<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1997
REGISTRATION NO. 333-29397
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OMTOOL, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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
(603) 898-8900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT L. VOELK
CHIEF EXECUTIVE OFFICER
OMTOOL, LTD.
8 INDUSTRIAL WAY
SALEM, NH 03079
(603) 898-8900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 22, 1997
[OMTOOL LOGO]
4,000,000 SHARES
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 3,000,000 shares
are being sold by Omtool, Ltd. ("Omtool" or the "Company") and 1,000,000 shares
are being sold by certain stockholders of the Company ("Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$8.00 and $10.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<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
(also "Selling Stockholders") have granted to the Underwriters a 30-day
option to purchase an aggregate of up to an additional 600,000 shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively.
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
MONTGOMERY SECURITIES
FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
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PAGE
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Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 15
Dividend Policy....................................................................... 15
Capitalization........................................................................ 16
Dilution.............................................................................. 17
Selected Financial Data............................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 19
Business.............................................................................. 30
Management............................................................................ 39
Certain Transactions.................................................................. 46
Principal and Selling Stockholders.................................................... 47
Description of Capital Stock.......................................................... 49
Shares Eligible for Future Sale....................................................... 53
Underwriting.......................................................................... 55
Legal Matters......................................................................... 57
Experts............................................................................... 57
Additional Information................................................................ 57
Index to Financial Statements......................................................... F-1
</TABLE>
---------------------
Omtool, Fax Sr., and the Company logo are trademarks of the Company. Trade
names and trademarks of other companies appearing in this Prospectus are the
property of their respective owners.
The Company intends to mail to all of its stockholders an annual report
containing financial statements audited by its independent accountants for each
fiscal year and quarterly reports containing unaudited financial data for each
of the first three quarters of each fiscal year.
The Company was incorporated in New Hampshire in March 1991 and was
reincorporated in Delaware in January 1996. The Company's principal executive
offices are located at 8 Industrial Way, Salem, New Hampshire 03079 and its
telephone number is (603) 898-8900. Unless otherwise indicated, all references
in this Prospectus to "Omtool" or the "Company" refer to Omtool, Ltd., a
Delaware corporation, and its predecessor Omtool, Ltd., a New Hampshire
corporation.
3
<PAGE> 5
- --------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. Omtool's Fax Sr. product family,
licensed typically on a shrink-wrap basis, provides users with an extensive,
flexible feature set for transmitting and receiving faxes and improves an
organization's management of its fax communications processes by providing a
suite of utility and control functions. Fax Sr. can be deployed on
heterogeneous, multi-platform networks and can be integrated with both desktop
and enterprise software applications as well as e-mail and groupware systems. To
address the needs of large enterprises, Fax Sr. is modular and scaleable as
servers, clients and fax lines can be implemented and added over time. Fax Sr.
is available on the Windows NT, Hewlett Packard ("HP") UNIX and Digital
Equipment Corporation ("DEC") UNIX and VMS server operating systems, and Windows
95, Windows NT, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS clients. The
Company currently derives substantially all of its revenues from licenses of Fax
Sr. NT, first released in March 1995, and related services and resale of related
hardware.
Facsimile continues to be a world-wide standard for electronic
communications. With corporate communications becoming more critical and
complex, a need has arisen for a facsimile software solution which enables an
organization to automate and integrate fax communications throughout the
enterprise and address a broad range of users' faxing requirements from
person-to-person to volume broadcast transmissions. A comprehensive fax solution
must take advantage of the proliferation of personal computers in the corporate
workplace and the growth of the client/server computing environment. The
solution must also be complementary to other communications methods such as
traditional telephone and facsimile as well as emerging e-mail and groupware
solutions. Fax Sr. provides a robust and flexible facsimile solution which
addresses the multiple needs of corporate fax users and leverages the power of
advanced computing platforms.
The Company's goal is to become the leading provider of enterprise,
client/server facsimile software solutions. The Company's strategy to achieve
this goal includes extending technology leadership in the enterprise market and
increasing its market share on the Windows NT platform. The Company intends to
leverage its installed base of customers in order to promote expanded use of Fax
Sr. across more users and applications at existing customer installations. In
addition, the Company intends to expand its direct and indirect distribution
channels to increase both domestic and international sales and to form strategic
relationships with leading providers of complementary fax services and products
in order to broaden market awareness of Fax Sr. The Company has recently entered
into strategic alliances with UNIFI Communications, Inc. (formerly FAX
International) and Xpedite Systems, Inc., providers of enhanced fax carrier
services, and with Active Voice Corporation, a provider of PC-based voice mail
systems and computer-telephony integration solutions.
Omtool has licensed Fax Sr. to more than 1,500 customers worldwide,
including Alfred Berg Inc., AT&T Corp., Bloomberg Financial Markets, Boeing, Dow
Chemical, Honeywell, SmithKline Beecham and United Technologies. The Company
targets large and mid-sized corporations, organizations and government entities
as the primary market for Fax Sr. To address the broad range of its sales
opportunities, Omtool relies on the coordinated efforts of its centralized
telesales organization, its key executives and corporate account team, its
marketing department and its indirect channels, including resellers,
international distributors and systems integrators. The Company also resells
complementary hardware products and provides customer services, including
technical support. To complement its existing products and services, the Company
intends to offer enhanced consulting, configuration and installation services in
the future.
- --------------------------------------------------------------------------------
4
<PAGE> 6
THE OFFERING
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<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............ 11,428,239 shares(1)
Use of Proceeds........................................ For working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol................. OMTL
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $1,948 $3,928 $8,401 $3,271 $8,278
Gross profit................................... 1,669 3,296 6,392 2,536 6,351
Income (loss) from operations.................. (315) 417 646 288 1,080
Net income (loss).............................. (233) 416 440 187 704
Pro forma net income per common and common
equivalent share(2).......................... $ 0.04 $ 0.07
Pro forma weighted average number of common and
common equivalent shares outstanding(2)...... 9,929 9,488
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(3)(4)
------ -------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 810 $ 810 $ 25,234
Working capital...................................... 3,413 3,413 27,723
Total assets......................................... 7,669 7,669 31,979
Long-term debt, net of current portion............... 153 153 153
Convertible redeemable preferred stock............... 5,367 -- --
Total stockholders' equity (deficit)................. (944) 4,423 28,733
</TABLE>
- ------------
(1) Based upon the number of shares of Common Stock outstanding at June 30,
1997. Excludes (i) 1,309,218 shares of Common Stock issuable upon the
exercise of stock options outstanding at June 30, 1997 at a weighted average
exercise price of $1.28 per share, of which options to purchase 321,665
shares were then exercisable and (ii) 2,114,783 shares of Common Stock
reserved for future issuance pursuant to the Company's stock plans. See
"Capitalization," "Management -- Stock Plans" and Notes 11 and 14 of Notes
to Financial Statements.
(2) Computed on the basis described in Note 2 of Notes to Financial Statements.
(3) Adjusted to give effect to the automatic conversion upon the closing of this
offering of all outstanding shares of Convertible Preferred Stock into an
aggregate of 3,037,232 shares of Common Stock.
(4) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $9.00 per
share and the application of the estimated net proceeds therefrom.
---------------------
Unless otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option; (ii)
reflects the 2-for-1 stock split of the Company's Common Stock effected in
January 1997; (iii) reflects the filing, prior to the closing of this offering,
of an Amendment to the Certificate of Incorporation of the Company increasing
the number of authorized shares of Common Stock; (iv) reflects the filing upon
the closing of this offering of the Amended and Restated Certificate of
Incorporation of the Company; and (v) gives effect to the conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock upon the
closing of this offering. See "Certain Transactions," "Description of Capital
Stock," "Underwriting" and Notes 2, 9, 10 and 14 of Notes to Financial
Statements.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
Limited Operating History. The Company was incorporated in March 1991 and
shipped its initial facsimile software products in 1991. The Company has
significantly increased its operating expenses in recent periods as it has
continued to expand its organization to support sales growth and product
development. Although the Company has experienced significant growth during the
past three years, the Company does not believe that prior growth rates are
sustainable or indicative of future operating results. There can be no assurance
that the Company will be able to increase its level of revenues or maintain
profitability in the future. Increases in operating expenses are expected to
continue and, together with pricing pressures, may result in a decrease in
operating income and operating margin percentage. The Company's limited
operating history makes the prediction of future operating results difficult or
impossible. Future operating results will depend on many factors, including,
without limitation, the degree and rate of growth of the markets in which the
Company competes and the accompanying demand for the Company's products, the
level of acceptance of the Windows NT operating system, the level of product and
price competition, the ability of the Company to establish strategic
relationships and develop and market new and enhanced products and to control
costs, the ability of the Company to expand its direct telesales force and
indirect distribution channels both domestically and internationally, and the
ability of the Company to attract and retain key personnel. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Fluctuations in Quarterly Results of Operations; Seasonality. The
Company's quarterly revenues and results of operations have fluctuated
significantly in the past and will likely fluctuate significantly in the future.
Causes of such fluctuations have included and may include, among others, the
demand for the Company's products and services, the size and timing of orders,
the number, timing and significance of new product announcements by the Company
and its competitors, the ability of the Company to develop, introduce, market
and ship new and enhanced versions of the Company's products on a timely basis,
the level of product and price competition, changes in operating expenses,
changes in average selling prices and mix of the Company's products, changes in
the Company's sales incentive strategy, the mix of direct and indirect sales,
and general economic factors. In addition, the sale of the Company's products
often involves delays because customers have tended to implement the products on
a large scale and customers also must establish certain minimum hardware
capabilities. The Company's products therefore often have a lengthy sales cycle
while the customer evaluates and receives approvals for the purchase of the
Company's products. During such sales cycles, the Company may expend substantial
funds and management effort yet receive no revenues. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fails to close as forecasted in a fiscal quarter, the Company's revenues
and operating results for such quarter could be materially adversely affected.
Any one or more of these or other factors could have a material adverse effect
on the Company's business, financial condition and results of operations. The
potential occurrence of any one or more of these factors makes the prediction of
revenues and results of operations on a quarterly basis difficult and
performance forecasts derived from such predictions unreliable.
The Company's business has experienced and is expected to continue to
experience seasonality. The Company has historically had and expects to continue
to have weaker sales in the months of July and August which may have an adverse
affect on third quarter sales. The Company believes that these fluctuations are
caused primarily by customer budgeting and purchasing patterns.
In general, revenues are difficult to forecast because the market for
enterprise, client/server facsimile software has developed and is evolving
rapidly and the Company's sales cycle, from the customer's initial evaluation
through purchase of licenses and the related support services, varies
6
<PAGE> 8
substantially from customer to customer. License fee revenues in any quarter
depend on orders received and shipped in that quarter. License fee revenues from
quarter to quarter are difficult to forecast, as no significant order backlog
exists at the end of any quarter because the Company's products typically are
shipped upon receipt of customers' orders.
A substantial portion of the Company's operating expense is related to
personnel, facilities, equipment and marketing programs. The level of spending
for such expense cannot be adjusted quickly and is therefore fixed in the short
term. The Company's expense levels for personnel, facilities, equipment and
marketing programs are based, in significant part, on the Company's expectations
of future revenues on a quarterly basis. If actual revenue levels on a quarterly
basis are below management's expectations, results of operations are likely to
be adversely affected by a similar amount because a relatively small amount of
the Company's expense varies with its revenue in the short term.
Due to all of the foregoing factors, it is likely that in some future
periods the Company's results of operations will be below the expectations of
securities analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Fax Sr. NT and the Windows NT Environment. The Company
currently derives substantially all of its revenues from licenses of Fax Sr. NT
and related services and resale of related hardware. Broad market acceptance of
Fax Sr. NT is critical to the Company's future success. As a result, any decline
in demand for or failure to achieve broad market acceptance of Fax Sr. NT as a
result of competition, technological change or otherwise, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future financial performance will depend in large part
on the successful development, introduction and customer acceptance of new and
enhanced versions of Fax Sr. NT. There can be no assurance that the Company will
continue to be successful in marketing Fax Sr. NT or any new or enhanced
versions of Fax Sr. NT. In addition, there can be no assurance that the Windows
NT operating system will not be replaced by a new or enhanced operating system.
There can be no assurance that the Company will be successful in developing
products for new or enhanced operating systems, or that such systems will not
obviate the need for the Company's products. If any new or enhanced operating
system gains widespread use and the Company fails to develop and provide its
products for this operating system on a timely basis, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Strategy."
Dependence on Client/Server Environment. The Company's enterprise,
client/server facsimile software products are intended to help organizations
efficiently manage their facsimile communications, utilizing a client/server
computing environment. The client/server market is relatively new and there can
be no assurance that organizations will move away from the use of stand-alone
fax machines or continue to adopt client/server environments, or that customers
of the Company that have begun the migration to a client/server environment will
broadly implement this model of computing. The Company's future financial
performance will depend in large part on continued growth in the market for
client/server applications, which in turn will depend in part on the growth in
the number of organizations implementing client/server computing environments.
There can be no assurance that these markets will continue to grow or that the
Company will be able to respond effectively to the evolving requirements of
these markets. If the market for client/server application products and services
does not grow in the future, or grows more slowly than the Company anticipates,
or if the Company fails to respond effectively to evolving requirements of this
market, the Company's business, financial condition and results of operations
would be materially adversely affected. See "Business -- Industry Background"
and "-- Strategy."
Intense Competition. The enterprise, client/server facsimile solution
market is intensely competitive and rapidly changing and the Company expects
competition to continue to increase. The
7
<PAGE> 9
Company believes its ability to compete successfully depends upon a number of
factors both within and beyond its control, including product performance,
reliability and features; ease of use; product scaleability; quality of support
services; price/performance; timeliness of enhancements and new product releases
by the Company and its competitors; the emergence of new computer-based
facsimile products and standards; name recognition; the establishment of
strategic alliances with industry leaders; and industry and general economic
trends.
The Company competes directly with a large number of vendors of facsimile
products, including providers of facsimile software products for client/server
networks such as RightFAX Inc. (a subsidiary of Applied Voice Technology, Inc.),
Fenestrae BV, Optus Software Inc. and Biscom, Inc. The Company also competes
with vendors offering a range of alternative facsimile solutions including
operating systems containing facsimile and document transmission features;
low-end fax modem products; desktop fax software; single-platform facsimile
software products; and customized proprietary software solutions. In addition,
providers of operating systems or business software applications may bundle
competitive facsimile solutions as part of their broader product offerings.
Many of the Company's competitors have longer operating histories and
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and market acceptance of their products and
technologies than the Company. In addition, there are relatively low barriers to
entry in the markets in which the Company operates, and new competition may
arise either from expansion by established companies or from new emerging
companies or from resellers of the Company's products. There can be no assurance
that current or potential competitors of the Company will not develop products
comparable or superior in terms of price and performance features to those
developed by the Company, adapt more quickly than the Company to new or emerging
technologies and changes in market opportunities or customer requirements,
establish alliances with industry leaders, or take advantage of acquisition
opportunities more readily than the Company. In addition, no assurance can be
given that the Company will not be required to make substantial additional
investments in connection with its research, development, engineering,
marketing, sales and customer service efforts in order to meet any competitive
threat, or that such required investments will not have a material adverse
effect on operating margins. Increased competition will result in reduction in
market share, pressure for price reductions and related reductions in gross
margins, any of which could materially adversely affect the Company's ability to
achieve its financial and business goals. There can be no assurance that in the
future the Company will be able to successfully compete against current and
future competitors. See "Business -- Competition."
Ability to Manage Growth. The Company has rapidly and significantly
expanded its operations and anticipates that significant expansion will continue
to be required in order to address potential market opportunities. The Company
anticipates significantly increasing the size of its sales and marketing,
research and development, customer support and administrative operations
following the completion of this offering. There can be no assurance that such
expansion will be successfully completed or that it will generate sufficient
revenues to cover the Company's expenses. In 1997, the Company upgraded certain
of its management information systems and the Company will need to continue to
upgrade these and other systems to accommodate its expanding operations. There
can be no assurance that the Company's expanded management information systems
will be sufficient to support the Company's continued growth. The Company will
need to continue to attract and retain highly qualified technical, sales and
managerial personnel. There can be no assurance that the Company will be able to
retain or continue to hire such personnel in the future. The inability of the
Company to effectively expand operations and manage growth, if any, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
New Products and Technological Change. The market for the Company's
products is relatively new and is characterized by rapid technological change,
evolving industry standards, changes in end-user requirements and frequent new
product introductions and enhancements. The Company's future success will depend
upon its ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments and respond to
evolving end-user require-
8
<PAGE> 10
ments. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis,
or that new products or product enhancements developed by the Company will
achieve market acceptance. In May 1997, the Company released Fax Sr. NT Version
2.0. There can be no assurance that Fax Sr. NT Version 2.0 and the enhancements
contained therein will achieve market acceptance. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products and products currently under development
obsolete and unmarketable. From time to time, the Company and its competitors
may announce new products, capabilities or technologies that have the potential
to replace or shorten the life cycle of the Company's existing product
offerings. There can be no assurance that announcements of currently planned or
other new product offerings by the Company or its competitors will not cause
customers to defer or forego the licensing of the Company's existing products
and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Research and Development."
Expansion of Indirect Channels; Potential for Channel Conflict. The
Company markets its products and services directly through telesales and
indirectly through marketing channels such as value-added resellers ("VARs"),
systems integrators and distributors. Although the Company has historically
focused its efforts on marketing through its telesales force, the Company is
increasing resources dedicated to developing and expanding indirect marketing
channels. There can be no assurance that the Company will be able to attract and
retain a sufficient number of qualified VARs, systems integrators and
distributors to market successfully the Company's products. In addition, there
can be no assurance that the Company's resellers will not develop, acquire or
market computer-based facsimile products competitive with the Company's
products. The failure to retain its VARs, systems integrators and distributors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has recently established formal non-exclusive reseller
agreements with UNIFI Communications, Inc. and a limited number of distributors.
These agreements do not require the distributors to purchase a minimum amount of
the Company's products. 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, or the development or marketing by
VARs, systems integrators or distributors of competitive offerings, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, systems integrators and distributors may
result in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict with
each other. As the Company strives to expand its indirect distribution channels,
there can be no assurance that emerging channel conflicts will not materially
adversely affect its relationships with existing VARs, systems integrators or
distributors or adversely affect its ability to attract new VARs, systems
integrators and distributors. See "Business -- Sales and Marketing."
Risks Associated with International Expansion. Revenues outside of North
America represented approximately 5%, 7% and 8% of the Company's total revenues
for 1995, 1996 and the six months ended June 30, 1997, respectively. A key
element of the Company's strategy is to continue to increase its international
sales. The Company expects to face competition from local facsimile product
providers in their native countries. To successfully expand international sales,
the Company will need to recruit and retain additional international resellers
and distributors. In order to penetrate the international market more fully, the
Company is currently undertaking the translation of its products into several
foreign languages. There can be no assurance that the Company will be able to
complete such
9
<PAGE> 11
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 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
10
<PAGE> 12
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 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
11
<PAGE> 13
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 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. The Company currently
carries a key man life insurance policy in the amount of $1 million on each of
Robert L. Voelk and Martin A. Schultz, with the proceeds payable to the Company.
See "Management."
No Prior Public Market; Determination of Initial Public Offering Price;
Potential Volatility of Stock Price. Prior to this offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or continue after the offering. The initial public
offering price for the Common Stock will be determined by negotiation among the
Company, representatives of the Selling Stockholders and the representatives of
the Underwriters. Among the factors to be considered in determining the initial
public offering price will be prevailing market and economic conditions,
revenues and earnings and other financial information of the Company, the market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. These factors may not be indicative of the market
price of the Common Stock after this offering. In addition, the stock markets in
general, and the market prices for high technology companies in particular, have
historically experienced volatility that at times has been unrelated to the
operating performance of such companies. The trading price of the Common Stock
could also be subject to significant fluctuations in response to variations in
quarterly results of operations, announcements of new products or acquisitions
by the Company or its competitors, governmental regulatory action, other
developments or disputes with respect to proprietary rights, general trends in
the industry and overall market conditions, and other factors. Broad market and
industry fluctuations may materially adversely affect the market price of the
Common Stock regardless of the Company's operating performance. See
"Underwriting."
Risks Associated with Possible Acquisitions. The Company may pursue
potential acquisitions of businesses, products and technologies that could
complement or expand the Company's business. The Company currently has no plans,
commitments or agreements with respect to any material acquisitions and there
can be no assurance that the Company will be able to identify any appropriate
acquisition candidates. If the Company identifies an acquisition candidate,
there can be no assurance that the Company will be able to successfully
negotiate the terms of any such acquisition, finance such acquisition or
integrate such acquired businesses, products or technologies into the Company's
existing business and products. Furthermore, the negotiation of potential
acquisitions as well as the integration of an acquired business could cause
diversion of management's time and resources, and require the Company to use
proceeds from the offering to consummate a potential acquisition. Future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses. If any such acquisition were to occur, there can be no
assurance that, whether or not consummated, any such acquisition would not have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Uncertainty as to Use of Proceeds."
Uncertainty as to Use of Proceeds. The principal purposes of this offering
are to obtain additional working capital, to enhance the visibility of the
Company in its commercial markets, to create a public market for the Company's
Common Stock and to facilitate future access by the Company to public equity
markets. A portion of the net proceeds of the offering may also be used to
acquire or invest in products, technologies or businesses which broaden or
enhance the Company's current product offerings. There are no current agreements
with respect to any material acquisitions or investments. As
12
<PAGE> 14
of the date of this Prospectus, the Company has no specific plans as to the use
of the substantial majority of the net proceeds of this offering, and will have
broad discretion in the application of such proceeds. See "Use of Proceeds."
Control by Existing Stockholders. Following this offering, the Company's
executive officers, directors and other principal stockholders, in the
aggregate, will beneficially own approximately 62.9% of the Company's
outstanding Common Stock (57.8% if the over-allotment option is exercised in
full). As a result, these stockholders, if acting together, would be able to
exert substantial influence over the Company and effectively control most
matters requiring approval by the stockholders of the Company, including the
election of directors. Further, such stockholders, if acting together, could
prevent the election of any person nominated to the Board of Directors by any
other stockholder. The voting power of these stockholders under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company and could limit the price that certain investors may be
willing to pay in the future for shares of the Company's Common Stock. See
"Management," "Principal and Selling Stockholders" and "Description of Capital
Stock."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Company's Common Stock in the public market following this offering could
adversely affect the prevailing market price of the Common Stock. Immediately
after completion of the offering, the Company will have 11,428,239 shares of
Common Stock outstanding, of which the 4,000,000 shares offered hereby will be
eligible for sale without regard to volume or other limitations pursuant to Rule
144 ("Rule 144") under the Securities Act, unless purchased by "affiliates" of
the Company as that term is defined under Rule 144. The Company, its executive
officers, directors and certain current stockholders, who in the aggregate own
beneficially 7,425,572 of the remaining outstanding shares of Common Stock and
stock options exercisable for an additional 966,668 shares of Common Stock have
agreed pursuant to lock-up agreements that they will not sell or otherwise
dispose of any shares of Common Stock beneficially owned by them for a period of
180 days from the date of this Prospectus. Such agreements provide that
Robertson, Stephens & Company may, in its sole discretion and at any time
without notice, release all or a portion of the shares subject to these lock-up
agreements. Upon the expiration of these lock-up agreements, all of such
outstanding shares will become immediately eligible for sale in the public
market, subject in some cases to the volume and other restrictions of Rule 144
or Rule 701 under the Securities Act. Promptly after the date of this
Prospectus, the Company intends to register on one or more registration
statements on Form S-8 all shares of Common Stock issuable under its stock
plans. Shares covered by such registration statements will be eligible for sale
in the public market after the effective date of such registration. In addition,
the holders of 6,961,220 shares of Common Stock are entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales may have a material adverse effect on the
market price for the Common Stock. In addition, if the Company is required to
include in a Company-initiated registration shares held by such holders pursuant
to the exercise of their "incidental" registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital. See
"Management," "Principal and Selling Stockholders," "Shares Eligible for Future
Sale" and "Underwriting."
Immediate and Substantial Dilution. Purchasers in this offering will
suffer an immediate and substantial dilution of $6.49 per share in the net
tangible book value of the Common Stock from an assumed initial public offering
price of $9.00 per share. Additional dilution is likely to occur upon exercise
of options granted by the Company. See "Dilution."
Absence of Dividends. The Company has never paid cash dividends and does
not intend to pay any cash dividends in the foreseeable future. See "Dividend
Policy."
Anti-Takeover Effect of Charter and By-Law Provisions; Availability of
Preferred Stock for Issuance. The Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws contain provisions that could
discourage a proxy contest or make more difficult the acquisition of a
substantial block of the Company's Common Stock. Such provisions could limit the
price that
13
<PAGE> 15
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."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $9.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses, are estimated to be approximately
$24,310,000. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
The principal purposes of this offering are to obtain additional working
capital, to expand the size of the Company's sales and marketing, research and
development, customer support and administrative operations, to enhance the
visibility of the Company in its commercial markets, to create a public market
for the Company's Common Stock and to facilitate future access by the Company to
public equity markets. A portion of the net proceeds of the offering may also be
used to acquire or invest in products, technologies or businesses which broaden
or enhance the Company's current product offerings. There are no current
agreements with respect to any material acquisitions or investments. The Company
does not believe it can accurately estimate the particular amounts to be used
for the purposes outlined above. 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. See "Risk Factors -- Uncertainty as to Use of 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.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock upon the closing of this offering and (iii) on such pro forma basis as
adjusted to give effect to the sale of the 3,000,000 shares of Common Stock by
the Company offered hereby based upon an assumed initial public offering price
of $9.00 per share and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term debt, net of current portion....................... $ 153 $ 153 $ 153
------- ------- -------
Series B Convertible Redeemable Preferred Stock, $.01 par
value per share; 1,356,116 shares authorized, issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........... 5,367 -- --
------- ------- -------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value per share; 1,481,384 shares
authorized, no shares issued or outstanding, actual;
2,000,000 shares authorized, no shares issued or
outstanding, pro forma and pro forma as adjusted........ -- -- --
Series A Convertible Preferred Stock, $.01 par value per
share; 162,500 shares authorized, issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted........ 2 -- --
Common Stock, $.01 par value per share; 10,000,000 shares
authorized, 5,391,007 shares issued and outstanding,
actual; 35,000,000 shares authorized, 8,428,239 shares
issued and outstanding, pro forma; 35,000,000 shares
authorized, 11,428,239 shares issued and outstanding,
pro forma as adjusted (1)............................... 54 84 114
Additional paid-in capital................................... 18 4,990 29,270
Retained earnings (deficit).................................. (1,018) (651) (651)
------- ------- -------
Total stockholders' equity (deficit).................... (944) 4,423 28,733
------- ------- -------
Total capitalization............................... $ 4,576 $ 4,576 $28,886
======= ======= =======
</TABLE>
- ------------
(1) Excludes (i) 1,309,218 shares of Common Stock issuable upon the exercise of
stock options outstanding at June 30, 1997 granted under the Company's stock
plans at a weighted average exercise price of $1.28 per share, of which
options to purchase 321,665 shares were then exercisable and (ii) 2,114,783
shares of Common Stock reserved for future issuance pursuant to the
Company's stock plans. See "Management -- Stock Plans" and Notes 11 and 14
of Notes to Financial Statements.
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
was $4,294,332, or $0.51 per share of Common Stock after giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock. Pro forma net tangible book value per share is equal to the Company's
total tangible assets less total liabilities, divided by the total number of
shares of Common Stock outstanding (assuming the conversion of all outstanding
shares of Convertible Preferred Stock into Common Stock). After giving effect to
the sale by the Company of 3,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $9.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the adjusted pro forma net tangible book value of the
Company as of June 30, 1997 would have been $28,717,967, or $2.51 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.00 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $6.49 per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $9.00
Pro forma net tangible book value at June 30, 1997......... $0.51
Increase per share attributable to new investors........... 2.00
-----
Adjusted pro forma net tangible book value per share after
the offering............................................. 2.51
------
Dilution to new investors.................................. $6.49
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company at the assumed initial public offering price of $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 8,428,239 73.7% $ 5,344,300 16.5% $0.63
New investors............. 3,000,000 26.3 27,000,000 83.5 $9.00
---------- ------ ----------- ------
Total........... 11,428,239 100.0% $32,344,300 100.0%
========== ====== =========== ======
</TABLE>
- ------------
(1) Sales by Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 7,428,239 shares, or
65.0% (6,858,905 shares, or 59.9%, if the Underwriters' over-allotment
option is exercised in full) of the total number of shares of Common Stock
to be outstanding after this offering, and will increase the number of
shares held by new stockholders to 4,000,000 shares, or 35.0% (4,600,000
shares, or 40.1%, if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock to be outstanding after
the offering. See "Principal and Selling Stockholders."
The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options under the Company's stock plans. As of
June 30, 1997, 1,309,218 shares of Common Stock were issuable upon exercise of
outstanding stock options at a weighted average exercise price of $1.28 per
share, of which options to purchase 321,665 shares were then exercisable at a
weighted average exercise price of $0.25 per share. To the extent the
outstanding options are exercised and that any of the shares reserved for
issuance are issued with exercise prices below the initial public offering
price, there will be further dilution to new investors. See "Management -- Stock
Plans" and "Shares Eligible for Future Sale."
17
<PAGE> 19
SELECTED FINANCIAL DATA
The statement of operations data set forth below for each of the fiscal
years ended December 31, 1994, 1995 and 1996 and the balance sheet data as of
December 31, 1995 and 1996 have been derived from the Company's financial
statements, which statements have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this Prospectus.
The balance sheet data at December 31, 1994 is derived from the Company's
financial statements, which statements have been audited by Arthur Andersen LLP
and are not included in this Prospectus. The data presented as of and for the
years ended December 31, 1992 and 1993 are derived from the Company's unaudited
financial statements which are not included in this Prospectus. The data
presented as of June 30, 1997 and for the six months ended June 30, 1996 and
1997 are derived from unaudited financial statements included elsewhere in this
Prospectus. In the opinion of management, all unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the data for such periods. The results of operations
for the six months ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year or for any future period. The selected
financial data set forth below should be read in conjunction with the Financial
Statements and the Notes thereto and with Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
---- ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license................................. $636 $ 902 $1,486 $2,780 $5,304 $2,031 $5,486
Hardware......................................... 125 101 124 278 1,533 527 1,748
Service and other................................ 86 71 338 870 1,564 713 1,044
---- ------ ------ ------ ------ ------ ------
Total revenues............................. 847 1,074 1,948 3,928 8,401 3,271 8,278
---- ------ ------ ------ ------ ------ ------
Cost of revenues:
Software license................................. 167 9 35 104 109 50 218
Hardware......................................... 120 92 114 209 1,084 339 1,208
Service and other................................ 40 81 130 319 816 346 501
---- ------ ------ ------ ------ ------ ------
Total cost of revenues..................... 327 182 279 632 2,009 735 1,927
---- ------ ------ ------ ------ ------ ------
Gross profit............................... 520 892 1,669 3,296 6,392 2,536 6,351
---- ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing.............................. 283 499 649 1,236 2,824 1,041 2,938
Research and development ........................ 93 208 414 893 1,972 777 1,554
General and administrative....................... 140 350 721 750 950 430 779
Write-off of intangible asset.................... -- -- 200 -- -- -- --
---- ------ ------ ------ ------ ------ ------
Total operating expenses................... 516 1,057 1,984 2,879 5,746 2,248 5,271
---- ------ ------ ------ ------ ------ ------
Income (loss) from operations...................... 4 (165) (315) 417 646 288 1,080
Interest income (expense), net..................... (2) (2) 12 (1) 32 -- 29
---- ------ ------ ------ ------ ------ ------
Income (loss) before provision (benefit)
for income taxes................................. 2 (167) (303) 416 678 288 1,109
Provision (benefit) for income taxes............... -- -- (70) -- 238 101 405
---- ------ ------ ------ ------ ------ ------
Net income (loss).................................. $ 2 $ (167) $ (233) $ 416 $ 440 $ 187 $ 704
==== ====== ====== ====== ====== ====== ======
Pro forma net income per common and common
equivalent share(1).............................. $ 0.04 $ 0.07
====== ======
Pro forma weighted average number of common and
common equivalent shares outstanding(1).......... 9,929 9,488
====== ======
<CAPTION>
JUNE 30, 1997
DECEMBER 31, -------------------
------------------------------------------------ PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(2)
---- ------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ -- $ 39 $ 20 $ 551 $2,042 $ 810 $ 810
Working capital (deficit)....................... (14) (210) (305) (50) 3,313 3,413 3,413
Total assets.................................... 200 529 449 1,575 6,457 7,669 7,669
Long-term debt, net of current portion.......... 16 3 -- 21 212 153 153
Convertible redeemable preferred stock.......... -- -- -- -- 5,167 5,367 --
Total stockholders' equity (deficit)............ (4) (171) (405) 11 (1,467) (944) 4,423
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Adjusted to give effect to the automatic conversion upon the closing of this
offering of all outstanding shares of Convertible Preferred Stock into an
aggregate of 3,037,232 shares of Common Stock.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. The Company was incorporated in March
1991 and shipped its initial facsimile software products in 1991. The Company's
revenues are primarily derived from licensing the rights to use its Fax Sr.
software product directly to end users and indirectly through resellers. The
Company first achieved profitability for the year ended December 31, 1992 and
has been profitable for the last ten quarters.
Revenues from software licenses are recognized upon shipment of the
software if there are no significant post-delivery obligations and collection of
the resulting receivable is deemed probable. Payments received in advance for
services or products are initially recorded as deferred revenue. The Company
provides a 30-day money back guarantee for its Fax Sr. product and reserves for
potential product returns and allowances at the time of shipment. Historically,
the Company has adequately reserved for such potential returns and allowances.
In addition to licensing its Fax Sr. product, the Company also derives revenues
from licensing certain document imaging software products. Licensing revenues
from these imaging products accounted for 3% of total revenues in 1996 and less
than 1% of total revenues in the six months ended June 30, 1997, and the Company
does not expect this source of revenues to increase in the future.
The Company is dependent on licenses of its Fax Sr. NT product, first
licensed in March 1995, for substantially all of its revenues. In 1996 and the
six months ended June 30, 1997, approximately 82% and 96%, respectively, of the
Company's software license revenues were derived from Fax Sr. NT. In addition,
substantially all of the Company's hardware and service and other revenue is
dependent on such licenses of Fax Sr. NT. See "Risk Factors -- Dependence on Fax
Sr. NT and the Windows NT Environment."
The Company also derives revenues from the sale of hardware products such
as intelligent fax boards and fax modems. Hardware sales are undertaken as a
convenience to Fax Sr. customers and hardware is neither bundled with Fax Sr.
nor required to be purchased from the Company. Omtool primarily resells
intelligent fax boards from vendors such as Brooktrout Technology and Dialogic.
The Company purchases these hardware products as needed to ship to its customers
and the Company maintains a minimal inventory of these hardware products.
Revenue for hardware products is recognized upon shipment of the product.
Service and other revenues have consisted primarily of the sale of support
contracts. Revenue from support contracts is recognized ratably over the term of
the support contract period, which is typically one year. Although to date the
Company has not provided consulting, configuration and installation services,
the Company intends to offer these customer services in the future as warranted
by customer demand. The Company also derives revenues pursuant to contractual
obligations to support certain document imaging software products. Support
revenues attributable to these imaging products accounted for 6% of total
revenues in 1996 and 2% of total revenues in the six months ended June 30, 1997,
and the Company does not expect this source of revenues to increase in the
future.
The Company has historically derived substantially all of its total
revenues from sales within North America. Sales outside of North America
(primarily in Europe) represented approximately 5%, 7% and 8% of the Company's
total revenues in 1995, 1996 and six months ended June 30, 1997, respectively.
The Company's gross profit on these sales approximates the gross profit on sales
within North America. The Company's strategy is to expand its international
presence (primarily in Europe and South
19
<PAGE> 21
America) and to increase its investment in sales and marketing efforts directed
toward international markets. There can be no assurance that the Company will be
able to maintain or increase international sales of its products, and the
failure to do so may have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Risks
Associated with International Expansion" and "Business -- Strategy."
Historically, the Company had marketed and sold its products principally
through its direct telesales force. During 1996, the Company began actively
recruiting VARs, systems integrators, resellers and distributors to expand its
indirect distribution channel. As a result, sales through the Company's indirect
distribution channels increased from 11% of total revenues in 1995 to 24% of
total revenues in 1996 to 35% of total revenues in the six months ended June 30,
1997.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................................. 76.2% 70.8% 63.1% 62.1% 66.3%
Hardware......................................... 6.4 7.1 18.3 16.1 21.1
Service and other................................ 17.4 22.1 18.6 21.8 12.6
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Software license................................. 1.8 2.7 1.3 1.5 2.6
Hardware......................................... 5.8 5.3 12.9 10.4 14.6
Service and other................................ 6.7 8.1 9.7 10.6 6.1
----- ----- ----- ----- -----
Total cost of revenues................... 14.3 16.1 23.9 22.5 23.3
----- ----- ----- ----- -----
Gross profit....................................... 85.7 83.9 76.1 77.5 76.7
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.............................. 33.3 31.5 33.6 31.8 35.5
Research and development......................... 21.3 22.7 23.5 23.7 18.8
General and administrative....................... 37.0 19.1 11.3 13.2 9.4
Write-off of intangible asset.................... 10.3 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses................. 101.9 73.3 68.4 68.7 63.7
----- ----- ----- ----- -----
Income (loss) from operations...................... (16.2) 10.6 7.7 8.8 13.0
Interest income, net............................... 0.6 -- 0.4 -- 0.4
----- ----- ----- ----- -----
Income (loss) before provision (benefit) for income
taxes............................................ (15.6) 10.6 8.1 8.8 13.4
Provision (benefit) for income taxes............... (3.6) -- 2.9 3.1 4.9
----- ----- ----- ----- -----
Net income (loss).................................. (12.0)% 10.6% 5.2% 5.7% 8.5%
===== ===== ===== ===== =====
Gross profit:
Software license................................. 97.7% 96.3% 97.9% 97.5% 96.0%
Hardware......................................... 8.0 24.7 29.3 35.7 30.9
Service and other................................ 61.6 63.4 47.8 51.4 52.0
</TABLE>
20
<PAGE> 22
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues
Total Revenues. The Company's revenues are currently derived primarily
from fees from licensing of the Company's software products and, to a lesser
extent, from related sales of hardware and services. The Company's total
revenues were $8.3 million and $3.3 million for the six months ended June 30,
1997 and 1996, respectively, representing an increase of 153%.
Software License. The Company's software license revenues are derived
primarily from the licensing of the Company's Fax Sr. product. Software license
revenues were $5.5 million for the six months ended June 30, 1997 and $2.0
million for the six months ended June 30, 1996, or 66% and 62% of total revenues
for each respective period, representing an increase of 170%. The increase in
dollar amount was primarily due to increased market acceptance of the Company's
Fax Sr. product for the Windows NT operating system, as well as expansion of the
Company's direct telesales force and indirect sales channels.
Hardware. Hardware revenues are derived from the resale of third-party
hardware products sold to the Company's customers in conjunction with the
licensing of the Company's software. Hardware revenues were $1.7 million for the
six months ended June 30, 1997 and $527,000 for the six months ended June 30,
1996, or 21% and 16% of total revenues for each respective period, representing
an increase of 232%. The increase in hardware revenues was due primarily to the
increase of hardware unit sales accompanying increased licenses of Fax Sr. and a
change in the sales mix of third-party hardware products from lower priced modem
products to high-end multi-channel modem boards.
Service and Other. Service and other revenues are primarily comprised of
fees from maintenance contracts. Service and other revenues were $1.0 million
for the six months ended June 30, 1997 and $713,000 for the six months ended
June 30, 1996, or 13% and 22% of total revenues for each respective period,
representing an increase of 46%. The increase in dollar amount was due primarily
to the increase in maintenance revenues as a result of a larger installed
customer base.
Cost of Revenues
Software License. Cost of software license revenues consists primarily of
the costs of sublicensing third-party software products, product media, and
product duplication. Cost of software license revenues was $218,000 and $50,000
for the six months ended June 30, 1997 and 1996, respectively, representing 4%
and 2% of software license revenues for each respective period. The increase in
dollar amount was primarily due to the higher volume of products shipped during
the six months ended June 30, 1997 compared to the same period in 1996. Software
license gross margin percentages remained relatively constant at 96% for the six
months ended June 30, 1997 compared to 98% for the same period in 1996.
Hardware. Cost of hardware revenues consists primarily of the costs of
third-party hardware products. Cost of hardware revenues was $1.2 million and
$339,000 for the six months ended June 30, 1997 and 1996, respectively,
representing 69% and 64% of hardware revenues for each respective period. The
increase in dollar amount for the cost of hardware revenues for the six months
ended June 30, 1997 was due primarily to increased unit sales of hardware
products accompanying licenses of Fax Sr. and a change in the sales mix of
third-party hardware products from less expensive modem products to high-end
multi-channel modem boards. The gross margin percentage for hardware sales
decreased to 31% for the six months ended June 30, 1997 from 36% in the same
period in 1996 due to the change in the hardware sales mix.
Service and Other. Cost of service and other revenues consists primarily
of the costs incurred in providing telephone support as well as other
miscellaneous customer service-related expenses. Cost of service and other
revenues was $501,000 and $346,000 for the six months ended June 30, 1997 and
1996, respectively, representing 48% and 49% of service and other revenues for
each respective period. The increase in dollar amount of cost of service and
other revenues during the period was due primarily to
21
<PAGE> 23
the higher volume of products shipped during the six months ended June 30, 1997
and the hiring of incremental personnel to support such growth. The gross margin
percentage for service and other revenues remained relatively constant at 52%
and 51% for the six months ended June 30, 1997 and 1996, respectively.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions, and associated overhead costs, and the
cost of marketing programs such as direct mailings, public relations, trade
shows, seminars, and related communication costs. Sales and marketing expenses
were $2.9 million and $1.0 million for the six months ended June 30, 1997 and
1996, respectively, or 36% and 32% of total revenues for each respective period.
The increase in dollar 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 (approximately
$580,000), higher sales commissions associated with increased revenues
(approximately $175,000), and increased marketing program activities
(approximately $549,000). The Company expects sales and marketing expenses will
continue to increase in absolute terms.
Research and Development. Research and development expenses include
expenses associated with the development of new products, enhancements of
existing products and quality assurance activities, and consist primarily of
employee salaries, benefits, and associated overhead costs as well as consulting
expenses and the cost of software development tools. Research and development
expenses were $1.6 million and $777,000 for the six months ended June 30, 1997
and 1996, respectively, or 19% and 24% of total revenues for each respective
period. The increase in dollar amount was primarily attributable to the
employment of additional staff and independent contractors to develop and
enhance the Company's products and provide quality assurance. The Company
expects research and development expenses will continue to increase in absolute
terms.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses were
$779,000 and $430,000 for the six months ended June 30, 1997 and 1996,
respectively, or 9% and 13% of total revenues for each respective period. The
increase in dollar amount was primarily attributable to an increase in personnel
and the overhead costs allocated to support such personnel. General and
administrative expenses decreased as a percentage of total revenues as the
Company continued to realize operating leverage from its established
infrastructure. The Company expects general and administrative expenses will
continue to increase in absolute terms.
Interest Income (Expense), Net. Interest income (expense), net consists
principally of interest earned on cash, cash equivalents, and short-term
investments, offset by interest expense associated with equipment financing and
borrowings. Interest income (expense), net represented income of $29,000 in the
six months ended June 30, 1997, due primarily to interest income earned on
excess cash from the proceeds of the Company's 1996 private placements of its
preferred stock.
Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
was $405,000 and $101,000 for the six months ended June 30, 1997 and 1996,
respectively, resulting in effective tax rates of approximately 37% and 35% in
the six months ended June 30, 1997 and 1996, respectively. Income taxes in 1997
have been provided at the Company's respective federal and state statutory
rates, reduced primarily for income tax credits and the tax effect of certain
tax exempt interest income. The effective income tax rate in 1996 was lower due
primarily to utilization of net operating loss carryforwards.
22
<PAGE> 24
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.
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 (approximately $479,000), higher sales commissions associated with
increased revenues (approximately $199,000), and increased marketing program
activities (approximately $571,000).
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
23
<PAGE> 25
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 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.
24
<PAGE> 26
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 (approximately
$118,000), higher sales commissions associated with increased revenues
(approximately $150,000), and increased marketing program activities
(approximately $209,000).
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.
25
<PAGE> 27
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight most recent quarters. In the opinion of
management, this information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this Prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results
when read in conjunction with the audited Financial Statements of the Company
and related Notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license......... $1,059 $ 660 $ 971 $1,060 $1,348 $1,925 $2,536 $2,950
Hardware................. 67 111 196 331 360 646 709 1,039
Service and other........ 254 257 324 388 418 434 456 588
------ ------ ------ ------ ------ ------ ------ ------
Total revenues.... 1,380 1,028 1,491 1,779 2,126 3,005 3,701 4,577
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software license......... 39 37 20 30 26 33 86 132
Hardware................. 48 85 151 188 252 493 494 714
Service and other........ 109 103 174 172 211 259 229 272
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues........ 196 225 345 390 489 785 809 1,118
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............... 1,184 803 1,146 1,389 1,637 2,220 2,892 3,459
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing...... 327 400 491 550 700 1,083 1,296 1,642
Research and
development............ 323 230 365 411 568 628 764 790
General and
administrative......... 276 163 209 221 229 291 391 388
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses........ 926 793 1,065 1,182 1,497 2,002 2,451 2,820
------ ------ ------ ------ ------ ------ ------ ------
Income from operations..... 258 10 81 207 140 218 441 639
Interest income (expense),
net...................... (2) 7 1 -- 7 24 1 28
------ ------ ------ ------ ------ ------ ------ ------
Income before provision for
income taxes............. 256 17 82 207 147 242 442 667
Provision for income
taxes.................... -- -- 29 73 51 85 170 235
------ ------ ------ ------ ------ ------ ------ ------
Net income................. $ 256 $ 17 $ 53 $ 134 $ 96 $ 157 $ 272 $ 432
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE> 28
The following table sets forth certain unaudited consolidated quarterly
statement of operations data expressed as a percentage of total revenues for
each of the eight most recent quarters:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license........... 76.7% 64.2% 65.1% 59.6% 63.4% 64.1% 68.5% 64.4%
Hardware................... 4.9 10.8 13.2 18.6 16.9 21.5 19.2 22.7
Service and other.......... 18.4 25.0 21.7 21.8 19.7 14.4 12.3 12.9
----- ----- ----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software license........... 2.8 3.6 1.3 1.7 1.2 1.1 2.3 2.9
Hardware................... 3.5 8.3 10.1 10.5 11.9 16.4 13.4 15.6
Service and other.......... 7.9 10.0 11.7 9.7 9.9 8.6 6.2 5.9
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues.......... 14.2 21.9 23.1 21.9 23.0 26.1 21.9 24.4
----- ----- ----- ----- ----- ----- ----- -----
Gross profit................. 85.8 78.1 76.9 78.1 77.0 73.9 78.1 75.6
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing........ 23.7 38.9 32.9 30.9 32.9 36.0 35.0 35.9
Research and development... 23.4 22.4 24.5 23.1 26.7 20.9 20.6 17.2
General and
administrative........... 20.0 15.8 14.1 12.5 10.8 9.7 10.6 8.5
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses.......... 67.1 77.1 71.5 66.5 70.4 66.6 66.2 61.6
----- ----- ----- ----- ----- ----- ----- -----
Income from operations....... 18.7 1.0 5.4 11.6 6.6 7.3 11.9 14.0
Interest income (expense),
net........................ (0.1) 0.7 0.1 -- 0.3 0.8 -- 0.6
----- ----- ----- ----- ----- ----- ----- -----
Income before provision for
income taxes............... 18.6 1.7 5.5 11.6 6.9 8.1 11.9 14.6
Provision for income taxes... -- -- 1.9 4.1 2.4 2.9 4.6 5.2
----- ----- ----- ----- ----- ----- ----- -----
Net income................... 18.6% 1.7% 3.6% 7.5% 4.5% 5.2% 7.3% 9.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's quarterly revenues and results of operations have fluctuated
significantly in the past and will likely fluctuate significantly in the future.
Causes of such fluctuations have included and may include, among others, the
demand for the Company's products and services, the size and timing of orders,
the number, timing and significance of new product announcements by the Company
and its competitors, the ability of the Company to develop, introduce, market
and ship new and enhanced versions of the Company's products on a timely basis,
the level of product and price competition, changes in operating expenses,
changes in average selling prices and mix of the Company's products, changes in
the Company's sales incentive strategy, the mix of direct and indirect sales,
and general economic factors. In addition, the sale of the Company's products
often involves delays because customers have tended to implement the products on
a large scale and customers also must establish certain minimum hardware
capabilities. The Company's products therefore often have a lengthy sales cycle
while the customer evaluates and receives approvals for the purchase of the
Company's products. During such sales cycles, the Company may expend substantial
funds and management effort yet receive no revenues. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fails to close as forecasted in a fiscal quarter, the Company's revenues
and operating results for such quarter could be materially adversely affected.
Any one or more of these or other factors could have a material adverse effect
on the Company's business, financial condition and results of operations. The
potential occurrence of any one or more of these factors makes the prediction of
revenues and results of operations on a quarterly basis difficult and
performance forecasts derived from such predictions unreliable. The Company's
business has experienced and is expected to continue to experience seasonality.
The Company has historically had and expects to continue to have weaker sales in
the months of July and August which may have an adverse effect on
27
<PAGE> 29
third quarter sales. The Company believes that these fluctuations are caused
primarily by customer budgeting and purchasing patterns. See "Risk
Factors -- Fluctuations in Quarterly Results of Operations; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, the Company has financed its operations primarily through cash
flow from operations, borrowings under a demand line of credit and the private
sales of preferred stock. The net proceeds to the Company from the sale of its
preferred stock in 1996 were approximately $5.2 million. The Company used these
proceeds principally for working capital needs and property and equipment
additions necessary to support the Company's growth and for the repurchase of
approximately $2.0 million of Common Stock from certain officers of the Company.
See "Certain Transactions."
At June 30, 1997, the Company had cash and cash equivalents of $810,000 and
working capital of $3.4 million. The Company has entered into a loan and
security agreement with a bank which is comprised of a term loan and a line of
credit. The Company borrowed $250,000 under the term loan, which bears interest
at the bank's prime rate plus 0.5% (9.0% at June 30, 1997) and is payable in
monthly installments through December 31, 1999. At June 30, 1997, $213,000 was
outstanding under this term loan.
The line of credit permits the Company to borrow up to the lesser of $1.0
million or 70% of eligible accounts receivable (as defined) and bears interest
at the bank's prime rate plus 0.5% (9.0% at June 30, 1997). There were no
amounts outstanding under the line of credit at June 30, 1997. The term loan and
line of credit are collateralized by all of the assets of the Company and
require the Company to maintain certain financial ratios.
The Company's operating activities provided cash of $853,000 in the year
ended December 31, 1995, and used cash of $350,000 and $566,000 during the six
months ended June 30, 1997 and the year ended December 31, 1996, respectively.
Net cash provided during 1995 consisted primarily of net income from operations
and increases in accounts payable, accrued liabilities and deferred revenue,
offset by an increase in accounts receivable and prepaid expenses. Net cash used
by operations during the six months ended June 30, 1997 consisted primarily of
an increase in accounts receivable offset by net income from operations and an
increase in accrued liabilities. Net cash used by operations during 1996 was
comprised primarily of an increase in accounts receivable offset by net income
from operations and an increase in deferred revenue.
Investing activities used cash of $847,000 during the six months ended June
30, 1997, $1.4 million during 1996 and $269,000 during 1995. During these
periods, the principal uses were purchases of property and equipment and
purchases of short-term investments. The Company expects that the rate of
purchases of property and equipment will remain constant or increase as the
Company's employee base grows.
Financing activities used cash of $35,000 during the six months ended June
30, 1997, generated cash of $3.5 million in 1996 due primarily to net proceeds
from the issuance of preferred stock and used cash of $53,000 in 1995.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing cash balances, funds generated from
operations and available borrowings under its line of credit will be sufficient
to finance the Company's operations for the next twelve months. Although
operating activities may provide cash in certain periods, to the extent the
Company grows in the future, its operating and investing activities may use
cash. There can be no assurance that any necessary additional financing will be
available to the Company on commercially reasonable terms, or at all.
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<PAGE> 30
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
29
<PAGE> 31
BUSINESS
Omtool designs, develops, markets and supports open, client/server
facsimile software, delivering solutions which automate and integrate fax
communication throughout the enterprise. Omtool's Fax Sr. product family,
licensed typically on a shrink-wrap basis, provides users with an extensive,
flexible feature set for transmitting and receiving faxes and improves an
organization's management of its fax communications processes by providing a
suite of utility and control functions. Fax Sr. can be deployed on
heterogeneous, multi-platform networks and can be integrated with both desktop
and enterprise software applications as well as e-mail and groupware systems. To
address the needs of large enterprises, Fax Sr. is modular and scaleable as
servers, clients and fax lines can be implemented and added over time. Fax Sr.
is available on the Windows NT, HP UNIX and DEC UNIX and VMS server operating
systems, and Windows 95, Windows NT, Windows 3.1.x, HTML, Macintosh, Motif and
MS-DOS clients. Omtool has licensed Fax Sr. to more than 1,500 customers
worldwide, including Alfred Berg Inc., AT&T Corp., Bloomberg Financial Markets,
Boeing, Dow Chemical, Honeywell, SmithKline Beecham and United Technologies.
INDUSTRY BACKGROUND
To be competitive in today's marketplace, companies must focus on improving
electronic communications within their organizations and beyond the enterprise.
Growth in electronic communication is being driven by productivity and
efficiency demands on knowledge workers, the information sharing requirements of
dispersed organizations, the emergence of the virtual enterprise to incorporate
suppliers, customers and other business partners, and the general globalization
of markets. Enterprises are responding to the need for improved communications
through the use of a combination of telephony, facsimile, e-mail and groupware
solutions. Facsimile transmission has been adopted as a world-wide standard for
electronic communication because of its ease of use, real-time transmission of
information, and consistent uniform protocol standards. According to an industry
source, an estimated 41% of the average annual telephone bills in 1996 for
Fortune 500 companies is attributable to fax costs.
A number of technological developments have emerged to create opportunities
to automate and improve fax and other corporate communications methods. These
developments include the proliferation of personal computers in the corporate
workplace, the growth of the client/server computing environment, the emergence
of the fax modem and remote access technology, the growth of wide area network
("WAN") infrastructure, including high speed T1/T3 public networks, and the
emergence of the Internet and corporate intranets. In addition, the rapid
adoption of Windows NT as a cost-effective, technologically-advanced platform
for enterprise computing is creating an environment whereby companies can
realize significant improvements in corporate communications through the use of
automation software.
Despite these technological improvements, only limited advances have been
made to automate fax communication and to coordinate and integrate communication
by fax with other communications methods. Traditional fax communication within
and beyond the enterprise continues to be prone to errors and delays in
transmission and reception due to manual copying, sending and routing processes.
Additionally, business managers and information technology ("IT") professionals
are often unable to effectively manage access and analyze and control usage
costs across this critical corporate communications medium. Because an estimated
85% of all faxed documents are created electronically, the lack of integration
between fax communication and desktop or enterprise applications causes
additional inefficiencies in the document communications and management process.
Moreover, traditional fax communication has failed to integrate with emerging
communications methods that are complementary to fax transmission, such as
e-mail and groupware, to create a coordinated communications process throughout
the extended enterprise.
Historical approaches to improving facsimile communications such as
desktop-based fax software and host-based fax applications have not provided a
comprehensive solution for the requirements of
30
<PAGE> 32
the enterprise. Desktop fax applications are unable to support workgroups or
divisions within an organization, are often limited to a single desktop
operating system and do not provide complete management functions. In addition,
desktop-based fax applications are limited in that they require significant
investment by the organization in dedicated modem or fax boards in each user's
PC and a telephone line connection for each modem or fax board. Host-based fax
applications running on mainframes or minicomputers are typically expensive,
difficult to maintain and relatively inflexible to meet the changing needs of
the enterprise. In addition, host-based fax applications are difficult to
integrate in a changing technological environment.
As corporate communications have become more critical and complex, a need
has arisen for a solution to automate and integrate fax communications
throughout the enterprise and address a broad range of faxing requirements from
person-to-person to volume broadcast transmissions. Such a solution must provide
users and managers with superior functionality, provide tight integration with
applications and other communications methods such as e-mail and groupware,
leverage existing network technology and be implemented on a scaleable,
multi-platform client/server architecture to address the needs of the extended
enterprise. According to a third-party market research firm, the U.S. fax server
market, which includes revenues from software-only fax servers as well as
revenues from bundled, turnkey hardware and software fax server systems, is
expected to grow from $155 million in 1995 to $400 million in 1999.
THE OMTOOL SOLUTION
Omtool provides an open, client/server software solution, licensed
typically on a shrink-wrap basis, for automating and integrating facsimile
communications throughout the enterprise. Omtool's Fax Sr. solution provides the
following key benefits:
Comprehensive Fax Solution. Fax Sr. provides users with an extensive,
flexible feature set for transmitting, receiving and managing facsimiles. Fax
Sr. is designed to enhance an organization's management of its fax
communications processes by providing a suite of utility and control functions
for both IT staff and business managers.
Tight Integration with Desktop and Production Applications. Fax Sr.
manages the transmission of documents originating from desktop applications as
well as volume-based facsimiles generated by production applications, such as
purchase orders, invoices and shipping notices. Fax Sr. can be integrated with
off-the-shelf software applications as well as in-house custom applications.
Complementary E-mail and Groupware Functionality. Fax Sr. is designed to
connect to and complement e-mail and groupware by enabling faxes to be sent and
received through these applications. Fax Sr. supports multiple, complementary
e-mail and groupware systems, including Microsoft Mail, cc:Mail, Lotus Notes,
Microsoft Exchange and Simple Mail Transfer Protocol ("SMTP").
Leverage Existing Infrastructure Investments. Fax Sr. is designed to
operate on heterogeneous networks and enables enterprises to leverage their
existing IT server and desktop infrastructure and telecommunications
investments. Fax Sr. supports multiple, simultaneous protocols and is available
on the Windows NT, HP UNIX, and DEC UNIX and VMS server operating systems, and
Windows NT, Windows 95, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS
clients. Fax Sr. operates with existing public and leased telephone lines and,
with additional features included in Fax Sr. NT Version 2.0, enables users to
take advantage of enhanced services offered by telecommunication carriers and
specialized service providers.
Enterprise-Strength Solution. Fax Sr. is architected to be modular and
scaleable to meet the needs of worldwide enterprises. Servers, clients and fax
lines can be implemented and added over time in a Fax Sr. deployment. Fax Sr.
has been utilized as a solution for up to approximately 10,000 users within a
single customer enterprise.
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<PAGE> 33
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 (primarily in Europe and South America) in order to
address its target markets outside of North America and to serve customers that
operate on a multi-national basis. In 1995, 1996 and the six months ended June
30, 1997, approximately 5%, 7% and 8%, respectively, of the Company's total
revenues were derived from sales outside of North America (primarily in Europe).
In 1997, the Company plans to significantly increase its investment in sales and
marketing efforts directed toward international markets.
Pursue Strategic Relationships. The Company is seeking to form
relationships with leading providers of products and services complementary to
the Company's offerings. The Company believes that these relationships will
provide both a valuable source of sales leads and an alternative source of
implementation services. The Company also believes that these relationships will
be beneficial in exposing its products to new markets and prospective customers.
The Company has recently entered into strategic alliances with UNIFI
Communications, Inc. and Xpedite Systems, Inc., providers of enhanced fax
carrier services, and with Active Voice Corporation, a provider of PC-based
voice mail systems and computer-telephony integration solutions.
PRODUCTS AND SERVICES
Fax Sr.
Fax Sr. is a client/server software solution for automating and integrating
fax communication throughout the enterprise. As an integrated component of an
enterprise software system, Fax Sr. is designed to be deployed on heterogeneous,
multi-platform networks and to integrate with desktop and enterprise software
applications. Fax Sr. is licensed typically on a shrink-wrap basis, primarily on
the Windows NT, HP UNIX and DEC UNIX and VMS server operating systems. In 1996
and the six months
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<PAGE> 34
ended June 30, 1997, approximately 82% and 96%, respectively, of the Company's
software license revenues were derived from Fax Sr. NT. Fax Sr. can be
configured with a variety of networked clients, including Windows NT, Windows
95, Windows 3.1.x, HTML, Macintosh, Motif and MS-DOS.
The Company has versions of Fax Sr. for use on the Windows NT, HP UNIX and
DEC UNIX and VMS operating systems. Fax Sr. NT was first released in March 1995
and the current version, 2.0, was released in May 1997. Fax Sr. VMS was first
released in 1993 and the current version, 4.1, was released in March 1997. Fax
Sr. UNIX was first released in 1994 and the current version, 4.2, was released
in June 1997.
Fax Sr. is comprised of three main components: Fax Sr. Client, Fax Sr.
Server and Fax Sr. Manager. The Fax Sr. Client allows users to send and receive
faxes directly from the desktop or enterprise application. The Fax Sr. Server
controls the function of prioritizing, queuing, and transmitting outbound faxes,
while receiving and distributing inbound faxes. The Fax Sr. Manager allows for
remote monitoring, control, and analysis of fax user activity from any Windows
or Windows NT system that is connected to the network.
Fax Sr. offers a comprehensive feature set with functionality important to
users, business managers and IT professionals. Fax Sr. users can fax documents,
together with attachments, from any desktop application through the
application's print function. Alternatively, faxes may be transmitted or
received directly through e-mail. Users can create and revise shared, public and
private phonebooks for fax transmissions. Fax Sr. offers a fax broadcast
capability with immediate or delayed transmission to take advantage of off-peak
telephone line utilization and charges. Inbound faxes can be directed to a
printer, desktop personal computer or e-mail. Fax Sr. also offers remote access,
including send and receive capability, for users who are away from the office.
Fax Sr. provides tools that allow business managers and IT professionals to
effectively manage the fax communication process. Outbound faxes can be
prioritized and scheduled on the individual user level and enhanced management
security and control capabilities are provided by furnishing password protection
as well as user and location restrictions. Through least cost routing, Fax Sr.
can route fax transmissions between servers, over an organization's WAN or the
Internet, allowing long distance fax transmissions to be made as local phone
calls. Fax Sr. also offers sophisticated tools for facsimile usage analysis,
including comprehensive recordkeeping of inbound and outbound faxes. The entire
Fax Sr. environment can be managed, configured and controlled from one or more
remote workstations.
Fax Sr. can be automatically linked to enterprise data processing
applications on multiple platforms connected on an enterprise's network. Fax Sr.
provides an integrated faxing environment across an organization's computer
platforms, including both servers and desktops. Fax Sr. is scaleable as a
business' need for faxing solutions expands.
Fax Sr. NT provides incremental functionality to the feature set available
on all versions of the Fax Sr. product. Fax Sr. NT is fully integrated with
Microsoft Exchange and enables business managers to pre-approve outbound faxes
on an individual user level. Fax Sr. NT supports multiple e-mail systems and
server side rasterization of multiple desktop application formats. Fax Sr. NT
Version 2.0 contains new client and server features including the capability of
routing fax transmissions through third-party service providers, SMTP gateway,
Internet browser client support (including HTML and JAVA content) and OCR
(optical character recognition) for inbound routing.
The Company's Fax Sr. product is licensed to its customers on a per server
basis. Pricing is based on the number of servers and facsimile telephone lines
deployed. The software list price for a deployment of one server, unlimited
clients and four telephone lines is approximately $6,500. The software list
price for a deployment of one server, unlimited clients and eight telephone
lines is approximately $9,000. The software list price for a deployment with one
server, unlimited clients and a T1 line, containing 24 telephone lines, is
approximately $17,000.
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<PAGE> 35
Hardware
The Company also resells certain hardware products, including intelligent
fax boards and fax modems, to its customers. Hardware sales are undertaken as a
convenience to Fax Sr. customers, and hardware is neither bundled with Fax Sr.
nor required to be purchased from the Company. Omtool primarily resells
intelligent fax boards from vendors such as Brooktrout Technology and Dialogic.
Customer Service
To aid in the successful deployment of the Company's products by its
customers, the Company's customer service organization provides technical
support. For an additional fee at the time of the initial licensing of the Fax
Sr. product, the Company provides support services to its customers for a period
of 12 months, including telephone support, notification of product upgrades,
minor product upgrades, functional releases and maintenance releases, technical
bulletins and replacement of damaged media. Support services may be renewed by
the customer on an annual basis. The Company currently provides annual support
services based on a percentage of its product license fee. Although to date the
Company has not provided consulting, configuration and installation services to
any significant degree, the Company intends to offer these customer services in
the future as warranted by customer demand. There can be no assurance, however,
as to the time of introduction or level of market acceptance of, or revenue
generated from, any such services. In the event that the Company devotes
significant financial and other resources to the provision of such services and
fails to achieve market acceptance and generate revenue, the Company's business,
financial condition and results of operations could be materially adversely
affected.
Other Products
In 1995, the Company acquired the right to license and support certain
document management and imaging software products. The Company provides
technical support for customers in exchange for support contract revenues, but
does not market these products to new customers. The Company believes that the
expertise gained in supporting the document management and imaging business can
be used to provide enhancements to its core Fax Sr. product. Revenues from the
licensing and support of these products accounted for approximately 9% and 3% of
the Company's total revenues in 1996 and the six months ended June 30, 1997,
respectively, and the Company does not expect this source of revenues to
increase in the future.
SALES AND MARKETING
The Company targets large and mid-sized corporations, organizations and
government entities as the primary market for its Fax Sr. product line. To
address the broad range of its sales opportunities, the Company relies on the
coordinated efforts of its centralized telesales organization, its key
executives and corporate account team, the Company's marketing department and
its indirect channels, including resellers, international distributors and
systems integrators. The Company is presently expanding its sales organization.
The telesales group qualifies and pursues sales leads generated by Omtool's
marketing organization. The Company has historically conducted its telesales
operation from its corporate headquarters in Salem, New Hampshire and intends to
maintain the telesales function at this location. Direct sales by the Company
accounted for approximately 89%, 76% and 65%, respectively, of the Company's
total revenues in 1995, 1996 and the six months ended June 30, 1997.
Within North America, the Company also offers its Fax Sr. product line
through indirect sales channels such as VARs, systems integrators and resellers
of complementary hardware products. While product sales may be handled by third
parties, to date all customer service contracts have been maintained directly by
the Company. The Company plans to expand the number of resellers in North
America selling Fax Sr. and anticipates the percentage of its revenues derived
from indirect channels will therefore increase.
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<PAGE> 36
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, 1996 and the six months ended June 30, 1997, sales
outside of North America represented 5%, 7% and 8%, respectively, of total
revenues.
In support of its sales organization, the Company conducts comprehensive
marketing programs intended to promote and create awareness of the Company's
products and position the Company in the enterprise, client/server facsimile
software market. These efforts include product advertising, public relations,
trade show participation, educational seminar series, direct mail and
telemarketing campaigns and participation in industry programs and forums.
STRATEGIC RELATIONSHIPS
An element of the Company's strategy is the creation and development of
strategic relationships with key industry participants, including leading
providers of products and services complementary to the Company's offerings. The
Company's goals in establishing these relationships are to create marketing
alliances with entities that will endorse and promote the Company's products to
a larger potential customer base and to assist the Company in developing a
supply of aftermarket service providers, thereby leveraging the Company's
resources and enhancing its reach.
The Company has recently entered into strategic alliances with UNIFI
Communications, Inc. and Xpedite Systems, Inc., providers of enhanced fax
carrier services, and with Active Voice Corporation, a provider of PC-based
voice mail systems and computer-telephony integration solutions. The agreements
generally provide for reference sales, limited co-marketing activities and, in
the case of UNIFI Communications, Inc. and Active Voice Corporation, resale of
Fax Sr. These agreements are mutually non-exclusive. See "Risk
Factors -- Expansion of Indirect Channels; Potential for Channel Conflict" and
"-- Strategic Relationships."
CUSTOMERS
As of June 30, 1997, the Company had more than 1,500 customers worldwide.
The Company's customer base reflects the cross-industry applicability of the
Company's products and services. The following is a representative list of
certain Fax Sr. customers that have each purchased more than $20,000 in the
aggregate of the Company's products and services:
ALCOA
Alfred Berg Inc.
Ameritech
AT&T Corp.
Auto Nation USA
Bank of Bermuda
Bloomberg Financial Markets
Boeing
Cellular One-Chicago
Charles Schwab
Correctional Services Canada
CSX Technology, Inc.
Digital Equipment Corporation
Dow Chemical
Environment Canada
Ericsson Inc.
Fina Oil & Chemical
Franklin Quest Co.
GMAC Mortgage Co.
Honeywell Inc.
J.D. Edwards
Legislative Counsel Bureau
Lockheed Martin
Logicorp
Los Alamos National Lab
Mayo Foundation
Micro Warehouse
Monsanto
New Brunswick Power
Pacific Bell
Payless Cashways, Inc.
Polaroid Corp.
Quark Incorporated
Sanford C. Bernstein & Co. Inc.
SmithKline Beecham
Transquest, Inc.
Tri Valley Growers
United Technologies
World Mercantile Exchange
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<PAGE> 37
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, 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 an enhanced JAVA client, an ActiveX client, LDAP
(light-weight directory access protocol) integration, additional OCR (optical
character recognition) capabilities, SNMP (simple network management protocol)
capability and support for international clients. 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, primarily through the hiring of
additional skilled engineers and independent contractors. 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
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<PAGE> 38
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 investments in connection with
its research, development, engineering, marketing, sales and customer service
efforts in order to meet any competitive threat, or that the Company will be
able to compete successfully in the future. Increased competition will result in
reductions in market share, pressure for price reductions and related reductions
in gross margins, any of which could materially and adversely affect the
Company's ability to achieve its financial and business goals. There can be no
assurance that in the future the Company will be able to successfully compete
against current and future competitors. See "Risk Factors -- Intense
Competition."
PROPRIETARY RIGHTS
The Company regards its software as a trade secret and attempts to protect
it with a combination of copyright and trade secret laws, and employee
nondisclosure and assignment of invention agreements. The Company has no patents
or patents pending, and to date has not registered any copyrights or trademarks.
The Company generally licenses its products under "shrink-wrap" licenses (i.e.,
licenses included as part of the product packaging). Shrink-wrap licenses are
not negotiated with or signed by individual licensees, and purport to take
effect upon the opening of the product package. Certain provisions of such
licenses, including provisions protecting against unauthorized use, copying,
transfer and disclosure of the licensed program, may be unenforceable under the
laws of many jurisdictions. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and although the Company is unable to determine the extent to which piracy of
its products exists, such piracy can be expected to be a persistent problem,
particularly in international markets. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. There can be no assurance that these protections
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies. See "Risk Factors -- Dependence on Proprietary
Technology; Risks of Third-Party Claims for Infringement."
There has been substantial litigation in the software industry involving
intellectual property rights. There can be no assurance that claims of
infringement of intellectual property rights will not be asserted against the
Company and, if asserted, would not have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
inasmuch as the Company licenses certain components of its Fax Sr. product from
third parties, its exposure to copyright and other infringement actions may
increase because the Company must rely on such third parties for information as
to the origin and ownership of such licensed components. In the future,
litigation may be necessary to enforce and protect trade secrets, copyrights and
other intellectual property rights of the Company. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation could be costly and divert management's
attention, either of which could have a material adverse effect on the Company's
business, financial condition and
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<PAGE> 39
results of operations. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from selling its products, any one of which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Proprietary Technology; Risks of
Third-Party Claims for Infringement" and "-- Dependence on Third Party Licensed
Technology."
EMPLOYEES
As of June 30, 1997, the Company employed 88 persons. The Company is not
subject to any collective bargaining agreements, has never experienced a work
stoppage and considers its relations with its employees to be good.
FACILITIES
The Company's executive offices are located in Salem, New Hampshire in a
leased facility consisting of approximately 22,500 square feet. The lease
expires on July 31, 2000, and the Company has an option to extend the lease for
a period of three years thereafter. The Company believes that such facilities
are adequate for its present operations. The Company, however, expects in the
future to expand into additional facilities.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert L. Voelk.................. 41 Chairman of the Board, Chief Executive
Officer and Director
Martin A. Schultz................ 42 President and Director
Ellen Ohlenbusch Flaherty........ 31 Vice President, Sales
Darioush Mardan.................. 32 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Mark P. Overington............... 39 Vice President, Operations
Craig A. Randall................. 37 Vice President, Marketing
Paul E. St. Pierre............... 45 Vice President, Engineering
Richard D. Cramer (2)............ 34 Director
Bruce R. Evans (1)............... 38 Director
Anthony J. Mark (1)(2)........... 50 Director
William C. Styslinger, III....... 51 Director
</TABLE>
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Robert L. Voelk has served as Chief Executive Officer of the Company since
January 1996 and Director of the Company since August 1993. Mr. Voelk served as
President of the Company from August 1993 to January 1996. Mr. Voelk was
employed in various positions at ASA International, Ltd., a designer and
developer of proprietary vertical market software, from 1981 to 1993, most
recently serving as Executive Vice President and Director. Mr. Voelk is a
Director of ASA International, Ltd.
Martin A. Schultz, the founder of the Company, has served as President of
the Company since January 1996 and Director of the Company since inception. Mr.
Schultz founded the Company in March 1991 and served as the Company's President
from its inception through August 1993 and served as Chief Executive Officer of
the Company from March 1991 to January 1996. Mr. Schultz served as Vice
President of ASA International, Ltd. from April 1989 to January 1991.
Ellen Flaherty joined the Company in February 1994 as Vice President,
Sales. Ms. Flaherty served as Director of Sales at Laboratory Technologies
Corporation, a developer of engineering and scientific software, from May 1992
to November 1993. From 1987 to 1992, Ms. Flaherty worked for Analog Devices, a
manufacturer of linear digital and mixed-signal integrated circuits.
Darioush Mardan has served as Chief Financial Officer and Vice President,
Finance of the Company since October 1995. Mr. Mardan has also served as
Secretary and Treasurer of the Company since January 1996. Mr. Mardan was
employed in various positions by Arthur Andersen LLP, a national public
accounting firm, from August 1989 to October 1995, most recently serving as
audit manager in the firm's Boston office.
Mark P. Overington joined the Company in January 1997 as Vice President,
Operations. Mr. Overington was employed in various positions by Avid Technology,
Inc., a developer of nonlinear film, video and audio solutions, from January
1989 to December 1996, most recently serving as Vice President of Corporate
Marketing. From 1983 to 1989, Mr. Overington was employed in various positions
by Lotus Development Corporation, a software developer.
Craig A. Randall joined the Company in September 1995 as Vice President,
Marketing. Mr. Randall served as Vice President, Marketing for Simplex Time
Recorder Co., a seller of fire alarm, sound, security and other monitor and
control systems, from December 1994 to July 1995. Previously
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<PAGE> 41
Mr. Randall was employed by Racal-Datacom, Inc., a data communications company,
from November 1988 to December 1994, most recently as Division Vice President of
Product Marketing.
Paul E. St. Pierre joined the Company as Vice President, Engineering in
March 1996. Mr. St. Pierre was Director of Engineering at Avid Technology from
May 1992 to February 1996. Previously, Mr. St. Pierre was Consulting Engineer
for Digital Equipment Corporation, a computer systems, peripheral equipment and
software manufacturer, from January 1992 to May 1992. Prior to that, Mr. St.
Pierre was employed by Compass, Inc., a software engineering firm, from November
1982 to November 1991, most recently as Director of Engineering.
Richard D. Cramer became a Director of the Company in January 1996. Mr.
Cramer has served as Vice President, Sales and Marketing of CENTRA Software,
Inc., a developer and marketer of Web-Centric distance learning software, since
May 1996. Mr. Cramer served as Vice President of North American Field Operations
at Avid Technology from 1989 to 1995 and Vice President and General Manager of
the Desktop Division of Avid Technology during 1996.
Bruce R. Evans has served as a Director of the Company since July 1996.
Since 1991, Mr. Evans has been a general partner of Summit Partners, a venture
capital firm, where he has been employed since 1986. Mr. Evans serves as a
director of Pediatrix Medical Group and several privately-held companies.
Anthony J. Mark became a Director of the Company in January 1996. Mr. Mark
has served as Vice President, Product Development at CENTRA Software, Inc. since
March 1997. Mr. Mark served as Vice President and General Manager of Broadcast
Products Group from 1993 to 1995 and Vice President of Engineering from 1990 to
1993 at Avid Technology. Prior to his employment with Avid Technology, Mr. Mark
held various technical and managerial positions at companies such as Compass,
Inc., Datamark, Ltd., Lexico Enterprises and GPP GmbH.
William C. Styslinger, III became a Director of the Company in June 1997.
Mr. Styslinger has served as President, Chief Executive Officer and Director of
SeaChange International, a provider of software products to manage, store and
distribute digital video for cable television operators and telecommunications
companies, since 1993 and as Chairman of the Board of SeaChange International
since January 1995. Prior to July 1993, Mr. Styslinger was employed at Digital
Equipment Corporation since March 1978, most recently as manager of the Cable
Television Business Unit from October 1991 to May 1993.
Mr. Evans was nominated and elected in accordance with a shareholders'
agreement, which will terminate upon the closing of this offering. See "Certain
Transactions."
The Company's By-laws provide for the Company's Board of Directors to be
comprised of as many directors as are designated from time to time by the Board
of Directors or by the stockholders of the Company. The board is currently
comprised of six members. Each director holds office until his successor is duly
elected and qualified, or until his earlier death, resignation or removal. Prior
to this offering, the Company's stockholders approved an amendment and
restatement of the Company's By-laws to take effect upon the consummation of
this offering, that includes a provision to establish a classified Board of
Directors. Under this provision, Messrs. Mark and Cramer are serving for terms
expiring on the date of the Company's 1998 Annual Meeting of Stockholders,
Messrs. Evans and Styslinger are serving for terms expiring on the date of the
Company's 1999 Annual Meeting of Stockholders and Messrs. Voelk and Schultz are
serving for terms expiring on the date of the Company's 2000 Annual Meeting of
Stockholders. 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.
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<PAGE> 42
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.
DIRECTOR COMPENSATION
Following the consummation of this offering, non-employee directors will
receive a fee of $1,000 for each meeting of the Board and $500 for each
committee meeting that they attend in person and will be reimbursed for their
reasonable out-of-pocket expenses incurred in attending such meetings. No
director who is an employee of the Company will receive separate compensation
for services rendered as a director.
On January 3, 1996, the Company granted Messrs. Cramer and Mark
nonstatutory options under the 1996 Stock Option Plan to purchase 80,000 shares
of Common Stock, respectively, at an exercise price of $0.25 per share,
determined by the Board of Directors to be the fair market value at the date of
grant. The options vest in equal annual installments over a period of three
years, commencing January 3, 1997. The options become exercisable in full upon a
change in control of the Company.
On July 1, 1997 the Company granted Mr. Styslinger a nonstatutory option
under the 1996 Stock Option Plan to purchase 15,000 shares of Common Stock at an
exercise price of $8.50 per share, determined by the Board of Directors to be
the fair market value at the date of grant. The option vests in equal annual
installments over a period of three years, commencing July 1, 1998. The option
becomes exercisable in full upon a change in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1996, the Company had no separate compensation committee or
other equivalent function, and this function was performed by the Company's
Board of Directors. From March 1996 until July 1996, the Company had a
Compensation Committee comprised of Messrs. Voelk (the Chief Executive Officer
of the Company), Schultz (the President of the Company) and Mark. From July 22,
1996 until April 15, 1997, the Compensation Committee was comprised of Messrs.
Voelk, Mark and Evans. Mr. Evans is a general partner of Summit Investors III,
L.P. a stockholder of the Company, and is also a general partner of Stamps,
Woodsum & Co. IV, which is the general partner of Summit Partners IV, L.P. which
is the general partner of Summit Ventures IV, L.P., another stockholder of the
Company. Since April 15, 1997, the Compensation Committee has been comprised of
Messrs. Mark and Evans.
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<PAGE> 43
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>
42
<PAGE> 44
- ------------
(1) Generally, the options vest in equal annual installments over a period of
three years commencing one year from the date on which the options were
granted. All of the options were granted on January 3, 1996 and become
exercisable in full upon a change in control of the Company. The option
granted to Ms. Flaherty to purchase 160,000 shares of Common Stock was
exercisable for 53,333 shares of Common Stock on January 3, 1996; the
remaining 106,667 shares vest in equal annual installments over a period of
two years commencing on January 3, 1997.
(2) All options were granted at fair market value on the date of grant as
determined by the Board of Directors of the Company.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on the fair market value of $0.25 per share on the date of grant
(January 3, 1996) and assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. These assumptions are mandated by the rules of the
Securities and Exchange Commission and are not intended to forecast future
appreciation of the Company's stock price. The potential realizable value
computation is net of the applicable exercise price, but does not take into
account federal or state income tax consequences and other expenses of
option exercises or sales of appreciated stock. Actual gains, if any, are
dependent upon the timing of such exercise and the future performance of the
Company's Common Stock. There can be no assurance that the rates of
appreciation in this table can be achieved. This table does not take into
account any appreciation in the price of the Common Stock to date.
Option Exercises and Unexercised Option Holdings
No Named Executive Officer exercised a stock option during 1996. The
following table sets forth certain information regarding the stock options held
as of December 31, 1996 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert L. Voelk..................... -- -- -- --
Martin A. Schultz................... -- -- -- --
Ellen Flaherty...................... 53,333 106,667 $466,664 $ 933,336
Craig A. Randall.................... -- 160,000 -- 1,400,000
Darioush Mardan..................... -- 160,000 -- 1,400,000
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock as of December 31,
1996. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $9.00 per share, less the
applicable exercise price.
STOCK PLANS
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in January 1996. The 1996 Plan provides for the issuance of Common
Stock pursuant to the grant to employees of "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and the
grant of non-qualified stock options to consultants, directors (whether or not
an employee) and other non-employees of the Company.
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<PAGE> 45
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board has the authority to select the optionees
and determine the terms of the options granted under the 1996 Plan including:
(i) the number of shares subject to each option, (ii) when the option becomes
exercisable, (iii) the exercise price of the option (which in the case of an
incentive stock option cannot be less than the fair market value of the Common
Stock as of the date of grant), (iv) the duration of the option and (v) the
time, manner and form of payment upon exercise of an option. An option is not
transferable by the recipient except by will or by the laws of descent and
distribution. Generally, no incentive stock option may be exercised more than
three months following termination of employment. However, in the event that
termination is due to death or disability, the option is exercisable for a
maximum of one year after such termination. The vesting of all options granted
under the 1996 Plan accelerate upon a change in control of the Company.
The aggregate number of shares of Common Stock which may be issued pursuant
to the 1996 Plan is 1,500,000. As of June 30, 1997, options to purchase a total
of 1,309,218 shares of Common Stock at exercise prices ranging from $0.25 to
$8.25 per share (with a weighted average exercise price of $1.28 per share) were
outstanding under the 1996 Plan (of which 321,665 options were then exercisable)
and options for 75,999 shares of Common Stock had been exercised. On April 14,
1997, the Company's Board of Directors voted that, effective upon the closing of
this offering, no further options may be granted or issued under this plan.
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors in April 1997 and approved by the Company's
stockholders in June 1997. The 1997 Plan will take effect upon the closing of
this offering. No options have been granted under the 1997 Plan. The 1997 Plan
provides for the issuance of Common Stock pursuant to the grant to employees of
"incentive stock options" within the meaning of the Code, and the grant of
non-qualified stock options, stock awards or opportunities to make direct
purchases of stock in the Company to employees, consultants, directors and
officers of the Company. The aggregate number of shares of Common Stock which
may be issued pursuant to the 1997 Plan is 1,800,000.
The 1997 Plan is administered by the Board of Directors. Subject to the
provisions of the 1997 Plan, the Board has the authority to select the optionees
and determine the terms of the options granted, including: (i) the number of
shares subject to each option, (ii) when the option becomes exercisable, (iii)
the exercise price of the option (which in the case of an incentive stock option
cannot be less than the market price of the Common Stock as of the date of
grant), (iv) the duration of the option and (v) the time, manner and form of
payment upon exercise of an option. An option is not transferable by the
optionholder except by will or by the laws of descent and distribution.
Generally, no incentive stock option may be exercised more than 90 days
following termination of employment. However, in the event that termination is
due to death or disability, the option is exercisable for a maximum of 180 days
after such termination.
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") was adopted by the Board of Directors in April 1997
and approved by the Company's stockholders in June 1997. The 1997 Purchase Plan
will take effect in January 1998. The 1997 Purchase Plan provides for the
issuance of a maximum of 200,000 shares of Common Stock pursuant to the exercise
of nontransferable options granted to participating employees.
The 1997 Purchase Plan is administered by the Board of Directors. All
employees of the Company, except employees who own five percent or more of the
Company's stock, whose customary employment is 25 hours or more per week and
more than five months in any calendar year and who have completed at least five
months of employment are eligible to participate in the 1997 Purchase Plan.
Employees who own five percent or more of the Company's Common Stock and
directors who are not employees of the Company may not participate in the 1997
Purchase Plan. To participate in the 1997 Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than one 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
44
<PAGE> 46
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.
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<PAGE> 47
CERTAIN TRANSACTIONS
SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to subscription agreements entered into in February 1996, on July
8, 1996 the Company issued an aggregate of 162,500 shares of Series A
Convertible Preferred Stock, at a purchase price of $2.00 per share, to director
Richard D. Cramer, to then director William R. Daniels, III and to T.M.
Partners, of which director Anthony J. Mark is a general partner. Upon the
closing of this offering, the Series A Convertible Preferred Stock will
automatically convert into an aggregate of 325,000 shares of Common Stock.
SALE OF SERIES B CONVERTIBLE PREFERRED STOCK
On July 22, 1996, the Company issued an aggregate of 1,356,116 shares of
Series B Convertible Preferred Stock (the "Series B Financing"), at a purchase
price of $3.687 per share, to Summit Ventures IV, L.P. and Summit Investors III,
L.P. (the "Series B Holders"). Bruce R. Evans, a director of the Company, is a
general partner of Summit Investors III, L.P. and is the general partner of
Stamps, Woodsum & Co. IV, which is a general partner of Summit Partners IV,
L.P., which is a general partner of Summit Ventures IV, L.P. Upon the closing of
this offering, the Series B Convertible Preferred Stock will automatically
convert into an aggregate of 2,712,232 shares of Common Stock.
In connection with the Series B Financing, the Company, Messrs. Voelk and
Schultz, and the Series B Holders entered into a Shareholders' Agreement dated
July 22, 1996, pursuant to which Mr. Evans was elected to the Board of
Directors. The Company and the Series B Holders also entered into a Redemption
Agreement dated July 22, 1996 pursuant to which the Company must redeem the
Series B shares if certain events have not occurred by July 22, 2003. Both such
agreements will terminate upon the closing of this offering. Pursuant to the
Series B purchase agreement, the Company granted registration rights to certain
stockholders of the Company. See "Shares Eligible for Future
Sale -- Registration Rights."
REPURCHASE OF COMMON STOCK
In July 1996, in connection with the Series B Financing, the Company
entered into Common Stock Purchase Agreements with each of Robert L. Voelk and
Martin A. Schultz, executive officers of the Company, pursuant to which it
acquired 542,496 shares of Common Stock from each at a purchase price of $1.8435
per share.
TRANSACTIONS WITH SELLING STOCKHOLDER
William R. Daniels, III, a Selling Stockholder, served as Chief Financial
Officer of the Company from May 1995 to August 1995 and served as a Director of
the Company from January 1996 to June 1997. On January 3, 1996, the Company
granted Mr. Daniels a nonstatutory option under the 1996 Plan to purchase 80,000
shares of Common Stock at an exercise price of $0.25 per share, determined by
the Board of Directors to be the fair market value at the date of grant. The
option vests in equal annual installments over a period of three years,
commencing January 3, 1997, and becomes exercisable in full upon a change in
control of the Company. Pursuant to an at-will consulting agreement, Mr. Daniels
provides advisory services to the Company in exchange for cash payments of $500
per day plus any expenses incurred in performing such services. Mr. Daniels
became an employee of Robertson, Stephens & Company LLC on June 30, 1997.
The Company believes that the terms of the foregoing transactions involving
the Company were no less favorable to the Company than could have been obtained
from unaffiliated third parties. The Company has adopted a policy whereby all
transactions between the Company and its executive officers, directors and
affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and will be approved by a majority of the
disinterested members of the Board of Directors.
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<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1997 and as adjusted to
reflect the sale of the shares offered hereby by (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and Named Executive Officer of the Company, (iii) all
directors and executive officers of the Company as a group and (iv) each Selling
Stockholder. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------- SHARES TO BE ---------------------
NAME AND ADDRESS NUMBER PERCENT SOLD IN OFFERING(2) NUMBER PERCENT
- ----------------------------- --------- ------- ------------------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners(3)........... 2,712,232 32.2% 444,520 2,267,712 19.8%
600 Atlantic Avenue
Boston, MA 02110
Robert L. Voelk(4)........... 2,557,504 30.3 255,750 2,301,754 20.1
Martin A. Schultz (5)........ 2,657,504 31.5 265,750 2,391,754 20.9
Richard D. Cramer............ 51,666 * 5,167 46,499 *
Bruce R. Evans (6)........... 2,712,232 32.2 444,520 2,267,712 19.8
Anthony J. Mark.............. 76,666 * 7,666 69,000 *
William C. Styslinger, III... -- -- -- -- --
William R. Daniels (7)....... 211,466 2.5 21,147 190,319 1.7
Ellen Flaherty (8)........... 106,666 1.2 -- 106,666 *
Darioush Mardan (9).......... 53,333 * -- 53,333 *
Mark P. Overington (10)...... 40,000 * -- 40,000 *
Craig A. Randall (9)......... 53,333 * -- 53,333 *
Paul E. St. Pierre (9)....... 53,333 * -- 53,333 *
All directors and executive
officers as a group (11
persons)(11)............... 8,362,237 95.7% 978,853 7,383,384 62.9%
</TABLE>
- ------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock outstanding prior to this offering
includes (i) 8,428,239 shares outstanding as of June 30, 1997 and (ii)
shares issuable by the Company pursuant to options held by the respective
person or group which may be exercised within 60 days following June 30,
1997 ("Presently Exercisable Options"). The number of shares of Common
Stock deemed outstanding after this offering includes an additional
3,000,000 shares that are being offered for sale by the Company in this
offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission that deem shares to be
beneficially owned by any person or group who has or shares voting and
investment power with respect to such shares. Presently Exercisable Options
are deemed to be outstanding and to be beneficially owned by the person or
group holding such options for the purpose of computing the percentage
ownership of such person or group but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group.
(2) If the Underwriters exercise their over-allotment option to purchase up to
600,000 shares, then the following stockholders named in the table above
will sell up to the following number of additional shares: Ellen Flaherty,
10,667 shares; Darioush Mardan, 5,333 shares; Mark P. Overington, 4,000
shares; Craig A. Randall, 5,333 shares; Paul E. St. Pierre, 5,333 shares;
and Summit Partners, 569,334 shares.
47
<PAGE> 49
(3) Includes 2,571,042 shares held by Summit Ventures IV, L.P. and 141,190
shares held by Summit Investors III, L.P. The respective general partners
of these entities exercise sole voting and investment power with respect to
the shares owned by such entities.
(4) Includes 180,000 shares held in trust for the benefit of certain family
members; Mr. Voelk disclaims beneficial ownership of such shares.
(5) Includes 64,900 shares held in trust for the benefit of certain family
members; Mr. Schultz disclaims beneficial ownership of such shares.
(6) Includes 2,571,042 shares held by Summit Ventures IV, L.P. and 141,190
shares held by Summit Investors III, L.P. Mr. Evans is a general partner of
Summit Investors III, L.P. and is the general partner of Stamps, Woodsum &
Co. IV, which is the general partner of Summit Partners IV, L.P., which is
the general partner of Summit Ventures IV, L.P. Mr. Evans may be deemed to
share voting and investment power with respect to all shares held by the
partnerships. Mr. Evans disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest therein.
(7) Includes 6,666 Presently Exercisable Options.
(8) Consists of 106,666 Presently Exercisable Options.
(9) Consists of 53,333 Presently Exercisable Options.
(10) Consists of 40,000 shares of Common Stock issuable upon the exercise of
options, which options will become exercisable upon the closing of this
offering.
(11) Includes 306,665 Presently Exercisable Options and 2,571,042 shares held by
Summit Ventures IV, L.P. and 141,190 shares held by Summit Investors III,
L.P.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and after giving effect to the
amendment and restatement of the Company's Restated Certificate of Incorporation
immediately prior to the closing of this offering, the authorized capital stock
of the Company will consist of 35,000,000 shares of Common Stock, $0.01 par
value per share, and 2,000,000 shares of Preferred Stock, $0.01 par value per
share. Prior to this offering, there were outstanding an aggregate of 1,518,616
shares of Convertible Preferred Stock which will automatically convert into an
aggregate of 3,037,232 shares of Common Stock immediately upon the closing of
this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation as amended and restated immediately prior to the closing of this
offering which is included as an exhibit to the Registration Statement, and by
the provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 8,428,239 shares of Common Stock
outstanding held of record by 33 stockholders, after giving effect to the
conversion of all outstanding Preferred Stock upon the closing of this offering.
Based upon the number of shares outstanding as of that date and giving effect to
the issuance of the 3,000,000 shares of Common Stock offered by the Company
hereby, there will be 11,428,239 shares of Common Stock outstanding upon the
closing of this offering.
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock share ratably in the assets of the Company available for distribution to
its stockholders, subject to the preferential rights of any then outstanding
Preferred Stock. No shares of Preferred Stock will be outstanding immediately
following the closing of this offering. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All shares of Common
Stock outstanding upon the effective date of this Prospectus, and the shares
offered hereby will, upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
Prior to this offering, there were two series of Preferred Stock
outstanding consisting of 162,500 shares of Series A Preferred Stock and
1,356,116 shares of Series B Preferred Stock. All outstanding shares of Series A
and B Preferred Stock will be converted into an aggregate of 3,037,232 shares of
Common Stock upon the closing of this offering and such shares of Preferred
Stock will no longer be issued and outstanding.
Upon the closing of this offering, the Company's Board of Directors will
have the authority to issue 2,000,000 shares of Preferred Stock in one or more
series and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The Board of Directors could, without the approval of the stockholders, issue
Preferred Stock having voting or conversion rights that could adversely affect
the voting power of the holders of Common Stock, and the issuance of Preferred
Stock could be used, under certain circumstances, to render more difficult or
discourage a hostile takeover of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
49
<PAGE> 51
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or the business combination is approved in a
prescribed manner, or certain other conditions are satisfied. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Amended and Restated By-laws (the "By-laws") provide for the
election of directors. See "Management -- Executive Officers and Directors." The
By-laws provide that (i) the number of directors shall be determined from time
to time by resolution adopted by a majority of the Board of Directors, (ii)
vacancies on the Board of Directors may be filled by the Board unless and until
filled by the stockholders, and (iii) directors may be removed only for cause by
the vote of the holders of at least 75% of the shares then entitled to vote at
an election of directors.
The By-laws provide for a classified Board of Directors consisting of three
classes of directors having staggered terms of three years each, with each of
the classes being as nearly equal as possible. A single class of directors is
elected each year at the Company's annual meeting of stockholders. Subject to
transition provisions, each director elected at each such meeting will serve for
a term ending on the date of the third annual meeting of stockholders after his
election and until his successor has been elected and duly qualified. Messrs.
Mark and Cramer are serving for terms expiring on the date of the Company's 1998
Annual Meeting of Stockholders, Messrs. Evans and Styslinger are serving for
terms expiring on the date of the Company's 1999 Annual Meeting of Stockholders
and Messrs. Voelk and Schultz are serving for terms expiring on the date of the
Company's 2000 Annual Meeting of Stockholders.
The By-laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a notice must be
delivered not less than 120 days nor more than 150 days prior to the first
anniversary of the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting, provided, however, that if
either (i) the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary, or (ii) if no proxy statement was delivered
to stockholders in connection with the preceding year's annual meeting, such
notice must be delivered not earlier than 90 days prior to such annual meeting
and not later than the later of (i) 60 days prior to the annual meeting or (ii)
10 days following the date on which public announcement of the date of such
annual meeting is first made by the Company. With respect to special meetings
called by the Company for the purpose of electing directors, the stockholder's
notice must generally be delivered not more than 90 days prior to such meeting
and not later than the later of 60 days prior to such meeting or 10 days
following the day on which public announcement of such meeting is first made by
the Company. The notice must contain, among other things, certain information
about the stockholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting.
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") empowers the Board of Directors, when considering a tender offer or
merger or acquisition proposal, to take into account any factors that the Board
of Directors determines to be relevant, including, without limitation, (i) the
interests of the Company's stockholders, including the possibility that these
interests might be best served by the continued independence of the Company,
(ii) whether the proposed transaction might violate federal or state laws, (iii)
not only the consideration being offered in the
50
<PAGE> 52
proposed transaction, in relation to the then current market price for the
outstanding capital stock of the Company, but also to the market price for the
capital stock of the Company over a period of years, the estimated price that
might be achieved in a negotiated sale of the Company as a whole or in part or
through orderly liquidation, the premiums over market price for the securities
of other corporations in similar transactions, current political, economic and
other factors bearing on securities prices and the Company's financial condition
and future prospects, and (iv) the social, legal and economic effects upon
employees, suppliers, customers, creditors and others having similar
relationships with the Company, upon the communities in which the Company
conducts its business and upon the economy of the state, region and nation.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
The Charter and By-laws also provide that any action required or permitted
to be taken by the stockholders of the Company may be taken only at a duly
called annual or special meeting of the stockholders, and may not be taken by
written consent. The Charter and By-laws provide that special meetings of
stockholders may be called only by the Chairman of the Board of Directors, a
majority of the Board of Directors or the President of the Company. These
provisions could have the effect of delaying until the next annual stockholders
meeting stockholder actions which are favored by the holders of a majority of
the then outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions, and to reduce the number of authorized shares of Common
Stock and Preferred Stock. A 75% vote of stockholders is required for the
stockholders to adopt, amend or repeal any By-law provisions. The By-laws may
also be amended or repealed by a majority vote of the Board of Directors subject
to any limitations set forth in the By-laws.
The foregoing provisions of Delaware law and the Company's Charter and
By-laws could have the effect of discouraging others from attempting hostile
takeovers of the Company and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the Common Stock that might result from
actual or rumored hostile takeover attempts. Such provisions may also have the
effect of preventing changes in the management of the Company. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests. See "Risk
Factors -- Anti-Takeover Effect of Charter and By-Law Provisions; Availability
of Preferred Stock for Issuance."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter contains certain provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derives an improper personal
benefit. These provisions do not limit or eliminate the rights of the Company or
any stockholder to seek non-monetary relief, such as an injunction or recession,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. The Company's
Charter also contains provisions indemnifying the directors and officers of the
51
<PAGE> 53
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.
52
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,428,239 shares
of Common Stock outstanding (based upon shares of Common Stock outstanding as of
June 30, 1997, the conversion of the Company's Convertible Preferred Stock and
assuming no exercise of outstanding options). Of these shares, the 4,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below. The remaining 7,428,239 shares of
Common Stock (the "Restricted Shares") held by existing stockholders upon
completion of this offering will be "restricted" securities within the meaning
of Rule 144 and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144.
SALES OF RESTRICTED SHARES
Beginning 90 days after the date of this Prospectus, approximately 2,667
additional Restricted Shares will become eligible for sale in the public market
pursuant to Rule 144 or Rule 701 under the Securities Act. Beginning 180 days
after the date of this Prospectus, approximately 7,425,572 additional Restricted
Shares subject to lock-up agreements between the Underwriters and certain
stockholders, including officers and directors, will become eligible for sale in
the public market pursuant to Rule 144(k), Rule 144 or Rule 701. In addition,
certain existing holders of an aggregate of 6,961,220 shares of Common Stock
have the right to require registration of their shares under certain
circumstances. However, such stockholders have entered into lock-up agreements
with respect to all shares owned by them and not sold in this offering, which
provide that they will not sell or otherwise dispose of any shares of Common
Stock (except for shares sold in this offering) without the prior written
consent of Robertson, Stephens & Company LLC for a period of 180 days from the
date of this Prospectus. Robertson, Stephens & Company LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. See "-- Registration Rights" and
"Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) including an Affiliate, who has beneficially owned
shares for at least one year (including the holding period of certain prior
owners), will be entitled to sell in "brokers' transactions" or to market
makers, within any three-month period commencing 90 days after the Company
becomes subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 114,282 shares immediately after this offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks immediately preceding such sale, subject, generally, to the
filing of a Form 144 with respect to such sales and certain other limitations
and restrictions. In addition, a person (or person whose shares are aggregated),
who is not deemed to have been an Affiliate at any time during the 90 days
immediately preceding the sale and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
under Rule 144(k) without regard to the limitations described above. Further,
Rule 144A under the Securities Act as currently in effect permits the immediate
sale of restricted shares to certain qualified institutional buyers without
regard to the volume restrictions described above.
OPTIONS
In general, under Rule 701 of the Securities Act as currently in effect,
any employee, consultant or advisor of the Company who purchased shares from the
Company in connection with a compensatory stock or option plan or other written
compensatory agreement is entitled to resell such shares without having to
comply with the public-information, holding-period, volume-limitation or notice
provisions of Rule 144, and Affiliates are entitled to sell their Rule 701
shares without having to comply with
53
<PAGE> 55
Rule 144's holding-period restrictions, in each case commencing 90 days after
the Company becomes subject to the reporting requirements of Section 13 of the
Exchange Act. Rule 701 is available for stockholders of the Company as to all
shares issued pursuant to exercise of options granted prior to the offering.
As of the date of this Prospectus, the Board of Directors, subject to
stockholder approval, has authorized an aggregate of up to 3,500,000 shares of
Common Stock for issuance pursuant to the 1996 Plan, the 1997 Plan and the 1997
Purchase Plan. As of June 30, 1997, options to purchase 1,309,218 shares were
outstanding under the 1996 Plan and options to purchase 2,114,783 shares were
available for issuance under the 1996 Plan, the 1997 Plan and the 1997 Purchase
Plan. The Company intends to file one or more registration statements on Form
S-8 under the Securities Act promptly after the date of this Prospectus to
register up to 3,424,001 shares available for issuance under the 1996 Plan, the
1997 Plan and the 1997 Purchase Plan. Such registration statements are expected
to become effective upon filing. After the effective date of the applicable
registration statement, shares of Common Stock issued under the relevant plan
will be immediately eligible for sale in the public market, subject in certain
cases to the lockup restrictions described below.
LOCK-UP AGREEMENTS
Certain stockholders and all executive officers and directors of the
Company, who in the aggregate hold 7,425,572 shares of Common Stock and options
to purchase 966,668 shares of Common Stock, have agreed, pursuant to the Lock-up
Agreements, that they will not, without the prior written consent of Robertson,
Stephens & Company LLC, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock beneficially owned by them for a period of 180 days
after the date of this Prospectus.
REGISTRATION RIGHTS
After the completion of this offering, certain stockholders of the Company
(the "Rightsholders") will be entitled to require the Company to register under
the Securities Act up to a total of 6,961,220 shares of outstanding Common Stock
(the "Registrable Shares") under the terms of a certain agreement among the
Company and the Rightsholders (the "Series B Purchase Agreement"). The Series B
Purchase Agreement provides that in the event the Company proposes to register
any of its securities under the Securities Act at any time or times, the
Rightsholders, subject to certain exceptions, shall be entitled to include
Registrable Shares in such registration. However, the managing underwriter of
any such offering may exclude for marketing reasons some or all of such
Registrable Shares from such registration. Certain of the Rightsholders have,
subject to certain conditions and limitations, additional rights to require the
Company to prepare and file a registration statement with respect to their
Registrable Shares and the Company is required to use its best efforts to effect
such registration if the aggregate offering price of such proposed offering is
at least $5,000,000. Furthermore, such holders may require the Company to file
additional registration statements on Form S-3 subject to certain conditions and
limitations. The Company is generally required to bear the expenses of all such
registrations, except underwriting discounts and commissions.
Prior to this offering, there has not been any public market for securities
of the Company. No predictions can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could adversely affect the prevailing
market price. See "Risk Factors -- Shares Eligible for Future Sale."
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<PAGE> 56
UNDERWRITING
The Underwriters named below acting through their representatives,
Robertson, Stephens & Company LLC, Montgomery Securities and First Albany
Corporation (the "Representatives"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company and
the Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all of such shares if any are purchased:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC................................
Montgomery Securities............................................
First Albany Corporation.........................................
---------
Total.................................................. 4,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price, less a concession of not more than $ per share, of
which $ per share may be reallowed to other dealers. After the initial
public offering, the public offering price, concession and reallowances to
dealers may be reduced by the Representatives.
Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase an aggregate of up to an additional 600,000 shares of Common Stock
at the same price per share as the Company and the Selling Stockholders receive
for the 4,000,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 4,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 4,000,000 shares are being
sold. The stockholders subject to such over-allotment option will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
and liability arising from breaches of representations and warranties contained
in the Underwriting Agreement.
The holders of approximately 7,425,572 shares of Common Stock have agreed
with the Representatives that, until 180 days from the date of this Prospectus,
subject to certain limited exceptions, they will not, directly or indirectly,
sell, offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable
55
<PAGE> 57
for, or any rights to purchase or acquire, shares of Common Stock, owned
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC. Robertson, Stephens & Company LLC may, in its sole discretion and without
notice, release all or any portion of the securities subject to the lock-up
agreements. See "Shares Eligible for Future Sale -- Lock-Up Agreements."
Approximately 7,425,572 of such shares will be eligible for immediate public
sale following expiration of the lock-up period, subject to Rule 144. In
addition, the Company has agreed that, until 180 days from the date of this
Prospectus, the Company will not, without the prior written consent of
Robertson, Stephens & Company LLC, subject to certain limited exceptions, sell
or otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options, or the Company's grant of options and issuance
of stock under existing employee stock option or stock purchase plans.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Certain persons participating in this offering may overallot or affect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, affecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or affecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transaction may be affected, where
permitted, on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered hereby for employees of
the Company and certain individuals who have expressed an interest in purchasing
shares of Common Stock in this offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined through negotiations between the Company,
representatives of the Selling Stockholders and the Representatives. The
material factors to be considered in such negotiations are prevailing market and
economic conditions, revenues and earnings and other financial information of
the Company, the market valuations of other companies engaged in activities
similar to those of the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors. There can be no assurance that an active or orderly trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to this offering at or above the initial trading price. See
"Risk Factors -- No Prior Public Market; Determination of Initial Public
Offering Price; Potential Volatility of Stock Price" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
56
<PAGE> 58
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and certain of the Selling Stockholders by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Certain legal matters in connection with
this offering will be passed upon for the Underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The audited financial statements and related schedule of the Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-1
(including all amendments and exhibits thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement including exhibits, schedules and reports filed as a part
thereof. Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement are
not necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission in Washington, D.C. and
copies of all or any part of which may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
57
<PAGE> 59
OMTOOL, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997 (Unaudited and Pro
Forma)............................................................................. F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and
for the six months ended June 30, 1996 and 1997 (Unaudited)........................ F-4
Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity
(Deficit) as of December 31, 1994, 1995 and 1996, and June 30, 1997 (Unaudited).... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and
for the six months ended June 30, 1996 and 1997 (Unaudited)........................ F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 60
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> 61
OMTOOL, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------
(UNAUDITED)
NOTE 2
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 550,684 $2,042,100 $ 809,604 $ 809,604
Short-term investments................................. -- 930,619 1,208,062 1,208,062
Accounts receivable, less reserves of $80,000, $375,000
and $856,000 in 1995, 1996 and 1997, respectively.... 454,974 2,264,502 3,990,239 3,990,239
Inventory.............................................. -- 225,117 95,741 95,741
Prepaid expenses....................................... 141,803 113,343 291,507 291,507
Deferred tax asset..................................... 70,000 108,000 108,000 108,000
---------- ---------- ---------- ----------
Total current assets............................ 1,217,461 5,683,681 6,503,153 6,503,153
Property and equipment, net.............................. 338,622 754,398 1,132,175 1,132,175
Other assets............................................. 18,810 18,861 33,686 33,686
---------- ---------- ---------- ----------
$1,574,893 $6,456,940 $7,669,014 $7,669,014
========== ========== ========== ==========
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt...................... $ 9,849 $ 105,651 $ 111,247 $ 111,247
Accounts payable....................................... 305,762 567,749 593,512 593,512
Accrued liabilities.................................... 501,332 402,624 881,565 881,565
Income taxes payable................................... -- 257,369 338,112 338,112
Deferred revenue....................................... 450,254 1,037,538 1,165,880 1,165,880
---------- ---------- ---------- ----------
Total current liabilities....................... 1,267,197 2,370,931 3,090,316 3,090,316
---------- ---------- ---------- ----------
Long-term debt, net of current portion................... 20,598 212,237 153,032 153,032
---------- ---------- ---------- ----------
Long-term liabilities.................................... 275,615 173,877 2,875 2,875
---------- ---------- ---------- ----------
Commitments (Note 13)
Series B Convertible Redeemable Preferred Stock, $.01 par
value --
Authorized, issued and outstanding -- none in 1995;
1,356,116 shares in 1996 and 1997; none pro forma;
(at redemption value)................................ -- 5,166,667 5,366,667 --
---------- ---------- ---------- ----------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value --
Authorized -- 1,481,384 shares; issued and
outstanding -- none................................ -- -- -- --
Series A Convertible Preferred Stock, $.01 par value --
Authorized, issued and outstanding -- none in 1995;
162,500 shares in 1996 and 1997; none pro forma;
(Liquidation preference of $325,000)............... -- 1,625 1,625 --
Common Stock, $.01 par value --
Authorized -- 10,000,000; issued and outstanding --
none in 1995; 5,315,008 shares in 1996; 5,391,007
shares in 1997; 8,428,239 shares pro forma......... -- 53,150 53,910 84,282
Common Stock, no par value --
Authorized, issued and outstanding -- 600 shares in
1995; none in 1996 and 1997........................ 600 -- -- --
Additional paid-in capital............................. -- -- 18,240 4,989,493
Retained earnings (deficit)............................ 10,883 (1,521,547) (1,017,651) (650,984)
---------- ---------- ---------- ----------
Total stockholders' equity (deficit)............ 11,483 (1,466,772) (943,876) 4,422,791
---------- ---------- ---------- ----------
$1,574,893 $6,456,940 $7,669,014 $7,669,014
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
OMTOOL, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license............... $1,485,655 $2,780,055 $5,304,083 $2,031,392 $5,486,248
Hardware....................... 124,162 278,163 1,532,887 526,966 1,748,438
Service and other.............. 338,615 869,445 1,564,248 712,708 1,043,810
---------- ---------- ---------- ---------- ----------
Total revenues.............. 1,948,432 3,927,663 8,401,218 3,271,066 8,278,496
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Software license............... 34,874 104,031 109,151 49,948 218,090
Hardware....................... 114,168 209,495 1,083,852 338,813 1,208,436
Service and other.............. 130,066 318,626 815,828 346,312 501,260
---------- ---------- ---------- ---------- ----------
Total cost of revenues...... 279,108 632,152 2,008,831 735,073 1,927,786
---------- ---------- ---------- ---------- ----------
Gross profit................ 1,669,324 3,295,511 6,392,387 2,535,993 6,350,710
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing............ 649,291 1,235,749 2,824,287 1,041,033 2,938,218
Research and development....... 413,810 892,585 1,972,545 776,705 1,553,702
General and administrative..... 721,119 749,999 949,548 429,896 778,455
Write-off of intangible asset
(Note 8).................... 200,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses.... 1,984,220 2,878,333 5,746,380 2,247,634 5,270,375
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................ (314,896) 417,178 646,007 288,359 1,080,335
Interest income.................. 11,984 7,530 43,093 4,417 47,483
Interest expense................. (482) (8,616) (11,437) (4,398) (18,922)
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes.............. (303,394) 416,092 677,663 288,378 1,108,896
Provision (benefit) for income
taxes.......................... (70,000) -- 238,000 101,000 405,000
---------- ---------- ---------- ---------- ----------
Net income (loss)........... $ (233,394) $ 416,092 $ 439,663 $ 187,378 $ 703,896
========== ========== ========== ========== ==========
Pro forma net income per
common and common
equivalent share............... $ 0.04 $ 0.07
========== ==========
Pro forma weighted average number
of common and
common equivalent shares
outstanding.................... 9,929,167 9,487,832
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
OMTOOL, LTD.
STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------------------------------------
SERIES B CONVERTIBLE SERIES A
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK, COMMON STOCK, COMMON STOCK,
$0.01 PAR VALUE $0.01 PAR VALUE $0.01 PAR VALUE NO PAR VALUE
---------------------- ----------------- ------------------- ----------------- ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- --------- ------ ---------- ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... -- $ -- -- $ -- -- $ -- 600 $ 600 $ --
Net loss..................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1994..... -- -- -- -- -- -- 600 600 --
Net income................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1995..... -- -- -- -- -- -- 600 600 --
Delaware reincorporation,
exchange of no par value
for $0.01 par value common
stock...................... -- -- -- -- 6,400,000 64,000 (600) (600) --
Sale of Series A Convertible
Preferred Stock............ -- -- 162,500 1,625 -- -- -- -- 323,375
Sale of Series B Convertible
Redeemable Preferred Stock,
net of issuance costs of
$76,068.................... 1,356,116 5,000,000 -- -- -- -- -- -- (76,068)
Purchase and retirement of
common stock............... -- -- -- -- (1,084,992) (10,850) -- -- (247,307)
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock............ -- 166,667 -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, December 31, 1996..... 1,356,116 5,166,667 162,500 1,625 5,315,008 53,150 -- -- --
Stock options exercised
(unaudited)................ -- -- -- -- 75,999 760 -- -- 18,240
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ -- 200,000 -- -- -- -- -- -- --
Net income (unaudited)....... -- -- -- -- -- -- -- -- --
--------- ---------- ------- ------ --------- ------- ---- ---- -------
Balance, June 30, 1997
(unaudited).................. 1,356,116 $5,366,667 162,500 $1,625 5,391,007 $53,910 -- $ -- $ 18,240
========= ========== ======= ====== ========= ======= ==== ==== =======
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
(DEFICIT) (DEFICIT)
----------- -----------------
<S> <C> <C>
Balance, December 31, 1993..... $ (171,815) $ (171,215)
Net loss..................... (233,394) (233,394)
---------- ----------
Balance, December 31, 1994..... (405,209) (404,609)
Net income................... 416,092 416,092
---------- ----------
Balance, December 31, 1995..... 10,883 11,483
Delaware reincorporation,
exchange of no par value
for $0.01 par value common
stock...................... (63,400) --
Sale of Series A Convertible
Preferred Stock............ -- 325,000
Sale of Series B Convertible
Redeemable Preferred Stock,
net of issuance costs of
$76,068.................... -- (76,068)
Purchase and retirement of
common stock............... (1,742,026) (2,000,183)
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock............ (166,667) (166,667)
Net income................... 439,663 439,663
---------- ----------
Balance, December 31, 1996..... (1,521,547) (1,466,772)
Stock options exercised
(unaudited)................ -- 19,000
Accrued dividends on Series B
Convertible Redeemable
Preferred Stock
(unaudited)................ (200,000) (200,000)
Net income (unaudited)....... 703,896 703,896
---------- ----------
Balance, June 30, 1997
(unaudited).................. $(1,017,651) $ (943,876)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
OMTOOL, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)....................................... $(233,394) $ 416,092 $ 439,663 $ 187,378 $ 703,896
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization....................... 124,294 63,021 132,729 67,402 177,396
Write-off of intangible asset....................... 200,000 -- -- -- --
Deferred income taxes............................... (70,000) -- (38,000) -- --
Changes in assets and liabilities--
Accounts receivable............................... (88,725) (222,760) (1,809,528) (1,042,300) (1,725,737)
Inventory......................................... -- -- (225,117) (21,320) 129,376
Prepaid expenses.................................. (4,395) (132,912) 28,460 12,601 (178,164)
Accounts payable.................................. (69,935) 246,060 261,987 18,024 25,763
Accrued liabilities............................... 68,400 245,401 (98,708) (163,981) 478,941
Income taxes payable.............................. -- -- 257,369 101,280 80,743
Deferred revenue.................................. 116,643 250,421 587,284 476,602 128,342
Long-term liabilities............................. (12,121) (12,264) (101,738) (100,200) (171,002)
--------- --------- ---------- --------- ----------
Net cash provided by (used in) operating
activities.................................. 30,767 853,059 (565,599) (464,514) (350,446)
--------- --------- ---------- --------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment..................... (99,617) (268,978) (485,773) (115,808) (555,173)
Purchases of short-term investments..................... -- -- (930,619) -- (1,234,843)
Proceeds from sale of short-term investments............ -- -- -- -- 957,400
Proceeds from sale of property and equipment............ -- 14,000 -- -- --
Increase in other assets................................ (1,006) (14,410) (51) (1,254) (14,825)
--------- --------- ---------- --------- ----------
Net cash used in investing activities......... (100,623) (269,388) (1,416,443) (117,062) (847,441)
--------- --------- ---------- --------- ----------
Cash Flows from Financing Activities:
Net borrowings (repayments) on line of credit........... 50,000 (50,000) -- -- --
Proceeds from long-term debt............................ -- -- 250,000 -- --
Payments on long-term debt.............................. -- (2,623) (25,291) (14,010) (53,609)
Net proceeds from sales of Series A Convertible
Preferred Stock....................................... -- -- 325,000 325,000 --
Net proceeds from sale of Series B Convertible
Redeemable Preferred Stock............................ -- -- 4,923,932 -- --
Exercise of stock options............................... -- -- -- -- 19,000
Purchase and retirement of common stock................. -- -- (2,000,183) -- --
--------- --------- ---------- --------- ----------
Net cash provided by (used in) financing
activities.................................. 50,000 (52,623) 3,473,458 310,990 (34,609)
--------- --------- ---------- --------- ----------
Net increase (decrease) in cash and cash equivalents...... (19,856) 531,048 1,491,416 (270,586) (1,232,496)
Cash and cash equivalents, beginning of period............ 39,492 19,636 550,684 550,684 2,042,100
--------- --------- ---------- --------- ----------
Cash and cash equivalents, end of period.................. $ 19,636 $ 550,684 $ 2,042,100 $ 280,098 $ 809,604
========= ========= ========== ========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for--
Interest.............................................. $ 432 $ 8,614 $ 9,411 $ 4,398 $ 18,922
========= ========= ========== ========== ==========
Income taxes.......................................... $ -- $ 77,732 $ -- $ -- $ 324,324
========= ========= ========== ========== ==========
Supplemental Disclosure of Noncash Investing and Financing
Transactions:
Equipment acquired under capital lease obligations...... $ -- $ 33,070 $ 62,732 $ 62,732 $ --
========= ========= ========== ========== ==========
Accrued dividends on Series B Convertible Redeemable
Preferred Stock....................................... $ -- $ -- $ 166,667 $ -- $ 200,000
========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
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> 66
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the time of general product release is very short and, consequently, the amounts
that could be capitalized are not material to the Company's financial position
or results of operations. Therefore, the Company charges all research and
development expenses to operations in the period incurred.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of investments in money market funds. In
accordance with SFAS No. 115, Accounting for Investments in Certain Debt and
Equity Securities, the Company's cash equivalents are classified as
held-to-maturity securities.
(d) Short-Term Investments
As of December 31, 1996 and June 30, 1997, the Company had $930,619 and
$1,208,062, respectively, invested in securities consisting of municipal bonds.
In accordance with SFAS No. 115, the Company has classified its short-term
investments as available-for-sale. These securities have been recorded at cost,
which approximates market value at December 31, 1996 and June 30, 1997.
(e) Derivative Financial Instruments and Fair Value of Financial Instruments
The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
short term investments, accounts receivable, accounts payable and debt. The
estimated fair value of these financial instruments approximates their carrying
value at December 31, 1995 and 1996 and at June 30, 1997 due to the short-term
nature of these instruments.
(f) Inventory
Inventory consists of hardware purchased for resale and is valued at the
lower of cost or net realizable value.
(g) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using accelerated and straight-line
methods over the following useful lives:
<TABLE>
<S> <C>
Computer equipment 3-5 years
Computer software 2-3 years
Furniture and equipment 5-7 years
Leasehold improvements Shorter of the life of the lease
or the estimated useful life
Equipment under capital lease Shorter of the life of the lease
or the estimated useful life
</TABLE>
The Company capitalizes expenditures that materially increase asset lives
and charges ordinary repairs and maintenance to operations as incurred.
(h) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of
F-8
<PAGE> 67
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and trade accounts receivable. The Company places its
temporary cash investments in financial institutions. The Company has not
experienced significant losses related to receivables from individual customers
or groups of customers in any specific industry or by geographic area. Due to
these factors, no additional credit risk beyond amounts provided for collection
losses is believed by management to be inherent in the Company's accounts
receivable.
For the year ended December 31, 1995, the Company had one customer that
accounted for 11% of the Company's revenues. For the years ended December 31,
1994 and 1996, and the six months ended June 30, 1996, no single customer
accounted for greater than 10% of the Company's revenues. For the six months
ended June 30, 1997, the Company had one customer that accounted for 9% of the
Company's revenues and 21% of accounts receivable as of June 30, 1997.
Revenues outside of North America were approximately $210,000, $560,000 and
$662,000 for the years ended December 31, 1995 and 1996 and for the six months
ended June 30, 1997, respectively. Revenues outside of North America were not
material in 1994.
(j) Pro Forma Presentation
The pro forma balance sheet as of June 30, 1997 reflects the automatic
conversion of all outstanding shares of Series A and Series B preferred stock
into an aggregate of 3,037,232 shares of common stock and the forfeiture of
cumulative dividends accrued on the Series B preferred stock, which will occur
upon the closing of the Company's proposed initial public offering (see Notes 9
and 10).
(k) Pro Forma Net Income per Common and Common Equivalent Share
For the year ended December 31, 1996 and the six months ended June 30,
1997, pro forma net income per common and common equivalent share is based on
the weighted average number of common and common equivalent shares outstanding
during the period, assuming the automatic conversion of all outstanding shares
of convertible preferred stock into 3,037,232 shares of common stock for all
periods presented. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common equivalent shares
issued during the 12 months immediately prior to the date of the initial filing
of the Company's registration statement have been included in the calculation of
weighted average number of common shares outstanding for all periods presented
using the treasury stock method. Fair market value for the purpose of the
calculation was assumed to be $9.00. Historical net income (loss) per share data
have not been presented, as such information is not considered to be relevant or
meaningful.
(l) Unaudited Interim Financial Statements
In the opinion of the Company's management, the June 30, 1996 and 1997
unaudited interim financial statements include all adjustments, consisting only
of normal recurring adjustments, neces-
F-9
<PAGE> 68
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
sary for a fair presentation of results for the respective interim period. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year or for any future
period.
(m) Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share, which is effective for financial statements issued
for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Computer equipment............................... $308,579 $ 596,571 $ 797,607
Computer software................................ 54,707 119,584 193,495
Furniture and equipment.......................... 35,188 155,678 354,595
Leasehold improvements........................... 21,021 33,435 114,744
Equipment under capital leases................... 33,070 95,802 95,802
-------- ---------- ----------
452,565 1,001,070 1,556,243
Less--accumulated depreciation and
amortization................................... 113,943 246,672 424,068
-------- ---------- ----------
$338,622 $ 754,398 $1,132,175
======== ========== ==========
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Accrued salaries and salary-related................. $409,784 $264,593 $ 413,778
Other accrued expenses.............................. 91,548 138,031 467,787
-------- -------- --------
$501,332 $402,624 $ 881,565
======== ======== ========
</TABLE>
(5) LINE OF CREDIT
The Company has a line of credit allowing the Company to borrow the lesser
of $1,000,000 or 70% of eligible accounts receivable, as defined. The line of
credit may be renewed annually and expires in August 1997. Borrowings under the
line of credit, collateralized by a first security interest in substantially all
assets of the Company, are payable on demand and bear interest at the bank's
prime rate (8.25% and 8.50% at December 31, 1996 and June 30, 1997,
respectively) plus 0.5% per annum. The line of credit agreement requires the
Company to maintain certain financial covenants, including a maximum debt to
tangible net worth ratio and a minimum cash flow coverage ratio, as defined. The
F-10
<PAGE> 69
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Company was in compliance with all financial covenants as of December 31, 1996
and June 30, 1997. At December 31, 1996 and June 30, 1997, there were no
borrowings under the line of credit.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- ---------
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Note payable to a bank..................... $ -- $250,000 $ 212,835
Capital lease obligations.................. 30,447 67,888 51,444
------- -------- --------
30,447 317,888 264,279
Less--current maturities................... 9,849 105,651 111,247
------- -------- --------
$20,598 $212,237 $ 153,032
======= ======== ========
</TABLE>
Maturities of long-term debt at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NOTE CAPITAL LEASE
PAYABLE OBLIGATIONS
-------- -------------
<S> <C> <C>
Period ending December 31,
1997, six months............................. $ 38,636 $ 19,228
1998......................................... 82,922 35,151
1999......................................... 91,277 4,907
-------- --------
$212,835 59,286
========
Less -- amounts representing interest........ (7,842)
--------
Present value of minimum lease payments...... $ 51,444
========
</TABLE>
The note payable to a bank bears interest at the bank's prime rate (8.25%
and 8.50% at December 31, 1996 and June 30, 1997, respectively) plus 0.5% per
annum and is payable in monthly installments, including interest, totaling
approximately $8,000 per month, through December 1999. The weighted average
interest rate for the six months ended June 30, 1997 was approximately 8.88%.
The agreement requires the maintenance of certain financial covenants, including
a maximum debt to tangible net worth ratio and a minimum cash flow coverage
ratio, as defined, and is collateralized by a security interest in substantially
all assets of the Company. The Company was in compliance with all financial
covenants as of December 31, 1996 and June 30, 1997.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, the objective of which is to recognize the amount
of current and deferred income taxes at the date of the financial statements as
a result of all differences in the tax basis and financial statement carrying
amount of assets and liabilities as measured by enacted tax laws.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- --------
<S> <C> <C>
Net operating loss carryforwards...................... $12,000 $ --
Tax credit carryforwards.............................. 37,000 --
Other temporary differences........................... 21,000 108,000
------- --------
Net deferred tax asset........................... $70,000 $108,000
======= ========
</TABLE>
F-11
<PAGE> 70
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
During 1994, the Company had generated net operating loss carryforwards for
federal and state income tax purposes of approximately $240,000, which were used
in 1995 and 1996. At December 31, 1995, the Company had $37,000 of tax credits
available to offset future federal and state income taxes which were utilized in
1996.
Under SFAS No. 109, the Company recognizes a deferred tax asset for the
future benefit of its temporary differences if it concludes that it is more
likely than not that the deferred tax asset will be realized.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate.... (34.0)% 34.0% 34.0%
Increase (decrease) in tax resulting from --
State tax provision (benefit), net of federal benefit..... (4.6) 4.6 4.6
Research and development tax credits...................... -- (12.9) (8.6)
Change in valuation allowance............................. 15.5 (26.4) --
Other..................................................... -- 0.7 5.1
---- ----
Provision (benefit) for income taxes........................ (23.1)% --% 35.1%
==== ====
</TABLE>
The provision (benefit) for income taxes in the accompanying statements of
operations consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Federal --
Current.................................. $ -- $ -- $ 210,000
Deferred................................. (53,000) -- (29,000)
-------- -------- ---------
(53,000) -- 181,000
-------- -------- ---------
State --
Current.................................. $ -- $ -- $ 66,000
Deferred................................. (17,000) -- (9,000)
-------- -------- ---------
(17,000) -- 57,000
-------- -------- ---------
Provision (benefit) for income taxes....... $(70,000) $ -- $ 238,000
======== ======== =========
</TABLE>
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis using the expected annual
effective income tax rate. The Company anticipates that the annual effective
income tax rate for 1997 will be approximately 36.5%, which is less than the
combined federal and state statutory income tax rates, primarily due to tax
credits and tax exempt interest income earned on certain of the Company's
investments.
(8) WRITE-OFF OF INTANGIBLE ASSET
In December 1993, the Company acquired from a vendor (the Vendor) the
rights, title and interest to two software products for a purchase price of
$300,000. The Company agreed to provide the Vendor with a credit of $300,000
toward the future purchase of any software product, service or support. In
December 1994, the Company recorded a charge of $200,000 to write off the
unamortized portion of the software rights, to reflect their net realizable
value. As of December 31, 1995 and 1996, approximately $275,000 and $172,000,
respectively, of the Vendor credit was outstanding and reflected
F-12
<PAGE> 71
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
as long-term liabilities in the accompanying balance sheets. As of June 30,
1997, the Vendor had utilized all of the credit.
(9) SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
In July 1996, the Company issued 1,356,116 shares of Series B Convertible
Redeemable Preferred Stock (Series B Preferred Stock) at $3.69 per share, less
offering costs of approximately $76,000, for net proceeds of approximately
$4,924,000. The Series B Preferred Stock has the following rights, preferences
and privileges:
Voting Rights
The holders of the Series B Preferred Stock are entitled to vote on all
matters and shall be entitled to the number of votes equal to the number of
shares of common stock into which each share of the preferred stock is
convertible.
Liquidation Preference
The holders of Series B Preferred Stock have preference in the event of
liquidation, dissolution or winding up of the Company at the rate of $3.69 per
share, plus all dividends which have been accrued and are unpaid, before any
distribution may be made with respect to the holders of Series A Convertible
Preferred Stock (Series A Preferred Stock) and to the holders to the common
stock.
Conversion
The Series B Preferred Stock is convertible into common stock at a rate of
two shares of common stock for every share of Series B Preferred Stock at any
time at the option of the holder of the Series B Preferred Stock. The conversion
rate is adjustable for certain dilutive events as defined. The Series B
Preferred Stock shall automatically convert into shares of common stock on the
closing of the sale of shares of common stock in a qualified public offering as
defined.
Redemption
At any time after July 22, 2000, the holders of a majority of the
outstanding shares of Series B Preferred Stock may require the Company to redeem
all of the outstanding Series B Preferred Stock in four annual installments of
25% per year at a redemption price of $3.69 per share plus any accrued but
unpaid dividends.
Dividends
Dividends are cumulative and accrue on outstanding shares of Series B
Preferred Stock at an annual rate of 8%. Additional dividends may be paid on the
Series B Preferred Stock when declared by the Board of Directors. Dividends are
payable beginning on July 22, 2000 and are forfeited upon conversion of the
Series B Preferred Stock into common stock.
(10) STOCKHOLDERS' EQUITY (DEFICIT)
On January 2, 1996, by approval of the Company's stockholders, Omtool,
Ltd., a New Hampshire corporation, was reincorporated as a Delaware corporation.
According to the terms of the merger agreement, the New Hampshire corporation
merged into the Delaware corporation in a tax-free transaction by exchanging its
outstanding common stock for the common stock of the Delaware corporation.
F-13
<PAGE> 72
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(a) Authorized Capital Stock
As of December 31, 1996 and June 30, 1997, the Company's authorized capital
stock consisted of 10,000,000 shares of common stock, $0.01 par value per share,
and 3,000,000 shares of preferred stock, $.01 par value per share. Of the
preferred stock, 162,500 shares are designated Series A Preferred Stock,
1,356,116 shares are designated Series B Preferred Stock and 1,481,384 shares
are undesignated.
(b) Recapitalization
On January 23, 1997, the Company's Board of Directors approved a
two-for-one stock split of the Company's common stock effected in the form of a
stock dividend. The accompanying financial statements and notes have been
retroactively restated for all periods presented to reflect this stock split.
(c) Series A Convertible Preferred Stock
Pursuant to subscription agreements entered into in February 1996, in July
1996, certain directors of the Company purchased 162,500 shares of Series A
Preferred Stock for an aggregate of $325,000. The holders of the Series A
Preferred Stock have the following rights, preferences and privileges:
Voting Rights
The holders of the Series A Preferred Stock are entitled to vote on all
matters and shall be entitled to the number of votes equal to the number of
shares of common stock into which each share of the preferred stock is
convertible.
Liquidation Preference
The holders of Series A Preferred Stock have preference in the event of
liquidation or dissolution of the Company, before any distributions may be made
with respect to the common stock, at the rate of $2.00 per share, plus all
dividends which have been accrued and are unpaid before any payment or
distribution shall be made to the holders of common stock or any other class of
stock ranking junior to Series A Preferred Stock.
Conversion
The Series A Preferred Stock is convertible into common stock at a rate of
two shares of common stock for every share of Series A Preferred Stock at any
time at the option of the holder of the Series A Preferred Stock. The Company
may require all holders of shares of Series A Preferred Stock to convert their
shares into shares of common stock on or after the closing of the sale of shares
of common stock in a qualified public offering as defined in the agreement.
(d) Repurchase of Common Stock
Concurrent with the issuance of the Series B Preferred Stock, as approved
by the stockholders and the Board of Directors, the Company purchased and
retired 1,084,992 shares of common stock from two of its principal stockholders
for $2,000,183.
F-14
<PAGE> 73
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(e) Reserved Common Stock
As of June 30, 1997, 4,461,233 shares of common stock were reserved for the
following:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock........................ 325,000
Conversion of Series B Preferred Stock........................ 2,712,232
Exercise of Stock Options..................................... 1,424,001
---------
4,461,233
=========
</TABLE>
(11) STOCK OPTION PLAN
(a) 1996 Stock Option Plan
On January 2, 1996, the Board of Directors adopted the 1996 Stock Option
Plan (the Plan). The Plan provides for the granting of options covering
1,500,000 shares of common stock. The Plan is administered by the Board of
Directors and allows for the granting of both incentive stock options and
non-qualified stock options. Incentive stock options under the Plan are granted
at not less than the fair market value per share of common stock on the date of
grant or 110% of fair market value for any stockholder who holds more than 10%
of the total combined voting power of all classes of stock of the Company. Under
the terms of the Plan, options vest and become exercisable as determined by the
Board of Directors and expire 10 years after the date of grant.
Stock option activity for the year ended December 31, 1996 and six months
ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1995 -- -- --
Granted................................ 1,129,400 $ 0.25 - $1.85 $ 0.39
Canceled............................... (33,000) 0.25 - 1.85 0.40
--------- -------------- ------
Outstanding, December 31, 1996.............. 1,096,400 0.25 - 1.85 0.39
Granted................................ 322,650 1.85 - 8.25 4.16
Exercised.............................. (75,999) 0.25 0.25
Canceled............................... (33,833) 0.25 - 5.50 1.98
--------- -------------- ------
Outstanding, June 30, 1997.................. 1,309,218 $ 0.25 - $8.25 $ 1.28
======== ============ ===========
Exercisable, June 30, 1997.................. 321,665 $0.25 $ 0.25
======== ============ ===========
</TABLE>
At June 30, 1997, options to purchase 114,783 shares of commons stock were
available for future grants under the Plan.
F-15
<PAGE> 74
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(b) Stock Based Compensation
In October 1995, the FASB issued SFAS No 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
to be included in the statement of operations or disclosed in the notes to the
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under the Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative under
SFAS No. 123 for options granted in 1996 using the Black-Scholes option pricing
model prescribed by SFAS No. 123. Based on the use of the Black-Scholes option
pricing model, options granted in 1996 and during the six months ended June 30,
1997 had a weighted average fair value of $0.22 and $2.40, respectively. The
weighted average assumptions are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Risk-free interest rate......................... 5.46% 6.31%
Volatility...................................... 70.0% 70.0%
Expected dividend yield......................... -- --
Expected lives.................................. 4 Years 4 Years
</TABLE>
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and pro forma net income per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Net income --
As reported................................ $439,663 $703,896
Pro forma.................................. $385,593 $618,373
Pro forma net income per share --
As reported................................ $ 0.04 $ 0.07
Pro forma.................................. $ 0.04 $ 0.07
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity may include a different expected volatility
factor and because additional option grants are expected to be made in future
years, the above pro forma disclosures are not representative of pro forma
effects on results for the future years.
(12) 401(K) AND PROFIT-SHARING PLAN
On December 1, 1995, the Company adopted a 401(k) and profit-sharing plan
(the Profit-Sharing Plan) to cover all eligible employees. The Profit-Sharing
Plan allows for voluntary contributions by eligible employees. The Company
matches 50% of eligible employee contributions up to a specified amount. The
Company contributed approximately $4,000, $69,000, and $55,000 to the
Profit-Sharing Plan for the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1997, respectively. Additional profit-sharing
contributions to the Profit-Sharing Plan are at the discretion of the Company's
management. During 1995, 1996 and the six months ended June 30, 1997, no
additional discretionary contributions were made by the Company.
F-16
<PAGE> 75
OMTOOL, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(13) LEASE COMMITMENTS
The Company leases certain equipment and its office facility under
operating leases that expire at various times through July 2000.
Future minimum lease payments under these leases at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
Period ending December 31,
1997, six months.......................................... $114,000
1998...................................................... 218,000
1999...................................................... 189,000
2000...................................................... 108,000
--------
$629,000
========
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $50,000, $114,000, $199,000, $87,000 and $128,000 for the years
ended December 31, 1994, 1995 and 1996, and the six months ended June 30, 1996
and 1997, respectively.
(14) SUBSEQUENT EVENTS
(a) Amended and Restated Certificate of Incorporation
Effective upon the closing of the Company's initial public offering and
after giving effect to the amendment and restatement of the Company's Restated
Certificate of Incorporation immediately prior to the closing of the offering,
the authorized capital stock will consist of 35,000,000 shares of Common Stock,
$0.01 par value per share, and 2,000,000 shares of Preferred Stock, $0.01 par
value per share.
(b) 1997 Stock Plan
The Company's 1997 Stock Plan (the 1997 Plan) was adopted by the board of
directors in April 1997 and approved by the Company's stockholders in June 1997.
The 1997 Plan will take effect upon the closing of the Company's initial public
offering. No options have been granted under the 1997 Plan. The 1997 Plan
provides for the issuance of Common Stock pursuant to the grant to employees of
"incentive stock options" within the meaning of the Internal Revenue Code of
1986, as amended, and the grant of non-qualified stock options, stock awards or
opportunities to make direct purchases of stock in the Company to employees,
consultants, directors and officers of the Company. The aggregate number of
shares of Common Stock which may be issued pursuant to the 1997 Plan is
1,800,000.
(c) 1997 Employee Stock Purchase Plan
The 1997 Employee Stock Purchase Plan (the 1997 Purchase Plan) was adopted
by the board of directors in April 1997 and approved by the Company's
stockholders in June 1997. The 1997 Purchase Plan will take effect in January
1998. The 1997 Purchase Plan provides for the issuance of a maximum of 200,000
shares of Common Stock pursuant to the exercise of nontransferable options
granted to participating employees.
F-17
<PAGE> 76
[OMTOOL Logo]
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Registration fee.......................................................... $ 13,939
NASD filing fee........................................................... 5,100
Nasdaq National Market listing fee........................................ 46,019
Printing and engraving expenses........................................... 150,000
Legal fees and expenses................................................... 250,000
Accounting fees and expenses.............................................. 175,000
Blue Sky fees and expenses (including legal fees)......................... 10,000
Transfer agent and registrar fees and expenses............................ 40,000
Miscellaneous............................................................. 109,942
--------
Total........................................................... $800,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Registrant's Restated
Certificate of Incorporation and By-Laws provide for indemnification of the
Registrant's directors and officers for liabilities and expenses that they may
incur in such capacities. In general, directors and officers are indemnified
with respect to actions taken in good faith in a manner reasonably believed to
be in, or not opposed to, the best interests of the Registrant, and with respect
to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Reference is made to the Registrant's
Form of Amended and Restated Certificate of Incorporation and Form of Amended
and Restated By-Laws filed as Exhibits 3.3 and 3.5 hereto, respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among other
things, (i) to indemnify them to the fullest extent permitted by the Delaware
General Corporation Law, subject to specified limitations, against certain
liabilities actually and reasonably incurred by them in any proceeding in which
they are a party that may arise by reason of their status as directors,
officers, employees or agents or may arise by reason of their serving as such at
the request of the Company for another entity and (ii) to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Reference is made to the form of Indemnification Agreement filed as
Exhibit 4.2 hereto.
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
II-1
<PAGE> 78
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
On January 2, 1996, the Company issued an aggregate of 3,200,000 shares
(pre-split) of its Common Stock to certain stockholders upon the conversion of
an aggregate of 180 shares of Omtool Ltd., a New Hampshire corporation, in
connection with the Company's reincorporation in Delaware.
Pursuant to subscription agreements entered into in February 1996, on July
8, 1996, the Company issued an aggregate of 162,500 shares of Series A
Convertible Preferred Stock for an aggregate purchase price of $325,000.
On July 22, 1996 the Company issued an aggregate of 1,356,116 shares of
Series B Convertible Preferred Stock for an aggregate purchase price of
$5,000,000.
The Company repurchased an aggregate of 542,496 shares (pre-split) on July
22, 1996 in connection with the sale of the Series B Preferred Stock.
The Company declared a two-for-one stock split, by means of a stock
dividend, effective February 3, 1997. As a result, the holders of 2,685,170
shares received an additional 2,685,170 shares of Common Stock.
(b) Certain Grants and Exercises of Stock Options.
Since January 1996 through June 30, 1997, the Company (i) issued options
under its 1996 Plan to purchase an aggregate of 1,385,217 shares of Common
Stock, of which 1,309,218 were outstanding at June 30, 1997 and were exercisable
at a weighted average exercise price of $1.28 per share and (ii) issued an
aggregate of 75,999 shares of Common Stock at exercise prices of $0.25 per share
upon exercise of certain of such options.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase Common Stock, Rule 701 of the
Securities Act. All of the foregoing securities are deemed restricted securities
for the purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
EXHIBIT
NO. DESCRIPTION
------- -----------
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended.
3.2+ -- Form of Amendment to Certificate of Incorporation.
3.3+ -- Form of Amended and Restated Certificate of Incorporation.
3.4+ -- By-Laws of the Company.
3.5+ -- Form of Amended and Restated By-Laws of the Company.
4.1 -- Specimen certificate representing the Common Stock.
4.2+ -- Form of Indemnification Agreement for Directors and Executive
Officers
5.1 -- Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ -- 1996 Stock Option Plan.
10.2+ -- 1997 Stock Plan.
10.3+ -- 1997 Employee Stock Purchase Plan.
II-2
<PAGE> 79
EXHIBIT
NO. DESCRIPTION
------- -----------
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.
27.1+ -- Financial Data Schedule.
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) FINANCIAL STATEMENTS SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(2) or (3) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective; and (3) that for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Salem, New Hampshire, on July 22, 1997.
OMTOOL, LTD.
By: /s/ ROBERT L. VOELK
-------------------------------
Robert L. Voelk
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
--------- ------- ----
/s/ ROBERT L. VOELK Chief Executive Officer and July 22, 1997
- ---------------------------- Director (Principal Executive
Robert L. Voelk Officer)
* President and Director July 22, 1997
- ----------------------------
Martin A. Schultz
/s/ DARIOUSH MARDAN Vice President of Finance, Chief July 22, 1997
- ---------------------------- Financial Officer, Treasurer, and
Darioush Mardan Secretary (Principal Financial and
Accounting Officer)
* Director July 22, 1997
- ----------------------------
Richard D. Cramer
* Director July 22, 1997
- ----------------------------
Bruce R. Evans
* Director July 22, 1997
- ----------------------------
Anthony J. Mark
* Director July 22, 1997
- ----------------------------
William C. Styslinger, III
*By: /s/ ROBERT L. VOELK
---------------------------
Robert L. Voelk
Attorney-in-Fact
II-4
<PAGE> 81
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> 82
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> 83
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended.
3.2+ -- Form of Amendment to Certificate of Incorporation.
3.3+ -- Form of Amended and Restated Certificate of Incorporation.
3.4+ -- By-Laws of the Company.
3.5+ -- Form of Amended and Restated By-Laws of the Company.
4.1 -- Specimen certificate representing the Common Stock.
4.2+ -- Form of Indemnification Agreement for Directors and Executive
Officers
5.1 -- Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ -- 1996 Stock Option Plan.
10.2+ -- 1997 Stock Plan.
10.3+ -- 1997 Employee Stock Purchase Plan.
10.4+ -- Lease dated July 27, 1995 between Athena Wlasits, Sumner Darman
and Norman M. Shack, trustees of Brooks Property Trust and Omtool,
Ltd.
10.5+ -- Amendment to Lease dated August 1, 1996 between Athena Wlasits,
Sumner Darman and Norman M. Shack, trustees of Brooks Property
Trust and Omtool, Ltd.
10.6+ -- Demand Note dated August 30, 1996 between First NH Bank and
Omtool, Ltd.
10.7+ -- Commercial Term Note dated August 30, 1996 between First NH Bank
and Omtool, Ltd.
10.8+ -- Loan and Security Agreement dated August 30, 1996 between First
NH Bank and Omtool, Ltd.
10.11+ -- Changes in Terms Agreement dated January 27, 1997 between Citizens
Bank New Hampshire, formerly First NH Bank and Omtool, Ltd.
10.12+ -- Form of Omtool Software License.
11.1+ -- Statement re Computation of Earnings Per Share.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
Draft of 7/22/97
----------------
4,000,000 SHARES(1)
OMTOOL, LTD.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1997
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
FIRST ALBANY CORPORATION
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Omtool, Ltd., a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule B hereto (hereafter called the
"Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 3,000,000
shares of its authorized and unissued common stock, $.01 par value per share, to
the several Underwriters. The Selling Stockholders, acting severally and not
jointly, propose to sell an aggregate of 1,000,000 shares of the Company's
authorized and outstanding common stock, $.01 par value per share, to the
several Underwriters. The 3,000,000 shares of common stock, $.01 par value per
share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the 1,000,000 shares of common stock, $.01 par value per
share, to be sold by the Selling Stockholders are hereinafter called the
"Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." Certain
Selling Stockholders also propose to grant, severally and not jointly, to the
Underwriters an option to purchase up to 600,000 additional shares of the
Company's common stock, $.01 par value per share (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares" shall
include the Firm Shares and the Option Shares. All shares of common stock, $.01
par value per share, of the Company to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
- --------
(1) Plus an option to purchase up to 600,000 additional shares from certain
stockholders of the Company to cover over-allotments.
<PAGE> 2
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-29397)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); PROVIDED,
HOWEVER, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last
-2-
<PAGE> 3
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
no proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
the Company is not in violation of its charter or bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is
-3-
<PAGE> 4
a party or by which it or its properties may be bound; and the Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
of which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a material
default under, (i) any material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which it or its properties may be bound, (ii)
the charter or bylaws of the Company or (iii) any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
over its properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
any of its executive officers or any of its properties, assets or rights before
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its executive officers or
properties or otherwise which (i) is reasonably likely to result in any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company or is reasonably likely to
materially and adversely affect its properties, assets or rights, (ii) might
prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed; and there are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" and conforms
in all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
in all material respects the substance of the instruments defining the
capitalization of the Company); the Company Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will
-4-
<PAGE> 5
be sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
shareholders exists with respect to any of the Company Shares or the issuance
and sale thereof other than those that have been expressly waived prior to the
date hereof and those that will automatically expire upon and will not apply to
the consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any shareholders, the Board of Directors of
the Company or others is required for the issuance and sale or transfer of the
Shares except as may be required under the Act or under state or other
securities or Blue Sky laws. Except as disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, as of the respective dates set forth in the Prospectus, the
Company has no outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
(g) Arthur Andersen LLP, which has examined the financial
statements of the Company, together with the related schedules and notes, as of
December 31, 1995 and 1996 and for each of the years in the three (3) years
ended December 31, 1996 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
financial statements of the Company, together with the related schedules and
notes, and the unaudited financial information, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply; and all audited financial statements of the
Company, together with the related schedules and notes, and the unaudited
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. The pro forma financial information included in
the Registration Statement and the Prospectus have been prepared in accordance
with the Commission's rules and guidelines with respect to such pro forma
financial information, have been properly compiled on the pro forma bases
described therein, and, in the reasonable opinion of the Company, except to the
extent otherwise required to comply with the Commission's rules and guidelines
with respect to pro forma financial information, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. No other financial statements or schedules are required to be included
in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, (iii) any obligation, direct or contingent,
that is material to the Company, incurred by the Company, (iv) any change in the
capital stock or outstanding indebtedness of the Company that is material to the
Company, (v) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, or (vi) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company. The Company has no material contingent obligations which are not
disclosed in the Registration Statement, as it may be amended or supplemented.
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<PAGE> 6
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company (as applicable), except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and (iii) the
Company has valid and enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted.
(j) The Company has have timely filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; and all tax
liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts the Company deems
adequate for its business, including, but not limited to, insurance covering
real and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company exists or is threatened or imminent, other than
individual employee grievances in the ordinary course of business. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is threatened or imminent.
(m) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its businesses
as described in the Registration Statement and Prospectus; except as disclosed
in the Prospectus, the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable
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<PAGE> 7
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(n) The Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(r) Each officer and director of the Company, each Selling
Stockholder and each beneficial owner of __________ or more shares of Common
Stock has agreed in writing that such person will not directly or indirectly,
for a period of 180 days from the date that the Registration Statement is
declared effective by the Commission (the "Lock-up Period"), offer, sell,
contract to sell, grant any option to purchase, pledge or otherwise dispose of
or transfer (collectively, a "Disposition") any shares of Common Stock or any
securities convertible into or exchangeable for, or any right to purchase or
acquire, shares of Common Stock (collectively, "Securities") now owned or
hereafter acquired directly by such person or with respect to which such person
has or hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction; (ii) as a distribution to limited partners or
shareholders of such person, provided the distributees thereof agree in writing
to be bound by this restriction; or (iii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
stockholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Robertson, Stephens &
Company LLC.
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<PAGE> 8
(s) Except as set forth in the Registration Statement and
Prospectus, (i) to its knowledge, the Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws"), (ii) the Company has received no notice from any governmental authority
or third party of an asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement and the Prospectus, and
(iii) to the Company's knowledge, the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, ET
SEQ.), or otherwise designated as a contaminated site under applicable state or
local law.
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the executive
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus. All material transactions during the Company's current or last three
fiscal years between the Company and the executive officers, directors and 5%
stockholders of the Company have been accurately disclosed in the Prospectus to
the extent required by the Rules and Regulations; and the terms of each such
transaction are in all material respects fair to the Company and no less
favorable to the Company than the terms that could have been obtained from
unrelated parties.
(v) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement or as otherwise disclosed in writing to the
Representatives.
(w) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter that:
(a) Such Selling Stockholder (except for those Selling
Stockholders who intend to sell Shares issuable pursuant to vested stock options
now held by each of them) now has and such Selling Stockholder on the Closing
Date, and on any later date on which Option Shares are purchased, will have
valid marketable title to the Shares to be sold by such Selling Stockholder on
such date, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
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<PAGE> 9
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Robert L.
Voelk and Darioush Mardan as attorneys-in-fact (collectively, the "Attorneys"
and individually, an "Attorney") and a Letter of Transmittal and Custody
Agreement (the "Custody Agreement") with the Company, as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares and the
Option Shares to be sold by such Selling Stockholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Stockholder of this Agreement and the sale and delivery of the
Selling Stockholder Shares and the Option Shares to be sold by such Selling
Stockholder under this Agreement (other than, at the time of the execution
hereof (if the Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations or
orders as may be necessary under state or other securities or Blue Sky laws)
have been obtained and are in full force and effect; such Selling Stockholder,
if other than a natural person, has been duly organized and is validly existing
in good standing under the laws of the jurisdiction of its organization as the
type of entity that it purports to be; and such Selling Stockholder has full
legal right, power and authority to enter into and perform its obligations under
this Agreement and such Power of Attorney and Custody Agreement, and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Stockholder
under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written consent
of Robertson, Stephens & Company LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the Selling Stockholder.
Such prohibited hedging or other transactions would including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Securities. Such Selling Stockholder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the securities held by such
Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement (other than Shares issuable upon
exercise of vested stock options as aforesaid), together with a stock power or
powers duly endorsed in blank by such Selling Stockholder,
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<PAGE> 10
have been placed in custody with the Custodian for the purpose of effecting
delivery hereunder. Duly completed and executed option exercise forms have been
placed in custody with the Custodian for the purpose of effecting the exercise
of all vested options as aforesaid and the delivery of the Shares hereunder
acquired upon such exercise.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation of any of the
terms and provisions of or constitute a default under any material bond,
debenture, note or other evidence of indebtedness, or under any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder, or any Selling Stockholder Shares or any Option
Shares to be sold by such Selling Stockholder hereunder, may be bound or, to the
best of such Selling Stockholders' knowledge, result in any violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder, or, if such Selling Stockholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined), and on any later date on which Option Shares
are to be purchased, will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purchased, as the case may be,
and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, if any statement to be made on behalf of such
Selling Stockholder in the certificate contemplated by Section 6(h) would be
inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be.
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<PAGE> 11
(k) Such Selling Stockholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus or those issued pursuant to the Option Plans (as
defined in Section 4(l) hereof).
(l) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Stockholder is not aware that any of the representations
and warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect; such Selling Stockholder, other than the
Significant Stockholders (as defined below), is familiar with the Registration
Statement and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement which has adversely affected or may
adversely affect the business or business prospects of the Company. The sale of
the Selling Stockholders Shares and the Option Shares by such Selling
Stockholders is not prompted by any information concerning the Company which is
not set forth in the Registration Statement and Prospectus. The information
pertaining to such Selling Stockholder under the caption "Principal and Selling
Stockholders" in the Prospectus is complete and accurate in all material
respects.
III. In addition to the representations and warranties set forth in
Section 2.II. above, each of Robert L. Voelk and Martin A. Schultz (each, a
"Significant Stockholder") severally and not jointly, represents and warrants
with each Underwriter that (ii) at the time the Registration Statement became
effective, the Registration Statement and any amendment or supplement thereto
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the Prospectus, or any supplement or amendment thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and each of the Selling
Stockholders agrees, severally and not jointly, to sell to the Underwriters, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, respectively, at a purchase price of $_____ per
share, the respective number of Company Shares as hereinafter set forth and
Selling Stockholder Shares set forth opposite the names of the Company and the
Selling Stockholders in Schedule B hereto. The obligation of each Underwriter to
the Company and to each Selling Stockholder shall be to purchase from the
Company or such Selling Stockholder that number of Company Shares or Selling
Stockholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Stockholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Stockholder in Schedule B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in Schedule
A hereto (subject to adjustment as provided in Section 10) is to the total
number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
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<PAGE> 12
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Stockholders with regard to the Shares being purchased from such Selling
Stockholders (and the Company and such Selling Stockholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Stockholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower, Boston, MA
02110 (or at such other place as may be agreed upon among the Representatives
and the Company and the Attorneys), at 7:00 A.M., San Francisco time (a) on the
third (3rd) full business day following the first day that Shares are traded,
(b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco
time, the fourth (4th) full business day following the day that this Agreement
is executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives, the Company and the Attorneys may determine (or at such
time and date to which payment and delivery shall have been postponed pursuant
to Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" PROVIDED, HOWEVER, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
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<PAGE> 13
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares and, if applicable, the
Option Shares, at an initial public offering price of $_____ per share. After
the initial public offering, the several Underwriters may, in their discretion,
vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the first, second, sixth and seventh paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after
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<PAGE> 14
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of three (3) years after the date hereof, the
Company will furnish to its shareholders, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements
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<PAGE> 15
furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"), and (v) any
additional information of a public nature concerning the Company or its
subsidiaries, if any, or its business which you may reasonably request,
PROVIDED, HOWEVER, that the Company will not be required to disclose information
that has not previously been disclosed in a press release or other information
filed with the Commission. During such three (3) year period, if the Company
shall have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder on their respective parts to be fulfilled hereunder, or if the Company
shall terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares. The Company and the Selling Stockholders will in no event be liable to
any of the several Underwriters for damages on account of anticipated profits
from the sale by them of the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, consult with you concerning the appropriateness and advisability of
preparing and disseminating a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than (i) the sale
of the Company Shares; (ii) the Company's issuance of options or Common Stock
under the Company's presently authorized 1996 Stock Option Plan, 1997 Stock Plan
and 1997 Employee Stock Purchase Plan (collectively, the "Option Plans") and
(iii) Shares of Common Stock issued in connection with the acquisition by the
Company of products, technologies, assets or businesses, provided that the terms
of such issuance or issuances provide that such shares shall not be resold
during a period of one hundred eighty (180) days from the effective date of the
Registration Statement.
(m) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plans or other employee benefit
plan.
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<PAGE> 16
5. EXPENSES.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company and the Selling Stockholders will pay and
bear all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and reasonable
fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly incurred
by the Company and the Selling Stockholders in connection with the performance
of their obligations hereunder. Each of the Selling Stockholders will pay and
bear all costs and expenses of any counsel retained by such Selling Stockholder.
Any additional expenses incurred as a result of the sale of the Shares by the
Selling Stockholders will be borne collectively by the Company and the Selling
Stockholders. The provisions of this Section 5(a)(i) are intended to relieve the
Underwriters from the payment of the expenses and costs which the Selling
Stockholders and the Company hereby agree to pay, but shall not affect any
agreement which the Selling Stockholders and the Company may make, or may have
made, for the sharing of any of such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Stockholders hereunder
to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(iii) In addition to their other obligations under Section
8(b) hereof, each Selling Stockholder agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety
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<PAGE> 17
and enforceability of such Selling Stockholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a), 8(b) and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(e)
hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the
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<PAGE> 18
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations or business of the
Company from that set forth in the Registration Statement or Prospectus, which,
in your sole judgment, is material and adverse or that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus;
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation;
(ii) The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus;
(iii) The Company is duly qualified to do business as a
foreign corporation and is in good standing in New Hampshire;
(iv) The authorized, issued and outstanding capital stock of
the Company is, in all material respects, as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the Selling
Stockholder Shares) have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right, other than such rights as
have been duly and validly waived or satisfied;
(v) The Firm Shares to be issued by the Company pursuant to
the terms of this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms hereof, will be
duly and validly issued and, to such counsel's knowledge, fully paid and
nonassessable, and will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right under Delaware law, the Company's Certificate of
Incorporation, as amended, or, to such counsel's knowledge, otherwise (other
than such rights as have been duly and validly waived or satisfied);
(vi) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
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<PAGE> 19
(vii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company;
(viii) Such counsel has been orally advised by a member of
the staff of the Commission that the Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules) and financial and statistical data derived therefrom as to
which such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is a fair summary in
all material respects of such matters and conclusions; and the form of
certificate evidencing the Common Stock and filed as an exhibit to the
Registration Statement comply with Delaware law;
(xi) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes identified
in the Registration Statement are accurate and fairly present in all material
respects the information required to be presented by the Act and the applicable
Rules and Regulations;
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which are
not described or referred to therein or filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning which no opinion
need be expressed) will not (a) result in any violation of the Company's charter
or bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party which is listed as
an Exhibit to the Registration Statement;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or over any of its properties or operations is
necessary in connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act or as may
be required by the NASD or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those described
therein;
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<PAGE> 20
(xvi) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities of
the Company (except for such rights as have been duly and validly waived or
satisfied) and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights;
(xvii) The Company is not, and will not become as a result
of the consummation of the transactions contemplated by this Agreement, required
to register as an investment company under the 1940 Act.
(xviii) Each Selling Stockholder which is not a natural
person has full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be executed and
delivered by it in connection with the transactions contemplated herein; the
Power of Attorney and Custody Agreement of each Selling Stockholder that is not
a natural person has been duly authorized by such Selling Stockholder; the Power
of Attorney and Custody Agreement of each Selling Stockholder has been duly
executed and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder constitutes
the valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(xix) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under this Agreement
and to sell, transfer, assign and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the Underwriters obtaining control of the Shares
to be sold by the Selling Stockholders and assuming the Underwriters purchased
such Shares for value and without notice of any adverse claim to such Shares
within the meaning of Section 8-102 of the Uniform Commercial Code as in effect
in the Commonwealth of Massachusetts, the Underwriters will have acquired all
rights of the Selling Stockholders in such Shares free of any adverse claim, any
lien in favor of the Company and any restrictions on transfer imposed by the
Company.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, (i) at the time the Registration Statement became effective, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required
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<PAGE> 21
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (except as
aforesaid), or (ii) the Prospectus, or any supplement or amendment thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading (except as
aforesaid).
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the State of Delaware and
the Commonwealth of Massachusetts upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company, the Selling Stockholders or officers of the Selling Stockholders (when
the Selling Stockholder is not a natural person), and of government officials,
in which case their opinion is to state that they are so relying and that they
have no knowledge of any material misstatement or inaccuracy in any such
opinion, representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
The opinions set forth in paragraphs (viii) through (xxi) above,
as related to Summit Ventures III, L.P. and Summit Ventures IV, L.P.
(collectively, "Summit Ventures") shall be the opinion of Hutchins, Wheeler &
Dittmar, counsel to Summit Ventures.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Hale and Dorr LLP, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have reasonably requested for the purpose of enabling them
to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Arthur Andersen LLP addressed to the Underwriters, dated the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Andersen LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1996 and
related consolidated statements of operations,
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<PAGE> 22
stockholders' equity, and cash flows for the twelve (12) months ended December
31, 1996, (iii) state that Arthur Andersen LLP has performed the procedures set
out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information for each of the quarters in the eight-quarter period ended
June 30, 1997 (the "Quarterly Financial Statements"), (iv) state that in the
course of such review, nothing came to their attention that leads them to
believe that any material modifications need to be made to any of the Quarterly
Financial Statements in order for them to be in compliance with generally
accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Arthur Andersen LLP and
you.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or, to the knowledge of the Company, are pending or threatened
under the Act;
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is or series of related transactions that are material to the
Company, (c) any obligation, direct or contingent, that is material to the
Company, incurred by the Company, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from
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<PAGE> 23
the Attorneys for each Selling Stockholder to the effect that, as of the Closing
Date, or any later date on which Option Shares are to be purchased, as the case
may be, they have not been informed that:
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be purchased, as
the case may be; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be.
(i) The Company shall have obtained and delivered to you an
agreement from each executive officer and director of the Company, each Selling
Stockholder and each beneficial owner of ________ or more shares of Common Stock
in writing prior to the date hereof that such person will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or stockholders of such
person, provided that the distrubtees thereof agree in writing to be bound by
the terms of this restriction or (iii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
(j) The Company and the Selling Stockholders shall have furnished
to you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person)) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Selling Stockholders hereby grant, severally and not jointly, to the
several Underwriters, for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares only, a nontransferable option
to purchase up to an aggregate of 600,000 Option Shares at the purchase price
per share for the Firm Shares set forth
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<PAGE> 24
in Section 3 hereof. Such option may be exercised by the Representatives on
behalf of the several Underwriters on one (1) or more occasions in whole or in
part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Attorneys. The maximum aggregate number of shares of Option Stock to be sold by
each Selling Stockholder is set forth opposite their respective names on
Schedule B hereto. The number of Option Shares to be purchased by each
Underwriter upon the exercise of such option shall be the same proportion of the
total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid fractional
shares.
The certificates in negotiable form for the Option Shares or duly
completed and executed stock option exercise forms for such Option Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Selling Stockholder agrees that the certificates and option
forms for the Selling Stockholder Shares of such Selling Stockholder so held in
custody are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Custodian for the
respective accounts of the Selling Stockholders (and such Selling Stockholders
agree not to deposit (and to cause the Custodian not to deposit) any such check
in the bank on which it is drawn, and not to take any other action with the
purpose or effect of receiving immediately available funds, until the business
day following the date of its delivery to the Custodian). In the event of any
breach of the foregoing, such Selling Stockholders shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach. Such delivery and payment shall take place at the offices
of Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower, Boston,
MA 02110 or at such other place as may be agreed upon among the Representatives,
and the Attorneys (i) on the Closing Date, if written notice of the exercise of
such option is received by the Attorneys at least two (2) full business days
prior to the Closing Date, or (ii) on a date which shall not be later than the
third (3rd) full business day following the date the Attorneys receive written
notice of the exercise of such option, if such notice is received by the
Attorneys less than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
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<PAGE> 25
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company, the
Selling Stockholders and officers of the Company made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder, to the conditions set forth in Section 6
hereof, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates and
opinions as you may reasonably request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company and the Selling
Stockholders or the satisfaction of any of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or (iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the
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<PAGE> 26
Act and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees
to indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject (including, without limitation, in its capacity as an Underwriter or as
a "qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or (iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Stockholder in his, her or its capacity as such, directly or through such
Selling Stockholder's representatives, specifically for use in the preparation
thereof, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary
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<PAGE> 27
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8, unless the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; PROVIDED that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement
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<PAGE> 28
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
PROVIDED, HOWEVER, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity and contribution agreements contained in the provisions of this
Section 8 shall be limited to an amount equal to the lesser of (i) the
percentage of the total amount of such losses, claims, damages or liabilities
for which the Underwriters or any persons controlling such Underwriters are
entitled to indemnity hereunder equal to the percentage obtained by dividing the
total number of Shares sold by the Selling Stockholder hereunder by the total
number of Shares sold hereunder, or (ii) the initial public offering price of
the Selling Stockholder Shares sold by such Selling Stockholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
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<PAGE> 29
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or
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<PAGE> 30
(ii) the time of the initial public offering of any of the Shares by the
Underwriters after the Registration Statement becomes effective. The time of the
initial public offering shall mean the time of the release by you, for
publication, of the first newspaper advertisement relating to the Shares, or the
time at which the Shares are first generally offered by the Underwriters to the
public by letter, telephone, telegram or telecopy, whichever shall first occur.
By giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or the
Company, may prevent this Agreement from becoming effective without liability of
any party to any other party, except as provided in Sections 4(j), 5 and 8
hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or any Selling Stockholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or (ii) because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations or business of the
Company from that set forth in the Registration Statement or Prospectus, which,
in your sole judgment, is material and adverse, or (iii) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iv) if the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (v) if there
shall have been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (vi) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof,
subject to the limitations set forth in Rule 2710(c)(6)(B)(vi) of the NASD
Conduct Rules. Any termination pursuant to any of subparagraphs (ii) through
(vi) above shall be without liability of any party to any other party except
with respect to subparagraphs (b)(i) and (b)(ii), as provided in Sections 4(j),
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Omtool, Ltd., 8 Industrial Way, Salem,
New Hampshire 03079, telecopier number (603) 890-6756, Attention: Robert L.
Voelk, Chief Executive Officer; if sent to one or more of the Selling
Stockholders, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Robert L. Voelk
or
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<PAGE> 31
Darioush Mardan, as Attorney-in-Fact for the Selling Stockholders, at c/o
Omtool, Ltd., 8 Industrial Way, Salem, New Hampshire 03079, telecopier number
(603) 890-6756.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Robertson, Stephens & Company LLC on behalf of you.
14. DEFAULT BY SELLING STOCKHOLDERS. If on any Closing Date any Selling
Stockholder fails to sell the Shares or Option Shares which such Selling
Stockholder has agreed to sell on such date as set forth in Schedule B hereto,
the Company agrees that it will sell or arrange for the sale of that number of
shares of Common Stock to the Underwriters which represents the Shares or Option
Shares which such Selling Stockholder has failed to so sell, as set forth in
Schedule B hereto, or such fewer number of shares as may be requested by the
Underwriters.
15. ATTORNEYS. Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Stockholders represents by so doing that he has
been duly appointed as Attorney-in-fact by such Selling Stockholder pursuant to
a validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action.
16. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
17. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 32
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
OMTOOL, LTD.
By
-------------------------------------------
Robert L. Voelk
Chairman of the Board
and Chief Executive Officer
Summit Investors III, L.P.
Summit Ventures IV, L.P.
Robert L. Voelk
Martin A. Schultz
Richard D. Cramer
Bruce R. Evans
Anthony J. Mark
William R. Daniels
Ellen Ohlenbusch Flaherty
Darioush Mardan
Mark P. Overington
Craig A. Randall
Paul St. Pierre
By
-------------------------------------------
Robert L. Voelk
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
FIRST ALBANY CORPORATION
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By
--------------------------------------------
Authorized Signatory
-32-
<PAGE> 33
SCHEDULE A
Underwriters Number of
- ------------ Firm Shares
To Be
Purchased
---------
ROBERTSON, STEPHENS & COMPANY LLC.............................
MONTGOMERY SECURITIES.........................................
FIRST ALBANY CORPORATION......................................
Total...............................................................
---------
4,000,000
-1-
<PAGE> 34
SCHEDULE B
Number of
Company
Shares To
Company Be Sold
------- ---------
Omtool, Ltd.
8 Industrial Way
Salem, NH 03079............................................ 3,000,000
---------
Total: ..................................................... 3,000,000
=========
<TABLE>
<CAPTION>
Number of Number of
Selling Option
Stockholder Shares
Shares To To Be
Name of Selling Stockholder Be Sold Sold
- --------------------------- --------- -----
<S> <C> <C>
Summit Investors III, L.P................................... [ ] [ ]
Summit Ventures IV, L.P..................................... [ ] [ ]
Robert L. Voelk............................................. 255,750 0
Martin A. Schultz........................................... 265,750 0
Richard D. Cramer........................................... 5,176 0
Bruce R. Evans.............................................. [ ] 0
Anthony J. Mark............................................. 7,666 0
William R. Daniels.......................................... 21,147 0
Ellen Ohlenbusch Flaherty................................... 0 10,667
Darioush Mardan............................................. 0 5,333
Mark P. Overington.......................................... 0 4,000
Craig R. Randall 0 5,333
Paul St. Pierre 0 5,333
---------- ----------
Total: 1,000,000 600,000
........................................................... ========== ==========
</TABLE>
-2-
<PAGE> 1
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
OMTOOL, LTD.
OMTOOL, LTD., a Delaware corporation (the "Corporation"), hereby certifies
and provides as follows:
1. The name of the Corporation is OMTOOL, LTD. The date of filing of its
original Certificate of Incorporation with the Secretary of State of the State
of Delaware was December 29, 1995.
2. This Restated Certificate of Incorporation (the "Restated
Certificate"), which was duly adopted in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware, with stockholder approval
given by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware and with prompt written notice thereof
having been given to any non-consenting stockholders in accordance with Section
228(d) of the General Corporation Law of the State of Delaware, amends and
restates the provisions of the present Certificate of Incorporation of the
Corporation, as heretofore amended.
3. Immediately upon filing this Restated Certificate, the text of the
present Certificate of Incorporation is hereby amended and restated to read in
full as set forth herein:
FIRST: The name of the corporation (the "Corporation") is
OMTOOL, LTD.
SECOND: The registered office of the Corporation is to be located at 1209
Orange Street, in the City of Wilmington, New Castle County, in the State of
Delaware. The name of its registered agent at such address is The Corporation
Trust Company.
<PAGE> 2
-2-
THIRD: The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which a corporation 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 the authority to issue is 13,000,000, consisting of
10,000,000 shares of Common Stock having a par value of $.01 per share (the
"Common Stock") and 3,000,000 shares of Preferred Stock having a par value of
$.01 per share (the "Preferred Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the Common
Stock are subject to and qualified by those that may be now or hereafter fixed
with respect to any shares of the Preferred Stock.
2. VOTING RIGHTS. Except as otherwise required by law or this Certificate
of Incorporation, each holder of Common Stock shall have one vote in respect of
each share (and a proportionate vote for each fractional share) held by him of
record on the books of the Corporation for the election of directors and on all
matters submitted to a vote of stockholders of the Corporation. The number of
authorized shares of Common Stock may be increased or decreased (but not below
the number of shares then outstanding) by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Corporation, with
each share being entitled to such number of votes per share as is provided in
this Article FOURTH. there shall be no cumulative voting.
3. DIVIDENDS. Subject to the rights of holders of Preferred Stock (whether
presently or hereafter authorized), if any, the holders of the shares of Common
Stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property or in shares of capital
stock.
4. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the
<PAGE> 3
-3-
preferential amounts, if any, to be distributed to the holders of shares of
Preferred Stock (whether presently or hereafter authorized), holders of Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively,
subject to any participation rights of the holders of shares of Preferred Stock
(whether presently or hereafter authorized).
B. PREFERRED STOCK
1. GENERAL. Subject to compliance with applicable voting rights, if any,
which may have been granted to the Preferred Stock or any series thereof in
Certificates of Designation or the Certificate of Incorporation, the Preferred
Stock may be issued in one or more series at such time or times and for such
consideration or considerations as the Corporation's Board of Directors may
determine, each of such series to have such terms as stated or expressed herein
or in the resolution or resolutions providing for the issue of such series
adopted by the Board of Directors of the Corporation as hereinafter provided.
Each series of Preferred Stock shall be so designated as to distinguish the
shares thereof from the shares of all other series of Preferred Stock. Except as
otherwise expressly provided or as required by law, 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 Preferred Stock in one or more series, each with
such designations, preferences, powers (including voting or no voting powers),
rights and privileges and such qualifications, limitations or restrictions in
respect thereof as shall be stated, to the extent not expressed in the
Certificate of Incorporation, in the resolution or resolutions adopted by the
Board of Directors to create such series, and a certificate of said resolution
or resolutions 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: (i) have such distinctive
designation and consist of such number of shares; (ii) be subject to redemption
at such time or times and at such price or prices; (iii) be entitled to the
benefit of a retirement or sinking fund for the redemption of such series on
such terms and in such amounts; (iv) be 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 of stock, (v) be
entitled to such rights upon the voluntary or involuntary liquidation,
dissolution or winding up of the affairs, or upon any distribution of the assets
of the Corporation in preference to, or in such relation to, any other class or
classes or any other series of stock; (vi) be convertible into, or exchangeable
for, shares of any other class or classes or any other series of stock at such
price or prices or at such rates of exchange and with such adjustments, if any;
(vii) be entitled to the benefit of such conditions, limitations or
restrictions, if any, on the issuance of shares of any other series of Preferred
Stock, the amendment of this Certificate of Incorporation, the payment of
dividends or the making of other distributions on, or the purchase, redemption
or other acquisition by the Corporation of, any other class or classes or series
of stock, or any other corporate action; or (viii) be entitled to such
<PAGE> 4
-4-
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 Certificate of Incorporation.
II. SERIES A CONVERTIBLE PREFERRED STOCK.
1. NUMBER OF SHARES OF SERIES A PREFERRED STOCK. Of the 3,000,000 shares
of authorized and unissued Preferred Stock, $.01 par value per share ("Preferred
Stock") of the Corporation, 162,500 shares shall be designated and known as
"Series A Preferred Stock." The Corporation, at its discretion, shall have the
authority to issue all of the Series A Preferred Stock.
2. VOTING. Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock, as hereinafter defined, into which the shares of Series A
Preferred Stock held by such holder are convertible, at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law, or
by the provisions establishing any other series of Preferred Stock, holders of
Series A Preferred Stock shall vote together with the holders of all other
classes and series of securities of the Corporation as a single class.
3. LIQUIDATION. In the event of a voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation, the holders of shares of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to holders of its capital stock,
before any payment or distribution shall be made to holders of Common Stock or
any other class of stock ranking junior to Series A Preferred Stock, $2.00 per
share, plus all dividends which have accrued and are unpaid and therefore are in
arrears. If upon such liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among the holders
of Series A Preferred Stock shall be insufficient to permit payment to the
holders of Series A Preferred Stock of the amount distributable as aforesaid,
then the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Series A Preferred Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Series A Preferred Stock shall have been paid in full the amounts to which they
shall be entitled, the remaining net assets of the Corporation may be
distributed to the holders of stock ranking on liquidation junior to the Series
A Preferred Stock. Written notice of such liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 10 days prior
to the payment date stated therein, to the holders of record of Series A
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation. For purposes hereof, the Common
Stock shall rank on liquidation junior to the Series A Preferred Stock.
4. OPTIONAL CONVERSION. The holders of shares of Series A Convertible
Preferred Stock shall have the following conversion rights:
<PAGE> 5
-5-
(a) Right to Convert. Subject to the terms and conditions of this
Section 4, each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time and from time to time, into one (1)
fully paid and non-assessable share of Common Stock ("Conversion Ratio"). Such
initial Conversion Ratio, and the rate at which shares of Series A Preferred
Stock may be converted into, shares of Common Stock, shall be subject to
adjustment as provided. Such right of conversion shall be exercised by the
holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series A Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series A Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates of shares of
Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt of the written notice referred to in Subsection 4(a) and
surrender of the certificate or certificates for the share or shares of Series A
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected as of the close of business on the date on
which such written notice shall have been received by the Corporation and the
certificate and certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series A Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series A Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, the Corporation shall pay in cash an amount equal to
all dividends, accrued and unpaid on the shares of Series A Preferred Stock
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in Subsection 4(b). In case the number of shares of
Series A Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subsection 4(a) exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted.
(d) Adjustment to Conversion Ratio
(i) Adjustment for Combinations or Consolidation of Common
Stock. In the event the outstanding shares of Common Stock shall be combined or
consolidated, by
<PAGE> 6
-6-
reclassification or otherwise, into a lesser number of shares of Common Stock,
the applicable Conversion Ratio in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such combination
or consolidation, be increased proportionately.
(ii) Adjustment for Certain Dividends and Distributions. In
the event the Corporation at any time, or from time to time after the date on
which a share of the Series A Preferred Stock was first issued (the "Original
Issue Date") shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event, the
Conversion Ratio for the Series A Preferred Stock then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Ratio for the series A Preferred Stock then in effect
by a fraction:
(x) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date; and
(y) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
(iii) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time after the Original
Issue Date for the Series A Preferred stock shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event, provision shall be
made so that the holders of the Series A Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the Conversion Date, retain such
securities receivable by them as aforesaid during such period giving application
to all adjustments called for during such period, under this Section with
respect to the right of the holders of the Preferred Stock.
(iv) Adjustment for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets
<PAGE> 7
-7-
provided for below), then and in each such event the holder of each such share
of the Series A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of the
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Ratio pursuant to Subsection
(4)(c), the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Ratio then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
5. Mandatory Conversion of Series A Convertible Preferred Stock. The
Corporation may, at its option, require all (but not less than all) holders of
shares of Series A Preferred Stock then outstanding to convert their shares of
Series A Preferred Stock into shares of Common Stock at the then effective
Conversion Ratio pursuant to this Section 5, at any time on or after the closing
of the (i) sale of shares of Common Stock in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
or (ii) the consolidation or merger of the Corporation into or with any other
entity or entities which results in the exchange of outstanding shares of the
Corporation for securities or other consideration issued or paid or caused to be
issued or paid by any such entity or affiliate thereof, or (iii) sale or
transfer by the Corporation of all or substantially all of its assets.
On or before the date fixed for conversion, each holder of shares of
Series A Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the date
fixed for conversion, all fights with respect to the Series A Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted.
All certificates evidencing shares of Series A Preferred Stock that are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to be
surrendered, be deemed to have been retired and canceled and the shares of
Series A Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such
<PAGE> 8
-8-
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
6. NOTICES. In case at any time:
(a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the holders
of its Common Stock;
(b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(c) the Corporation subdivides or combines its outstanding shares of
Common Stock;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series A Preferred Stock at the address of such
holder as shown on the books of the Corporation, (i) at least 10 days' prior to
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 10
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
7. STOCK TO BE RESERVED. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series A Preferred Stock. The
Corporation will take all such action as may be so issued without violation of
any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the conversion
rights if the total number of shares of Common Stock
<PAGE> 9
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issued and issuable after such action upon conversion of the Series A Preferred
Stock would exceed the total number of shares of Common Stock then authorized by
the Corporation's Certificate of Incorporation, as amended.
8. NO REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
9. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without charge to the
holder thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred Stock which is
being converted.
10. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series A
Preferred Stock in any manner which interferes with the timely conversion of
such Series A Preferred Stock, except as may otherwise be required to comply
with applicable securities laws.
11. DEFINITION OF COMMON STOCK. As used in this Article FOURTH, Section
B.11 the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, $.01 par value per share, as constituted on the date of filing of
these terms of the Series A Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall neither
be limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series A Preferred Stock shall
include only shares designated as Common Stock of the Corporation on the date of
filing of this instrument, or in case of any reorganization or reclassification
of the outstanding shares thereof, the stock, securities or assets provided for
in Subsection 4(d).
12. AMENDMENTS. No provision of these terms of the Series A Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock.
III. SERIES B CONVERTIBLE PREFERRED STOCK.
1. Number of Shares of Series B Preferred Stock. Of the 3,000,000
shares of authorized and unissued Preferred Stock, $.01 par value per share of
the Company, 1,356,116 shares shall be designated and known as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"). The Company, at
its discretion, shall have the authority to issue all of the Series B Preferred
Stock, which shall have the following rights, terms and privileges:
<PAGE> 10
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2. DIVIDENDS.
(a) Dividends. The holders of the then outstanding Series B
Preferred Stock shall be entitled to receive, out of funds legally available
therefor, cumulative annual dividends when and as may be declared from time to
time by the Board of Directors of the Company at an annual rate per share equal
to the Applicable Percentage Rate (as hereinafter defined) multiplied by $3.687
per share of the Series B Preferred Stock (appropriately adjusted for stock
splits, dividends, combinations, and the like with respect to the Series B
Preferred Stock), such amount shall be compounded annually such that if the
dividend is not paid for such year the unpaid amount shall be added to the
original purchase price paid per share of the Series B Preferred Stock for
purposes of calculating succeeding years' dividends. Such dividends shall be
deemed to accrue on the Series B Preferred Stock and be cumulative, whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends. If such
cumulative dividends in respect of any prior or current annual dividend period
shall not have been declared and paid or if there shall not have been a sum
sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid or declared
and set apart with respect to any class of the Company's capital stock, now or
hereafter outstanding. The Applicable Percentage Rate shall be eight percent
(8%). Upon any conversion of the Series B Preferred Stock under Section 5
hereof, all accrued and unpaid dividends on the Series B Preferred Stock shall
be forgiven.
(b) Dividends in Kind. In the event the Company shall make or issue,
or shall fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution with respect to the Common
Stock payable in (i) securities of the Company other than shares of Common Stock
or (ii) assets, then and in each such event the holders of Series B Preferred
Stock shall receive, at the same time such distribution is made with respect to
Common Stock, the number of securities or such other assets of the Company which
they would have received had their Series B Preferred Stock been converted into
Common Stock immediately prior to the record date for determining holders of
Common Stock entitled to receive such distribution.
3. LIQUIDATION, DISSOLUTION OR WINDING.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock, Series A Convertible Preferred Stock or any other series of
capital stock ranking on liquidation junior to the Series B Preferred Stock,
holders of each share of Series B Preferred Stock shall be entitled to be paid
out of the assets of the Company available for distribution to holders of the
Company's capital stock of all classes, whether such assets are capital,
surplus, or capital earnings, an amount equal to the greater of (i) $3.687 per
share of Series B Preferred Stock (which amounts shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B Preferred Stock)
plus, in each case, all accrued and unpaid dividends thereon, whether or not
declared, since the date of issue up to and including the date full payment
shall be tendered to the holders of the Series B Preferred Stock with respect to
<PAGE> 11
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such liquidation, dissolution or winding up (collectively, the "Liquidation
Amount") or (ii) such amount per share of Series B Preferred Stock as would have
been payable had each such share been converted into Common Stock immediately
prior to such event of liquidation, dissolution or winding up pursuant to the
provisions of Section A.5.
If the assets of the Company available for distribution to its
shareholders shall be insufficient to pay the holders of shares of Series B
Preferred Stock and the holders of any shares of any other class or series of
stock ranking on liquidation on parity with the Series B Preferred Stock the
full amount of the Liquidation Amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock and the holders of any shares of
any other class or series of stock ranking on liquidation on parity with the
Series B Preferred Stock shall share ratably in any distribution of assets
according to the amounts which would be payable with respect to the Series B
Preferred Stock and the holders of any shares of any other class or series of
stock ranking on liquidation on parity with the Series B Preferred Stock held by
them upon such distribution if all amounts payable on or with respect to said
shares were paid in full.
After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series B Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series B Preferred Stock so as to be available for such payments,
the holders of the Series B Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to its
shareholders shall be distributed among the holders of other classes of
securities of the Company in accordance with their respective terms.
(b) Treatment of Reorganizations. Any Reorganization (as such term
is defined in Section A.5(f)) (other than a merger to reincorporate the Company
in a different jurisdiction or a merger or consolidation in which stockholders
of the Company, as such, own a majority of the outstanding voting securities of
the surviving or resulting entity immediately following such event), shall be
regarded as a liquidation, dissolution or winding up of the affairs of the
Company within the meaning of this Section A.3; provided, however, that each
holder of Series B Preferred Stock shall have the right to elect the benefits of
the provisions of Section A.5(f) hereof, if applicable, in lieu of receiving
payment of amounts payable upon liquidation, dissolution or winding up of the
Company pursuant to this Section A.3.
(c) Distributions in Cash. Wherever a distribution provided for in
this Section A.3 is payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Company's Board of Directors.
4. VOTING POWER. Except as otherwise expressly provided in Section A.8
hereof, or as required by law or this Certificate of Incorporation, each holder
of Series B Preferred Stock shall be entitled to vote on all matters and shall
be entitled to that number of votes equal to the largest number of whole shares
of Common Stock into which such holder's shares of Preferred Stock could be
converted, pursuant to the provisions of Section A.5 hereof, at the record date
for the determination of shareholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited.
<PAGE> 12
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Except as otherwise expressly provided herein or as required by law, the holders
of shares of Series B Preferred Stock, Series A Preferred Stock and Common Stock
shall vote together as a single class on all matters, including, without
limitation, votes to amend the Certificate of Incorporation to increase the
number of authorized shares of Common Stock and/or Preferred Stock.
5. CONVERSION RIGHTS FOR THE PREFERRED STOCK. The holders of the Series
B Preferred Stock shall have the following rights with respect to the conversion
of the Series B Preferred Stock into shares of Common Stock:
(a) General. Subject to and in compliance with the provisions of
this Section A.5, any share of the Series B Preferred Stock may, at the option
of the holder, be converted at any time into fully-paid and non-assessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series B Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section A.5(b)) by the number of shares of Series B Preferred Stock
being converted.
(b) Applicable Conversion Rate. The conversion rate in effect at any
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $3.687 by the Applicable Conversion Value, calculated as provided in
Section A.5(c).
(c) Applicable Conversion Value. The Applicable Conversion Value
shall be, in the case of the Series B Preferred Stock, $3.687 except that such
amount shall be adjusted from time to time in accordance with this Section A.5.
(d) Adjustments to Applicable Conversion Values.
(i) (A) Upon Sale of Common Stock. If the Company shall, while
there are any shares of Series B Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share less
than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case such Applicable Conversion Value for
the Series B Preferred Stock, upon each such issuance or sale, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying the Applicable Conversion Value by a fraction:
(1) the numerator of which shall be (a) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (b) the number of shares of Common Stock which the
net aggregate consideration, if any, received by the Company for the total
number of such additional shares of Common Stock so issued would purchase at the
Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (b) the number of such additional shares of Common
stock so issued.
<PAGE> 13
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For purposes of this subparagraph 5(d)(i)(A), shares of Common Stock
outstanding shall be deemed to include the shares of Common Stock issuable upon
conversion of the then outstanding shares of Series A Preferred Stock and Series
B Preferred Stock, up to 570,000 shares of Common Stock issuable upon exercise
of the options referred to in Section 5(e) hereof and shares of Common Stock
issuable with respect to any other outstanding options, warrants and securities
convertible into or exchangeable for shares of Common Stock if the exercise or
conversion price thereof is less than the Applicable Conversion Value.
(B) Upon Issuance of Warrants, Options and Rights to
Common Stock.
(1) For the purposes of this Section A.5(d)(i), the issuance of
any warrants, options, subscriptions, or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into or
exchangeable for shares of Common Stock (or the issuance of any warrants,
options or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance of such Common Stock at such time if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Company for such Common Stock shall be less than the Applicable Conversion
Value at the time of such issuance. Any obligation, agreement, or undertaking to
issue warrants, options, subscriptions, or purchase rights at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Section A.5(d)(i) upon the issuance of any shares
of Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions, or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any adjustment
shall previously have been made or deemed not required hereunder upon the
issuance of any such warrants, options, or subscription or purchase rights or
upon the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable
Conversion Value shall be adjusted to such Applicable Conversion Value as would
have obtained (1) had the adjustments made upon the issuance of such warrants,
options, rights, or convertible securities been made upon the basis of the
decreased Net Consideration per share of such securities, and (2) had
adjustments made to the Applicable Conversion Value since the date of issuance
of such securities been made to the Applicable Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions,
purchase rights or convertible securities with respect to shares of Common Stock
shall be disregarded if, as, when and to the extent such warrants, options,
subscriptions, purchase rights or convertible securities expire or are canceled
without being exercised or converted, so that the Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value in effect at the time of the issuance of the expired
or canceled warrants, options, subscriptions, purchase rights, or convertible
securities
<PAGE> 14
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with such additional adjustments as would have been made to that
Applicable Conversion Value had the expired or canceled warrants, options,
subscriptions, purchase rights or convertible securities not been issued.
(2) For purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Company shall be determined as follows:
(a) The "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration, if any, received by the Company for the
issuance of such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or conversion
thereof, divided by the aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or converted.
(b) The "Net Consideration Per Share" which may be received by the
Company shall be determined in each instance as of the date of issuance of
warrants, options, subscriptions, or other purchase rights or convertible or
exchangeable securities without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such warrants, options, subscriptions, or other purchase rights or convertible
or exchangeable securities.
(c) Stock Dividends. In the event the Company shall make or issue a
dividend or other distribution payable in Common Stock (except for dividends or
distributions upon the Common Stock, as provided in Section A. 5d(ii) or
securities of the Company convertible into or otherwise exchangeable for the
Common Stock of the Company, then such Common Stock or other securities issued
in payment of such dividend shall be deemed to have been issued without
consideration (except for dividends payable in shares of Common Stock or other
securities payable pro rata to holders of Preferred Stock and to holders of any
other class of stock) provided that no adjustment shall be made to the
Applicable Conversion Value as a result of such dividend or distribution if the
holders of the shares to which such Applicable Conversion Value relates are
entitled to, and do, receive such dividend or distribution in accordance with
Section A.2; and provided, further, that if any adjustment is made to an
Applicable Conversion Value as a result of the declaration of a dividend and
such dividend is not effected, such Applicable Conversion Value shall be
appropriately readjusted.
(d) Consideration Other than Cash. For purposes of this Section
5(d), if a part or all of the consideration received by the Company in
connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section A.5(d) consists of property
other than cash, such consideration shall be deemed to have a fair market value
as is reasonably determined in good faith by the Board of Directors of the
Company.
(e) Exceptions. This Section A.5(d)(i) shall not apply under any of
the circumstances which would constitute an Extraordinary Common Stock Event (as
hereinafter defined in Section A.5(d)(ii)). Further, the provisions of this
Section A.5(d) shall not apply to
<PAGE> 15
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(i) shares issued upon conversion of the Series B Preferred Stock or Series A
Preferred Stock or (ii) options (and the shares issuable upon exercise thereof)
to purchase up to an aggregate of 570,000 shares of Common Stock (including
options outstanding on the date hereof) issued to employees, officers, directors
or consultants of the Company (plus a number of such shares equal to any options
forfeited or expired or shares issued upon exercise of such options which have
been repurchased by the Company). The number of shares in this Section (E) shall
be proportionately adjusted to reflect any stock dividend, stock split,
subdivision or other form of recapitalization occurring after the date hereof.
(ii) Upon Extraordinary Common Stock Event. Upon the happening
of an Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for the Series B Preferred Stock shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the then effective Applicable Conversion Value with respect to the Series B
Preferred Stock by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable Conversion
Value. The Applicable Conversion Value for the Series B Preferred Stock shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock or on any class or
series of preferred stock, unless made pro rata to holders of
Series B Preferred Stock, (ii) a subdivision of outstanding
shares of Common Stock into a greater number of shares of
Common Stock, or (iii) a combination of outstanding shares of
the Common Stock into a smaller number of shares of Common
Stock.
(e) Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of the Series B Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for elsewhere in
this Section A.5 or by a Reorganization), then and in each such event, the
holder of each share of Series B Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such capital reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series B Preferred Stock might have been
converted immediately prior to such capital reorganization, reclassification or
other change.
(f) Capital Reorganization, Merger or Sale of Assets. If at any time
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section A.5) or a merger or consolidation of the
Company with or into another Company, or the sale of all or substantially all of
the Company's properties and assets to any other person, any of
<PAGE> 16
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which events is herein referred to as a "Reorganization"), then as a part of
such Reorganization, provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor Company resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series B Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section A.5 with respect to the rights of
the holders of the Series B Preferred Stock after the Reorganization, to the end
that the provisions of this Section A.5 (including adjustment of the Applicable
Conversion Value then in effect and the number of shares issuable upon
conversion of the Preferred Stock) shall be applicable after that event in as
nearly equivalent a manner as may be practicable.
Except as otherwise provided in Section A.3(b), upon the occurrence
of a Reorganization, under circumstances which make the preceding paragraph
applicable, each holder of Series B Preferred Stock shall have the option of
electing treatment for his shares of Series B Preferred Stock under either this
Section A.5(g) or Section A.3 hereof, notice of which election shall be
submitted in writing to the Company at its principal offices no later than five
(5) business days before the effective date of such event.
(g) Certificate as to Adjustments; Notice by Company. In each case
of an adjustment or readjustment of the Applicable Conversion Rate, the Company
at its expense will furnish each holder of Series B Preferred Stock with a
certificate, executed by the president and chief financial officer (or in the
absence of a person designated as the chief financial officer, by the treasurer)
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such Conversion shall be
issued. The certificate or certificates for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series B Preferred Stock being converted, shall be the "Conversion Date." As
promptly as practicable after the Conversion Date, the Company shall issue and
shall deliver to the holder of the shares of Series B Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of this Section A.5, and cash, as provided in Section A(j), in
respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of Series B Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of
<PAGE> 17
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Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock represented
thereby. The Company shall pay any taxes payable with respect to the issuance of
Common Stock upon conversion of the Series B Preferred Stock, other than any
taxes payable with respect to income by the holders thereof.
(i) Cash in Lieu of Fractional Shares. The Company may, if it so
elects, issues fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series B Preferred Stock. If
the Company does not elect to issue fractional shares, the Company shall pay to
the holder of the shares of Series B Preferred Stock which were converted a cash
adjustment in respect of such fractional shares in an amount equal to the same
fraction of the market price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) at the close of business
on the Conversion Date. The determination as to whether or not any fractional
shares are issuable shall be based upon the total number of shares of series B
Preferred Stock being converted at any one time by any holder thereof, not upon
each share of Series B Preferred Stock being converted.
(j) Partial Conversion. In the event some but not all of the shares
of Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series B Preferred Stock which were not
converted.
(k) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock,
the Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
(1) Minimum Adjustment. Any provision of this Section A.5 to the
contrary notwithstanding, no adjustment in the Applicable Conversion Value shall
be made if the amount of such adjustment would be less than 1% of the Applicable
Conversion Value then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with all amounts so carried
forward, aggregates 1% or more of the Applicable Conversion Value then in
effect.
(m) Mandatory Conversion. Shares of Series B Preferred Stock shall
automatically convert to shares of Common Stock as follows upon the earlier to
occur of the events described in subparagraphs 5(m)(i) and 5(m)(ii).
<PAGE> 18
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(i) Qualified Public Offering. If at any time the Company
shall effect an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of shares of Common Stock in which the aggregate
price paid for such shares by the public shall be at least $15,000,000 and in
which the price per share of Common Stock is at least three (3) times the then
Applicable Conversion Value (the "Qualified Public Offering"), then effective
upon the closing of the sale of such shares by the Company pursuant to such
public offering, all outstanding shares of Series B Preferred Stock shall
automatically convert to shares of Common Stock on the basis set forth in this
paragraph 5 based on the Applicable Conversion Value in effect at the time of
such closing.
(ii) At the Option of Holders. Upon the date specified by vote
or written consent of holders of at least sixty-six and two-thirds percent
(66-2/3%) of the shares of Series B Preferred Stock then outstanding, all
outstanding shares of Series B Preferred Stock shall automatically convert to
shares of Common Stock on the basis set forth in this paragraph 5 based on the
Applicable Conversion Value in effect on such specified date.
6. NO REISSUANCE OF SERIES B PREFERRED STOCK. No share or shares of
Series B Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series B Preferred Stock accordingly.
7. REDEMPTION.
(a) Optional Redemption by Holders. At the election of the holders
of at least fifty-one percent (51%) of the then outstanding shares of Series B
Preferred Stock, the Company shall, to the extent it may do so under applicable
law, (i) redeem pro rata from all holders of Series B Preferred Stock on July
22, of each of 2000, 2001, 2002 and 2003 one-fourth (1/4) of the shares of
Series B Preferred Stock outstanding on July 22, 2000 or such lesser amount as
may be outstanding on the date of such redemption (a "Dated Redemption") and
(ii) redeem all outstanding shares of Series B Preferred Stock upon consummation
of a sale of Common Stock by the Company to the public pursuant to an effective
registration statement filed under the Act which does not constitute a Qualified
Public Offering (as defined above). In the event shares of Series B Preferred
Stock scheduled for redemption are not redeemed because of a prohibition under
applicable law, such shares shall be redeemed as soon as such prohibition no
longer exists. The number of shares to be redeemed under clause (i) in the first
sentence of this subsection (a) shall be cumulative, so that any shares subject
to redemption in one year and not so redeemed shall be carried forward to each
subsequent year through July 22, 2003 and shall be subject to redemption in
addition to the shares otherwise redeemable in such year. The redemption price
(the "Holder Redemption Price") for each share of Series B Preferred Stock
redeemed pursuant to this Section A.7(a) shall be equal to the Liquidation
Amount with the amount of accrued dividends due thereon to be calculated and
paid through the date payment is actually made to the holders of the Series B
Preferred Stock with respect to such redemption.
<PAGE> 19
-19-
In the event that the holders of the Series B Preferred Stock do not
elect to have the Series B Preferred Stock redeemed pursuant to this Section
A.7(a), the shares of Series B Preferred Stock shall remain outstanding and
subject to the provisions hereof.
(b) Redemption Notice. If an election is made pursuant to Section
A.7(a) hereof, written notice of such election shall be mailed, postage prepaid,
to the Company, not later than sixty days before the date fixed for each Dated
Redemption (each of the dates fixed for redemption is required to be paid and
the extended redemption date is hereinafter referred to as a "Redemption Date")
which shall state:
(i) the number of shares of Series B Preferred Stock held by
the holder and the total number of shares of Series B Preferred Stock held by
all holders subject to redemption as of such Redemption Date; and
(ii) the redemption date and the applicable Holder Redemption
Price.
Any holder of Series B Preferred Stock who wishes to do so may, by giving
notice to the Company prior to the redemption date, convert into Common Stock
any or all of the shares of Series B Preferred Stock held by him and scheduled
for redemption on such redemption date.
(c) Surrender of Certificate. Each holder of shares of Series B
Preferred Stock to be redeemed under this Section A.7 shall surrender the
certificate or certificates representing such shares to the Company at the place
designated in the redemption notice, and thereupon the Company Redemption Price
or Holder Redemption Price, as the case may be, for such shares as set forth in
this Section A.7 shall be paid to the order of the person whose name appears on
such certificate or certificates. Irrespective of whether the certificates
therefor shall have been surrendered, all shares of Series B Preferred Stock
which are the subject of a Redemption Notice shall be deemed to have been
redeemed and shall be canceled effective as of the redemption date, unless the
Company shall default in the payment of the applicable Redemption Price.
(d) Financing Requirement. To the extent that the Company does not
have funds legally available to fund any required redemption of shares of Series
B Preferred Stock or for any reason shall lack sufficient funds to redeem the
Series B Preferred Stock, the Company shall use its commercially reasonable best
efforts to raise sufficient capital to fund such required redemption within 365
days of the date such redemption is required to be made. To the extent that the
Company is unable to raise sufficient capital to fund such required redemption
with such 365 day period, the Company shall commence, as of the 366th day
following the date such redemption is required to be made, a rights offering of
the Company's Common Stock to all of the Company's shareholders of an adequate
number of shares at a purchase price per share equal to its then fair market
value such that the total dollar amount to be raised from such rights offering
will equal or exceed the dollar amount needed by the Company to fund such
required redemption.
8. RESTRICTIONS AND LIMITATIONS.
<PAGE> 20
-20-
(a) Corporate Action. Except as expressly provided herein or as
required by law, so long as any shares of Series B Preferred Stock remain
outstanding, the Company shall not, and shall not permit any subsidiary (which
shall mean any company, association or other business entity which the Company
and/or any of its other subsidiaries directly or indirectly owns at the time
more than fifty percent (50%) of the outstanding voting shares of such company,
association or other business, other than directors' qualifying shares) to,
without the approval by vote or written consent by the holders of at least 51%
of the then outstanding shares of Series B Preferred Stock, voting as a separate
class:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and pay or
set aside funds for the payment of any dividend with respect to, any share or
shares of capital stock, except as required or permitted hereunder or under the
terms of Section 4.2 of the Purchase Agreement;
(ii) authorize or issue, or obligate itself to authorize
or issue, additional shares of Series B Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior took Series B Preferred Stock as to
liquidation preferences, redemption rights, dividend rights, or voting rights;
(iv) merge or consolidate with any other Company, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired), or
consent to any liquidation, dissolution or winding up of the Company, or permit
any subsidiary to do any of the foregoing, except for (1) any wholly-owned
subsidiary may merge into or consolidate with or transfer assets to any other
wholly-owned subsidiary, and (2) any wholly-owned subsidiary may merge into or
transfer assets to the Company and (3) the Company may merge or consolidate with
another entity as long as the Company is the surviving entity and such merger
does not result in the issuance (in one or more transactions) of shares of the
voting stock of the Company representing in the aggregate more than ten percent
(10%) of the total outstanding voting stock of the Company, on a fully diluted
basis, immediately following the issuance thereof; or
(v) amend, restate, modify or alter the by-laws of the Company
in any way which adversely affects the rights of the holders of the Series B
Preferred Stock.
(b) Amendments to Charter. The Company shall not amend its
Certificate of Incorporation without the approval, by vote or written consent,
by the holders of at least fifty-one percent (51%) of the then outstanding
shares of Series B Preferred Stock, if such amendment would amend any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series B Preferred Stock. Without limiting the
generality of the preceding sentence, the Company will not amend its Certificate
of Incorporation without the
<PAGE> 21
-21-
approval by the holders of at least fifty-one percent (51%) of the then
outstanding shares of Series B Preferred Stock if such amendment would:
(i) change the relative seniority rights of the holders of
Series B Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Company, or create any other class or
series of capital stock entitled to seniority as to the payment of dividends in
relation to the holders of Series B Preferred Stock;
(ii) reduce the amount payable to the holders of Series B
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the liquidation
preferences of the holders of Series B Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the Company, or change the
dividend rights of the holders of Series B Preferred Stock;
(iii) cancel or modify the conversion rights of the holders of
Series B Preferred Stock provided for in Section A.5 herein; or
(iv) cancel or modify the rights of the holders of the Series
B Preferred Stock provided for in this Section A.8.
9. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series B Preferred Stock set forth herein, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Series B Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series B Preferred Stock above the amount
payable therefor on such conversion, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock on the conversion of all Series B
Preferred Stock from time to time outstanding, or (c) will not consolidate with
or merge into any other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving person), unless such
other person shall expressly assume in writing and will be bound by all of the
terms of the Series B Preferred Stock set forth herein.
10. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right (other than a
dividend payable in additional shares of Common Stock upon the Common Stock), or
<PAGE> 22
-22-
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger of the
Company, or any transfer of all or substantially all of the assets of the
Company to any other Company, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series B Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to become effective
and (iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, merger, dissolution, liquidation or winding up. Such notice shall be
mailed at least ten (10) business days prior to the date specified in such
notice on which such action is to be taken.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) Election of directors need not be by ballot unless the By-Laws so
provide.
(2) The Board of Directors of the Corporation shall have power without the
assent or vote of the stockholders to make, alter, amend, change, add to or
repeal the By-Laws of the Corporation; to fix and vary the amount of capital to
be reserved for any proper purpose; to authorize and cause to be executed
mortgages and liens upon all or any part of the property of the Corporation; to
determine the use and disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends.
<PAGE> 23
-23-
SEVENTH: The Corporation shall, to the full extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify all directors and officers of the Corporation whom it
may indemnify pursuant thereto.
EIGHTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the foregoing shall not limit 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) for unlawful payment
of a dividend or an unlawful stock purchase or redemption under Section 174 of
the General Corporation Law of the State of Delaware, as amended from time to
time, except as may be permitted by said Section 174, or (iv) for any
transaction from which the director derived an improper personal benefit.
Notwithstanding anything to the contrary in this Certificate of Incorporation,
including, without limitation, Article EIGHTH, no amendment to or repeal of this
Article SEVENTH 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.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
<PAGE> 24
-24-
IN WITNESS WHEREOF, OMTOOL, LTD. has caused this Restated Certificate
of Incorporation to be signed and attested to by Robert L. Voelk, its Chief
Executive Officer, this 22nd day of July, 1996.
/s/ Robert L. Voelk
-----------------------------------
Robert L. Voelk,
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.1
NUMBER [LOGO OMTOOL] SHARES
OMT -------------
OMTOOL, LTD.
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS CUSIP 681974 10 1
OF THE STATE OF DELAWARE
COMMON STOCK
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
OMTOOL, LTD.
(herein called the "Corporation"), transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon surrender of
this certificate properly endorsed. This Certificate and the shares represented
hereby are issued under and subject to the laws of the State of Delaware and to
the Amended and Restated Certificate of Incorporation and the Amended and
Restated By-laws of the Corporation, all as amended from time to time.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL OF OMTOOL, LTD.
/s/ Darioush Mardan 1996 /s/ Robert L. Voelk
- -------------------------- DELAWARE] -------------------------
VICE PRESIDENT, FINANCE, CHAIRMAN AND
CHIEF FINANCIAL OFFICER, CHIEF EXECUTIVE OFFICER
TREASURER AND SECRETARY
<PAGE> 2
OMTOOL, LTD.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK, THE
CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A
COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE RIGHTS OF THE SHARES
OF EACH OUTSTANDING CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
<TABLE>
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or regulations:
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ........................Custodian..........................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act........................................................
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received,_________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________Shares of the common stock represented by
the within Certificate, and do hereby irrevocably constitute and appoint
________________________________Attorney to transfer the said stock on the books
of the within named Corporation with full power of substitution in the premises.
Dated______________________________
<TABLE>
_________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<S> <C>
Signature Guaranteed:___________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
Exhibit 5.1
[TESTA, HURWITZ & THIBEAULT, LLP LETERHEAD]
July 22, 1997
Omtool, Ltd.
8 Industrial Way
Salem, NH 03079
Re: Registration Statement on Form S-1 (File No. 333-29397)
Relating to 4,600,000 Shares of Common Stock
--------------------------------------------
Dear Sir or Madam:
This opinion relates to an aggregate of 4,600,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of Omtool, Ltd. (the "Company"),
which are the subject matter of a Registration Statement on Form S-1 initially
filed with the Securities and Exchange Commission on June 17, 1997 (File No.
333-29397) (the "Registration Statement").
The 4,600,000 shares of Common Stock covered by the Registration Statement
consist of 3,000,000 shares being sold by the Company, 1,000,000 shares being
sold by certain selling stockholders of the Company (the "Primary Selling
Stockholders") and an additional 600,000 shares subject to an over-allotment
option granted by certain of the Primary Selling Stockholders and other
stockholders of the Company (collectively with the Primary Selling Stockholders,
the "Selling Stockholders") to the underwriters to be named in the prospectus
(the "Prospectus") included in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of the
opinion that (i) the shares of Common Stock to be issued and sold by the Company
have been duly and validly authorized and, when sold in the manner contemplated
by the underwriting agreement (the "Underwriting Agreement") substantially in
the form as filed as Exhibit 1.1 to the Registration Statement and upon receipt
by the Company of payment therefor as provided in the Underwriting Agreement,
will be validly issued, fully paid and non-assessable; and (ii) the shares of
Common Stock to be sold by the Selling Stockholders are duly and validly
authorized, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ TESTA, HURWITZ & THIBEAULT, LLP
-------------------------------------
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 21, 1997
