<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997
REGISTRATION NO. 333-20577
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRITON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MISSISSIPPI 3578 64-0628980
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
522 EAST RAILROAD STREET
LONG BEACH, MS 39560
(601) 868-1317
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERNEST L. BURDETTE
PRESIDENT
TRITON SYSTEMS, INC.
522 EAST RAILROAD STREET
LONG BEACH, MS 39560
(601) 868-1317
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. RICCIO, JR., ESQUIRE JOHN A. BURGESS, ESQUIRE
THOMAS M. CAMP, ESQUIRE BRENT B. SILER, ESQUIRE
HUTCHINS, WHEELER & DITTMAR HALE AND DORR LLP
A PROFESSIONAL CORPORATION 60 STATE STREET
101 FEDERAL STREET BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02110 (617) 526-6000
(617) 951-6600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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, please 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,
please 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, AS AMENDED, 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 registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED MARCH 3, 1997
4,200,000 SHARES
[TRITON SYSTEMS LOGO]
COMMON STOCK
Of the 4,200,000 shares of Common Stock offered hereby, 3,750,000 shares
are being sold by Triton Systems, Inc. ("Triton" or the "Company") and 450,000
shares are being sold by certain of the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "TRTN."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
=======================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option to
purchase up to 630,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ , the Proceeds to Company will total $ and the
Proceeds to Selling Stockholders will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
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 the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
---------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." All share and per share data in this Prospectus have been
adjusted to give effect to a 1.65-for-1 stock split in the form of a stock
dividend effected on January 27, 1997, and gives effect to the conversion of the
Company's Non-Voting Common Stock into Common Stock, which will occur
automatically upon the closing of the offering.
THE COMPANY
The Company is a leading manufacturer and marketer of automated teller
machines ("ATMs") in the United States. The Company designs, manufactures,
markets and sells primarily focused-function ATMs (also known as cash
dispensers), which are intended to operate profitably at significantly lower
transaction volumes than conventional ATMs. Conventional ATMs typically dispense
cash, accept deposits, transfer funds between accounts and provide account
balances. Focused-function ATMs, such as those manufactured by the Company,
perform all of these functions, other than accepting deposits. Focused-function
ATMs are suitable for locations such as convenience stores, hotels, casinos,
grocery stores, fast food restaurants, department stores, gas stations, malls,
campuses and entertainment complexes, including movie theaters, amusement parks
and race tracks ("off-premise locations"), in addition to bank and credit union
branches ("on-premise locations"). According to The Nilson Report, the Company
shipped the third largest number of ATMs in the United States in 1995, with its
shipments accounting for 12% of all ATMs shipped in the United States in that
year. The Company also designs, manufactures, markets and sells other financial
hardware products such as scrip terminals (countertop ATMs that provide a
voucher redeemable for cash), ATM demonstration machines and card activators.
The Company continues to position itself to capitalize on emerging opportunities
in the transaction and payment processing industry.
According to industry sources, ATM shipments in the United States increased
from 8,527 in 1991 to 24,300 in 1995, for a compound annual growth rate of 30%.
Over the same five-year period, the number of installed ATMs in the United
States grew from 83,545 to 122,706, for a compound annual growth rate of 10%.
Worldwide, the number of ATMs shipped in 1995 was 117,658, and the number of
ATMs installed at the end of 1995 was 618,296.
According to The Nilson Report, focused-function ATMs represented
approximately 51% of total 1995 ATM shipments in the United States. The Company
estimates, based on industry sources, that unit sales of focused-function ATMs
in the United States grew by 16% from 1994 to 1995, while unit sales of
conventional ATMs grew by 11% over the same period. The Company believes that
the two primary reasons for the faster growth of focused-function ATMs are (i)
increased deployment of ATMs in off-premise locations and (ii) the attractive
economics of owning and operating a focused-function ATM.
The number of ATMs deployed at off-premise locations in the United States
has increased from 18,380 in 1991 to 38,039 in 1995, for a compound annual
growth rate of 19.9%, as compared to the increase of ATMs installed at
on-premise locations from 65,165 to 84,667 over the same period, for a compound
annual growth rate of 6.8%. Factors contributing to the increased deployment of
ATMs in off-premise locations include consumer demand for cash at these
locations and the competitive advantage an ATM can give a retailer through
increased customer traffic and incremental revenues. According to Convenience
Store Decisions 1995 Sales Trend Handbook, the typical ATM customer will spend
20%-25% more than a non-ATM customer in a convenience store. The Company
estimates that the potential market for focused-function ATMs includes over
700,000 off-premise locations in the United States.
Economic factors that make focused-function ATMs attractive to own and
operate include (i) retail prices and monthly operating costs which the Company
estimates are 35%-70% lower than those of conventional ATMs and (ii) incremental
revenues available from surcharge fees. Due to these attractive economics, the
Company believes that the number of ATM transactions necessary to break even
with a focused-function ATM is less than half that required for a conventional
ATM.
Triton's net sales increased to $41.0 million in 1996 from $21.0 million in
1995 and $3.2 million in 1994. Income from operations increased to $14.4 million
in 1996 from $7.4 million in 1995 and $371,000 in 1994. At
3
<PAGE> 5
January 27, 1997, the Company had outstanding indebtedness under its existing
bank credit facility of $29.8 million, which will be paid in full with the
proceeds of this offering. After this offering, the maximum amount the Company
will be permitted to borrow under this facility will be $30.0 million and the
Company may make borrowings thereunder in the future to fund its working capital
requirements.
The Company's strategy is to strengthen its leadership position as a
supplier of focused-function ATMs, to expand its presence in the ATM and related
product markets by leveraging its core competency in the focused-function ATM
market, and to exploit new opportunities in the transaction and payment
processing industry as they develop. Key elements of this strategy are to: (i)
build upon the Company's existing distribution channels to penetrate new
domestic geographic markets; (ii) penetrate the domestic bank and credit union
ATM market; (iii) develop a presence in the international ATM market; (iv)
continue to upgrade the functionality of its products and develop new products
that capitalize on emerging opportunities; (v) continue to emphasize the
Company's cost-effective operations; and (vi) maintain short delivery schedules
and a high level of customer service.
The Company currently offers five models of focused-function ATMs targeted
at locations with lower ATM transaction volumes. The Company's operations
emphasize cost-effectiveness principally by outsourcing the manufacture of many
components used in its products, utilizing an established distribution network
instead of maintaining a large direct sales force, and locating the
manufacturing facility in an area where operating and labor costs are typically
lower than in many other regions of the United States.
On July 25, 1996, the Company completed a recapitalization (the
"Recapitalization"), pursuant to which the Company repurchased an aggregate of
approximately 55% of its then outstanding shares of Common Stock from its
founders and certain other stockholders (collectively, the "Original
Stockholders") and entered into a series of related financing transactions. See
"Certain Transactions."
The Company was incorporated in Mississippi in August 1979. The Company's
principal executive offices are located at 522 East Railroad Street, Long Beach,
Mississippi, and its telephone number is (601) 868-1317.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk, including:
dependence on a single, recently introduced product line; potential fluctuations
in operating results; effects of potential limitations on surcharging by ATM
owners; dependence on key suppliers; competition; dependence upon principal
distributors; reliance on third-party distribution channels for product sales
and service; management of expanding operations; technological change and new
products; reliance on centralized manufacturing; exposure to natural disasters;
risks associated with international expansion; dependence on proprietary
technology; reliance on third-party licenses; dependence on key personnel and
employees; warranty claims; product liability; need for additional capital;
control by existing stockholders; benefits of offering to certain stockholders;
shares eligible for future sale; no prior trading market for the Common Stock;
potential volatility of stock price; certain anti-takeover provisions; and
dilution. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. 3,750,000 shares
Common Stock offered by the Selling Stockholders.... 450,000 shares
Common Stock to be outstanding after the offering... 16,158,288 shares(1)
Use of proceeds..................................... To repay bank indebtedness and for
working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol.............. TRTN
</TABLE>
- ---------------
(1) Excludes: (i) 433,655 shares of Common Stock issuable upon exercise of stock
options outstanding as of February 28, 1997, with a weighted average
exercise price of $3.14 per share, of which options to purchase 263,706
shares of Common Stock were then exercisable, and (ii) 32,109 shares of
Common Stock which are reserved for issuance under a warrant issued by the
Company to an affiliate of its senior lender. An additional 1,358,052 shares
of Common Stock have been reserved for issuance under the Company's stock
plans. See "Management -- Stock Plans" and "Description of Capital
Stock -- Bank Warrant."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales...................................................... $3,236 $21,008 $40,968
Gross profit................................................... 1,288 11,761 19,618
Income from operations......................................... 371 7,418 14,382
Net income applicable to common stockholders(1)................ 233 4,714 10,582
Net income applicable to common stockholders -- per common
share........................................................ $ 0.02 $ 0.37
Pro forma net income applicable to common stockholders(2)...... 8,217
Pro forma net income applicable to common stockholders -- per
common share(2).............................................. $ 0.65
Weighted average shares outstanding(3)......................... 12,731 12,731 12,731
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(4) ADJUSTED(4)(5)
-------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Working capital............................................. $ 9,340 $ 8,813 $ 20,245
Total assets................................................ 13,676 13,149 24,581
Revolving credit facility................................... 8,000 29,818 --
Mandatorily redeemable preferred stock...................... 22,094 -- --
Total stockholders' equity (deficit)........................ (19,819) (20,070) 21,180
</TABLE>
- ---------------
(1) From January 1, 1996 through July 25, 1996, the Company elected to be taxed
as a Subchapter S corporation for federal (and certain state) income tax
purposes and, accordingly, the Company was not subject to corporate income
taxes for that period.
(2) Gives effect to: (i) additional interest expense (net of taxes), as if the
additional $21.8 million borrowed under the Company's existing senior credit
facility on January 24, 1997 to fund in part the redemption of the Company's
Series A Preferred Stock and Series B Preferred Stock (the "Redeemable
Preferred Stock") had been incurred on July 25, 1996, the date of the
Recapitalization; (ii) the elimination of the accretion of $965,000 of
dividends and redemption value on the Redeemable Preferred Stock to reflect
such redemption; and (iii) additional income tax expense of $2.85 million,
as if the Company had been subject to federal and state income taxes during
the period January 1, 1996 through July 25, 1996.
(3) See Notes 1 and 13 to Financial Statements for an explanation of the
determination of the number of shares used in computing per share amounts.
(4) Gives effect to the following transactions as if they had occurred on
December 31, 1996: (i) the redemption of the Redeemable Preferred Stock;
(ii) the related incurrence of an additional $21.8 million of borrowings
under the Company's existing senior credit facility; and (iii) the
recognition of a non-recurring non-cash charge of $251,000 associated with
the unamortized portion of the excess of the face amount of the Series A
Preferred Stock over the fair market value of the Series A Preferred Stock
as determined by a third-party appraisal.
(5) As adjusted to give effect to the sale by the Company of the 3,750,000
shares of Common Stock offered by it hereby at the assumed initial public
offering price of $12.00 per share, after deducting the estimated
underwriting discount and expenses, and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of the Common Stock offered by this Prospectus. 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 could cause or contribute to such
differences include, but are not limited to, those discussed below and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON SINGLE, RECENTLY INTRODUCED PRODUCT LINE
Substantially all of the Company's revenues are derived, and are expected
to continue to be derived, from sales of the Company's focused-function ATMs, a
product line which was first introduced by the Company in 1994. There can be no
assurance that the Company's ATM products will achieve widespread and lasting
market acceptance. Because of this product concentration, a decline in demand
for these products, or an increase in competition, could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company's future financial performance will depend in part on the successful
development, introduction and customer acceptance of new ATM products and other
products. There can be no assurance that the Company will be successful in
designing, manufacturing, marketing and selling any new products. Accordingly,
the Company's future success will continue to depend in large part on the sale
of its focused-function ATMs. See "Business -- Products."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's recent growth in revenues and profits should not be
considered indicative of future results. There can be no assurance that any of
the Company's business strategies will be successful or that the Company will be
able to sustain growth on a quarterly or annual basis. The Company's quarterly
and annual operating results may vary significantly from period to period
depending on factors such as the volume and timing of orders received during the
period, the timing of new product introductions by the Company and its
competitors, the impact of price competition on the Company's selling prices,
the availability and pricing of components for the Company's products, changes
in product or distribution channel mix, changes in operating expenses, changes
in the Company's strategy, personnel changes and general economic factors. Many
of these factors are beyond the Company's control. The volume and timing of
orders received during a particular period is difficult to forecast. Customers
generally order the Company's products on an as-needed basis, and accordingly
the Company has historically operated with a relatively small backlog. In
addition, a significant portion of the Company's sales are derived from a
limited number of distributors, the loss of one or more of which could have a
materially adverse effect on the Company's business, results of operations and
financial condition. Notwithstanding the difficulty in forecasting future sales
and the relatively small level of backlog at any given time, the Company
generally must plan production, order components and undertake its development,
sales and marketing activities and other commitments months in advance.
Accordingly, any shortfall in sales in a given period may adversely impact the
Company's results of operations due to an inability to adjust expenses or
inventory during the period to match the level of sales for the period. Due to
the foregoing factors, it is likely that in some future period the Company's
sales or operating results will be below the expectations of securities analysts
and investors. In such event, the trading price of the Company's Common Stock in
the public markets could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EFFECTS OF POTENTIAL LIMITATIONS ON SURCHARGING BY ATM OWNERS
The growth in the market and in the Company's sales of ATMs has been due,
in part, to the ability of ATM owners to charge consumers a surcharge fee for
the use of the ATM, which has resulted from the recent elimination by the Cirrus
and Plus national ATM networks of their policies against the imposition of
surcharges on ATM transactions. ATM owners are subject to federal and state
regulations governing consumers' rights with respect to ATM transactions and, in
response to the recent growth in the practice of surcharging, legislation has
been introduced in several states and in Congress that would limit or eliminate
6
<PAGE> 8
these fees. There can be no assurance that such legislation will not be enacted
in the future or that existing regulations or consumer protection laws will not
be expanded to apply to fees charged in connection with ATM transactions. In
addition, there can be no assurance that one or more of the national ATM
networks will not reinstate their former policies prohibiting surcharging. The
adoption of any such regulations, legislation or industry policies limiting or
prohibiting ATM surcharges could decrease demand for the Company's products,
which would have a material adverse effect on the Company's business, results of
operations and financial condition.
DEPENDENCE ON KEY SUPPLIERS
The Company outsources the manufacture of most of its components as part of
its low-cost manufacturing strategy. Component level parts, both mechanical and
electronic, and some complete subsystems are purchased through outside vendors.
Certain parts are custom-manufactured by these outside vendors according to the
Company's specifications. Several important components used in the Company's
focused-function ATM, including the single cassette and multi-cassette cash
dispensing subassemblies, the display screens and key pads, the business hour
service cabinets and the safe-type cabinets, are obtained from single suppliers.
The Company's principal suppliers are DeLaRue Systems, Ltd., Turnbull Metal
Products, Inc. and Sterling Electronics Corp. The Company has identified
alternative suppliers for its single cassette cash dispenser, display screen and
both styles of cabinets, and is currently in the process of identifying
potential alternative suppliers of multi-cassette cash dispensing subassemblies
and key pads. Certain of the alternative suppliers identified by the Company
currently supply other components to the Company. In the event the Company is
required to obtain components from the alternative suppliers it has identified,
there can be no assurance that the unit costs currently paid by the Company for
these components would not increase. Moreover, the inability of the Company to
obtain sufficient quantities of, or the failure of suppliers to deliver, the
cash dispensing subassemblies, key pads, display screens or cabinets used in its
focused-function ATMs would require the Company to change the design of the
products in order to use an alternative component, which could increase the cost
or delay the shipment of the Company's focused-function ATMs, which in turn
would have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that alternative
sources of supply would be available on reasonably acceptable terms, on a timely
basis, or at all. The Company does not maintain any written agreements with any
of its component suppliers and the Company purchases its components on a
purchase order basis. Accordingly, the Company has no guaranteed supply
arrangements with any of its suppliers and there can be no assurance that these
suppliers will continue to meet the Company's requirements. Because the purchase
of key components involves long lead times, in the event of unanticipated
increases in demand for the Company's products, the Company could be unable to
manufacture certain products in a quantity sufficient to meet demand. Any
inability to obtain adequate deliveries of any of the components or any other
circumstance that would require the Company to seek alternative sources of
supply could affect the Company's ability to ship its products on a timely basis
or result in increased component costs, each of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. In order to attempt to mitigate the risk of component shortages, the
Company maintains a limited inventory of components for which the Company is
dependent upon sole or limited source suppliers. There can be no assurance,
however, that these inventories will be sufficient, and any deficiency could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Suppliers."
COMPETITION
The markets for the Company's products are characterized by intense
competition. The Company has a number of direct competitors for ATMs, the most
significant of which are Diebold Incorporated (including Interbold, a joint
venture between Diebold Incorporated and IBM), NCR Corporation, Fujitsu
Corporation and the Tidel Division of American Medical Technologies, Inc. Many
of the Company's current competitors have longer operating histories, are
substantially larger, and have substantially greater financial, technical,
manufacturing, marketing and other resources than the Company. As a result of
their greater resources, many of such competitors are better positioned than the
Company to withstand significant price competition or downturns in the economy.
A number of these competitors also have substantially greater name recognition
and a significantly larger installed base of products than the Company, which
could provide leverage to such companies in their competition with the Company.
Many competitors also offer products with more
7
<PAGE> 9
functionality and features than those offered by the Company. The Company
expects competition to increase and anticipates that new competitors may enter
the ATM market, particularly the focused-function ATM segment. Such increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, results of operations and financial condition. See
"Business -- Competition."
DEPENDENCE UPON PRINCIPAL DISTRIBUTORS
A significant portion of the Company's net sales has been derived from a
limited number of distributors. For the year ended December 31, 1996, two of the
Company's distributors, Access Cash International and Card Capture Services,
accounted for approximately 22% and 19%, respectively, of the Company's net
sales. In addition, the Company's five largest distributors, in the aggregate,
accounted for approximately 62% of the Company's net sales in 1996. The Company
expects that it will continue to be dependent upon a limited number of
distributors for a significant portion of its net sales in future periods. None
of the Company's distributors are contractually obligated to purchase additional
products from the Company or is prohibited from distributing competitive
products. As a result of this distributor concentration, the Company's business,
results of operations and financial condition could be materially adversely
affected by the failure of anticipated orders from key distributors to
materialize or by deferrals or cancellations of orders by these distributors. In
addition, there can be no assurance that sales from distributors that have
accounted for significant sales in past periods, individually or as a group,
will continue or, if continued, will reach or exceed historical levels in any
future period. See "Business -- Distribution, Sales and Marketing."
RELIANCE ON THIRD-PARTY DISTRIBUTION CHANNELS FOR PRODUCT SALES AND SERVICE
The Company markets and sells its products primarily through third-party
distributors, none of which are under the direct control of the Company. The
Company has a limited domestic sales and marketing organization, and is
therefore dependent on the sales efforts of its distributors. The Company also
relies primarily on distributors to provide service and support to end users of
the ATMs manufactured by the Company. A reduction in the sales efforts by the
Company's current distributors or a termination of their relationships with the
Company could have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to retain its current distributors or expand its
distribution channels by entering into arrangements with new distributors. There
also can be no assurance that the Company's current distributors will continue
to provide an adequate level of service and support for the Company's products,
or that the Company could find alternative providers of service and support on a
cost-effective basis. See "Business -- Distribution, Sales and Marketing" and
"Business -- Product Service and Support."
MANAGEMENT OF EXPANDING OPERATIONS
Future growth in the Company's business could place a significant strain on
the Company's limited personnel, management, financial controls and other
resources. The Company's ability to manage any future expansion effectively will
require it to attract, train, motivate and manage new employees successfully, to
integrate new management and employees into its overall operations and to
continue to improve its operational, financial and management systems and
controls and facilities. The Company's executive officers and key employees
(other than Mr. Bandrowski) have no experience in the management or operation of
a public company. The Company's failure to manage any expansion effectively,
including any failure to integrate new management controls, systems and
procedures, could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company is currently in the
process of acquiring a new management information system to handle the Company's
financial, accounting and production planning and control functions. No
assurance can be given that the implementation of this system will not result in
disruptions to the Company's business, such as the loss of data while converting
systems, errors in planning production requirements, delays in the Company's
ability to timely effect periodic closings of its accounting records and other
similar problems. Any such disruptions or any failure to successfully implement
this new management information system in a timely manner could have a material
adverse effect on the Company's business, results of operations and financial
condition.
8
<PAGE> 10
TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The Company's future growth will depend, in part, upon its ability to
continue to manufacture, market and sell ATMs with cost-effective
characteristics, develop and penetrate new market segments and enter and develop
new markets. To achieve its objectives for continued growth, the Company must
design and introduce new products with enhanced features, develop close
relationships with the leading market participants and establish new
distribution channels in each new market or market segment. The Company is
currently beta testing a new focused-function ATM model, targeted at banks and
credit unions, that conforms with the industry standard communications protocol
used by most banks and credit unions to communicate with their ATMs. There can
be no assurance that the Company will be successful in the development of this
product, or that, if developed, it will gain acceptance in the bank and credit
union segment of the ATM market. Some of the transactions currently initiated
through ATMs could be accomplished in the future using emerging payment
technologies, such as point-of-sale and smart-cards, which the Company does not
currently support. There can be no assurance that the Company can develop
products supporting these technologies or that, if developed, such products will
gain market acceptance. The failure of the Company to successfully offer
products supporting these emerging technologies could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Product Development."
RELIANCE ON CENTRALIZED MANUFACTURING; EXPOSURE TO NATURAL DISASTERS
All of the Company's manufacturing occurs at its headquarters facility in
Long Beach, Mississippi. The Company's manufacturing operations utilize certain
equipment which, if damaged or otherwise rendered inoperable, would result in
the disruption of the Company's manufacturing operations. Although the Company
maintains business interruption insurance and flood insurance, any extended
interruption of the operations at the Company's headquarters facility would have
a material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that such insurance will continue
to be available on reasonable terms or at all. The Company's headquarters are
also exposed to risks associated with the occurrence of natural disasters, such
as hurricanes, floods and heavy rains. There can be no assurance that the
Company's facilities will not be damaged by the occurrence of such a natural
disaster. If such a natural disaster occurs, the Company's business, results of
operations and financial condition could be materially adversely affected. See
"Business -- Manufacturing".
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
As part of its growth strategy, the Company is seeking opportunities to
expand its products into international markets and intends to focus its efforts
initially on Canada and Latin America. In marketing its products
internationally, however, the Company will face new competitors, some of whom
may have established strong presence in the local market. In addition, the
ability of the Company to market its products in foreign countries will be
dependent on the Company's ability to establish distribution relationships with
distributors in those countries, to adapt its products to operate in foreign
languages and to provide the functionality desired by end users in those
countries. To date, the Company has limited experience in marketing and
distributing its products internationally and has not derived any sales of
focused-function ATMs from international operations. There can be no assurance
that the Company will be successful in marketing or distributing its products
internationally. There also can be no assurance that the Company will be
successful in adapting its products to different languages and functionality
needs. In order for the Company to expand into certain foreign markets,
including member countries of the European Union, the Company will be required
to obtain certification under ISO 9000, the recognized international quality
standard. The Company does not currently have ISO 9000 certification and the
Company will need to expend time and financial resources in order to obtain such
certification. The Company estimates that obtaining the ISO 9000 certification
could take approximately 18 to 24 months. There can be no assurance that the
Company will be able to obtain such certification. In addition to the
uncertainty as to the Company's ability to establish an international presence,
there are certain difficulties and risks inherent in doing business on an
international level, such as compliance with regulatory requirements and changes
in these requirements, export restrictions, tariffs and other trade barriers,
limited protection of intellectual property rights, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and potentially adverse tax consequences. There can be no
9
<PAGE> 11
assurance that one or more of these factors will not have a material adverse
effect on any international operations established by the Company, and
consequently, on the Company's business, results of operations and financial
condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RELIANCE ON THIRD PARTY LICENSES
The Company does not own any issued patent, and relies primarily on
trademark, copyright and trade secret law to protect its intellectual property
in the United States and abroad. These laws afford only limited protection and
there can be no assurances that the steps taken by the Company will prevent
misappropriation of its technology. There can be no assurance that any trademark
or copyright owned by the Company, or any patent, trademark or copyright
obtained by the Company in the future, will not be invalidated, circumvented or
challenged or that the rights granted thereunder will provide competitive
advantages to the Company. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. Thus, effective intellectual property protection may be
unavailable or limited in certain foreign countries. There can be no assurance
that competitors will not independently develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around any technology of the Company. Moreover, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of management time and resources and
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Intellectual Property."
DEPENDENCE ON KEY PERSONNEL AND EMPLOYEES
The Company is highly dependent on the continued service of, and on its
ability to attract and retain, qualified technical, marketing, sales and
managerial personnel, including the Company's executive officers and key
employees identified in this Prospectus. The competition for such personnel is
intense, and the loss of any such persons, as well as the failure to recruit
additional key technical and sales personnel in a timely manner, could have a
material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development of its business. None of the Company's employees are parties to a
collective bargaining agreement, and the Company is not aware of any union
organizational activities with respect to its employees. There can be no
assurance, however, that current conditions will continue with respect to the
prevailing wage scales and labor conditions in the area from which the Company
draws its labor pool or that efforts will not be made to unionize the Company's
work force. Because of the Company's emphasis on cost-effectiveness, an increase
in labor costs could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Employees."
WARRANTY CLAIMS; PRODUCT LIABILITY
The Company provides a limited warranty on each of its products covering
manufacturing defects and premature failure. While the Company believes that its
reserves for warranty claims are adequate, there can be no assurance that the
Company will not experience increased warranty claims. An increase in warranty
claims could have a material adverse effect on the Company's business, results
of operations and financial condition. For example, in the first quarter of
1996, product and warranty claims adversely affected the Company's gross
margins. The Company's products may contain undetected defects which could
result in the improper dispensation of cash or other items. Although the Company
has experienced only a limited number of claims of this nature to date, there
can be no assurance that such defects will not occur in the future and that
losses will not be suffered as a consequence. In addition, there can be no
assurance that the Company will not be held liable for any losses incurred by
end users as a result of criminal activity which the Company's products were
intended, but unable, to prevent, or for any damages suffered by end users as a
result of malfunctioning or damaged components. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business --
Product Service and Support."
NEED FOR ADDITIONAL CAPITAL
The Company believes that in order to remain competitive it may require
additional financial resources over the next several years for working capital,
expansion of facilities and acquisition of complementary
10
<PAGE> 12
businesses, products and technologies. There can be no assurance that the
Company will be able to obtain additional financing as needed on acceptable
terms or at all. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources."
CONTROL BY EXISTING STOCKHOLDERS
Following this offering, Summit Ventures IV, L.P. ("Summit Ventures IV"),
Summit Investors III, L.P. ("Summit Investors") and Summit Subordinated Debt
Fund, L.P. ("Summit Debt Fund" and, together with Summit Ventures IV and Summit
Investors, the "Summit Entities") and the Company's executive officers, in the
aggregate, will beneficially own approximately 73.2% of the Company's
outstanding Common Stock (69.4% if the Underwriters' 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 to control matters
requiring approval by the stockholders of the Company, including the election of
directors, the approval of amendments to the Company's Articles of
Incorporation, and the approval of a merger, consolidation or sale of
substantially all of the Company's assets. The voting power of these
stockholders could have the effect of delaying or preventing a change in control
of the Company. See "Principal and Selling Stockholders."
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
The existing stockholders of the Company will benefit from the creation of
a public market for the Common Stock held by them after the closing of the
offering. In addition, the Selling Stockholders will receive $5.0 million from
the sale of 450,000 shares of Common Stock offered by them hereby at an assumed
initial public offering price of $12.00 per share (approximately $12.1 million
if the Underwriters' over-allotment option is exercised in full). In connection
with the Recapitalization, (i) the Summit Entities acquired shares of Series A
Preferred Stock for an aggregate of $11.4 million in cash, shares of Common
Stock for an aggregate of $100,000 in cash and subordinated debentures for an
aggregate of $5.5 million in cash, and (ii) the Company repurchased an aggregate
of approximately 55% of the then outstanding shares of Common Stock from the
Original Stockholders for an aggregate consideration of $16.7 million in cash
and $6.0 million in subordinated promissory notes. Immediately prior to the
Recapitalization, the Company made a dividend distribution to the Original
Stockholders in the form of shares of Series B Preferred Stock with an aggregate
redemption value of $10.0 million. On September 26, 1996, the subordinated
debentures and subordinated promissory notes issued to the Original Stockholders
and the Summit Entities in the aggregate amount of $11.7 million (including
accrued interest of $206,000) were repaid in full with the proceeds of borrowing
under a credit facility provided by The First National Bank of Boston. In
January 1997, this facility was amended to increase the credit line from $15.0
million to $30.0 million, with the proceeds used to redeem all of the
outstanding Series A Preferred Stock for an aggregate redemption price of $12.0
million (including accrued dividends of $580,000), and all of the outstanding
Series B Preferred Stock for an aggregate redemption price of $10.5 million
(including accrued dividends of $508,000). A portion of the net proceeds of the
shares offered by the Company in this offering will be used to repay amounts
outstanding under the Company's credit facility. Following the closing of this
offering, the Summit Entities will hold shares of Common Stock having an
aggregate value equal to $77.0 million and the Original Stockholders will hold
shares of Common Stock having an aggregate value equal to $66.5 million, based
on an assumed public offering price of $12.00 per share. See "Use of Proceeds,"
"Certain Transactions" and "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of shares in the public market or the prospect
of such sales could adversely affect the market price of the Company's Common
Stock. Upon completion of this offering, the Company will have outstanding
16,158,288 shares of Common Stock. With the exception of the 4,200,000 shares
offered hereby, all shares of Common Stock held by current stockholders are
subject to lock-up agreements under which the holders of such shares have agreed
not to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this Prospectus without the prior written consent of
Montgomery Securities. Of these shares, 132,292 would otherwise be eligible for
sale in the public market immediately after this offering
11
<PAGE> 13
pursuant to Rule 144(k) under the Securities Act, and 5,411,997 would otherwise
be eligible for resale commencing 90 days after the effective date of this
offering pursuant to Rule 144 under the Securities Act. The remaining 6,413,999
shares held by existing stockholders would otherwise become eligible for sale
under Rule 144 commencing on July 26, 1997. Montgomery Securities may, in its
sole discretion, and at any time without notice, release all or any portion of
the securities subject to these lock-up agreements. In addition, the Company
intends to file a registration statement under the Securities Act, upon the
effectiveness of this offering or shortly thereafter, covering the sale of
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan and 1997 Employee Stock Purchase Plan. As of February 28, 1997,
there were options outstanding to purchase a total of 433,655 shares of the
Company's Common Stock, of which 362,706 shares are subject to 180-day lock-up
agreements. An additional 1,358,052 shares are reserved for future option
grants. The Summit Entities and the executive officers, who hold an aggregate of
11,825,996 shares of Common Stock, will be entitled to registration rights with
respect to their shares of Common Stock after the offering. In addition, an
affiliate of the Company's senior lender is entitled to registration rights with
respect to the shares subject to a warrant to purchase 32,109 shares of Common
Stock at $11.00 per share which is currently exercisable. See "Shares Eligible
for Future Sale" and "Underwriting."
NO PRIOR TRADING MARKET FOR COMMON STOCK; 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 be sustained after the offering. The initial public offering price will be
determined through negotiations between the Company and the Representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after the offering. The market price of the
shares of Common Stock may be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, change in estimates or recommendations by securities analysts,
announcements of technical innovations, new products or new contracts by the
Company or its competitors, general market conditions and other factors, certain
of which could be unrelated to, or outside the control of, the Company. The
stock market has from time to time experienced significant price and volume
fluctuations that have often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of Mississippi law may make a change in control of the
Company more difficult to effect, even if a change in control were in the
interest of stockholders. Further, certain provisions of the Company's Articles
of Incorporation and By-laws, including provisions that provide that members of
the Board of Directors may be removed by stockholders only for cause, may have
the effect of delaying or preventing a change in control of the Company, which
could adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock." In addition, effective upon the closing of the
offering, the Company's Board of Directors will have the authority, without
further stockholder approval, to issue up to 5,000,000 shares of Preferred Stock
in one or more series and to determine the price, rights, preferences and
privileges of those shares. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of shares of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock -- Preferred Stock."
DILUTION
Purchasers in this offering will suffer an immediate and substantial
dilution, in the amount of $10.69 per share, in the pro forma net tangible book
value of the Common Stock from the initial public offering price. Additional
dilution is likely to occur upon exercise of outstanding stock options and
warrants. See "Dilution."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,750,000 shares of
Common Stock offered by it hereby are estimated to be $41,250,000 million,
assuming an initial public offering price of $12.00 per share and after
deducting the estimated underwriting discount and offering expenses. The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Stockholders.
The Company intends to use a portion of the net proceeds of this offering
to repay indebtedness under its existing bank credit facility with The First
National Bank of Boston (the "Bank Credit Facility"), which had an outstanding
balance of $29.8 million at January 27, 1997. The Bank Credit Facility bears
interest at a floating rate, which was at an effective interest rate of 7.25% as
of December 31, 1996, and matures on September 26, 2001. The Bank Credit
Facility was established in September 1996, and amended in January 1997 to
increase the maximum borrowing amount thereunder from $15.0 million to $30.0
million. The proceeds of the Bank Credit Facility were used as follows: (i) an
aggregate of $11.7 million was used in September 1996 to repay subordinated
notes issued to certain of the Summit Entities and the Original Stockholders in
the Recapitalization (including accrued interest of $206,000); (ii) an aggregate
of approximately $12.0 million was used in January 1997 to redeem all of the
outstanding shares of Series A Preferred Stock held by certain of the Summit
Entities (including accrued dividends of $580,000); and (iii) an aggregate of
$10.5 million was used in January 1997 to redeem all of the outstanding shares
of Series B Preferred Stock held by the Original Stockholders (including accrued
dividends of $508,000).
The remaining net proceeds will be used for working capital and general
corporate purposes, which may include expansion of the Company's facilities and
the acquisition of complementary businesses, products and technologies. The
Company has no present agreement or commitment with respect to any acquisition,
nor are any negotiations regarding any acquisition currently ongoing. Pending
such uses, the Company intends to invest the net proceeds of this offering in
investment-grade, short-term, interest-bearing securities.
DIVIDEND POLICY
Subsequent to this offering, the Company anticipates that it will retain
all available funds for use in the operation and expansion of its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. From January 1, 1996 until July 25, 1996, the Company was a
Subchapter S corporation for federal and state income tax purposes. As a result,
during such period it was the Company's policy to distribute substantially all
of its earnings to its stockholders. Cash dividends of $3.5 million were
declared and paid during 1996. In connection with the redemption of the
Redeemable Preferred Stock in January 1997, the Company paid an aggregate of
$1.1 million of accrued dividends thereon. Under the terms of the Bank Credit
Facility, no dividends may be paid on the Company's Common Stock.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual, pro forma and as-adjusted basis. This table
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt -- revolving line of credit......... $ 8,000 $ 29,818 $--
Mandatorily redeemable Series A Preferred Stock,
$.01 par value; 114,000 shares authorized, issued
and outstanding with a redemption value of $100
per share, plus accrued dividends, actual; none
authorized, issued or outstanding, pro forma and
pro forma as adjusted............................ 11,652 -- --
Mandatorily redeemable Series B Preferred Stock,
$.01 par value; 100,000 shares authorized, issued
and outstanding with a redemption value of $100
per share, plus accrued dividends, actual; none
authorized, issued or outstanding, pro forma and
pro forma as adjusted............................ 10,442 -- --
Stockholders' equity (deficit):
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued or outstanding,
actual, pro forma or pro forma as
adjusted(3)................................... -- -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized; 12,408,288 issued and outstanding,
actual and pro forma; and 16,158,288 shares
issued and outstanding, pro forma as
adjusted(3)(4)................................ 124 124 162
Additional paid in capital....................... 303 303 41,515
Distributions in excess of basis................. (23,177) (23,177) (23,177)
Retained earnings................................ 2,931 2,680 2,680
-------- -------- --------
Total stockholders' equity (deficit)........ (19,819) (20,070) 21,180
-------- -------- --------
Total capitalization..................... $ 10,275 $ 9,748 $ 21,180
======== ======== ========
</TABLE>
- ---------------
(1) Gives effect to the redemption of all outstanding shares of Redeemable
Preferred Stock as if such transaction had occurred on December 31, 1996 and
the related incurrence of an additional $21.8 million of borrowings under
the Bank Credit Facility, and the recognition of a non-recurring non-cash
charge of $251,000 associated with the unamortized portion of the excess of
the face amount of the Series A Preferred Stock over the fair market value
of the Series A Preferred Stock as determined by a third-party appraisal.
(2) Adjusted to give effect to the sale of 3,750,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share, after deducting the estimated underwriting discount and
offering expenses, and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds."
(3) On January 27, 1997, the Company's Articles of Incorporation were amended to
increase the number of authorized shares of Common Stock from 10,000,000 to
40,000,000 and to set the number of authorized shares of undesignated
Preferred Stock at 5,000,000. See "Description of Capital Stock."
(4) Excludes: (i) 433,655 shares of Common Stock issuable upon exercise of stock
options outstanding as of February 28, 1997 with a weighted average exercise
price of $3.14 per share, of which options to purchase 263,706 shares of
Common Stock were then exercisable, and (ii) 32,109 shares of Common Stock
which are reserved for issuance under a warrant issued by the Company to an
affiliate of its senior lender. An additional 1,358,052 shares of Common
Stock have been reserved for issuance under the Company's stock plans. See
"Management -- Stock Plans" and "Description of Capital Stock -- Bank
Warrant."
14
<PAGE> 16
DILUTION
At December 31, 1996, the deficit in pro forma net tangible book value of
the Company was ($20,126,591), or ($1.62) per share. Pro forma net tangible book
value per share is equal to the Company's total tangible assets (before the
offering) less total liabilities divided by the total number of shares of Common
Stock outstanding on a pro forma basis, giving effect to the redemption of all
outstanding shares of Redeemable Preferred Stock as of December 31, 1996 and the
related incurrence of an additional $21.8 million of borrowings under the Bank
Credit Facility. After giving effect to the sale of the 3,750,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $12.00 per share and after deducting the estimated
underwriting discount and offering expenses, and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company at December 31, 1996 would have been $21,123,409, or $1.31 per share.
This represents an immediate increase in the pro forma net tangible book value
of $2.93 per share to existing stockholders and an immediate dilution of $10.69
per share to purchasers in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $12.00
Deficit in pro forma net tangible book value per share before the
offering...................................................... $(1.62)
Increase in pro forma net tangible book value per share
attributable to new investors................................. 2.93
------
Pro forma net tangible book value per share after the offering..... 1.31
------
Pro forma net tangible book value dilution per share to new
investors........................................................ $10.69
======
</TABLE>
The following table summarizes, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total cash consideration
paid to the Company and the average price per share paid by existing
stockholders and by new investors in this offering based on an assumed initial
public offering price of $12.00 per share but before deducting the estimated
underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 12,408,288 76.8% $ 110,138 0.2% $ 0.01
New investors(1)........... 3,750,000 23.2 45,000,000 99.8 $ 12.00
---------- ----- ---------- ------
Total............ 16,158,288 100.0% $45,110,138 100.0%
========== ===== ========== ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by the existing stockholders to be reduced to 11,958,288, or
74.0% of the total number of shares of Common Stock to be outstanding after
this offering, and will increase the number of shares to be purchased by new
stockholders to 4,200,000, or 26.0% of the total number shares of Common
Stock to be outstanding after the offering. Assuming full exercise of the
Underwriters' over-allotment option, the number of shares held by existing
stockholders would be reduced to 11,328,288 shares, or 70.1% of the total
number of shares of Common Stock to be outstanding after this offering, and
the number of shares held by new stockholders would be increased to
4,830,000 shares, or 29.9% of the total number of shares of Common Stock to
be outstanding after this offering. See "Principal and Selling
Stockholders."
The foregoing tables assume no exercise of the Underwriters' over-allotment
option or of options to purchase an aggregate of 433,655 shares of Common Stock
that were outstanding at January 27, 1997, with a weighted average exercise
price of $3.14 per share, or the warrant to purchase 32,109 shares outstanding
at February 28, 1997, at an exercise price of $11.00 per share. To the extent
that the Underwriters' over-allotment option, other options or the warrant are
exercised in the future, there will be further dilution to new investors. See
"Management -- Stock Plans."
15
<PAGE> 17
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected statement of operations data for the years
ended December 31, 1994, 1995 and 1996 and the selected balance sheet data at
December 31, 1995 and 1996, have been derived from the Company's financial
statements, which have been audited by Deloitte and Touche LLP and are included
elsewhere in this Prospectus. The selected balance sheet data at December 31,
1994 has been derived from the Company's financial statements, which have been
audited by Deloitte and Touche LLP but are not included in this Prospectus. The
selected financial data for the years ended December 31, 1992 and 1993 have been
derived from the Company's unaudited financial statements, which, in the opinion
of the Company's management, have been prepared on the same basis as the audited
financial statements. Historical results are not necessarily indicative of
results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ 955 $2,630 $3,236 $21,008 $40,968
Cost of sales....................................... 737 1,619 1,948 9,247 21,350
---- ------ ------ ------- -------
Gross profit...................................... 218 1,011 1,288 11,761 19,618
Operating expenses.................................. 315 671 917 4,343 5,236
---- ------ ------ ------- -------
Income (loss) from operations..................... (97) 340 371 7,418 14,382
Interest income (expense), net...................... 6 (1) 7 111 (185)
---- ------ ------ ------- -------
Income before income taxes........................ (91) 339 378 7,529 14,197
Income taxes (credit)............................... (30) 125 145 2,815 2,650
---- ------ ------ ------- -------
Net income (loss)................................. (61) 214 233 4,714 11,547
Accretion of preferred stock dividends
and redemption value.............................. -- -- -- -- 965
---- ------ ------ ------- -------
Net income (loss) applicable to common
stockholders................................... $ (61) $ 214 $ 233 $ 4,714 $10,582
==== ====== ====== ======= =======
Net income applicable to common
stockholders -- per common share............... $(0.00) $ 0.02 $ 0.02 $ 0.37
==== ====== ====== =======
Pro Forma Information:
Historical net income applicable to common
stockholders................................... $10,582
Adjustment to reflect income tax expense(1)....... (2,850)
Adjustment for assumed replacement of preferred
stock with debt(2)............................. 485
-------
Pro forma net income applicable to common
stockholders(1)(2)............................. $ 8,217
=======
Pro forma net income applicable to common
stockholders -- per common share............... $ 0.65
=======
Weighted average shares outstanding(3).............. 12,731 12,731 12,731 12,731 12,731
==== ====== ====== ======= =======
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996
------------------------------------
PRO FORMA
PRO AS
1992 1993 1994 1995 ACTUAL FORMA(4) ADJUSTED(4)(5)
---- ---- ------ ------ -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $208 $446 $ 661 $5,294 $ 9,340 $ 8,813 $ 20,245
Total assets................... 386 886 1,324 9,273 13,676 13,149 24,581
Long-term revolving credit
facility.................... -- -- -- -- 8,000 29,818 --
Mandatorily redeemable
preferred stock............. -- -- -- -- 22,094 -- --
Total stockholders' equity
(deficit)................... 283 497 730 5,444 (19,819) (20,070) 21,180
</TABLE>
- ---------------
(1) From January 1, 1996 through July 25, 1996, the Company elected to be taxed
as a Subchapter S corporation for federal (and certain state) income tax
purposes and, accordingly, the Company was not subject to corporate income
taxes for that period. Gives effect to additional income tax expense of
$2.85 million, as if the Company had been subject to federal and state
income taxes during the period January 1, 1996 through July 25, 1996.
(2) Gives effect to (i) additional interest expense (net of taxes), as if the
additional $21.8 million borrowed under the Bank Credit Facility on January
24, 1997 to fund in part the redemption of the Redeemable Preferred Stock
had been incurred on July 25, 1996, the date of the Recapitalization, and
(ii) the elimination of the accretion of $965,000 of dividends and
redemption value on the Redeemable Preferred Stock.
(3) See Notes 1 and 13 to Financial Statements for an explanation of the
determination of the number of shares used in computing per share amounts.
(4) Gives effect to the following transactions as if they had occurred on
December 31, 1996: (i) the redemption of the Redeemable Preferred Stock;
(ii) the related incurrence of an additional $21.8 million of borrowings
under the Bank Credit Facility; and (iii) the recognition of a
non-recurring non-cash charge of $251,000 associated with the unamortized
portion of the excess of the face amount of the Series A Preferred Stock
over the fair market value of the Series A Preferred Stock as determined by
a third-party appraisal.
(5) As adjusted to give effect to the sale by the Company of the 3,750,000
shares of Common Stock offered by it hereby at the assumed initial public
offering price of $12.00 per share, after deducting the estimated
underwriting discount and expenses, and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such a difference include,
but are not limited to, those discussed in "Risk Factors."
OVERVIEW
Triton is a leading manufacturer and marketer of ATMs in the United States.
The Company designs, manufactures, markets and sells primarily focused-function
ATMs (also known as cash dispensers), which are intended to operate profitably
at significantly lower transaction volumes than conventional ATMs. The Company
also designs, manufactures, markets and sells other financial hardware products
such as scrip terminals (countertop ATMs that provide a voucher redeemable for
cash), ATM demonstration machines and card encoding devices. The Company
continues to position itself to capitalize on emerging opportunities in the
transaction and payment processing industry.
The Company was founded in 1979 by Ernest L. Burdette, Robert E. Sandoz and
Frank J. Wilem, Jr. to provide programming services on a contract basis. In
1985, the Company introduced its first product line to the banking industry,
which consisted of a portable ATM demonstration unit, the ATMjr Demonstrator. In
1992, the Company began producing miniATM Scrip Terminals suitable for use in
retail locations where customers obtain a voucher, or scrip, from the machine,
which may be redeemed for cash at the point of sale. In the fourth quarter of
1994, the Company introduced its focused-function ATM product line, which has
become the primary source of the Company's revenues and revenue growth. Since
introducing its first focused-function ATM, the Company has added a number of
new models with enhanced features, including a multi-cassette ATM, a rear-access
ATM and a heavy duty safe style ATM.
The Company's net sales increased to $41.0 million in 1996 from $21.0
million in 1995 and $3.2 million in 1994, principally due to strong sales of
focused-function ATMs, which accounted for 96% of net sales in 1996, compared to
89% and 19%, respectively, in 1995 and 1994. The Company recognizes that sales
growth and profit margins may come under pressure as competition in the
focused-function ATM market segment increases. See "Risk Factors -- Dependence
on Single, Recently Introduced Product Line" and
" -- Competition."
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, and manufacturing and component costs. The
Company's gross margins were lower in 1996 compared to 1995 and, in light of
competitive pricing pressures, the Company anticipates that gross margins may
decline in the future. The Company seeks to mitigate the effects of declining
prices by focusing on reducing costs, primarily manufacturing and component
costs. See "Risk Factors -- Potential Fluctuations in Operating Results" and
"-- Competition."
The Company recognizes its revenues when products are shipped to customers.
The Company's cost of sales consists primarily of costs associated with
components, outsourced manufacture of certain subassemblies, and in-house labor
associated with assembly, testing, shipping and quality assurance. The Company's
operating expenses include personnel and other costs relating to engineering
support, sales, marketing, research and development, finance, human resources
and general administration functions.
The Company's operations emphasize cost-effectiveness principally by
outsourcing the manufacture of many components used in its products, selling its
products through a network of independent distributors, and operating its
manufacturing facility in a geographic area where operating and labor costs are
typically lower than many other regions of the United States.
On July 25, 1996, the Company completed the Recapitalization, pursuant to
which the Company repurchased an aggregate of approximately 55% of its then
outstanding shares of Common Stock from the Original Stockholders for total
consideration of $16.7 million in cash and $6.0 million in subordinated
18
<PAGE> 20
promissory notes. Immediately prior to the Recapitalization, the Company
distributed to the Original Stockholders, in the form of a dividend, shares of
Series B Preferred Stock with an aggregate redemption value of $10.0 million. In
order to finance the Recapitalization, the Company sold to the Summit Entities
(i) 114,000 shares of Series A Preferred Stock for an aggregate of $11.4
million, and (ii) $5.5 million in principal amount of subordinated debentures.
After the foregoing transactions, the Company issued and sold an aggregate of
6,863,999 shares of Common Stock to the Summit Entities for an aggregate of
$100,000. The entire $11.5 million outstanding under the subordinated debentures
and subordinated promissory notes issued to the Summit Entities and the Original
Stockholders (plus accrued interest of $206,000) was repaid on September 26,
1996 from borrowings under the Bank Credit Facility. All outstanding shares of
Series A Preferred Stock and Series B Preferred Stock were redeemed on January
24, 1997, for an aggregate of $21.4 million plus accrued dividends of $1.1
million with additional borrowings under the Bank Credit Facility of $21.8
million and available cash of $670,000. The Company intends to apply a portion
of the net proceeds from this offering to pay in full all outstanding
indebtedness under the Bank Credit Facility. See "Use of Proceeds" and "Certain
Transactions."
In connection with the redemption of the Series A Preferred Stock in
January 1997, the Company will be required to recognize a non-recurring non-cash
charge of approximately $251,000 during the first quarter of 1997, attributable
to the unamortized portion of the excess of the face amount of the Series A
Preferred Stock over the fair market value of the Series A Preferred Stock, as
determined by a third party appraisal.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by each line item in the Company's statements of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0%
Cost of sales..................................................... 60.2 44.0 52.1
----- ----- -----
Gross profit.................................................... 39.8 56.0 47.9
Operating expenses................................................ 28.3 20.7 12.8
----- ----- -----
Income from operations.......................................... 11.5 35.3 35.1
Interest income (expense), net.................................... 0.2 0.5 (0.4)
----- ----- -----
Income before income taxes...................................... 11.7 35.8 34.7
Income taxes...................................................... 4.5 13.4 6.5
----- ----- -----
Net income...................................................... 7.2 22.4 28.2
Accretion of preferred stock dividends and redemption value....... -- -- 2.4
----- ----- -----
Net income applicable to common stockholders.................... 7.2% 22.4% 25.8%
===== ===== =====
</TABLE>
COMPARISON OF 1996, 1995 AND 1994 RESULTS OF OPERATIONS
NET SALES
Net sales increased to $41.0 million in 1996 from $21.0 million in 1995 and
$3.2 million in 1994. The increase in net sales over the three year period was
primarily due to unit sales growth of focused-function ATMs resulting primarily
from the growth of the focused-function segment of the ATM market. In 1996, this
increase in unit sales was offset in part by a decline in the price of the
Company's ATMs due to competitive pricing pressure.
GROSS PROFIT
Gross profit increased to $19.6 million in 1996 from $11.8 million in 1995
and $1.3 million in 1994, reflecting the year-to-year growth in the Company's
sales of focused-function ATMs. Gross margin declined to 47.9% in 1996 from
56.0% in 1995, primarily due to lower product prices in response to competitive
pressures relating to the Company's focused-function ATMs, higher warranty
reserves as a result of the extension of the Company's parts warranty from three
to 12 months in the first quarter of 1996, and product warranty claims in the
first quarter of 1996 relating to the Company's ATM units shipped in 1995. The
decline
19
<PAGE> 21
in gross margin in 1996 was offset in part by reduced manufacturing costs
primarily due to modifications of product designs to reduce component costs.
Gross margin increased to 56.0% in 1995 from 39.8% in 1994, primarily due to a
shift in product mix from mostly ATM demonstrators and ATM scrip terminals in
1994 to mostly focused-function ATMs in 1995. The Company seeks to mitigate the
effects of declining prices by focusing on reducing costs, primarily
manufacturing and component costs.
INCOME FROM OPERATIONS
Operating expenses increased to $5.2 million in 1996 from $4.3 million in
1995 and $917,000 in 1994, primarily due to increases in support personnel and
expansion of overhead costs associated with increased sales. Operating expenses
in 1996 also increased due to an increase in the allowance for bad debts from
$100,000 in 1995 to $1,030,000 in 1996, primarily due to the potential increased
credit risk associated with the Company's expanding customer base. Operating
expenses in the fourth quarter of 1995 included one-time year-end bonuses
aggregating $1.9 million. Operating expenses as a percentage of net sales
decreased to 12.8% in 1996 from 20.7% in 1995 and 28.3% in 1994, primarily due
to economies of scale resulting from the Company's higher unit sales of
focused-function ATMs. The Company does not anticipate that operating expenses
as a percentage of net sales will decrease at the same rate in future periods.
INTEREST INCOME (EXPENSE)
The Company had net interest expense in 1996 of $185,000, compared with net
interest income of $110,000 and $7,000 in 1995 and 1994, respectively. The net
interest expense in 1996 was due to the indebtedness incurred pursuant to the
Recapitalization and borrowings under the Bank Credit Facility.
INCOME TAXES
The Company's effective tax rates were 18.7%, 37.4% and 38.4% for 1996,
1995 and 1994 respectively. The lower effective tax rate for 1996 was due to the
Company's election to be taxed as a Subchapter S corporation during the period
January 1996 to July 1996. Accordingly, during such period, there was no
provision for current federal or state income taxes on the Company's income
except for $75,000 of income taxes relating to unrealized gains on certain
inventory items resulting from the termination of the Company's status as a
Subchapter S corporation in connection with the Recapitalization. The Company's
election to be taxed as a Subchapter S corporation was terminated upon
consummation of the Recapitalization on July 25, 1996, and earnings for the
remainder of 1996 were subject to tax at an effective rate of 37.5%. Excluding
the effect of being a Subchapter S corporation during part of 1996, the
Company's effective tax rate would have been 38.7%.
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders increased to $10.6 million in
1996 from $4.7 million in 1995 and $233,000 in 1994, primarily due to higher net
sales and lower operating expenses as a percentage of net sales. From January 1,
1996 through July 25, 1996, the Company elected to be taxed as a Subchapter S
corporation for federal and certain state income tax purposes and, consequently,
the Company was not subject to corporate income taxes for that period. If the
Company had been subject to federal or state income taxes for all of 1996, the
Company's net income applicable to common stockholders would have been $7.7
million.
20
<PAGE> 22
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly financial data
for each of the eight quarters ending with the quarter ended December 31, 1996,
and such data expressed as a percentage of net sales. In the opinion of the
Company's management, this unaudited information has been prepared on the same
basis as the audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
results of operations in the quarterly periods indicated below. The operating
results for any quarter are not necessarily indicative of results for any
subsequent quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31 JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30 DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $2,429 $4,533 $ 7,253 $6,793 $8,424 $9,672 $11,529 $11,343
Cost of sales........................... 999 1,935 3,146 3,167 4,624 5,135 5,900 5,691
------ ------ ------ ------ ------ ------ ------- -------
Gross profit.......................... 1,430 2,598 4,107 3,626 3,800 4,537 5,629 5,652
Operating expenses...................... 400 660 671 2,612 700 785 1,941 1,810
------ ------ ------ ------ ------ ------ ------- -------
Income from operations................ 1,030 1,938 3,436 1,014 3,100 3,752 3,688 3,842
Interest income (expense), net.......... 3 13 35 59 22 23 (80) (150)
------ ------ ------ ------ ------ ------ ------- -------
Income before income taxes............ 1,033 1,951 3,471 1,073 3,122 3,775 3,608 3,692
Income taxes(1)......................... 386 730 1,298 401 72 88 1,110 1,380
------ ------ ------ ------ ------ ------ ------- -------
Net income............................ 647 1,221 2,173 672 3,050 3,687 2,498 2,312
Accretion of preferred stock dividends
and redemption value.................. -- -- -- -- -- -- 420 545
------ ------ ------ ------ ------ ------ ------- -------
Net income applicable to common
stockholders........................ $ 647 $1,221 $ 2,173 $ 672 $3,050 $3,687 $ 2,078 $ 1,767
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 %
Cost of sales........................... 41.1 42.7 43.4 46.6 54.9 53.1 51.2 50.2
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 58.9 57.3 56.6 53.4 45.1 46.9 48.8 49.8
Operating expenses...................... 16.5 14.5 9.3 38.5 8.3 8.1 16.8 16.0
----- ----- ----- ----- ----- ----- ----- -----
Income from operations................ 42.4 42.8 47.3 14.9 36.8 38.8 32.0 33.9
Interest income (expense), net.......... 0.1 0.2 0.6 0.9 0.3 0.2 (0.7) (1.3)
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes............ 42.5 43.0 47.9 15.8 37.1 39.0 31.3 32.6
Income taxes(1)......................... 15.8 16.1 17.9 5.9 0.9 0.9 9.6 12.2
----- ----- ----- ----- ----- ----- ----- -----
Net income............................ 26.7 26.9 30.0 9.9 36.2 38.1 21.7 20.4
Accretion of preferred stock dividends
and redemption value.................. -- -- -- -- -- -- 3.7 4.8
----- ----- ----- ----- ----- ----- ----- -----
Net income applicable to common
stockholders........................ 26.7% 26.9% 30.0% 9.9% 36.2% 38.1% 18.0% 15.6 %
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The Company was taxed as a Subchapter S corporation for all or a portion of
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996. If
the Company had been subject to corporate income taxes for all of these
periods, an additional tax of $1.2 million, $1.4 million and $0.3 million,
would have been accrued for the quarters ending March 31, 1996, June 30,
1996 and September 30, 1996, respectively, which would have resulted in
additional income taxes as a percentage of net sales of 14.6%, 15.4% and
12.2%, respectively.
Due to industry seasonality, demand for the Company's products has
historically been weakest during the first quarter and strongest in the second
half of the year, particularly during the third quarter. The Company believes
that this seasonal fluctuation in demand is primarily attributable to the
emphasis by the Company's distributors during the second half of the year on
achieving their internal sales targets before the end of the calendar year, and
to decreased ordering activity during the year-end holiday season leading to
lower order fulfillment during the first quarter.
The Company's operating expenses in the fourth quarter of 1995 included
one-time year-end bonuses aggregating $1.9 million. The Company's quarterly
operating results may vary significantly from period to period depending on
factors such as the volume and timing of orders received during the period, the
timing of new product introductions by the Company and its competitors, the
impact of price competition on the Company's selling prices, the availability
and pricing of components for the Company's products, changes in product or
distribution channel mix, changes in operating expenses, changes in the
Company's strategy,
21
<PAGE> 23
personnel changes and general economic factors. Many of these factors are beyond
the Company's control. The volume and timing of orders received during a quarter
is difficult to forecast. Customers generally order on an as-needed basis, and
accordingly the Company has historically operated with a relatively small
backlog. In addition, a significant portion of the Company's sales are derived
from a limited number of distributors, the loss of one or more of which could
have a materially adverse effect on the Company's business, results of
operations and financial condition. Notwithstanding the difficulty in
forecasting future sales and the relatively small level of backlog at any given
time, the Company generally must plan production, order components and undertake
its development, sales and marketing activities and other commitments months in
advance. Accordingly, any shortfall in sales in a given quarter may adversely
impact the Company's results of operations due to an inability to adjust
expenses or inventory during the quarter to match the level of sales for the
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash flows from
operating activities. The Company's operating activities generated cash of $9.6
million in 1996, $2.1 million in 1995 and $403,000 in 1994. During 1996, net
changes in operating assets and liabilities used $1.4 million of cash as the
decrease in accounts receivable of $176,000, the increase in accounts payable of
$1.3 million and the increase in accrued expenses of $715,000 was offset by the
growth in inventory of $1.2 million and the decrease of income taxes payable of
$2.4 million.
Investing activities used $847,000 of cash in 1996, which included $631,000
of cash used to acquire the Company's manufacturing facility and telephone
system in Long Beach, Mississippi, from a related party. Financing activities
used $6.7 million of cash in 1996, consisting primarily of financings and
payments made in connection with the Recapitalization. See "Certain
Transactions."
At December 31, 1996, the Company had $4.5 million of cash and cash
equivalents and $8.0 million in outstanding borrowings under the Bank Credit
Facility. On January 24, 1997, the Company increased its availability under the
Bank Credit Facility from $15.0 million to $30.0 million and borrowed an
additional $21.8 million in order to provide a portion of the funds used to
redeem all outstanding shares of the Redeemable Preferred Stock. The Bank Credit
Facility is secured by substantially all of the Company's assets. The Company
intends to use a portion of the net proceeds from this offering to repay all
amounts outstanding under the Bank Credit Facility. After this offering, the
maximum amount the Company will be permitted to borrow under the Bank Credit
Facility will be $30.0 million. The maximum borrowing amount automatically
decreases annually by $2.0 million on each September 26, commencing September
26, 1997, until this facility expires on September 26, 2001. The maximum
borrowing amount also is subject to reduction based upon a specified percentage
of the Company's excess cash flow (as defined) for each year. Under the Bank
Credit Facility, the Company is required to comply with certain restrictive
covenants, including (i) maintaining minimum net income of at least $1.00 per
quarter, (ii) maintaining a total debt service coverage ratio of not less than
1.75 to 1.0, and (iii) maintaining a leverage ratio of not more than 3.0 to 1.0.
The Bank Credit Facility prohibits the Company from incurring any additional
indebtedness other than indebtedness incurred for the purchase of equipment and
other property of up to $500,000 in the aggregate and indebtedness which is
subordinated in right of payment to the Bank Credit Facility on terms acceptable
to the Bank. The Bank Credit Facility also restricts the Company's ability to
further pledge its assets as security for the payment of indebtedness other than
indebtedness incurred for the purchase of equipment and other property and
limits the Company's capital expenditures to $700,000 per year. The interest
rate for the Bank Credit Facility is the bank's adjusted base rate or an
adjusted LIBOR. At December 31, 1996, the Company's borrowings were at an
effective interest rate of 7.25%.
The Company is currently in the process of acquiring a new management
information system and expanding its facilities by approximately 9,000 square
feet. The Company does not currently have an estimated cost for the management
information system. The Company estimates that the expansion of its facilities
will cost approximately $525,000, exclusive of furniture and fixtures. The
Company intends to fund these payments through cash flow from operations,
existing cash balances, available borrowings under the Bank Credit Facility or
the proceeds from the offering.
22
<PAGE> 24
The Company believes that the net proceeds from this offering, together
with cash flow from operations, existing cash balances and available borrowings
under the Bank Credit Facility, will be sufficient to meet its working capital
requirements for at least the next 12 months. Thereafter, the Company may need
to raise additional funds for working capital, expansion of facilities and
acquisitions of complementary businesses, products and technologies. There can
be no assurance that the Company will obtain additional financing as needed on
acceptable terms or at all. The Company intends to invest its remaining cash in
excess of current operating requirements in short-term, investment-grade
securities.
23
<PAGE> 25
BUSINESS
OVERVIEW
Triton Systems, Inc. is a leading manufacturer and marketer of automated
teller machines ("ATMs") in the United States. The Company designs,
manufactures, markets and sells primarily focused-function ATMs, which are
intended to operate profitably at significantly lower transaction volumes than
conventional ATMs. Focused-function ATMs are suitable for locations such as
convenience stores, hotels, casinos, grocery stores, fast food restaurants,
department stores, gas stations, malls, campuses and entertainment complexes,
including movie theaters, amusement parks and race tracks ("off-premise
locations"), in addition to bank and credit union branches ("on-premise
locations"). According to The Nilson Report, the Company shipped the third
largest number of ATMs in the United States in 1995, with its shipments
accounting for 12% of all ATMs shipped in the United States in that year. The
Company also designs, manufactures, markets and sells other financial hardware
products such as scrip terminals (countertop ATMs that provide a voucher
redeemable for cash), ATM demonstration machines and card activators. The
Company continues to position itself to capitalize on emerging opportunities in
the transaction and payment processing industry.
INDUSTRY BACKGROUND
An ATM is a stand-alone electronic device with which consumers can withdraw
cash and complete other transactions. Conventional ATMs typically dispense cash,
accept deposits, transfer funds between accounts and provide account balances.
Focused-function ATMs (also known as cash dispensers), such as those
manufactured by the Company, perform all of these functions other than accepting
deposits. According to The Forrester Report, ATMs in an On-line World, dated
January 1996, approximately 80%-90% of all transactions initiated through an ATM
were cash withdrawals.
According to industry sources, ATM shipments in the United States increased
from 8,527 in 1991 to 24,300 in 1995, for a compound annual growth rate of 30%.
Over the same five-year period, the number of installed ATMs in the United
States grew from 83,545 to 122,706, for a compound annual growth rate of 10%.
Due in part to increasing consumer acceptance of ATMs as well as an increased
number of deployed ATMs, the total number of ATM transactions has grown
substantially, from an average of 534.9 million transactions per month in 1991
to an average of 807.4 million transactions per month in 1995, for a compound
annual growth rate of 11%. Worldwide, the number of ATMs shipped in 1995 was
117,658, and the number of ATMs installed at the end of 1995 was 618,296.
The Company estimates, based on industry sources, that unit sales of
focused-function ATMs grew by 16% from 1994 to 1995, while unit sales of
conventional ATMs grew by 11% over the same period. The Company believes that
the two primary reasons for the faster growth of focused-function ATMs are (i)
increased deployment of ATMs in off-premise locations and (ii) the attractive
economics of owning and operating a focused-function ATM. The Company believes
that factors contributing to the increased deployment of ATMs in off-premise
locations include consumer demand for cash at these locations and the
competitive advantage an ATM can give a retailer through increased customer
traffic and incremental revenues. The Company believes the factors contributing
to the attractive economics of owning and operating a focused-function ATM
include (i) lower retail prices and monthly operating costs compared to
conventional ATMs and (ii) incremental revenues available from surcharge fees.
The first primary reason for the increase in the number of focused-function
ATMs is the growing number of ATM installations in off-premise locations. From
1991 to 1995, the number of ATMs installed in off-premise locations has
increased from 18,380 to 38,039, for a compound annual growth rate of 19.9%, as
compared to the increase of ATMs installed in on-premise locations from 65,165
to 84,667, for a compound annual growth rate of 6.8%. The following chart,
prepared by the Company based on industry data, shows the
24
<PAGE> 26
number of ATMs installed in off-premise and on-premise locations in the United
States at the end of each of years 1991 through 1995.
[Graphic omitted: line chart showing the number of ATMs installed at on-premise
and off-premise locations over the 1991-1995 period and the corresponding
compound annual growth rates of 19.9% for off-premise ATMs and 6.8% for
on-premise ATMs. Source: The Forrester Report, Forrester Research, Inc.]
The Company estimates that the potential market for focused-function ATMs
includes over 700,000 off-premise locations in the United States, including
convenience stores, hotels, casinos, grocery stores, fast food restaurants,
department stores, gas stations, malls, campuses and entertainment complexes.
This potential market also includes suburban office parks and downtown office
towers.
Owners of off-premise ATMs, including retailers, investor groups,
independent sales organizations ("ISOs") and third party transaction processors,
in addition to banks and credit unions, have placed focused-function ATMs at
off-premise locations to capitalize on consumer demand for cash at these sites.
From a retailer's perspective, an ATM offers a competitive advantage by
increasing customer traffic and generating incremental revenues. According to
Convenience Store Decisions 1995 Sales Trend Handbook, the typical ATM customer
will spend 20%-25% more than a non-ATM customer in a convenience store. The
Company also believes that some retailers consider installing ATMs in their
stores as a competitive response to installation of ATMs by competitors in
nearby locations.
The second primary reason for the increase in the number of
focused-function ATMs is the attractive economics of owning and operating a
focused-function ATM. The Company estimates that focused-function ATMs have
retail prices and monthly operating costs that are 35%-70% lower than those of
conventional ATMs. The Company believes that the lower monthly operating costs
for focused-function ATMs are primarily due to (i) the use of dial-up
communications rather than the typical use of leased telephone lines by
conventional ATMs and (ii) lower servicing costs principally due to the absence
of a deposit function and the associated daily servicing requirements.
Owning and operating an ATM has become even more attractive with recent
changes in network association rules eliminating barriers to surcharging by the
ATM owner. In the traditional transaction at a bank-owned ATM, when a bank
customer uses another bank's ATM, the customer's bank will pay an interchange
fee (typically $.50) to the bank sponsoring the ATM and the customer's bank may
pass that cost on to the consumer by charging a usage fee. When parties other
than the sponsoring bank are involved, such as a third party processor, an ISO
or a retailer, such additional parties typically share the interchange fee with
the sponsoring bank. Historically, these additional parties have derived their
ATM revenues only from the interchange fee. In recent years, however, ATM owners
have begun to charge consumers a transaction fee or "surcharge" for using the
ATM. In a typical arrangement, a surcharge ranging from $.50 to $3.00 is charged
to a bank customer and is shared among the parties involved in the transaction,
providing them an additional revenue stream.
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The ability to surcharge consumers has enabled the profitable placement of
ATMs in low traffic locations. According to The Forrester Report, a conventional
bank-owned ATM requires approximately 5,230 transactions per month to break even
without surcharging and approximately 2,580 transactions per month to break even
with a $.50 surcharge. The Company estimates that an off-premise
focused-function ATM requires 785-800 transactions per month to break even
without surcharing, and 350-375 transactions per month to break even with a $.50
surcharge.
As a result of the increased deployment of ATMs in off-premise locations
and the attractive economics of owning and operating a focused-function ATM,
this segment has become an important part of the total market for ATMs.
According to The Nilson Report, focused-function ATMs represented approximately
51% of total 1995 ATM shipments in the United States.
ATMs are typically sold to banks and credit unions by ATM manufacturers
through their in-house direct sales forces. Sales of ATMs for installation in
off-premise locations are typically made through distributors who frequently
offer to merchants a turnkey package including the ATM, transaction processing,
bank sponsorship, maintenance, service and cash replenishment, if required. From
a manufacturer's perspective, the use of distributors represents a
cost-effective alternative to selling directly. The Company believes that
establishing a distribution network can serve as a significant barrier to entry
for potential new ATM manufacturers.
In the United States, ATM transactions are processed either directly by the
bank or credit union that owns and operates the ATM, or by third party
processors that act as intermediaries for these transactions. The Company
believes that third party processors are less prevalent in foreign markets where
banks process most ATM transactions.
Banks and credit unions typically communicate with their ATMs by means of
an industry standard communications protocol. Accordingly, ATMs shipped to bank
and credit union locations generally must use this communications protocol.
Third party processors typically use their own communications protocol to
receive and send information to corresponding ATMs. Each ATM must contain
communications software that is compatible with the protocol being used by the
processor. Conforming an ATM's communications software so it is compatible with
the protocol of a third party processor requires a significant collaborative
effort on the part of both the ATM manufacturer and the third party processor.
The Company believes that establishing this collaborative relationship can serve
as a significant barrier to entry for potential new ATM manufacturers.
The growth in consumer use of ATMs and the attractive economics of placing
ATMs in off-premise locations have created a demand for focused-function ATMs.
Consequently, an opportunity exists for ATM manufacturers to address the growing
demand for focused-function ATMs and related products by offering cost-effective
ATMs with functionality directed at the most common transaction needs of
consumers.
STRATEGY
The Company's strategy is to strengthen its leadership position as a
supplier of focused-function ATMs, to expand its presence in the ATM and related
product markets by leveraging its core competency in the focused-function ATM
market, and to exploit new opportunities in the transaction and payment
processing industry as they develop.
The key elements in implementing the Company's strategy are as follows:
Leverage Distribution Channels to Penetrate New Domestic Geographic
Markets. The Company's products are currently sold primarily through
distributors, which enables the Company to leverage its sales and marketing
resources. The Company has strong distributor relationships in most regions of
the United States and is expanding its distribution channels to penetrate new
markets, such as the Northeast, through the expanded use of its existing
distributors, an increased emphasis on sales to high volume distributors, and
the addition of new distributors.
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Penetrate Domestic Bank and Credit Union Customer Base. The Company
intends to penetrate the bank and credit union market by providing an economical
way for banks and credit unions to give their customers access to on-premise and
off-premise ATMs. The Company intends to use its distributors, rather than an
in-house direct sales force, to cost-effectively penetrate this market. The
Company also intends to hire dedicated marketing personnel to assist distributor
sales efforts, and to capitalize on the relationships previously developed by
the Company with certain banks and credit unions through the sale of its ATM
demonstrators and card activators. In order to offer a targeted product for this
market, the Company has been field testing on a trial basis with a limited
number of installations a new focused-function ATM model that conforms with the
industry standard communications protocol used by most banks and credit unions
to communicate with their ATMs.
Develop International Presence. The Company intends to promote its ATMs
internationally by developing new distributor relationships in foreign markets
and, in some cases, by building upon distributor relationships previously
established for its ATM demonstrators and card activators. The Company intends
to focus its initial international marketing efforts on Latin America and
Canada. For each country the Company intends to enter, the Company plans to
appoint one or more distributors with whom the Company will work to develop a
tailored marketing and product strategy. Since transaction processors in many
foreign markets use the bank and credit union industry standard communications
protocol, the Company believes that the new ATM model currently being beta
tested by the Company for use with this protocol will improve the Company's
ability to penetrate foreign markets.
Continue to Upgrade Functionality and Develop New Products to Capitalize on
Market Opportunities. The Company intends to continue to offer products to meet
emerging needs in the marketplace. The Company seeks to identify markets with
established demand and target these markets by delivering products with a
superior combination of price and functionality. The Company's engineering staff
works with the Company's distributors and end-users to incorporate customer
driven enhancements to the Company's products. For example, the Company recently
introduced Triton Connect, a software product which enables the transaction
processor, using cost-effective dial-up communications, to upload electronic
journal information, to download advertisement screens, couponing messages and
other terminal parameters, and to monitor the ATM for service-related problems
and cash replenishment needs. This software provides a level of monitoring that
is comparable to the monitoring available for conventional ATMs that use more
expensive leased telephone lines. The Company also recently introduced a
multi-cassette ATM suitable for dispensing multiple denominations of bills and
other items such as tickets, stamps, telephone cards and coupons.
Continue to Emphasize Cost-Effective Operations. The Company intends to
continue to emphasize cost-effective operations principally by (i) outsourcing
the manufacture of many components used in its products at prices the Company
believes to be lower than what it would cost the Company to manufacture such
components, (ii) utilizing an established network of distributors to distribute
the Company's products instead of maintaining a large direct sales force, and
(iii) locating its manufacturing facility in an area where operating and labor
costs are typically lower than in many other regions of the United States. The
Company intends to continue evaluating the relative economic benefits of
outsourcing its components.
Maintain Short Delivery Schedules and High Level of Customer Service. The
Company seeks to differentiate itself through its short delivery schedules and
the high level of its customer service and support. The Company is generally
able to provide short delivery schedules due to its streamlined manufacturing
operations. The Company is adding more technical support staff and expanding its
maintenance organization to provide more extensive service to its distributors
and end users. In addition, the Company strives to minimize downtime for its
ATMs through its quality assurance program and the service provided by its
network of distributors and third party maintenance organizations. The Company
believes that down time will be further reduced for ATMs equipped with the
Company's recently introduced software product, Triton Connect, through periodic
automatic remote monitoring for service-related problems.
PRODUCTS
The Company's product strategy is to leverage its technological expertise
in the ATM industry to create economical, highly durable equipment targeted at
the focused-function segment of the ATM market. The
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Company continues to monitor opportunities to improve the functionality of its
existing ATM product line and to develop product extensions and new products
through the integration of new technologies and industry standards.
FOCUSED-FUNCTION ATMS ("MINIATM" PRODUCT LINE)
Since the introduction of the focused-function product line in 1994, the
Company has shipped over 8,000 focused-function ATMs in the United States. The
Company's focused-function ATMs are targeted primarily at lower ATM transaction
volume locations such as convenience stores, hotels, casinos, grocery stores,
fast food restaurants, department stores, gas stations, malls, campuses and
entertainment complexes. Many of these locations have either a low daily ATM
transaction volume or periodic levels of high ATM activity followed by relative
long periods of inactivity.
The miniATM Cash Dispenser Model 9500 was the initial offering in the
Triton focused-function ATM product line, and is the basic model, with a single
cassette and front service entry. Set forth below is a chart summarizing certain
features of the miniATM Cash Dispenser Model 9500, and a typical conventional
ATM.
<TABLE>
<CAPTION>
TRITON FOCUSED-FUNCTION
ATM (MODEL 9500) TYPICAL CONVENTIONAL ATM
----------------------------- -----------------------------
<S> <C> <C>
Size.......................... 18" wide, 22" deep and 51" 31" wide, 37" deep and 56"
high high
Weight........................ 300 lbs 1500 lbs
Price Range................... $9,000 - $10,000 $20,000 - $30,000
Monthly Operating Costs....... $300 - $500 per month $1,000 - $1,200 per month
Communications Technology..... Dial-up Leased line
Key Functionality............. Dispenses cash Dispenses cash
Makes balance inquiries Makes balance inquiries
Transfers between accounts Transfers between accounts
Accepts deposits
Display Screen................ Monochrome (color under Monochrome; color optional
development)
UL Certification.............. Yes Yes
</TABLE>
In addition to the miniATM Cash Dispenser Model 9500, the Company currently
offers four other models of focused-function ATM, with prices of up to $15,000.
The principal features of these other four models are set forth below:
- The miniATM Cash Dispenser Model 9501 is a rear-access unit. The unit is
designed so that it can be mounted through an interior wall to enable cash
servicing to be performed from the rear of the machine. This is primarily
a security feature for merchants concerned about exposure during the cash
loading process.
- The miniATM Cash Dispenser Model 9520 has a thicker ( 1/2-inch) steel
door and a thicker ( 1/2-inch) steel cabinet, weighs approximately 750
pounds and is rated for use as a safe in unattended locations. It features
an electronic combination lock and an optional alarm package. The lock and
alarm features are optional on the Model 9500 and 9501.
- The Company recently has begun shipping the miniATM Cash Dispenser Model
9515, which is a multi-cassette ATM suitable for dispensing multiple
denominations of cash and other items such as tickets, stamps, telephone
cards and coupons. The Company's existing Model 9500 can be easily
upgraded to a Model 9515 without moving the machine from its installed
location, by replacing the dispensing mechanism.
- The Company recently has introduced the miniATM Cash Dispenser Model
9535, which combines the security features of the Model 9520 with the
multi-cassette feature used in the Model 9515.
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In addition, the Company recently introduced Triton Connect, a software
product which enables the transaction processor, using cost-effective dial-up
communications, to upload electronic journal information, to download
advertisement screens, couponing messages and other terminal parameters, and to
monitor the ATM for service-related problems and cash replenishment needs. This
software provides a level of monitoring that is comparable to the monitoring
available for conventional ATMs that use more expensive leased telephone lines.
Models 9500, 9501 and 9515 are intended for locations which will be staffed
24-hours per day or in which the cassette will be removed at night and placed in
a safe. Because of their intended applications, Models 9500, 9501 and 9515 have
been certified and are listed with Underwriters Laboratories under UL-291
Business Hour Service. Models 9520 and 9535 have been certified to the more
rigorous UL-291 Level 1, 24-Hour Safe status because of their intended use in
unattended locations. The UL certification establishes that, for a certain class
of tools and a given length of time, the product will withstand attack attempts.
The Company provides a limited warranty on each of its products covering
manufacturing defects and premature failure, which generally covers parts for
its focused-function ATMs, and parts and labor for its ATMjr Demonstrator,
ATMjr+CAS and miniATM scrip models. The Company also offers for purchase
extended warranties on all of its products.
OTHER PRODUCTS
The Company's initial product line was introduced to the banking industry
in 1985 and consisted of a portable ATM demonstrator unit called the ATMjr
Demonstrator, which enables banks, credit unions, and other financial
institutions to demonstrate to a customer the use of an ATM. The ATMjr+CAS, a
demonstrator which is equipped with a card activation system, enables customer
service representatives to issue ATM cards and activate or change a customer's
personal identification number.
In 1992, the Company recognized that many retailers could profit by having
a small, inexpensive ATM installed in their business locations. By leveraging
its development resources in ATM demonstration machines, the Company introduced
the miniATM Scrip Terminal. The miniATM Scrip Terminal allows customers to use
their ATM cards to obtain cash in a manner similar to a regular bank ATM.
However, instead of cash the miniATM Scrip Terminal issues a voucher, or scrip,
that may be redeemed for cash at the point of sale, dramatically reducing
operating costs since no cash replenishment is required. In addition, due to its
simpler design, the retail price of a miniATM Scrip Terminal is approximately
85% lower than that of a conventional ATM. The unit also can be programmed to
issue other voucher materials, such as coupons, travel tickets and tickets to
sporting events and theaters.
PRODUCT DEVELOPMENT
The Company recognizes that continuous product development and innovation
are essential to its long-term success. The Company has been successful in
introducing products that quickly capture a significant market share. The
Company believes that its market-driven product development efforts have
contributed to the success of its product introductions. The Company relies on
information provided by customers and distributors to understand market needs in
detail. The Company's engineering expertise has enabled it to bring new products
to market quickly and to reduce manufacturing costs over time. During 1994, 1995
and 1996, the Company's research and development expenses were $102,000,
$221,000 and $355,000, respectively.
The Company's product development efforts emphasize products with focused
functionality and attractive cost characteristics which leverage the Company's
core strengths of low-cost design and efficient use of technology. The Company
believes that continued strengthening of its electronics and software
engineering development group is a key to broadening the Company's product
offerings.
The Company's product development efforts have resulted in the recent
introduction of the miniATM Model 9515, a multi-cassette ATM suitable for
dispensing multiple denominations of cash and other items such as stamps,
telephone cards and coupons; the miniATM Model 9535, a UL certified 24-Hour Safe
version of the Model 9515; and Triton Connect, an ATM monitoring software
application which enables the transaction processor, using cost-effective
dial-up communications, to upload electronic journal information,
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to download advertisement screens, couponing messages and other terminal
parameters, and to monitor the ATM for service-related problems and cash
replenishment needs.
In addition to these products, the Company is currently field testing on a
trial basis with a limited group of customers a new focused-function ATM model
equipped with a "black box" that conforms with the widely used industry standard
communications protocol. This model is intended to enable an ATM to be driven
directly by banks and certain large third party processors that communicate with
the same industry standard protocol typically used by banks. With this new
model, the Company can now target the bank and credit union market, where the
Company expects that its focused-function ATMs will be an attractive low-cost
alternative to conventional ATMs. In addition, transaction processors in many
foreign countries also use this standard communications protocol. Consequently,
the version of the Company's focused-function ATM with this communications
protocol should assist the Company's marketing efforts in foreign markets.
The Company has several new products in development, including new
applications for its scrip terminals. The Company continues to monitor
developments in consumer needs and technological advances with specific focus on
emerging opportunities in the transaction and payment processing industry such
as electronic benefits transfers, acceptance of stored value cards, and use of
"smart card" applications.
DISTRIBUTION, SALES AND MARKETING
DISTRIBUTION AND SALES ORGANIZATION
The Company's focused-function ATM product line and scrip terminals are
sold in the United States through a network of approximately 30 distributors,
which includes ISOs and third party processors. Many of these distributors have
sub-distributors, and the Company believes that as many as 50 total distributors
offer the Company's products inclusive of these relationships. The Company's
distributors sell to end users such as convenience stores, hotels, casinos,
grocery stores, fast food restaurants, department stores, gas stations, malls,
campuses and entertainment complexes. The Company regularly evaluates its
distributors and frequently receives inquiries from potential new distributors.
The Company's distributors include national distributors such as Access Cash
International and Card Capture Services, which accounted for approximately 22%
and 19%, respectively, of the Company's net sales in 1996, regional distributors
such as ATM International and North American Cash Systems, and third party
processors such as Lynk Systems and Affiliated Computer Services. The Company's
distributors typically offer a turnkey package to retailers including the sale
and installation of the ATM, transaction processing, bank sponsorship,
maintenance service and cash replenishment if required. Although the Company
typically does not sign exclusive agreements with its distributors, the Company
believes that most of its distributors do not offer competing focused-function
ATMs.
The sales efforts of the Company's distributors are supplemented by the
Company's in-house sales force. This includes account managers and customer
service specialists, who service distributors, and account executives whose
efforts are targeted at specific markets, such as hotels, banks and credit
unions. The account executives build sales in their respective markets by
assisting distributors.
The ATMjr Demonstrator and ATMjr+CAS products are sold domestically by the
Company's direct sales force and in international markets predominantly by
distributors with some sales generated by the Company's direct sales force.
END USERS
Off-premise locations represent substantially all of the Company's end user
installed base for focused-function ATMs, and include convenience stores,
hotels, casinos, grocery stores, fast food restaurants, department stores, gas
stations, malls, campuses and entertainment complexes. With the introduction of
a focused-function ATM that conforms with the industry standard communications
protocol used by most banks and credit unions to communicate with their ATMs,
the Company intends to expand its customer base to include more domestic banks
and credit unions, as well as more foreign locations.
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End users of the Company's ATMjr Demonstrator product line include
primarily banks and credit unions throughout the United States and several
foreign countries, including Australia, Canada, Chile, Egypt, Guatemala,
Indonesia, Philippines, South Africa and the West Indies.
MARKETING SUPPORT
Triton promotes its products and supports the sales efforts of its
distributors and internal sales force by advertising in trade publications,
preparing brochures for use by its distributors, exhibiting products at trade
conferences, providing customer leads to its distributors, conducting targeted
direct mail campaigns, conducting sales and product training seminars for its
distributors, and formulating co-op advertising with selected distributors. The
Company's trade conference exhibitions are targeted primarily toward the
convenience store, banking, hospitality, and gaming industries. Triton routinely
exhibits at large industry trade shows, such as the Retail Delivery Systems
Conference for the banking industry and the National Association of Convenience
Stores show.
INTERNATIONAL MARKETING
The Company intends to model its approach to distribution, sales and
marketing in foreign markets on the distributor-based approach used successfully
by the Company in the United States. The Company also intends to build upon its
established relationship with distributors selling the ATMjr Demonstrator
product line in foreign markets to develop its presence in the international
focused-function ATM market. The Company intends to target its initial
international marketing efforts on Latin America and Canada. The Company
believes that its newly developed focused-function ATM model, which conforms
with the industry standard communications protocol generally used by banks and
credit unions, will improve the Company's ability to penetrate foreign markets
once it becomes commercially available, because many transaction processors in
foreign market use this communications protocol.
PRODUCT SERVICE AND SUPPORT
SERVICE
The Company relies primarily on distributors to support and maintain its
products. The distributors typically enter into maintenance agreements with the
ATM owner to provide after-sale service and support. The Company also utilizes,
to a lesser extent, the services of a national third party maintenance
organization to provide customer service and support. The third party
maintenance organization is used in situations where the distributor does not
have the capability or the desire to provide maintenance support.
Recognizing the importance of after-sale support, the Company is adding
more technical support staff and expanding its maintenance organization to
provide more extensive service to its distributors and end users. In addition,
the Company strives to minimize downtime for its ATMs through its quality
assurance program and the service provided by its network of distributors and
third party maintenance organizations. The Company examines and adjusts its
customer support procedures in response to customer suggestions and feedback in
an effort to improve this critical support function. The Company maintains an
in-house technical support group for all products, consisting of telephone
technical support personnel, electronic technicians for in-house repairs, and a
technical support group leader. This group provides telephone support to
distributors and end-users of the equipment via a toll-free 800 number.
In the case of focused-function ATMs, repairs are typically performed in
the field by a distributor or a third party maintenance organization using
replacement parts sent by the Company. In the case of the ATMjr Demonstrator,
ATMjr+CAS, and miniATM Scrip Terminal, a depot maintenance system is used to
repair units at the Company's headquarters when the units cannot be repaired in
the field by the end user.
SERVICE TRAINING AND SUPPORT
The Company provides regular service training courses to its distributors
and third party maintenance organizations. The training course is typically held
at the Company's facility on a monthly basis and provides detailed instruction
on all aspects of focused-function ATM troubleshooting, repair, installation and
setup, and
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the procedures for obtaining support and replacement parts from the Company.
Attendees who successfully complete the training course receive a certification
from the Company establishing their qualifications. Arrangements can be made to
conduct special training classes at the distributor's or end-user's site.
MANUFACTURING
The Company's manufacturing strategy is to produce low-cost, highly
reliable ATMs. Triton's outsourcing strategy, combined with the Company's access
to lower-priced labor and its emphasis on quality control, has helped the
Company to achieve this goal. The Company's manufacturing operations consist
primarily of assembly, software loading, testing, burn-in and quality control.
All manufacturing activities are performed at the Company's facility in Long
Beach, Mississippi, where operating and labor costs are typically lower than in
many other regions of the United States. Most of the components of the Company's
products are outsourced to suppliers at prices that the Company believes to be
lower than what it would cost the Company to manufacture such components.
Triton's manufacturing operations are grouped into several functional areas
including (i) electronic/electrical assembly, such as printed circuit boards,
cable and wiring harnesses, control panels and switches, (ii)
mechanical/electronic sub-assembly integration and (iii) final integration,
software program loading, testing and product burn-in. The Company has adopted
quality assurance procedures that include standard design practices, component
selection procedures, vendor control procedures and comprehensive reliability
testing and analysis to ensure the reliability of its products. Quality control
is performed on completed assemblies in each functional area of its assembly and
at the final integration phase of the manufacturing process.
Current demand for the Company's products is being met with a single shift
in the Company's existing plant. The Company believes that growth in demand for
its products in the foreseeable future can be met with additional shifts and
limited plant expansion. The Company is currently exploring replacement and
expansion alternatives for its existing facility in anticipation of its long
term capacity needs.
SUPPLIERS
The Company outsources the manufacture of most of its components as part of
its low-cost manufacturing strategy. Component level parts, both mechanical and
electronic, and some complete subsystems are purchased through outside vendors.
Certain parts are custom-manufactured by these outside vendors according to the
Company's specifications. Several important components used in the Company's
focused-function ATMs, including the single cassette and multicassette cash
dispensing subassemblies, the display screens and key pads, the business hour
service cabinets and the safe-type cabinets, are obtained from single suppliers.
The Company has identified alternative suppliers for its single cassette cash
dispenser, display screen and both styles of cabinets, and is currently in the
process of identifying potential alternative suppliers of multi-cassette cash
dispensing subassemblies and key pads. Certain of the alternative suppliers
identified by the Company currently supply other components to the Company. In
the event the Company is required to obtain components from the alternative
suppliers it has identified, there can be no assurance that the unit costs
currently paid by the Company for these components would not increase. Moreover,
the inability of the Company to obtain sufficient quantities of, or the failure
of suppliers to deliver, the cash dispensing subassemblies, key pads, display
screens or cabinets used in its focused-function ATMs would require the Company
to change the design of the products in order to use an alternative component,
which could increase the cost or delay the shipment of the Company's
focused-function ATMs, which in turn would have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that alternative sources of supply would be available on reasonably
acceptable terms, on a timely basis, or at all.
The Company does not maintain any written agreements with any of its
component suppliers and the Company purchases its components on a purchase order
basis. Accordingly, the Company has no guaranteed supply arrangements with any
of its suppliers and there can be no assurance that these suppliers will
continue to meet the Company's requirements. Because the purchase of key
components involves long lead times, in the event of unanticipated increases in
demand for the Company's products, the Company could be unable to
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manufacture certain products in a quantity sufficient to meet demand. Any
inability to obtain adequate deliveries of any of the components or any other
circumstance that would require the Company to seek alternative sources of
supply could affect the Company's ability to ship its products on a timely basis
or result in increased component costs, each of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. In order to attempt to mitigate the risk of component shortages, the
Company maintains a limited inventory of components for which the Company is
dependent upon sole or limited source suppliers. There can be no assurance,
however, that these inventories will be sufficient, and any deficiency could
have a material adverse effect on the Company's business, results of operations
and financial condition.
COMPETITION
The markets for the Company's products are characterized by intense
competition. The Company has a number of direct competitors for ATMs, the most
significant of which are Diebold Incorporated (including Interbold, a joint
venture between Diebold Incorporated and IBM), NCR Corporation, Fujitsu
Corporation and the Tidel Division of American Medical Technologies, Inc. The
Company believes that the principal competitive factors in its markets are
price, features and functionality, reliability, strength of distribution
channels and processor relationships, length of delivery cycles, service and
support. The Company believes that it competes favorably with respect to these
factors.
Many of the Company's competitors have longer operating histories, are
substantially larger, and have substantially greater financial, technical,
manufacturing, marketing and other resources than the Company. As a result of
their greater resources, many of such competitors are better positioned than the
Company to withstand significant price competition or downturns in the economy.
A number of these competitors also have substantially greater name recognition
and a significantly larger installed base of products than the Company, which
could provide leverage to such companies in their competition with the Company.
Many competitors also offer products with more functionality and features than
those offered by the Company. The Company expects competition to increase, and
anticipates that new competitors may enter the ATM market, particularly the
focused-function segment. Such increased competition may result in price
reductions, reduced gross margins and loss of market share, any of which could
materially adversely affect the Company's business, results of operations and
financial condition. There can be no assurance that the Company will be able to
continue to compete effectively, and any failure to do so would have a material
adverse effect upon the Company's business, results of operations and financial
condition.
INTELLECTUAL PROPERTY
The Company does not own any issued patent, and relies primarily on
trademark, copyright and trade secret law to protect its intellectual property
in the United States and abroad. These laws afford only limited protection, and
there can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. There can be no assurance that any trademark
or copyright owned by the Company, or any patent, trademark or copyright
obtained by the Company in the future, will not be invalidated, circumvented or
challenged or that the rights granted thereunder will provide competitive
advantages to the Company. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. Thus, effective intellectual property protection may be
unavailable or limited in certain foreign countries. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competitors will not independently
develop technologies that are similar or superior to the Company's technology,
duplicate the Company's technology or design around any patent of the Company.
Moreover, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
management's time and resources and could have a material adverse effect on the
Company's business, results of operations and financial condition.
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EMPLOYEES
As of December 31, 1996, the Company had 91 full-time employees. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good. The Company's future success will depend, in part, upon its ability to
attract and retain qualified personnel. The Company has an employee dedicated to
hiring additional employees and has supplemented these efforts by retaining
third party employee search firms and placing advertisements in local and
regional newspapers. The Company seeks to attract new employees by offering
competitive compensation packages, including salary, bonus, stock options and
employee benefits. Competition for qualified personnel in the Company's industry
is intense, and there can be no assurance that the Company will be successful in
retaining its key employees or that it will be able to attract skilled personnel
necessary for the development of its business.
FACILITIES
The Company's headquarters are located in a 19,000 square foot facility in
Long Beach, Mississippi, which is owned by the Company. This facility
accommodates corporate administration, engineering, marketing, sales, customer
service and support and manufacturing, including assembly, testing, packaging
and shipping of products. The Company is currently expanding its facility by
approximately 9,000 square feet in order to provide additional space for its
administrative offices. The Company believes that, with additional shifts and
limited plant expansion, this facility will be adequate for its needs for the
foreseeable future. The Company is currently exploring replacement alternatives
for its existing facility in anticipation of its long term capacity needs.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in litigation relating to
claims arising out of its operations in the ordinary course. The Company is not
a party to any litigation that in the judgment of management is likely to have a
material adverse effect on the Company or its business.
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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company, and
their ages as of February 28, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
Ernest L. Burdette........................ 51 Chief Executive Officer, President and
Director
Robert E. Sandoz.......................... 46 Vice President and Director
Frank J. Wilem, Jr........................ 46 Vice President and Director
Jeffrey A. Bandrowski..................... 54 Chief Financial Officer
Thomas A. Cooper.......................... 60 Director
Charles A. Emling, III.................... 44 Director
Kevin P. Mohan............................ 33 Director
Joseph F. Trustey......................... 34 Director
William D. Jackson........................ 42 Manager of Engineering
Mary E. Dressel........................... 44 Manager of Marketing and Sales
</TABLE>
Ernest L. Burdette, a co-founder of the Company, has served as Chief
Executive Officer, President and director of the Company since August 1979.
Prior to founding the Company, Dr. Burdette was employed as Engineering Manager
and Systems Engineer at Computer Sciences Corporation, a technical services
provider to the government, and held faculty positions at Auburn University and
Georgia University. Dr. Burdette earned a B.A. in Physics from
Birmingham-Southern College, and an M.S. and a Ph.D. in Physics from Auburn
University.
Robert E. Sandoz, a co-founder of the Company, has served as Vice President
of the Company since 1991, and as Treasurer and director of the Company since
August 1979. Prior to founding the Company, Mr. Sandoz served as manager of
Engineering Applications Software at Computer Sciences Corporation. Mr. Sandoz
earned a B.S. in Computer Science from the University of Southwestern Louisiana.
Frank J. Wilem, Jr., a co-founder of the Company, has served as Vice
President and director of the Company since August 1979. Prior to founding the
Company, Mr. Wilem was Engineering Manager at Computer Sciences Corporation. Mr.
Wilem earned a B.S. in Electrical Engineering from Texas A & M University and an
M.S. in Ocean Engineering from the University of Miami.
Jeffrey A. Bandrowski has served as Chief Financial Officer of the Company
since October 1996. From February 1996 to October 1996, Mr. Bandrowski served as
Assistant Treasurer of Sequoia Systems, Inc., a computer manufacturer, and from
September 1987 to June 1995, served as Chief Financial Officer, Vice President
and General Manager of Kevlin Corporation, a manufacturer of microwave systems
and process control systems. Mr. Bandrowski earned a B.S. in Chemistry from The
College of the Holy Cross and an M.B.A. from Seton Hall University.
Thomas A. Cooper, a director of the Company since January 1997, has served
as Chairman and Principal of T.A.C. Associates since August 1996. Mr. Cooper
served as Chairman, President and Chief Executive Officer of Chase Federal Bank
from August 1993 to August 1996, and as Chairman and Chief Executive Officer of
TAC Bancshares from 1991 to August 1996. Prior to 1991, Mr. Cooper served as
Chief Executive Officer of Goldome Savings Bank, FSB and President of Bank of
America. Mr. Cooper is a director of RenaissanceRe Holdings Ltd. Mr. Cooper
earned a B.A. from Haverford College and a B.A. from Drew University.
Charles A. Emling, III, a director of the Company since October 1996, was
President and Chief Executive Officer of A+ Network, Inc., a paging company,
from 1988 to November 1996. From 1988 to 1995, Mr. Emling served as President of
Florida Network USA., a paging company. Mr. Emling earned a B.S. in Business
Administration and an M.B.A. from the University of Southwestern Louisiana.
Kevin P. Mohan, a director of the Company since July 1996, has been
employed by Summit Partners since 1994 and currently serves as principal. From
1991 to 1994, Mr. Mohan served as Engagement Manager at McKinsey & Company,
Inc., a management consulting firm. Mr. Mohan is a director of Intelligroup,
Inc.
36
<PAGE> 37
and several privately held companies. Mr. Mohan holds an A.B. in Economics from
Harvard College, an M.B.A. from Harvard University Graduate School of Business
Administration and a J.D. from Harvard Law School.
Joseph F. Trustey, a director of the Company since July 1996, has been
employed by Summit Partners since June 1992 and currently serves as general
partner. From June 1990 to June 1992, Mr. Trustey was a strategy consultant with
Bain & Co., Inc., a management consulting firm. Mr. Trustey is a director of
Home Health Corporation of America, Inc., Suburban Ostomy Supply Company, Inc.
and several privately held companies. Mr. Trustey earned a B.S. in Chemical
Engineering from the University of Notre Dame and an M.B.A. from Harvard
University Graduate School of Business Administration.
William D. Jackson has served as Manager of Engineering of the Company
since 1993. Prior to joining the Company in 1982 as an Electronics Engineer, Mr.
Jackson served as Electronics Engineer and Component Engineer at Computer
Sciences Corporation. Mr. Jackson earned a B.S. in Biomedical Engineering from
the University of Tennessee and an M.B.A. from the University of Southern
Mississippi.
Mary E. Dressel has served as Manager of Marketing and Sales of the Company
since 1989. Ms. Dressel joined the Company in 1988 as a Market Analyst. Prior to
joining the Company, Ms. Dressel was a principal in a marketing communications
company from 1986 to 1987 and a Territory Manager for Revlon Inc. from 1983 to
1986. Ms. Dressel earned a B.A. from the University of Southwestern Louisiana
and an M.Ed. and an M.B.A. from the University of Southern Mississippi.
Messrs. Burdette, Sandoz, Wilem, Mohan and Trustey were nominated and
elected as directors of the Company in accordance with a Shareholders'
Agreement, which will terminate upon the closing of this offering. See "Certain
Transactions."
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors have been duly elected and qualified.
Executive officers of the Company are elected by the Board of Directors on an
annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
COMMITTEES OF THE BOARD
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, and administers the Company's stock plans. The
members of the Compensation Committee currently are Messrs. Trustey, Mohan and
Cooper. The Board of Directors also has an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent accountants. The members of the Audit Committee currently are
Messrs. Cooper, Emling and Trustey.
BOARD COMPENSATION
Directors currently receive no cash compensation for serving on the Board
of Directors, although directors are reimbursed for all reasonable expenses
incurred by them in attending Board and Committee meetings. In connection with
their election to the Board of Directors of the Company, Messrs. Emling and
Cooper were each granted options to purchase 33,000 shares of Common Stock under
the Company's 1996 Stock Option Plan at exercise prices of $4.97 and $11.00 per
share, respectively. The options vest in five equal annual installments,
commencing on the first anniversary of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was established in
July 1996, and currently consists of Messrs. Trustey, Mohan and Cooper. None of
these individuals were at any time an officer or employee of the Company. Prior
to July 1996, the functions of the Compensation Committee were performed by the
Board of Directors as a whole. For information regarding certain transactions
between the Company and members of the Board of Directors and the Compensation
Committee, see "Certain Transactions."
37
<PAGE> 38
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned in the year ended December 31, 1996 by the Company's
President and Chief Executive and by the Company's other executive officers in
office at December 31, 1996 who earned in excess of $100,000 during 1996
(collectively, the "Named Executive Officers"). No stock options were granted
to, or exercised by, the Named Executive Officers during 1996. None of the Named
Executive Officers held any stock options at the end of 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Ernest L. Burdette,................................ $224,280 $100,000 $22,500(1)
Chief Executive Officer, President and Director
Robert E. Sandoz,.................................. $224,280 $100,000 $22,500(1)
Vice President
Frank J. Wilem, Jr.,............................... $224,280 $100,000 $22,500(1)
Vice President
</TABLE>
- ---------------
(1) Represents contributions by the Company on behalf of the Named Executive
Officer to the Company's Simplified Employee Pension Plan, which has been
replaced by its 401(k) Plan.
EMPLOYMENT AGREEMENTS
On July 25, 1996, the Company entered into three year employment agreements
with each of Messrs. Burdette, Sandoz and Wilem. These agreements were amended
on December 31, 1996. Mr. Burdette's agreement provides for his employment as
President and Chief Executive Officer of the Company at an annual base salary of
$125,000. Mr. Sandoz' agreement provides for his employment as Vice President of
Operations of the Company at an annual base salary of $125,000. Mr. Wilem's
agreement provides for his employment as Vice President of Corporate Development
of the Company at an annual base salary of $125,000. Each of the foregoing
agreements provides for annual salary increases in such amounts, if any, as
determined by the Compensation Committee of the Board of Directors. In addition,
Messrs. Burdette, Sandoz and Wilem are eligible to receive annual bonuses upon
the achievement by the Company of certain financial targets established by the
Compensation Committee, and, upon termination of employment by the Company
without cause, are entitled to receive severance pay for the lesser of twelve
months and the remaining balance of the term of the agreements, along with any
accrued bonuses.
STOCK PLANS
1996 Stock Option Plan. The Company has a 1996 Stock Option Plan (the
"1996 Plan"). A maximum of 1,541,707 shares of Common Stock are reserved for
issuance pursuant to the 1996 Plan upon exercise of options. Under the 1996
Plan, incentive stock options may be granted to employees and officers of the
Company and non-qualified stock options may be granted to consultants,
directors, employees and officers of the Company. As of February 28, 1997,
options to purchase 433,655 shares of Common Stock were outstanding under the
1996 Plan, of which options to purchase 263,706 shares were then exercisable.
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors, subject to the supervision and control of the entire Board. Subject
to the provisions of the 1996 Plan, the Compensation Committee has the authority
to select 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 fair market value of the Common
Stock on the date of grant, or less than 110% of fair market value in the case
of employees or officers holding 10% or more of the voting stock of the
Company), (iv) the duration of the option, and (v) the time, manner and form of
payment upon exercise of an option.
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<PAGE> 39
An option is not transferrable by the optionee except by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order.
Options are exercisable only while the optionee remains in the employ of the
Company or for a short period of time thereafter. If an optionee becomes
permanently disabled or dies while in the employ of the Company, the option is
exercisable prior to the last day of the sixth or twelfth month, respectively,
following the date of termination of employment. If the optionee leaves the
employ of the Company for any other reason, the option is exercisable for only
thirty days following the date of termination of employment. Options which are
exercisable following termination of employment are exercisable only to the
extent that the optionee was entitled to exercise such options on the date of
such termination.
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") for employees of the Company was adopted by the Board
of Directors and approved by the stockholders of the Company in January 1997.
The 1997 Purchase Plan authorizes the issuance of a maximum of 250,000 shares of
Common Stock pursuant to the exercise of nontransferable options granted to
participating employees. No shares have been granted under the 1997 Purchase
Plan.
The 1997 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
20 hours or more per week and have been employed by the Company for at least six
months are eligible to participate in the 1997 Purchase Plan. Employees who own
5% or more of the Company's 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 in writing to deduct
an amount (not less than 1% nor more than 10% of a participant's base
compensation) from his or her pay during the six-month periods commencing on
July 1, 1997, and on each January 1 and July 1 thereafter (each a "Purchase
Period"). On the first day of each Purchase Period, the Company grants to each
participating employee an option to purchase up to 500 shares of Common Stock.
The exercise price for the option for each Purchase Period is the lesser of 85%
of the fair market value of the Common Stock on the first or last business day
of the Purchase Period. The fair market value will be the closing price of the
Common Stock as quoted on the Nasdaq National Market. If an employee is not a
participant on the last day of the Purchase Period, such employee is not
entitled to exercise his or her option, and the amount of his or her accumulated
payroll deduction will be refunded to the employee. 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.
Common Stock for the 1997 Purchase Plan will be made available either from
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares repurchased in the open market.
401(K) PLAN
The Company has a defined contribution plan (the "401(k) Plan") pursuant to
which employees at least 21 years of age who have completed at least six months
of service are eligible to participate. Participants in the 401(k) Plan may not
contribute more than the greater of a specified statutory amount or 15% of their
pre-tax total compensation. The 401(k) Plan permits, but does not require,
additional contributions to the 401(k) Plan by the Company. Eligible employees
are 100% vested in their own contributions.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation provide that a director shall not be liable
to the Company or its stockholders for monetary damages for any action taken as
a director, except for (i) the amount of a financial benefit received by a
director to which he is not entitled, (ii) an intentional infliction of harm on
the Company or its stockholders, (iii) a violation of Section 79-4-8.33 of the
Mississippi Business Corporation Act relating to unlawful distributions, or (iv)
an intentional violation of criminal law.
39
<PAGE> 40
The Company's Articles of Incorporation and By-laws provide for
indemnification of the officers and directors of the Company to the fullest
extent permitted by Mississippi law, including some instances in which
indemnification is otherwise discretionary under Mississippi law. The Articles
of Incorporation and By-laws provide that the Company shall indemnify, and upon
request shall advance expenses to, in the manner and to the full extent
permitted by law, any officer or director who was or is a party to, or is
threatened to be made a party to, any threatened, pending or completed action,
suit or proceeding; provided, however, the Company shall not indemnify an
officer or director if a judgment or final adjudication adverse to the officer
or director establishes his liability for (i) the amount of a financial benefit
received by a director to which he is not entitled, (ii) an intentional
infliction of harm on the Company or its stockholders, (iii) a violation of
Section 79-4-8.33 of the Mississippi Business Corporation Act relating to
unlawful distributions, or (iv) an intentional violation of criminal law. The
Company believes that these provisions are essential to attracting and retaining
qualified persons as officers and directors.
40
<PAGE> 41
CERTAIN TRANSACTIONS
Summit Financing and Recapitalization. The Company completed the
Recapitalization on July 25, 1996 to provide liquidity to Ernest L. Burdette,
Robert E. Sandoz, Frank J. Wilem, Jr. (the "Founders"), William D. Jackson and
Mary E. Dressel (collectively with the Founders, the "Original Stockholders").
Pursuant to the Recapitalization, the Company repurchased an aggregate of
approximately 55% of the outstanding Common Stock from the Original Stockholders
for a total consideration of $22.7 million, which was allocated to the Original
Stockholders in the following amounts: Mr. Burdette ($7.4 million), Mr. Sandoz
($7.4 million), Mr. Wilem ($7.4 million), Mr. Jackson ($493,000), and Ms.
Dressel ($49,000). Of such amount, $16.7 million was paid in cash and $6.0
million was paid through the issuance of 8% Subordinated Promissory Notes due
2001 of the Company (the "Original Stockholder Notes"). Each of the Original
Stockholders received a pro rata portion of the cash and Original Stockholder
Notes in proportion to their ownership of the Company's Common Stock.
Immediately prior to the consummation of the Recapitalization, the Company made
a dividend distribution to the Original Stockholders in the form of an aggregate
of 100,000 shares of Series B Preferred Stock, which also was allocated among
the Original Stockholders in proportion to their ownership of the Company's
Common Stock.
In order to finance the Recapitalization, the Company (i) issued and sold
an aggregate of 114,000 shares of Series A Preferred Stock to Summit Investors
III, L.P. and Summit Ventures IV L.P. for an aggregate purchase price of $11.4
million, and (ii) issued and sold an aggregate of $5.5 million in principal
amount of 12% Subordinated Debentures due 2001 of the Company (the "Subordinated
Debentures") to Summit Investors III, L.P. and Summit Subordinated Debt Fund,
L.P. (collectively with Summit Ventures IV, L.P., the "Summit Entities") for an
aggregate purchase price of $5.5 million. After the foregoing transactions, the
Company issued and sold an aggregate of 6,863,999 shares of Common Stock to the
Summit Entities for an aggregate purchase price of $100,000.
The Original Stockholder Notes and Subordinated Debentures were repaid in
full, for an aggregate of approximately $11.7 million (including accrued
interest of $206,000) on September 26, 1996 with the proceeds of the Bank Credit
Facility provided by The First National Bank of Boston. The proceeds from the
repayment of the Original Stockholder Notes were allocated to the Original
Stockholders in the following amounts: Mr. Burdette ($1,979,610), Mr. Sandoz
($1,979,610), Mr. Wilem ($1,979,610), Mr. Jackson ($131,974), and Ms. Dressel
($13,196). The proceeds from the repayment of the Subordinated Debentures were
allocated to the Summit Entities in the following amounts: Summit Investors III,
L.P. ($108,175), and Summit Subordinated Debt Fund, L.P. ($5,505,492). In
January 1997, the Bank Credit Facility was amended to increase the credit line
by $15.0 million to $30.0 million, with the proceeds used to redeem all of the
outstanding Series A Preferred Stock for an aggregate redemption price of $12.0
million (including accrued dividends of $580,000) and all of the outstanding
Series B Preferred Stock for an aggregate redemption price of $10.5 million
(including accrued dividends of $508,000). The proceeds from the redemption of
the Series A Preferred Stock were allocated to the Summit Entities in the
following amounts: Summit Investors III, L.P. ($598,975), and Summit Ventures
IV, L.P. ($11,380,525). The proceeds from the redemption of the Series B
Preferred Stock were allocated to the Original Stockholders in the following
amounts: Mr. Burdette ($3,419,201), Mr. Sandoz ($3,419,201), Mr. Wilem
($3,419,201), Mr. Jackson ($227,926), and Ms. Dressel ($22,803).
In connection with the Recapitalization, the Company entered into a
Shareholders' Agreement dated July 25, 1996 (the "Shareholders' Agreement") with
the Summit Entities and the Original Stockholders, and a Registration Rights
Agreement dated July 25, 1996 (the "Registration Rights Agreement") with the
Summit Entities and the Founders. The Shareholders' Agreement provides for,
among other things, restrictions on transfer of shares, rights of first refusal,
rights of participation in sales, take along rights and election of directors.
The Shareholders' Agreement will terminate upon consummation of this offering,
except that the right of the Summit Entities to participate in sales of Common
Stock by the Original Stockholders will continue until the tenth anniversary of
the Recapitalization. Pursuant to the Registration Rights Agreement, holders of
at least 25% of the shares of Common Stock held by the Summit Entities may
require the Company to effect the registration of shares of Common Stock held by
such parties for sale to the public on any two occasions, subject to certain
conditions and limitations. In addition, under the terms of the
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<PAGE> 42
Registration Rights Agreement, if the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Securities Act"),
whether for its own account or otherwise, the parties to the Registration Rights
Agreement are entitled to receive notice of such registration and to include
their shares therein, subject to certain conditions and limitations. The Company
has agreed to pay the fees, costs and expenses of any registration effected on
behalf of the parties to the Registration Rights Agreement (other than
underwriting discounts and commissions.) All rights to register Common Stock in
connection with this offering, other than the shares being sold hereby by the
Selling Stockholders, have been waived by the parties to the Registration Rights
Agreement. See "Shares Eligible for Future Sale -- Registration Rights."
In connection with the Recapitalization, Messrs. Burdette, Sandoz and Wilem
made certain representations and warranties to the Summit Entities with respect
to the business, operations and financial condition of the Company, and agreed
to indemnify the Company and the Summit Entities for losses incurred as a result
of a breach of such representations and warranties; provided that the aggregate
liability of such individuals shall not exceed $6.6 million for claims arising
prior to April 30, 1997, and $3.3 million for claims arising after such date.
Such indemnification obligations will expire thirty days after the delivery of
financial statements for the Company's fiscal year ended December 31, 1997 to
the Summit Entities; provided that such obligations will continue with respect
to certain matters, including certain tax matters, until expiration of the
applicable statute of limitations.
Headquarters Lease and Purchase. Prior to December 31, 1996, the Company's
headquarters facility at 522 East Railroad Street, Long Beach, Mississippi was
leased to the Company by Ernest L. Burdette, Robert E. Sandoz and Frank J.
Wilem, doing business as Calypso Properties. Under the lease dated February 1,
1995, the Company paid an annual minimum rent ranging from $6,666 to $13,332 per
month. The Company believes that the terms of the lease were no less favorable
to it than could have been obtained from an unaffiliated party. From October 30,
1995 through February 14, 1996, the Company made loans to Calypso Properties in
the aggregate principal amount of $176,000, at an annual rate of interest of
9.75%, the proceeds of which were used for improvements to the Company's
headquarters. The loans were repaid in full in July 1996.
On December 31, 1996, the Company purchased the land and buildings for
$587,000, an amount agreed upon by the disinterested members of the Board of
Directors after review of independent appraisals. The original cost to Calypso
Properties of the land, building and improvements was $611,471. On December 31,
1996, the Company also purchased its telephone system, which previously had been
leased from Calypso Properties for $3,000 per month, from Calypso Properties for
$44,257, its book value.
Other. The Company and the Founders entered into employment agreements in
July 1996, which were amended in December 1996. See "Management -- Employment
Agreements." The Company also paid one-time year-end bonuses aggregating $1.9
million to the Founders in the fourth quarter of 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." From
January 1, 1996 until July 25, 1996, the Company was a Subchapter S corporation
for federal and state income tax purposes and paid out substantially all of its
earnings to its stockholders during such period. See "Dividend Policy."
The Company has adopted a policy pursuant to which all future transactions
between the Company and its 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
Company's Board of Directors.
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<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997, as adjusted to
reflect the sale of the shares offered hereby, (i) by each person who is known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) by each director and Named Executive Officer, (iii) by all
directors and executive officers of the Company as a group and (iv) by 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 BEING
OFFERED(2)
------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) THE OFFERING(1)(2)
------------------- --------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners(3)........................... 6,863,999 55.3% 450,000 6,413,999 39.7%
600 Atlantic Avenue
Boston, MA 02110
Ernest L. Burdette........................... 1,803,999 14.5 -- 1,803,999 11.2
522 East Railroad Street
Long Beach, MS 39560
Robert E. Sandoz............................. 1,803,999 14.5 -- 1,803,999 11.2
522 East Railroad Street
Long Beach, MS 39560
Frank J. Wilem, Jr........................... 1,803,999 14.5 -- 1,803,999 11.2
522 East Railroad Street
Long Beach, MS 39560
Thomas A. Cooper............................. -- -- -- -- --
Charles A. Emling, III....................... -- -- -- -- --
Kevin P. Mohan(4)............................ 6,863,999 55.3 450,000 6,413,999 39.7
Joseph F. Trustey(5)......................... 6,863,999 55.3 450,000 6,413,999 39.7
All executive officers and directors
as a group(8).............................. 12,275,996 98.9% 450,000 11,825,996 73.2%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days following
February 28, 1997, are deemed outstanding. However, such shares are not
deemed outstanding for purposes of computing the percentage ownership of
any other person. No options are presently exercisable within 60 days after
February 28, 1997. The number of shares of Common stock deemed outstanding
after this offering includes an additional 3,750,000 shares of Common Stock
that are being offered for sale by the Company in this offering.
(2) Represents 402,676, 26,481, and 20,843 shares of Common Stock being sold in
the offering by Summit Ventures IV, L.P., Summit Subordinated Debt Fund,
L.P. and Summit Investors III, L.P., respectively. In the event that the
Underwriters' over-allotment option is exercised in full, each of the
following stockholders will sell the following numbers of additional
shares: (i) Summit Ventures IV, L.P., Summit Subordinated Debt Fund, L.P.
and Summit Investors III, L.P. will sell an additional 80,535, 5,296 and
4,169 shares, respectively; (ii) Messrs. Burdette, Sandoz and Wilem each
will sell 175,705 shares; and (iii) William D. Jackson and Mary E. Dressel
will sell 11,714 shares and 1,171 shares, respectively. Mr. Jackson and Ms.
Dressel owned 120,266 shares and 12,026 shares, respectively, prior to the
offering (representing in each case less than 1% of the outstanding
shares). If the over-allotment option is
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<PAGE> 44
exercised in full, the following stockholders will own the following number
of shares, representing the following percentages of the outstanding
shares: (i) Summit Ventures IV, L.P. (5,658,942 shares; 35.0%); (ii) Summit
Subordinated Debt Fund, L.P. (372,145 shares; 2.3%); (iii) Summit Investors
III, L.P. (292,912 shares; 1.8%); (iv) each of Messrs. Burdette, Sandoz and
Wilem (1,628,294 shares; 10.1%); (v) Mr. Jackson (108,552 shares; less than
1%); and (vi) Ms. Dressel (10,855 shares; less than 1%).
(3) Shares owned beneficially prior to the offering consist of 6,142,153,
403,922 and 317,924 shares held by Summit Ventures IV, L.P., Summit
Subordinated Debt Fund, L.P. and Summit Investors III, L.P., respectively.
Summit Partners SD, L.P. is the General Partner of Summit Subordinated Debt
Fund, L.P., and Summit Partners IV, L.P. is the General Partner of Summit
Ventures IV, L.P. Stamps, Woodsum & Co., III is the General Partner of
Summit Partners SD, L.P. and Stamps, Woodsum & Co. IV is the General
Partner of Summit Partners IV, L.P. Joseph F. Trustey, a director of the
Company, is a General Partner of Stamps, Woodsum & Co. III, Stamps, Woodsum
& Co. IV and Summit Investors III, L.P. See Note (4)
(4) Includes shares described in Note (3) above. Mr. Mohan, a director of the
Company, is a principal of affiliates of Summit Partners. Mr. Mohan
exercises shared investment and voting power with respect to such shares,
but disclaims beneficial ownership of such shares.
(5) Includes shares described in Note (3) above. Mr. Trustey, a director of the
Company, is a general partner of affiliates of Summit Partners. Mr. Trustey
exercises shared investment and voting power with respect to such shares,
but disclaims beneficial ownership of such shares.
44
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock
of the Company will consist of 40,000,000 shares of Common Stock, $.01 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock"). As of February 28, 1997, there were outstanding
12,408,288 shares of Common Stock (owned of record by eight holders) and no
shares of Preferred Stock. As of such date, there were outstanding options to
purchase an aggregate of 433,655 shares of Common Stock and warrants to purchase
an aggregate of 32,109 shares of Common Stock.
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 Articles of
Incorporation as amended and restated (the "Articles of Incorporation"), which
are included as an exhibit to the Registration Statement, and by the provisions
of applicable law.
COMMON STOCK
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,
subject to any preferential dividend rights of any then outstanding Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to 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. The shares of Common Stock
outstanding upon the effective date of this Prospectus are, and the shares
offered by the Company hereby will be, when issued and paid for, fully paid and
nonassessable. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of holders of shares of any Preferred Stock that the Company may
designate in the future.
PREFERRED STOCK
After the closing of this offering, the Company's Board of Directors will
have the authority, without further stockholder approval, to issue up to
5,000,000 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. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Company's Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price, and the voting and other rights of the holders of, the Common
Stock. No shares of Preferred Stock will be outstanding immediately following
the closing of this offering. The Company has no present plans to issue any
shares of Preferred Stock.
BANK WARRANT
The Company issued a warrant (the "Bank Warrant") to an affiliate of The
First National Bank of Boston (the "Bank") in connection with the January 1997
increase in the Bank Credit Facility. The exercise price of the Bank Warrant is
$11.00 per share. The Bank Warrant expires January 24, 2007, and is presently
exercisable with respect to 32,109 shares of Common Stock.
CERTAIN ARTICLES OF INCORPORATION, BY-LAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Articles of Incorporation and By-laws. The Company's Articles of
Incorporation provide that stockholders may remove a director only for cause.
Advance notice of stockholder nominations and any other matter to be brought
before a meeting of stockholders will be required to be given in writing to the
Secretary of the Company within the time periods specified in the Company's
By-laws. The Articles of Incorporation provide
45
<PAGE> 46
that special meetings of stockholders of the Company may be called only by the
Board of Directors, the Chairman of the Board of Directors, the Chief Executive
Officer, the President or the holders of 50% or more of the outstanding shares.
The By-laws provide that no action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may be taken
without a meeting, unless the unanimous consent of stockholders entitled to vote
thereon is obtained.
Mississippi Anti-Takeover Statutes The Mississippi Shareholder Protection
Act (the "Protection Act"), which will be applicable after this offering at such
time as the Company has 500 or more beneficial owners of its stock, requires
that a business combination be approved by the affirmative vote of at least (a)
80% of the votes entitled to be cast by outstanding shares of voting stock of
the corporation and (b) two-thirds ( 2/3) of the votes entitled to be cast by
holders of voting stock not held by an interested stockholder who is a party to
the business combination, except that the provisions of the Protection Act shall
not apply if the business combination is approved by at least 80% of the
Company's directors or if the aggregate amount of any offer meets certain fair
price criteria.
"Business combination" is defined in the Protection Act generally as:
(i) Any merger, consolidation, share exchange or similar transaction
with any interested stockholder or other corporation which is an affiliate
of an interested stockholder, (ii) any sale, lease, transfer or other
disposition in a transaction with any interested stockholder of assets
having an aggregate market value of 20% or more of the total market value
of the outstanding stock of the corporation or of its assets; (iii) the
issuance or transfer by the corporation, or any subsidiary, of any
securities of the corporation or any subsidiary which have an aggregate
market value of 5% or more of the total market value of the outstanding
stock of the corporation to any interested stockholder or any affiliate of
any interested stockholder; (iv) the adoption of any plan or proposal for
the liquidation, dissolution of or similar transaction involving the
corporation in which anything other than cash will be received by an
interested stockholder; or (v) any reclassification or recapitalization of
securities or any merger, consolidation or share exchange of the
corporation with any of its subsidiaries which increases by 5% or more the
proportionate share of the total number of outstanding shares or class of
equity securities held by any interested stockholder or affiliate thereof.
"Interested stockholder" means any person or associated group of persons
acting in concert (other than the corporation and/or any subsidiaries) that (i)
is the beneficial owner of 20% or more of the voting power of the outstanding
voting stock of the corporation, or (ii) is an affiliate of the corporation and
at any time within the two-year period immediately prior to the date in question
was the beneficial owner of 20% or more of the voting power of the then
outstanding voting stock of the corporation.
Following the closing of this offering, the Company will be subject to the
Mississippi Control Share Act (the "Control Act"). The Control Act, subject to
certain exceptions, reduces the voting power of "control shares" having voting
power of one-fifth or more of all voting power of the corporation to zero unless
the shareholders of the corporation approve a resolution granting the shares the
same voting rights as they had before they became control shares.
"Control shares" means issued and outstanding shares of a corporation that,
except for the Control Act, would have voting power when added to all other
shares of the issuing corporation owned of record or beneficially by an
acquiring person that would entitle the acquiring person to exercise more than
one-fifth of the voting power of the corporation in the election of directors.
Directors' Liability. The Articles of Incorporation of the Company provide
that no director shall be liable to the Company or its stockholders for monetary
damages for any action taken as a director, except for (i) the amount of a
financial benefit received by a director to which he is not entitled, (ii) an
intentional infliction of harm on the Company or its stockholders, (iii) a
violation of Section 79-4-8.33 of the Mississippi Business Corporation Act
relating to unlawful distribution, or (iv) an intentional violation of criminal
law. The effect of this provision is to eliminate the rights of the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care other than as described in clauses (i) through (iv)
above. The limitations summarized
46
<PAGE> 47
above, however, do not affect the ability of the Company or its stockholders to
seek non-monetary based remedies, such as an injunction or rescission against a
director for breach of his fiduciary duty, nor would such limitations limit
liability under the federal securities laws. The Company's Articles of
Incorporation and By-laws provide that the Company shall, to the full extent
permitted by Mississippi law, as amended from time to time, indemnify and
advance expenses to each of its currently acting and former directors, officers,
employees and agents arising in connection with their acting in such capacities,
including some instances in which indemnification is otherwise discretionary
under Mississippi law.
The provisions of the Protection Act and the Control Act, the provisions of
the Company's By-laws and Articles of Incorporation relating to the removal of
directors and the taking of actions at stockholder meetings, and the authority
of the Board of Directors to issue Preferred Stock, all as described above, may
have certain anti-takeover effects. Such provisions, individually or in
combination, may discourage other persons from or make it more difficult for
other persons to make a tender offer or acquisitions of substantial amounts of
the Company's Common Stock or from launching other takeover attempts that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in the payment of a premium over the market price for
the Common Stock held by such stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
47
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale, will
have on the prevailing market prices for the Common Stock. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
the Company's future ability to obtain capital through an offering of equity
securities.
Upon completion of this offering, the Company will have 16,158,288 shares
of Common Stock outstanding (assuming no exercise of outstanding options and
warrants). Of these shares, the 4,200,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be
sold in compliance with the limitations of Rule 144 described below. The
remaining shares of Common Stock outstanding upon completion of this offering
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 promulgated under the Securities Act,
which are summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.
Of the Restricted Shares, up to 132,292 shares, all of which are subject to
lock-up agreements as described below, may be eligible for sale in the public
market immediately after this offering pursuant to Rule 144(k) under the
Securities Act. An additional 5,411,997 Restricted Shares, all of which are
subject to lock-up agreements as described below, will be eligible for resale
under Rule 144 commencing 90 days after the effective date of this offering. The
remaining 6,413,999 Restricted Shares, all of which are subject to lock-up
agreements as described below, will be eligible for resale under Rule 144
commencing on July 26, 1997.
The holders of all shares of Common Stock outstanding prior to the offering
have entered into contractual "lock-up" agreements providing that they will not
offer, sell or otherwise dispose of the shares of Common Stock of the Company,
options or warrants to acquire shares of Common Stock or any securities
exercisable for or convertible into the Company's Common Stock owned by them for
a period of 180 days after the date of this Prospectus, without the prior
written consent of Montgomery Securities. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of this offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
(including the holding period of any prior owner except an Affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (which will equal approximately 161,583 shares immediately
after this offering); or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an Affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years (including the holding period of any prior owner except
an Affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provision of Rule 144.
In addition, the Securities and Exchange Commission has approved an
amendment to Rule 144, effective April 29, 1997, which reduces by one year the
holding periods before shares subject to Rules 144 and 144(k) become eligible
for sale in the public market. Accordingly, all Restricted Shares will be
eligible for resale under Rule 144 following the expiration of the lock-up
period.
As of February 28, 1997, options to purchase a total of 433,655 shares of
Common Stock were outstanding. Of the total shares issuable pursuant to such
options, 362,706 (including all options that are currently exercisable) are
subject to lock-up agreements. An additional 1,358,052 shares of Common Stock
48
<PAGE> 49
are available for future grants under the Company's stock option and employee
stock purchase plans. See "Management -- Stock Plans."
In general, under Rule 701, as currently in effect, beginning 90 days after
the effective date of this offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
eligible for sale in the public market. Any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits Affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-Affiliates may sell such shares in reliance
on Rule 144 without having to comply with the public information, volume
limitation or notice provisions of Rule 144. In both cases, a holder of Rule 701
shares is required to wait until 90 days after the date of this Prospectus
before selling such shares.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option and employee stock purchase plans that do not qualify for an
exemption under Rule 701 from the registration requirements of the Securities
Act. The Company expects to file these registration statements upon the
effectiveness of this offering or shortly thereafter, and such registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to the lock-up agreements, to the extent applicable.
REGISTRATION RIGHTS
Upon the completion of this offering, certain stockholders and the holder
of the Bank Warrant (the "Rightsholders") will be entitled to require the
Company to register under the Securities Act up to a total 11,858,105 shares
(11,240,990 shares if the Underwriters' over-allotment is exercised in full) of
outstanding Common Stock (the "Registrable Shares") under the terms of a
Registration Rights Agreement among the Company and the Rightsholders (the
"Registration Agreement") and the terms of the Bank Warrant. The Registration
Agreement and the Bank Warrant provide 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 Rightsholders who currently
hold an aggregate of 6,413,999 shares of Common Stock have, subject to certain
conditions and limitations, additional rights to require the Company to prepare
and file a registration statement under the Securities Act with respect to their
Registrable Shares if Rightsholders holding at least 25% of the Registrable
Shares held by all such Rightsholders so request. The Company is generally
required to bear the expenses of all such registrations, except underwriting
discounts and commissions.
49
<PAGE> 50
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Smith
Barney Inc. and The Robinson-Humphrey Company, Inc. (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and certain of the Selling
Stockholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Smith Barney Inc. ........................................................
The Robinson-Humphrey Company, Inc. ......................................
---------
Total........................................................... 4,200,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per share; and
the Underwriters may allow, and such dealers may reallow, a concession of not
more than $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 630,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 4,200,000
shares to be purchased by the Underwriters. To the extent that the Underwriters
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
All holders of Common Stock, including each director, officer and Selling
Stockholder, who will together hold 11,958,288 shares of Common Stock following
the closing of this offering, have agreed, subject to certain limited
exceptions, not to sell, or offer to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock currently held by them, any right to
acquire any shares of Common Stock or any securities exercisable for or
convertible into any shares of Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of Montgomery
Securities. Montgomery Securities may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, the Company has agreed, subject to certain
exceptions, that for a period of
50
<PAGE> 51
180 days after the date of this Prospectus it will not, without the prior
written consent of Montgomery Securities, issue, offer, sell, grant options to
purchase or otherwise dispose of any equity securities or securities convertible
into or exchangeable for equity securities except for shares of Common Stock
offered hereby, shares issuable upon exercise of the Bank Warrant, options
granted or shares issued pursuant to new or outstanding options under the 1996
Plan or the 1997 Purchase Plan and shares issued in connection with acquisitions
so long as the recipients thereof agree to a similar lock-up provision. See
"Management -- Stock Plans."
Certain persons participating in this offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may involve the purchase of Common Stock of the Company on
the Nasdaq National Market or otherwise. Such transactions may stabilize or
maintain the market price of the Common Stock at a level above that which might
otherwise prevail in the open market and, if commenced, may be discontinued at
any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of this offering.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in such negotiations will be the history of, and
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, the Company's past and present operations and
financial performance, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state of
the Company's development, the general condition of the securities markets at
the time of the offering and the market prices of publicly traded common stocks
of comparable companies in recent periods.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Hutchins, Wheeler &
Dittmar, A Professional Corporation, Boston, Massachusetts. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Hale and Dorr LLP, Boston, Massachusetts. With respect to certain matters of
Mississippi law, Hutchins, Wheeler & Dittmar will rely on the opinion of
Brunini, Grantham, Grower & Hewes, PLLC, Jackson, Mississippi.
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
51
<PAGE> 52
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act (the "Registration Statement") 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. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and in each instance
reference is made to the copy of such contract or other 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 or copied at
prescribed rates at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549,
and at the Commission's Regional Offices located at The Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material may
be obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
or accessed on the Commission's World Wide Web site at (http://www.sec.gov).
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
---------------------
ATMjr Demonstrator, ATMjr+CAS, miniATM, Triton Connect, and Triton are
trademarks of Triton Systems, Inc. All other trademarks and trade names referred
to in this Prospectus are the property of their respective owners.
52
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996.................................. F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996.... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31,
1994, 1995 and 1996............................................................. F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
Board of Directors
Triton Systems, Inc.
Long Beach, Mississippi
We have audited the accompanying balance sheets of Triton Systems, Inc. as
of December 31, 1995 and 1996 and the related statements of operations,
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 audits 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, such financial statements present fairly, in all material
respects, the financial position of Triton Systems, Inc. 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.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
January 24, 1997
F-2
<PAGE> 55
TRITON SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
PRO FORMA
1995 1996 1996
---------- ------------ ------------
(NOTE 13)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................................... $2,502,931 $ 4,518,783 $ 3,991,783
Accounts receivable, net of $100,000 (1995) and $1,030,000
(1996) allowance for bad debts............................... 4,648,130 4,472,146 4,472,146
Inventory...................................................... 1,888,344 3,044,939 3,044,939
Prepaid expenses and other current assets...................... 3,798 4,559 4,559
Deferred income taxes.......................................... 80,000 700,000 700,000
---------- ------------ ------------
Total current assets......................................... 9,123,203 12,740,427 12,213,427
---------- ------------ ------------
Property and Equipment:
Equipment...................................................... 289,811 434,890 434,890
Building and improvements...................................... 39,824 685,426 685,426
---------- ------------ ------------
329,635 1,120,316 1,120,316
Less accumulated depreciation.................................. 179,625 241,425 241,425
---------- ------------ ------------
Property and equipment, net.................................. 150,010 878,891 878,891
---------- ------------ ------------
Other Assets..................................................... -- 56,250 56,250
---------- ------------ ------------
Total Assets..................................................... $9,273,213 $ 13,675,568 $ 13,148,568
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................................... $ 768,814 $ 2,071,802 $ 2,071,802
Income taxes payable........................................... 2,682,935 236,855 236,855
Accrued expenses............................................... 377,615 1,092,252 1,092,252
---------- ------------ ------------
Total current liabilities.................................... 3,829,364 3,400,909 3,400,909
---------- ------------ ------------
Long-Term Debt -- revolving line of credit....................... -- 8,000,000 29,818,000
Mandatorily Redeemable Preferred Stock:
Mandatorily redeemable Series A preferred stock, $.01 par
value; 114,000 shares authorized, issued and outstanding in
1996 with a redemption value of $100 per share ($11,400,000),
plus accrued dividends; none outstanding in 1995 and pro
forma........................................................ -- 11,652,000 --
Mandatorily redeemable Series B preferred stock, $.01 par
value; 100,000 shares authorized, issued and outstanding in
1996 with a redemption value of $100 per share ($10,000,000),
plus accrued dividends; none outstanding in 1995 and pro
forma........................................................ -- 10,442,000 --
---------- ------------ ------------
Total mandatorily redeemable preferred stock................. -- 22,094,000 --
---------- ------------ ------------
Commitments (Notes 1 and 11)
Stockholders' Equity (Deficit):
Preferred stock $.01 par value, 5,000,000 shares authorized,
none issued.................................................. -- -- --
Common stock $.01 par value; 40,000,000 shares authorized;
12,408,288 shares issued in 1995 and 1996.................... 124,083 124,083 124,083
Common stock $.01 par value (non-voting), 1,000,000 shares
authorized, none issued...................................... -- -- --
Additional paid in capital..................................... -- 302,360 302,360
Distributions in excess of basis............................... (23,176,784) (23,176,784)
Retained earnings.............................................. 5,319,766 2,931,000 2,680,000
---------- ------------ ------------
Total stockholders' equity (deficit)......................... 5,443,849 (19,819,341) (20,070,341)
---------- ------------ ------------
Total Liabilities and Stockholders' Equity (Deficit)............. $9,273,213 $ 13,675,568 $ 13,148,568
========== ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 56
TRITON SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................ $3,236,058 $21,007,965 $40,967,899
Cost of sales........................................ 1,948,479 9,246,818 21,350,001
---------- ----------- -----------
Gross profit.................................... 1,287,579 11,761,147 19,617,898
Operating expenses................................... 916,603 4,342,767 5,235,474
---------- ----------- -----------
Income from operations.......................... 370,976 7,418,380 14,382,424
Interest income (expense), net....................... 7,330 110,309 (185,432)
---------- ----------- -----------
Income before income taxes...................... 378,306 7,528,689 14,196,992
Income taxes......................................... 145,000 2,815,000 2,650,000
---------- ----------- -----------
Net income...................................... 233,306 4,713,689 11,546,992
Accretion of preferred stock dividends and
redemption value................................... -- -- 965,000
---------- ----------- -----------
Net income applicable to common stockholders.... $ 233,306 $ 4,713,689 $10,581,992
========== =========== ===========
Net income applicable to common
stockholders -- per common share.............. $ 0.02 $ 0.37
========== ===========
Pro Forma Information (unaudited):
Historical net income applicable to common
stockholders.................................... $10,581,992
Adjustment to reflect income tax expense........... (2,850,000)
Adjustment for assumed replacement of preferred
stock with debt................................. 485,000
-----------
Pro forma net income applicable to common
stockholders.................................... $ 8,216,992
===========
Pro forma net income applicable to common
stockholders -- per common share................ $ 0.65
===========
Weighted average shares outstanding.................. 12,731,018 12,731,018 12,731,018
========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 57
TRITON SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DISTRIBUTIONS
--------------------- PAID-IN IN EXCESS RETAINED
SHARES AMOUNT CAPITAL OF BASIS EARNINGS TOTAL
---------- -------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994.............. 12,408,288 $124,083 $ -- $ -- $ 372,771 $ 496,854
Net income.......................... 233,306 233,306
---------- -------- -------- ------------ ------------ ------------
Balance, December 31, 1994............ 12,408,288 124,083 -- -- 606,077 730,160
Net income.......................... 4,713,689 4,713,689
---------- -------- -------- ------------ ------------ ------------
Balance, December 31, 1995............ 12,408,288 124,083 -- -- 5,319,766 5,443,849
Net income -- January 1, 1996 to
July 25, 1996..................... 7,650,992 7,650,992
Distribution in the form of
mandatorily redeemable preferred
stock............................. (10,000,000) (10,000,000)
Recapitalization and distributions
to stockholders................... (6,863,999) (68,640) (13,176,784) (12,970,758) (26,216,182)
Issuance of common stock.............. 6,863,999 68,640 302,360 371,000
Net income -- July 26, 1996 to
December 31, 1996................. 3,896,000 3,896,000
Accretion of redemption value on
mandatorily redeemable Series A
preferred stock................... (20,000) (20,000)
Accretion of dividends on
mandatorily redeemable Series A
and B preferred stock............. (945,000) (945,000)
---------- -------- -------- ------------ ------------ ------------
Balance, December 31, 1996............ 12,408,288 $124,083 $302,360 $ (23,176,784) $ 2,931,000 $(19,819,341)
========== ======== ======== ============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 58
TRITON SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................................... $233,306 $4,713,689 $11,546,992
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts............................... -- 100,000 930,000
Depreciation and amortization......................... 31,937 50,798 61,800
Deferred income taxes................................. -- (20,000) (620,000)
Changes in operating assets and liabilities:
Accounts receivable................................. 17,916 (4,387,900) (754,016)
Inventory........................................... (57,537) (1,553,794) (1,156,595)
Prepaid expenses and other current assets........... (24,348) 22,511 (761)
Accounts payable.................................... 174,132 491,768 1,302,988
Income taxes payable................................ (20,708) 2,657,286 (2,446,080)
Accrued expenses.................................... 47,885 25,913 714,637
-------- ---------- -----------
Net cash provided by operating activities........ 402,583 2,100,271 9,578,965
-------- ---------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment.................... (55,560) (136,050) (790,681)
Other.................................................... (56,250)
-------- ---------- -----------
Net cash used in investing activities............ (55,560) (136,050) (846,931)
-------- ---------- -----------
Cash Flows from Financing Activities:
Proceeds from revolving line of credit................... 11,700,000
Repayment of revolving line of credit.................... (3,700,000)
Proceeds from issuance of Common Stock................... 371,000
Proceeds from issuance of mandatorily redeemable Series A
preferred stock....................................... 11,129,000
Proceeds from issuance of 12% subordinated debentures.... 5,500,000
Repayment of 12% subordinated debentures................. (5,500,000)
Repayment of 8% subordinated promissory notes............ (6,000,000)
Distributions to the original stockholders as dividends
and redemption consideration.......................... (20,216,182)
-------- ---------- -----------
Net cash used in financing activities............ -- -- (6,716,182)
-------- ---------- -----------
Net Increase in Cash....................................... 347,023 1,964,221 2,015,852
Cash, Beginning of Year.................................... 191,687 538,710 2,502,931
-------- ---------- -----------
Cash, End of Year.......................................... $538,710 $2,502,931 $ 4,518,783
======== ========== ===========
Supplemental Cash Flow Information:
Income taxes paid........................................ $171,588 $ 150,000 $ 5,724,000
======== ========== ===========
Interest paid............................................ $ 5,811 $ 3,749 $ 347,233
======== ========== ===========
Noncash Financing Activities:
Issuance of 8% subordinated promissory notes to original
stockholders in connection with the Recapitalization
(Note 1).............................................. $ -- $ -- $ 6,000,000
======== ========== ===========
Issuance of mandatorily redeemable Series B preferred
stock to original stockholders (Note 1)............... $ -- $ -- $10,000,000
======== ========== ===========
Accretion of preferred stock dividends and redemption
value................................................. $ -- $ -- $ 965,000
======== ========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 59
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The Company was founded in 1979 and designs and
manufactures automated teller machines ("ATMs") and other financial hardware
products, such as scrip terminals and ATM demonstration machines.
Recapitalization -- On July 25, 1996, the Company effected a
recapitalization (the "Recapitalization") pursuant to which the Company
repurchased an aggregate of approximately 55% of the outstanding Common Stock
from its founders and certain other stockholders (the "Original Stockholders")
for a total consideration of $22.7 million. Of this amount, $16.7 million was
paid in cash and $6.0 million was paid through the issuance of 8% Subordinated
Promissory Notes of the Company due in 2001 (the "Stockholder Notes").
Immediately prior to the consummation of the Recapitalization, the Company made
a dividend distribution to the Original Stockholders in the form of an aggregate
of 100,000 shares of Series B preferred stock.
In order to finance the Recapitalization, the Company issued and sold (1)
an aggregate of 114,000 shares of Series A Preferred Stock with a redemption
value of $11.4 million for an aggregate purchase price of $11.4 million, and (2)
$5.5 million of 12% Subordinated Debentures of the Company due 2001 (the
"Subordinated Debentures") for an aggregate purchase price of $5.5 million.
After the foregoing transactions, the Company issued and sold an aggregate of
6,863,999 shares of Common Stock for an aggregate purchase price of $100,000.
On September 26, 1996, the Stockholder Notes and Subordinated Debentures
were repaid from the proceeds of a revolving line of credit provided by The
First National Bank of Boston. See Note 12 regarding the subsequent redemption
of the Series A and Series B preferred stock on January 24, 1997.
The transaction has been accounted for as a recapitalization, and
accordingly, no change in the accounting basis of the Company's assets have been
made in the accompanying financial statements. The amount of cash paid and
securities issued to the stockholders exceeded the Company's net assets on the
date of the transaction and has been recorded in the stockholders' equity
section as distributions in excess of basis.
Cash and Cash Equivalents -- All highly liquid investments with an original
maturity of three months or less from the date of purchase and money market
funds are considered cash equivalents.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounts Receivable -- Accounts receivable are reduced by any necessary
allowance for doubtful accounts. The allowance is determined by management based
on an evaluation of individual accounts and historical chargeoffs.
Financial Instruments -- The fair value of the Company's financial
instruments approximate their carrying amount.
Inventory -- Parts and supplies are carried at the lower of cost (FIFO) or
market. The cost of work in process and finished goods is based on accumulated
direct costs and allocated overhead.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation and amortization are provided over the estimated useful lives of
the various properties using accelerated methods. The headquarters building is
being depreciated over a 25 year useful life. Furniture, fixtures, and equipment
are depreciated over useful lives varying from three to seven years. Automobiles
are depreciated over a five year useful life. Upon
F-7
<PAGE> 60
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disposal, the assets and related accumulated depreciation are removed from the
Company's accounts, and the resulting gains and losses are reflected in the
statements of operations.
Revenue Recognition -- Revenue is recognized upon shipment of the product
to the customer. The Company does not grant rights of return.
Warranties -- The Company's products are covered by a one-year parts-only
warranty. During 1996, the Company increased its warranty coverage from three
months to one year. Estimated future costs of repair, replacement, or customer
accommodations are reflected in the accompanying financial statements. Such
warranty reserves amounted to $35,000 and $585,000 at December 31, 1995 and 1996
and are included in accrued expenses.
Research and Development -- Research and development expenditures are
charged to operations as incurred. Costs incurred in 1994, 1995 and 1996 were
approximately $102,000, $221,000 and $355,000, respectively.
Income Taxes -- The provision for income taxes includes federal and state
taxes currently payable and deferred taxes arising from temporary differences
between income for financial statement purposes and income tax purposes.
Concentration of Credit Risk -- The Company sells its products to a limited
number of distributors and performs ongoing credit evaluations of these
distributors. The Company does not require collateral for its receivables and
maintains an allowance for potential credit losses. At December 31, 1996, three
customers accounted for approximately 22%, 16% and 11%, respectively, of
accounts receivable.
Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited number of suppliers.
Net Income Applicable to Common Stockholders Per Share -- Net income
applicable to common stockholders per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of stock options
(using the Treasury stock method for all periods presented) as if converted for
all years presented.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all options to purchase shares of common stock granted by the
Company during the twelve-month period prior to the filing of a proposed initial
public offering are included in the calculation as if they were outstanding for
all periods.
Recent Pronouncements -- The Financial Accounting Standards Board has
issued Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" which is required to be adopted in
1997 and 1998. The Company does not expect the adoption of this standard to have
a material impact on the Company's financial condition or results of operations.
Reclassifications -- Certain reclassifications have been made to the 1994
and 1995 financial statements to conform to the classifications used in 1996.
2. ALLOWANCE FOR BAD DEBTS
Following is a summary of the allowance for bad debts (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
------- ---- ------
<S> <C> <C> <C>
Balance at beginning of year...................... $ -- $ -- $ 100
Provision for bad debts........................... -- 100 930
------- ---- -------
Balance at end of year............................ $ -- $100 $1,030
======= ==== =======
</TABLE>
F-8
<PAGE> 61
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORY
Following is a summary of inventory at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Parts and supplies................................................. $1,503 $2,381
Work in process.................................................... 141 137
Finished goods..................................................... 244 527
------ ------
$1,888 $3,045
====== ======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of a revolving line of credit due on September 26,
2001. The line has an adjustable interest rate. At December 31, 1996, the
effective interest rate thereon was 7.25%. The agreement provides for annual
reductions of $1,000,000 in the available line beginning in September 1997.
Based on the balance of the line at December 31, 1996, no payments would be
required in 1997. In connection with the revolving line of credit, the Company
has entered into a pledge and security agreement with the lender under which
substantially all assets of the Company were pledged to secure the revolving
credit line.
The revolving line of credit contains certain covenants that prohibit the
Company from incurring certain indebtedness, restricts investments, and
prohibits cash dividends. In addition, the Company is required to maintain
required quarterly net income, meet minimum debt service coverages, maintain
certain leverage ratios and limit the amount of capital expenditures in any one
year. The Company was in compliance with all covenants of the line at December
31, 1996. The revolving line of credit was amended in January 1997 (see Note
12). The amendment requires an annual $2.0 million reduction in the maximum
available borrowing amount beginning in September 1997. Interest expense
amounted to $6,000, $4,000 and $350,000 for 1994, 1995 and 1996, respectively.
5. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company authorized and issued 114,000 shares of Series A preferred
stock at a price of $100 per share in order to finance the Recapitalization. The
Company authorized and issued 100,000 shares of Series B preferred stock as a
stock dividend to stockholders immediately prior to the Recapitalization. Both
the Series A and Series B preferred stock have a face value of $100. Dividends
accrue at 10% annually and are cumulative whether or not declared and paid.
Neither the Series A nor Series B preferred stockholders have any conversion
rights or voting rights. The Company has recorded the Series A preferred stock
at its estimated fair value on the issue date (as determined by a third-party
independent appraisal) which resulted in an original issue discount of $271,000.
The discount is being accreted over the life of the Series A preferred stock.
The rights and preferences of the Series A and B preferred stock are as follows:
Liquidation Rights -- The Series A and B preferred stock have certain
liquidation preferences over the common stock in the event of liquidation,
dissolution or winding up of the Company. The liquidation preferences
entitle the preferred stockholders to receive $100 per share in addition to
any accrued and unpaid dividends. The Series A preferred stockholders have
preferences over the Series B stockholders in determining the order of
liquidation payout. The preferred stock does not participate in the
distribution of assets remaining after the preference has been paid.
Dividend Rights -- The preferred stockholders are entitled to receive
dividends in preference to the common stockholders at an annual rate of ten
percent (10%) of the purchase price of $100 per share, compounded annually.
As long as any preferred shares are outstanding, the Company cannot declare
or pay any dividend or make any distribution to any common stock. The
carrying amounts of both Series A
F-9
<PAGE> 62
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and Series B preferred stock have been increased by amounts representing
dividends accrued but not paid but which will be payable under the dividend
rights of the respective series of preferred stock. The increases have been
effected by a charge against retained earnings.
Redemption Rights -- The Company may redeem all or any of the shares
of the Series A preferred stock at any time. On July 31, 2002, the Company
must redeem all of the shares of Series A preferred stock outstanding. The
Company may also redeem all or any shares of the Series B preferred stock
at any time but only if all shares of Series A preferred stock has been
redeemed.
The Company is required to redeem all of the shares of the Series A and
Series B preferred stock in the event of a public offering of the Company's
common stock or a merger or sale of the Company. However, the Series A stock
must be redeemed prior to the Series B. The redemption price of the Series A and
Series B preferred stock is $100 per share plus any accrued and unpaid
dividends.
See Note 12 regarding the subsequent redemption of the Series A and Series
B preferred stock on January 24, 1997.
6. PENSION PLAN AND 401(K) PLAN
The Company had a simplified employee pension plan (SEP). Contributions
were made to the plan at the discretion of the Company's Board of Directors and
amounted to approximately $120,000 in 1995 and $100,000 in 1994. In 1996 the
Company discontinued the SEP and instituted a 401(k) plan. The Company's
contribution to the 401(k) plan each year is at the discretion of the Board of
Directors and amounted to $264,000 in 1996 and was included in accrued expenses
at December 31, 1996.
7. INCOME TAXES
Income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Current
Federal.................................................. $125 $2,455 $2,830
State.................................................... 20 380 440
----- ------ ------
145 2,835 3,270
----- ------ ------
Deferred
Federal.................................................. -- (17) (538)
State.................................................... -- (3) (82)
----- ------ ------
-- (20) (620)
----- ------ ------
Total tax expense................................ $145 $2,815 $2,650
===== ====== ======
</TABLE>
F-10
<PAGE> 63
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate differs from the statutory federal tax
rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Income taxes at statutory rate................................ 34.0% 34.0% 34.0%
Income taxed to stockholders.................................. -- -- (18.4)
State income taxes............................................ 3.5 3.3 1.7
Non-deductible items.......................................... 0.6 0.1 1.4
Other items -- net............................................ 0.3 -- --
---- ---- -----
Effective tax rate.................................. 38.4% 37.4% 18.7%
==== ==== =====
</TABLE>
The components of the Company's deferred tax assets were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
---- ----
<S> <C> <C>
Allowance for bad debts............................................... $ 38 $385
Inventory............................................................. 10 60
Compensated absences.................................................. 44 35
Warranty reserves..................................................... 12 220
Other -- net.......................................................... (24) --
---- ----
Total deferred tax assets................................... $ 80 $700
==== ====
</TABLE>
From January 1, 1996 through July 25, 1996, the Company elected to be taxed
as a Subchapter S corporation for federal and state income tax purposes.
Therefore, taxable income during this period was taxed directly to the
stockholders.
8. STOCK OPTION PLAN
The Company has reserved up to 1,541,707 shares of its $.01 par value
Common Stock and Non-Voting Common Stock for issuance under the 1996 Stock
Option Plan. Incentive stock options and non-qualified stock options may be
granted under the terms of the Plan. Options are exercisable only while the
optionee remains in the employ of the Company or for a short period of time
thereafter. All options granted as of December 31, 1996 were non-qualified stock
options and were exercisable for Non-Voting Common Stock. No incentive stock
options have been granted. Options granted in 1996 were vested immediately as to
263,706 shares, vest one-third each year over 3 years as to 103,949 shares and
vest one-fifth each year over 5 years as to 33,000 shares. All options expire no
later than 10 years from the date of grant.
Transactions in the plan are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ------------------------------
AVAILABLE SHARES UNDER PRICE
FOR GRANT OPTION PER SHARE
--------- ------------ -------------
<S> <C> <C> <C>
Authorized................................... 1,541,707 -- --
Granted...................................... 400,655 400,655 $1.21 - $4.97
Exercised.................................... -- -- --
------- ------- -------------
Balance at December 31, 1996....... 1,141,052 400,655 $1.21 - $4.97
======= ======= =============
</TABLE>
Options to purchase 263,706 shares were exercisable at December 31, 1996.
F-11
<PAGE> 64
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is applying APB opinion No. 25 and related interpretations in
accounting for the Plan. All shares granted in 1996 were at or above the
estimated fair market value on the date of grant, as determined by an
independent third party appraisal. Accordingly, no compensation expense has been
recognized. If the Company determined compensation cost based on the fair value
at the date of grant, consistent with the requirements of Financial Accounting
Standards Board Statement No. 123 "Accounting for Stock Based Compensation," the
effect on the Company's net income and net income applicable to common
stockholders would not have been material and, accordingly, the pro forma
effects of such costs have not been presented. In computing these pro forma
amounts the Company has assumed a risk-free interest rate equal to approximately
6 1/2%, expected life of approximately 3 years, no volatility and no dividends.
The effects of applying SFAS No. 123 in this disclosure are not indicative of
future amounts.
9. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1994, one customer accounted for 27% of the
Company's net sales. For the year ended December 31, 1995, one customer
accounted for 12% of the Company's net sales. For the year ended December 31,
1996, two customers accounted for 22% and 19%, respectively, of the Company's
net sales. In addition, the Company's five largest customers, in the aggregate,
accounted for approximately 62% of the Company's net sales in 1996.
10. RELATED PARTY TRANSACTIONS
Prior to December 30, 1996, the Company leased its headquarters and
manufacturing facility and telephone system from three major officers and
stockholders. Under the lease, dated February 1, 1995, the Company paid rent
ranging from $9,666 to $16,332 per month. On December 30, 1996, the Company
purchased the land, building and telephone system from the officers and
stockholders for an aggregate of $631,257, an amount agreed upon by the
disinterested members of the Board of Directors after review of independent
appraisals. From October 30, 1995 through February 14, 1996, the Company made
loans to an entity owned by the three stockholders in the aggregate principal of
$176,000, at an annual interest rate of 9.75%, the proceeds of which were used
for improvements to the Company headquarters. The loans were repaid in full in
July 1996.
11. COMMITMENTS
On July 25, 1996, the Company entered into certain employment agreements
for a three year period. These employment agreements, as amended, require
aggregate minimum payment of $375,000 annually. Such agreements provide for
annual salary increases and bonuses as determined by the Board of Directors.
12. SUBSEQUENT EVENTS
1997 Stock Purchase Plan -- On January 23, 1997, the Board of Directors
adopted the 1997 Employee Stock Purchase Plan and authorized the issuance of up
to 250,000 shares of common stock under this plan to participating employees. On
the first day of each purchase period, participating employees will be granted
an option to purchase up to 500 shares of common stock. The exercise price for
the option for each purchase period is the lesser of 85% of the fair market
value of the common stock on the first or last business day of the purchase
period.
Stock Splits -- On January 23, 1997, the Company's Board of Directors
approved a 1.65 for 1 stock split to be effected on January 27, 1997. All share
and per share data in the accompanying financial statements have been
retroactively restated to reflect the stock split.
Stock Offering -- On January 23, 1997, the Company's Board of Directors
authorized management of the Company to file a Registration Statement with the
Securities and Exchange Commission relating to the initial
F-12
<PAGE> 65
TRITON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
public offering of shares of common stock. The Board has also directed that the
net proceeds to the Company from the offering be used to retire the revolving
credit line.
Redemption of Mandatorily Redeemable Series A and B Preferred Stock -- On
January 24, 1997, the Company redeemed all of the outstanding shares of Series A
preferred stock for an aggregate redemption price of $11,400,000 (plus accrued
dividends of $580,000), and all outstanding shares of Series B preferred stock
for an aggregate redemption price of $10,000,000 (plus accrued dividends of
$508,000). The redemption was financed in part through $21,818,000 in additional
borrowings under the Company's revolving line of credit, the availability under
which was increased from $15.0 to $30.0 million pursuant to an amendment to the
revolving credit facility. In connection with the increase in availability under
the revolving line of credit, the Company issued a warrant to purchase 32,109
shares of common stock at an exercise price of $11.00 per share to an affiliate
of the Bank. The warrant expires in January 2007 and is presently exercisable.
The amendment to the revolving line of credit provides for annual reductions of
$2.0 million in the available line beginning in September 1997.
Amendment to Articles -- On January 27, 1997, the Company's Articles of
Incorporation were amended to increase the number of authorized shares of common
stock, par value $.01 per share, from 10,000,000 to 40,000,000 and to set the
number of authorized shares of undesignated preferred stock, par value $.01 per
share, at 5,000,000.
13. UNAUDITED PRO FORMA INFORMATION
Pro Forma Balance Sheet Information -- The pro forma balance sheet
information is adjusted for the pro forma effect of the redemption of all
mandatorily redeemable preferred stock at its required redemption price at
December 31, 1996 of approximately $22,345,000 and its replacement with
long-term debt funded by a $21,818,000 increase in the Company's revolving line
of credit and a deemed use of $527,000 in cash.
Pro Forma Net Income Applicable to Common Stockholders -- The pro forma
adjustments reflect what the effect on historical net income applicable to
common stockholders would have been if the Company had not elected to be taxed
as a Subchapter S corporation during the period from January 1, 1996 through
July 25, 1996. The adjustments include a provision for federal and state income
taxes at an effective rate of 38.7% as if the Company was subject to such taxes
during such period. In connection with the Recapitalization on July 25, 1996,
the Company terminated its status as a Subchapter S corporation. The 1996
historical net income applicable to common stockholders is also adjusted by (i)
the additional interest expense (net of tax) as if the additional $21,818,000
borrowed to fund in part the redemption of the mandatorily redeemable preferred
stock had been incurred on July 25, 1996 and (ii) the elimination of accretion
of dividends and redemption value on the mandatorily preferred stock to reflect
such redemption. Pro forma net income applicable to common stockholders per
share is based on the weighted average number of common and dilutive common
equivalent shares (common stock options) outstanding.
* * * * * *
F-13
<PAGE> 66
======================================================
No dealer, salesperson 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 the Underwriters. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction in which such 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 or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 36
Certain Transactions.................. 41
Principal and Selling Stockholders.... 43
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 48
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Additional Information................ 52
Index to Financial Statements......... F-1
</TABLE>
------------------------------
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 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.
======================================================
======================================================
4,200,000 SHARES
[TRITON SYSTEMS LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
======================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Registration fee under the Securities Act................................. $ 19,028
NASD filing fee........................................................... 6,779
Nasdaq National Market listing fee........................................ 50,000
Legal fees and expenses................................................... 275,000
Accounting fees and expenses.............................................. 75,000
Blue Sky fees and expenses................................................ 15,000
Printing, engraving and mailing expenses.................................. 85,000
Transfer agent fees and expenses.......................................... 5,000
Miscellaneous............................................................. 69,193
--------
Total........................................................... $600,000
========
</TABLE>
All the above expenses will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and By-laws provide for
indemnification of the officers and directors of the Company to the fullest
extent permitted by Mississippi law, including some instances with respect to
directors where indemnification is otherwise discretionary under Mississippi
law. The Articles of Incorporation and By-laws provide that the Company shall
indemnify, and upon request shall advance expenses to, in the manner and to the
full extent permitted by law, any officer or director who was or is a party to,
or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding; provided, however, the Company shall not indemnify
an officer or director if a judgment or final adjudication adverse to the
officer or director establishes his liability for (i) the amount of financial
benefit received by a director to which he is not entitled, (ii) an intentional
infliction of harm on the Company or its stockholders, (iii) a violation of
Section 79-4-8.33 of the Mississippi Business Corporation Act relating to
unlawful distributions, or (iv) an intentional violation of criminal law.
Reference is made to the Company's Articles of Incorporation and By-laws filed
as Exhibits 3.2 and 3.4 hereto.
The Company intends to purchase insurance with respect to, among other
things, the liabilities that may arise under the statutory provisions referred
to above. The directors and officers of the Company also are insured against
certain liabilities, including certain liabilities arising under the Securities
Act of 1933, which might be incurred by them in such capacities and against
which they are not indemnified by the Company.
Reference is hereby made to Section 11 of the Underwriting Agreement filed
as Exhibit 1.1 hereto, which provides for indemnification of the Company, its
directors, officers and controlling persons.
II-1
<PAGE> 68
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1994, the Company has issued the following securities
(giving effect to the 1.65:1 stock split effected in the form of a stock
dividend on January 27, 1997), none of which have been registered under the
Securities Act of 1933, as amended (the "Act"):
(a) On July 25, 1996, the Company issued and sold an aggregate of $5.5
million in principal amount of 12% Subordinated Debentures due 2001 of the
Company to Summit Investors III, L.P. and Summit Subordinated Debt Fund,
L.P. in a private venture capital financing.
(b) On July 25, 1996, the Company issued an aggregate of 114,000
shares of Series A Preferred Stock for aggregate consideration of
$11,400,000 in a private venture capital financing, at a price of $100 per
share, to Summit Ventures IV, L.P. and Summit Investors III, L.P.
(c) On July 25, 1996, the Company issued 6,863,999 shares of Common
Stock for aggregate consideration of $100,000 in a private venture capital
financing, to Summit Ventures IV, L.P., Summit Investors III, L.P. and
Summit Subordinated Debt Fund, L.P.
(d) Between July 25, 1996 and January 23, 1997, the Company granted
options to purchase an aggregate of 433,655 shares of Non-Voting Common
Stock to employees and directors under the Company's 1996 Stock Option
Plan.
No underwriters were involved in any of the foregoing transactions. Such
sales of stock and grants of options were made in reliance upon an exemption
from the registration provisions of the Act set forth in Section 4(2) thereof
relative to sales by an issuer not involving a public offering or the rules and
regulations thereunder, or, in the case of certain options to purchase Common
Stock, Rule 701 of the Act. All of the foregoing securities are deemed
restricted securities for purposes of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Restated Articles of Incorporation of the Company
*3.2 Form of Restated Articles of Incorporation of the Company, to be effective upon
the closing of the offering
*3.3 By-Laws of the Company
*3.4 Form of By-Laws of the Company, to be effective upon the closing of the offering
**4.1 Specimen stock certificate representing the shares of Common Stock
5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to the
legality of the securities being registered
*10.1 Stock Purchase and Redemption Agreement, dated July 25, 1996
*10.2 Redemption Agreement among the Company and the Shareholders, dated July 25, 1996
*10.3 Shareholders' Agreement among the Company and the Shareholders, dated July 25,
1996
*10.4 Registration Rights Agreement among the Company and the Shareholders, dated July
25, 1996
*10.5 Credit Agreement between the Company and The First National Bank of Boston, dated
September 26, 1996
*10.6 Revolving Credit Note to The First National Bank of Boston, dated September 26,
1996
*10.7 Pledge and Security Agreement between the Company and The First National Bank of
Boston, dated September 26, 1996
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ----------------------------------------------------------------------------------
<C> <S>
*10.8 Collateral Assignment and Security Agreement in Respect of Stock Purchase and
Redemption Agreement between the Company and The First National Bank of Boston,
dated September 26, 1996
*10.9 Triton Systems, Inc. 1996 Stock Option Plan
*10.10 Triton Systems, Inc. 1997 Employee Stock Purchase Plan
*10.11 Employment Agreement with Ernest L. Burdette, dated July 25, 1996
*10.12 Employment Agreement with Frank J. Wilem, Jr., dated July 25, 1996
*10.13 Employment Agreement with Robert E. Sandoz, dated July 25, 1996
*10.14 Purchase and Sale Agreement, among the Company, Ernest L. Burdette, Frank J.
Wilem, Jr. and Robert E. Sandoz, dated December 31, 1996
*10.15 Amendment to Employment Agreement with Ernest L. Burdette, dated December 31, 1996
*10.16 Amendment to Employment Agreement with Frank J. Wilem, Jr., dated December 31,
1996
*10.17 Amendment to Employment Agreement with Robert E. Sandoz, dated December 31, 1996
*10.18 First Amendment to Credit Agreement, dated January 24, 1997, by and between Triton
Systems Inc. and The First National Bank of Boston
*10.19 First Amendment to Promissory Note, dated as of January 24, 1997 by and between
Triton and the First National Bank of Boston
*10.20 First Amendment to Security Documents, dated January 24, 1997, by and between
Triton Systems Inc. and The First National Bank of Boston
*10.21 Warrant to Purchase Common Stock of Triton Systems, Inc., dated as of January 24,
1997
*10.22 Co-Sale Agreement, dated as of January 24, 1997 by and among the Company, Summit
Ventures IV, L.P., Summit Investors III, L.P. and Summit Subordinated Debt Fund,
L.P., Triton Systems, Inc. and F.S.C. Corp.
11.1 Statement re computation of per share earnings
*21.1 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1)
*24.1 Power of Attorney
*27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
(b) Financial Statement Schedules. Financial statement schedules have not
been filed with this Registration Statement since either they are not applicable
or the required information has been included in the Company's financial
statements.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Articles of Incorporation, as amended, and Bylaws of
the Registrant and the laws of the State of Mississippi, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
II-3
<PAGE> 70
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 that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. 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-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts on the 3rd day of March, 1997.
TRITON SYSTEMS, INC.
ERNEST L. BURDETTE
By: ................................
ERNEST L. BURDETTE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ --------------
<C> <S> <C>
ERNEST L. BURDETTE President, Chief Executive March 3, 1997
........................................ Officer and Director
ERNEST L. BURDETTE (principal executive officer)
JEFFREY A. BANDROWSKI Vice President-Chief Financial March 3, 1997
........................................ Officer (principal accounting
JEFFREY A. BANDROWSKI and financial officer)
* Director March 3, 1997
........................................
ROBERT E. SANDOZ
* Director March 3, 1997
........................................
FRANK J. WILEM, JR.
* Director March 3, 1997
........................................
JOSEPH F. TRUSTEY
* Director March 3, 1997
........................................
KEVIN P. MOHAN
* Director March 3, 1997
........................................
CHARLES A. EMLING, III
* Director March 3, 1997
........................................
THOMAS A. COOPER
By: JEFFREY A. BANDROWSKI
............................. ........
JEFFREY A. BANDROWSKI
AS ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
*3.1 Restated Articles of Incorporation of the Company
*3.2 Form of Restated Articles of Incorporation of the Company, to be
effective upon the closing of the offering
*3.3 By-Laws of the Company
*3.4 Form of By-Laws of the Company, to be effective upon the closing of the
offering
**4.1 Specimen stock certificate representing the shares of Common Stock
5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as
to the legality of the securities being registered
*10.1 Stock Purchase and Redemption Agreement, dated July 25, 1996
*10.2 Redemption Agreement among the Company and the Shareholders, dated July
25, 1996
*10.3 Shareholders' Agreement among the Company and the Shareholders, dated
July 25, 1996
*10.4 Registration Rights Agreement among the Company and the Shareholders,
dated July 25, 1996
*10.5 Credit Agreement between the Company and The First National Bank of
Boston, dated September 26, 1996
*10.6 Revolving Credit Note to The First National Bank of Boston, dated
September 26, 1996
*10.7 Pledge and Security Agreement between the Company and The First
National Bank of Boston, dated September 26, 1996
*10.8 Collateral Assignment and Security Agreement in Respect of Stock
Purchase and Redemption Agreement between the Company and The First
National Bank of Boston, dated September 26, 1996
*10.9 Triton Systems, Inc. 1996 Stock Option Plan
*10.10 Triton Systems, Inc. 1997 Employee Stock Purchase Plan
*10.11 Employment Agreement with Ernest L. Burdette, dated July 25, 1996
*10.12 Employment Agreement with Frank J. Wilem, Jr., dated July 25, 1996
*10.13 Employment Agreement with Robert E. Sandoz, dated July 25, 1996
*10.14 Purchase and Sale Agreement, among the Company, Ernest L. Burdette,
Frank J. Wilem, Jr. and Robert E. Sandoz, dated December 31, 1996
*10.15 Amendment to Employment Agreement with Ernest L. Burdette, dated
December 31, 1996
*10.16 Amendment to Employment Agreement with Frank J. Wilem, Jr., dated
December 31, 1996
*10.17 Amendment to Employment Agreement with Robert E. Sandoz, dated December
31, 1996
*10.18 First Amendment to Credit Agreement, dated January 24, 1997, by and
between Triton Systems Inc. and The First National Bank of Boston
*10.19 First Amendment to Promissory Note, dated as of January 24, 1997 by and
between Triton and the First National Bank of Boston
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------
<C> <S> <C>
*10.20 First Amendment to Security Documents, dated January 24, 1997, by and
between Triton Systems Inc. and The First National Bank of Boston
*10.21 Warrant to Purchase Common Stock of Triton Systems, Inc., dated as of
January 24, 1997
*10.22 Co-Sale Agreement, dated as of January 24, 1997 by and among the
Company, Summit Ventures IV, L.P., Summit Investors III, L.P. and
Summit Subordinated Debt Fund, L.P., Triton Systems, Inc. and F.S.C.
Corp.
11.1 Statement re computation of per share earnings
*21.1 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in Exhibit 5.1)
*24.1 Power of Attorney
*27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
<PAGE> 1
DRAFT
-------
3-3-97
4,200,000 Shares
TRITON SYSTEMS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
March __, 1997
MONTGOMERY SECURITIES
SMITH BARNEY INC.
[THE ROBINSON-HUMPHREY COMPANY, INC.]
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1. INTRODUCTORY. Triton Systems, Inc. a Mississippi corporation
(the "Company"), proposes to issue and sell 3,750,000 shares of its authorized
but unissued Common Stock (the "Common Stock") and certain stockholders of the
Company named in Schedule B annexed hereto (the "Firm Selling Stockholders" and,
together with the stockholders of the Company named in Schedule C annexed
hereto, the "Selling Stockholders") propose to sell an aggregate of 450,000
shares of the Company's issued and outstanding Common Stock to the several
underwriters named in Schedule A annexed hereto (the "Underwriters"), for whom
you are acting as Representatives. Said aggregate of 4,200,000 shares are herein
called the "Firm Common Shares." In addition, the Selling Stockholders propose
to grant to the Underwriters an option to purchase up to 630,000 additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
<PAGE> 2
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-20577) with
respect to the Common Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The Company has prepared and has filed or
proposes to file prior to the effective date of such registration statement
an amendment or amendments to such registration statement, which amendment
or amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus have been delivered to
you in such reasonable quantities as you have requested for each of the
Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations or (iii) a term sheet (the "Term Sheet") as described in and in
accordance with Rules 434 and 424(b) of the Rules and Regulations. As
filed, the final prospectus, if one is used, or the Term Sheet and
Preliminary Prospectus, if a final prospectus is not used, shall include
all Rule 430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was
executed and delivered by the parties hereto, or, to the extent not
completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously advised
you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined),
-2-
<PAGE> 3
shall also mean such registration statement as so amended; provided,
however, that such term shall also include (i) all Rule 430A Information
deemed to be included in such registration statement at the time such
registration statement becomes effective as provided by Rule 430A of the
Rules and Regulations and (ii) any registration statement filed pursuant to
462(b) of the Rules and Regulations relating to the Common Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean (i) the prospectus relating to the Common Shares in the form in which
it is first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, or (ii) if a Term Sheet is not used and no filing pursuant
to Rule 424(b) of the Rules and Regulations is required, the form of final
prospectus included in the Registration Statement at the time such
registration statement becomes effective or (iii) if a Term Sheet is used,
the Term Sheet in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, together with the
Preliminary Prospectus included in the Registration Statement at the time
it becomes effective. The term "Rule 430A Information" means information
with respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each 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 becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and 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, and neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, will 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;
provided, however, no representation or warranty contained in
-3-
<PAGE> 4
this subsection 2(b) shall be applicable to information contained in or
omitted from any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed
in Exhibit 21 to the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full corporate power and authority to
own and lease their properties and conduct their respective businesses as
described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of all claims, liens,
charges and encumbrances; the Company and each of its subsidiaries are in
possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, all of which are valid and in full
force and effect; the Company and each of its subsidiaries are duly
qualified to do business and in good standing as foreign corporations in
each jurisdiction in which the ownership or leasing of properties or the
conduct of their respective businesses requires such qualification, except
for jurisdictions in which the failure to so qualify would not have a
material adverse effect upon the Company and its subsidiaries, taken as a
whole; and 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.
(d) Except as otherwise disclosed in the Prospectus, the Company has
an authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus. The issued and outstanding shares of
Common Stock have been duly authorized and validly issued, 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 conform to the description thereof contained in the Prospectus. All
issued and outstanding shares of capital stock of each subsidiary of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company, and the related notes thereto,
included in the Prospectus, neither the Company nor
-4-
<PAGE> 5
any subsidiary has 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 in all material respects the information
required to be shown with respect to such plans, arrangements, options and
rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Common Shares
by the Company pursuant to this Agreement. No stockholder of the Company
has any right which has not been waived to require the Company to register
the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the stockholders or the Board of Directors of the Company will
be required for the transfer and sale of the Common Shares to be sold by
the Selling Stockholders or the issuance and sale of the Common shares to
be sold by the Company as contemplated herein.
(f) 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 constitutes a valid and binding obligation of the Company in accordance
with its terms. The making and performance of this Agreement by the Company
and the consummation of the transactions herein contemplated will not
violate any provisions of the certificate of incorporation or bylaws, or
other organizational documents, of the Company or any of its subsidiaries,
and will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both,
a default under any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its respective properties may be bound or affected,
any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of
-5-
<PAGE> 6
its subsidiaries or any of their respective properties. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common
Shares by the several Underwriters and the clearance of such offering with
the National Association of Securities Dealers, Inc. (the "NASD").
(g) Deloitte & Touche LLP, who have expressed their opinion with
respect to the financial statements and schedules filed with the Commission
as a part of the Registration Statement and included in the Prospectus and
in the Registration Statement, are independent accountants as required by
the Act and the Rules and Regulations.
(h) The financial statements and schedules of the Company and the
related notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the
respective dates of such financial statements and schedules, and the
results of operations and changes in financial position of the Company for
the respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). The unaudited financial
statements of the Company from which the financial data included in the
Registration Statement and the Prospectus under the caption "Selected
Financial Data" have been derived present fairly the financial position of
the Company as of the respective dates of such financial statements, and
the results of operations and changes in financial position of the Company
for the respective periods covered thereby, and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis with the audited financial statements included in the
Registration Statement and the Prospectus. No other financial statements or
schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Financial Data" fairly present the
information set forth therein on the basis stated in the Registration
Statement. The pro forma financial information included in the Registration
Statement and the Prospectus presents fairly the information shown therein,
has been prepared in accordance with the Rules and Regulations and has been
properly compiled on the bases described therein, and the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate
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<PAGE> 7
to give effect to the transactions and circumstances referred to therein.
(i) Except as disclosed in the Prospectus, and except as to defaults
which individually or in the aggregate would not be material to the
Company, neither the Company nor any of its subsidiaries is in violation or
default of any provision of its certificate of incorporation or bylaws, or
other organizational documents, or is in breach of or default with respect
to any provision of any agreement, judgment, decree, order, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound,
and there does not exist any state of facts which constitutes an event of
default on the part of the Company or any such subsidiary as defined in
such documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(j) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The contracts so described in
the Prospectus are in full force and effect on the date hereof, and neither
the Company nor any of its subsidiaries, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of such
contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased by
the Company or any of its subsidiaries is or may be the subject, or related
to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company and
its subsidiaries, taken as a whole; and no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent
which might be expected to affect materially and adversely such condition,
properties, business, results of operations or prospects. Neither the
Company nor any of its subsidiaries is a party or subject to the provisions
of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
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<PAGE> 8
(l) The Company or the applicable subsidiary has good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by
the Company and its subsidiaries. The Company or the applicable subsidiary
holds its leased properties under leases which are valid and binding
against the Company and, to the best of the Company's knowledge, valid and
binding against the other parties thereto, with such exceptions as are not
materially significant in relation to the business of the Company. Except
as disclosed in the Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course
of business or which could reasonably be expected to result in a material
reduction in the future earnings of the Company and its subsidiaries; (ii)
the Company and its subsidiaries have not sustained any loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance, which loss or interference would have a material adverse effect
on the Company and its subsidiaries, taken as a whole; (iii) the Company
has not paid or declared any dividends or other distributions with respect
to its capital stock and the Company and its subsidiaries are not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other
than upon the sale of the Common Shares hereunder) or indebtedness material
to the Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of
operations or prospects of the Company and its subsidiaries, taken as a
whole.
(n) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or have the legal right to
use all trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals
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<PAGE> 9
and governmental authorizations to conduct their businesses as now
conducted; the expiration of any trademarks, trade names, patent rights,
mask works, copyrights, licenses, approvals or governmental authorizations
would not have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries, taken as a whole; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret or
other similar rights of others, and there is no claim being made against
the Company or its subsidiaries regarding trademark, trade name, patent,
mask work, copyright, license, trade secret or other infringement which
could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no reason to believe,
that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
(p) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or its subsidiaries which could materially and adversely affect the
business, operations or properties of the Company and its subsidiaries.
(q) The Company is not, and upon the consummation of the transactions
contemplated by this Agreement and the application by the Company of the
net proceeds from the sale of Common Shares by it hereunder as described in
the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(r) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the
offering and sale of the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
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<PAGE> 10
(s) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for its business,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(t) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States of any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(v) The Company (i) has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to register the Common Stock thereunder, and (ii) has
filed an application to list the Common Stock on the Nasdaq National Market
and has received notification that such listing has been approved, subject
to notice of issuance and sale of the Common Shares.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
STOCKHOLDERS.
(a) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
hereinafter mentioned will have, good and marketable title to the
Common Shares proposed to be sold by such Selling Stockholder
hereunder on such Closing Date and full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver
such Common Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and payment
for such Common Shares hereunder, the Underwriters will acquire good
and marketable title thereto, free and clear of all
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<PAGE> 11
liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and delivered a Power
of Attorney and has executed and delivered or caused to be executed
and delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and in
connection herewith such Selling Stockholder further represents,
warrants and agrees that such Selling Stockholder has deposited in
custody, under the Stockholders Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form
for the Common Shares to be sold hereunder by such Selling
Stockholder, for the purpose of further delivery pursuant to this
Agreement. Such Selling Stockholder agrees that the Common Shares to
be sold by such Selling Stockholder on deposit with the Agent are
subject to the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent irrevocable, and
that the obligations of such Selling Stockholder hereunder shall not
be terminated, except as provided in this Agreement or in the
Stockholders Agreement, by any act of such Selling Stockholder, by
operation of law, by the death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If the Selling
Stockholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the
documents evidencing Common Shares then on deposit with the Agent
shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Agent shall
have received notice thereof.
(iii) This Agreement and the Stockholders Agreement have been
duly authorized, executed and delivered by such Selling Stockholder
and each constitutes the valid and binding obligation and agreement of
such Selling Stockholder, enforceable against such Selling Stockholder
in accordance with its terms.
(iv) The performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby
and by the Stockholders Agreement will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement,
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<PAGE> 12
lease, franchise, license or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling
Stockholder or any of its properties is bound, any statute, or any
judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Stockholder or
any of its properties.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(vi) Each Preliminary Prospectus and the Prospectus, insofar as
it relates to such Selling Stockholder, has conformed in all material
respects to the requirements of the Act and the Rules and Regulations
and, insofar as it relates to such Selling Stockholder, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading
in light of the circumstances under which they were made; and neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, insofar as it relates to such Selling Stockholder,
will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(vii) Such Selling Stockholder is not aware that any of the
representations and warranties set forth in Section 2 above is untrue
or inaccurate in any material respect.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters that he or it will not, without the prior written consent
either of Montgomery Securities or of each of the Representatives (which
consent may be withheld in its or their sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3
under the Exchange Act) by such
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<PAGE> 13
Selling Stockholder, or publicly announce his or its intention to do any of
the foregoing, for a period continuing through the date 180 days after the
first date any of the Common Shares are released by you for sale to the
public. Each Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock held by him or it
except in compliance with the foregoing restrictions.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth (i)
in the last paragraph on the cover page of the Prospectus, (ii) in the
stabilization legend on the inside front cover page of the Prospectus and (iii)
in the first, second and sixth paragraphs under the caption "Underwriting" in
the Prospectus (including the table identifying the underwriters included in the
first paragraph) was furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. The
Representatives represent and warrant that they have been authorized by each of
the other Underwriters as the Representatives to enter into this Agreement on
its behalf and to act for it in the manner herein provided.
SECTION 5. PURCHASE, SALE AND DELIVERY OF COMMON SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters 3,750,000 of the Firm Common Shares, and (ii) the Firm
Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of 450,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Firm Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Firm Selling Stockholders, respectively, shall be $_____ per
share.
The obligation of each Underwriter to the Company shall be to purchase from
the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 3,750,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Firm Selling Stockholders shall be to purchase from the Firm
Selling Stockholders that number of full shares which (as nearly as practicable,
as determined by you) bears to 450,000 the
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<PAGE> 14
same proportion as the number of shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the total number of Firm Common
Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 P.M.
Washington, D.C. time, the fourth) full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third or fourth, as the
case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the fifth full
business day following the first date that any of the Common Shares are released
by you for sale to the public or the date that is 48 hours after the date that
the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Firm Selling Stockholders to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Firm Selling Stockholders against payment
by you, for the accounts of the several Underwriters, of the purchase price
therefor by wire transfer or other transfer of same-day funds to the order of
the Company and of the Agent in proportion to the number of Firm Common Shares
to be sold by the Company and the Firm Selling Stockholders, respectively. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York, as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
In addition, 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 an option to the several Underwriters to
purchase, severally and not jointly, in the respective amounts and priorities
set forth in Schedule C hereto, up to an aggregate of 630,000 Optional Common
Shares at the purchase price per share to be paid for the Firm Common Shares,
for use solely in covering any over-allotments
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<PAGE> 15
made by you for the account of the Underwriters in the sale and distribution of
the Firm Common Shares. The option granted hereunder may be exercised at any
time (but not more than once) within 30 days after the first date that any of
the Common Shares are released by you for sale to the public, upon notice by you
to the Company setting forth the aggregate number of Optional Common Shares as
to which the Underwriters are exercising the option, the names and denominations
in which the certificates for such shares are to be registered and the time and
place at which such certificates will be delivered. Such time of delivery (which
may not be earlier than the First Closing Date), being herein referred to as the
"Second Closing Date," shall be determined by you, but if at any time other than
the First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its name
in Schedule A and the denominator of which is the total number of Firm Common
Shares (subject to such adjustments to eliminate any fractional share purchases
as you in your discretion may make). If the option granted hereunder is
exercised in part, the number of Optional Common Shares to be sold by each
Selling Stockholder shall be determined as set forth on Schedule C (subject to
such adjustments to eliminate any fractional share purchases as you, the Company
and the Selling Stockholders may mutually agree). Certificates for the Optional
Common Shares will be made available for checking and packaging on the business
day preceding the Second Closing Date at a location in New York, New York, as
may be designated by you. The manner of payment for and delivery of the Optional
Common Shares shall be the same as for the Firm Common Shares purchased from the
Selling Stockholders as specified in the two preceding paragraphs. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Company. If the option is cancelled or expires
unexercised in whole or in part, the Company will deregister under the Act the
number of Option Shares as to which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, and to
make payment and give a receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
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<PAGE> 16
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final prospectus, if one is
used, or on the first page of the Term Sheet, if one is used.
Not later than 4:00 p.m. on the business day following the date the Common
Shares are released by the Underwriters for sale to the public, the Company
shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees 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. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly advise
you in writing (i) of the receipt of any comments of the Commission, (ii)
of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a reasonable
time prior to such filing or to which you reasonably object or which is not
in compliance with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or
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<PAGE> 17
supplements to the Registration Statement or the Prospectus which in your
judgment may be necessary or advisable to enable the several Underwriters
to continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible. The
Company will fully and completely comply with the provisions of Rule 430A
of the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares
is required to be delivered under the Act any event occurs, as a result of
which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or if it is necessary at any time to
amend the Prospectus, including any amendments or supplements, to comply
with the Act or the Rules and Regulations, the Company will promptly advise
you thereof and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such compliance
and will use its best efforts to cause the same to become effective as soon
as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but at
the expense of such Underwriter, will promptly prepare 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.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period
of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
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<PAGE> 18
supplements to any such documents in each case as soon as available and in
such quantities as you and the Selling Stockholders may request, for the
purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky laws of such jurisdictions as you
designate and Canadian securities laws, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the suspension
of the qualification or registration of (or any such exemption relating to)
the Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company, with your cooperation, will use its
best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request of the Representatives, to
each of the other Underwriters: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of either Montgomery Securities or each of the
Representatives (which consent may be withheld at the sole discretion of
Montgomery Securities or the Representatives, as the case may be), the
Company will not offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with
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<PAGE> 19
its Common Stock or other equity security; provided, however, that the
Company may (i) issue shares of Common Stock upon the exercise of stock
options and warrants outstanding on the date hereof and described in the
Prospectus (it being agreed that the Company shall not accelerate the
exercisability of any such options or warrants), (ii) grant options and
issue shares of Common Stock in accordance with its 1996 Stock Option Plan
and 1997 Employee Stock Purchase Plan as described in the Prospectus and
(iii) issue equity securities in connection with a business acquisition so
long as the recipients of such securities agree in writing for the benefit
of the Underwriters to be bound by restrictions on such securities
comparable to those set forth in Section 3(b) hereof.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with the statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws and will continue such qualifications, registrations and
exemptions in effect for a period of five years after the date hereof.
(k) The Company will use its best efforts to designate the Common
Stock for quotation on the Nasdaq National Market.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of their obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent accountants, (v)
all costs and
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<PAGE> 20
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, this Agreement, the Agreement
Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws and Canadian securities
laws, (vii) the filing fee of the National Association of Securities Dealers,
Inc., and (viii) all other fees, costs and expenses referred to in Item 13 of
the Registration Statement. Except as provided in this Section 7, Section 9 and
Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky laws and Canadian
securities laws and the Blue Sky memorandum referred to above).
Except as otherwise agreed with the Company, the Selling Stockholders will
pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) any fees and
expenses of counsel for such Selling Stockholders; (ii) any fees and expenses of
the Agent; and (iii) all expenses and taxes incident to the sale and delivery of
the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, 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 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been
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<PAGE> 21
consented to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and Regulations,
the Prospectus shall have been filed in the manner and within the time
period required by Rule 424(b) of the Rules and Regulations; and prior to
such Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge
of the Company, the Selling Stockholders or you, shall be contemplated by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or otherwise, shall
have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock of the Company or
any of its subsidiaries, other than pursuant to the exercise of outstanding
options and warrants disclosed in the Prospectus, or any material increase
in the indebtedness (other than in the ordinary course of business) of the
Company or its subsidiaries, taken as a whole, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered
into by the Company or any of its subsidiaries, which is not in the
ordinary course of business or which could reasonably be expected to result
in a material reduction in the future earnings of the Company and its
subsidiaries, taken as a whole, (iii) no loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries shall
have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries, taken as a whole, (iv) no legal or
governmental action, suit or proceeding affecting the Company or any of its
subsidiaries which is material to the Company and its subsidiaries, taken
as a whole, or which affects or may affect the transactions contemplated by
this Agreement shall have been instituted or threatened and (v) there shall
not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects of the
Company and its subsidiaries, taken as a whole, which makes it
impracticable or inadvisable in the judgment of the Representatives to
proceed with the public offering or purchase the Common Shares as
contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in
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<PAGE> 22
form and substance satisfactory to you, except as otherwise expressly
provided below:
(i) An opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation, counsel for the Company and the Selling Stockholders,
addressed to the Underwriters and dated the First Closing Date, or the
Second Closing Date, as the case may be, to the effect that:
(1) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, is
duly qualified to do business as a foreign corporation and is in
good standing in all other jurisdictions where, to the knowledge
of such counsel, the ownership or leasing of properties or the
conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries, and
has full corporate power and authority to own its properties and
conduct its business as described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in
the Prospectus; all necessary and proper corporate proceedings
have been taken in order to authorize validly such authorized
Common Stock; all outstanding shares of Common Stock (including
the Firm Common Shares and any Optional Common Shares) have been
duly and validly issued, are fully paid and nonassessable, have
been issued in compliance with 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 any
securities arising by operation of law or under the certificate
of incorporation or bylaws of the Company or, to the knowledge of
such counsel, arising under any agreement to which the Company is
a party or otherwise, and conform to the description thereof
contained in the Prospectus; without limiting the foregoing,
there are no preemptive or other rights to subscribe for or
purchase any of the Common Shares to be sold by the Company
hereunder arising by operation of law or under the certificate of
incorporation or bylaws of the Company or, to the knowledge of
such counsel, arising under any agreement to which the Company is
a party or otherwise;
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<PAGE> 23
(3) All of the issued and outstanding shares of the
Company's subsidiaries have been duly and validly authorized and
issued, are fully paid and nonassessable and are owned
beneficially by the Company free and clear of all liens,
encumbrances, equities, claims, security interests, voting trusts
or other defects of title whatsoever;
(4) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Mississippi
law, and when duly countersigned by the Company's transfer agent
and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Common Shares represented
thereby will be duly authorized and validly issued, fully paid
and nonassessable, will not have been issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities arising by operation of law or under the
certificate of incorporation or bylaws of the Company or, to the
knowledge of such counsel, arising under any agreement to which
the Company is a party or otherwise, and will conform in all
respects to the description thereof contained in the Prospectus;
(5) Except as disclosed in or specifically contemplated by
the Prospectus, to the best of such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for
the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the
Company;
(6)(a) The Registration Statement has become effective under
the Act, and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement
or preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending
or contemplated by the Commission; any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) of
the Rules and Regulations has been made in the manner and within
the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto
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<PAGE> 24
(except for the financial statements and schedules included
therein as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the
Act and the Rules and Regulations.
(c) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required;
(d) To the best of such counsel's knowledge, there are no
legal or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described
in the Prospectus which are not described as required;
(7) The Company has all necessary corporate right, power and
authority to enter into this Agreement and to sell and deliver
the Common Shares to be sold by it to the several Underwriters;
this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of the Company,
and is a valid and binding agreement of the Company in accordance
with its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under the Act
as to which no opinion need be expressed; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
applicable Blue Sky laws and Canadian securities laws in
connection with the purchase and distribution of the Common
Shares by the Underwriters and the clearance of such offering
with the NASD;
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<PAGE> 25
(8) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any
of its or their property may be bound or affected which is
material to the Company and its subsidiaries, taken as a whole,
or violate any of the provisions of the certificate of
incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries or, so far as is known to
such counsel, violate any statute, judgment, decree, order, rule
or regulation of any court or governmental body having
jurisdiction over the Company or any of its subsidiaries or any
of its or their property;
(9) Neither the Company nor any subsidiary is in violation
of its certificate of incorporation or bylaws, or other
organizational documents, or to the best of such counsel's
knowledge, in breach of or default with respect to any provision
of any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company or any such subsidiary is a party or
by which it or any of its properties may be bound or affected,
except where such default would not materially adversely affect
the Company and its subsidiaries, taken as a whole; and, to the
best of such counsel's knowledge, the Company and its
subsidiaries are in compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court or
jurisdiction to which they are subject, except where
noncompliance would not materially adversely affect the Company
and its subsidiaries, taken as a whole;
(10) To the best of such counsel's knowledge, no holders of
securities of the Company have rights which have not been waived
to the registration of shares of Common Stock or other
securities, because of the filing of the Registration Statement
by the Company or the offering contemplated hereby;
(11) This Agreement and, in the case of the Selling
Stockholders, the Stockholders Agreement
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<PAGE> 26
have been duly authorized, executed and delivered by or on behalf
of each of the Selling Stockholders; the Agent has been duly and
validly authorized to act as the custodian of the Common Shares
to be sold by each such Selling Stockholder; and, to the best of
such counsel's knowledge, the performance of this Agreement and,
in the case of the Selling Stockholders, the Stockholders
Agreement and the consummation of the transactions herein and
therein contemplated by the Selling Stockholders will not result
in a breach of, or constitute a default under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or
instrument to which any of the Selling Stockholders is a party or
by which any of the Selling Stockholders or any of their
properties may be bound, or violate any statute, judgment,
decree, order, rule or regulation of any court or governmental
body having jurisdiction over any of the Selling Stockholders or
any of their properties; and, to the best of such counsel's
knowledge, no approval, authorization, order or consent of any
court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of
this Agreement or, in the case of the Selling Stockholders, the
Stockholders Agreement or the consummation by the Selling
Stockholders of the transactions contemplated herein and therein,
except such as have been obtained and are in full force and
effect under the Act and such as may be required under the rules
of the NASD and applicable Blue Sky laws;
(12) To the best of such counsel's knowledge, each Selling
Stockholder has full right, power and authority to enter into
this Agreement and the Stockholders Agreement and to sell,
transfer and deliver the Common Shares to be sold on such Closing
Date by such Selling Stockholder hereunder and good and valid
title to such Common Shares so sold, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
voting trusts, or other defects of title whatsoever, has been
transferred to the Underwriters (whom counsel may assume to be
bona fide purchasers) who have purchased such Common Shares
hereunder; and
(13) To the best of such counsel's knowledge, this Agreement
and, in the case of the Selling
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<PAGE> 27
Stockholders, the Stockholders Agreement are valid and binding
agreements of each of the Selling Stockholders in accordance with
their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally
and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed.
(14) No transfer taxes are required to be paid in connection
with the sale and delivery of the Common Shares to the
Underwriters hereunder.
(15) The Company is not, and upon the consummation of the
transactions contemplated by this Agreement and the application
by the Company of the net proceeds from the sale of Common Shares
by it hereunder as described in the Prospectus under the caption
"Use of Proceeds" will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely as to the
matters set forth in paragraphs (11), (12) and (13), on opinions of
other counsel retained by the Selling Stockholders, as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates of the Selling Stockholders, of officers of the Company
and of governmental officials, in which case their opinion is to state
that they are so doing and that, to the best of their belief, the
Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates are to be attached to the
opinion. Such counsel shall also include a statement to the effect
that nothing has come to such counsel's attention that would lead such
counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that
such counsel need express no belief as to the financial statements or
schedules, other financial data or statistical data derived from
financial data included therein);
(ii) Such opinion or opinions of Hale and Dorr, counsel for the
Underwriters dated the First Closing
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<PAGE> 28
Date or the Second Closing Date, as the case may be, with respect to
the incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require,
and the Company and the Selling Stockholders shall have furnished to
such counsel such documents and shall have exhibited to them such
papers and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or certificates of
officers of the Company and governmental officials.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, 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 on or prior to such
Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the best of
the knowledge of the respective signers, no proceedings for that
purpose have been substituted or are pending or contemplated
under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus;
in his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated therein
regarding the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of
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<PAGE> 29
a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there
has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), business, properties, results of operations,
management or prospects of the Company and its subsidiaries,
taken as a whole; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company or any of
its subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, or which may
adversely affect the transactions contemplated by this Agreement;
since such dates and except as so disclosed, neither the Company
nor any of its subsidiaries has entered into any verbal or
written agreement or other transaction which is not in the
ordinary course of business or which could reasonably be expected
to result in a material reduction in the future earnings of the
Company or incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock
(other than the issuance of Common Stock upon the exercise of
stock options and warrants described in the Prospectus), made any
material change in its short-term debt or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to the First
Closing Date or Second Closing Date; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or
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contemplated by the Prospectus, the Company and its subsidiaries
have not sustained a loss or damage by strike, fire, flood,
windstorm, accident or other calamity (whether or not insured),
which loss or damage would have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(iv) On the First Closing Date, a certificate, dated such Closing
Date and addressed to you, signed by or on behalf of each of the
Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and
correct, as if made at and as of the First Closing Date, and such
Selling Stockholder has complied with all the agreements and satisfied
all the conditions on his part to be performed or satisfied prior to
the First Closing Date.
(v) On the date this Agreement is executed and also on the First
Closing Date and the Second Closing Date, a letter addressed to you,
as Representatives of the Underwriters, from Deloitte & Touche LLP,
independent accountants, the first one to be dated the date of this
Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(vi) On or before the First Closing Date, letters from each of
the Selling Stockholders, each holder of the Company's Common Stock,
and each director and officer of the Company, in the form previously
provided by you, confirming that for a period of 180 days after the
first date that any of the Common Shares are released by you for sale
to the public, such person will not directly or indirectly sell or
offer to sell or otherwise dispose of any shares of Common Stock or
any right to acquire such shares without the prior written consent of
either Montgomery Securities or each of the Representatives, which
consent may be withheld at the sole discretion of Montgomery
Securities or each of the Representatives, as the case may be.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Hale and Dorr, counsel for the Underwriters. The Company shall furnish you
with such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a
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<PAGE> 31
representation and warranty by the Company to the Underwriters as to the
statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter, the Company or the Selling Stockholders except for the expenses to
be paid or reimbursed by the Company and by the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the Company and
the Selling Stockholders will use your, its and their best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. INDEMNIFICATION. (a) The Company and each of the Selling
Stockholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below)
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<PAGE> 32
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, or arise out of or are based in whole or in part
on any inaccuracy in the representations and warranties of the Company or the
Selling Stockholders contained herein or any failure of the Company or the
Selling Stockholders to perform their respective obligations hereunder or under
law (it being understood that no Selling Stockholder will be responsible for a
misrepresentation, breach or failure to perform by the Company or by any other
Selling Stockholder); and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; PROVIDED, HOWEVER, that the Company
and the Selling Stockholders will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof; and PROVIDED FURTHER, that none of Summit Ventures IV, L.P., Summit
Subordinated Debt Fund, L.P. or Summit Investors III, L.P. (collectively, the
"Summit Selling Stockholders") shall be liable under this Section 11(a) for an
amount in excess of the lesser of (A) the proceeds (net of applicable
underwriting discount) received by such Summit Selling Stockholder with respect
to the Common Shares purchased by the Underwriters from such Summit Selling
Stockholder hereunder and (B) that percentage of the total losses, claims,
damages, liabilities or expenses indemnified against under this Section 11(a)
that equals the percentage obtained by dividing the total number of Common
Shares sold by such Summit Selling Stockholder by the total number of Common
Shares sold hereunder; and PROVIDED FURTHER that no Selling Stockholder other
than a Summit Selling Stockholder shall be liable under this Section 11(a) for
an amount in excess of the proceeds (net of applicable underwriting discount)
received by such Selling Stockholder with respect to the Common Shares purchased
by the Underwriters from such Selling Stockholder hereunder. The Company and the
Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their respective amounts
of such liability for which they each shall be responsible. In addition to their
other obligations under this Section 11(a), the Company and the Selling
Stockholders agree that, as an interim measure during the pendency of any claim,
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<PAGE> 33
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company or the Selling
Stockholders herein or failure to perform their obligations hereunder, all as
described in this Section 11(a), they will reimburse each Underwriter on a
quarterly 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
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction; PROVIDED, HOWEVER, that no
Selling Stockholder shall be required to provide such reimbursement of expenses
hereunder until the Underwriter seeking indemnification shall have first made a
demand for payment on the Company with respect to any such expense and the
Company shall have either rejected such demand or failed to make such requested
payment within 60 days after receipt thereof. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company and the Selling Stockholders, as
applicable, 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) announced from time to time by Bank of America NT&SA, San
Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which the
Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact
-33-
<PAGE> 34
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof; and will
reimburse the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. In addition
to its other obligations under this Section 11(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 11(b) which relates to information furnished to the Company pursuant to
Section 4 hereof, it will reimburse the Company (and, to the extent applicable,
each officer, director, controlling person or Selling Stockholder) on a
quarterly 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, to the extent
applicable, each officer, director, controlling person or 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, to the extent applicable, each officer, director, controlling person or
Selling Stockholder) shall promptly return it 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 within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, 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 for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is
-34-
<PAGE> 35
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, 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 a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or 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 its 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 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 such counsel in
connection with the assumption of legal defenses 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, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company,
-35-
<PAGE> 36
the Selling Stockholders and the Underwriters in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The respective relative benefits
received by the Company, the Selling Stockholders and the Underwriters shall
reflect, in the case of the Company and the Selling Stockholders, the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses) and, in the case of the Underwriters, the
underwriting commissions received by them. The relative fault of the Company,
the Selling Stockholders and the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact or
the inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in subparagraph (c) of this Section 11, any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
11, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in proportion
to their respective underwriting commitments and not joint.
-36-
<PAGE> 37
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a) and 11(b) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, 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 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. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in Sections 11(a) and 11(b) hereof and would not resolve
the ultimate propriety or enforceability of the obligation to reimburse expenses
which is created by the provisions of such Sections 11(a) and 11(b) hereof.
SECTION 12. DEFAULT OF UNDERWRITERS. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders except for the expenses to be paid by the
Company and the Selling Stockholders pursuant to Section 7 hereof and except to
the extent provided in Section 11 hereof.
-37-
<PAGE> 38
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the
Selling Stockholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Stockholders
to any Underwriter (except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force
-38-
<PAGE> 39
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 a general banking moratorium
shall have been established by federal, New York or California authorities,
(ii) if an outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated to
such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or incorrect in
any material respect any statement or information contained in the
Registration Statement or Prospectus or which is not reflected in the
Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information contained therein not
misleading in any material respect, or (iv) if there shall be any action,
suit or proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the business
or properties or securities of the Company or any of its subsidiaries or
the transactions contemplated by this Agreement, which, in the reasonable
judgment of the Representatives, may materially and adversely affect the
Company's business or earnings and makes it impracticable or inadvisable to
offer or sell the Common Shares. Any termination pursuant to this
subsection (b) shall be without liability on the part of any Underwriter to
the Company or the Selling Stockholders or on the part of the Company or
the Selling Stockholders to any Underwriter (except for expenses to be paid
or reimbursed by the Company pursuant to Sections 7 and 9 hereof and except
to the extent provided in Section 11 hereof).
SECTION 15. FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER. If one
or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one or
more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company
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<PAGE> 40
shall have the right to postpone the Closing Date for a period not exceeding
seven business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. NOTICES. All communications hereunder shall be in writing and,
if sent to the Representatives shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: James C. Hale and Jack Levin, with a copy to Hale and Dorr, 60 State
Street, Boston, Massachusetts, 02109, Attention: John A. Burgess, Esq.; and if
sent to the Company or the Selling Stockholders shall be mailed, delivered or
telegraphed and confirmed to the Company at 522 East Railroad Street, Long
Beach, Mississippi, 39560, Attention: President, with a copy to Hutchins,
Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts, 02110, Attention:
Michael J. Riccio, Jr., Esq. The Company, the Selling Stockholders or you may
change the address for receipt of communications hereunder by giving notice to
the others.
SECTION 18. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 12 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 11, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 19. REPRESENTATION OF UNDERWRITERS. You will act as Representatives
for the several Underwriters in connection with all dealings hereunder, and any
action under or in respect of this Agreement taken by you jointly or by
Montgomery Securities, as Representatives, will be binding upon all the
Underwriters.
SECTION 20. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this
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<PAGE> 41
Agreement shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.
SECTION 21. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
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. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
TRITON SYSTEMS, INC.
By:
------------------------------
Name:
Title:
-41-
<PAGE> 42
SELLING STOCKHOLDERS
By:
------------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
[THE ROBINSON-HUMPHREY COMPANY, INC.]
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:
------------------------------
Authorized Signatory
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<PAGE> 43
<TABLE>
SCHEDULE A
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
------------------- ---------------
<S> <C>
Montgomery Securities ....................
Smith Barney Inc. ........................
[The Robinson-Humphrey Company, Inc.] ....
---------
TOTAL.......................... 4,200,000
=========
</TABLE>
A-1
<PAGE> 44
<TABLE>
SCHEDULE B
<CAPTION>
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholders
--------------------------- ------------------
<S> <C>
Summit Ventures IV, L.P. ................. 401,935
Summit Subordinated Debt Fund, L.P. ...... 26,432
Summit Investors III, L.P. ............... 21,633
-------
TOTAL.......................... 450,000
=======
</TABLE>
B-1
<PAGE> 45
<TABLE>
SCHEDULE C
<CAPTION>
Number of Optional
Common Shares to
Name of Selling Stockholder be Sold
--------------------------- ------------------
<S> <C>
First 450,000 Optional Shares (pro
rata if less than 450,000 Optional
Shares are sold):
Ernest L. Burdette .................... 146,421
Robert E. Sandoz ...................... 146,421
Frank J. Wilem, Jr. ................... 146,421
William D. Jackson .................... 9,761
Mary E. Dressel ....................... 976
Next 180,000 Optional Shares (pro
rata if less than 180,000 Optional
Shares are sold):
Ernest L. Burdette .................... 29,284
Robert E. Sandoz ...................... 29,284
Frank J. Wilem, Jr. ................... 29,284
William D. Jackson .................... 1,953
Mary E. Dressel ....................... 195
Summit Ventures IV, L.P. .............. 80,387
Summit Subordinated Debt Fund, L.P. ... 5,286
Summit Investors III, L.P. ............ 4,327
</TABLE>
C-1
<PAGE> 1
[HUTCHINS, WHEELER & DITTMAN LETTERHEAD]
March 3, 1997
Triton Systems, Inc.
522 East Railroad Street
Long Beach, MS 39560
Gentlemen:
We have acted as counsel to Triton Systems, Inc., a Mississippi
corporation (the "Company"), in connection with proceedings being taken to
register under the Securities Act of 1933, as amended, up to 4,830,000 shares
of the Company's Common Stock, $.01 par value per share (the "Common Stock")
pursuant to a Registration Statement on Form S-1 (File No. 333-20577) (the
"Registration Statement"), which includes 630,000 shares which may be sold upon
exercise of the underwriters over-allotment option described in the
Registration Statement by certain stockholders of the Company (the "Selling
Stockholders"). Of the shares of Common Stock being registered, 3,750,000 are
being offered by the Company and 1,080,000 shares are being offered by the
Selling Stockholders.
As such counsel, we have examined certain corporate records of the
Company, including its Restated Articles of Incorporation, its Bylaws, stock
records and minutes of meetings of its Board of Directors and shareholders, and
such other documents as we have deemed necessary as a basis for the opinions
hereinafter expressed. For purposes of rendering this opinion, we have assumed
that the Restated Articles of Incorporation of the Company in the form filed as
an Exhibit to the Registration Statement will be filed with the Secretary of
the State of Mississippi prior to the issuance and sale of its Common Stock
under the circumstances contemplated in the Registration Statement.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Mississippi.
2. The Company, as of the effective date of the foregoing Restated
Articles of Incorporation, will be authorized to issue 40,000,000
shares of Common Stock, par value $.01 per share and 5,000,000
shares of Preferred Stock, par value $.01
<PAGE> 1
EXHIBIT 11.1
TRITON SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Income Applicable to Common Stockholders........ $ 355,506 $ 4,713,049
----------- -----------
Pro Forma Net Income Applicable to Common
Stockholders...................................... $ 8,236,882
-----------
Actual weighted Average shares outstanding.......... 12,408,288 12,408,288 12,408,288
Additional shares considered outstanding due to:
Stock options and warrants outstanding exercisable
at less than proposed initial public offering
price............................................. 322,730 322,730 322,730
----------- ----------- -----------
Total weighted Average common stock outstanding..... 12,731,018 12,731,018 12,731,018
========== ========== ==========
Net income applicable to common stockholders per
common share...................................... $ .02 $ 0.37
========== ==========
Pro forma net income applicable to common
stockholders per common share..................... $ 0.65
==========
</TABLE>
2
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
of Triton Systems, Inc. on Form S-1 of our report dated January 24, 1997,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the headings "Selected Financial Data"
and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 3, 1997
3
