<PAGE>
As filed with the Securities and Exchange Commission on February 3, 1999
Registration No. 333-67309
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BOTTOMLINE TECHNOLOGIES (de), INC.
(Exact name of registrant as specified in its charter)
Delaware 7372 02-0433294
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
Incorporation or
organization)
-------------------
155 Fleet Street
Portsmouth, New Hampshire 03801
(603) 436-0700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
Daniel M. McGurl
Chairman of the Board, President and Chief Executive Officer
Bottomline Technologies (de), Inc.
155 Fleet Street
Portsmouth, New Hampshire 03801
(603) 436-0700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
JOHN A. BURGESS, ESQ. MARK L. JOHNSON, ESQ.
PHILIP P. ROSSETTI, ESQ. RICHARD G. COSTELLO, ESQ.
HALE AND DORR LLP FOLEY, HOAG & ELIOT LLP
60 State Street One Post Office Square
Boston, Massachusetts 02109 Boston, Massachusetts 02109
Telephone: (617) 526-6000 Telephone: (617) 832-1000
Telecopy: (617) 526-5000 Telecopy: (617) 832-7000
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1999
3,400,000 Shares
Common Stock
Bottomline Technologies (de), Inc. is offering 2,519,466 shares of its common
stock and the selling stockholders are selling an additional 880,534 shares.
This is Bottomline's initial public offering and no public market currently
exists for its shares. We have applied for approval for quotation on the Nasdaq
National Market under the symbol "EPAY" for the shares we are offering. We
anticipate that the initial public offering price will be between $11.00 and
$13.00 per share.
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to the Company......................................... $ $
Proceeds to the Selling Stockholders............................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Bottomline has granted the underwriters a 30-day option to purchase up to an
additional 510,000 shares of common stock to cover over-allotments.
---------------
BancBoston Robertson Stephens
BT Alex. Brown
CIBC Oppenheimer
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
[This is a graphic which shows a paper check with a universal "no" sign
through it. The words "Payment Management Software and Services that Enable
Organizations to Manage their Transition from Paper Checks to Electronic
Payments" will be above the graphic. Below the graphic is an illustration
entitled "Electronic Commerce--Electronic Payments." The graphic shows four
entities linked by an electronic wave from left to right in the following order:
"Payor," "Payor's Bank," "Payee's Bank," and "Payee." Below the graphic in the
bottom right corner is the Bottomline Technologies logo.]
[FRONT COVER FOLDOUT]
[This is a graphic which contains the following text:
"Bottomline Technologies is the enterprise payment specialist." Beneath this
phrase is the text, "Payment Management Software and Services that Enable
Organizations to Manage their Transition from Paper Checks to Electronic
Payments."
> Bottomline Provides the Bridge to Electronic Payments
> Single solution for paper and electronic payments
> Cash management
> Enterprise-wide payment control
> Security and fraud protection
> Ability to meet Government mandates
> Web access
Beside the text is a graphic containing three concentric circles. The
inside circle represents a Payment Server and contains the following text:
"Payment Server; Electronic Payments/Receipts; LaserCheck Printing;
Electronic Remittance Advice; Check Fraud Avoidance; Web Access"
The Second Circle is divided into four quadrants. Each quadrant in the
second circle is color coded to relate to three color coded rings in the outer
circle. The quadrants in the second circle and the related outside rings contain
the following text:
"Financial Institutions (Large Banks, Federal Reserve and Small Banks).
Payees (Individuals, Government and Businesses). Internet/Intranet (Employees,
Customers and Vendors); and Payors (Accounting Software, Legacy Financials and
Enterprise Resource Planning Systems)."
Below the graphic is an illustration entitled "Electronic Commerce--
Electronic Payments." The graphic shows four entities linked by an electronic
wave from left to right in the following order: "Payor," "Payor's Bank,"
"Payee's Bank," and "Payee." On the left side of this graphic is the Bottomline
Technologies logo.]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Capitalization........................................................... 12
Dilution................................................................. 13
Selected Financial Data.................................................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 15
Business................................................................. 28
Management............................................................... 42
Principal and Selling Stockholders....................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Filings and Company Information............................... 59
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Bottomline Technologies, CheckGard, LaserCheck and PayBase are registered
trademarks of Bottomline. All other trademarks or trade names referred to in
this prospectus are the property of their respective owners.
3
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully. All information contained in
this prospectus reflects a 3-for-1 stock split of the common stock effected on
January 6, 1999.
The Company
We are a leading provider of software used to make and manage corporate
payments. Our products and services enable organizations to transition from the
traditional paper check process to electronic payments and to facilitate
electronic commerce. Our software offers a single solution to control, manage
and issue all payments. Our software complements and integrates with existing
corporate payment applications, such as accounts payable, payroll, travel and
entertainment expense, insurance claims and commissions. Our products provide
Internet capability and run on Windows NT, Microsoft's leading network
technology. Today, we have more than 2,000 customers, representing every major
industry-sector, including The Charles Schwab Corporation, Dow Jones & Company,
Inc., The Federal Reserve System, Microsoft Corporation and Nissan Motor
Acceptance Corporation.
Most enterprises still rely on pre-printed paper checks to generate and
receive payments. United States businesses processed approximately 73 billion
transactions involving paper checks in 1997. With the significant growth of the
Internet and electronic commerce, many enterprises are seeking to implement a
cost-effective, secure, electronic payment system. The National Automated
Clearing House Association estimates that the cost of a business-to-business
electronic payment averages $3.00 compared to $8.33 for a similar paper-based
payment. The National Automated Clearing House Association also estimates that
approximately 4.5 billion secured Automated Clearing House payments were made
in 1997.
Bottomline's PayBase product suite is designed to control, manage and issue
all payments, whether paper-based or electronic, across an enterprise. This
suite includes a range of products that can be purchased as an entire group or
as separate applications. Our products permit customers to leverage the
Internet while increasing security and fraud avoidance. Our technology
complements our customers' existing information systems and payment
applications. We provide users multiple options for delivery of detailed
payment or remittance information, including mail, fax and the Internet. Our
LaserCheck product is a cost-effective, software-based, laser-printing system
that allows an enterprise to streamline its paper-payment process and to
generate checks at the point of need. We also offer consulting services and
related equipment and supplies to help customers plan, design and implement the
transition from paper to electronic payments.
Our objective is to be the leading provider of payment management software
for businesses, financial institutions and public sector organizations. In
addition to our direct selling efforts, we also promote our products and
services through relationships with enterprise resource planning and accounting
system vendors, such as Oracle and SAP, and implementation consultants. For
example, we recently entered into a working agreement with Arthur Andersen LLP.
Under the working agreement, Arthur Andersen LLP will work with us to develop a
marketing program and to utilize the enterprise consulting experience of Arthur
Andersen LLP to demonstrate the benefits of migrating to our PayBase/32/
payment management solution. In March 1998, we were selected by The Federal
Reserve System to provide the necessary software to enable up to 12,000 banks
to process electronic payments with remittance information for their commercial
customers.
Bottomline was originally organized as a New Hampshire corporation in 1989
and was reincorporated as a Delaware corporation in August 1997. Bottomline's
principal office is located at 155 Fleet Street, Portsmouth, New Hampshire
03801 and its telephone number is (603) 436-0700. The company's web site is
www.bottomline.com. The company's web site is not a part of this prospectus.
Unless otherwise indicated, all information contained in this prospectus
assumes that the underwriters will not exercise their over-allotment option.
This prospectus contains forward-looking statements which involve risks and
uncertainties. Bottomline's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by Bottomline.............. 2,519,466 shares
Common Stock offered by the selling
stockholders.................................. 880,534 shares
Common Stock to be outstanding after the
offering...................................... 9,912,738 shares
Use of proceeds................................. To fund continued growth and expansion
of its business, product development,
potential acquisitions and other
general corporate purposes
Nasdaq National Market symbol................... EPAY
</TABLE>
Summary Financial Data
(In thousands, except per share data)
Bottomline has 801,000 shares of redeemable common stock outstanding which
are redeemable at the option of the holders at a redemption price that
increases over time. The earnings (loss) per share available to common
stockholders shown below have been adjusted to reflect the increase in the
redemption price for each period. These redemption rights will terminate upon
the effectiveness of this offering. The shares used in computing diluted
earnings per share available to common stockholders include the redeemable
common stock. The pro forma, as adjusted, balance sheet data reflects the
termination of redemption rights of the redeemable common stock upon the
effectiveness of this offering and gives effect to the sale of 2,519,466 shares
of common stock at an assumed public offering price of $12.00 per share, net of
related offering expenses.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended June 30, December 31,
---------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $10,408 $15,115 $18,067 $22,126 $29,037 $ 13,548 $ 18,136
Income (loss) from
operations............ 1,454 1,234 1,553 (1,732) 2,830 1,137 2,525
Net income (loss)....... 924 775 883 (1,252) 1,603 627 1,538
Earnings (loss) per
share available to
common stockholders:
Basic................. $ 0.16 $ 0.12 $ 0.14 $ (0.23) $ 0.24 $ 0.09 $ 0.23
Diluted............... $ 0.13 $ 0.10 $ 0.11 $ (0.23) $ 0.20 $ 0.08 $ 0.20
Shares used in computing
earnings (loss) per
share available to
common stockholders:
Basic................. 5,257 5,523 5,693 5,986 6,314 6,307 6,472
Diluted............... 6,536 6,850 7,001 5,986 7,316 7,300 7,555
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(Unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 3,925 $30,634
Working capital............................................. 5,596 32,305
Total assets................................................ 16,997 43,706
Redeemable common stock, at redemption value................ 1,409 --
Stockholders' equity........................................ 6,822 34,940
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an investment
decision. Our business, operating results and financial condition could be
adversely affected by any of the following risks. The trading price of our
common stock could decline due to any of these risks, and you could lose all or
part of your investment. You should also refer to the other information set
forth in this prospectus, including our financial statements and the related
notes.
Our Performance will Depend on Market Acceptance of Our Payment Management
Offerings
Substantially all of our revenues come from the license and maintenance of
our payment management offerings and sales of related products and services.
Our PayBase software products are designed to provide a single platform to
control, manage and issue all payments, whether paper-based or electronic,
across an enterprise. Our future performance will depend to a large degree upon
the market acceptance of PayBase as a payment management solution. Our
prospects will also depend upon enterprises seeking to enhance their payment
functions to integrate electronic payment capabilities. In addition, our future
results will depend on the continued market acceptance of desktop software for
use in a departmental setting, including our LaserCheck solution, as well as
our ability to introduce enhancements to meet the market's evolving needs for
secure, payment management solutions. Any reduction in demand for our payment
management solutions, or lack of meaningful growth in the market for electronic
and payment management solutions could have a material adverse effect on our
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Products and Services."
Our Fixed Costs May Lead to Fluctuations in Operating Results if Our Revenues
are Below Expectations
A significant percentage of our expenses, particularly personnel costs and
rent, are relatively fixed, and based in part on expectations of future
revenues. We may be unable to reduce spending in a timely manner to compensate
for any significant fluctuations in revenues. Accordingly, shortfalls in
revenues may cause significant variations in operating results in any quarter.
Factors that could cause these fluctuations include the following:
. the timing of orders and . the incurrence of costs
longer sales cycles, relating to the integration
particularly due to increased of software products and
average selling prices of our operations in connection with
payment solutions acquisitions of technologies
or businesses
. the timing and market
acceptance of new products or
product enhancements by
either us or our competitors
. delivery interruptions
relating to equipment and
supplies purchased from
third-party vendors, which
could delay system sales
. the timing of product
implementations, which are
highly dependent on
customers' resources and
discretion
. economic conditions which may
affect our customers' and
potential customers' budgets
for technological
expenditures
Because of these factors, we believe that period to period comparisons of our
results of operations are not necessarily meaningful. In addition, it is
possible that in some future quarters our results of operations will be below
the expectations of public market analysts and investors, and in that case the
price of our common stock could be materially adversely affected.
Our Revenues Are Seasonal
During our second fiscal quarter ended December 31, revenues have typically
increased as customers on a calendar-based fiscal year completed their capital
spending plans. During our third fiscal quarter ended March 31, revenues have
typically declined as customers focus internal resources on statutory and
regulatory reporting requirements. Our fourth fiscal quarter ended June 30,
generally has the highest revenues as customers complete
6
<PAGE>
projects before summer, when activity in many corporate financial departments
tends to slow. As a result, we have historically experienced first quarter
revenues that are lower than those of the immediately preceding quarter.
Our Business Can be Adversely Affected by Problems with Third-Party Hardware
Our business can be adversely affected by problems with third-party
hardware. For example, in fiscal 1997, we experienced a significant problem
with a third-party printer that we were then reselling which had a material
adverse effect on our operating results. We revised and enhanced our quality
assurance control programs and now utilize multiple printers and printer
vendors. However, any repetition of these or similar problems could have a
material adverse effect on our business, operating results and financial
condition.
Our Success Depends on Our Ability to Develop New and Enhanced Payment
Management Software and Services
The payment management software market is subject to rapid technological
change and our success is dependent on the ability to develop new and enhanced
payment management software, services and related products. Trends which could
have a critical impact on Bottomline include:
. rapidly changing technology that could require us to make our products
compatible with new database or network systems;
. evolving industry standards and mandates, such as those mandated by
the National Automated Clearing House Association and by the Debt
Collection Improvement Act of 1996; and
. developments and changes relating to the Internet that we must address
as we introduce Internet-capable products.
If we are unable to develop and introduce new products, or enhancements to
existing products, in a timely and successful manner, our business, operating
results and financial condition could be materially adversely affected.
Increased Competition May Result in Price Reductions and Decreased Demand for
Our Products and Services
The market for payment management software is intensely competitive and
characterized by rapid technological change. Some competitors in our market
have longer operating histories, significantly greater financial, technical,
marketing and other resources, greater brand recognition and a larger
installed customer base than we do. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships to expand their product offerings and to offer more
comprehensive solutions. We also expect to face additional competition as
other established and emerging companies enter the market for payment
management solutions. See "Business--Competition." Growing competition may
result in price reductions of our products and services, reduced revenues and
gross margins and loss of market share, any one of which could have a material
adverse effect on our business, operating results and financial condition.
We May Have Difficulty in Managing Our Growth
Our rapid growth has sometimes strained, and may in the future strain, our
managerial and other resources. Our ability to manage growth will depend in
part on our ability to continue to enhance our operating, financial and
management information systems. We cannot assure you that our personnel,
systems, procedures and controls will be adequate to support our growth. If we
are unable to manage growth effectively, the quality of our services, our
ability to retain key personnel and our business, operating results and
financial condition could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
7
<PAGE>
We Are Dependent on a Number of Key Executives
Our success depends upon the efforts and ability of our executive officers
and key technical employees who are skilled in electronic commerce, payment
methodology and regulation, and Internet, database and network technologies.
We currently do not maintain "key man" life insurance policies on any of our
employees. While some of our executive officers have employment agreements
with us, the loss of the services of any of our senior executive officers or
other key employees could have a material adverse effect on our business,
operating results and financial condition. See "Management."
We Must Compete for Skilled Personnel
We are dependent upon the ability to attract, hire, train and retain highly
skilled technical, sales and marketing, and support personnel, particularly
with expertise in electronic payment technology and knowledge of the banking
industry. Competition for qualified personnel is intense. In addition, our
location in Portsmouth, New Hampshire may limit our access to skilled
personnel. Any failure to attract, hire or retain qualified personnel could
have a material adverse effect on our business, operating results and
financial condition. In addition, we plan to expand our sales and marketing
and customer support organizations. Based on our experience, it takes an
average of six months for a salesperson to become fully productive. We cannot
assure you that we will be successful in increasing the productivity of our
sales personnel, and the failure to do so could have a material adverse effect
on our business, operating results and financial condition.
We Have a Number of Risks Associated with the Year 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems may need to be upgraded in order to be year 2000 compliant.
Significant uncertainties exist in the software industry concerning the
potential effects associated with such compliance. We have assessed the impact
of year 2000 compliance on our products and systems. We cannot, however, be
certain that we have identified all of the potential risks to our business
that could result from matters related to the year 2000. We have identified
the following risks that you should be aware of:
. Year 2000 problems that affect our internal systems. We have relied on the
certifications by our software vendors regarding the year 2000 readiness
of our internal software systems and have not conducted independent tests
of these systems. It is possible that these systems could contain
undetected problems that could cause serious and costly disruptions which
would have a material adverse effect on our business, operating results
and financial condition.
. Year 2000 problems that affect our discontinued products. We have notified
customers that had purchased DOS based products that their products were
not year 2000 compliant and that we would no longer be supporting those
products. Based on the notification we provided and the contractual
provisions limiting liability contained in our standard terms and
conditions which governed the sale of our DOS based products, we do not
believe there are significant risks to our business relating to year 2000
compliance of these products. However, we cannot assure you that customers
who purchased these products will not assert claims against us, which
could result in costly litigation which diverts management's attention and
could have a material adverse effect on our business, operating results
and financial condition.
. Undetected year 2000 problems that could affect our currently supported
products. We believe that all of our products that have been installed
after February 1997 were year 2000 compliant at the time of installation.
However, although we have tested such products for year 2000 compliance,
we cannot be certain that these tests have detected all potential year
2000 problems. The failure of our currently supported products to be fully
year 2000 compliant could result in claims by or liability to our
customers, which could have a material adverse effect on our business,
operating results and financial condition.
Our Business Could be Adversely Affected if Our Software Contains Bugs
Our software products could contain errors or "bugs" that could adversely
affect their performance. Additionally, we regularly introduce new releases
and periodically introduce new versions of our software
8
<PAGE>
products. Any defects or errors in new products or enhancements could result
in adverse customer reactions and negative publicity regarding Bottomline and
our products and could have a material adverse effect on our business,
operating results and financial condition. See "Business--Products and
Services."
Our Business Could be Subject to Product Liability Claims
Our software and hardware products are designed to provide critical payment
management functions and to limit the risk of fraud or loss in effecting such
transactions. As a result, our products are critical to our customers and
there is the potential for significant product liability claims. Our license
agreements with customers typically place the responsibility for use of the
system on the customer and contain provisions intended to limit our exposure
to product liability claims. However, these limitation provisions may not
preclude all potential claims. We have not experienced any product liability
claims to date. However, a product liability claim brought against us, even if
not successful, would likely be time consuming and costly. A successful
liability claim could have a material adverse effect on our business,
operating results and financial condition. See "Business--Products and
Services."
Our Business Could be Adversely Affected if We are Unable to Protect our
Proprietary Technology
We rely upon a combination of patent, copyright and trademark laws and non-
disclosure and other intellectual property contractual arrangements to protect
our proprietary rights. We have one allowed United States patent application
relating to certain security aspects of our dual payment process. However, we
cannot assure you that our allowed patent, or any other patents that may be
issued in the future, will be of sufficient scope and strength to provide
meaningful protection of our technology or any commercial advantage to us, or
that the patents will not be challenged, invalidated or circumvented. We enter
into agreements with our employees and clients that seek to limit and protect
the distribution of proprietary information. We cannot assure you that the
steps we have taken to protect our property rights, however, will be adequate
to deter misappropriation of proprietary information, and we may not be able
to detect unauthorized use and take appropriate steps to enforce our
intellectual property rights. See "Business--Proprietary Rights."
Others Could Claim That We Infringe Their Intellectual Property
Although we believe that our products and services do not infringe upon the
intellectual property rights of others and that we have all rights necessary
to utilize the intellectual property employed in our business, we are subject
to the risk of claims alleging infringement of third-party intellectual
property rights. These claims could require us to spend significant sums in
litigation, pay damages, delay product installments, develop non-infringing
intellectual property or acquire licenses to intellectual property that is the
subject of the infringement claim. Therefore, these claims could have a
material adverse effect on our business, operating results and financial
condition. See "Business--Proprietary Rights."
Future Strategic Acquisitions By Us Will Be Subject to Significant Risks
As part of our overall business strategy, we intend to pursue strategic
acquisitions that would provide additional product or service offerings,
additional industry expertise, a broader client base or an expanded geographic
presence. Any future acquisition could result in the use of significant
amounts of cash, potentially dilutive issuances of equity securities, or the
incurrence of debt or amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect our
business, operating results and financial condition. In addition, acquisitions
involve numerous risks, including:
. difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
. the diversion of management's attention from other business concerns;
. risks of entering markets in which we have no or limited prior
experience; and
. the potential loss of key employees of the acquired company.
9
<PAGE>
From time to time, we have engaged in discussions with third parties
concerning potential acquisitions of product lines, technologies and
businesses.
You Will Have a Number of Market Risks Typically Associated with Initial
Public Offerings
Before this offering, there has been no public market for our common stock.
Bottomline, the selling stockholders and the underwriters will determine the
public offering price by negotiations, and this price may not be the price at
which our common stock will trade. See "Underwriting" for a discussion of
factors to be considered in determining the public offering price. Although
our common stock will be quoted on the Nasdaq National Market, an active
trading market may not develop and be sustained after this offering.
In addition, the market for shares in newly public technology companies is
subject to extreme price and volume fluctuations. Securities class action
litigation has often been brought against companies that experience volatility
in the market price of their securities. Litigation brought against us could
result in substantial costs and a diversion of management's attention, which
could have a material adverse effect on our business, operating results and
financial condition.
You Will Experience an Immediate and Substantial Dilution in the Book Value of
Your Investment
The public offering price per share of common stock is expected to be
substantially higher than the net tangible book value per share of our common
stock. Purchasers of shares of common stock in this offering will experience
immediate and substantial dilution of $8.47 in the pro forma net tangible book
value per share of common stock (assuming a public offering price of $12.00
per share). The exercise of outstanding options to purchase our common stock
will result in additional dilution per share. See "Dilution."
Certain Provisions of Delaware Law and Our Charter and By-law Provisions May
Make a Takeover of Our Company More Difficult
We will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Section 203 could delay or prevent a third
party or a significant stockholder from acquiring control of Bottomline. In
addition, our charter and by-laws may have the effect of discouraging,
delaying or preventing a merger, tender offer or proxy contest involving
Bottomline. Any of these anti-takeover provisions could lower the market price
of the common stock.
Future Sales by Existing Stockholders Could Depress the Market Price of Our
Common Stock
Sales of our common stock in the public market following this offering could
adversely affect the market price of our common stock. All of the shares
offered under this prospectus will be freely tradable in the open market, and
. 101,667 additional shares may be sold immediately after completion of
this offering;
. 6,303,926 additional shares may be sold upon the expiration of 180-day
lock-up agreements;
. 2,499 additional shares may be sold 90 days after the completion of
this offering as a result of the exercise of vested options; and
. 439,029 additional shares may be sold upon the expiration of the lock-
up agreements as a result of the exercise of vested options.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are usually accompanied by
words such as "believes," "anticipates," "plans," "expects" and similar
expressions. Our actual results may differ materially from the results
discussed in the forward-looking statements because of factors such as the
Risk Factors discussed above.
10
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of 2,519,466 shares of common
stock offered by us are estimated to be $26,709,000 after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us and assuming a public offering price of $12.00 per share. We will not
receive any of the proceeds from the sale of shares by the selling
stockholders.
The principal purposes of this offering are:
. to increase our equity capital;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace where
several of our current and potential competitors are, or may in the
future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We will use the net proceeds from this offering for growth and expansion of
our business, product development, international expansion, possible
acquisitions and for working capital and other general corporate purposes. We
have not identified specific uses for such proceeds and management will have
discretion over their use and investment. We intend to invest the net proceeds
from this offering in short-term, investment grade, interest-bearing
instruments until they are used.
We intend to seek acquisitions that could provide additional new product or
service offerings, additional industry expertise, a broader client base or an
expanded geographic presence, and a portion of the net proceeds may be used
for such acquisitions. From time to time, we have engaged in discussions with
third parties concerning potential acquisitions of product lines, technologies
and businesses. However, there are currently no active negotiations,
commitments or agreements with respect to any acquisition.
DIVIDEND POLICY
We currently intend to retain earnings, if any, to fund the development and
growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various
factors, including our financial condition, operating results, current and
anticipated cash needs and plans for expansion. The terms of our revolving
credit agreement could restrict our ability to pay cash dividends. That
agreement requires us to maintain a minimum tangible net worth of $5.0
million. As of December 31, 1998, our minimum tangible net worth was
approximately $8.2 million assuming the termination of redemption rights of
the redeemable common stock upon the effectiveness of this offering. It also
requires us to maintain a minimum debt service coverage ratio of 1.50 to 1. As
of December 31, 1998, our minimum debt service coverage ratio was
approximately 9 to 1.
11
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998: (1) the actual
capitalization of Bottomline, (2) the pro forma capitalization of Bottomline
after giving effect to the termination of redemption rights of the redeemable
common stock upon the effectiveness of this offering and (3) the pro forma as
adjusted capitalization of Bottomline after giving effect to the sale by
Bottomline of 2,519,466 shares of common stock offered hereby at an assumed
public offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses payable by
Bottomline. See "Use of Proceeds." This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto appearing
elsewhere in this prospectus.
The pro forma as adjusted authorized amounts shown below include the
additional shares of common stock and the shares of preferred stock to be
authorized immediately prior to the effectiveness of this offering.
<TABLE>
<CAPTION>
December 31, 1998
----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
(In thousands, except share
data)
<S> <C> <C> <C>
Redeemable common stock, at redemption value;
authorized, issued and outstanding 801,000
shares, actual; no shares authorized, issued
and outstanding, pro forma and pro forma as
adjusted....................................... $1,409 $ -- $ --
Stockholders' equity:
Preferred stock, $.001 par value; authorized
shares -- none, actual and pro forma;
authorized shares -- 4,000,000, pro forma as
adjusted; no shares issued and outstanding,
actual, pro forma and pro forma as
adjusted..................................... -- -- --
Common stock, $.001 par value; authorized
shares -- 15,000,000, actual and pro forma;
authorized shares -- 50,000,000, pro forma
as adjusted; issued and outstanding
shares -- 6,592,272, actual; issued and
outstanding shares -- 7,393,272, pro forma;
issued and outstanding shares -- 9,912,738,
pro forma as adjusted........................ 7 7 10
Additional paid-in-capital..................... 2,838 4,247 30,953
Retained earnings.............................. 3,977 3,977 3,977
------ ------ --------
Total stockholders' equity.................. 6,822 8,231 34,940
------ ------ --------
Total capitalization....................... $8,231 $8,231 $ 34,940
====== ====== ========
</TABLE>
12
<PAGE>
DILUTION
The pro forma net tangible book value of Bottomline as of December 31, 1998,
assuming the termination of redemption rights of the redeemable common stock
upon the effectiveness of this offering was $8,231,000 or $1.11 per share of
common stock. Pro forma net tangible book value per share is determined by
dividing Bottomline's pro forma tangible net worth (tangible assets less
liabilities) by the number of shares of common stock outstanding. After giving
effect to the sale of 2,519,466 shares of common stock offered hereby at an
assumed public offering price of $12.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by Bottomline, the net tangible book value of Bottomline as of December 31,
1998 would have been $3.53 per share. This represents an immediate increase in
such net tangible book value of $2.42 per share to existing stockholders and
an immediate dilution of $8.47 per share to new investors purchasing shares in
this offering. If the public offering price is higher or lower, the dilution
to the new investors will in turn be greater or less. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................ $12.00
Pro forma net tangible book value per share as of December 31,
1998........................................................ $1.11
Increase per share attributable to this offering.............. 2.42
-----
Net tangible book value per share after this offering.......... 3.53
------
Dilution per share to new investors............................ $ 8.47
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the total number of shares of common stock purchased from Bottomline,
the total consideration paid and the average consideration paid per share by
the existing stockholders, assuming the termination of redemption rights of
the redeemable common stock upon the effectiveness of this offering, and by
the new investors, based upon an assumed public offering price of $12.00 per
share. The costs for underwriting discounts, commissions and other offering
expenses have not been deducted. Shares owned by existing stockholders will be
reduced by the number of shares sold by them in the offering. As a result, the
number of shares owned by existing stockholders will be reduced to 65.7% of
the shares of common stock outstanding after the offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
----------------- ------------------- Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 7,393,272 74.6% $ 3,646,000 10.8% $ 0.49
New investors.................. 2,519,466 25.4 30,234,000 89.2 12.00
--------- ----- ----------- -----
Total........................ 9,912,738 100.0% $33,880,000 100.0%
========= ===== =========== =====
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of Bottomline. The selected financial data as of June 30, 1997 and
1998 and for each of the three years in the period ended June 30, 1998 are
derived from financial statements, which have been audited by Ernst and Young
LLP, independent auditors, included elsewhere in this prospectus. The selected
financial data as of June 30, 1994, 1995 and 1996 and for each of the two
years in the period ended June 30, 1995 are derived from financial statements,
which have been audited by Ernst and Young LLP, independent auditors, not
included in this prospectus. The selected financial data as of December 31,
1998 and for the six months ended December 31, 1997 and 1998 are derived from
unaudited financial statements, included elsewhere in this prospectus. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the Notes thereto included elsewhere in this
prospectus.
The company has 801,000 shares of redeemable common stock outstanding which
are redeemable at the option of the holders at a redemption price that
increases over time. The earnings (loss) per share available to common
stockholders shown below have been adjusted to reflect the increase in the
redemption price for each period. These redemption rights will terminate upon
the effectiveness of this offering. The shares used in computing diluted
earnings per share available to common stockholders include the redeemable
common stock.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended June 30, December 31,
----------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- -------- --------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues:
Software licenses...... $ 3,337 $ 4,144 $ 4,689 $ 6,392 $ 9,887 $ 4,435 $ 7,468
Service and
maintenance........... 1,643 3,083 4,580 6,729 9,701 4,471 5,327
Equipment and
supplies.............. 5,428 7,888 8,798 9,005 9,449 4,642 5,341
------- ------- ------- ------- ------- -------- --------
Total revenues........ 10,408 15,115 18,067 22,126 29,037 13,548 18,136
Cost of revenues:
Software licenses...... 72 54 27 160 215 118 154
Service and
maintenance........... 1,030 1,790 2,655 4,206 4,261 2,029 2,456
Equipment and
supplies.............. 3,138 5,215 5,361 6,410 6,526 3,176 3,815
------- ------- ------- ------- ------- -------- --------
Total cost of
revenues............. 4,240 7,059 8,043 10,776 11,002 5,323 6,425
------- ------- ------- ------- ------- -------- --------
Gross profit............ 6,168 8,056 10,024 11,350 18,035 8,225 11,711
Operating expenses:
Sales and marketing.... 2,728 3,716 4,190 6,631 7,675 3,590 4,880
Product development and
engineering........... 231 701 1,237 2,185 3,158 1,492 1,905
General and
administrative........ 1,755 2,405 3,044 4,266 4,372 2,006 2,401
------- ------- ------- ------- ------- -------- --------
Total operating
expenses............. 4,714 6,822 8,471 13,082 15,205 7,088 9,186
------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations............. 1,454 1,234 1,553 (1,732) 2,830 1,137 2,525
Interest income
(expense), net......... 11 12 (6) (56) (50) (50) 39
------- ------- ------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
income taxes and
cumulative effect of
change in accounting
for income taxes....... 1,465 1,246 1,547 (1,788) 2,780 1,087 2,564
Provision (benefit) for
income taxes........... 577 471 664 (536) 1,177 460 1,026
Cumulative effect of
change in accounting
for income taxes....... 36 -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 924 $ 775 $ 883 $(1,252) $ 1,603 $ 627 $ 1,538
======= ======= ======= ======= ======= ======== ========
Earnings (loss) per
share available to
common stockholders:
Basic.................. $ 0.16 $ 0.12 $ 0.14 $ (0.23) $ 0.24 $ 0.09 $ 0.23
======= ======= ======= ======= ======= ======== ========
Diluted................ $ 0.13 $ 0.10 $ 0.11 $ (0.23) $ 0.20 $ 0.08 $ 0.20
======= ======= ======= ======= ======= ======== ========
Shares used in computing
earnings (loss) per
share available to
common stockholders:
Basic.................. 5,257 5,523 5,693 5,986 6,314 6,307 6,472
======= ======= ======= ======= ======= ======== ========
Diluted................ 6,536 6,850 7,001 5,986 7,316 7,300 7,555
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------- ------------
1994 1995 1996 1997 1998 1998
----- ----- ------ ------ ------ ------------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ..................... $ 910 $ 632 $1,080 $ 827 $1,362 $ 3,925
Working capital................................ 1,323 2,027 3,123 2,476 3,884 5,596
Total assets................................... 4,130 7,394 9,144 10,481 11,301 16,997
Short-term and long-term debt.................. -- 499 597 1,384 75 25
Redeemable common stock, at redemption value... 973 1,061 1,148 1,246 1,353 1,409
Stockholders' equity........................... 1,222 2,183 3,708 2,680 4,368 6,822
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The company's actual results could differ materially
from those discussed in the forward-looking statements as a result of certain
factors including those set forth under "Risk Factors" and elsewhere in this
prospectus. The following discussion and analysis should be read in
conjunction with "Selected Consolidated Financial Data" and the Financial
Statements and Notes thereto appearing elsewhere in this prospectus.
Overview
The company is a leading provider of software used to make and manage
corporate payments. In 1989, the company released its first product,
LaserCheck for DOS, to offer enterprises a cost-effective method to issue
checks using specialized laser printers and toners, eliminating the need for
pre-printed, negotiable check stock. In 1992, the company entered into an
arrangement with Xerox to sell an advanced laser printer and newly developed
magnetic ink character recognition toners. Over the next few years Bottomline:
. became one of the largest re-sellers of Xerox Corporation magnetic ink
character recognition products;
.adapted its LaserCheck products to run on Windows 3.X and Windows 95
operating platforms; and
.developed new check fraud avoidance software applications.
In 1996, in order to expand its offerings to include an electronic-payment
solution, the company acquired CertiSoft Solutions, Inc., a developer of
software designed to let users make secure electronic payments. In February
1997, the company built on the CertiSoft technology to introduce its PayBase
software products that enable users to control, manage and issue electronic
payments across an entire enterprise, running on Microsoft's Windows 98 and
Windows NT operating systems. In the fiscal year ended June 30, 1997, the
company experienced significant problems with a third-party printer the
company had been reselling. The printer problem had an adverse effect on
operating results, including reduced revenues due to customer returns and
reduced sales productivity, which resulted in the company reporting a net loss
for the fiscal year ended June 30, 1997. In March 1998, The Federal Reserve
Board selected the company to develop electronic payment-related software that
would be made available to its 12,000 member financial institutions. Today,
the company's customer base includes over 2,000 customers in industries such
as financial services, health care, communications, education, media,
manufacturing and government.
Bottomline's revenues are primarily derived from three sources.
. Software License Fees. Bottomline derives software license revenues
primarily from PayBase software license fees, which are generally based on
the number of software applications and user licenses purchased. Fees from
the sale of software licenses are generally recognized upon delivery of the
software to the customer, unless the company has significant obligations
remaining with respect to the software.
. Service and Maintenance Fees. Bottomline derives service and maintenance
revenues from (1) consulting, design and training fees which are fixed on a
project-to-project basis and (2) customer support and maintenance fees.
Revenues relating to custom consulting, design and service fees are
recognized at the time services are rendered. Customer support and training
fees are established as a percentage, typically 18% of the list price for
the software license, and are prepaid annually. Support and maintenance
agreements generally have a term of 12 months and are renewable annually.
The company recognizes revenues related to customer support and maintenance
fees ratably over the life of the agreement.
. Equipment and Supply Sales. Bottomline derives equipment and supply
revenues from the sales of printers, check paper and magnetic ink character
recognition toners that are recognized at the time of delivery.
Bottomline expects to continue making significant investments in product
development and engineering in order to enhance its current products, develop
new products and further advance its Internet and payment
15
<PAGE>
technologies. Future investments in product development and engineering will
generally be related to the hiring of additional software engineering
personnel.
The continued investment in and expansion of Bottomline's direct sales force
is an important part of its strategy. Bottomline intends to add approximately
10 new sales professionals during fiscal year 1999. Bottomline also intends to
continue to increase the promotion of its products and services through
conferences, seminars, direct marketing and trade publications, as well as
through relationships with enterprise resource planning and accounting system
vendors, such as Oracle and SAP, and implementation consultants. In addition,
Bottomline expects to increase its system engineering and sales support
personnel located in its existing field sales offices in San Francisco,
California; Chicago, Illinois; Englewood, Colorado; and New York, New York and
to open additional field sales offices in other major cities.
Bottomline records software development costs in accordance with Financial
Accounting Standards Board Statement No. 86. The Company has not had any
software development costs that were capitalized during the last fiscal year
and does not currently have any software development costs that are being
capitalized.
Recent Accounting Pronouncements
In October 1997, the American Institute of Certified Public Accountants
issued SOP 97-2, which Bottomline adopted on July 1, 1998. SOP 97-2 requires,
among other things, that revenue should be recognized when there is persuasive
evidence of an existing agreement, delivery has occurred, the fees charged are
fixed or determinable and collectibility is probable. Additionally, SOP 97-2
provides that for those arrangements which consist of multiple elements such
as services, software, software upgrades, enhancements and post-contract
support, the fees charged must be allocated to each element of the arrangement
based upon vendor-specific objective evidence of fair value, which is to be
determined based upon the price charged when the element is sold separately or
the price for the element established by management with relevant authority.
Bottomline believes that SOP 97-2 will not have a material adverse effect on
its future operating results.
Recent Development
In October 1998, Bottomline entered into a working agreement with Arthur
Andersen LLP. Under the working agreement, Arthur Andersen LLP will work with
Bottomline to introduce its PayBase/32/ solution to enterprises that would
likely benefit from anticipated cost efficiencies and enhanced internal
controls realized from PayBase/32/. Bottomline plans to utilize the enterprise
consulting experience of Arthur Andersen LLP to demonstrate to the users of
its departmental payment products the benefits of migrating to the company's
PayBase/32/ enterprise-wide payment solution. In October 1998, Arthur Andersen
LLP also made an investment in Bottomline's common stock.
16
<PAGE>
Results of Operations
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Ended
Fiscal Year Ended June 30, December 31,
-------------------------- ------------
1996 1997 1998 1997 1998
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses............. 25.9% 28.9% 34.0% 32.7% 41.2%
Service and maintenance....... 25.4 30.4 33.4 33.0 29.4
Equipment and supplies........ 48.7 40.7 32.6 34.3 29.4
-------- -------- -------- ------ ------
Total revenues............... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses............. 0.1 0.7 0.7 0.9 0.8
Service and maintenance....... 14.7 19.0 14.7 15.0 13.5
Equipment and supplies........ 29.7 29.0 22.5 23.4 21.1
-------- -------- -------- ------ ------
Total cost of revenues....... 44.5 48.7 37.9 39.3 35.4
-------- -------- -------- ------ ------
Gross profit 55.5 51.3 62.1 60.7 64.6
Operating expenses:
Sales and marketing........... 23.2 29.9 26.4 26.5 26.9
Product development and
engineering................. 6.9 9.9 10.9 11.0 10.5
General and administrative.... 16.8 19.3 15.1 14.8 13.3
-------- -------- -------- ------ ------
Total operating expenses..... 46.9 59.1 52.4 52.3 50.7
-------- -------- -------- ------ ------
Income (loss) from operations.. 8.6 (7.8) 9.7 8.4 13.9
Interest income (expense),
net.......................... -- (0.3) (0.1) (0.4) 0.2
-------- -------- -------- ------ ------
Income (loss) before provision
(benefit) for income taxes... 8.6 (8.1) 9.6 8.0 14.1
Provision (benefit) for income
taxes........................ 3.7 (2.4) 4.1 3.4 5.6
-------- -------- -------- ------ ------
Net income (loss).............. 4.9% (5.7)% 5.5% 4.6% 8.5%
======== ======== ======== ====== ======
</TABLE>
Six Months Ended December 31, 1998 Compared to Six Months Ended December 31,
1997
Revenues
Total revenues increased by $4.6 million to $18.1 million in the six months
ended December 31, 1998 from $13.5 million in the six months ended December
31, 1997, an increase of 34%.
Software Licenses. Software license fees increased by $3.1 million to $7.5
million in the six months ended December 31, 1998 from $4.4 million in the six
months ended December 31, 1997, an increase of 70%. Software licenses fees
represented 41% of total revenues in the six months ended December 31, 1998
compared to 33% of total revenues for the six months ended December 31, 1997.
The increase in software license fees was due primarily to growing market
acceptance of PayBase/32/ as the Company sold 161 PayBase/32/ licenses in the
six months ended December 31, 1998 compared to 47 PayBase/32/ licenses in the
six months ended December 31, 1997 and the delivery of software to the Federal
Reserve System, which resulted in recognition of software license revenue of
approximately $1.1 million in the six months ended December 31, 1998.
Service and Maintenance. Service and maintenance fees increased by $856,000
to $5.3 million in the six months ended December 31, 1998 from $4.4 million in
the six months ended December 31, 1997, an increase of 19%. Service and
maintenance fees represented 29% of total revenues in the six months ended
December 31, 1998 compared to 33% of total revenues in the six months ended
December 31, 1997. The increase in service and maintenance fees was due
primarily to an increase in the number of sales of software licenses, which
resulted in increased orders for services and sales of software maintenance
and technical support.
Equipment and Supplies. Equipment and supplies sales increased by $699,000
to $5.3 million in the six months ended December 31, 1998 from $4.6 million in
the six months ended December 31, 1997, an increase of 15%. Equipment and
supplies sales represented 29% of total revenues in the six months ended
December 31, 1998 compared to 34% of total revenues in the six months ended
December 31, 1997. The increase in equipment and supplies sales was due
primarily to an increase in sales of printers.
17
<PAGE>
Cost of Revenues
Software Licenses. Software license costs consist of expenses incurred by
Bottomline to manufacture, package and distribute its software products and
related documentation and costs of licensing third-party software incorporated
into its products. Software license costs increased by $36,000 to $154,000 in
the six months ended December 31, 1998 from $118,000 in the six months ended
December 31, 1997, an increase of 31%. Software license costs were 2% of
software revenues in the six months ended December 31, 1998 compared to 3% of
software revenues in the six months ended December 31, 1997. The increase in
software license costs was due primarily to royalty payments of approximately
$100,000 made in connection with the software delivered to The Federal Reserve
System.
Service and Maintenance. Service and maintenance costs include salary
expense and other related costs for Bottomline's customer service, maintenance
and telephone support staffs, as well as third-party contractor expenses.
Service and maintenance costs increased by $427,000 to $2.5 million in the six
months ended December 31, 1998 from $2.0 million in the six months ended
December 31, 1997, an increase of 21%. Service and maintenance costs were 46%
of service and maintenance revenues in the six months ended December 31, 1998
compared to 45% of service and maintenance revenues in the six months ended
December 31, 1997. The increase in service and maintenance costs was due
primarily to increased staffing and personnel related costs.
Equipment and Supplies. Equipment and supplies costs increased by $638,000
to $3.8 million in the six months ended December 31, 1998 from $3.2 million in
the six months ended December 31, 1997, an increase of 20%. Equipment and
supplies costs were 71% of equipment and supply revenues in the six months
ended December 31, 1998 compared to 68% of equipment and supplies sales in the
six months ended December 31, 1997. The increase in equipment and supplies
costs as a percentage of equipment and supplies revenues was due primarily to
competitive pressure on the pricing of supplies.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and trade shows.
Sales and marketing expenses increased by $1.3 million to $4.9 million in the
six months ended December 31, 1998 from $3.6 million in the six months ended
December 31, 1997, an increase of 36%. Sales and marketing expenses remained
constant at 27% of total revenues in each of the six month periods ended
December 31, 1998 and December 31, 1997. The dollar increase was due primarily
to increases in staffing and personnel related costs.
Product Development and Engineering. Product development and engineering
expenses consist primarily of personnel costs to support product development.
Product development and engineering expenses increased by $413,000 to $1.9
million in the six months ended December 31, 1998 from $1.5 million in the six
months ended December 31, 1997, an increase of 28%. Product development and
engineering expenses remained constant at 11% of total revenues in each of the
six month periods ended December 31, 1998 and December 31, 1997. The dollar
increase was due primarily to increases in staffing and personnel related
costs.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses increased by $395,000 to $2.4
million in the six months ended December 31, 1998 from $2.0 million in the six
months ended December 31, 1997, an increase of 20%. General and administrative
expenses were 13% of total revenues in the six months ended December 31, 1998
compared to 15% of total revenues in the six months ended December 31, 1997.
The dollar increase was due to staffing and personnel related costs which
increased by $201,000 and, to a lesser extent, facility, information system
and other expenses necessary to support Bottomline's expanding operations.
Interest Income (Expense), Net. Interest income (expense), net consists of
interest income and interest expense. Interest income (expense), net increased
by $89,000 to $39,000 of interest income in the six months
18
<PAGE>
ended December 31, 1998 from $50,000 of interest expense in the six months
ended December 31, 1997. The increase was due to lower average balances
outstanding under Bottomline's revolving credit agreement and higher cash
balances on hand.
Provision (Benefit) for Income Taxes. The provision (benefit) for income
taxes increased by $566,000 to $1.0 million in the six months ended December
31, 1998 from $460,000 in the six months ended December 31, 1997. The
effective tax rate in the six months ended December 31, 1998 was 40% compared
to 42% in the six months ended December 31, 1997. The effective tax rate in
each of the six month periods ended December 31, 1998 and December 31, 1997
differed from the federal statutory rate due principally to the effect of
state income taxes.
Net Income. Net income increased by $911,000 to $1.5 million in the six
months ended December 31, 1998 from $627,000 in the six months ended December
31, 1997.
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
Revenues
Total revenues increased by $6.9 million to $29.0 million in the fiscal year
ended June 30, 1998 from $22.1 million in the fiscal year ended June 30, 1997,
an increase of 31%. The increase was primarily attributable to the growing
market acceptance of PayBase/32/, which the company released in February 1997,
and the addition of new clients to Bottomline's customer base, resulting in
substantial growth in software license fees and related services and
maintenance fees.
Software Licenses. Software license fees increased by $3.5 million to $9.9
million in the fiscal year ended June 30, 1998 from $6.4 million in the fiscal
year ended June 30, 1997, an increase of 55%. Software licenses fees
represented 34% of total revenues in the fiscal year ended June 30, 1998
compared to 29% of total revenues in the fiscal year ended June 30, 1997. In
February 1997, Bottomline released PayBase/32/. PayBase/32/ is a more
advanced, higher priced product. The increase in software license fees during
the fiscal year ended June 30, 1998 was due primarily to the higher price of
the PayBase/32/ product and an increase in the number of customers as a result
of growing market acceptance of PayBase/32/. Revenues from the company's
existing product line were consistent with the prior year.
Service and Maintenance. Service and maintenance fees increased by $3.0
million to $9.7 million in the fiscal year ended June 30, 1998 from $6.7
million in the fiscal year ended June 30, 1997, an increase of 45%. Service
and maintenance fees represented 33% of total revenues in the fiscal year
ended June 30, 1998 compared to 30% of total revenues in the fiscal year ended
June 30, 1997. The increase in service and maintenance fees was due primarily
to an increase in the number of customers and sales of software licenses,
which resulted in increased orders for services and sales of software
maintenance and technical support.
Equipment and Supplies. Equipment and supplies sales increased by $400,000
to $9.4 million in the fiscal year ended June 30, 1998 from $9.0 million in
the fiscal year ended June 30, 1997, an increase of 4%. Equipment and supplies
sales represented 33% of total revenues in the fiscal year ended June 30, 1998
compared to 41% of total revenues in the fiscal year ended June 30, 1997. The
increase in equipment and supplies sales was due primarily to increased sales
of magnetic ink character recognition toners and check stock.
Cost of Revenues
Software Licenses. Software license costs increased by $55,000 to $215,000
in the fiscal year ended June 30, 1998 from $160,000 in the fiscal year ended
June 30, 1997, an increase of 34%, due to increased software sales. Software
license costs were 2% of software revenues in the fiscal year ended June 30,
1998 compared to 3% of software revenues in the fiscal year ended June 30,
1997.
Service and Maintenance. Service and maintenance costs increased by $100,000
to $4.3 million in the fiscal year ended June 30, 1998 from $4.2 million in
the fiscal year ended June 30, 1997, an increase of 2%.
19
<PAGE>
Service and maintenance costs were 44% of service and maintenance revenues in
the fiscal year ended June 30, 1998 compared to 63% of service and maintenance
revenues in the fiscal year ended June 30, 1997. Service and maintenance costs
as a percentage of service and maintenance revenues were significantly higher
in the fiscal year ended June 30, 1997 as a result of increased maintenance
costs and charges incurred in fiscal year 1997 by Bottomline due to a problem
with a third-party printer that it had been reselling.
Equipment and Supplies. Equipment and supplies costs increased by $100,000
to $6.5 million in the fiscal year ended June 30, 1998 from $6.4 million in
the fiscal year ended June 30, 1997, an increase of 2%. Equipment and supplies
costs were 69% of equipment and supplies sales in the fiscal year ended June
30, 1998 compared to 71% in the fiscal year ended June 30, 1997. The decrease
in equipment and supplies costs as a percentage of equipment and supplies
sales was due primarily to a higher provision for inventory obsolescence of
$217,000 recognized during fiscal year 1997 related to a third-party printer
that the company had been reselling.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $1.1 million
to $7.7 million in the fiscal year ended June 30, 1998 from $6.6 million in
the fiscal year ended June 30, 1997, an increase of 17%. Sales and marketing
expenses were 26% of total revenues in the fiscal year ended June 30, 1998
compared to 30% of total revenues in the fiscal year ended June 30, 1997. The
dollar increase was due primarily to an increase in sales and marketing
personnel costs which increased by $816,000 and, to a lesser extent, increased
marketing expenditures relating to the introduction of PayBase/32/.
Product Development and Engineering. Product development and engineering
expenses increased by $1.0 million to $3.2 million in the fiscal year ended
June 30, 1998 from $2.2 million in the fiscal year ended June 30, 1997, an
increase of 45%. Product development and engineering expenses were 11% of
total revenues in the fiscal year ended June 30, 1998 compared to 10% of total
revenues in the fiscal year ended June 30, 1997. The dollar increase was due
primarily to the hiring of additional personnel to develop new software
products.
General and Administrative. General and administrative expenses increased by
$100,000 to $4.4 million in the fiscal year ended June 30, 1998 from $4.3
million in the fiscal year ended June 30, 1997, an increase of 2%. General and
administrative expenses were 15% of total revenues in the fiscal year ended
June 30, 1998 compared to 19% of total revenues in the fiscal year ended June
30, 1997. The dollar increase was due primarily to increased personnel costs
which increased by $88,000 and, to a lesser extent, facility expenses
necessary to support the company's expanding operations.
Interest Income (Expense), Net. Interest expense net decreased by $6,000 to
$50,000 in the fiscal year ended June 30, 1998 from $56,000 in the fiscal year
ended June 30, 1997. The decrease was due to lower prevailing interest rates
and lower borrowings in fiscal year 1998 compared to fiscal year 1997.
Provision (Benefit) for Income Taxes. The company had income tax expense of
$1.2 million in the fiscal year ended June 30, 1998 compared to an income tax
benefit of $536,000 in the fiscal year ended June 30, 1997. The effective tax
rate used to calculate the company's income tax expense in the fiscal year
ended June 30, 1998 was 42% compared to an effective tax rate of 30.0% used to
calculate the company's income tax benefit in the fiscal year ended June 30,
1997. The effective tax rate in the fiscal year ended June 30, 1998 differed
from the federal statutory rate due principally to the effect of state income
taxes and reduced levels of available research and development credits. The
effective tax rate in the fiscal year ended June 30, 1997 differed from the
federal statutory rate due principally to the effect of non-deductible
expenses associated principally with the CertiSoft acquisition, which were
offset partially by research and development credits.
Net Income (Loss). Net income increased by $2.9 million to $1.6 million in
the fiscal year ended June 30, 1998 from a net loss of $1.3 million in the
fiscal year ended June 30, 1997.
20
<PAGE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Revenues
Total revenues increased by $4.0 million to $22.1 million in the fiscal year
ended June 30, 1997 from $18.1 million in the fiscal year ended June 30, 1996,
an increase of 22%. This increase was primarily attributable to the addition
of new clients to the company's customer base, resulting in substantial growth
in software license fees and related services and maintenance fees. Revenues
were adversely affected in fiscal year 1997 due to a problem with a third-
party printer that the company had been reselling which resulted in customer
returns and reduced sales productivity.
Software Licenses. Software license fees increased by $1.7 million to $6.4
million in the fiscal year ended June 30, 1997 from $4.7 million in the fiscal
year ended June 30, 1996, an increase of 36%. Software license fees
represented 29% of total revenues in the fiscal year ended June 30, 1997
compared to 26% of total revenues in the fiscal year ended June 30, 1996. The
increase in software license fees was due primarily to a higher average
license price for existing products, an increase in customers as a result of
growing market acceptance of LaserCheck and, to a lesser extent, the
introduction of PayBase. Software license fees were adversely affected in
fiscal year 1997 due to a decrease in orders from both new and existing
customers as a result of a problem with a third-party printer that the company
had been reselling, which reduced sales productivity.
Service and Maintenance. Service and maintenance fees increased by $2.1
million to $6.7 million in the fiscal year ended June 30, 1997 from $4.6
million in the fiscal year ended June 30, 1996, an increase of 46%. Service
and maintenance fees represented 30% of total revenues in the fiscal year
ended June 30, 1997 compared to 25% of total revenues in the fiscal year ended
June 30, 1996. The increase in service and maintenance fees was due primarily
to an increase in the number of customers and sales of software licenses,
which resulted in increased orders for professional services and sales of
software maintenance and technical support.
Equipment and Supplies. Equipment and supplies sales increased by $200,000
to $9.0 million in the fiscal year ended June 30, 1997 from $8.8 million in
the fiscal year ended June 30, 1996, an increase of 2%. Equipment and supplies
sales represented 41% of total revenues in the fiscal year ended June 30, 1997
compared to 49% of total revenues in the fiscal year ended June 30, 1996. The
increase in equipment and supplies sales was due primarily to increased sales
of magnetic ink character recognition toners and check stock.
Cost of Revenues
Software Licenses. Software license costs increased by $133,000 to $160,000
in the fiscal year ended June 30, 1997 from $27,000 in the fiscal year ended
June 30, 1996, an increase of 493%. Software license costs represented 3% of
software license revenues in the fiscal year ended June 30, 1997 compared to
1% of software license revenues in the fiscal year ended June 30, 1996.
Software license costs increased primarily because the company converted from
diskette to CD-ROM media for packaging its software.
Service and Maintenance. Service and maintenance costs increased by $1.5
million to $4.2 million in the fiscal year ended June 30, 1997 from $2.7
million in the fiscal year ended June 30, 1996, an increase of 56%. Service
and maintenance costs represented 63% of service and maintenance revenues in
the fiscal year ended June 30, 1997 compared to 58% of service and maintenance
revenues in the fiscal year ended June 30, 1996. The increase was primarily
due to expansion of the company's customer services organization and higher
than expected charges incurred in fiscal year 1997 related to a problem with a
third-party printer that the company had been reselling.
Equipment and Supplies. Equipment and supplies costs increased by $1.0
million to $6.4 million in the fiscal year ended June 30, 1997 from $5.4
million in the fiscal year ended June 30, 1996, an increase of 19%. Equipment
and supplies costs represented 71% of equipment and supplies sales in the
fiscal year ended June 30, 1997 compared to 61% of equipment and supplies
sales in the fiscal year ended June 30, 1996. This increase was due primarily
to inventory write-offs and higher provisions for printer inventory
obsolescence of $217,000 recognized during fiscal year 1997 due to a problem
with a third-party printer that the company had been reselling.
21
<PAGE>
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $2.4 million
to $6.6 million in the fiscal year ended June 30, 1997 from $4.2 million in
the fiscal year ended June 30, 1996, an increase of 57%. Sales and marketing
expenses represented 30% of total revenues in the fiscal year ended June 30,
1997 compared to 23% of total revenues in the fiscal year ended June 30, 1996.
The increase was due to a significant increase in sales and marketing
personnel costs which increased by $1.8 million and, to a lesser extent,
increased marketing program expenditures to launch PayBase products and to
increased sales of LaserCheck software.
Product Development and Engineering. Product development and engineering
expenses increased by $1.0 million to $2.2 million in the fiscal year ended
June 30, 1997 from $1.2 million in the fiscal year ended June 30, 1996, an
increase of 83%. Product development and engineering expenses represented 10%
of total revenues in the fiscal year ended June 30, 1997 compared to 7% of
total revenues in the fiscal year ended June 30, 1996. The increase was due
primarily to additional amortization of certain acquired software costs
charged to operations and increases in staffing to support development of
PayBase.
General and Administrative. General and administrative expenses increased by
$1.3 million to $4.3 million in the fiscal year ended June 30, 1997 from $3.0
million in the fiscal year ended June 30, 1996, an increase of 43%. General
and administrative expenses represented 19% of total revenues in the fiscal
year ended June 30, 1997 compared to 17% of total revenues in the fiscal year
ended June 30, 1996. The increase was due to personnel costs which increased
by $387,000, expenses of $300,000 related to the conversion to a new
accounting system and facility expenses necessary to support expanding
operations.
Interest Income (Expense), Net. Interest expense net increased by $50,000 to
$56,000 in the fiscal year ended June 30, 1997 from $6,000 in the fiscal year
ended June 30, 1996, an increase of 833%. The increase was due primarily to
increased borrowings under the company's revolving credit agreement in fiscal
year 1997.
Provision (Benefit) for Income Taxes. The company had an income tax benefit
of $536,000 in the fiscal year ended June 30, 1997, compared to an income tax
expense of $664,000 in the fiscal year ended June 30, 1996. The effective tax
rate used to calculate the company's income tax benefit in the fiscal year
ended June 30, 1997 was 30% compared to an effective tax rate of 43% used to
calculate the company's income tax expense in the fiscal year ended June 30,
1996. The effective tax rate in the fiscal year ended June 30, 1997 differed
from the federal statutory rate due principally to non-deductible expenses
associated with Bottomline's CertiSoft acquisition and research and
development tax credits. The effective tax rate in the fiscal year ended June
30, 1996 differed from the federal statutory rate due principally to the
effect of state income taxes and non-deductible expenses associated with the
CertiSoft acquisition.
Net Income (Loss). Net income decreased by $2.2 million to a net loss of
$1.3 million in the fiscal year ended June 30, 1997 from net income of
$883,000 in the fiscal year ended June 30, 1996. The net loss was principally
attributable to a significant problem with a third-party printer that the
company had been reselling. The printer problem had a adverse effect on
operating results. It resulted in increased customer support expenses incurred
in responding to printer-related issues; increased service, maintenance and
supply expenses incurred in repairing and replacing the defective printers;
inventory write-offs related to the defective printers of $217,000; and a
decrease in orders from customers as printer problems adversely affected sales
productivity.
22
<PAGE>
Selected Quarterly Results of Operations
The following table sets forth certain unaudited quarterly results of
operations of Bottomline for each of the ten quarters ended December 31, 1998.
In management's opinion, this unaudited information has been prepared on the
same basis as the audited Financial Statements appearing elsewhere in this
prospectus and includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the unaudited quarterly results when
read in conjunction with the audited Financial Statements and Notes thereto
included elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of future results of operations.
The company has 801,000 shares of redeemable common stock outstanding which
are redeemable at the option of the holders at a redemption price that
increases over time. The earnings (loss) per share available to common
stockholders shown below have been adjusted to reflect the increase in the
redemption price for each period. These redemption rights will terminate upon
the effectiveness of this offering. The shares used in computing diluted
earnings per share available to common stockholders include the redeemable
common stock.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $1,415 $1,510 $1,458 $2,009 $1,591 $2,844 $2,506 $2,946 $3,477 $ 3,991
Service and
maintenance......... 1,340 1,716 1,788 1,885 1,937 2,534 2,280 2,950 2,254 3,073
Equipment and
supplies............ 2,041 2,426 2,244 2,294 2,536 2,106 2,675 2,132 2,374 2,967
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Total revenues....... 4,796 5,652 5,490 6,188 6,064 7,484 7,461 8,028 8,105 10,031
Cost of revenues:
Software licenses..... 36 44 30 50 48 70 44 53 123 31
Service and
maintenance......... 892 1,251 1,015 1,048 851 1,178 1,060 1,172 1,106 1,350
Equipment and
supplies............ 1,380 1,904 1,546 1,580 1,648 1,528 1,828 1,522 1,682 2,133
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Total cost of
revenues........... 2,308 3,199 2,591 2,678 2,547 2,776 2,932 2,747 2,911 3,514
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross profit........... 2,488 2,453 2,899 3,510 3,517 4,708 4,529 5,281 5,194 6,517
Operating expenses:
Sales and marketing... 1,338 1,594 1,665 2,034 1,557 2,033 1,879 2,206 2,242 2,638
Product development
and engineering..... 408 338 501 938 670 822 811 855 928 977
General and
administrative...... 1,026 1,123 1,036 1,081 932 1,074 1,152 1,214 1,277 1,124
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses........... 2,772 3,055 3,202 4,053 3,159 3,929 3,842 4,275 4,447 4,739
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Income (loss) from
operations........... (284) (602) (303) (543) 358 779 687 1,006 747 1,778
Interest income
(expense), net....... 7 (24) (34) (5) (22) (28) (10) 10 15 24
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before
provision (benefit)
for income taxes..... (277) (626) (337) (548) 336 751 677 1,016 762 1,802
Provision (benefit) for
income taxes......... (109) (247) (133) (47) 142 318 287 430 305 721
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)...... $ (168) $ (379) $ (204) $ (501) $ 194 $ 433 $ 390 $ 586 $ 457 $ 1,081
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
Earnings (loss) per
share
available to common
stockholders:
Basic................. $(0.03) $(0.07) $(0.04) $(0.08) $ 0.03 $ 0.06 $ 0.06 $ 0.09 $ 0.07 $ 0.16
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
Diluted............... $(0.03) $(0.07) $(0.04) $(0.08) $ 0.02 $ 0.06 $ 0.05 $ 0.08 $ 0.06 $ 0.14
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
Shares used in
computing earnings
(loss) per share
available to
common stockholders:
Basic................. 5,871 5,904 5,907 6,261 6,307 6,307 6,312 6,330 6,361 6,583
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
Diluted............... 5,871 5,904 5,907 6,261 7,297 7,305 7,308 7,362 7,456 7,655
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
23
<PAGE>
The following table sets forth unaudited quarterly results of operations as
a percentage of revenues for each of the ten quarters ended December 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software
licenses....... 29.5% 26.7% 26.5% 32.5% 26.3% 38.0% 33.6% 36.7% 42.9% 39.8%
Service and
maintenance.... 27.9 30.4 32.6 30.4 31.9 33.9 30.5 36.7 27.8 30.6
Equipment and
supplies....... 42.6 42.9 40.9 37.1 41.8 28.1 35.9 26.6 29.3 29.6
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues.. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software
licenses....... 0.7 0.8 0.5 0.8 0.8 0.9 0.6 0.6 1.5 0.3
Service and
maintenance.... 18.6 22.1 18.5 17.0 14.0 15.8 14.2 14.6 13.6 13.5
Equipment and
supplies ...... 28.8 33.7 28.2 25.5 27.2 20.4 24.5 19.0 20.8 21.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues...... 48.1 56.6 47.2 43.3 42.0 37.1 39.3 34.2 35.9 35.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit...... 51.9 43.4 52.8 56.7 58.0 62.9 60.7 65.8 64.1 65.0
Operating
expenses:
Sales and
marketing...... 27.9 28.2 30.3 32.9 25.7 27.2 25.2 27.5 27.7 26.3
Product
development and
engineering.... 8.5 6.0 9.1 15.1 11.0 11.0 10.9 10.7 11.4 9.7
General and
administrative.. 21.4 19.9 18.9 17.5 15.4 14.3 15.4 15.0 15.8 11.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses...... 57.8 54.1 58.3 65.5 52.1 52.5 51.5 53.2 54.9 47.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations...... (5.9) (10.7) (5.5) (8.8) 5.9 10.4 9.2 12.6 9.2 17.8
Interest income
(expense), net.. 0.1 (0.4) (0.6) (0.1) (0.4) (0.4) (0.1) 0.1 0.2 0.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss)
before provision
(benefit) for
income taxes.... (5.8) (11.1) (6.1) (8.9) 5.5 10.0 9.1 12.7 9.4 18.0
Provision
(benefit) for
income taxes.... (2.3) (4.4) (2.4) (0.8) 2.3 4.2 3.9 5.4 3.8 7.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income
(loss).......... (3.5)% (6.7)% (3.7)% (8.1)% 3.2% 5.8% 5.2% 7.3% 5.6% 10.8%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
-----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software
licenses.......
Service and
maintenance....
Equipment and
supplies.......
Total revenues..
Cost of revenues:
Software
licenses.......
Service and
maintenance....
Equipment and
supplies ......
Total cost of
revenues......
Gross profit......
Operating
expenses:
Sales and
marketing......
Product
development and
engineering....
General and
administrative..
Total operating
expenses......
Income (loss) from
operations......
Interest income
(expense), net..
Income (loss)
before provision
(benefit) for
income taxes....
Provision
(benefit) for
income taxes....
Net income
(loss)..........
</TABLE>
Revenues
The company has experienced year-to-year growth with seasonal fluctuations
in revenues and earnings. During the company's second fiscal quarter ended
December 31, revenues have typically increased as customers on a calendar-
based fiscal year completed their capital spending plans. During the third
fiscal quarter ended March 31, revenues have typically declined as customers
focus internal resources on statutory and regulatory reporting requirements.
The fourth fiscal quarter ended June 30, generally has the highest revenues as
customers complete projects before summer, when activity in many corporate
financial departments tends to slow, which can result in a difference between
fourth and first quarter revenues.
Revenues decreased by $100,000 to $6.1 million during the fiscal quarter
ended September 30, 1997 from $6.2 million during the fiscal quarter ended
June 30, 1997. The decrease was consistent with seasonal trends for revenues.
Equipment and supplies sales increased by $200,000 to $2.5 million during the
fiscal quarter ended September 30, 1997 from $2.3 million during the fiscal
quarter ended June 30, 1997. The increase was due primarily to orders for new
third-party printers and related toners. Equipment and supplies sales as a
percent of total revenues decreased in subsequent quarters as printer orders
stabilized.
Cost of Revenues
During the four quarters of fiscal year 1997, the company experienced a
significant problem with a third-party printer it had been reselling. The
printer problem had a material adverse effect on operating results, including:
. increased customer support expenses incurred in receiving,
investigating and responding to printer-related issues;
. increased service, maintenance and supply expenses incurred in
repairing and, in some cases, replacing the defective printers;
24
<PAGE>
. a decrease in orders from both new and existing customers as printer
problems adversely affected sales productivity; and
. inventory write-offs of $217,000 related to the defective printers.
The company has since established a product qualification process and
periodic quality inspections. In addition, the company has revised and
enhanced its quality assurance programs.
Operating Expenses
Sales and marketing expenses increased by $300,000 to $2.0 million in the
fiscal quarter ended June 30, 1997 from $1.7 million in the fiscal quarter
ended March 31, 1997. The increase was due primarily to commission expenses
generated from increased sales of PayBase and related services, which had a
higher average commission payment rate. Additionally, marketing expenses
increased as the company promoted a new third-party laser printer.
Product development and engineering expenses increased by $437,000 to
$938,000 in the fiscal quarter ended June 30, 1997 from $501,000 in the fiscal
quarter ended March 31, 1997. The increase was due primarily to additional
amortization of certain acquired software costs charged to operations.
Sales and marketing expenses increased by $400,000 to $2.0 million in the
fiscal quarter ended December 31, 1997 from $1.6 million in the fiscal quarter
ended September 30, 1997. The increase was due primarily to commission
expenses generated from increased sales of PayBase and related professional
services, which carried higher commission payment rates.
In addition to seasonal fluctuations, quarterly results of operations may be
subject to significant fluctuations due to several factors, including:
.the size, timing and number of customer orders;
.product and price competition;
. the loss of key employees and the time required to train new hires,
particularly sales and engineering personnel;
.timing of new product introductions and enhancements;
.sales, implementation and budget cycles of the company's customers;
.the number of business days in a particular period;
. market acceptance of new products or product enhancements by either
the company or its competitors;
.the incurrence of costs relating to possible acquisitions of technologies
or businesses;
.the company's ability to address new and related market opportunities;
.the mix of license and maintenance revenue in any period; and
.general economic conditions.
The company anticipates that its operating expenses will continue to
increase significantly. If sales in any quarter do not increase
correspondingly, results of operations for that quarter would be materially
adversely affected. For the foregoing reasons, the company believes that
quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and that the company's results of operations in any
particular quarter should not be relied upon as necessarily indicative of
future performance. Moreover, for the foregoing reasons, there can be no
assurance that the profitability attained in the last fiscal year will
continue.
25
<PAGE>
Liquidity and Capital Resources
Bottomline has financed its operations primarily from cash provided by
operating activities, the sale of common stock and bank credit facilities for
leasehold improvements and working capital. Bottomline had net working capital
of $5.6 million at December 31, 1998, including cash and cash equivalents
totaling $3.9 million.
Net cash provided by operating activities was $2.2 million in the six months
ended December 31, 1998. Net cash provided by operating activities during the
six months ended December 31, 1998 was primarily the result of net income and
increases in deferred revenues, accounts payable and accrued expenses,
partially offset by increases in accounts receivable and prepaid expenses. Net
cash provided by operating activities was $2.6 million in the fiscal year
ended June 30, 1998 and $820,000 in the fiscal year ended June 30, 1996. Net
cash used in operating activities was $668,000 in the fiscal year ended June
30, 1997. Net cash provided by operating activities during the fiscal year
ended June 30, 1998 and the fiscal year ended June 30, 1996 was primarily the
result of net income and increases in deferred revenues partially offset by
increases in accounts receivable. During the fiscal year ended June 30, 1997,
net cash used in operations was primarily the result of net losses, an
increase in accounts receivable and refundable income taxes partially offset
by increases in deferred revenues, accounts payable and accrued expenses.
Net cash used in investing activities was $602,000 in the six months ended
December 31, 1998. Cash was used during this period to acquire computer
equipment and software for internal use. Net cash used in investing activities
was $993,000 in the fiscal year ended June 30, 1998, $694,000 in the fiscal
year ended June 30, 1997 and $469,000 in the fiscal year ended June 30, 1996.
Cash was used during these periods to acquire property and equipment and for
software development costs. The company currently has no significant capital
spending or purchase commitments, but expects to continue to engage in capital
spending in the ordinary course of business. During fiscal year 1998, the
company expensed as incurred all software development costs.
Net cash provided by financing activities was $922,000 in the six months
ended December 31, 1998. The net increase was the result of the October 1998
net proceeds of $972,000 from the sale of common stock partially offset by the
reduction of notes payable of $50,000. Net cash used in financing activities
was $1.1 million in the fiscal year ended June 30, 1998. Net cash provided by
financing activities was $1.1 million in the fiscal year ended June 30, 1997
and $98,000 in the fiscal year ended June 30, 1996. Net cash used in financing
activities during the fiscal year ended June 30, 1998 primarily represented
repayment of indebtedness. Net cash provided by financing activities during
the fiscal year ended June 30, 1997 primarily represented borrowings under the
company's revolving credit agreement.
In December 1998, the company renewed its revolving credit agreement with a
bank which provides for borrowings of up to $5.0 million. Borrowings under its
revolving credit agreement bear interest at the bank's prime rate, are due on
demand and are secured by substantially all of the company's assets. As of
December 31, 1998, the company had no outstanding balances under its revolving
credit agreement. The agreement expires on December 31, 1999.
The company believes that the proceeds generated by the sale of its common
stock in this offering, cash generated from operations and cash and cash
equivalents on hand, will be sufficient to meet its working capital
requirements for the foreseeable future.
Year 2000 Considerations
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems may need to be upgraded in order to be year 2000 compliant.
The vendors of each of Bottomline's major internal software systems, such as
accounting and database management, have certified that their software is year
2000 compliant. In addition, the company has assessed its
26
<PAGE>
currently supported products, including tools, equipment and software provided
by others, for possible problems in processing, reporting, displaying,
functioning with and otherwise handling date data containing the year 2000 and
beyond and has concluded that such products are year 2000 compliant. The
company does not plan to assess specifically its facility management systems
or the external forces such as utility or transportation year 2000 compliance
failures that might generally affect industry and commerce. The company is
developing contingency plans to address those issues that it believes will be
critical to its operations in the event that internal systems fail to be year
2000 compliant and anticipates finalizing such contingency plans by June 30,
1999.
The company has conducted extensive tests to validate the year 2000
compliance of its products installed after February 1997 and it believes that
these products were year 2000 compliant at the time of installation. However,
products installed prior to that time that operated in the DOS operating
system environment are not year 2000 compliant. In 1997, the company notified
customers that had purchased DOS based products that their products were not
year 2000 compliant and that the company would no longer be supporting those
products. The company has no plan to address year 2000 readiness for these
older products. Based on the notification the company provided and the
contractual provisions limiting liability contained in its standard terms and
conditions which governed the sale of the company's DOS based products, the
company does not believe there are significant risks to its business relating
to year 2000 compliance of these products.
During the past eighteen months, the company purchased $1.5 million in
information systems, hardware and software, some of which purchases were
accelerated in connection with year 2000 compliance. The company does not
expect any future material expenses to be incurred in connection with year
2000 compliance.
27
<PAGE>
BUSINESS
Industry Background
Most enterprises today still rely on pre-printed, paper checks to generate
and receive payments. It is estimated that in 1997, United States businesses
processed approximately 73 billion transactions involving paper checks. With
the significant growth of the Internet and electronic commerce, many
enterprises are seeking to implement a cost-effective, secure, electronic
payment system. The National Automated Clearing House Association estimates
that the cost of a business-to-business electronic payment averages $3.00
compared to $8.33 for a similar paper-based payment. It also estimates that
approximately 4.5 billion secured Automated Clearing House payments were made
in 1997.
Paper Payment Process
Traditional Check Printing. Most businesses today rely primarily on checks
to make and receive payments. They typically use pre-printed checks, which are
blank, legally negotiable instruments that must be securely stored, controlled
and accounted for with physical audits. These checks are either manually
completed or, more frequently, mechanically generated in batches and put
through an impact printer. The checks are then:
- -signed by a signing machine that contains the company's signature
plates;
- -sorted by a decolator machine, which separates the checks from their
copies;
- -run through a burster machine, which separates batch run checks along
their perforated lines;
- -manually or mechanically stuffed into envelopes for mailing; and
- -copied, collated and delivered to the appropriate departments for
filing and record updating.
Breakdowns along the processing line can be costly and time consuming. Damaged
checks must be voided, filed and recorded for auditing purposes and
replacements must be issued.
When an enterprise receives a check, either through a lockbox (which is a
third-party depositing service) or directly, the check must often be
physically separated from the check stub. The stub, which contains detailed
payment information, is forwarded to accounts receivable for data entry and
payment record reconciliation. Because many payments cover multiple invoices
or billings that may contain discounts, offsets or other adjustments, the
reconciliation process is labor intensive and often results in many internal
and external payment inquiries. After reconciliation, the check is processed
as part of a bank deposit and continues through the banking system to the
payor's bank.
Laser Check Printing. The inefficiencies and opportunity for fraud inherent
in traditional check printing has caused many enterprises to acquire software-
based laser check printing systems to generate checks. As with printed checks,
the process begins with the creation of initial payment information, including
payee, payment amount and invoice reference. The software takes that
information, merges it with permanently stored data used to create printed
checks, such as bank information, check design and layout, signatures and
logos, and automatically generates checks on a high-speed laser printer. The
system can also include a magnetic ink character recognition line on the
checks to facilitate their subsequent processing. A laser-printed check is
manually or mechanically stuffed into an envelope for mailing and then
continues through the same receipt and disbursement process as a pre-printed
check.
Electronic Payment Process
The most basic electronic payment, an Automated Clearing House transaction,
such as a direct deposit payroll transaction, consists of data formatted to
comply with National Automated Clearing House Association standards. This data
includes the necessary information to effect the transfer of funds from one
account to another, such as the payor and payee's bank accounts, settlement
date and dollar amount. Basic Automated Clearing House transactions do not
include financial electronic data interchange information, which is commonly
referred to as financial EDI, which consists of payment-related details about
the purpose of the payment, such
28
<PAGE>
as a listing of all the invoices to be credited in connection with the
payment. The Federal Reserve System and participating banks maintain the
computer and network infrastructure needed to transmit these electronic
payments.
Electronic payments generally are processed in the following sequence:
- -payment data is input;
- - the data is formatted to comply with Automated Clearing House and
financial EDI standards and transmitted to the payor's bank where
appropriate debits are made electronically to the payors' accounts;
- - the data is merged with other electronic payment transactions and sent
through The Federal Reserve System's Automated Clearing House system,
ultimately arriving at the payee bank, where appropriate credits are
made electronically to the payees accounts; and,
- -the receiving bank transmits payment notification and remittance
information to the payee.
The following graphic depicts the traditional check process, laser check
process and electronic payment process:
[graph to describe the processes for edgar filing]
This graphic depicts the differences between Traditional Check Printing, Laser
Check Printing and Electronic Payment processes.
[This graphic contains three separate graphs which represent the three different
payment processes. Each graph assimilates an ascending stairway, each step of
the stairway representing a different requirement of the respective payment
process.
The first ascending stairway is labelled "Traditional Check Printing" and
is broken into three sections, as labelled on the side of the stairway. In the
first section, entitled "Steps Required to Create a Traditional Check," ten
steps ascend, representing different steps in the process. The steps are "Align
Check Stock," "Sign Out Signature Plate," "Impact Printer," "Signer,"
"Decollator," "Burster," "Stuffer" and "Check Stock Audit & Control Post Check
Run." In the second section, entitled "Time to Deliver the Check," three steps
are grouped together and labelled, respectively, "Payor's Mailroom," "Postage"
and "Payee's Mailroom." In the third section of the stairway, entitled "Steps
Required to Receive, Post & Archive the Check," six steps ascend, representing
different steps in the process. The steps are entitled "Envelope Opener,"
"Deposit Check," "Credit at Payee's Bank," "Enter Detail," "Archive Stub" and
"Debit at Payor's Bank."
The second ascending stairway is labelled "Laser Check Printing" and is
also broken into three sections, as labelled on the side of the stairway. In the
first section, entitled "Steps Required to Create a Laser Check," four steps
ascend, representing different steps in the process. The steps are entitled
"Input Payment Data," "Blank Paper," "Laser printer" and "Stuffer." In the
second section, "Time to Deliver the Check," three ascending steps are grouped
together and labelled, respectively, "Payor's Mailroom," "Postage" and "Payee's
Mailroom." In the third section of the stairway, entitled "Steps Required to
Receive, Post & Archive the Check," six steps ascend, representing different
steps in the process. The steps are entitled "Envelope Opener," "Deposit Check,"
"Credit at Payee's Bank," "Enter Detail," "Archive Stub" and "Debit at Payor's
Bank."
The third ascending stairway is labelled "Electronic Payment" and only
contains one section, entitled "Steps Required to Make an Electronic Payment."
This section consists of five ascending steps labelled, respectively, "Input
Payment Data," "Format & Transfer Payment Data," "Debit at Payor's Bank,"
"Credit at Payee's Bank" and "Payee Notification of Detail."]
29
<PAGE>
Comparison of Payment Processes
Laser-printed checks are less expensive to generate than pre-printed checks
due to reduced printing, processing and labor costs. Electronic payments
further reduce printing, processing and labor costs as well as costs
associated with mailing, "float" (which is the time between issuance and
clearance of a check), fraud, error and paper-related payment inquiries.
Electronic payments provide enterprises with the opportunity for improved cash
management, the flexibility to make instantaneous payments and the ability to
distribute and make payments at remote offices.
The competitive benefits of electronic payments as well as government and
trading partner mandates are accelerating the transition to electronic
payments from paper-based payments. A comparison of electronic payments to
paper payments sent by the government found that 58% of the 850 million
payments made by the federal government in 1997 were electronic payment
transfers. Results of the comparison also showed the following:
. the average cost per transaction was 21.5 times less for electronic
payments than for paper-based payments;
. the payment inquiry rate was 22 times less for electronic payments
than for paper-based payments and the average time to resolve an
inquiry for an electronic payment was 24 hours, compared to 14 days
for paper-based payments; and
. there were no incidences of forgery involving electronic payments
while 63,000 incidences of forgery were reported involving paper-based
payments.
Current Industry Trends and Developments
Growth of the Internet and electronic commerce. The Internet and electronic
commerce are expanding dramatically. Forrester Research, Inc. estimates the
total value of goods and services traded between companies over the Internet
will increase from $8 billion in 1997 to $327 billion in 2002. This growth has
created a need for secure, electronic payment management solutions that can
support the conduct of commerce without resorting to the use of paper at the
most critical stage--generating and evidencing payments. The National
Automated Clearing House Association estimates that approximately 4.5 billion
secured Automated Clearing House payments were made in 1997.
Increase in cost-based competition. Enterprises are increasingly seeking
cost-based solutions in all facets of their organizations in order to remain
competitive. Laser-printed checks reduce an enterprise's printing, processing
and labor costs and electronic payments provide additional cost savings and
operational efficiencies through reduced costs associated with mailing, float,
fraud, error and paper-related inquiries. The National Automated Clearing
House Association estimates that the cost of a business-to-business electronic
payment averages $3.00 compared to $8.33 for a similar paper-based payment.
Ongoing changes in regulation of payments. Enterprises are increasingly
subject to both federal and state regulation mandating the use of electronic
payments. The Debt Collection Improvement Act of 1996 requires federal
agencies to convert federal payments, other than payments under the Internal
Revenue Code of 1986, made by paper checks to electronic payments by January
1, 1999. Current treasury regulations require that a business that paid more
than $50,000 in annual employment or other depository taxes in 1995, 1996 or
1997 begin to make such payments electronically on or before January 1, 1999,
depending on the year in which the business first paid more than $50,000 in
depository taxes. Non-complying taxpayers may be subject to a 10% penalty if
they fail to comply with such requirements by July 1, 1999. Recently, The
National Automated Clearing House Association required financial EDI
capabilities for the banks participating in its network. In addition, as of
September 1998, 47 of the 50 states had programs in place to accept electronic
payments.
Adoption of third-party, enterprise-wide solutions. Enterprises are
increasingly seeking integrated, enterprise-wide solutions that provide
competitive advantages through increased data access and automation.
30
<PAGE>
This trend has been accelerated by the shortage of qualified technical
personnel, increased allocation of staff resources to year 2000 problems and
the competitive need to rapidly adopt new technologies. This trend is
illustrated by widespread adoption in recent years of enterprise resource
planning systems offered by companies such as SAP and Baan to manage
operations across enterprises. To expand from a department level to an
enterprise-wide solution, enterprises are increasingly looking to third-party
suppliers with expertise in replacing and/or integrating their aging payment
management systems.
Migration to distributed computing. In recent years, enterprises have
adopted distributed computing systems that offer computing power and business
solutions at the point of need, as well as remote access capabilities such as
through the Internet and intranets. These systems have been deployed to enable
individual users to access enterprise databases. Advances in network
management technologies, such as Windows NT, have further accelerated this
trend. Companies purchasing distributed computing software systems require
that they conform to corporate computing standards, including databases such
as Microsoft SQL Server, Oracle, Sybase, IBM DB2 and Informix.
Need for increased security. Advances in scanner, copier and desktop
publishing technology have resulted in increased check forgery, counterfeiting
and misappropriation and an increased demand for secure payment solutions.
Enterprises are seeking to lower the estimated $12 billion annual cost of both
internal and external check fraud through implementation of process and data
security and audit functions. In particular, enterprises are demanding
centralized control over the form, initiation and authorization of their
payments throughout a distributed environment.
Market Opportunity
Enterprises are seeking a third-party payment management solution that
enables them to cost-effectively respond to the significant growth in
electronic commerce, increased fraud and on-going changes in the regulation of
payments and migrate to distributed computing. Traditional paper-based payment
systems lack the flexibility to cost-effectively handle the growth in
electronic commerce and the ability to integrate disparate payment and paper-
related management functions. Most companies, even those with enterprise
resource planning systems, have multiple payment issuing systems in different
departments and, therefore, lack a single view of all payment activity.
Although laser-printing check systems provide some flexibility improvements
and cost savings, they cannot match the transmission and receipt advantages of
electronic payment solutions. Increasingly, enterprises are seeking to
implement a cost-effective, secure, electronic-payments solution that
accommodates electronic and paper-based payments across an enterprise.
The Bottomline Solution
Our PayBase product suite is designed to control, manage and issue all
payments, whether paper-based or electronic, across an enterprise. Our
software products can be purchased as an entire suite or as separate
applications. Our products operate in different computer operating
environments that correspond to customer needs and infrastructure
requirements:
. The PayBase/32/ Workstation Server and Enterprise Server products
operate on powerful, 32-bit computers to provide high levels of
performance for an enterprise-wide environment, supporting very high
volumes of activity across an organization.
. The PayBase/16/ Workstation Server and Enterprise Server products
operate on 16-bit computers to provide cost-effective support for
single-location or departmental activities.
Our products permit customers to leverage the Internet while increasing
security and fraud avoidance. They also complement our customers' existing
information systems and payment applications. We provide multiple options for
delivery of detailed payment or remittance information including mail, fax and
the Internet. Our LaserCheck product is a cost-effective, software-based,
laser-printing system that allows an enterprise to streamline its paper
payment process and to generate checks at the point of need. We also offer
consulting services and related equipment and supplies to help customers plan,
design and implement the transition from paper to electronic payments.
31
<PAGE>
The company's PayBase product suite offers customers the following benefits:
. Internet/intranets remote access capability. Bottomline's PayBase product
suite provides users with a secure, convenient means to remotely access
and transmit payment information. PayBase enables enterprises to manage
and control payments through the Internet and intranets. PayBase provides
users with a secure, convenient means to remotely access and transmit
payment information.
. Flexible, dual payment process. Bottomline's PayBase product suite has
been designed to provide customers with a single software solution that
permits both paper and electronic payments. PayBase's dual payment
capacity gives enterprises the flexibility to manage the transition to
electronic payments at a pace compatible with the needs of their customers
and business partners as they evolve in response to market demands and
government mandates. Bottomline has one allowed United States patent
application relating to certain security aspects of its dual payment
process.
. Enterprise-wide payment control. Bottomline's PayBase product suite offers
enterprises a centralized payment control and management system while
allowing users to make payments at the point of need. PayBase records all
payments, transactions and events in a central database, which improves
cash management, control of disbursement and receipt functions and audit
capabilities. In addition, Bottomline's PayBase payment control
capabilities permit enterprises to readily outsource payment management
functions to banks or other third-party suppliers.
. Cost-effective payment solution. Bottomline's PayBase product suite
provides operational efficiencies that reduce staffing, mailing,
processing and auditing costs as well as costs associated with float, risk
of error, fraud and fraud related inquiries. PayBase is designed to be
easy to use and implement and requires only limited commitment of an
enterprise's resources to achieve operational efficiencies.
. Open and scaleable technology. Bottomline's PayBase product suite runs on
one or more application servers using industry standard Unix or Microsoft
Windows NT operating systems and database servers such as Microsoft SQL
Server, Oracle, Sybase, IBM DB2 Universal Server and Informix. PayBase's
flexible design provides an enterprise with a scaleable solution to meet
growing needs and to manage the migration from a department-wide to an
enterprise-wide, payment system.
. Enhanced security and fraud protection. Bottomline's PayBase product
suite reduces the risk of fraud through a secure, encrypted database and
control of all payment and operator activity. In addition, PayBase can
automatically send a file of all checks issued instantaneously to the
payor's bank, enabling banks to quickly isolate fraudulent or incorrect
checks and to evaluate questionable payments. For its laser-printing
process, LaserCheck uses blank paper that is non-negotiable until it is
printed and can use specialized magnetic ink character recognition
printers for additional security.
Strategy
Bottomline's objective is to be the leading provider of payment management
software for businesses, financial institutions and public sector
organizations. Key elements of Bottomline's strategy include the following:
. Further penetrate customer base. Bottomline intends to further penetrate
its customer base, which Bottomline believes is only in the early stages
of implementing electronic payment solutions. Additional sales
opportunities to Bottomline's existing customers include:
- -expanding department level installations to encompass an enterprise's
entire payment system;
- - selling complementary payment capabilities through sales of additional
software modules, such as electronic payment and receipt creation or
check fraud avoidance;
- -introducing software upgrades;
- - marketing new products; and
- - generating additional revenues from its customer base by providing
maintenance and support services and selling supplies.
32
<PAGE>
. Expand customer base. Bottomline intends to expand its broad customer base
through:
- - enhancing its direct sales force to market to large enterprises;
- - increasing indirect sales channels;
- - targeting sales opportunities with financial institutions by
leveraging its experience and industry recognition as the developer of
FedEDI, the Federal Reserve System's financial EDI software solution;
- - developing additional marketing partnerships; and
- - pursuing strategic acquisitions.
. Expand and leverage strategic relationships. Bottomline intends to expand
and leverage its relationships with business partners who play a key role
in the sales, marketing and distribution of its products. The company
plans to expand sales through strategic alliances with technology
providers and financial institutions, and through existing reseller
relationships with companies such as Moore Corporation and John H. Harland
Company. Bottomline also intends to expand its relationships with
enterprise resource planning and accounting system vendors, such as Oracle
and SAP, and with consulting firms that assist companies with the
implementation of Bottomline's products. For example, Bottomline recently
entered into a working agreement with Arthur Andersen LLP under which
Arthur Andersen LLP will work with Bottomline to develop a marketing
program and to utilize the enterprise consulting experience of Arthur
Andersen LLP to demonstrate the benefits of migrating to Bottomline's
enterprise-wide PayBase/32/ payment solution.
. Develop new products and technologies. Bottomline intends to develop new
products and technologies which leverage its existing offerings and
customer base. To capitalize on the growth of the Internet and electronic
commerce and changes in payment technologies and practices, Bottomline
employs professionals who are skilled in the complex environments of
electronic commerce, financial EDI and banking and payment systems.
Furthermore, Bottomline's technical staff is experienced in the latest
database, networking and software development tools, technologies and
methodologies. Bottomline intends to leverage this combination of business
expertise and technical knowledge to deliver new products and
technologies.
. Expand international capabilities. Bottomline intends to enhance its
products with additional functionality to expand their use in
international markets. Bottomline believes that this will enable it to
better accommodate existing and future customer needs. Current initiatives
include extending check-printing capabilities to accommodate multiple
language print output, multiple currency print requirements, and
international magnetic ink character recognition fonts.
. Pursue strategic acquisitions. Bottomline intends to pursue strategic
acquisitions that would provide additional product or service offerings,
additional industry expertise, a broader client base or an expanded
geographic presence.
Products and Services
Bottomline's software products enable enterprises to control, manage and
issue all payments, whether paper-based or electronic, across an enterprise or
at one specific location or department. Bottomline also offers complementary
add-on functionality software products that customers can select according to
their specific needs, as well as hardware to complement its software product
offerings. Bottomline's software products are further enhanced by a
comprehensive and experienced consulting service and support system. These
consultants help customers to plan, design, implement and manage an
enterprise's transition from paper to electronic payments and to enhance
operational productivity and customer satisfaction.
33
<PAGE>
The following graphic depicts the different payment options for PayBase:
[This graphic contains five columns of information, each column linking into the
next, from left to right, via connecting pipes.
The first column contains a list of eleven phrases in separate boxes
entitled: "Payroll," "T&E Payments," "Commissions," "Trusts," "Rebates,"
"Royalties," "401K," "Health Claim Payments," "Accounts Payable," "Loan
Proceeds," and "Accounts Receivable." These eleven boxes are linked vertically
by a pipe, and all link horizontally to one box in the second column, entitled
"PayBase."
The "PayBase" box is linked horizontally to the third column of boxes,
which represent the different PayBase payment options. This third column
contains three boxes, entitled "e-Payments," "Laser Checks" and "e-Receipts."
The "e-Payments" box is linked horizontally to two boxes in the fourth column,
entitled "Automated Clearing House & financial EDI" and "Remittance Advice."
The "Laser Checks" box is linked horizontally to a box in the fourth column,
entitled "Check Fraud Avoidance." The "e-Receipts" box is linked horizontally
to a box in the fourth column, entitled "Remittance Detail." The fourth column
contains a total of four boxes.
From the fourth column, the "Automated Clearing House & financial EDI" box
is linked horizontally to one box in the fifth column, entitled "Banks." The
"Remittance Advice" box is linked to three vertically interconnected boxes in
the fifth column entitled "e-Mail," "Fax" and "Print." The "Check Fraud
Avoidance" box in the fourth column is linked horizontally to one box entitled
"Banks," and also branches off to a second box in the fifth column entitled
"Payees." Finally, the "Remittance Detail" box is linked to three vertically
interconnected boxes in the fifth column entitled "Banks," "Value Added
Network" and "Internet." The fifth column contains a total of nine boxes.]
PayBase/32/ Products
Bottomline's PayBase/32/ provides a single software solution to control,
manage and issue all payments across an entire enterprise. PayBase/32/
includes the following modules which can be purchased as separate products or
together:
ESP (Electronically Sent Payments) Module. The ESP module allows users to
create electronic payments, facilitating the transition from paper checks to
electronic funds transfers. This module permits users to create standard files
that meet National Automated Clearing House Association standards and other
financial EDI protocols, and to transmit those files to their banks. The
PayBase ESP module can also create electronic tax payments in the formats
required by federal and state governments. With this module, users can process
payment instructions received from an external database, such as payroll or
accounts receivable. When installed with Bottomline's LaserCheck printing
software module, PayBase can create both electronic payments and checks during
the same payment run.
The ESP module also can be adapted to allow users to automatically post
financial EDI remittance information to their accounts receivable system. This
feature eliminates the need for manually entering information into accounting
ledgers, saving time and preventing mistakes.
ERADS (Electronic Remittance Advice Delivery System) Module. The ERADS
module allows an enterprise to convert to electronic payments immediately and
to deliver the remittance detail by fax, e-mail, communications networks or
the Internet, depending on the technology available to its payees. This module
can be used for payments to individuals (e.g., travel reimbursements) and to
enterprises (e.g., vendor payments).
34
<PAGE>
Whenever payments are sent electronically through the secure Automated
Clearing House network, the ERADS module automatically channels the remittance
details to each payee by the appropriate media and the payee receives an
electronic payment directly deposited into its bank account. Enterprises can
realize cost efficiencies through reduced check printing or processing and the
lower cost of transmitting remittance information electronically.
Secure WebPay Series (Internet/Intranet Access) Modules. The Secure WebPay
Internet/Intranet Access modules extend the functionality of PayBase to the
Internet. Secure WebPay allows enterprises to use the Internet or a corporate
intranet to request, approve and initiate payments from remote sites,
including locations which are not linked by a corporate network. Secure WebPay
can also provide automatic e-mail delivery of remittance advice both
internally and to third parties such as vendors, customers and employees.
Secure WebPay incorporates administration software that maintains central
payment information that can be accessed on the Internet or over an intranet
by authorized users to review payment status and correct data as appropriate.
LaserCheck Module. The LaserCheck module allows users to print checks,
including all variable data, such as magnetic ink character recognition lines,
logos and signatures, on blank paper using a laser printer. This module can be
deployed over the user's network or the Internet wherever it is needed,
whether in a centralized printing facility, the issuing department or in a
remote location. With LaserCheck's CheckSort feature, users can sort checks to
lower postage rates and produce copies in a specified order to simplify
filing. LaserCheck also provides password protection, as well as hardware and
software security features, and initiates printing of all checks, confirmation
notices and reports.
Check Fraud Avoidance Module. The Check Fraud Avoidance module allows users
to automatically send a digital file of all checks issued to their bank. Most
commercial banks employ a "Positive Pay" system that determines, when the
check is presented to the bank, whether a bank customer has in fact issued it.
A number of banks will only reimburse customers for check fraud losses if the
customer uses Positive Pay. This module protects the user from having altered
or unissued checks paid from their account and protects banks from fraudulent
checks received from other institutions. The Check Fraud Avoidance software
receives its data input from PayBase, but can also receive input from a non-
PayBase system that uses printed checks.
Additional Key Features Included in PayBase/32/. PayBase/32/ also features
the Report Generator, which gives users access to the PayBase/32/ audit
database and creates personalized screens and print reports. These reports can
be run automatically at the conclusion of a payment run or at the request of
the user and can satisfy certain auditing and record requirements. In
addition, PayBase/32/ features DesignerPlus, which allows users to set up and
integrate PayBase/32/ into their existing payment environment.
Complementary Add-On Functionality for PayBase/32/
Y2K IntelligentAutoRepair. Y2K IntelligentAutoRepair is a software tool sold
separately that permits users of PayBase/32/ to examine and repair date fields
identified as suspect in their data files on a fully automated basis,
permitting them to isolate and correct year 2000 problems in their payment
systems and databases.
PayBase/32/ for Value Added Banks. PayBase/32/ enables companies to
outsource payment processing to banks. The PayBase/32/ software can be
installed at either the company or the bank. When installed at the company,
PayBase/32/ formats and transmits payment information according to the bank's
requirements. The bank uses its systems to create checks or electronic
payments. When installed at the bank, the company transmits unformatted
payment information to the bank, where PayBase/32/ reformats the data into
checks and electronic payments.
PayBase/16/ Products
PayBase/16/ is designed as a cost-effective payment solution for use with
desktop personal computers in a departmental setting. It operates on the
Windows 3.X, Windows 95, Windows 98 and Windows NT operating systems.
PayBase/16/ supports the following modules: LaserCheck, Check Fraud Avoidance
and ESP.
35
<PAGE>
- - LaserCheck and Check Fraud Avoidance functions are controlled through
a comprehensive set of security options. PayBase/16/ automatically
records all transactions and payments in a database that can be
accessed by the user using a report generator that is included as part
of the module. The LaserCheck module allows printing to locally
attached printers. The optional Check Fraud Avoidance module stores
check information in a Microsoft-Access database and includes bundled
communication software for transmitting positive pay files to the
customer's bank.
- - The ESP module is accessed through a tool bar on the PayBase/16/ main
menu. The ESP module features independent security and audit tables as
well as a separate report generator. File transmission can be executed
with most third-party communication software packages.
Professional Services
Bottomline's team of service professionals draws on extensive experience in
electronic commerce and payment technologies to provide consulting services,
project implementation and training services to Bottomline's clients.
Consulting service professionals are available to review clients' current
payment methods and processes, report findings, and recommend changes and
solutions. Project implementation professionals are available to coordinate
system installation, including check and electronic payment design, payment
reporting format and delivery, bank data and communication requirements,
signature and authority set up and security, audit and control procedures.
Bottomline offers training services to all customer personnel involved in the
payment cycle, including management, users and information technology
personnel involved in the transition from paper-based payment methods to
electronic payments. Bottomline maintains a fee-based Payment Technology
Institute, which provides classes on trends in the payment industry, payment
technology strategies and Bottomline's products.
Equipment and Supplies
Bottomline offers consumable products needed for payment disbursements and
check printing, including magnetic ink character recognition toner and blank-
paper check stock. Bottomline also provides printers and printer-related
equipment, primarily through drop-ship arrangements with its hardware vendors,
to enhance its software product offerings. Bottomline has reseller agreements
with the two leading secure magnetic ink character recognition printer
manufacturers in the country, Troy Systems, which uses Hewlett Packard
printers, and Source Technology, which uses Lexmark printers.
Technology
The company's technology focus is on its advanced 32-bit payment processing
software. PayBase/32/ has been designed using a client server architecture.
The server platform supports open database connectivity (ODBC) compliant Unix
and Windows NT databases. The server platform is the warehouse for information
relating to the customer's payment solution including security tables,
application form parameters and audit tables. The client workstation houses
the PayBase/32/ executable programs. This design enables PayBase/32/ to be
highly scaleable for both distributed and high volume centralized check
printing, as well as electronic payment origination. The client workstation
interacts with the database to ascertain authority, to retrieve information to
create the form and to update the audit tables with transaction information
and payment result information. Print output can be sent to any addressable
network printer. The ESP and Check Fraud Avoidance modules are bundled with
communication software that allows scripting of the data transmission.
Transmission can be executed from any client workstation.
PayBase/32/ is designed to be network independent and can be implemented in
leading network architectures, including Novell, Windows NT and TCP/IP. The
product design creates predictable low volume network traffic in order to
minimize the implementation concerns for corporate information technology.
Installation of the product is highly automated using InstallShield.
PayBase/32/ has been submitted and approved for the "Designed for BackOffice"
logo from Microsoft, indicating it conforms to Microsoft standards for design
and operation.
PayBase/32/ was developed as a high end Windows NT 32-bit application.
Development methods conform to the latest Microsoft development
specifications, including extensive use of MFC (Microsoft Foundation Classes)
36
<PAGE>
and the DCOM/COM ((Distributed) Component Object Model) standards. Components
are designed as OLE (Object Linking and Embedding) Automation Servers for ease
of future development and enhancement as well as interoperability. Web enabled
components are written as ActiveX controls. The primary development tool is
Visual C++.
The PayBase/32/ suite also includes PayBase/32/ DesignerPlus, a
sophisticated proprietary data mapping and design tool. This tool is used to
create sophisticated payment applications using multiple form designs and
multiple payment methods, including all forms of electronic payments. It
provides a proprietary mapping tool to transform any type of host data file
into the format needed for efficient payment creation. The forms design
function allows easy creation of paper output formats from checks to W-2 forms
and includes design wizards to further automate the process. The data mapping
and design are securely linked to the desired business payment process.
Product Development and Engineering
Bottomline's product development and engineering organization includes 41
persons. There are three primary development groups: software engineering,
quality assurance and technical support. The company spent $1.2 million in
fiscal year 1996, $2.2 million in fiscal year 1997 and $3.2 million in fiscal
year 1998 on product development and engineering costs.
The software engineering team averages over nine years of development
experience per person and over seven years experience per person in payment
systems design. The software engineers have substantial experience in advanced
software development techniques as well as extensive knowledge of the complex
processes involved in business payment systems. Bottomline engineers actively
participate in the Microsoft Developer Network programs and maintain extensive
knowledge of software development trends.
The quality assurance engineers have both extensive knowledge of
Bottomline's products and expertise in software quality assurance techniques.
Members of the quality assurance group make extensive use of automated
software testing tools to facilitate comprehensive and timely testing of
products. The quality assurance group members participate in all beta
releases, including all tests of new products or enhancements, and provide
initial training materials for customer support and service.
The technical support group provides all product documentation as well as
technical support for released products. Members of the technical group
include experienced technical writers, Bottomline business analysts and
network analysts. The technical writers are versed in current document
technology and work closely with the software engineers to ensure
documentation is clear, current and complete. The technical support engineers
are responsible for the analysis of reported software problems and work
closely with customers and customer support staff. The group's broad knowledge
of Bottomline products, operating systems, communications, and printers allows
them to rapidly respond to software configuration needs.
37
<PAGE>
Customers
Bottomline's customer base includes over 2,000 companies in industries such
as financial services, health care, communications, education, media,
manufacturing and government. A partial list of Bottomline's customers
follows:
<TABLE>
<S> <C>
ABM Industries Great Lakes Higher North Carolina
Aetna Inc. Services Corporation Office
American HomePatient, Inc. Harvard University of the State
Arthur Andersen LLP (Accounts Payable) Controller
The Bank of New York Hillsborough County Paradigm Health
Company, Inc. Tax Collector's Office Corporation
Bankers Trust Corporation Kaiser Permanente PMA Reinsurance
Bestfoods Lands' End, Inc. Corporation
The Charles Schwab Corporation Liberty Corporation The Rouse Company
Dow Jones & Company, Inc. Microsoft Corporation Spencer Gifts, Inc.
The Federal Reserve System Nissan Motor Acceptance TeleBank
Corporation The University of
</TABLE> Chicago Operator of
Argonne National
Laboratory
Case Studies
Harvard University (Accounts Payable). Harvard University (Accounts Payable)
began using Bottomline's LaserCheck system in 1992. In 1998, Harvard
University (Accounts Payable) wanted to upgrade to an automated, electronic-
payment system that could manage its account payables, which included vendor
payments and staff reimbursements. Harvard University (Accounts Payable)
upgraded to Bottomline's PayBase/32/ Enterprise Server in order (1) to port
its existing Oracle financials applications, (2) to provide an electronic path
for both payments and remittance information from Concur Technologies' expense
management software and (3) to offer paper-based payments for recipients
requesting them. Harvard University (Accounts Payable) uses the ESP module to
send electronic expense reimbursement payments and uses the ERADS module to
transmit remittance information by e-mail. As a result, Harvard University
(Accounts Payable) has reduced its typical transaction cycle by several days
while significantly reducing banking fees.
Federal Reserve System. The Debt Collection Improvement Act of 1996 requires
all federal agencies except the Internal Revenue Service to convert federal
payments made by paper checks to electronic payments by January 1, 1999. The
payments must be made using the financial EDI format. In early 1997, it was
determined that fewer than 1,000 of the 12,000 Financial Reserve System member
financial institutions could process financial EDI transactions. In response,
The Federal Reserve System published a request for a proposal seeking a
solution that would allow banks to process financial EDI transactions. In
March 1998, The Federal Reserve System chose Bottomline to provide the
necessary financial EDI translation software. This software, named FedEDI, is
PC-based and available in both DOS and Microsoft Windows NT versions. FedEDI
supplements FedLine, the Federal Reserve System's electronic payment
connection that processes all incoming and outgoing Automated Clearing House
files. FedEDI enables an increased number of banks and their customers to
receive financial EDI formatted payments.
Nissan Motor Acceptance Corporation. Nissan Motor Acceptance Corporation and
its Infiniti Financial Services division provide $15 billion in consumer lease
and loan financing for its customers, as well as wholesale inventory,
mortgage, equipment and working capital financing for Nissan and Infiniti
retailers. Nissan was seeking a payment platform that would: (1) be seamlessly
integrated into its current accounts payable application; (2) require minimum
training efforts and be easy to use; (3) be implemented quickly; (4) provide a
distributed check printing solution and a pathway to electronic payments
capability; and (5) offer a secure year 2000 compliant solution. In May 1998,
Nissan implemented PayBase/32/ Enterprise Server to meet these requirements.
The multi-site system installation enhanced competitiveness, allowing higher
levels of service and responsiveness at the point of need. PayBase/32/
improved payment methods to customers for refunds, vendors for accounts
payables and retailers for commissions.
38
<PAGE>
Bestfoods. Bestfoods, with annual sales of approximately $8.4 billion,
markets a broad array of leading consumer food brands, including Arnold,
Entenmann's, Hellmann's, Knorr, Mazola, Skippy and Thomas'. Bestfoods operates
approximately 115 plants world-wide and employs approximately 47,000 people.
Bestfoods' payroll system for its 14,000 North American employees was
outdated, expensive and error-prone. In 1996, Bestfoods originally selected
Bottomline's PayBase/16/ Enterprise Server to manage and control its entire
North American payroll process. In 1998, Bestfoods upgraded to the more
powerful PayBase/32/ Enterprise Server to achieve better control, enhance
back-office efficiencies and gain an even more efficient, reliable, employee
payroll process. Bestfoods' corporate headquarters uses the PeopleSoft HRMS
System to prepare the check data for payment. The LaserCheck system secures
the check data, distributes it to 32 remote printer locations and prints
nearly 20,000 payroll checks per month, complete with signatures, logos,
custom forms and magnetic ink character recognition lines.
Sales and Marketing
Sales
Bottomline employs 40 systems trained sales executives, 34 of whom are
divided among six geographical markets and focus on sales to large and medium
sized enterprises and six of whom focus exclusively on sales to large banks
and financial institutions. Bottomline's systems trained sales executives are
supported by eight systems engineers. In addition, a dedicated telephone-sales
team markets new applications, software upgrades and additional services to
Bottomline's existing customers. Bottomline also sells its products through
reseller relationships with companies such as Moore Corporation and John H.
Harland Company.
Marketing
Bottomline promotes its products and services through conferences, seminars,
direct marketing and trade publications, as well as through relationships with
enterprise resource planning and accounting system vendors, such as Oracle and
SAP, and implementation consultants. Bottomline's marketing partners sponsor
joint mailings and seminars and issue joint press releases with Bottomline, as
well as advertising Bottomline on their web sites. Bottomline also maintains
membership in key industry organizations such as Financial Services Technology
Consortium, Microsoft Value Chain Initiative, American Bankers Association and
various operating committees of the National Automated Clearing House
Association. In addition, the Company participates in industry conferences
such as Treasury Management, National Automated Clearing House Association,
Payments, American Payroll Congress and National User Conferences of Software
Partners. Bottomline also promotes brand awareness through its public
relations program and by advertising in respected buying guides.
Arthur Andersen LLP Working Agreement
Bottomline recently entered into a working agreement with Arthur Andersen
LLP. Under the working agreement, Arthur Andersen LLP will work with
Bottomline to introduce Bottomline's PayBase/32/ solution to enterprises that
would likely benefit from anticipated cost efficiencies and enhanced internal
controls realized from PayBase/32/. Bottomline plans to utilize the enterprise
consulting experience of Arthur Andersen LLP to demonstrate to the users of
its departmental payment products the benefits of migrating to Bottomline's
PayBase/32/ enterprise-wide payment solution. In October 1998, Arthur Andersen
LLP also made an investment in Bottomline's common stock.
Competition
Bottomline competes primarily with companies that offer a broad suite of
electronic data interchange products, such as Sterling Commerce, companies
that provide a broad spectrum of electronic payments solutions, such as
CheckFree, and companies that offer laser check printing software and
services. Bottomline competes to a lesser extent with providers of enterprise
resource planning solutions, such as SAP and PeopleSoft, and providers of
traditional payments products, including check stock and check printing
software and services, such as Standard Register. In addition, Bottomline also
experiences competition from its customers and potential customers who
develop, implement and maintain their own payment solutions.
39
<PAGE>
Bottomline believes it competes on a number of factors, including:
. scope, quality and cost-effectiveness of its payment solutions;
. industry knowledge and expertise;
. interoperability of solutions with existing information technology and
payments infrastructure;
. product performance and technical features;
. patented and proprietary technologies; and
. customer service and support.
Although a number of Bottomline's competitors may be better positioned to
compete in certain segments of the payments industry, Bottomline believes that
its market position is enhanced by:
. its ability to provide a single, scalable, open, dual-payment platform
that gives customers the flexibility to transition to electronic
payments solutions while maintaining the ability to make paper-based
payments using laser-printed checks;
. its relationships with its strategic partners;
. its large customer base; and
. the level of payments-industry expertise of its development, sales and
customer service and support professionals.
Although Bottomline believes that it competes favorably in its industry, the
market for payment management software is intensely competitive and
characterized by rapid technological change and a number of factors could
adversely affect Bottomline's ability to compete in the future.
Proprietary Rights
Bottomline has one allowed United States patent application relating to
certain security aspects of its dual payment process. However, there can be no
assurance that Bottomline's allowed patent, or any other patents that may be
issued in the future, will be of sufficient scope and strength to provide
meaningful protection of Bottomline's technology or any commercial advantage
to Bottomline, or that the patents will not be challenged, invalidated or
circumvented. In addition, Bottomline relies upon a combination of copyright
and trademark laws and non-disclosure and other intellectual property
contractual arrangements to protect its proprietary rights. Bottomline owns
registered trademarks to "Bottomline Technologies," "CheckGard," "LaserCheck"
and "PayBase." Bottomline also enters into agreements with its employees and
clients, that seek to limit and protect the distribution of proprietary
information. There can be no assurance that the steps Bottomline has taken to
protect its property rights, however, will be adequate to deter
misappropriation of proprietary information, and Bottomline may not be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
proprietary rights. Although Bottomline believes that its products and
services do not infringe upon the intellectual property rights of others and
that it has all rights necessary to utilize the intellectual property employed
in its business, Bottomline is subject to the risk of claims alleging
infringement of third-party intellectual property rights. These claims could
require Bottomline to spend significant sums in litigation, pay damages, delay
product installments, develop non-infringing intellectual property or acquire
licenses to intellectual property that is the subject of any such
infringement. Therefore, these claims could have a material adverse effect on
Bottomline's business, operating results and financial condition.
Government Regulation
Although Bottomline's operations have not been subject to any material
industry-specific governmental regulation, some of its existing and potential
customers are subject to extensive federal and state governmental regulations.
In addition, governmental regulation in the financial services industry is
evolving, particularly with respect to payment technology, and Bottomline's
customers may become subject to increased regulation in the future.
Accordingly, Bottomline's products and services must be designed to work
within the regulatory constraints under which its customers operate.
40
<PAGE>
Federal regulations require that all federal payments, other than payments
under the Internal Revenue Code of 1986, made after January 1, 1999, must be
made electronically. These regulations require that the conversion from checks
to electronic payments be made in two phases. During the first phase,
recipients who became eligible to receive federal payments on or after July
26, 1996, were required to receive payments electronically unless they
certified in writing that they did not have an account with a financial
institution or an authorized payment agent. The second phase will begin on
January 2, 1999. Beginning on that date, all federal payments, except payments
under the Internal Revenue Code, must be made electronically.
The National Automated Clearing House Association now requires that, upon
the request of the receiver of an electronic payment, its bank must provide to
each receiver all payment-related information contained within the transmitted
remittance information. Banks must provide this information to their receivers
by the opening of business on the second banking day following the settlement
date of the entry.
Current treasury regulations require that a business that paid more than
$50,000 in annual employment or other depository taxes in 1995, 1996 or 1997
begin to make such payments electronically on or before January 1, 1999,
depending on the year in which the business first paid more than $50,000 in
depository taxes. Non-complying taxpayers may be subject to a 10% penalty if
they fail to comply with such requirements by July 1, 1999. In addition, state
and local taxing authorities have been implementing electronic solutions for
collecting tax payments. The electronic payment of certain taxes is required
by law in states such as New York, California, Connecticut and Arkansas.
Employees
As of December 31, 1998, Bottomline had a total of 238 employees. None of
Bottomline's employees is represented by a labor union. Bottomline has not
experienced any work stoppages and considers relations with its employees to
be good.
Facilities
Bottomline currently leases approximately 32,000 square feet of space at its
headquarters in Portsmouth, New Hampshire under a lease that expires in May
2002. The company also maintains field sales offices in San Francisco,
California; Chicago, Illinois; Englewood, Colorado; and New York, New York.
Reports to Stockholders
Upon the effective date of the registration statement, of which this
prospectus is a part, Bottomline will become a reporting company. Thereafter,
Bottomline intends to distribute to its stockholders annual reports containing
audited financial statements.
41
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
The executive officers, directors and key employees of the company and their
respective ages as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Daniel M. McGurl*......... 62 Chairman of the Board, President and Chief
Executive Officer
Joseph L. Mullen*......... 46 Executive Vice President, Operations and
Director
Robert A. Eberle*......... 38 Executive Vice President, Chief Financial
Officer and Treasurer
Leonard J. DiIuro, Jr* ... 51 Executive Vice President, Sales
James L. Loomis........... 48 Senior Executive Advisor and Director
Joseph L. Barry, Jr. (1).. 65 Director
Bruce E. Elmblad (1)(2)... 70 Director
James W. Zilinski (2)..... 54 Director
John C. Insko............. 36 Vice President, Electronic Commerce and Finance
Division
Jonathan L. Smolowe....... 42 Vice President, Sales
Philip P. Grannan......... 55 Vice President, Marketing
Cleo A. O'Donnell III..... 44 Vice President, Development
James V. McMullen, Jr..... 55 Vice President, Customer Support and Services
Mark A. Attarian.......... 40 Vice President, Finance
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
* Executive Officer.
Daniel M. McGurl co-founded Bottomline in May 1989, and has served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Bottomline since May 1989. From 1987 to 1989, Mr. McGurl served as Senior Vice
President of State Street Bank and Trust Company. Prior to 1987, Mr. McGurl
held a variety of positions at IBM Corporation, including Director of
Marketing Planning and Director of Far East Operations.
Joseph L. Mullen has served as a director of Bottomline and Executive Vice
President of Operations since July 1996, and served as Vice President of Sales
and Marketing from July 1991 to July 1996. From 1977 to 1989, Mr. Mullen held
a variety of positions at IBM Corporation, including Marketing Manager and
Northeast Area Market Planning Manager.
Robert A. Eberle has served as Executive Vice President, Chief Financial
Officer and Treasurer of Bottomline since September 1998. From December 1996
to September 1998, Mr. Eberle served as Executive Vice President of Telxon
Corporation, a mobile computing and wireless data company, with primary
responsibility for its Technical Subsidiaries Group. From August 1994 to
December 1996, Mr. Eberle served as Executive Vice President and Chief
Operating Officer of Itronix Corporation, a designer and manufacturer of
notebook and hand-held computers and then a subsidiary of Texlon Corporation,
with primary responsibility for the financial and operational performance of
the company. From August 1993 to August 1994, Mr. Eberle served as Vice
President of Corporate Development of Telxon Corporation, with primary
responsibility for acquisitions, strategic relationships and its investment
portfolio.
Leonard J. DiIuro, Jr. has served as Executive Vice President of Sales of
Bottomline since July 1998, and served as Vice President of Business
Development from July 1996 to July 1998. From July 1994 to July 1996, Mr.
DiIuro served as Vice President of Strategic Alliances and Area Manager of
Bottomline and from May 1993 to July 1994 as Vice President of Strategic
Alliances. Prior to 1993, Mr. DiIuro held a variety of positions at IBM
Corporation, including Business Unit Executive, Branch Manager and Area
Marketing Planning Manager.
42
<PAGE>
James L. Loomis co-founded Bottomline in May 1989, and has served as a
director of Bottomline since May 1989. Since August 1998, Mr. Loomis has
served as Senior Executive Advisor of Bottomline. From July 1996 to August
1998, Mr. Loomis served as Executive Vice President of Bottomline and from May
1989 to July 1996 Mr. Loomis served as Vice President and Treasurer. Prior to
1989, Mr. Loomis held a variety of positions with the Nashua Corporation, a
manufacturer of imaging supply products, including Director of International
Finance and treasurer of a foreign subsidiary.
Joseph L. Barry, Jr. has served as a director of Bottomline since June 1990.
Since 1990, Mr. Barry has served as President of Hallmark Mechanical Corp., a
machinery service company, and since 1956 as President of Hallamore Corp., a
transportation and rigging company. Since 1975, Mr. Barry has served as
Chairman of Northeast Concrete Products and since 1978 as Co-Chairman of New
England Teamsters Pension Fund.
Bruce E. Elmblad has served as a director of Bottomline since August 1996.
Since April 1994, Mr. Elmblad has served as President of Venture Investment
Advisors, a venture capital advisory firm. From April 1990 to April 1994, Mr.
Elmblad served as President of SED Management Co., Inc., an international
venture capital management company. Mr. Elmblad is also a director of Antex
Biologics Inc., a biopharmaceutical company.
James W. Zilinski has served as a director of Bottomline since August 1994.
Since July 1995, Mr. Zilinski has served as President and Chief Executive
Officer and a director of Berkshire Life Insurance Company, a life insurance
company. From August 1994 to January 1995, Mr. Zilinski served as President of
the Investment Services Group of The BISYS Group, Inc., a provider of
outsourcing services to financial institutions. Prior to August 1994, Mr.
Zilinski served as Executive Vice President and Chief Marketing Officer of New
England Mutual Life Insurance Company.
John C. Insko has served as Vice President of Electronic Commerce and
Finance Division of Bottomline since July 1998. From May 1996 to July 1998,
Mr. Insko served as Vice President of Marketing of Electronic Commerce of
Bottomline. From July 1994 to May 1996, Mr. Insko served as Vice President of
Marketing of CertiSoft Solutions, Inc., a developer of software applications
which Bottomline acquired in 1996. From November 1984 to July 1994, Mr. Insko
held a variety of positions at Colorado National Bank, including Assistant
Vice President and Manager of Cash Management and Operations. From January
1993 to October 1998, Mr. Insko served as a director of NACHA and since 1993
as a President of the Board of Directors of Rocky Mountain Automated Clearing
House Association.
Jonathan L. Smolowe has served as Vice President of Sales of Bottomline
since July 1991. From July 1990 to July 1991, Mr. Smolowe served as Account
Executive for Bottomline. Prior to 1990, Mr. Smolowe held various executive
level positions at IBM, including Location Branch Manager and International
Executive Briefing Center Manager.
Philip P. Grannan has served as Vice President of Marketing of Bottomline
since May 1994. From June 1993 to May 1994, Mr. Grannan served as Manager of
the Electronic Payment Software Division. From September 1992 to June 1993,
Mr. Grannan served as Northeast Area Manager of the Company. Prior to 1992,
Mr. Grannan served as an Account Executive of Bottomline.
Cleo A. O'Donnell III has served as Vice President of Development of
Bottomline since June 1996. From October 1989 to June 1996, Mr. O'Donnell
served as Manager of Information Technology of Arbella Mutual Insurance
Company, an insurance company, with primary responsibility for application
development and network management. Prior to 1989, Mr. O'Donnell served as
Project Manager of Blue Cross and Blue Shield of Massachusetts.
James V. McMullen, Jr. has served as Vice President of Customer Support and
Services of Bottomline since July 1998. From September 1997 to July 1998, Mr.
McMullen worked as an independent consultant to
43
<PAGE>
the company with primary responsibility for customer service and support. From
November 1995 to September 1997, Mr. McMullen served as Vice President of
Americas Customer Support for Lotus Development Corporation, a subsidiary of
IBM Corporation, with primary responsibility for all post-sales technical
support. From October 1989 to October 1995, Mr. McMullen served as the
Director of Customer Support at Lotus Development Corporation with primary
responsibility for technical support. Prior to 1989, Mr. McMullen held a
variety of positions at IBM Corporation, including Systems Engineer Manager
and Manager of Marketing and Support.
Mark A. Attarian has served as Vice President of Finance of Bottomline since
September 1998. From February 1997 to September 1998, Mr. Attarian served as
Vice President, Chief Financial Officer and Treasurer of Bottomline. From
October 1996 to January 1997, Mr. Attarian served as an independent financial
consultant. From July 1994 to September 1996, Mr. Attarian served as Chief
Financial Officer and Vice President of Diatide, Inc., a biopharmaceutical
company. From October 1993 to June 1994, Mr. Attarian served as an independent
financial consultant.
Board of Directors
Pursuant to the First Amendment and Restatement of Stock Rights and Voting
Agreement, as amended, dated as of March 31, 1992 among Bottomline and certain
stockholders of Bottomline, such stockholders were granted the right, which
terminates upon the closing of this offering, to designate representatives on
Bottomline's board of directors. Under this agreement, Messrs. McGurl, Loomis
and Barry were elected to the board of directors.
Following this offering, the board of directors of Bottomline will be
divided into three staggered classes, each of whose members will serve for a
three-year term. The board will consist of two Class I directors (Messrs.
Barry and Elmblad), two Class II directors (Messrs. Mullen and Zilinski) and
two Class III directors (Messrs. McGurl and Loomis). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The
terms of the Class I directors, Class II directors and Class III directors
will expire upon the election and qualification of successor directors at the
Annual Meeting of Stockholders to be held during calendar years 1999, 2000 and
2001, respectively.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
the directors or executive officers of Bottomline.
Committees of the Board of Directors
The board of directors has a compensation committee composed of Messrs.
Barry and Elmblad, which makes recommendations concerning salaries and
incentive compensation for employees of Bottomline and administers and grants
stock options under Bottomline's stock option plans. The board of directors
also has an audit committee composed of Messrs. Elmblad and Zilinski, which
reviews the results and scope of the audit and other services provided by
Bottomline's independent public auditors.
Director Compensation
All of the directors are reimbursed for expenses incurred to attend board of
directors and committee meetings. In addition, non-employee directors of
Bottomline receive stock options under Bottomline's 1998 Director Stock Option
Plan. See "Stock Plans--1998 Director Stock Option Plan."
44
<PAGE>
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the fiscal year ended June 30, 1998 for each person who was serving as an
executive officer of Bottomline on June 30, 1998 (the "Named Executive
Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options (1) Compensation (2)
- --------------------------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Daniel M. McGurl
Chairman of the Board,
President and Chief
Executive Officer........ $ 172,333 $ 50,000 30,000 $1,680
Joseph L. Mullen
Executive Vice President,
Operations............... 144,375 62,966 30,000 2,158
Mark A. Attarian
Vice President, Chief
Financial Officer and
Treasurer (3)............ 125,000 20,000 -- 1,706
</TABLE>
- --------
(1) The number of shares covered by options to purchase shares of Bottomline's
common stock granted during the fiscal year ended June 30, 1998.
(2) Consists of amount paid by Bottomline to the Named Executive Officer's
account in Bottomline's 401(k) Plan.
(3) Mr. Attarian served in these positions until September 30, 1998, at which
time he became Vice President of Finance.
Option Grants During Fiscal 1998
The following table sets forth grants of stock options to each of the Named
Executive Officers during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise or Option Term (1)
Options Employees in Base Price Expiration -----------------------
Name Granted Fiscal Year Per Share Date 5% 10%
- ---- ---------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. McGurl........ 30,000 5.0% $8.80 4/23/03 $ 195,461 $ 315,783
Joseph L. Mullen........ 30,000 5.0 8.00 4/23/08 346,402 693,747
Mark A. Attarian........ -- -- -- -- -- --
</TABLE>
- --------
(1) Amounts that may be realized upon exercise of the options immediately
before the expiration of their term, assuming the specified compound rates
of appreciation (5% and 10%) on the market value of the common stock on
the date of option grant over the term of the options. Also, assumes for
this presentation that the market value on the date of grant of each
option was the mid-point of the estimated per share price range of the
common stock offered hereby. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
Bottomline's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and common stock holdings are dependent on the
timing of exercise and the future performance of the common stock.
45
<PAGE>
Fiscal Year-End Option Values
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
June 30, 1998. None of the Named Executive Officers exercised stock options in
the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
June 30, 1998 June 30, 1998 (1)
--------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel M. McGurl.......... -- 30,000 -- $ 96,000
Joseph L. Mullen.......... -- 30,000 -- 120,000
Mark A. Attarian.......... 17,646 57,354 $111,699 363,051
</TABLE>
- --------
(1) Assumes a per share fair market value equal to $12.00, the mid-point of
the estimated per share price range of the common stock offered hereby.
Stock Plans
1998 Director Stock Option Plan
The board of directors adopted Bottomline's 1998 Non-Employee Director Stock
Option Plan in November 1998, subject to stockholder approval. Under the plan,
directors of Bottomline who are not employees of Bottomline or any subsidiary
of Bottomline receive non-statutory options to purchase shares of common
stock. A total of 300,000 shares of common stock may be issued upon the
exercise of options granted under the plan.
Under the terms of the 1998 plan, each non-employee director who first
becomes a non-employee director after the closing of this offering will be
granted an option to purchase 15,000 shares of common stock on the date of his
or her initial election to the board of directors, which will vest ratably
over four years on each anniversary of the date of grant. In addition, each
non-employee director will receive an option to purchase 7,500 shares of
common stock on the date of each annual meeting of stockholders commencing
with the 1999 Annual Meeting of Stockholders, other than a director who was
initially elected to the board of directors at any such annual meeting or, if
previously, at any time after the prior year's annual meeting. The options
granted annually vest upon the earlier of one year from the date of grant or
the date immediately preceding the next Annual Meeting of Stockholders, so
long as the optionee remains a director of Bottomline. The exercise price per
share of all such options will be the fair market value of a share of common
stock on the date of grant.
1989 Stock Option Plan and 1997 Stock Incentive Plan
Bottomline's 1989 Stock Option Plan was adopted by the board of directors
and approved by the stockholders in 1989. As of December 31, 1998, options to
purchase an aggregate of 330,000 shares of common stock at a weighted average
exercise price of $5.54 per share were outstanding under the 1989 plan. No
additional option grants will be made under the 1989 plan.
Bottomline's 1997 Stock Incentive Plan was adopted by the board of directors
and the stockholders of Bottomline in August 1997. An amendment to the plan in
November 1998 increased the number of authorized shares, subject to
stockholder approval, under the plan to 2,700,000 shares of common stock. As
of December 31, 1998, an aggregate of 783,000 shares of common stock at a
weighted average exercise price of $8.48 per share were outstanding under the
1997 plan and an aggregate of 1,917,000 shares of common stock were reserved
for issuance for future option grants.
The 1997 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, non-statutory
stock options, restricted stock awards and other stock-based awards.
46
<PAGE>
All officers, employees, directors, consultants and advisors of Bottomline
and its subsidiaries are eligible to receive awards under the 1997 plan. Under
present law, however, incentive stock options may only be granted to
employees. No participant may receive an award for more than 300,000 shares in
any calendar year.
The company may grant options at an exercise price less than, equal to or
greater than the fair market value of the common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of Bottomline. The 1997 plan permits the board of directors
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender to Bottomline of shares of common stock, by delivery to
Bottomline of a promissory note, or by any combination of the permitted forms
of payment.
The board of directors administers the 1997 plan. The board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plan and to interpret its provisions. It may
delegate authority under the plan to one or more committees of the board of
directors and, subject to certain limitations, to one or more executive
officers of Bottomline. The board of directors has authorized the compensation
committee to administer the 1997 plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the
1997 plan, the board of directors, the compensation committee or any other
committee or executive officer to whom the board of directors delegates
authority, as the case may be, selects the recipients of awards and
determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, the board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror and to
accelerate the vesting schedule of awards.
No award may be granted under the 1997 plan after August 2007, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
1997 plan, except that no award granted after an amendment of the 1997 plan
and designated as subject to Section 162(m) of the Code by the board of
directors shall become exercisable, realizable or vested, to the extent the
amendment was required to grant the award, unless and until the amendment is
approved by Bottomline's stockholders.
1998 Employee Stock Purchase Plan
The board of directors adopted Bottomline's 1998 Employee Stock Purchase
Plan in November 1998, subject to stockholder approval. The Purchase Plan
authorizes the issuance of up to a total of 750,000 shares of common stock to
participating employees.
All employees of Bottomline, including directors of Bottomline who are
employees, and all employees of any participating subsidiaries, whose
customary employment is more than 20 hours per week for more than five months
in any calendar year, are eligible to participate in the Purchase Plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of the stock of Bottomline or any subsidiary
are not eligible to participate. As of December 31, 1998, approximately 229 of
Bottomline's employees would have been eligible to participate in the Purchase
Plan.
47
<PAGE>
On the first day of a designated payroll deduction period (the "Offering
Period"), Bottomline will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of common stock
as follows: the employee may authorize between 1% to 10% of his base pay to be
deducted by Bottomline during the Offering Period. On the last day of the
Offering Period, the employee is deemed to have exercised the option, at the
option exercise price, to the extent of accumulated payroll deductions. Under
the terms of the Purchase Plan, the option price is an amount equal to 85% of
the average market price (as defined) per share of the common stock on either
the first day or the last day of the Offering Period, whichever is lower. In
no event may an employee purchase in any one Offering Period a number of
shares which exceeds the number of shares determined by dividing (a) the
product of $2,083 and the number of months or fraction thereof in the Offering
Period by (b) the closing price of a share of common stock on the commencement
date of the Offering Period. The compensation committee may, in its
discretion, choose an Offering Period of 12 months or less for each offering
and may choose a different Offering Period for each offering.
An employee who is not a participant on the last day of the Offering Period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the Purchase Plan
terminate upon voluntary withdrawal from the Purchase Plan at any time, or
when the employee ceases employment for any reason, except that upon
termination of employment because of death, the employee's beneficiary has
certain rights to elect to exercise the option to purchase the shares that the
accumulated payroll deductions in the participant's account would purchase at
the date of death.
Because participation in the Purchase Plan is voluntary, Bottomline cannot
now determine the number of shares of common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) Plan
Bottomline has a 401(k) salary reduction plan, which is intended to qualify
under Sections 401(a) and 401(k) of the Code. Generally, all employees are
eligible to participate in the 401(k) Plan after they have completed three
months of service.
Eligible employees electing to participate in the 401(k) Plan may defer a
portion of their compensation, on a pre-tax basis, by making a contribution to
the 401(k) Plan. The maximum contribution is fixed in Section 401(k) of the
Code. The contribution limit for calendar year 1998 was $10,000. The company
may contribute a discretionary matching contribution, annually equal to 25% of
each such participant's deferred compensation up to 5% of their annual
compensation. In 1996, the company could contribute up to 20% of the first 3%
for eligible employees' contributions. The company contributed to the 401(k)
Plan an aggregate of $14,000 in fiscal 1996, $26,000 in fiscal 1997 and
$98,000 in fiscal 1998. Eligible employees who elect to participate in the
401(k) Plan are generally vested in Bottomline's matching contribution
according to the following schedule:
<TABLE>
<CAPTION>
Years of Service % Vested
---------------- --------
<S> <C>
Three............................... 20
Four................................ 40
Five................................ 60
Six................................. 80
Seven............................... 100
</TABLE>
Employment Agreements
The company entered into an employment agreement with each of Messrs.
McGurl, Mullen and Eberle. The provisions of each agreement are substantially
the same. The term of each executive agreement is the greater of 36 months or
24 months after a change in control of the company.
48
<PAGE>
A change in control of the company occurs if:
- - any person becomes the beneficial owner of 50% or more of the voting
power of the company's outstanding securities;
- - the company is acquired through a merger;
- - the company is liquidated; or
- - all or substantially all of the company's assets are sold.
If the employee's employment is terminated either by the employee as a
result of an involuntary termination or by the company without cause, then all
outstanding options held by the employee would become immediately exercisable
in full, although this provision does not become effective until November 2000
with respect to Messrs. McGurl and Mullen, and the employee would also be
entitled to receive a lump sum payment and continuation of benefits for a
period of 12 months, in the case of Messrs. Eberle and Mullen, and for a
period of 24 months in the case of Mr. McGurl. In the case of Messrs. Mullen
and Eberle, the lump sum payment would equal one year's salary plus the
maximum amount of bonus they were eligible to earn in the then current year.
In the case of Mr. McGurl, the lump sum payment would equal two times the sum
of his then annual salary plus the maximum amount of bonus he was eligible to
earn in the then current year.
An involuntary termination would occur if an employee's duties were
terminated without cause, his benefits were reduced or he was demoted or
relocated after a change in control.
Cause means, prior to a change in control of the company, the discharge of
the employee resulting from:
- - a felony conviction;
- - failure to attend to material duties or obligations;
- - the breach of confidentiality, non-competition or similar obligations
by the employee; or
- - an act or omission which would constitute a crime involving property
of the company.
The second and third items specified above would not constitute cause after
a change in control of the company.
If the employee's employment is terminated upon or after a potential change
in control of the company by the employee as a result of an involuntary
termination or by the company without cause, all then outstanding options held
by the employee would become immediately exercisable in full and the employee
would be entitled to receive a lump sum payment and continuation of benefits
for a period of 24 months, although this provision does not become effective
until November 2000 with respect to Messrs. McGurl and Mullen. In the case of
each of Messrs. Mullen and Eberle, the lump sum payment would equal two times
the sum of his then annual salary plus the maximum amount of bonus he was
eligible to earn in the then current year. In the case of Mr. McGurl, the lump
sum payment would equal three times the sum of his then annual salary plus the
maximum amount of bonus he was eligible to earn in the then current year.
A potential change in control of the company would occur if:
- - the company enters into an agreement that would cause a change in
control of the company;
49
<PAGE>
- - any person publicly announces an intention to take action which if
consummated would constitute a change in control; or
- - the adoption of a resolution by the board of directors of the company
approving a change in control of the company.
Each of the agreements provides that, in the event of a change in control,
the company would pay any excise tax which the employee would be liable for
under Section 4999 of the Code as a result of having received the severance
benefits. Mr. McGurl's agreement provides that, during the first year of the
agreement, he will be paid an annual base salary of $185,000 and will have the
opportunity to earn a bonus of up to $55,000. Under their agreements, each of
Messrs. Mullen and Eberle will be paid an annual base salary of $175,000, and
will each have the opportunity to earn a bonus of up to $50,000.
Compensation Committee Interlocks and Insider Participation
The current members of the compensation committee of the board of directors
are Messrs. Barry and Elmblad. No executive officer of Bottomline has served
as a director or member of the compensation committee of any other entity
whose executive officers served as a director or member of the compensation
committee. From August 1997 to November 1998, Mr. McGurl served as a member of
the compensation committee of the board of directors. Mr. McGurl is President
and Chief Executive Officer of Bottomline.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the common stock of Bottomline as of December 31, 1998, and as
adjusted to reflect the sale of the shares of common stock in the offering,
for: (1) each person or entity known to Bottomline to own beneficially more
than 5% of Bottomline's common stock, (2) each of the directors of Bottomline,
(3) each of the executive officers of Bottomline, including the Named
Executive Officers, (4) all directors and executive officers as a group and
(5) each of the other selling stockholders. Except as indicated below, none of
these persons or entities has a relationship with Bottomline or, to the
knowledge of Bottomline, any of the underwriters or their respective
affiliates. Unless otherwise indicated, each person or entity named in the
table has sole voting power and investment power (or shares such power with
his or her spouse) with respect to all shares of capital stock listed as owned
by such person or entity. The address of each of the employees, officers and
directors of Bottomline is c/o Bottomline Technologies (de), Inc., 155 Fleet
Street, Portsmouth, NH 03801.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after December 31, 1998 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named stockholder
is a direct or indirect beneficial owner of such shares. In the event that the
over-allotment option is exercised in full, the aggregate number of
outstanding shares of common stock would be 10,422,738.
<TABLE>
<CAPTION>
Options
Attributed
Shares to Shares Shares
Beneficially Owned Beneficially Number Beneficially Owned
Prior to Offering Owned of After Offering
--------------------- ------------ Shares ---------------------
Name of Beneficial Owner Number Percent Number Offered Number Percent
- ------------------------ ----------- --------- ------------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. McGurl........ 1,875,000 25.4% -- 281,250 1,593,750 16.1%
James L. Loomis......... 1,875,000 25.4 -- 281,250 1,593,750 16.1
John H. Harland Company
(1).................... 581,394 7.9 -- -- 581,394 5.9
Charles P. O'Leary (2).. 510,000 6.9 -- 76,500 433,500 4.4
Joseph L. Barry, Jr..... 174,375 2.4 15,000 -- 174,375 1.8
Bruce E. Elmblad........ 45,000 * 15,000 -- 45,000 *
Joseph L. Mullen........ 270,606 3.7 45,000 40,000 230,606 2.3
James W. Zilinski....... 45,000 * -- -- 45,000 *
Robert A. Eberle........ 15,000 * -- -- 15,000 *
Leonard L. DiIuro, Jr.
....................... 60,000 * -- 9,000 51,000 *
Mark A. Attarian........ 35,292 * 35,292 -- 35,292 *
All executive officers
and directors as a
group (8 persons)...... 4,359,981 58.4 75,000 611,500 3,748,481 37.5
Dennis E. Barry (3)..... 159,375 2.2 -- 23,906 135,469 1.4
Lionel P. Boissiere, Jr.
(4) ................... 43,521 * -- 6,528 36,993 *
Fredrick A. Budreski
(5).................... 15,000 * 7,500 994 14,006 *
Case Children's 1991
Irrevocable Trust (6).. 54,630 * -- 8,195 46,435 *
Carin H. Case (7)....... 13,656 * -- 1,500 12,156 *
Jeffrey H. Case (7)..... 13,656 * -- 1,500 12,156 *
Philip P. Grannan Revo-
cable
Trust (8).............. 45,000 * 15,000 4,500 40,500 *
Hambrecht & Quist
Venture Investors, L.P.
(7).................... 236,751 3.2 -- 35,513 201,238 2.0
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Options
Attributed
Shares to Shares Shares
Beneficially Owned Beneficially Number Beneficially Owned
Prior to Offering Owned of After Offering
--------------------- ------------ Shares ---------------------
Name of Beneficial Owner Number Percent Number Offered Number Percent
- ------------------------ ----------- --------- ------------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Helmar B. Herman (9).... 279,000 3.8 -- 36,976 242,024 2.4
The Hoffmaster Family
Investment, L.P. (10).. 27,315 * -- 4,015 23,300 *
James T. Jewell (11) ... 37,500 * -- 4,500 33,000 *
Alan Kessman (12)....... 13,656 * -- 2,048 11,608 *
William E. Mayer (13)... 36,423 * -- 4,827 31,596 *
Margaret M. O'Toole (14)
....................... 45,000 * -- 5,000 40,000 *
Jeannette Roberts (15)
....................... 159,000 2.2 -- 23,850 135,150 1.4
Stanley S. Shuman (16).. 36,423 * -- 5,463 30,960 *
William R. Timken (7)... 36,423 * -- 5,463 30,960 *
Vinod Gupta Revocable
Trust (17)............. 81,951 1.1 -- 12,293 69,658 *
The Wellington Trust UTA
(18)................... 36,423 * -- 5,463 30,960 *
</TABLE>
- --------
* Less than 1%
(1) The John H. Harland Company's address is 2939 Miller Road, Decatur, GA
30035.
(2) Mr. O'Leary's address is 13 Greystone Lane, Hopkinton, Massachusetts
01748.
(3) Mr. Barry's address is 138 Bedford Street, Lakeville, Massachusetts 02347.
(4) Mr. Boissiere's address is c/o Doyle & Boissiere LLC, 330 Primrose Road,
5th Floor, Burlingame, CA 94010.
(5) Mr. Budreski is an Account Executive at Bottomline.
(6) The Case Children's 1991 Irrevocable Trust's address is Lionel P.
Boissiere, Jr., Trustee, c/o Doyle & Boissiere LLC, 330 Primrose Road, 5th
Floor, Burlingame, California 94010.
(7) Ms. Case's address is c/o Hambrecht & Quist, One Bush Street, 18th Floor,
San Francisco, California 94104.
(8) Philip P. Grannan, trustee of the revocable trust, is Vice President of
Marketing at Bottomline.
(9) Mr. Herman is Vice President of Technology at Bottomline.
(10) The Hoffmaster Family Investment's address is c/o Jon D. Hoffmaster,
American Business Information, 8905 Farnam Court, Omaha, Nebraska 68114.
(11) Mr. Jewell is Vice President of Strategic Alliances at Bottomline.
(12) Mr. Kessman's address is 11 Hedgerow Lane, Greenwich, Connecticut 06831.
(13) Mr. Mayer's address is 172 Long Neck Point, Darien, Connecticut 06820.
(14) Ms. O'Toole is Director of Product Architecture at Bottomline.
(15) Ms. Roberts is an on-site consultant at Bottomline.
(16) Mr. Shuman's address is 711 Fifth Avenue, New York, New York 10022.
(17) The Vinod Gupta Revocable Trust's address is P.O. Box 27395, Omaha,
Nebraska 68127.
(18) The Wellington Trust's address is c/o Robert or Martha Cohn, TTEE, 215
Lowell Avenue, Palo Alto, California 94310.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Bottomline will consist
of 50,000,000 shares of common stock, $.001 par value per share, and 4,000,000
shares of preferred stock, $.001 par value per share. As of December 31, 1998,
there were outstanding (1) 7,393,272 shares of common stock held by 45
stockholders of record after giving effect to the termination of redemption
rights of the redeemable common stock upon the effectiveness of this offering
and (2) options to purchase an aggregate of 1,113,000 shares of common stock.
The following summary of certain provisions of Bottomline's common stock,
preferred stock, charter and Amended and Restated By-laws (the "by-laws") is
not intended to be complete and is qualified by reference to the provisions of
applicable law and to Bottomline's charter and by-laws included as exhibits to
the registration statement of which this prospectus is a part. See "Additional
Filings and Company Information."
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Bottomline, the holders of common
stock are entitled to receive ratably the net assets of Bottomline available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by Bottomline in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to
the rights of the holders of shares of any series of preferred stock which
Bottomline may designate and issue in the future. Some holders of common stock
have the right to require Bottomline to register their shares of common stock
under the Securities Act in specified circumstances. See "Shares Eligible for
Future Sale."
Preferred Stock
Under the terms of the charter, the board of directors is authorized to
issue such shares of preferred stock in one or more series without stockholder
approval. The board has discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each
series of preferred stock.
The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding voting stock of Bottomline. Bottomline has no
present plans to issue any shares of preferred stock.
Delaware Law and Certain Charter and By-law Provisions
Bottomline is subject to the provisions of Section 203 of the Delaware
General Corporation Law statute. Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the person becomes
an interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.
53
<PAGE>
The by-laws divide the board of directors into three classes with staggered
three-year terms. See "Management." Under the by-laws, any vacancy on the
board of directors, including a vacancy resulting from an enlargement of the
board of directors, may only be filled by vote of a majority of the directors
then in office. The classification of the board of directors and the
limitation on filling of vacancies could make it more difficult for a third
party to acquire, or discourage a third party from acquiring, control of
Bottomline.
The by-laws also provide that after this offering, stockholders can only
take action at an annual meeting or special meeting, and not by written action
in lieu of a meeting. The by-laws further provide that only the Chairman of
the Board, the President or the board of directors may call a special meeting
of the stockholders.
A stockholder must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought"
before a meeting. The stockholder must deliver written notice to Bottomline
between 60 and 90 days prior to the meeting. If the company gives less than 70
days' notice or prior public disclosure of the meeting date, the stockholder
must deliver written notice to Bottomline within ten days following the date
upon which the notice of the meeting was mailed or the 10th day following the
date on which the notice of the meeting was mailed or such public disclosure
was made, whichever occurs first. If the matter relates to the election of
directors of Bottomline, the notice must set forth specific information
regarding each nominee and the nominating shareholder. For any other matter,
the notice must set forth a brief description of the proposed matter and
certain information regarding the proponent stockholder. These provisions
could delay until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Bottomline. These provisions could also discourage a third party from making a
tender offer for the common stock, because even if it acquired a majority of
the outstanding voting securities of Bottomline, the third party would be able
to take action as a stockholder only at a duly called stockholders' meeting,
and not by written consent.
The Delaware General Corporation Law statute provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The by-laws require the affirmative
vote of holders of at least 75% of the votes which all the stockholders would
be entitled to cast in any annual election of directors or class of directors
to amend or repeal any of the provisions described in the prior two
paragraphs.
The charter contains certain provisions permitted under the Delaware General
Corporation Law statute relating to the liability of directors. The provisions
eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. Further, the
charter contains provisions to indemnify Bottomline's directors and officers
to the fullest extent permitted by the Delaware General Corporation Law
statute. Bottomline believes that these provisions will assist Bottomline in
attracting and retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is State Street Bank
and Trust Company.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for the securities of
Bottomline. After completion of this offering there will be 9,912,738 shares
of common stock of Bottomline outstanding (assuming no exercise of the
underwriters' over-allotment option or outstanding options of Bottomline). Of
these shares, the 3,400,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, except that any shares purchased by "affiliates" of Bottomline, as
that term is defined in Rule 144 under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below.
Sales of Restricted Shares
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining 6,512,738 shares of common stock that will be
outstanding after this offering are considered "restricted securities" under
Rule 144 of the Securities Act. Generally, restricted securities that have
been owned for a period of at least two years may be sold immediately after
the completion of this offering and restricted securities that have been owned
for at least one year may be sold 90 days after the completion of this
offering. Certain of the restricted securities are subject to lock-up
agreements with the underwriters. Persons subject to lock-up agreements have
agreed not to sell shares of common stock without the prior permission of the
underwriters for a period of 180 days after the completion of this offering.
The underwriters currently do not intend to release anyone from the lock-up
agreement. The table below sets forth information regarding potential sales of
restricted securities.
. 101,667 shares may be sold immediately after completion of this
offering; and
. 6,303,926 additional shares may be sold upon the expiration of the
lock-up agreements.
Options
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, Bottomline intends to register an aggregate of
3,330,000 shares of common stock, which may be issued under its 1989 Stock
Option Plan, 1997 Stock Incentive Plan and 1998 Director Stock Option Plan.
Shares issued upon the exercise of stock options after the effective date of
the Form S-8 registration statements will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements noted above, if applicable. As a result
of the exercise of vested options 90 days after the completion of this
offering, 2,499 additional shares may be sold. Upon the expiration of the
lock-up agreements, 439,029 additional shares may be sold as a result of the
exercise of vested options.
In addition, Bottomline intends to register an aggregate of 750,000 shares
of common stock reserved for issuance under its 1998 Employee Stock Purchase
Plan.
Registration Rights
Under agreements with the company, approximately 24 stockholders will be
entitled following this offering to rights to register under the Securities
Act a total of approximately 5,359,253 shares of common stock. The agreements
generally provide that if the company proposes to register any of its
securities under the Securities Act, the stockholders will be entitled to
include shares in the registration. The managing underwriter of any
underwritten public offering would, however, have the right, for marketing
reasons, to cut-back the number of shares that the stockholders could include
in such registration.
Stockholders with registration rights may require the company to prepare and
file a registration statement under the Securities Act for their shares at any
time after this offering, provided that the minimum aggregate offering price
is at least $2.0 million. The company is not required to effect more than
three registration statements and is not required to file a registration
statement within 180 days after the effective date of any other registration
statement filed by the company.
55
<PAGE>
Effect of Sales of Shares
Prior to this offering, there has been no public market for the common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the common stock in
the public market could adversely affect the market price of the common stock
and could impair Bottomline's future ability to raise capital through an
offering of its equity securities.
56
<PAGE>
UNDERWRITING
The underwriters named below acting through their representatives,
BancBoston Robertson Stephens Inc., BT Alex. Brown Incorporated and CIBC
Oppenheimer Corp., have severally agreed with Bottomline and 24 stockholders
of the company, subject to the terms and conditions of the underwriting
agreement, to purchase from Bottomline and the selling stockholders the number
of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ................................
BT Alex. Brown Incorporated........................................
CIBC Oppenheimer Corp. ............................................
---------
Total......................................................... 3,400,000
=========
</TABLE>
Bottomline and the selling stockholders have been advised by the
representatives that the underwriters propose to offer the shares of common
stock to the public at the public offering price set forth on the cover page
of this prospectus and to dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After this offering, the public offering price, concession, and reallowance to
dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by the company and the selling
stockholders as set forth on the cover page of this prospectus.
Bottomline has granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 510,000
additional shares of common stock at the same price per share as the company
and the selling stockholders will receive for the 3,400,000 shares that the
underwriters have agreed to purchase. To the extent that the underwriters
exercise the option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of additional shares that the
number of shares of common stock to be purchased by it shown in the above
table represents as a percentage of the 3,400,000 shares offered hereby. If
purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the 3,400,000 shares are being sold. Bottomline will
be obligated, pursuant to the option, to sell shares to the extent the option
is exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered hereby.
The underwriting agreement contains covenants of indemnity among the
underwriters, the company and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Each officer and director of the company and many other holders of shares of
common stock have agreed, for the lock-up period, subject to exceptions, not
to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or any
options to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to the lock-up agreement. The underwriters
currently do not intend to release anyone from the lock-up agreement. In
addition, Bottomline has agreed that during the lock-up period the company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., subject to exceptions, (1) consent to the disposition of any shares held
by stockholders subject to lock-up agreements prior to the expiration of the
lock-up period or (2) issue, sell, contract to sell, or otherwise dispose of,
any shares of common stock, any options to purchase any shares of common stock
or any securities convertible into,
57
<PAGE>
exercisable for or exchangeable for shares of common stock other than the
company's sale of shares in this offering, the issuance of common stock upon
the exercise of outstanding options, and the company's issuance of options and
shares under existing stock option and incentive plans. See "Shares Eligible
for Future Sale."
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus will be determined through negotiations among the company, the
selling stockholders and the representatives. Among the factors to be
considered in the negotiations are prevailing market conditions, financial
information of the company, market valuations of other companies that the
company and the representatives believe to be comparable to the company,
estimates of the business potential of the company, the present state of the
company's development and other factors deemed relevant.
The representatives have advised the company that, pursuant to Regulation M
under the Securities Act, some persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised the company that such
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered by Bottomline hereby will
be passed upon for Bottomline by Hale and Dorr LLP, Boston, Massachusetts, and
for the underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Bottomline Technologies (de), Inc. at June 30,
1997 and 1998, and for each of the three years in the period ended June 30,
1998, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
58
<PAGE>
ADDITIONAL FILINGS AND COMPANY INFORMATION
We have filed a registration statement on Form S-1 with the Commission. This
prospectus, which is a part of the registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. You may review a copy of the registration statement, including
exhibits, at the Commission's public reference room at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 or Seven World Trade Center, 13th
Floor, New York, New York 10048 or Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the Commission at 1-800-SEC-
0330 for further information on the operation of the public reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the registration statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
59
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... F-2
Balance Sheets as of June 30, 1997 and 1998 and December 31, 1998
(Unaudited)............................................................ F-3
Statements of Operations for the years ended June 30, 1996, 1997 and 1998
and for the six months ended December 31, 1997 and 1998 (Unaudited).... F-4
Statements of Stockholders' Equity for the years ended June 30, 1996,
1997 and 1998 and for the six months ended December 31, 1998
(Unaudited)............................................................ F-5
Statements of Cash Flows for the years ended June 30, 1996, 1997 and 1998
and for the six months ended December 31, 1997 and 1998 (Unaudited).... F-6
Notes to Financial Statements ........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Bottomline Technologies (de), Inc.
We have audited the accompanying balance sheets of Bottomline Technologies
(de), Inc. as of June 30, 1997 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bottomline Technologies
(de), Inc. at June 30, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1998,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
August 6, 1998, except for
the third sentence of paragraph
ten of Note 8 and
Note 11 as to which the dates
are November 12, 1998
and Note 12 as to which
the date is January 6, 1999
F-2
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------- December 31,
1997 1998 1998
------------ ------------ -----------------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C>
ASSETS (Note 6)
Current assets:
Cash and cash equivalents......... $ 827 $ 1,362 $ 3,925
Accounts receivable, net of
allowances for doubtful
accounts and returns of $644 at
June 30, 1997, $970 at June 30,
1998 and $927 at December 31,
1998............................ 5,596 6,997 9,274
Inventory, net.................... 656 174 210
Refundable income taxes........... 905 -- --
Deferred income taxes (Note 10)... 571 724 623
Prepaid expenses and other
current assets.................. 187 89 198
------------ ------------ ------------
Total current assets................ 8,742 9,346 14,230
Property and equipment, net (Note
4)................................ 1,446 1,865 2,081
Capitalized and acquired software
costs, net of accumulated
amortization of $836 in 1997
(Notes 2 and 3)................... 253 -- --
Other assets........................ 40 90 686
------------ ------------ ------------
Total assets........................ $ 10,481 $ 11,301 $ 16,997
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Amounts due under revolving
credit arrangement (Note 6)..... $ 1,045 -- --
Accounts payable.................. 2,177 $ 1,177 $ 1,835
Accrued expenses (Note 5)......... 1,696 2,030 2,922
Deferred revenue and deposits..... 1,063 2,121 3,044
Income taxes payable.............. -- 59 808
Current portion of long-term debt
(Note 6)........................ 285 75 25
------------ ------------ ------------
Total current liabilities........... 6,266 5,462 8,634
Deferred income taxes payable (Note
10)............................... 235 118 132
Long-term debt, less current portion
(Note 6).......................... 54 -- --
Commitments and contingent
liabilities (Note 7)..............
Redeemable common stock, at
redemption value (Note 8)
(Authorized, issued and outstanding
shares -- 801 in all periods)..... 1,246 1,353 1,409
Stockholders' equity (Note 8):
Common stock, $.001 par value:
Authorized shares -- 15,000
Issued and outstanding shares--
6,306 at June 30, 1997, 6,360
at June 30, 1998 and 6,592 at
December 31, 1998............ 6 6 7
Additional paid-in-capital........ 1,675 1,867 2,838
Retained earnings................. 999 2,495 3,977
------------ ------------ ------------
Total stockholders' equity.......... 2,680 4,368 6,822
------------ ------------ ------------
Total liabilities and stockholders'
equity............................ $ 10,481 $ 11,301 $ 16,997
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended June 30, December 31,
------------------------- ----------------
1996 1997 1998 1997 1998
------- ------- ------- ------- -------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.............. $ 4,689 $ 6,392 $ 9,887 $ 4,435 $ 7,468
Service and maintenance........ 4,580 6,729 9,701 4,471 5,327
Equipment and supplies......... 8,798 9,005 9,449 4,642 5,341
------- ------- ------- ------- -------
Total revenues................... 18,067 22,126 29,037 13,548 18,136
Cost of revenues:
Software licenses.............. 27 160 215 118 154
Service and maintenance........ 2,655 4,206 4,261 2,029 2,456
Equipment and supplies......... 5,361 6,410 6,526 3,176 3,815
------- ------- ------- ------- -------
Total cost of revenues........... 8,043 10,776 11,002 5,323 6,425
------- ------- ------- ------- -------
Gross profit..................... 10,024 11,350 18,035 8,225 11,711
Operating expenses:
Sales and marketing............ 4,190 6,631 7,675 3,590 4,880
Product development and
engineering................... 1,237 2,185 3,158 1,492 1,905
General and administrative..... 3,044 4,266 4,372 2,006 2,401
------- ------- ------- ------- -------
Total operating expenses......... 8,471 13,082 15,205 7,088 9,186
------- ------- ------- ------- -------
Income (loss) from operations.... 1,553 (1,732) 2,830 1,137 2,525
Interest income.................. 48 53 35 13 42
Interest expense................. (54) (109) (85) (63) (3)
------- ------- ------- ------- -------
(6) (56) (50) (50) 39
------- ------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes...... 1,547 (1,788) 2,780 1,087 2,564
Provision (benefit) for income
taxes (Note 10)................. 664 (536) 1,177 460 1,026
------- ------- ------- ------- -------
Net income (loss)................ $ 883 $(1,252) $ 1,603 $ 627 $ 1,538
======= ======= ======= ======= =======
Earnings (loss) per share
available to common stockholders
(Note 9):
Basic.......................... $ 0.14 $ (0.23) $ 0.24 $ .09 $ .23
======= ======= ======= ======= =======
Diluted........................ $ 0.11 $ (0.23) $ 0.20 $ .08 $ .20
======= ======= ======= ======= =======
Shares used in computing earnings
(loss) per share available to
common stockholders (Note 9):
Basic.......................... 5,693 5,986 6,314 6,307 6,472
======= ======= ======= ======= =======
Diluted........................ 7,001 5,986 7,316 7,300 7,555
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1996, 1997 and 1998 and
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1995...... 5,613 $ 6 $ 624 $1,553 $2,183
Issuance of common stock
upon exercise of stock
options (Note 8).......... 141 -- 250 -- 250
Issuance of common stock for
acquisition of the common
stock of CertiSoft (Note
3)........................ 90 -- 480 -- 480
Accretion to redemption
value on redeemable common
stock..................... -- -- -- (88) (88)
Net income.................. -- -- -- 883 883
----- ---- ------ ------ ------
Balances at June 30, 1996..... 5,844 6 1,354 2,348 3,708
Issuance of common stock
upon exercise of stock
options (Note 8).......... 135 -- 297 -- 297
Issuance of common stock
upon exercise of stock
warrants (Note 8)......... 327 -- 24 -- 24
Accretion to redemption
value on redeemable common
stock..................... -- -- -- (97) (97)
Net loss.................... -- -- -- (1,252) (1,252)
----- ---- ------ ------ ------
Balances at June 30, 1997..... 6,306 6 1,675 999 2,680
Issuance of common stock
upon exercise of stock
options (Note 8).......... 54 -- 192 -- 192
Accretion to redemption
value on redeemable common
stock..................... -- -- -- (107) (107)
Net income.................. -- -- -- 1,603 1,603
----- ---- ------ ------ ------
Balances at June 30, 1998..... 6,360 6 1,867 2,495 4,368
Issuance of common stock
upon exercise of stock
warrants (Note 8)
(Unaudited)............... 125 -- -- -- --
Proceeds from sale of common
stock, net of expenses
(Unaudited)............... 107 1 971 -- 972
Accretion to redemption
value on redeemable common
stock (Unaudited)......... -- -- -- (56) (56)
Net income (Unaudited)...... -- -- -- 1,538 1,538
----- ---- ------ ------ ------
Balances at December 31, 1998
(Unaudited)................. 6,592 $ 7 $2,838 $3,977 $6,822
===== ==== ====== ====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Years Ended Months Ended
June 30, December 31,
------------------------ -------------
1996 1997 1998 1997 1998
------ ------- ------- ----- ------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)..................... $ 883 $(1,252) $ 1,603 $ 627 $1,538
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 784 1,174 827 443 386
Provision for allowances on accounts
receivable......................... 4 487 326 80 62
Provision for allowances for
obsolescence of inventory.......... -- 217 -- -- --
Deferred income tax expense
(benefit).......................... (102) (297) (270) (100) 115
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable........................ (506) (1,452) (1,727) (309) (2,339)
Decrease (increase) in inventory,
prepaid expenses and other current
assets and other assets........... (237) (138) 530 54 (741)
Decrease (increase) in refundable
income taxes...................... -- (905) 905 -- --
Increase (decrease) in accounts
payable, accrued expenses and
deferred revenue and deposits..... (343) 1,907 392 (698) 2,473
(Decrease) increase in income taxes
payable........................... 337 (409) 59 535 749
------ ------- ------- ----- ------
Net cash provided by (used in)
operating activities................ 820 (668) 2,645 632 2,243
Investing activities
Purchases of property and equipment,
net................................. (311) (580) (993) (425) (602)
Increase in capitalized software
costs............................... (158) (114) -- -- --
------ ------- ------- ----- ------
Net cash used in investing
activities.......................... (469) (694) (993) (425) (602)
Financing activities
Net borrowings (repayments) on
revolving credit arrangement........ -- 1,045 (1,045) (370) --
Repayments on notes payable........... (152) (258) (264) (139) (50)
Proceeds from exercise of stock
options and stock warrants.......... 250 321 192 -- --
Proceeds from sale of common stock,
net................................. -- -- -- -- 972
------ ------- ------- ----- ------
Net cash provided by (used in)
financing activities................ 98 1,108 (1,117) (509) 922
------ ------- ------- ----- ------
Increase (decrease) in cash and cash
equivalents......................... 449 (254) 535 (302) 2,563
Cash and cash equivalents at beginning
of period........................... 632 1,081 827 827 1,362
------ ------- ------- ----- ------
Cash and cash equivalents at end of
period.............................. $1,081 $ 827 $ 1,362 $ 523 $3,925
====== ======= ======= ===== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................ $ 54 $ 106 $ 85 $ 63 $ 3
Income taxes........................ $ 446 $ 1,017 $ 464 $ 27 $ 750
Non-cash transactions:
Acquisition of the common stock of
CertiSoft for common stock and
assumption of note payable
(Note 3).......................... $ 764 -- -- -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1996, 1997 and 1998; Six Months Ended
December 31, 1997 and 1998 (Unaudited)
1. Organization and Nature of Business
Bottomline Technologies, Inc. (the predecessor Company) was incorporated in
New Hampshire in 1989 and, on August 25, 1997, the predecessor Company was
merged with and into Bottomline Technologies (de), Inc. (the Company), a
company incorporated in Delaware. The Company is a domestic company that
develops and markets proprietary software and complementary products and
services. The Company's products and services are sold to customers operating
in many different industries. The Company does not require collateral on its
accounts receivable, which is in accordance with industry practice.
On May 2, 1996, the Company acquired CertiSoft Solutions, Inc. (CertiSoft) and
on January 9, 1997, CertiSoft was merged into the predecessor Company.
CertiSoft is included in the results of operations from May 2, 1996, the date
of acquisition.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consists of demand deposit accounts and an overnight
investment account at a financial institution. The Company considers all
highly liquid instruments with an original maturity of ninety days or less to
be cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets,
principally from 3-7 years. Leasehold improvements are amortized over their
useful lives or the term of the lease, whichever is less.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were
$62,000, $114,000 and $129,000 for the years ended June 30, 1996, 1997 and
1998, respectively, and $70,000 and $55,000 for the six months ended December
31, 1997 and 1998, respectively.
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 amounts reported in the financial statements and accompanying
notes. Estimates include but are not limited to the allowances for doubtful
accounts and returns. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes are provided for differences in bases of assets and
liabilities for financial reporting and income tax purposes. Temporary
differences relate primarily to depreciation, various accruals, and allowances
for doubtful accounts, returns and inventory.
F-7
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies--(Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has elected to continue to account for stock based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and related Interpretations.
Capitalized and Acquired Software Costs
Costs incurred to develop software to be sold, leased or otherwise marketed
are capitalized upon attainment of technological feasibility and amortized on
a product-by-product basis over the estimated useful life of the related
software. Such software costs totaled $1,089,000 at June 30, 1997. Also
included in capitalized software costs was $546,000 attributable to acquired
software in connection with the acquisition of CertiSoft (See Note 3).
Capitalized and acquired software costs charged to operations were $423,000,
$631,000 and $253,000 for the years ended June 30, 1996, 1997 and 1998,
respectively, including additional amortization in 1997 on certain acquired
software, and $150,000 and $-0- for the six months ended December 31, 1997 and
1998, respectively. At June 30, 1998, capitalized software costs had been
fully amortized.
The carrying value of intangible assets is periodically reviewed by the
Company based on the expected future undiscounted operating cash flows of the
related asset. If an impairment is indicated, the Company will adjust the
carrying value of the intangible assets.
Revenue Recognition
Revenue for software is recognized when product is shipped and there are no
significant remaining obligations of the Company. Revenue for services is
recognized as the services are provided to the customer. Revenue under
software maintenance agreements is recognized ratably over the term of the
agreement, generally one year. Revenue for hardware is recognized when product
is shipped. Revenue is recognized in accordance with Statement of Position
(SOP) 91-1 for periods prior to July 1, 1998. See Accounting Pronouncements
below.
Customer Returns
Customer returns are estimated and accrued for when known based on return
authorizations.
Earnings per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS
128 requires calculation and presentation of basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted average
number of common shares outstanding and excludes any dilutive effects of
warrants, stock options or other type securities. Diluted earnings per share
is calculated based on the weighted average number of common shares
outstanding and the dilutive effect of stock options, warrants and related
securities calculated using the treasury stock method. Dilutive securities are
excluded from the diluted earnings per share calculation if their effect is
antidilutive.
401(k) Plan
The Company has a 401(k) Profit Sharing Plan (the Plan), whereby eligible
employees may contribute up to 15% (20% in 1997) of their compensation,
subject to limitations established by the Internal Revenue Code. The Company
may contribute a discretionary matching contribution, annually, equal to 25%
of each such
F-8
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies--(Continued)
participant's deferred compensation up to 5% of their annual compensation (in
1996, up to 20% of the first 3% for eligible employees' contributions). The
Company charged $14,000, $26,000 and $98,000 to expense in the years ended
June 30, 1996, 1997 and 1998, respectively, and $55,000 and $130,000 to
expense in the six months ended December 31, 1997 and 1998, respectively,
under the Plan.
Accounting Pronouncements
In October 1997, the Accounting Standards Executive Committee of the American
Institute (ACSEC) of Certified Public Accountants issued Statement of Position
(SOP) 97-2 "Software Revenue Recognition", which the Company adopted on July
1, 1998. This statement supersedes SOP 91-1, Software Revenue Recognition, and
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions entered into in fiscal years
beginning after December 15, 1997. The Company believes that SOP 97-2 will not
have a material impact on the Company's future operating results.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures About
Segments of an Enterprise and Related Information." Both SFAS No. 130 and SFAS
No. 131 are effective for fiscal years beginning after December 15, 1997. The
Company believes that the adoption of these new accounting standards will not
have a material impact on the Company's financial statements.
Interim Financial Information (Unaudited)
The interim financial information at December 31, 1998 and for the six months
ended December 31, 1997 and 1998, all of which is unaudited, was prepared by
the Company on a basis consistent with the audited financial statements. In
management's opinion, such information reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results
of the periods presented.
3. Acquisition
On May 2, 1996, the Company, through its newly-formed, wholly-owned
subsidiary, CSI Acquisition, Inc. (Acquisition), acquired CertiSoft Solutions,
Inc. (CertiSoft) by merging with and into CertiSoft. Each share of CertiSoft
common stock outstanding prior to the merger was surrendered and subsequently
retired and each CertiSoft shareholder received 4.83 shares of the Company's
common stock for each CertiSoft share surrendered. The total consideration
paid by the Company to acquire CertiSoft included 90,003 shares of the
Company's common stock, estimated at $480,000, and the assumption of a
$250,000 note payable to the former majority owner of CertiSoft and certain
other trade obligations.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of CertiSoft are included in the consolidated financial
statements since the date of acquisition. In connection with the acquisition,
the Company acquired assets with an estimated fair value of $764,000 and
assumed liabilities of $284,000, which includes the $250,000 note payable
described above.
F-9
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------
December 31,
1997 1998 1998
------ ------ ------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Furniture and fixtures.. $ 387 $ 399 $ 410
Technical equipment..... 1,979 2,693 3,130
Software................ 210 453 583
Leasehold improvements.. 126 151 175
------ ------ ------
2,702 3,696 4,298
Less: Accumulated depre-
ciation and amortiza-
tion................... 1,256 1,831 2,217
------ ------ ------
$1,446 $1,865 $2,081
====== ====== ======
</TABLE>
5. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30,
-------------
December 31,
1997 1998 1998
------ ------ ------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Employee compensation and benefits................ $ 799 $1,392 $1,794
Sales taxes....................................... 425 214 190
Other............................................. 472 424 938
------ ------ ------
$1,696 $2,030 $2,922
====== ====== ======
</TABLE>
6. Borrowing Arrangements
In December 1997, the Company entered into a revolving credit agreement (the
revolving agreement) with a bank which provides for available borrowings of up
to $4,000,000. Borrowings under the revolving agreement bear interest at the
bank's prime rate (8.5% at June 30, 1998) and are due on demand. The
outstanding balance under the revolving agreement at June 30, 1997 and 1998
and December 31, 1998 was $1,045,000, $-0- and $-0-, respectively. The
revolving agreement expires on December 30, 1998.
In June 1995, the Company entered into a $500,000 term loan with a bank. The
term loan was due in thirty-six monthly installments of principal and interest
of $16,000. Interest under the term loan was at 8.75%. The balance outstanding
at June 30, 1997 and 1998 and December 31, 1998 was $164,000, $-0- and $-0-,
respectively.
Borrowings under the revolving agreement and the term loan are secured by
substantially all assets of the Company.
In May 1996, in connection with the acquisition of CertiSoft, CertiSoft
assumed a $250,000 promissory note payable to the former majority owner of
CertiSoft. The note is due in 10 equal installments of $25,000, beginning
November 1996 and every third month thereafter, plus accrued interest at 8.25%
per annum. This note is guaranteed by the Company. The balance outstanding at
June 30, 1997 and 1998 and December 31, 1998 was $175,000, $75,000 and
$25,000, respectively.
F-10
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Commitments and Contingent Liabilities
The Company leases its principal office facility under a noncancellable
operating lease expiring in 2002. In addition to the base term, the Company
has two five-year options to extend the term of the lease. Rent payments are
fixed for the initial two years of the lease and may be increased after that
during the initial term of the lease by the Consumer Price Index. In addition,
the Company is obligated to pay certain incremental operating costs over the
base amount.
The Company also leases office space in other cities. All such leases expire
in fiscal years 1999 and 2000.
Future minimum annual rental commitments under this lease at June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1999.......................................................... $ 373
2000.......................................................... 349
2001.......................................................... 307
2002.......................................................... 281
------
$1,310
======
</TABLE>
Rent expense charged to operations for the years ended June 30, 1996, 1997 and
1998 was $286,000, $338,000 and $342,000, respectively, and for the six months
ended December 31, 1997 and 1998 was $197,000 and $224,000, respectively.
8. Capital Transactions
Common Stock
In connection with the sale of its common stock in 1992, the Company and
certain existing stockholders amended previous agreements covering stock
rights and voting arrangements. The amended agreement provides certain
stockholders with preemptive rights and certain registration rights in the
event of certain circumstances.
In connection with the sale of its common stock, the Company has also agreed
with certain stockholders to redeem, at the stockholders' option, 801,000
shares of common stock anytime after June 29, 1995. The initial redemption
value was $1.00 per share and increases each year in accordance with the
agreement. The redemption value was $1,246,000, $1,353,000 and $1,409,000 at
June 30, 1997 and 1998 and December 31, 1998, respectively. The redemption
rights of the redeemable common stock expire upon the effectiveness of an
initial public offering by the Company.
In March 1994, the Company and certain existing stockholders amended the March
31, 1992 stock rights and voting arrangements to provide an additional
stockholder with preemptive rights and certain registration rights in the
event of certain circumstances.
Stock Option Plan
The Company adopted the Bottomline Technologies, Inc. Stock Option Plan, as
amended, (the Plan) on August 1, 1989, which provides for the issuance of
incentive stock options and nonstatutory stock options. The Plan is
administered by the Board of Directors which has the authority to determine to
whom options may be granted, the period of exercise and what other
restrictions, if any, should apply. Vesting for options granted under the Plan
is principally over three years from the date of grant. The Company has
reserved up to 1,440,000 shares of its common stock for issuance under the
Plan. Incentive stock options may be granted to employees at a price of no
less than 100% of the fair market value of the common stock at the date of
grant. Options expire a maximum of ten years from the date of grant.
F-11
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Capital Transactions--(Continued)
On August 21, 1997, Bottomline Technologies, Inc. adopted the 1997 Stock
Incentive Plan (the 1997 Plan), which provides for the issuance of stock
options and nonstatutory stock options. The 1997 Plan is administered by the
Board of Directors which has the authority to determine to whom options may be
granted, the period of exercise and what other restrictions, if any, should
apply. Vesting for options granted under the 1997 Plan is principally over
four years from the date of grant. The Company has reserved up to 1,200,000
shares of its common stock for issuance under the 1997 Plan to employees at a
price of no less than 100% of the fair market value of the common stock at the
date of grant. Options expire a maximum of ten years from the date of grant.
The Board of Directors of the Company has determined the fair value of the
Company's common stock in its good faith judgment at each option grant date
for grants under both the Plan and the 1997 Plan considering a number of
factors including the financial and operating performance of the Company,
recent transactions in the Company's common stock, if any, the values of
similarly situated companies and the lack of marketability of the Company's
common stock.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires the use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, as the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Option valuation models have been developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. Such models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. A summary of assumptions is as follows:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended June 30, December 31,
---------------------------- ------------------
1996 1997 1998 1997 1998
--------- ------ --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Dividend yield........... 0% 0% 0% 0% 0%
Expected lives of options
(years)................ 4 4 4 4 4
Risk-free interest rate.. 6.18-6.67% 6.02% 5.65-6.20% 6.20% 6.00%
</TABLE>
For purposes of the required pro forma disclosures, the estimated fair value
of the options is amortized over the options' vesting period. Had compensation
cost for the Company's stock option plan been determined based on the fair
value at the grant dates for awards under those plans consistent with the
minimum value method of SFAS 123, the Company's pro forma net income (loss)
and pro forma earnings (loss) per share available to common stockholders would
have been as follows:
F-12
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Capital Transactions--(Continued)
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended June 30, December 31,
--------------------- ------------
1996 1997 1998 1997 1998
----- ------- ------ ----- ------
(Unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Pro forma net income (loss)............... $ 837 $(1,320) $1,488 $ 594 $1,349
Pro forma earnings (loss) per share
available to common stockholders:
Basic.................................. $0.13 $ (0.24) $ 0.22 $0.09 $ 0.20
Diluted................................ $0.11 $ (0.24) $ 0.19 $0.07 $ 0.17
</TABLE>
As the provisions of SFAS 123 are effective only for fiscal years beginning
after December 15, 1994, the effects of applying SFAS 123 for pro forma
disclosures are not necessarily representative of the effects on net income
(loss) for future years.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
Six
Years Ended June 30, Months Ended
-------------------------------------------------- December 31,
1996 1997 1998 1998
---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Options Price Options Price Options Price Options Price
------- -------- ------- -------- ------- -------- ------- --------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period............. 354 $ 2.28 279 $3.17 339 $5.10 885 $6.69
Options granted......... 90 4.33 195 5.84 600 7.91 228 9.61
Options exercised....... (141) 1.79 (135) 2.20 (54) 3.67 -- --
Options expired......... (24) 2.50 -- -- -- -- -- --
---- ------- ---- ----- --- ----- ----- -----
Outstanding, end of
period................ 279 3.17 339 5.10 885 6.69 1,113 7.28
Exercisable, end of
period................ 165 $ 1.80 75 $3.87 102 $5.20 222 $5.42
Weighted average fair
value of options
granted during the
period................ $ 0.93 $1.52 $1.53 $2.05
</TABLE>
As of June 30, 1998, options to purchase 102,000 shares were exercisable at
option prices ranging from $4.33 to $6.33 per share. As of June 30, 1997 and
1998, options to purchase 63,000 and 645,000 shares, respectively, were
available for grant from the 1997 Plan and the Plan. As of December 31, 1998,
options to purchase 1,917,000 shares, which includes 1,500,000 additional
shares reserved for issuance on November 12, 1998, subject to stockholder
approval, were available for grant from the 1997 Plan. The weighted average
remaining contractual life of options outstanding at June 30, 1998 is seven
and one half years, and the range of exercise prices is from $4.33 to $8.80
per share.
F-13
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Capital Transactions--(Continued)
Warrants
In connection with the sale of its common stock in March 1992, the Company
issued warrants for the purchase of an aggregate 644,000 shares of common
stock at exercise prices ranging from $1.00 to $2.00 per share. During 1997,
warrants for 12,000 shares were exercised at a price of $2.00 per share.
Additionally, under the terms of the warrant agreement, certain warrant
holders elected a non-cash exercise under which 489,000 warrants with a
weighted average exercise price of $2.00 were exercised and the Company issued
315,000 shares to the warrant holders. The shares issued, as a result of this
non-cash exercise, were based on the relationship of the exercise price to the
fair market value of the Company's stock at the exercise date, as defined in
the original agreement.
At June 30, 1998, there were warrants outstanding for 143,000 shares, at
exercise prices ranging from $1.00--$1.33 per share and a weighted average
exercise price of $1.19. The warrants were exercised on September 30, 1998.
9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended June 30, December 31,
----------------------- --------------
1996 1997 1998 1997 1998
------ ------- ------ ------ ------
(Unaudited)
(In thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)................ $ 883 $(1,252) $1,603 $ 627 $1,538
Accretion to redemption value on
redeemable common stock......... (88) (97) (107) (53) (56)
------ ------- ------ ------ ------
Numerator for basic and diluted
earnings (loss) per share
available to common stockholders.. $ 795 $(1,349) $1,496 $ 574 $1,482
====== ======= ====== ====== ======
Denominator:
Denominator for basic earnings
(loss) per share available to
common stockholders--weighted-
average shares outstanding...... 5,693 5,986 6,314 6,307 6,472
Effect of employee stock options,
warrants and redeemable common
stock........................... 1,308 -- 1,002 993 1,083
------ ------- ------ ------ ------
Denominator for diluted earnings
(loss) per share available to
common stockholders............... 7,001 5,986 7,316 7,300 7,555
====== ======= ====== ====== ======
Earnings (loss) per share available
to common stockholders:
Basic............................ $ 0.14 $ (0.23) $ 0.24 $ .09 $ .23
====== ======= ====== ====== ======
Diluted.......................... $ 0.11 $ (0.23) $ 0.20 $ .08 $ .20
====== ======= ====== ====== ======
</TABLE>
F-14
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109. SFAS
No. 109 requires the use of the liability method in which income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
June 30,
------------ December 31,
1997 1998 1998
----- ----- ------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Allowances...................................... $ 284 $ 572 $ 471
Various accrued expenses........................ 144 115 110
Deferred software maintenance revenue........... 8 -- --
Inventory....................................... 135 37 42
----- ----- -----
Total deferred tax assets.................... 571 724 623
Deferred tax liabilities:
Property, plant and equipment................... (135) (118) (132)
Capitalized software costs...................... (100) -- --
----- ----- -----
Total deferred tax liabilities............... (235) (118) (132)
----- ----- -----
Net deferred tax assets (liabilities)........... $ 336 $ 606 $ 491
===== ===== =====
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended June 30, December 31,
----------------------- -------------
1996 1997 1998 1997 1998
------ ------ ------- ----- ------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ 610 $ (247) $ 1,238 $ 476 $ 774
State.............................. 156 8 209 84 137
------ ------ ------- ----- ------
766 (239) 1,447 560 911
Deferred:
Federal............................ (90) (252) (241) (85) 97
State.............................. (12) (45) (29) (15) 18
------ ------ ------- ----- ------
(102) (297) (270) (100) 115
------ ------ ------- ----- ------
$ 664 $ (536) $ 1,177 $ 460 $1,026
====== ====== ======= ===== ======
</TABLE>
F-15
<PAGE>
BOTTOMLINE TECHNOLOGIES (de), INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Income Taxes--(Continued)
A reconciliation of the federal statutory rate to the effective income tax is
as follows:
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended June 30, December 31,
------------------------ --------------
1996 1997 1998 1997 1998
------ ------- ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax (benefit) at federal
statutory rate................ 34.0% (34.0)% 34.0% 34.0% 34.0%
State taxes, net of federal
benefit....................... 6.0 (1.4) 6.5 6.5 6.0
Non-deductible expenses......... 5.6 12.6 .6 -- --
Research and development tax
credits....................... -- (7.2) (3.6) -- --
Other........................... (2.7) -- 4.8 1.8 --
------ ------- ------ ------ ------
42.9% (30.0)% 42.3% 42.3% 40.0%
====== ======= ====== ====== ======
</TABLE>
The principal non-deductible expense for income tax purposes is the
amortization related to the acquired software costs recorded in connection
with the purchase of CertiSoft.
11. Subsequent Events
On November 12, 1998, the Company's Board of Directors approved various
actions, subject to stockholder approval, including: (1) increasing the
authorized shares of common stock to 50,000,000; (2) authorizing a class of
Preferred Stock with 4,000,000 shares available; (3) the establishment of the
1998 Employee Stock Purchase Plan under which 750,000 shares of common stock
may be issued; (4) the establishment of the 1998 Director Stock Option Plan
under which 300,000 shares of common stock may be issued and (5) increasing
the number of shares reserved for issuance under the Company's 1997 Stock
Incentive Plan to 2,700,000.
12. Stock Split
On January 6, 1999, the Company's Board of Directors approved a three for one
stock split of the Company's common stock. Accordingly, all share and per
share amounts in the accompanying financial statements have been restated to
reflect the stock split.
F-16
<PAGE>
[INSIDE BACK COVER]
[This graphic contains the following text:
Centered at the top of the page are the words:
"Payment Management Software and
Services that Enable Organizations to
Manage their Transition from Paper Checks to Electronic
Payments"
Descending from left to right are three slides. The words above the top
slide are:
"Secure Payment Server"
The words in the slide are:
> Enterprise-wide payments
> Point-of-need payments
> All payment information
> Reporting
> Auditing
> Processing
> Remittance delivery
The words above the second slide are:
"All Types of Payments"
The words in the slide are:
> Electronic Payments to satisfy Government mandates
> Automated Clearing House Payments
> Financial EDI
> LaserCheck
> Check Fraud/Positive Pay
> Electronic Remittance Advice Delivery
> Web access
The words above the third slide are:
"Industry Standards"
The words in the slide are:
> Windows NT
> Integrates into current computing environment;
network and database independent
> Transitions easily as payments needs grow and change
> Certified by Microsoft as "Designed for BackOffice"
The Bottomline Technologies logo is on the bottom inside left of the
page]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[BOTTOMLINE LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 14,130.74
NASD filing fee............................................... 5,583.00
Nasdaq National Market listing fee............................ 75,000.00
Blue Sky fees and expenses.................................... 15,000.00
Transfer Agent and Registrar fees............................. 17,000.00
Accounting fees and expenses.................................. 350,000.00
Legal fees and expenses....................................... 450,000.00
Printing and mailing expenses................................. 198,500.00
Miscellaneous................................................. 282,786.26
-------------
Total....................................................... $1,408,000.00
=============
</TABLE>
Item 14. Indemnification of Directors and Officers
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right
of the Registrant) brought against him by virtue of his position as a director
or officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Registrant, except that no indemnification shall be made with respect
to any matter as to which such person shall have been adjudged to be liable to
the Registrant, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the
II-1
<PAGE>
Registrant fails to make an indemnification payment within 60 days after such
payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is
entitled to indemnification. As a condition precedent to the right of
indemnification, the director or officer must give the Registrant notice of
the action for which indemnity is sought and the Registrant has the right to
participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since November 1995.
Further included is the consideration, if any, received by the Registrant for
such shares and options and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
The Registrant's 1989 Stock Option Plan was adopted by the Board of
Directors and approved by the stockholders of the Registrant on August 1,
1989. The Registrant's 1997 Stock Incentive Plan was originally adopted by the
Board of Directors and approved by the stockholders of the Registrant on
August 21, 1997, and was amended by the Board of Directors on November 12,
1998. Since November 1995, options to purchase 327,501 shares of common stock
had been exercised for an aggregate consideration of $740,000 and as of
November 12, 1998 options to purchase 330,000 shares of common stock were
outstanding under the 1989 Stock Option Plan. As of November 12, 1998, no
options had been exercised and options to purchase 783,000 shares of common
stock were outstanding under the 1997 Stock Incentive Plan.
In October 1998, the Registrant issued 107,145 shares of Common Stock to
Arthur Andersen LLP at a purchase price of $9.33 per share for an aggregate
consideration of $1,000,020.
In connection with financing activities in 1992, the company issued
warrants for the purchase of an aggregate of 643,500 shares of common stock at
exercise prices ranging from $1.00 to $2.00 per share. During 1997, warrants
for 12,000 shares were exercised at a price of $2.00 per share. Additionally,
in 1997 and 1998, in accordance with the warrant agreements, the remainder of
the warrant holders elected to exercise their warrants on a cashless basis
and, in connection therewith, the company issued an additional 441,873 shares.
II-2
<PAGE>
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from the Securities Act
registration requirements set forth in Sections 3(b) and 4(2) of the
Securities Act, or any regulations promulgated thereunder, relating to sales
by an issuer not involving any public offering, or (ii) in the case of certain
options to purchase shares of common stock and shares of common stock issued
upon the exercise of such options, such offers and sales were made in reliance
upon an exemption from registration under Rule 701 of the Securities Act. No
underwriters were involved in the foregoing sales of securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant.
3.2+ Amended and Restated Certificate of Incorporation of the Registrant,
to be effective immediately prior to the closing of this offering.
3.3+ By-Laws of the Registrant.
3.4+ Amended and Restated By-Laws of the Registrant, to be effective
immediately prior to the closing of this offering.
4.1+ Specimen certificate for shares of common stock.
5 Opinion of Hale and Dorr LLP.
10.1+ 1989 Stock Option Plan, as amended, including form of stock option
agreement for incentive and non-statutory stock options.
10.2+ Amended and Restated 1997 Stock Incentive Plan, including form of
stock option agreement for incentive and non-statutory stock options.
10.3+ 1998 Director Stock Option Plan, including form of non-statutory stock
option agreement.
10.4 1998 Employee Stock Purchase Plan.
10.5+ First Amendment and Restatement of Stock Rights and Voting Agreement,
as amended.
10.6+ Second Stock Rights Agreement, as amended.
10.7+ Lease dated November 28, 1994, between the Registrant and Wenberry
Associates L.L.C.
10.8+ Employment Agreement between the Registrant and Mr. McGurl.
10.9+ Employment Agreement between the Registrant and Mr. Mullen.
10.10+ Employment Agreement between the Registrant and Mr. Eberle.
10.11+ Revolving Credit Agreement between the Registrant and Shawmut Bank
N.A., dated January 13, 1995.
10.12+ Secured Revolving Time Note between the Registrant and Shawmut Bank
N.A., dated January 13, 1995.
10.13+ First Amendment of the Loan Agreement between the Registrant and Fleet
National Bank of Massachusetts, dated December 29, 1995.
10.14+ Secured Revolving Time Note between the Registrant and Fleet National
Bank of Massachusetts, dated December 29, 1995.
10.15+ Second Amendment of the Loan Agreement between the Registrant and
Fleet National Bank, dated December 20, 1996.
10.16+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 20, 1996.
10.17+ Third Amendment of the Loan Agreement between the Registrant and Fleet
National Bank, dated December 29, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.18+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 29, 1997.
10.19+ Fourth Amendment of the Loan Agreement between the Registrant and
Fleet National Bank, dated December 29, 1998.
10.20+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 29, 1998.
10.21+ Line of Credit Agreement for the Acquisition of Equipment between the
Registrant and Shawmut Bank N.A., dated January 13, 1995.
10.22+ Secured Term Note between the Registrant and Shawmut Bank N.A., dated
June 28, 1995.
10.23+ Security Agreement between the Registrant and Shawmut Bank N.A., dated
January 13, 1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24+ Power of Attorney.
27+ Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts Allowance for Doubtful Accounts
and Returns
<TABLE>
<CAPTION>
Balance at Additions (Charged
Beginning of to Costs and Balance at
Year ended Year Expenses) Deductions End of Year
---------- ------------ ------------------ ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
June 30, 1996..... $288 4 135 $157
June 30, 1997..... $157 487 $644
June 30, 1998..... $644 326 $970
</TABLE>
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Financial
Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes 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.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted form 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Portsmouth, New Hampshire, on this 3rd day of February, 1999.
BOTTOMLINE TECHNOLOGIES (de), INC.
By: /s/ Daniel M. McGurl
-----------------------------------
Daniel M. McGurl, Chairman of the
Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Daniel M. McGurl Chairman of the Board, February 3, 1999
______________________________________ President and Chief
Daniel M. McGurl Executive Officer
(Principal Executive
Officer)
/s/ Robert A. Eberle* Executive Vice President, February 3, 1999
______________________________________ Chief Financial Officer
Robert A. Eberle and Treasurer (Principal
Financial and Accounting
Officer)
/s/ Joseph L. Barry, Jr.* Director February 3, 1999
______________________________________
Joseph L. Barry, Jr.
/s/ Bruce E. Elmblad* Director February 3, 1999
______________________________________
Bruce E. Elmblad
/s/ James L. Loomis* Director February 3, 1999
______________________________________
James L. Loomis
/s/ Joseph L. Mullen* Director February 3, 1999
______________________________________
Joseph L. Mullen
/s/ James W. Zilinski* Director February 3, 1999
______________________________________
James W. Zilinski
</TABLE>
*By: /s/ Daniel M. McGurl
- ---------------------------------
Daniel M. McGurl
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant.
3.2+ Amended and Restated Certificate of Incorporation of the Registrant,
to be effective immediately prior to the closing of this offering.
3.3+ By-Laws of the Registrant.
3.4+ Amended and Restated By-Laws of the Registrant, to be effective
immediately prior to the closing of this offering.
4.1+ Specimen certificate for shares of common stock.
5 Opinion of Hale and Dorr LLP.
10.1+ 1989 Stock Option Plan, as amended, including form of stock option
agreement for incentive and non-statutory stock options.
10.2+ Amended and Restated 1997 Stock Incentive Plan, including form of
stock option agreement for incentive and non-statutory stock options.
10.3+ 1998 Director Stock Option Plan, including form of non-statutory stock
option agreement.
10.4 1998 Employee Stock Purchase Plan.
10.5+ First Amendment and Restatement of Stock Rights and Voting Agreement,
as amended.
10.6+ Second Stock Rights Agreement, as amended.
10.7+ Lease dated November 28, 1994, between the Registrant and Wenberry
Associates L.L.C.
10.8+ Employment Agreement between the Registrant and Mr. McGurl.
10.9+ Employment Agreement between the Registrant and Mr. Mullen.
10.10+ Employment Agreement between the Registrant and Mr. Eberle.
10.11+ Revolving Credit Agreement between the Registrant and Shawmut Bank
N.A., dated January 13, 1995.
10.12+ Secured Revolving Time Note between the Registrant and Shawmut Bank
N.A., dated January 13, 1995.
10.13+ First Amendment of the Loan Agreement between the Registrant and Fleet
National Bank of Massachusetts, dated December 29, 1995.
10.14+ Secured Revolving Time Note between the Registrant and Fleet National
Bank of Massachusetts, dated December 29, 1995.
10.15+ Second Amendment of the Loan Agreement between the Registrant and
Fleet National Bank, dated December 20, 1996.
10.16+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 20, 1996.
10.17+ Third Amendment of the Loan Agreement between the Registrant and Fleet
National Bank, dated December 29, 1997.
10.18+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 29, 1997.
10.19+ Fourth Amendment of the Loan Agreement between the Registrant and
Fleet National Bank, dated December 29, 1998.
10.20+ Secured Revolving Time Note between the Registrant and Fleet National
Bank, dated December 29, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.21+ Line of Credit Agreement for the Acquisition of Equipment between the
Registrant and Shawmut Bank N.A., dated January 13, 1995.
10.22+ Secured Term Note between the Registrant and Shawmut Bank N.A., dated
June 28, 1995.
10.23+ Security Agreement between the Registrant and Shawmut Bank N.A., dated
January 13, 1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24+ Power of Attorney.
27+ Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
<PAGE>
EXHIBIT 1
3,400,000 SHARES/1/
BOTTOMLINE TECHNOLOGIES (DE), INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____________, 1999
BancBoston Robertson Stephens Inc.
CIBC Oppenheimer Corp.
BT Alex. Brown Incorporated
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
Bottomline Technologies (de), Inc., a Delaware corporation (the "Company"),
and certain stockholders of the Company named in Schedule B hereto (hereafter
called the "Selling Stockholders") address you as the Representatives of each of
the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
---------------------
2,519,466 shares (the "Company Shares") of its authorized and unissued common
stock, $.001 par value per share, to the several Underwriters. The Selling
Stockholders, acting severally and not jointly, propose to sell an aggregate of
880,534 shares (the "Selling Stockholder Shares") of the Company's authorized
and outstanding common stock, $.001 par value per share, to the several
Underwriters. The Company Shares and the Selling Stockholder Shares are
hereinafter collectively referred to as the "Firm Shares." The Company also
proposes to grant, severally and not jointly, to the Underwriters an option to
purchase up to 510,000 additional shares of the Company's common stock, $.001
par value per share (the "Option Shares"), as provided in Section 7. As used in
this Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of the Company's common stock, $.001 par value per share, to
be outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
- ---------------------
/1/ Plus an option to purchase up to 510,000 additional shares from the Company
to cover over-allotments.
<PAGE>
2. Representations, Warranties and Agreements of the Company and the
-----------------------------------------------------------------
Selling Stockholders.
--------------------
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-67309)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration
statement, such amended prospectuses subject to completion and such
abbreviated registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments, of each related prospectus subject to completion
(the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or
(c), as applicable, of the Rules and Regulations pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if BancBoston Robertson Stephens
Inc., on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became
or becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files
a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); provided, however, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, the Company
shall
2
<PAGE>
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean
the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of BancBoston Robertson Stephens Inc., on behalf of the
several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose. 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. At the time
the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date (as defined
in Section 3) and on any later date on which Option Shares are to be
purchased: (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations; (ii) the Registration Statement, and
any amendments or supplements thereto, did not and will not include any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (iii) the Prospectus, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
full power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the Prospectus. The
Company is duly qualified to do business as a foreign corporation and is in
good standing in each of the states listed on Exhibit I hereto, and the
Company's failure to be so qualified or be in good standing in any other
jurisdictions could not reasonably be expected to have a material adverse
effect on the Company's earnings, operations, business or business prospects.
No proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification. The Company is in possession of and operating in
3
<PAGE>
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities that are
material to the conduct of its business, all of which are valid and in full
force and effect. The Company is not in violation of its certificate of
incorporation or bylaws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a
party or by which it or its properties may be bound. The Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or its properties
of which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under: (i) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which it or its properties may be bound;
(ii) the certificate of incorporation or bylaws of the Company; or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or its properties is required for the execution and delivery of
this Agreement and the consummation by the Company of the transactions herein
contemplated, except such as may be required under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or under state or
other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the Company's knowledge,
threatened action, suit, claim or proceeding against the Company or its
officers (as such), properties, assets or rights before any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or its officers (as such), properties or otherwise that (i) could
reasonably be expected to result in any material adverse change in the
earnings, operations, business or business prospects of the Company or could
reasonably be expected to materially and adversely affect the Company's
properties, assets or rights, (ii) could reasonably be expected to prevent
consummation of the transactions contemplated hereby or (iii) is required to
be disclosed in the Registration Statement or Prospectus and is not so
disclosed. There are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations that have not
been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
4
<PAGE>
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued
and are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of any
preemptive rights or other rights of stockholders to subscribe for or
purchase securities, and the authorized and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company). The Shares to be purchased from the Company
hereunder have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
against payment therefor in accordance with the terms of this Agreement, will
be duly and validly issued and fully paid and nonassessable, and will be sold
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. No preemptive right, co-sale right, registration right,
right of first refusal or other similar right of stockholders exists with
respect to any of the Shares to be purchased from the Company hereunder or
the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and sale or transfer of the Shares except as may be required under the Act,
the Exchange Act or under state or other securities or Blue Sky laws. Except
as disclosed in the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, the Company does
not have any outstanding 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.
(g) Ernst & Young LLP, which has examined the financial statements of
the Company, together with the related schedules and notes, as of June 30,
1997 and 1998 and for each of the years in the three years ended June 30,
1998, filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are independent accountants within the
meaning of the Act and the Rules and Regulations. The audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information forming part of the Registration
Statement and the Prospectus fairly present in all material respects the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply. All
audited financial statements of the Company, together with the related
schedules and notes, and the unaudited financial information filed with the
Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein.
The selected and summary financial and statistical data included in the
Registration Statement present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the earnings, operations, business or business
prospects of the Company, (ii) any transaction that is material to the
Company, except transactions entered into in the ordinary course of business,
(iii) any
5
<PAGE>
material obligation, direct or contingent, incurred by the Company, except
any obligation incurred in the ordinary course of business, (iv) any material
change in the capital stock or outstanding indebtedness of the Company, (v)
any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (vi) any loss or damage (whether or not
insured) to the property of the Company that has been sustained or will have
been sustained that has a material adverse effect on the earnings,
operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) the Company has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus as owned by it, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse
effect on the earnings, operations, business or business prospects of the
Company, (ii) the agreements to which the Company is a party described in the
Registration Statement and Prospectus are valid agreements, enforceable by
the Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the Company's knowledge, the other contracting party or
parties thereto are not in material breach or material default under any of
such agreements, and (iii) the Company has valid and enforceable leases for
all properties described in the Registration Statement and Prospectus as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus,
the Company owns or leases all such properties as are necessary to its
operations as now conducted and as set forth in the Prospectus.
(j) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon
as due except where the failure to do so would not have a material adverse
effect to the earnings, operations, business or business prospects of the
Company. There is no tax deficiency that has been or, to the best of the
Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the earnings, operations, business or business
prospects of the Company. All tax liabilities are adequately provided for on
the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained
by similar companies in similar businesses, including insurance covering real
and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The Company does
not have any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not materially and adversely affect the earnings,
operations, business or business prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company exists or is imminent. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights that are
6
<PAGE>
necessary to conduct its business as described in the Registration Statement
and Prospectus. The Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or
copyrights. The Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights that, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the earnings, operations, business or
business prospects of the Company.
(n) The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder, and has in
the past conducted, and intends in the future to conduct, its affairs in such
a manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of such
Act and rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) The Company has not 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 or any
jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each record holder
of shares of Common Stock (other than the holders identified in the letter
dated the date hereof from the Company to the Representatives) has agreed in
writing that such person will not, for a period of 180 days after the date of
the Prospectus (the "Lock-Up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(each a "Disposition") any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a distribution to limited partners,
members, or shareholders of such person, (ii) by gift, will or intestacy,
(iii) in the event such person is an individual, to his or her immediate
family or to a trust the beneficiaries of which are exclusively such person,
his or her parent or parents and/or a member or members of his or her
immediate family, (iv) to such person's affiliates, as such term is defined
in Rule 405 under the Act, provided that the transferees, donees or
distributees thereof under clauses (i), (ii), (iii) and (iv) (as the case may
be) agree in writing to be bound by the terms of this restriction, or
7
<PAGE>
(v) with the prior written consent of BancBoston Robertson Stephens Inc. The
foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction that is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-Up Period, even if such Securities would be disposed of by
someone other than such person. Such prohibited hedging or other transactions
shall include any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from the Securities. Notwithstanding the
foregoing, this restriction shall not prohibit (i) the sale of Shares by the
Selling Stockholders to the Underwriters pursuant to this Agreement or (ii)
resales of shares of Common Stock acquired by such person in the public
offering to which the Registration Statement relates or in subsequent open-
market purchases. Such person has agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer
of the Securities held by such person except in compliance with this
restriction. The Company has provided to Foley, Hoag & Eliot llp, counsel for
the several Underwriters ("Underwriters' Counsel"), a complete and accurate
list of all securityholders of the Company and the number and type of
securities held by each securityholder. The Company has provided to
Underwriters' Counsel true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-Up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that
it will not release any of its officers, directors or other stockholders from
any Lock-Up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
(t) Except as set forth in the Registration Statement and Prospectus:
(i) the Company is in compliance with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") that are
applicable to its business, except where the failure to be in compliance is
not reasonably expected to have a material adverse effect on the earnings,
operations, business or business prospects of the Company; (ii) the Company
has received no written notice from any governmental authority or third party
of an asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus; (iii) the Company
will not be required to make future material capital expenditures to comply
with Environmental Laws as currently in effect; and (iv) no property that is
owned, leased or occupied by the Company has been designated as a Superfund
site pursuant to the Comprehensive Response, Compensation, and Liability Act
of 1980, as amended (42 U.S.C. (S) 9601, et seq.), or has been otherwise
-- ----
designated as a contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them, except as disclosed in the Registration Statement and the Prospectus.
8
<PAGE>
II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date,
and on any later date on which Option Shares are to be purchased from such
Selling Stockholder, will have valid marketable title to the Shares to be
sold by such Selling Stockholder, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than
pursuant to this Agreement. Upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the
Underwriters will obtain valid marketable title to the Shares purchased by it
from such Selling Stockholder, free and clear of any pledge, lien, security
interest pertaining to such Selling Stockholder or such Selling Stockholder's
property, encumbrance, claim or equitable interest, including any liability
for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder,
assuming that they are bona fide purchasers within the meaning of the Uniform
Commercial Code.
(b) Such Selling Stockholder has duly authorized, executed and
delivered, in the form heretofore furnished to the Representatives, an
irrevocable Power of Attorney (the "Power of Attorney") appointing Daniel M.
McGurl, Robert A. Eberle and Philip P. Rossetti as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Letter
of Transmittal and Custody Agreement (the "Custody Agreement") with the
Company, as custodian (the "Custodian"). Each of the Power of Attorney and
the Custody Agreement constitutes a valid and binding agreement on the part
of such Selling Stockholder, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
Each of the Attorneys, acting alone, is authorized to execute and deliver
this Agreement and the certificate referred to in Section 6(h) on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3, to
authorize the delivery of the Shares to be sold by such Selling Stockholder
under this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act
on behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and
delivery of the Shares to be sold by such Selling Stockholder under this
Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations
or orders as may be necessary under state or other securities or Blue Sky
laws) have been obtained and are in full force and effect. Such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be. Such Selling
Stockholder has full legal right, power and authority to enter into and
perform its obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-Up
Period, effect a Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which such
Selling Stockholder has or hereafter acquires the power of disposition,
otherwise than
9
<PAGE>
(i) as a distribution to limited partners, members, or shareholders of such
Selling Stockholder, (ii) by gift, will or intestacy, (iii) in the event such
Selling Stockholder is an individual, to his or her immediate family or to a
trust the beneficiaries of which are exclusively such Selling Stockholder,
his or her parent or parents and/or a member or members of his or her
immediate family, (iv) to such Selling Stockholder's affiliates, as such term
is defined in Rule 405 under the Act, provided that the transferees, donees
or distributees thereof under clauses (i), (ii), (iii) and (iv) (as the case
may be) agree in writing to be bound by the terms of this restriction, or (v)
with the prior written consent of BancBoston Robertson Stephens Inc. The
foregoing restriction is expressly agreed to preclude such Selling
Stockhholder from engaging in any hedging or other transaction that is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period, even if such Securities would be
disposed of by someone other than the Selling Stockholder. Such prohibited
hedging or other transactions include any short sale (whether or not against
the box) or any purchase, sale or grant of any right (including any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to
or derives any significant part of its value from the Securities.
Notwithstanding the foregoing, this restriction does not prohibit (i) the
sale of Shares to the Underwriters pursuant to this Agreement or (ii) resales
of shares of Common Stock acquired by such Selling Stockholder in the public
offering to which the Registration Statement relates or in subsequent open-
market purchases. Such Selling Stockholder agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such Selling Stockholder except in
compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed
in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of
any of the terms and provisions of or constitute a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder, or any Shares to be sold by such
Selling Stockholder hereunder, may be bound or, to the best of such Selling
Stockholder's knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
such Selling Stockholder or over the properties of such Selling Stockholder,
or, if such Selling Stockholder is other than a natural person, result in any
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
10
<PAGE>
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Shares that is
contained in the representations and warranties of such Selling Stockholder
in such Selling Stockholders Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, was or will be, true,
correct and complete, and does not, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, will not, contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and will advise one of the Attorneys and BancBoston Robertson
Stephens Inc. prior to the Closing Date if any statement to be made on behalf
of such Selling Stockholder in the certificate contemplated by Section 6(h)
would be inaccurate in any material respect if made as of the Closing Date or
such later date on which Option Shares are to be purchased, as the case may
be.
(k) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be
sold by the Company or the other Selling Stockholders to the Underwriters
pursuant to this Agreement. Such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar
right to participate in the offering made by the Prospectus, other than such
rights of participation as have been satisfied by the participation of such
Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement. Such Selling Stockholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company required to be described in the
Registration Statement and Prospectus, other than those described in the
Registration Statement and the Prospectus.
(l) If such Selling Stockholder is a director or executive officer of
the Company, such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2.I. above
is untrue or inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Stockholder shall be to purchase from the Company or
such Selling Stockholder that number of Company Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Stockholder in Schedule B hereto as the number of Firm
Shares that is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to
11
<PAGE>
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for
the Selling Stockholder Shares of such Selling Stockholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by wire transfer of
Federal (same-day) funds, payable to the order of the Company with regard to the
Shares being purchased from the Company, and to the order of the Custodian for
the respective accounts of the Selling Stockholders with regard to the Shares
being purchased from such Selling Stockholders, at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109 (or at such other place as may
be agreed upon among the Representatives, the Company and the Attorneys), at 7
A.M., San Francisco time (a) on the third full business day following the first
day that Shares are traded, (b) if this Agreement is executed and delivered
after 1:30 P.M., San Francisco time, the fourth full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven full business days following the first day that Shares
are traded as the Representatives, the Company and the Attorneys may determine
(or at such time and date to which payment and delivery shall have been
postponed pursuant to Section 10), such time and date of payment and delivery
being herein called the "Closing Date"; provided, however, that if the Company
has not made available to the Representatives copies of the Prospectus within
the time provided in Section 4(d), the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two full business days
following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one full business
day prior to the Closing Date and will be in such names and denominations as you
may request, such request to be made at least two full business days prior to
the Closing Date. If the Representatives so elect, delivery of the Firm Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
12
<PAGE>
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11) of the Firm Shares at an initial public offering price
of $____ per share. After the initial public offering, the several Underwriters
may, in their discretion, vary the public offering price.
The information set forth in the second, sixth and eighth paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and in the
Prospectus constitutes the only information furnished by the Underwriters to the
Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Stockholders that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible. The Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible. The Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed. If the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective that is declared effective by the
Commission. If the Company files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of
Rule 424(b) of the Rules and Regulations. If for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules
and Regulations, it will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed with the Commission
within the time period prescribed. The Company will notify you promptly of
any request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information.
Promptly upon your request, the Company will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus that, in the opinion of Underwriters' Counsel, may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters. The Company will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus that may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. In case any Underwriter is required to
deliver a prospectus nine
13
<PAGE>
months or more after the effective date of the Registration Statement in
connection with the sale of the Shares, it will prepare promptly upon
request, but at the expense of such Underwriter, such amendment or amendments
to the Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act. The Company will file no amendment or supplement to the Registration
Statement or Prospectus that shall not previously have been submitted to you
a reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act
and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice
or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose. The Company will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service of
process. In each jurisdiction in which the Shares shall have been qualified
as above provided, the Company will make and file such statements and reports
in each year as are or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the
first day that Shares are traded, copies of the Registration Statement (three
of which will be signed and which will include all exhibits), each
Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, shall agree
to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all
respects through the date specified by you in such quantities as you may from
time to time reasonably request.
(e) The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(f) During a period of five years after the date hereof, the Company will
furnish to its stockholders an annual report (including financial statements
audited by independent certified public accountants) as soon as practicable
after the end of each fiscal year and will furnish to you and the other
several Underwriters hereunder, upon request (i) concurrently with furnishing
such reports to its stockholders, statements of operations of the Company for
each of the first three quarters in the
14
<PAGE>
form furnished to the Company's stockholders, (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end
of such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by
a copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"), (v) every material
press release and every material news item or article in respect of the
Company or its affairs that was generally released to stockholders or
prepared by the Company, and (vi) any additional information of a public
nature concerning the Company, or its business that you may reasonably
request. During such five-year period, if the Company shall have any active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and such subsidiaries
are consolidated and shall be accompanied by similar financial statements for
any significant subsidiary that is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be
the same entity as the transfer agent) for the Common Stock.
(i) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement
pursuant to Section 11(a), or if the Underwriters shall terminate this
Agreement pursuant to Section 11(b)(i), the Company will reimburse the
several Underwriters for all out-of-pocket expenses (including fees and
disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) During the Lock-Up Period, the Company will not, without the prior
written consent of BancBoston Robertson Stephens Inc., effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Shares
to be sold by the Company, except that the Company may, without such consent,
(i) issue shares upon the exercise of options issued pursuant to its stock
option plans and employee stock purchase plan, (ii) issue shares in respect
of the acquisition by the Company of the assets, capital stock or business of
another person or entity so long as the shares so issued by the Company may
not be resold during the Lock-Up Period and (iii) grant options and sell
shares of Common Stock to its employees, consultants and directors pursuant
to its stock option and employee stock purchase plans.
(k) During a period of ninety days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Company's 1997 Stock Option Plan, 1989 Stock
Option Plan or any other benefit plan.
5. Expenses.
--------
(a) The Company and the Selling Stockholders agree with each Underwriter
that:
15
<PAGE>
(i) The Company will pay and bear all costs and expenses in
connection with: (A) the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments
or supplements thereto; (B) the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares, and transfer
agents' and registrars' fees; (C) the fees and disbursements of counsel
for the Company; (D) all fees and other charges of the Company's
independent certified public accountants; (E) the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectuses and the Prospectus and
any amendments or supplements to any of the foregoing; (F) NASD filing
fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and (G) all other expenses directly
incurred by the Company and the Selling Stockholders in connection with
the performance of their obligations hereunder; provided, however, that
to the extent any Selling Stockholders engage special legal counsel, if
at all, to represent them in connection with this offering the fees and
expenses of such counsel shall be borne by such Selling Stockholder. The
provisions of this Section 5(a)(i) are intended to relieve the
Underwriters from the payment of the expenses and costs that the Company
and the Selling Stockholders hereby agree to pay, but shall not affect
any agreement that the Company and the Selling Stockholders may make, or
may have made, for the sharing of any of such expenses and costs. Such
agreements shall not impair the obligations of the Company and the
Selling Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a), the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding described in
Section 8(a), it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal that
represents the base rate on corporate loans posted by a substantial
majority of the nation's thirty largest banks (the "Prime Rate"). Any
such interim reimbursement payments that are not made to the Underwriters
within thirty days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(iii) In addition to the other obligations under Section 8(b), each
Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Selling Stockholder's obligation to
reimburse the Underwriters for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
16
<PAGE>
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Selling Stockholders, together
with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments that are not made to the
Underwriters within thirty days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c), the
Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c), they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and
each such Selling Stockholder for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, the Company and each such Selling Stockholder
shall promptly return such payment to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments that are not made to the Company and each
such Selling Stockholder within thirty days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b), including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand
or notice is authorized to do so. Any such arbitration will be limited to
the operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses that is created by
the provisions of Sections 8(a), 8(b) and 8(c) or the obligation to
contribute to expenses that is created by the provisions of Section 8(e).
6. Conditions of Underwriters' Obligations. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
2 P.M., San Francisco time, on the date following the date of this Agreement,
or such later date as shall be consented to in writing by you. No stop order
suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission. Any request
17
<PAGE>
of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and
Underwriters' Counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section 6.
(c) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus that, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of Hale and Dorr LLP, counsel for the Company, dated the Closing Date
or such later date on which Option Shares are to be purchased, addressed to
the Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus.
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in the states listed on Exhibit I
hereto. To such counsel's knowledge, the Company does not own, directly
or indirectly, shares of capital stock or other equity interests in any
corporation, association or other entity.
(iv) The authorized, issued and outstanding (of record) capital
stock of the Company was as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein. The issued and
outstanding shares of capital stock of the Company (including the Shares
to be sold by the Selling Stockholders) have been duly and validly issued
and are fully paid and nonassessable and, to such counsel's knowledge,
have not been issued in violation of any preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders that exists with respect to any of the Shares.
(v) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and, to such counsel's knowledge, will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right of stockholders that exists with respect to any of the Shares.
18
<PAGE>
(vi) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder.
(vii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company.
(viii) The Registration Statement has become effective under the Act,
and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act.
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements,
including supporting schedules, and any other financial, statistical or
accounting data, or information relating to the Underwriters or the method
of distribution of the Shares by the Underwriters included therein, as to
which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations.
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary in all material respects of such matters and conclusions. The
form of certificates representing the Common Stock and filed as an exhibit
to the Registration Statement comply with the Delaware General Corporation
Law statute.
(xi) The description in the Registration Statement and the
Prospectus of the certificate of incorporation and bylaws of the Company
and of the Delaware General Corporation Law statute is accurate and fairly
presents in all material respects the information required to be presented
by the Act and the applicable Rules and Regulations.
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or referred to therein or filed as
required.
(xiii) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's
certificate of incorporation or bylaws or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (1) any agreement or other
instrument filed as an exhibit to the Registration Statement to which the
Company is a party or by which its properties are bound, (2) any
applicable statute, rule or regulation known to such counsel or (3) any
order, writ or decree specifically naming the Company and known to such
counsel of any court, government or governmental agency or body having
jurisdiction over the Company or any of its properties or operations.
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its properties or
operations is necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have been obtained
under the Act or such
19
<PAGE>
as may be required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters.
(xv) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company that are required to
be disclosed in the Registration Statement or the Prospectus by the Act or
the Rules and Regulations, other than those described therein.
(xvi) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common
Stock or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
In addition, such counsel shall also include a statement to the effect
that in connection with the preparation of the Registration Statement and the
Prospectus, such counsel has participated in conferences with officers and
representatives of the Company, counsel for the Underwriters and the
independent accountants of the Company, at which conferences such counsel has
made inquiries of such persons and others and discussed the contents of the
Registration Statement and the Prospectus. While the limitations inherent in
the independent verification of factual matters and the character of
determinations involved in the registration process are such that such
counsel does not pass upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, subject to the foregoing and based
on such participation, inquiries and discussions, no facts have come to the
attention of such counsel which have caused such counsel to believe that the
Registration Statement, as of the Effective Date (but after giving effect to
changes incorporated pursuant to Rule 430A under the Act), contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading (except that such counsel need express no such view
with respect to the financial statements, including the notes and schedules
thereto, or any other financial or accounting information, or information
relating to the Underwriters or the method of distribution of the Shares by
the Underwriters included therein), that the Prospectus, as of the date it
was filed with the Commission pursuant to Rule 424(b)(4) under the Act,
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (except that
such counsel need not express an opinion with respect to the financial
statements, including the notes and schedules thereto, or any other financial
or accounting information, or information relating to the Underwriters or the
method of distribution of the Shares by the Underwriters included therein),
or that the Registration Statement or the Prospectus, as of the date of such
opinion, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading (except
that such counsel need not express an opinion with respect to the financial
statements, including the notes and schedules thereto, or any other financial
information, or information relating to the Underwriters or the method of
distribution of the Shares by the Underwriters included therein).
20
<PAGE>
Counsel rendering the foregoing opinion may rely as to questions
of law not governed by the federal laws of the United States, the state
laws of the Commonwealth of Massachusetts or the Delaware General
Corporation Law statute upon opinions of local counsel, and as to questions
of fact upon representations or certificates of officers of the Company,
the Selling Stockholders, and government officials and also, with respect
to Selling Stockholders, upon opinions of other counsel representing the
respective Selling Stockholder, in which case their opinion is to state
that they are so relying and that they have no actual knowledge of any
material factual misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of
the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date the following opinion
of one or more counsel for each of the Selling Stockholders that is to sell
more than 10,000 of the Firm Shares (each of which counsel shall be
satisfactory to the Representatives), dated the Closing Date and addressed
to the Underwriters, with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
(i) Each such Selling Stockholder that is not a natural person
has the legal right, power and authority to enter into and to perform
its obligations under the Power of Attorney and Custody Agreement to
be executed and delivered by it in connection with the transactions
contemplated herein. The Power of Attorney and Custody Agreement of
each such Selling Stockholder that is not a natural person has been
duly authorized by such Selling Stockholder. The Power of Attorney and
Custody Agreement of each such Selling Stockholder has been duly
executed and delivered by or on behalf of such Selling Stockholder.
The Power of Attorney and Custody Agreement of each such Selling
Stockholder constitutes the valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ii) Each such Selling Stockholder has the legal right (and, if
such Selling Stockholder is not a natural person, the legal power and
authority) to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be
sold by such Selling Stockholder hereunder.
(iii) This Agreement has been duly authorized by each such
Selling Stockholder that is not a natural person and has been duly
executed and delivered by or on behalf of each such Selling
Stockholder.
(iv) Upon the Underwriters' obtaining control of the Shares to
be sold by each such Selling Stockholder and assuming the Underwriters
purchase such Shares for value and without notice of an adverse claim
to such Shares within the meaning of Section 8-102 of the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, the
Underwriters will have acquired all rights of such Selling Stockholder
in such Shares free of any adverse claim, any lien in favor of the
Company and any restrictions on transfer imposed by the Company.
Counsel rendering the foregoing opinion may rely as to questions
of fact upon representations or certificates of such Selling Stockholders,
officers of such Selling Stockholders and government officials, in which
case their opinion is to state that they are so relying and that they have
no actual knowledge of any material factual misstatement or inaccuracy in
any such opinion,
21
<PAGE>
representation or certificate. Copies of any representation or certificate so
relied upon shall be delivered to you, as Representatives of the Underwriters,
and to Underwriters' Counsel.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Underwriters' Counsel, in form and substance satisfactory to you, with respect
to the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as they may have requested for the purpose of enabling
them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from Ernst
& Young LLP addressed to the Underwriters, dated the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, confirming
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered to
you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five business days
prior to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter that are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not set forth any such
revisions or additions taken as a whole that, in your sole judgment, (i) are
material and adverse and (ii) make it impracticable or inadvisable to proceed
with the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from Ernst & Young LLP shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the balance sheets of the Company as of June 30, 1997 and
1998 and related statements of operations, stockholders' equity, and cash flows
for each of the years in the three year period ended June 30, 1998, and (iii)
address other matters agreed upon by Ernst & Young LLP and you. In addition, you
shall have received from Ernst & Young LLP a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the Company's
financial statements as of June 30, 1998, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company (as such officers and not in their
personal capacities), to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, and the Company has complied with all the agreements and
22
<PAGE>
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to
be purchased, as the case may be.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act.
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate: (a) the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations; (b) the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and (c)
the Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus that has
not been so set forth.
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been: (a)
any material adverse change taken as a whole in the earnings, operations,
business or business prospects of the Company; (b) any transaction that is
material to the Company, except transactions entered into in the ordinary
course of business; (c) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the ordinary course
of business; (d) any change in the capital stock (except for issuances
pursuant to the exercise of warrants and stock options described in the
Prospectus) or outstanding indebtedness of the Company that is material to
the Company; (e) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company; or (f) any loss or damage
(whether or not insured) to the property of the Company that has been
sustained or will have been sustained and that has a material adverse
effect taken as a whole on the earnings, operations, business or business
prospects of the Company.
(i) You shall be satisfied that, and you shall have received a certificate
from the Attorneys, dated the Closing Date or any later date on which Option
Shares are to be purchased from a Selling Stockholder, to the effect that, as of
the Closing Date or such later date, as the case may be, they have not been
informed that:
(i) the representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be
purchased from such Selling Stockholder, as the case may be; or
(ii) such Selling Stockholder has not complied with any obligation or
satisfied any condition that is required to be performed or satisfied on
the part of such Selling Stockholder at or prior to the Closing Date or any
later date on which Option Shares are to be purchased from such Selling
Stockholder, as the case may be.
23
<PAGE>
(j) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, each Selling Stockholder and
each other record holder of Common Stock in writing prior to the date
hereof to the effect set forth in Section 2.I.(s) of this Agreement.
(k) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person) as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein, as to the performance by the Company and the Selling Stockholders
of their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants, to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of
the Firm Shares only, nontransferable options to purchase the respective
number of Option Shares as set forth opposite the names of the Company in
Schedule B hereto, all at the purchase price per share for the Firm Shares
set forth in Section 3. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one or more occasions in whole or
in part during the period of thirty days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company in accordance with Section 12. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number
of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by wire transfer of
Federal (same-day) funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts 02109 or at such other place as may
be agreed upon among the Representatives, the Company and the Attorneys (i)
on the Closing Date, if written notice of the exercise of such option is
received by the Company at least two full business days prior to the
Closing Date, or (ii) on a date that shall not be later than the third full
business day following the date the Company receives written notice of the
exercise of such option, if such notice is received by the Company less
than two full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location, including in
New York City, as you may reasonably request for checking at least one full
business day prior to the date of payment and delivery and will be in such
names and denominations as you may request, such request to be made at
least two full business days
24
<PAGE>
prior to such date of payment and delivery. If the Representatives so
elect, delivery of the Option Shares may be made by credit through full
fast transfer to the accounts at The Depository Trust Company designated by
the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any
Underwriter or Underwriters whose check or checks shall not have been
received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a), the
obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6, and to the
condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including in its
capacity as an Underwriter), under the Act, the Exchange Act or otherwise,
specifically including losses, claims, damages or liabilities (or actions
in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and agrees
to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon,
and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter, directly or through you,
specifically for use in the preparation thereof and, provided further that
the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of
25
<PAGE>
material fact or omission or alleged omission to state therein a material
fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d).
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities that the Company may otherwise have.
(b) Subject to Section 8(f), each Selling Stockholder, severally and
not jointly, agrees to indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including in its capacity as an
Underwriter) under the Act, the Exchange Act or otherwise, arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of such Selling Stockholder herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company or the Underwriters by such Selling Stockholder, directly or
through such Selling Stockholder's representatives, specifically for use in
the preparation of the Registration Statement or such amendment or
supplement, or (iii) any untrue statement or alleged untrue statement of
any material fact contained in any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or the omission or alleged omission
to state therein a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company or the Underwriters by such Selling Stockholder, directly or
through such Selling Stockholder's representatives, specifically for use in
the preparation of such Preliminary Prospectus, the Prospectus or such
amendment or supplement, and agrees to reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement provided in this
Section 8(b) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the
Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to
such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d).
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities that such Selling Stockholder otherwise may have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or
26
<PAGE>
several, to which the Company or such Selling Stockholder may become subject
under the Act or otherwise, specifically including losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or (iii) any untrue statement or
alleged untrue statement of any material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii)
of this Section 8(c) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company and each
such Selling Stockholder for any legal or other expenses reasonably incurred
by the Company and each such Selling Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities that each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified party otherwise
than under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and,
to the extent that it shall elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a), 8(b) or 8(c) who are parties to such action), (ii) the indemnifying
party shall not have employed counsel
27
<PAGE>
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event shall
any indemnifying party be liable in respect of any amounts paid in settlement
of any action unless the indemnifying party shall have approved the terms of
such settlement; provided that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the
subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides
for indemnification in such case, all the parties hereto shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that, except
as set forth in Section 8(f), the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining
portion, provided, however, that (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the underwriting
discount applicable to the Shares purchased by such Underwriter exceeds the
amount of damages that such Underwriter has otherwise required to pay and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(e) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter, the Company or any Selling Stockholder within
the meaning of the Act or the Exchange Act and each officer of the Company
who signed the Registration Statement and each director of the Company.
(f) The liability of each Selling Stockholder under the representations,
warranties and agreements contained herein and under the indemnity and
contribution agreements contained in the provisions of this Section 8 shall
be limited to an amount equal to the initial public offering price of any
Shares sold by such Selling Stockholder to the Underwriters minus the amount
of the underwriting discount paid thereon to the Underwriters by such Selling
Stockholder. The Company and such Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including the provisions of this
Section 8, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 8 fairly allocate the risks
in light of the ability of the parties to investigate the Company and its
business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in
28
<PAGE>
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company or any Selling Stockholder, or any of their officers,
directors or controlling persons within the meaning of the Act or the Exchange
Act, and shall survive the delivery of the Shares to the several Underwriters
hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
----------------------------
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
that such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed ten percent of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares that such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds ten percent of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as may be agreed upon among them) the Firm
Shares that the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares that the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four hours to allow the several Underwriters the privilege of substituting
within twenty-four hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been substituted
as aforesaid by such postponed Closing Date, the Closing Date may, at the option
of the Company, be postponed for a further twenty-four hours, if necessary, to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares that the defaulting Underwriter
or Underwriters so agreed but failed to purchase. If it shall be arranged for
the remaining Underwriters or substituted underwriter or underwriters to take up
the Firm Shares of the defaulting Underwriter or Underwriters as provided in
this Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement,
supplements to the Prospectus or other such documents that may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8).
29
<PAGE>
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(i), 5 and 8.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date
on which Option Shares are to be purchased, as the case may be, (i) if the
Company or any Selling Stockholder shall have failed, refused or been unable
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters= obligations hereunder required to be fulfilled
is not fulfilled, including any change in the earnings, operations, business
or business prospects of the Company from that set forth in the Registration
Statement or Prospectus that, in your sole judgment, is material and adverse,
or (ii) if additional material governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established
on the New York Stock Exchange or on the American Stock Exchange or in the
over-the-counter market by the NASD, or trading in securities generally shall
have been suspended on either such exchange or in the over-the-counter market
by the NASD, or if a banking moratorium shall have been declared by federal,
New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured or (iv) if there shall have been a material adverse
change in the general political or economic conditions or financial markets
as in your reasonable judgment makes it inadvisable or impracticable to
proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have been an outbreak or escalation of hostilities or of any other
insurrection or armed conflict or the declaration by the United States of a
national emergency that, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. In the event of termination
pursuant to subparagraph (i) above, the Company shall remain obligated to pay
costs and expenses pursuant to Sections 4(i), 5 and 8. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5
and 8.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
30
<PAGE>
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) as follows:
(a) if sent to you, to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel;
(b) if sent to the Company, to Bottomline Technologies (de), Inc., 155
Fleet Street, Portsmouth, New Hampshire, telecopier number (603) 436-0300,
Attention: Chief Executive Officer, with a copy to Hale and Dorr LLP, 60
State Street, Boston, Massachusetts, telecopier number (617) 526-5000,
Attention: Philip P. Rossetti, Esq.; and
(c) if sent to one or more of the Selling Stockholders, to Daniel M.
McGurl, as Attorney-in-Fact for the Selling Stockholders, at Bottomline
Technologies (de), Inc.,155 Fleet Street, Portsmouth, New Hampshire,
telecopier number (603) 436-0300.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters, the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8, any legal or equitable right, remedy or claim in
respect of this Agreement or any provisions herein contained, this Agreement and
all conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company and the Selling
Stockholders shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by BancBoston Robertson
Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the internal laws of the State of New York.
15. Construction. The headings in this Agreement are included only for
------------
convenience and shall not affect the meaning or interpretation of this
Agreement. The words "herein" and "hereof" and other words of similar import
refer to this Agreement as a whole and not to any particular part of this
Agreement. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described. All references herein to
Sections shall be deemed references to such parts of this Agreement, except as
otherwise provided.
16. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
31
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
BOTTOMLINE TECHNOLOGIES (de), INC.
By_____________________________________________
Chairman of the Board of Directors and Chief
Executive Officer
SELLING STOCKHOLDERS
By_____________________________________________
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
CIBC OPPENHEIMER CORP.
BT ALEX. BROWN INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto
By BancBoston Robertson Stephens Inc.
By__________________________________________
Authorized Signatory
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
to be
Underwriters Purchased
- -------------- -------------
<S> <C>
BancBoston Robertson Stephens Inc....................................................................
CIBC Oppenheimer Corp................................................................................
BT Alex. Brown Incorporated..........................................................................
-------------
Total............................................................................................ 3,400.000
=============
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm Shares
Company or Selling Stockholder to be Sold
- --------------------------------- --------------
<S> <C>
Bottomline Technologies (de), Inc................................................................... 2,519,466
Daniel M. McGurl.................................................................................... 281,250
James L. Loomis..................................................................................... 281,250
Charles P. O'Leary.................................................................................. 76,500
Joseph L. Mullen.................................................................................... 40,000
Leonard L. DiIuro, Jr............................................................................... 9,000
Dennis E. Barry..................................................................................... 23,906
Lionel P. Boissiere, Jr............................................................................. 6,528
Fredrick A. Budreski................................................................................ 994
Case Children's 1991 Irrevocable Trust.............................................................. 8,195
Carin H. Case....................................................................................... 1,500
Jeffrey H. Case..................................................................................... 1,500
Philip P. Grannan Revocable Trust................................................................... 4,500
Hambrecht & Quist Venture Investors, L.P............................................................ 35,513
Helmar B. Herman.................................................................................... 36,976
The Hoffmaster Family Investment, L.P............................................................... 4,015
James T. Jewell..................................................................................... 4,500
Alan Kessman........................................................................................ 2,048
William E. Mayer.................................................................................... 4,827
Margaret M. O'Toole................................................................................. 5,000
Jeanette Roberts.................................................................................... 23,850
Stanley S. Shuman................................................................................... 5,463
William R. Timken................................................................................... 5,463
Vinod Gupta Revocable Trust......................................................................... 12,293
The Wellington Trust UTA............................................................................ 5,463
--------------
Total........................................................................................... 3,400,000
==============
</TABLE>
<PAGE>
HALE AND DORR LLP
COUNSELLORS AT LAW
60 State Street, Boston, Massachusetts 02109
617-526-6000 . Fax 617-526-5000
Exhibit 5
February 3, 1999
Bottomline Technologies (de), Inc.
155 Fleet Street
Portsmouth, New Hampshire 03801
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration Statement
on Form S-1 (File No. 333-67309) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), for the registration of an aggregate
of 3,910,000 shares of Common Stock, $0.001 par value per share (the "Shares"),
of Bottomline Technologies (de), Inc., a Delaware corporation (the "Company"),
of which (i) up to 2,519,466 Shares will be issued and sold by the Company,
(ii) 880,534 Shares will be sold by certain stockholders of the Company (the
"Selling Stockholders") and (iii) up to 510,000 Shares may be sold upon the
exercise of an over-allotment option granted by the Company.
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company, the Selling Stockholders and BancBoston
Robertson Stephens Inc., BT Alex. Brown Incorporated and CIBC Oppenheimer Corp.,
as representatives of the several underwriters named in the Underwriting
Agreement, the form of which has been filed as Exhibit 1 to the Registration
Statement.
We are acting as counsel for the Company in connection with the sale of the
Shares. We have examined signed copies of the Registration Statement as filed
with the Commission. We have also examined and relied upon the Underwriting
Agreement, minutes of meetings of the stockholders and the Board of Directors of
the Company as provided to us by the Company, stock record books of the Company,
the Certificate of Incorporation and By-Laws of the Company, and such other
documents and certificates as we have deemed necessary for purposes of rendering
the opinions hereinafter set forth.
<PAGE>
Bottomline Technologies (de), Inc.
February 3, 1999
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we are
opining herein, we have assumed that such laws are identical to the state laws
of the Commonwealth of Massachusetts, and we are expressing no opinion herein as
to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that (i) the
Shares to be issued and sold by the Company have been duly authorized for
issuance and, when such Shares are issued and paid for in accordance with the
terms and conditions of the Underwriting Agreement, such Shares will be validly
issued, fully paid and nonassessable and (ii) the Shares to be sold by the
Selling Stockholders have been duly authorized and are validly issued, fully
paid and nonassessable.
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.4
BOTTOMLINE TECHNOLOGIES (de), INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Bottomline
Technologies (de), Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.001 par value
per share (the "Common Stock"). Two Hundred Fifty Thousand (250,000) shares of
Common Stock in the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
-----------
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), other than employees of the Company or any Designated Subsidiary
who are "highly compensated" within the meaning of Section 414(q) of the Code,
are eligible to participate in any one or more of the offerings of Options (as
defined in Section 9) to purchase Common Stock under the Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall
<PAGE>
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. Offerings. The Company will make one or more offerings ("Offerings")
---------
to employees to purchase stock under this Plan. Offerings will begin on such
date or dates as may be established by the Board from time to time (the
"Offering Commencement Dates"). Each Offering Commencement Date will begin a
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a Plan Period of twelve (12) months or
less for each Offering.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
----------
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction equal to any whole number
percentage (up to a maximum of 10%) of the Compensation he or she receives
during the Plan Period or such shorter period during which deductions from
payroll are made.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
-2-
<PAGE>
6. Deduction Changes. An employee may decrease or discontinue his
-----------------
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except
--------
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
-------------------
of business on the fourth business day prior to the end of a Plan Period and for
any reason permanently draw out the balance accumulated in the employee's
account and thereby withdraw from participation in an Offering. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by the
Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing the product of $2,083 times the number of months or
fraction thereof in such Plan Period by the closing price on the Offering
Commencement Date of such Plan Period as determined in the next paragraph.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
- -----------------------
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date
-3-
<PAGE>
and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for pursuant to the formula set forth
above (but not in excess of the maximum number determined in the manner set
forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. No employee shall have any rights as a
--------------------------
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who is deemed to have exercised an Option between
the record
-4-
<PAGE>
date and the distribution date for such stock dividend shall be entitled to
receive, on the distribution date, the stock dividend with respect to the shares
of Common Stock acquired upon such Option exercise, notwithstanding the fact
that such shares were not outstanding as of the close of business on the record
date for such stock dividend.
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, the
number of shares subject to any outstanding Option and the purchase price
thereof shall be adjusted proportionately, and such other adjustment shall be
made as may be deemed equitable by the Board or the Committee. In the event of
any other change affecting the Common Stock, such adjustment shall be made as
may be deemed equitable by the Board or the Committee to give proper effect to
such event.
16. Merger. If the Company shall at any time merge or consolidate with
------
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 50%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, all outstanding Options shall be
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll
-5-
<PAGE>
deductions then credited to his account as of a date determined by the Board or
the Committee, which date shall not be less than ten (10) days preceding the
effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
-------------
the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the date of exercise of the Option.
24. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect upon the closing of the Company's initial public offering of Common
Stock, subject to approval by the stockholders of the Company as required by
Section 423 of the Code,
-6-
<PAGE>
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors
on November 12, 1998
Approved by the stockholders on
February __, 1999
-7-
<PAGE>
Consent of Independent Auditors EXHIBIT 23.1
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated August 6, 1998,
except for the third sentence of paragraph ten of Note 8 and Note 11 as to
which the dates are November 12, 1998 and Note 12 as to which the date is
January 6, 1999, in Amendment No. 3 to the Registration Statement (Form S-1
No. 333-67309) and related Prospectus of Bottomline Technologies (de), Inc.
for the registration of its common stock.
Our audits also included the financial statement schedule of Bottomline
Technologies (de), Inc. included in the Registration Statement. This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 2, 1999
