlord under the Lease, the
Tenant shall be bound to the Mortgagee under all the terms of this Lease for the
balance of the term thereof, all with the same force and effect as if the
Mortgagee were the Landlord under the Lease, and the Tenant hereby attorns to
the Mortgagee as its Landlord, such attornment to be effective and
self-operative immediately (without the necessity of the execution of any
further instrument on the part of either of the parties hereto) upon the
Mortgagee succeeding to the interest of the Landlord under the Lease. The
respective rights and obligations of the Tenant and the Mortgagee upon such
attornment shall be, to the extent of the then remaining balance of the term of
the Lease, the same as now set forth therein, it being the intention of the
parties hereto for this purpose to incorporate by reference this Lease into any
such mortgage with the same force and effect as is set forth at length herein.
In the event that any mortgage is foreclosed for any reason
and the Mortgagee succeeds to the interest of the Landlord under the Lease, the
Mortgagee succeeds to the interest of the Landlord under the Lease, the
Mortgagee shall be bound to the Tenant under all the terms of the Lease, and the
Tenant shall, from and after such event, have the same remedies against the
Mortgagee for the breach of an agreement contained in the Lease that the Tenant
might have had under the Lease against the prior Landlord hereunder. Subject to
the provisions of Section 32. below, in no event shall the Mortgagee be liable
for any act or omission of any prior Landlord, be subject to any offsets or
defenses which the Tenant might have against any prior Landlord, or be bound by
any rent or additional rent which the Tenant might have paid to any prior
Landlord for more than the current month:
At Landlord's request, from time to time, Tenant agrees to
execute and deliver to Landlord estoppel certificates in a form which may be
reasonably required by Landlord or its mortgagee.
The rights and obligations of the Tenant and the Mortgagee
hereunder shall bind and inure to the benefit of their respective successors and
assigns. Landlord shall make its best
<PAGE> 10
-10-
efforts to provide Tenant with a fully executed non-disturbance agreement from
the Landlord's lender.
20. Tenant's Insurance; Landlord's Liability. Tenant shall
maintain general comprehensive public liability (including contractual liability
coverage and a broad form endorsement) with respect to the leased premises,
issued by an insurance company licensed to do business in the State of New
Hampshire, and naming Landlord as an additional insured, with a combined single
limit of not less than $1,000,000.00 for bodily injury and for property damage,
and with no annual aggregate limit. Tenant shall deliver to Landlord the
policies of such insurance, or certificates thereof, at the commencement of this
lease, and each renewal policy or certificate thereof, at least twenty (20) days
prior to the expiration of the policy it renews. Tenant may provide the required
coverages in this Section as part of a blanket or master policy of insurance
otherwise maintained by it.
The parties hereto agree that Landlord shall not be liable to
Tenant for injury or damage to person or property occurring within the leased
property unless caused by or resulting from any willful act, omission, fault,
negligence or other conduct of the Landlord or any of the Landlord's agents,
servants, or employees.
Tenant agrees to look only to Landlord's interest in the
leased premises for satisfaction of any claim against Landlord hereunder and not
to any other property or assets of Landlord. If Landlord transfers its interest
in the premises, then in the case of claims accruing from and after such
transfer Tenant shall look solely to the interest in the premises of Landlord's
transferee for the performance of all of the obligations of Landlord hereunder.
The obligations of Landlord shall not be binding on any partners (or trustees or
beneficiaries) of Landlord or of any successor individually, but only upon
Landlord's or such successor's assets as described in the foregoing sentences.
21. Notices. Any notice under this Lease must be in writing and
must be sent by certified mail to the first address of the party to whom the
notice is to be given, as designated by such party in writing. The Landlord
hereby designates its address as One Branch Street, Methuen, MA 01844, with a
copy to Shack Law office, One Branch Street, Methuen, MA 01844, and a copy to
Bank of Boston, 100 Federal Street, Boston, MA 02110, Attn: J. Ingrim, VP. The
Tenant hereby designates its address as: _____________________________________.
22. No Abatement of Rent. Except as specifically provided
elsewhere herein, no abatement, diminution, or reduction of rent, charges, or
other compensation shall be claimed by or allowed to the Tenant (or to any
persons claiming under it) under any circumstances, whether for inconvenience,
discomfort, interruption of business, or otherwise, arising from the making of
alterations, changes, additions, improvements, or repairs to the leased premises
by virtue or because of any future governmental laws, ordinances, requirements,
orders, directions, rules, regulations, or by virtue or arising from, and
during, the restoration of the leased premises after the destruction or damages
thereof by fire or other cause or the taking or condemnation of a portion only
of the leased property.
<PAGE> 11
-11-
23. Remedies Cumulative. The specified remedies to which the
parties may resort under the terms of this Lease are cumulative and are not
intended to be exclusive of any other remedies or means of redress to which the
parties may be lawfully party of any provision or provisions of this Lease.
24. No Oral Amendments. This Lease may not be changed orally, but
only by an agreement in writing and signed by the party against whom enforcement
of any waiver, change, modification, or discharge is sought. This Lease contains
the entire agreement between the parties and cannot be changed or terminated
orally.
25. Unenforceability. If any provision of this Lease shall be
declared invalid or unenforceable, the remainder of the Lease shall continue in
full force and effect.
26. Governing Law. This Lease shall be governed by, construed and
enforced in accordance with the laws of the State of New Hampshire.
27. Notice of Lease. The parties hereto agree that this Lease or
any notice thereof shall not be recorded.
28. Tenant's Right To Contest Laws. If, under the provisions of
Section 5 hereof, Tenant shall be required to comply with any law, ordinance,
order, regulation or rule, Tenant shall have the right to contest the validity
of said public order and shall not be deemed to be in default for not performing
the same until a final decision has been made as to the validity of said public
order, provided, however, that Tenant shall indemnify and hold Landlord harmless
against any fine or penalty arising by reason of Tenant's action in contesting
the same and protect Landlord against any forfeiture of estate by reason of
Tenant's action in contesting the same.
29. Warranty of Title. Landlord warrants and represents to Tenant
that, as of the Commencement Date hereof, it will be seized of the real estate,
will have full and lawful right to enter into this Lease, and that this Lease
will not violate the provisions of any other lease, mortgage or other
contractual agreement in effect and applicable with respect to the Building
(including, without limitation, any document related to the Condominium), and
that Landlord will not enter into any lease agreement or other undertaking which
would violate Tenant's rights hereunder.
30. Force Majeure. Except as herein elsewhere provided to the
contrary, all of the obligations of Landlord and Tenant hereunder are subject to
the following conditions, to wit: if performance other than payment of money or
substantial completion of the Building on the premises is prevented by reason of
fire, strike, labor difficulty, inability to obtain supplies or other
difficulties beyond the reasonable control of the party required to perform such
obligations, the performance shall be excusable during such period of inability.
31. Consents Not To Be Unreasonably Withheld. Wherever the consent
or approval of either party to this Lease is required, the same shall not be
unreasonably withheld or delayed.
32. Self Help. If Tenant shall default in the performance or
observance of any agreement or condition in this Lease contained on its part to
be performed and observed and shall
<PAGE> 12
-12-
not commence to cure such default within the period prescribed in this Lease,
Landlord may, at its option, without waiving any claim for damages, at any time
thereafter give written notice to Tenant that if the cure is not commenced
within thirty (30) days, and thereafter diligently prosecuted to completion,
Landlord will cure such default for the account of Tenant, and any reasonable
amount paid for any contractual liability incurred by Landlord in so doing shall
be deemed paid or incurred for the account of the Tenant and Tenant agrees to
reimburse Landlord therefor or save Landlord harmless therefrom; provided, that
Landlord may cure any such default as aforesaid prior to the expiration of any
waiting period, but after notice to Tenant if the curing of such default prior
to the expiration of such waiting period is reasonably necessary to protect the
real estate of Landlord's interest therein, or to prevent injury or damage to
persons or property. If Tenant shall fail to reimburse Landlord upon demand for
any cost incurred, said amount shall be added to and become due as a part of the
next payment of rent due hereunder.
If Landlord shall default in the performance or observance of
any agreement or condition in this Lease contained on its part to be performed
or observed hereunder and shall not cure such default within thirty (30) days
after notice thereof from Tenant (or, if such default cannot reasonably be cured
within thirty (30) days, Landlord shall not within said period commence to cure
such default and thereafter prosecute the curing of such default to completion
with due diligence), at its option Tenant may, at any time thereafter cure such
default for the account of Landlord, and any amount paid for any contractual
liability incurred by Tenant in so doing shall be deemed paid or incurred for
the account of Landlord, and Landlord shall agree to reimburse Tenant therefor
or to save Tenant harmless therefrom; provided, that Tenant may cure any such
default as aforesaid prior to the expiration of said waiting period as is
reasonably necessary to protect the real estate of Tenant's interest therein or
to prevent injury or damage to persons or property. If Landlord shall fail to
reimburse Tenant within thirty (30) days of demand therefor, Tenant may deduct
the same from the rent or any other sum due Landlord hereunder.
33. No Waivers. No assent, express or implied, by one party to any
breach of any covenant or condition therein contained on the part of the other
to be performed or observed, and no waiver, express or implied, or failure by
one party to insist on the other's prompt performance or observance of any such
covenant or condition, shall be deemed to be a waiver of or assent to any
succeeding breach of the same, or of any other covenant or condition, and,
except as provided herein, such party may assert its rights and remedies
hereunder without any prior or additional notice to the other that it proposes
to do so. The payment by Tenant or acceptance by Landlord of rent or other
payment hereunder, or silence by either party as to any breach, shall not be
construed as waiving any of such party's rights hereunder unless such waiver is
in writing.
No payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due to Landlord from Tenant shall be deemed to be anything
but payment on account, and the acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon or upon a letter accompanying
said check shall not be deemed an accord and satisfaction, and Landlord may
accept said check without prejudice to recover the balance due or pursue any
other remedy. It is agreed between the parties that f at any time a dispute
should arise as to the propriety or necessity of Tenant making any payment or
performing any obligations required hereunder, Tenant may pay or perform the
same under protest and such payment or performance under protest shall not be
considered to be voluntary on the part of Tenant.
<PAGE> 13
-13-
34. Parking and Access to Premises. Tenant, its agents, servants,
invitees and licensees, will have use of the parking area or designated parking
space in common with other tenants and occupants of the Brookview Industrial
Condominium, and at all times will have free ingress and egress to and from the
said parking area and entrances for all reasonable purposes, including the
purpose of loading and unloading of its merchandise.
35. Signs. Subject to all local ordinances and regulations, as
well as current rules and regulations of the Brookview Industrial Condominium,
Tenant may erect and maintain such signs as it may desire in connection with its
business, provided that Tenant will be responsible for the removal of such signs
at the termination of the tenancy as well as for the repair of any injury to the
leased premises caused thereby. Landlord shall include Tenant's name on the
directory at the entrance to the property.
36. Effect of Holdover. Any holdover beyond the end of the term of
this Lease, or any extensions or renewals thereof, shall be construed to be a
tenancy from month to month at the same rental and under the same conditions as
provided herein.
37. Brokers. The parties hereby agree that there was no broker
involved in showing the leased premises to Tenant other than Shea Commercial
Properties, whose commission shall be paid by Landlord. Either party hereby
indemnifies and holds the other harmless from and against all claims for a
commission or other fee made by any other broker with respect to the leased
premises.
38. Arbitration. Any disagreement between the parties with respect
to the interpretation or application of this Lease or the obligations of the
parties hereunder shall be determined by arbitration. Such arbitration shall be
conducted upon request of either the Landlord or the Tenant, before one person
designated by the American Arbitration Association and in accordance with the
rules of such Association. The arbitrator designated and acting under this Lease
shall make award in strict conformity with such rules and shall have no power to
depart from or change any of the provisions thereof.
39. Security Deposit. Landlord acknowledges receipt of the sum of
$6,875.00, to be held as a security deposit during the term of this Lease, and
duly accounted for pursuant hereto.
<PAGE> 14
-14-
IN WITNESS WHEREOF, Landlord and Tenant do hereby execute and deliver
this Lease to each other on the day and year first written.
LANDLORD: BROOKS PROPERTY TRUST
____________________________________
Athena Wlasits, Trustee
and not individually
By: ________________________________
Sumner Darman, Trustee
and not individually
By: ________________________________
Norman M. Shack, Trustee
and not individually
TENANT: OMTOOL LIMITED
By: ________________________________
hereto duly authorized
<PAGE> 1
EXHIBIT 10.5
AMENDMENT TO LEASE
Reference is made to that certain Lease dated as of August 1, 1996
(hereinafter "Lease"), by and between:
(a) Athena Wlasits, Sumner Darman and Norman M. Shack, as they are the
Trustees of Brooks Property Trust, u/d/t dated December 22, 1992, said trust
having an address at 1 Branch Street, Methuen, MA (hereinafter "Landlord"); and
(b) Omtool Limited, a duly formed corporation having an address at 8A
Industrial Way, Salem, NH (hereinafter "Tenant"),
which Lease covers certain premises contained in a building having an address at
8A Industrial Way, Salem, Rockingham County, NH, more particularly described
therein (hereinafter the "leased premises").
WHEREAS, the parties named above, pursuant to paragraph 24. of the said
Lease, desire to revise and amend certain terms contained therein,
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. Paragraph 1. of the Lease is hereby revised and amended to reflect
that the parties intend to the leased premises, as such term is defined by the
said Lease, approximately 7,500 square feet of space located within the Building
(hereinafter the "Additional Space"). The total space occupied by the Tenant, as
of the date hereof, shall hereafter consist of that space containing a total of
approximately 22,500 square feet, all as more particularly shown on the floor
plan marked "Exhibit A" annexed hereto prior to the execution hereof and herein
incorporated by reference as if fully set out hereon (collectively hereinafter
the "new leased premises"), and are more particularly shown on the said floor
plan annexed hereto.
The parties hereto acknowledge and agree that the new leased premises
constitute all of Units 1 and 2, located in said Building A, and that Tenant
accepts and occupies the said leased premises in its present condition, AS-IS,
with no warranties of any nature from Landlord, other than those which are set
forth in this Lease.
All other provisions of the said Paragraph 1., to the extent not
revised and amended by this paragraph, are hereby ratified and confirmed.
2. Paragraph 3. of the Lease is hereby revised and amended to reflect
that, effective as of the date hereof and during the remainder of the term
thereof, the Tenant shall be obliged to pay annual basic rent for the new leased
premises for the periods and in the amount as follows:
<PAGE> 2
-2-
8/1/98 to 7/31/00: The sum of One Hundred Forty Four Thousand Three
Hundred Seventy Five and 00/100 ($144,375.00) Dollars, payable in advance in
equal monthly payments of Twenty Thousand Thirty One and 25/100 ($12,031.25)
Dollars, said payments due on the first day of each month.
3. The last two grammatical paragraphs of Paragraph 8. of the Lease
shall be deleted and replaced in their entirety by the following:
Notwithstanding the foregoing, it is agreed that Tenant shall pay to
Landlord, as additional rent for said premises, such sum of money as represents
13.9461% of the amounts reasonably expended or incurred by the organization of
unit owners of the Condominium (or Landlord acting in its stead) in maintaining
and routine repairing all said walkways, curbs, parking areas and landscape
areas referred to in the immediately preceding paragraph, excluding replacements
and capital improvements. Such additional rent shall be payable by Tenant within
thirty (30) days of billing by Landlord therefor.
In connection with the percentage named in the preceding paragraph, the
Landlord warrants that the leased premises represent not less than 13.9461% of
the total percentage interest of ownership of the Condominium, as such is
established by the terms and provisions of the Declaration of Brookview
Industrial Condominium.
4. The second and third grammatical paragraphs of Paragraph 15. of the
Lease shall be deleted and replaced in their entirety by the following:
Notwithstanding the foregoing, it is agreed that Tenant shall pay to
Landlord, as additional rent for said leased premises, such sum of money as
represents 13.9461% of the amount reasonably expended or incurred by the
organization of unit owners of the Condominium (or Landlord in its stead) for
maintaining in force the insurance as provided in the immediately preceding
paragraph. Such additional rent shall be payable by Tenant as and when billed by
Landlord therefor.
In connection with the percentage named in the preceding paragraph, the
Landlord warrants that the leased premises represent not less than 13.9461% of
the total percentage interest of ownership as such is established by the terms
and provisions of the Declaration of Brookview Industrial Condominium.
5. Paragraph 39. of the Lease shall be deleted and replaced in its
entirety by the following:
Landlord acknowledges receipt of the sum of $11,562.50, to be held as a
security deposit during the term of this Lease, and duly accounted for pursuant
hereto.
<PAGE> 3
-3-
6. The following shall be added to the Lease:
40. Option to Extend. Tenant is hereby granted the option to extend
this Lease for one (1) additional successive period of three (3) years, which
shall commence on the first day following the expiration date of this Lease.
Tenant shall provide Landlord, at least six (6) months prior to the then
applicable expiration date, written notice of its intent to exercise its rights
hereunder. Such extension of this Lease shall be under the same terms and
conditions hereof, with the exception of the annual basic rent which shall be in
the amount of One Hundred Fifty Thousand and 00/100 ($150,000.00) Dollars,
payable in advance in equal monthly payments of Twelve Thousand Five Hundred and
00/100 ($12,500.00) Dollars, said payments due on the first day of each month.
7. In all other respects, the parties to this Amendment to Lease hereby
restate, ratify and confirm the terms and provisions of the above-entitled
Lease, to the extent not revised and amended hereby.
EXECUTED as a sealed instrument as of the 1st day of August, 1996.
Landlord Brooks Property Trust
by: /s/Athena Wlasits Trustee
--------------------------------
Athena Wlasits, Trustee
hereto duly authorized
by: /s/Sumner Darman Trustee
--------------------------------
Sumner Darman, Trustee
hereto duly authorized
by: /s/Norman M. Shack
--------------------------------
Norman M. Shack, Trustee
hereto duly authorized
Tenant: Omtool Limited
by: /s/ Darioush Mardan
--------------------------------
hereto duly authorized
Darioush Mardan CFO
<PAGE> 4
Exhibit A
See Plan attached hereto and made a part hereof.
[Map of Leased Premises]
<PAGE> 1
Exhibit 10.6
DEMAND NOTE
$1,000,000.00 Salem, New Hampshire
August 30, 1996
1. Promise to Pay.
In the manner hereinafter specified, the undersigned, ("Maker"),
unconditionally promises to pay ON DEMAND to the order of First NH Bank (along
with its successors and assigns referred to as "Bank"), the principal sum of ONE
MILLION DOLLARS ($1,000,000.00) together with interest thereon at the Applicable
Interest Rate (defined below) from the date hereof until payment in full
(computed on the basis of the actual number of days elapsed over a year of 360
days).
2. Interest Rate and Payments of Interest and Principal.
2.1 Applicable Interest Rate:
The Applicable Interest Rate shall be equal to one-half
percent (.5%) per annum ("Increment") above the following
Index: lowest Wall Street Journal Prime Rate, so-called, as
adjusted from time to time. For purposes of calculating the
Applicable Interest Rate hereunder, the "Wall Street Journal
Prime Rate" shall mean the prime rate (the base rate on
corporate loans at large U.S. money center commercial banks)
as published in the Money Rates section of the Wall Street
Journal or other equivalent publication if the Wall Street
Journal no longer publishes such information (if more than one
such prime rate is published on any given day, the lowest of
such published rates shall be the Wall Street Journal Prime
Rate for purposes of this Note) ("Index"). If the Index shall
cease to exist, Bank may set the Applicable Interest Rate by
using a different increment and comparable
2.2 The Applicable Interest Rate shall adjust each time and as of
the time that the Index changes without notice to Maker each time the Index
changes.
2.3 Interest on the outstanding principal shall be due and payable
monthly, commencing on September 30, 1996 and continuing on the same date of
each month thereafter.
3. Application of Payments and Prepayment.
Prepayment. Maker may prepay the principal balance prior to
maturity in accordance with the following terms:
at any time without penalty.
<PAGE> 2
-2-
All payments by Maker hereunder shall be applied first to outstanding late and
other charges, then to accrued interest, the balance to prepaying of Principal.
No prepayment of less than the full unpaid balance shall relieve Maker of his
obligation to pay the next interest payment due thereunder.
4. Late Payment.
Maker shall pay to the Bank a late charge of five percent (5%) of
any installment not received by the Bank within ten (10) days after such
installment is due.
5. Set-Off.
Maker grants Bank the right of set off against and a security interest in
all deposits and other property of Maker which are maintained with Bank.
6. Demand Obligation.
This Note is A DEMAND OBLIGATION. Accordingly, Bank may demand payment of
all outstanding principal and interest at any time.
7. Waivers.
Maker and all sureties, endorsers and guarantors of this Note hereby
waive demand, presentment of payment, notice of nonpayment, protest, notice of
protest and all other notice, filing of suit and diligence in collecting this
Note, and agree to pay all costs of collection when incurred including court
costs, (including bankruptcy and probate proceedings) attorney's fees together
with interest thereon at the Applicable Interest Rate. Interest at the
Applicable Interest Rate or the rate of interest on judgment as prescribed by
New Hampshire RSA 336:1, whichever is greater, shall be deemed to continue to
accrue at said rate from the making of demand thereunder until this Note is paid
in full.
8. General Provisions.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right, or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. This
Note is fully negotiable. In the event any payment received by Bank shall be
deemed to have been a voidable preference or fraudulent conveyance then the
obligations of the undersigned shall survive and shall not be discharged by said
payment notwithstanding return to Maker of this original Note. This Note shall
be governed by the laws of the State of New Hampshire. The obligations of the
undersigned, if more than one, shall be joint and several. The unenforceability
of any provision herein shall not effect the enforceability of any other
provision herein. This Note shall inure to the benefit of and be binding upon
the successors and assigns of Bank and Maker. This Note shall have the effect of
an instrument executed under seal. This Note shall continue in full force and
effect until all Liabilities are satisfied in full and
<PAGE> 3
-3-
Bank is no longer obligated to make advances to Maker, even if the amount of the
Liabilities at any time is zero.
WITNESS: Omtool, Ltd. - MAKER
___________________________________ By: ___________________________________
Address: ______________________________
________________________________________
<PAGE> 4
-4-
DISBURSEMENT AUTHORIZATION
LENDER: FIRST NH BANK
875 Elm Street
Manchester, New Hampshire 03101
BORROWER: Omtool, Ltd.
LOAN: $250,000.00 Commercial Term Note
CLOSING DATE: August 30, 1996
Name of Payee and Purpose Amount
------------------------- ------
1. To Sheehan Phinney Bass + Green, Professional
Association for closing costs, as follows:
Research Connection:
UCC search for Delaware and New 98.75
Hampshire
Certificates of Good standing for
Delaware and New Hampshire
Recording Fees: 89.32
UCC-1s/New Hampshire 59.32
UCC-1s/Delaware 30.00
Travel: 18.60
Facsimile Fees: 16.00
Legal: 1,500.00
Telecommunication/Photocopy: 63.00
2. First NH Bank 5,000.00
Total Disbursements: $6,785.67
Amount due from BORROWER: $10,785.67
<PAGE> 5
-5-
BORROWER: OMTOOL, LTD.
_______________________________ By:________________________________
Witness Its:
<PAGE> 1
EXHIBIT 10.7
COMMERCIAL TERM NOTE
$250,000.00 Salem, New Hampshire
August 30, 1996
1. Promise to Pay.
In the manner hereinafter specified, the undersigned ("Maker")
unconditionally promises to pay to the order of First NH Bank (along with its
successors and assigns referred to as "Bank") the principal sum of TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000.00), together with interest thereon at the
Applicable Interest Rate (defined below) from the date hereof until payment in
full (computed on the basis of the actual number of days elapsed over a year of
360 days).
2. Interest and Principal Payments.
2.1 Applicable Interest Rate.
The Applicable Interest Rate shall be equal to one-half percent
(.5%) per annum ("Increment") above the following Index: lowest
Wall Street Journal Prime Rate, so-called, as adjusted from time
to time. For purposes of calculating the Applicable Interest Rate
hereunder, the "Wall Street Journal Prime Rate" shall mean the
prime rate (the base rate on corporate loans at large U.S. money
center commercial banks) as published in the Money Rates section
of the Wall Street Journal or other equivalent publication if the
Wall Street Journal no longer publishes such information (if more
than one such prime rate is published on any given day, the lowest
of such published rates shall be the Wall Street Journal Prime
Rate for purposes of this Note) ("Index"). If the Index shall
cease to exist, Bank may set the Applicable Interest Rate by using
a different increment and comparable index.
2.2 The Applicable Interest Rate shall adjust ("Payment Change Date")
as follows:
each time and as of the time that the Index changes without notice
to Maker each time the Index changes.
2.3 Interest Payments. Interest shall be paid as follows:
interest included in the Blended Installment provision set forth
below.
2.4 Principal Payments. The Principal Balance shall be due and
payable as follows:
Blended Installments. Principal and interest shall be paid in
thirty-six (36) equal monthly installments based on an amortization over
thirty-six (36) months commencing on September 30, 1996, and continuing on the
same day of each month thereafter with a final payment of all unpaid principal
and interest due on August 30, 1999. Upon a Payment Change Date, using a
standard amortization table for declining balance loans, the monthly payment
shall
<PAGE> 2
-2-
be adjusted to equal monthly blended payments of principal and interest required
to amortize a loan in the amount of unamortized principal outstanding at the
Payment Change Date at the new Interest Rate established over the remainder of
the term.
3. Application of Payments and Prepayment.
Prepayment. Maker may prepay the principal balance prior to maturity in
accordance with the following terms:
at any time without penalty.
All payments by Maker hereunder shall be applied first to outstanding
late and other charges, then to accrued interest, then to Principal currently
due, the balance to prepayment of Principal. No prepayment of less than the full
unpaid balance shall relieve Maker of his obligation to pay his next installment
hereunder.
4. Late Payment.
Maker shall pay to the Bank a late charge of five percent (5%) of any
installment not received by the Bank within ten (10) days after such installment
is due.
5. Set-Off.
Bank shall have the right of set off against and a security interest in
all deposits and other property of Maker which are maintained with Bank.
6. Events of Default and Remedies on Default.
Upon any of the following Events of Default, this Note shall become
immediately due and payable without further notice or demand:
6.1 failure to make any payment hereunder when due or failure to pay
any other obligation of Maker to the Bank, now existing or subsequently arising,
including, but not limited to the obligations of Maker to the Bank pursuant to
the Demand Note between the parties of even date;
6.2 upon the earlier to occur of: (i) notice of default under the
Series B Agreement, and (ii) commencement of an action by the Series B Preferred
Stockholders for breach of the Series B Agreement;
6.3 any default under any instrument executed in connection with this
Note or under any other document now or subsequently evidencing indebtedness of
Maker to the Bank not cured in accordance with applicable cure periods;
6.4 any transfer, attachment or other interference with a substantial
portion of Maker's assets (except for sales of inventory and replacement of
equipment in the ordinary course of business);
<PAGE> 3
-3-
6.5 death of any individual Maker or dissolution or liquidation of any
corporate, partnership or trust Maker; or
6.6 insolvency of Maker; appointment of a receiver of Maker's
property, assignment for the benefit of creditors, commencement of any
proceeding under bankruptcy or similar laws relating to the relief of debtors,
voluntary or involuntary.
7. Waivers.
Maker and all sureties, endorsers and guarantors of this Note hereby
waive demand, presentment for payment, notice of nonpayment, protest, notice of
protest and all other notice, filing of suit and diligence in collecting this
Note, and agree to pay all costs of collection when incurred including court
costs (including bankruptcy and probate proceedings) attorney's fees together
with interest thereon at the Applicable Interest Rate. Interest at the
Applicable Interest Rate or the rate of interest on judgments as prescribed by
New Hampshire RSA 336:1, whichever is greater, shall be deemed to continue to
accrue at said rate from the maturity date hereof (whether by acceleration,
institution of suit for collection or otherwise) until this Note is paid in
full.
8. General Provisions.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right, or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. This
Note is fully negotiable. In the event any payment received by Bank shall be
deemed to have been a voidable preference or fraudulent conveyance then the
obligations of the undersigned shall survive and shall not be discharged by said
payment notwithstanding return to Maker of this original Note. This Note shall
be governed by the laws of the State of New Hampshire. The obligations of the
undersigned, if more than one, shall be joint and several. The unenforceability
of any provision herein shall not effect the enforceability of any other
provision herein. This Note shall inure to the benefit of and be binding upon
the successors and assigns of Bank and Maker. This Note shall have the effect of
an instrument executed under seal. This Note shall continue in full force and
effect until all Liabilities are satisfied in full and Bank is no longer
obligated to make advances to Maker, even if the amount of the Liabilities at
any time is zero.
WITNESS: Omtool Ltd. - MAKER
___________________________________ By:_________________________________
Address:____________________________
____________________________________
<PAGE> 1
Exhibit 10.8
LOAN AND SECURITY AGREEMENT
THIS LOAN AGREEMENT is made this 30th day of August, 1996, between First
NH bank, a New Hampshire guaranty savings bank, with a mailing address of 875
Elm Street, Manchester, New Hampshire 03101 ("Bank") and Omtool, Ltd., a
Delaware corporation, with a principal place of business at 8 Industrial Way,
Salem, New Hampshire ("Borrower").
1. LOAN.
Bank agrees to grant two (2) loans to Borrower, and Borrower agrees
to borrow from Bank, upon the terms and conditions of this Agreement, the amount
of One Million Dollars ($1,000,000.00) ("Loan") and the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) ("Term Loan").
2. DEFINITIONS.
2.1 "Collateral" refers to all property and assets of Borrower
described herein, or in any other Loan Documents, whether now existing or
delivered to Bank in the future.
2.2 "Liability" and "Liabilities" mean all obligations of Borrower
hereunder, together with any renewals, extensions or modifications thereof, and
any and all other obligations of Borrower to Bank whether presently existing or
arising in the future.
2.3 "Loan Documents" refers to this Loan Agreement, the Demand Note,
the Term Note and all other instruments, documents or writings delivered by
Borrower to Bank in connection with this transaction or any other loan from Bank
to Borrower.
3. CONDITIONS OF MAKING ADVANCES UNDER LOANS/ REPRESENTATIONS AND
WARRANTIES
The following constitute continuing conditions to this Agreement:
3.1 Borrower is a corporation, duly organized and existing under the
laws of the State of Delaware, and is duly qualified and in good standing in
every other state in which it is doing business. All organizational documents
and all amendments thereto of Borrower have been duly filed and are in proper
order. All outstanding capital stock issued by Borrower was properly issued; and
all books and records of Borrower, including its minute books, by-laws and books
of account, are accurate and up to date, and will be so maintained. Borrower has
the full power and authority to enter into the Loan Documents. The execution,
delivery and performance of the Loan Documents has been duly authorized and does
not conflict with any provision of Borrower's organization documents or of any
statute, regulation, ordinance, rule of law, agreement or other instrument
binding upon Borrower;
<PAGE> 2
3.2 No litigation is threatened, contemplated or pending against
Borrower which will materially and adversely affect Borrower's financial
condition;
3.3 All representations and warranties heretofore or hereafter made
by Borrower to Bank are or will be true and correct as of the date with respect
to which such representations or warranties were made;
3.4 Borrower is (and as to Collateral hereafter acquired, will be)
the owner of the Collateral free and clear of any lien, security interest, or
encumbrance of any nature whatsoever, and Borrower shall defend the same against
all persons;
3.5 Borrower is not a Treatment Storage or Disposal Facility, does
not generate, transport or store any type of Hazardous Waste as defined under
federal or state law or regulation. Borrower shall comply with all applicable
federal, state and local laws, ordinances, rules, regulations and permits
relating to the protection of the environment, waters and air of the State of
New Hampshire and United States of America; and borrower has no knowledge of any
pending or threatened enforcement action, violation or investigation relating
thereto. If at any time Borrower becomes aware of any violation it shall
immediately notify Bank;
3.6 Borrower will not permit any lien upon, pledge of or security
interest (except that granted herein) on the Collateral. Borrower will not
incur, assume, guaranty or have outstanding any additional indebtedness;
3.7 Borrower will maintain its depository accounts and its primary
banking relationships with Bank;
3.8 Borrower will furnish to Bank within one hundred twenty (120)
days after the last day of each fiscal year, copies of its federal income tax
return (as filed) and an audited financial statement, including, but not limited
to, a balance sheet, statement of income, retained earnings, and changes in cash
flows and other supporting schedules, each prepared in accordance with generally
accepted accounting principals consistently applied with a report signed by an
independent certified public accountant satisfactory to Bank. Borrower will
furnish to Bank within thirty (30) days before the end of each fiscal year an
annual operating plan and budget for the next fiscal year, including a pro forma
income statement and cash flow statement. Additionally, Borrower will furnish
Bank with monthly internally prepared financial statements, and furnish to Bank
such other information concerning its business(es) or any guarantor as Bank may
reasonably request from time to time, which information shall be delivered
within fifteen (15) days of month's end and include, without limitation: (i)
monthly aging of accounts receivable and payable; (ii) monthly borrowing base
certificate; (iii) monthly operating statement and balance sheet; and (iv) such
other financial reports as Bank may reasonably request. All financial statements
previously or in the future delivered to Bank fairly present the financial
condition and the results of Borrower's operations at the times and for the
periods therein stated, and since the latest date covered by the most recent
financial statements delivered, there has been no adverse change in the
financial condition of borrower. Borrower will permit Bank to inspect
<PAGE> 3
and examine the books, accounts, records, ledgers and assets of every kind and
description of Borrower at all times;
3.9 If borrower now or hereafter maintains an employee benefit plan
covered by Section 4021(a) of the Employee Retirement Income Security Act of
1974 (hereinafter referred to as "ERISA") relating to plan termination
insurance, it will promptly: (i) notify Bank of filing of notice with the
Pension Benefit Guaranty Corporation ("PBGC") pursuant to Section 4041 of ERISA
that the plan is to be terminated; and, (ii) notify Bank of the institution of
proceedings by PBGC under Section 4042 of ERISA;
3.10 Borrower will not change its name, will continue in the same
line of business it conducts as of the date hereof and will operate its business
actively; Borrower shall preserve its separate legal existence in good standing
in each jurisdiction as required by law. Borrower will give Bank prompt written
notice at least thirty (30) days prior to the date it discontinues operations
at, or changes, any of its business addresses as listed herein;
3.11 Borrower will not make any changes in its management
consisting of Martin A. Schultz, President and Robert L. Voelk CEO, without
the express prior consent of Bank;
3.12 So long as the Liabilities under the Revolving Loan or the Term
Loan are outstanding:
3.12.a. Borrower shall at all times maintain a maximum
Indebtedness to Tangible Net Worth ratio of 2.0:1, reviewed quarterly. For the
purposes hereof, "Indebtedness" means all obligations, contingent and otherwise,
which should in accordance with generally accepted accounting principals
consistently applied, be classified upon Borrower's balance sheet as
liabilities, but in any event including, without limitation, liabilities secured
by any mortgage on property owned or acquired subject to such mortgage, assumed,
and also including, without limitation, (i) all guaranties, endorsements whether
or not the same are or should be so reflected in said balance sheet, except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transaction in the ordinary course of business, and (ii) the present
value of any lease payments due under leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards.
"Tangible Net Worth" means the Capital Stock account plus Subordinated Debt plus
retained earnings plus additional paid in capital minus treasury stock minus
intangible assets, all in accordance with generally accepted accounting
principals consistently applied.
3.12.b. Borrower shall at all times maintain a minimum Cash
Flow Coverage Ratio of 3.0:1, reviewed quarterly. For the purposes hereof, "Cash
Flow Coverage Ratio" shall be defined as the sum of net profit after tax plus
interest plus depreciation minus nonfinanced capital expenditures minus
non-recurring income minus non-cash income minus distributions minus dividend
minus advances divided by the sum of Current Maturities of Long Term Debt plus
interest plus capital lease expense, all in accordance with generally accepted
accounting principals consistently applied;
<PAGE> 4
3.13 Revolving Loan provisions:
3.13.a Definitions.
(i) "Eligible Accounts" means such of Borrower's
Accounts which meet the following specifications: (1) not more than ninety (90)
days old from date of invoice; (2) is not owed by a customer owing any other
accounts more than ninety (90) days old from date of invoice; (3) does not arise
out of the sale by Borrower of goods consigned or delivered to Borrower on sale
or return terms; (4) arose in the ordinary course of business; (5) does not
arise out of any sale made on a "bill and hold," dating, or delayed shipping
basis; (6) is owed by a customer whose principal place of business is within the
United States; (7) is not owed by the United States Government, its agencies or
representatives; (8) is not owed by any corporation or other entity which is
related to Borrower, or is of common ownership with Borrower, or could be
treated as a member of the same controlled group of corporations of which
Borrower is a member; (9) is not subject to any claim, counterclaim, set off, or
chargeback, or includes terms under which the account debtor can return the
goods giving rise to such account or to Borrower; (10) is not evidenced by a
promissory note; (11) is not owed by any person employed by Borrower; and (12)
is not deemed to be an undue credit risk, in Bank's sole discretion.
(ii) "Availability" means the lesser of: (a) seventy
percent (70%) of the face amount of each of Borrower's Eligible Accounts and (b)
One Million Dollars ($1,000,000.00).
3.13.b Bank establishes the Loan as a revolving line of credit
in the amount of Borrower's Availability; the Revolving Credit is payable ON
DEMAND. Borrower may request advances from Bank from time to time hereafter in
amounts up to the then aggregate of Borrower's Availability. At the time of each
advance, Borrower shall immediately become indebted to Bank for the amount
thereof. Each such advance may be credited by Bank to any deposit account of
Borrower, or paid to Borrower. Requests for advances under the Revolving Credit
may be made on any day on which Bank is open to conduct business. If such a
request is received by Bank prior to 12:00 p.m. on a Banking Day, the advance
shall be made on such Bank Day and otherwise on the next Banking Day. Borrower
shall submit to Bank with each request for advance, a so-called borrowing base
certificate in a form acceptable to Bank, which certificate shall, inter alia,
include a computation of Borrower's maximum Availability. Each request for an
advance under the Revolving Credit shall constitute a confirmation by Borrower
that Borrower is in full compliance with this Agreement.
3.13.c If at any time the unpaid principal amount of the
Revolving Credit exceeds the limitations contained in Sub-Section 3.11.a,
Borrower shall, immediately upon receipt of notice from Bank, make a payment of
principal in an amount equal to such excess.
<PAGE> 5
4. GRANT OF SECURITY INTEREST.
4.1 To secure the Liabilities, Borrower grants to Bank a
continuing security interest in the following Collateral, now existing or
hereafter arising, together with all products and proceeds (including insurance
proceeds) thereof.
All accounts, accounts receivable, demand deposits, "cash
collateral" (as defined in 11 USC Section 363(a)), rights of
reclamation and stoppage in transit, all rights of an unpaid
seller of goods or services and all other debts and
obligations owing to Debtor from any person in whatever form
("Accounts");
All goods, merchandise, inventory, raw materials (in place or
on order), work-in-process, tangible property held for sale or
lease or furnished or to be furnished under contracts of
service, or property used or consumed in Borrower's business,
or consigned to others or held by others for return to
Borrower ("Inventory");
All machinery, equipment, furniture, fixtures, together with
all parts, tools, trade-ins, repairs, accessories,
modifications, and replacements ("Equipment");
All general intangibles, including, but not limited to, all
choses in action, contracts, leases, tax refunds, notes,
bills, all rights to payment under tenancies at will,
corporate names, trade names, trademarks, trade secrets, books
and records, customer lists, blue prints and plans, computer
programs, tapes and related electronic data processing
software, all corporate ledgers and all instruments, documents
of title, documents and other similar property
("Intangibles"); and
A purchase money security interest in the computer and office
equipment purchased with the proceeds of the Term Loan.
4.2 Borrower warrants that existing Collateral is and covenants
that future Collateral will be lawfully owned by Borrower, free and clear of all
other liens, encumbrances and security interests.
4.3 Borrower's only place of business is set forth on page 1.
Borrower shall not sell, abandon, substantially modify or remove the Collateral
from its present location(s) without the prior written consent of Bank. Borrower
may sell Inventory in the ordinary course and replace obsolete or worn out
Collateral with new property of substantially equal value so long as said
property becomes subject to this security interest. Borrower shall permit Bank
to inspect and examine the Collateral and the books, accounts, records and
ledgers with respect thereto at all reasonable times.
<PAGE> 6
4.4 Borrower will keep the Collateral fully insured with companies
and in amounts as Bank may require, including, without limitation, against fire
and casualties and hazards on an extended coverage all risk basis public
liability insurance and business interruption insurance, for the benefit of
Borrower and Bank, promptly delivering insurance policies or certificates to
Bank containing provisions that such insurance may not be cancelled or decreased
without thirty (30) days prior written notice to Bank and notify Bank within ten
(10) days of any claim made by Borrower under a policy of insurance which covers
the Collateral. Borrower agrees to maintain the Collateral in good condition and
repair (normal wear and tear excepted) and in accordance with all manufacturers'
recommendations. Borrower shall use the Collateral solely for business purposes
and not in violation of any statute or ordinance or applicable insurance policy
and will promptly pay all taxes and assessments levied against the Collateral.
Upon failure of Borrower to comply with its obligations above, Bank may procure
insurance and/or repair the Collateral, the cost of which shall be a lien
against the Collateral added to Liabilities and payable ON DEMAND with interest
at the Applicable Interest Rate as defined in the Demand Note and the Term Note.
4.5 Borrower hereby appoints Bank as its attorney-in-fact to
execute proofs of claim, drafts or other instruments, negotiate settlements and
do all other things necessary to effect a settlement under any insurance policy
which power, being coupled with an interest, shall be irrevocable. Borrower
agrees that in the event of loss, insurance proceeds shall be paid to Bank to be
applied towards the Liabilities or repair/replacement of Collateral at the sole
option of Bank.
4.6 Borrower will sign and deliver to Bank such Financing
Statements and other documents as Bank may request to establish and maintain a
valid perfected security interest in the Collateral, and Borrower will pay any
related filing fees and fees for lien searches.
4.7 Borrower will indemnify and hold Bank harmless from and
against all loss, damage and costs, whatsoever arising from the use, possession
or disposition of the Collateral.
5. DEFAULT; REMEDIES.
5.1 The occurrence of any one or more of the following shall
constitute an Event of Default:
5.1.a failure to make any payment when due hereunder or under
any Liability from time to time owed by Borrower to Bank, not cured within any
applicable cure periods;
5.1.b upon the earlier to occur of: (i) notice of default
under the Series B Agreement and (ii) commencement of an action by the Series B
Preferred Stockholders for breach of the Series B Agreement.
<PAGE> 7
5.1.c failure to Borrower in the observance or performance of
the terms, obligations, agreements, covenants or conditions contained herein, or
in any other Loan Document;
5.1.d any transfer, attachment or other interference with a
substantial portion of Borrower's assets (except for sales of Inventory and
replacement of Equipment in the ordinary course of business);
5.1.e death of any individual Borrower or dissolution or
liquidation of any corporate, partnership or trust Borrower;
5.1.f insolvency of Borrower, appointment of a receiver of
Borrower's property, assignment for the benefit of creditors, commencement of
any proceeding under bankruptcy or similar laws relating to the relief of
debtors, voluntary or involuntary; or,
5.1.g the termination of any guaranty or the occurrence of any
of the events described in this Sub-Section 5.1.c through 5.1.e, inclusive, with
respect to any guarantor; and,
5.1.h if any representation or warranty made herein or in
connection with the execution and delivery of any of the Loan Documents proves
to have been incorrect in any material respect when such representation or
warranty was made.
5.2 Upon the occurrence of an Event of Default:
5.2.a Bank may accelerate any and all Liabilities and
declare the same to be immediately due;
5.2.b Bank shall no longer be obligated to make any
advances on the Loan or on any other Liabilities;
5.2.c Bank may exercise any rights and remedies available to
it under this Agreement, under any other Loan Documents, and/or under applicable
law;
5.2.d Bank shall have the rights and remedies of a Secured
Party under the Uniform Commercial Code; and,
5.2.e Bank is hereby authorized to enter any premises where
the Collateral is and, without liability for rent may store, assemble,
disassemble, remove, sell or otherwise dispose of Collateral at public or
private sale upon ten (10) days' prior written notice to Borrower at the
expiration of which notice all rights of redemption in the Collateral shall be
deemed waived by Borrower. The proceeds of each sale shall first be applied
toward the payment of all expenses of sale and then any surplus may be applied
by Bank to the payment of the Liabilities. Borrower hereby covenants and agrees
to remain liable for any deficiency. Bank
<PAGE> 8
may require Borrower to assemble the Collateral and to make it available to Bank
at a place to be designated by Bank.
5.3 Borrower agrees to pay all costs of collection when incurred
including court costs (including bankruptcy and probate proceedings), attorney's
fees together with interest thereon at the Applicable Interest Rate (as defined
in the Demand Note and Term Note) or the interest on judgments prescribed by New
Hampshire RSA 336:1, whichever is greater, which shall be deemed to continue to
accrue at said rate until the Liabilities are paid in full.
5.4 BORROWER WAIVES THE RIGHT TO DEMAND A JURY IN ANY ACTION IN
WHICH BANK IS A PARTY.
5.5 Demand, presentment for demand, protest, notice of protest and
notice of non payment is hereby waived by Borrower.
5.6 Borrower agrees that the amount by which the value of the
Collateral may exceed, from time to time, the outstanding obligation of Borrower
to Bank ("equity cushion") shall not, under any circumstances, be deemed to be
adequate protection for Bank in the event of any insolvency proceedings under 11
USC 101 et seq. Borrower acknowledges that the equity cushion that may exist is
solely for the benefit of Bank to ensure the repayment in full of all
obligations hereunder, and represents a benefit bargained for and acquired by
Bank in exchange for full and adequate consideration.
5.7 Bank shall have the right of set-off against and a security
interest in all deposits and other property of Borrower which are maintained
with Bank.
5.8 Bank shall have the right to notify any of Borrower's account or
contract debtors, to make payment directly to Bank, and to collect all amounts
due on account of the Collateral. Bank shall have the right to compromise,
settle, or execute releases with any of Borrower's account debtors, and to
prosecute, defend, compromise, or release any action relating to the Collateral;
to endorse the name of Borrower upon any and all checks, drafts, money orders,
notes, acceptances, or other instruments of the same or different nature; to
sign and endorse the name of Borrower on, and to receive as secured party, any
of the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title relating to the Collateral; to sign the name of Borrower on
any notice to Borrower's account debtors or verification of the Collateral; and
to sign and file or record on behalf of Borrower any financing or other
statement in order to perfect or protect Bank's security interest. Bank shall
not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to Borrower except for Bank's
actual willful misconduct. All powers conferred upon Bank by this Agreement,
being coupled with an interest, shall be irrevocable until the within Agreement
is terminated as provided herein.
<PAGE> 9
6. GENERAL PROVISIONS.
No delay or omission on the part of Bank in exercising any right
hereunder shall operate as a waiver of such right, or of any other right of
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. In the
event any payment received by Bank shall be deemed to have been a voidable
preference or fraudulent conveyance then the obligations of the undersigned
shall survive and shall not be discharged by said payment notwithstanding return
to Borrower of this Agreement. This Agreement shall be governed by the laws of
the State of New Hampshire. The obligations of the undersigned, if more than
one, shall be joint and several. The unenforceability of any provision herein
shall not effect the enforceability of any other provision herein. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of Bank and Borrower. This Agreement shall have the effect of an
instrument executed under seal. This Agreement shall continue in full force and
effect until all Liabilities are satisfied in full and Bank is no longer
obligated to make advances to Borrower, even if the amount of the Liabilities at
any time is zero.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
Omtool, Ltd. ("BORROWER")
_____________________________ By: ______________________________
Witness Its:
FIRST NH BANK
_____________________________ By: ______________________________
Witness Its:
<PAGE> 1
Exhibit 10.11
CHANGES IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$250,000.00 12-31-1999 00000002 04A0 ACASEQ 7200060780 755
- -----------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS
DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
- -----------------------------------------------------------------------------------------------------
</TABLE>
Borrower: OmTool Ltd. (TIN: 020447481) Lender: Citizens Bank New Hampshire
8A Industrial Way Manchester Lending Division
Salem, NH 03079 875 Elm Street
Manchester, NH 03101
================================================================================
Principal Amount: $250,000.00 Date of Agreement: January 27, 1997
DESCRIPTION OF EXISTING INDEBTEDNESS. Promissory Note dated August 30, 1996, by
Borrower to Lender, formerly known as First NH Bank, in the original face amount
of $250,000.00. Said obligation has an outstanding principal balance as of the
date hereof in the amount of $250,000.00.
DESCRIPTION OF COLLATERAL. Assets as described in a Loan and Security Agreement
dated August 30, 1996, by Borrower, as grantor, to Lender, formerly known as
First NH Bank, as secured party, and perfected by the filing of UCC-1 Financing
Statements with the New Hampshire Secretary of State and the Salem Town Clerk.
DESCRIPTION OF CHANGE IN TERMS. The Borrower and Lender hereby agree to amend
the indebtedness by changing the maturity date and monthly payment amount.
PROMISE TO PAY. Omtool, Ltd. ("Borrower") promises to pay to Citizens Bank New
Hampshire ("Lender"), or order, in lawful money of the United States of America,
the principal amount of Two Hundred Fifty Thousand & 00/100 Dollars
($250,000.00), together with interest on the unpaid principal balance from
December 31, 1996, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the index,
Borrower will pay this loan in 35 payments of $7,933.47 each payment and an
irregular last payment estimated at $7,933.19. Borrower's first payment is due
January 31, 1997, and all subsequent payments are due on the same day of each
month after that. Borrower's final payment will be due on December 31, 1999, and
will be for all principal and all accrued interest not yet paid. Payments
include principal and interest. Interest on this Agreement is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by
<PAGE> 2
-2-
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an independent index which is the Wall
Street Journal Prime Rate (the "Index"). The Index is not necessarily the lowest
rate charged by Lender or its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each day. In the
event that the published index indicates a range of rates, the index will be the
highest of the published range. The index currently is 8.250% per annum. The
interest rate to be applied to the unpaid principal balance of this Agreement
will be at a rate of 0.500 percentage points over the index, resulting in an
initial rate of 8.750% per annum. NOTICE: Under no circumstances will the
interest rate on this Agreement be more than the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Borrower's payments at the same amount
and increase Borrower's final payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than its due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment of $35.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or
any of the other events described in this default section occurs with respect to
any guarantor of this Agreement. (g) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired. (h) Lender in good faith deems
itself insecure.
<PAGE> 3
-3-
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, do one or both of the following: (a) increase
the variable interest rate on this Agreement to 3.500 percentage points over the
index, and (b) add any unpaid accrued interest to principal and such sum will
bear interest therefrom until paid at the rate provided in this Agreement
(including any increased rate). The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Agreement if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Agreement has been delivered to
Lender and accepted by Lender in the State of New Hampshire. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Hillsborough County, the State of New Hampshire. Lender and
Borrower hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Hampshire.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Agreement against any
and all such accounts.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by the virtue of
this Agreement. If any person who signed the original obligation does not sign
this Agreement below, then all persons signing below acknowledge that this
Agreement is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
<PAGE> 4
-4-
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Agreement without losing them. Borrower and any other
person who signs, guarantees or endorses this Agreement, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
Borrower expressly agrees that the interest rates specified. In this Agreement
shall be the applicable interest rates due (a) on amounts outstanding during the
term of this Agreement, notwithstanding the rate of interest prescribed by
statute from time to time, and (b) with respect to any amounts outstanding on
and after the maturity date of this Agreement.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT.
BORROWER:
Omtool, Ltd.
By: _________________________
Robert Voelk, CEO
LENDER:
Citizens Bank New Hampshire
By:___________________________
Authorized Officer
<PAGE> 1
Exhibit 10.12
IMPORTANT INFORMATION
ABOUT YOUR RETURN RIGHTS
Congratulations!
You have purchased Fax Sr., the finest network fax solution available. We
appreciate your choosing Fax Sr. to save time and money in your faxing. Fax
Sr.'s network fax capabilities will let your users bring substantial benefits to
the organization.
We are confident that you will be completely satisfied with your purchase. Fax
Sr. comes with a 30 day unconditional money back guarantee. Included in the
product is a 30 day license which provides you access and use of all Fax Sr.
functionality, including all options. This temporary license will allow you to
use Fax Sr. for 30 days from the initial installation and registration of the
software. Permanent licenses are issued by calling (603) 898-8900, extension
1300.
Should Fax Sr. not match the requirements or design of your operation, you have
30 days from product receipt to inform Omtool, or your reseller, of your
decision to return it. Return of the original product and documentation, plus
any hardware in original condition, to the place from which you obtained it will
bring a prompt refund.
As the technology and market leader in network faxing, Omtool will continue to
set the standard. Fax Sr is available for many environments including Windows NT
on Intel and Alpha, Digital's VMS/Open VMS, and UNIX. If you are not already
familiar with these or other Omtool products, please contact an Omtool sales
representative at (800) 886-7845.
Again, thank you for choosing Fax Sr. We look forward to being of further
assistance to you.
<PAGE> 2
GET THE BEST SUPPORT AND SERVICE. Simply return the
attached registration card to:
- Activate technical support for Fax Sr.
- Receive advanced notice of new products and
upgrades
- Receive special offers and discounts
Your purchase provides you with quality technical
assistance for Fax Sr.
FOR SUPPORT, CONTACT US VIA:
Telephone: (603) 898-8900 x1300
Facsimile: (603) 898-3592
Internet: [email protected]
TO RECEIVE PRODUCT INFORMATION:
Telephone: (800) 886-7845
TO ORDER ADDITIONAL DOCUMENTATION:
Telephone: (603) 898-8900
OMTOOL TO CONTACT US BY MAIL:
8 Industrial Way OMTOOL
Salem, NH 03079-9869 8 Industrial Way
Salem, NH 03079-9869
<PAGE> 3
OMTOOL LICENSE AGREEMENT
8 INDUSTRIAL WAY, SALEM NH 03079
PLEASE READ CAREFULLY: BY OPENING THE PACKETS OR EXERCISING YOUR RIGHTS TO MAKE
AND USE COPIES OF THE SOFTWARE, YOU AGREE TO BE BOUND TO THE TERMS OF THIS
AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, PROMPTLY RETURN
THIS PACKAGE TO THE PLACE FROM WHICH YOU OBTAINED IT.
OMTOOL SOFTWARE LICENSE
1. GRANT OF LICENSE: This Omtool product contains software that provides
services on a computer called a server ("Server Software") and software that
allows a computer or workstation to access or utilize the services provided by
the server Software. ("Client Software"). Omtool grants to you the following
rights to the Client Software and the Server Software (collectively called "the
Software"):
a. INSTALLATION. You may install one copy of the Server Software on a single
computer (the computer running the Server Software shall be referred to as the
"Server"). You may install the Client Software on any computer or workstation.
b. USE OF CLIENT SOFTWARE. You may use the Client Software to configure or
administer the Server. You must acquire a separate Client License for each
unique workstation or computer accessing or utilizing the services of a Server.
c. USE OF SERVER SOFTWARE. You may use one copy of the Server Software on one
Server, which may be connected at any point in time to an unlimited number of
computers or workstations operating on one or more networks. You must acquire a
separate Client license to access or otherwise utilize the services of the
Server. Each Client license must be dedicated to one unique computer or
workstation. It permits that computer or workstation to access or utilize the
services of any Server.
d. OTHER
TRANSFER. A Transfer License is required to transfer the Server Software to
another computer.
Notice to Users. You shall inform all users of the software of the terms and
conditions of the Omtool License Agreement.
No Multiplexing or Pooling. Use of software or hardware that reduces the number
of users directly accessing or utilizing the Server Software does not reduce the
number of Client Licenses required. The required number of Client Licenses
equals the number of distinct computer or workstation inputs to the multiplexing
or pooled "front end."
2. OTHER RIGHTS AND LIMITATIONS. You may not reverse engineer, decompile, or
disassemble the Software. Version Limitations. The Server Software contains a
certain version number. This License permits you to install one copy of the
Server Software with the same (or Lower) version number on a single computer.
Without prejudice to any other rights Omtool may terminate this License if you
fail to comply with the terms and conditions of this license. In such event you
must destroy all Copies of the Software.
<PAGE> 4
2
3. UPGRADES. If this Server Software is an Upgrade, you must have a valid
license for the qualifying product that is being upgraded for the Server
Software license to be valid, and this Server Software must be used to replace
such qualifying product.
4. COPYRIGHT. The Software is Licensed, not sold. Title and copyrights in and to
the Software (including any images, applets, and text incorporated into the
Software), accompanying printed materials, and any copies you are permitted to
make are owned by Omtool and are protected by United States Copyright laws and
international treaty provisions. Therefore you must treat the Software like any
other copyrighted material except that you may make one copy of the software
solely for backup or archival purposes.
LIMITED WARRANTY Omtool does not warrant that the functions contained in the
Software will meet your requirements or that the operation will be uninterrupted
or error free. Omtool warrants to the original purchaser of the Software that
the media (disk, diskette, CD, or tape) is free from defects in materials and
workmanship when given normal use for a period of 30 days from the date of
receipt. Omtool's and its suppliers entire liability and your exclusive remedy
shall be, at Omtool's option, either (a) Replacement of the Software in
accordance with this limited warranty and which is returned to Omtool with a
copy of your receipt, or (b) return of the price paid. This limited warranty is
void if the failure of the Software it hardware has resulted from accident,
abuse, or misapplication.
NO OTHER WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, OMTOOL
AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE, WITH REGARD TO THE SOFTWARE, THE ACCOMPANYING WRITTEN
MATERIALS, AND ANY ACCOMPANYING HARDWARE. THIS LIMITED WARRANTY GIVE YOU
SPECIFIC RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO
STATE/JURISDICTION.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT SHALL OMTOOL OR ITS SUPPLIERS BE LIABLE FOR ANY
SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING
WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
LOSS OF BUSINESS INFORMATION, OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE
USE OR THE INABILITY TO USE THIS OMTOOL PRODUCT, EVEN IF OMTOOL HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES/JURISDICTION DO NOT
ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL DAMAGES THE
ABOVE LIMITATION MAY NOT APPLY TO YOU.
This license Agreement shall be governed by the laws of the State of New
Hampshire.
<PAGE> 1
EXHIBIT 11.1
OMTOOL, LTD.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
----------------------------
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Weighted average common stock outstanding during the period.... 5,916,793 5,369,110
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........ 773,314 849,165
Dilutive effect of common and common equivalent shares issued
subsequent to June 17, 1996, computed in accordance with the
treasury stock method(1)..................................... 227,993 227,993
----------- ----------
Pro forma weighted average number of common and common
equivalent shares outstanding................................ 9,927,805 9,483,500
=========== ==========
Net income..................................................... $ 439,663 $ 271,965
=========== ==========
Pro forma net income per common and common equivalent share.... $ 0.04 $ 0.03
=========== ==========
</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
June 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT FILED ON FORM S-1 ON
6/17/97 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 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 2,042 1,151
<SECURITIES> 931 1,604
<RECEIVABLES> 2,640 3,172
<ALLOWANCES> 375 600
<INVENTORY> 225 198
<CURRENT-ASSETS> 5,684 5,831
<PP&E> 1,001 1,378
<DEPRECIATION> 247 318
<TOTAL-ASSETS> 6,457 6,910
<CURRENT-LIABILITIES> 2,371 2,568
<BONDS> 182 182
5,167 5,267
2 2
<COMMON> 53 54
<OTHER-SE> (1,522) (1,336)
<TOTAL-LIABILITY-AND-EQUITY> 6,457 6,910
<SALES> 6,837 3,245
<TOTAL-REVENUES> 8,401 3,701
<CGS> 1,193 580
<TOTAL-COSTS> 2,009 808
<OTHER-EXPENSES> 5,746 2,451
<LOSS-PROVISION> 355 225
<INTEREST-EXPENSE> 11 18
<INCOME-PRETAX> 678 442
<INCOME-TAX> 238 170
<INCOME-CONTINUING> 440 272
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 440 272
<EPS-PRIMARY> 0.04 0.03
<EPS-DILUTED> 0.04 0.03
</TABLE>
