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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 1-15529
OPTIO SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1435435
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3015 WINDWARD PLAZA, WINDWARD FAIRWAYS II, ATLANTA, GA 30005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 576-3500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No /_/
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. /X/
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the closing sale price for the Common Stock on April 26,
2000 as reported by the Nasdaq National Market System, was approximately
$90,384,848. The shares of Common Stock held by each officer and director and
by each person known to the Registrant who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 17,383,640 shares of the Registrant's common stock outstanding as
of April 26, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Definitive Proxy Statement on Schedule 14A for its
2000 Annual Meeting of Stockholders are incorporated by reference in Part III of
this Annual Report on Form 10-K. The Proxy Statement will be filed within 120
days of the end of the fiscal year covered by this Annual Report on Form 10-K.
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OPTIO SOFTWARE, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business............................................................................................... 2
Item 2. Properties.............................................................................................20
Item 3. Legal Proceedings......................................................................................20
Item 4. Submission of Matters to a Vote of Security Holders....................................................20
Item 4A. Executive Officers of the Registrant...................................................................20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................23
Item 6. Selected Financial Data................................................................................24
Item 7. Management `s Discussion and Analysis of Financial Condition and Results
of Operations....................................................................................26
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............................................35
Item 8. Financial Statements and Supplementary Data............................................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................................36
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................................**
Item 11. Executive Compensation.................................................................................**
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................**
Item 13. Certain Relationships and Related Transactions.........................................................**
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................36
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** The information required by Items 10, 11, 12 and 13 of Part III is hereby
incorporated by reference to the Registrant's Definitive Proxy Statement on
Schedule 14A to be filed not more than 120 days after January 31, 2000.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among other things, statements regarding
Optio Software, Inc.'s ("Optio") anticipated costs and expenses, Optio's capital
needs and financing plans, product and service development, Optio's growth
strategies, market demand for Optio's products and services, relationships with
Optio's strategic marketing alliances, competition and plans for addressing Year
2000 issues. These forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Optio's actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, risks associated
with Optio's reliance on strategic marketing and reseller relationships,
fluctuations in operating results because of acquisitions, changes in
competition, delays in developing new software, disputes regarding Optio's
intellectual property, or risks associated with expanding Optio's international
operations. These and additional factors are set forth in "Safe Harbor
Compliance Statement for Forward-Looking Statements" included as Exhibit 99.8 to
this Annual Report on for 10-K. You should carefully review these risks and
additional risks described in other documents Optio files from time to time with
the Securities and Exchange Commission, including the Quarterly Reports on Form
10-Q that Optio will file. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. Optio undertakes no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.
PART I
ITEM 1. BUSINESS
Optio is a provider of software that customizes and delivers
information to meet the business needs of an organization. Historically, Optio's
software delivered this customized information by fax, printer and e-mail.
Recently, Optio released its e-business software, which helps organizations move
beyond the inherent limitations of paper-intensive commerce such as high cost,
inflexibility and limited delivery options and take advantage of the connective
power of the Internet to conduct business more effectively. Using the Internet
to conduct business, also known as e-business, includes the ability to publish
business information to the Internet or exchange it with customers and suppliers
over the Internet to automate the buying and selling of goods and services.
Neither of these abilities are generally possible using faxes, printers or
e-mail. Information from a wide range of enterprise applications, databases and
files is monitored and analyzed by Optio's software in real-time, customized
according to the business needs of an organization's customers, suppliers and
partners and then delivered to the appropriate destination. These destinations
support a variety of business purposes and range from the Internet, wireless
devices and other information systems to printers, faxes and e-mail. Optio's
software provides a comprehensive, cost-effective solution for organizations
that need to enhance the benefits of their investments in existing information
systems while taking advantage of the opportunities presented by e-business.
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Optio, which was founded in 1981, currently conducts its operations
through three wholly owned subsidiaries each of which is involved in the direct
sales, marketing and support activities of Optio.
WHOLLY-OWNED SUBSIDIARIES
OPTIO SOFTWARE, EUROPE S.A.
Optio Software Europe, S.A. ("Optio Europe"), a software product
distributor in Europe, was acquired in August 1998, which provided entry into
European markets. Optio Europe is directly involved in the sales, marketing and
support activities for Optio's products throughout mainland Europe as well as in
the United Kingdom through its wholly-owned subsidiary Optio Software UK, Pvt.
Limited.
OPTIO SOFTWARE, ASIA PACIFIC
Optio Software, Asia Pacific ("Optio Australia") was established in May
1999 in an effort to enhance the Company's worldwide presence, specifically in
the regions of Australia, Japan, Singapore, and India, as well as other
countries in the Asian Pacific. Optio Australia is also directly involved in the
direct sales, marketing and support activities in these regions of the world.
MUSCATO CORPORATION
On March 27, 2000, Optio purchased Muscato Corporation, located in
Orlando, Florida. Muscato Corporation is a provider of business-to-business
("B2B") infrastructure software and services that enable the secure, reliable
transformation and exchange of e-commerce, financial and healthcare transactions
across diverse trading communities.
SEGMENT INFORMATION
The Company is organized around geographic areas. Optio's US operations
plus its two foreign subsidiaries, Optio Europe and Optio Australia, as well as
Optio Europe's subsidiary, Optio UK, represent Optio's four reportable segments.
Prior to fiscal 1999, the Company operated in one geographic segment. During
fiscal year 1999, the Company operated in two geographic segments, the United
States and France (Optio Europe), and expanded into the United Kingdom and
Australia subsequent to January 31, 1999. The foreign locations principally
function as distributors of products developed by the Company in the United
States. The accounting policies as described in the summary of significant
accounting policies are applied consistently across the segments. Intersegment
sales are based on intercompany transfer prices to achieve a reasonable margin
upon distribution.
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Segment information for the years ended January 31, 1999 and 2000 is
summarized below.
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YEAR ENDED JANUARY 31, 1999 UNITED STATES FRANCE COMBINED ELIMINATIONS CONSOLIDATED
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Revenue from external customers:
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License fees $ 11,442,000 $ 572,000 $ 12,014,000 $ - $ 12,014,000
Services, maintenance and other 7,111,000 414,000 7,525,000 - 7,525,000
Intersegment revenue 19,000 - 19,000 (19,000) -
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Total revenue 18,572,000 986,000 19,558,000 (19,000) 19,539,000
Segment net income (loss) 166,000 203,000 369,000 (19,000) 350,000
Total segment assets 9,554,000 1,184,000 10,738,000 - 10,738,000
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UNITED UNITED
YEAR ENDED JANUARY 31, 2000 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
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Revenue from external customers:
License fees $ 14,521,000 $1,689,000 $796,000 $108,000 $17,114,000 $ - $ 17,114,000
Services, maintenance and other
14,107,000 1,121,000 467,000 24,000 15,719,000 - 15,719,000
Intersegment revenue 599,000 194,000 - - 793,000 (793,000) -
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Total revenue 29,227,000 3,004,000 1,263,000 132,000 33,626,000 (793,000) 32,833,000
Segment net income (loss) 1,783,000 162,000 390,000 (343,000) 1,992,000 - 1,992,000
Total segment assets 59,195,000 1,875,000 755,000 106,000 61,931,000 (1,289,000) 60,642,000
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Optio's foreign operations generated revenue from licenses and services
to customers of $4.2 million in the year ended January 31, 2000, representing
13% of total revenue compared to revenue of $986,000 in the year ended January
31, 1999, representing 5% of total revenue.
RISKS INHERENT IN FOREIGN OPERATIONS
Optio's expanding international operations poses additional risks to
its operations as a result of the following factors:
- potential losses or gains from currency fluctuations as a
result of transactions and expenses being denominated in
foreign currencies;
- increased financial accounting and reporting burdens and
complexities and potentially adverse tax consequences;
- compliance with a wide variety of complex foreign laws and
treaties; and
- reduced protection for intellectual property rights in some
countries.
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INDUSTRY
GROWTH OF THE INTERNET AND ELECTRONIC BUSINESS
Organizations are constantly seeking ways to use information to operate
more productively and cost-effectively. To achieve these objectives,
organizations must deliver focused, business ready information derived from a
multitude of sources across the extended enterprise which includes employees,
customers, suppliers and strategic partners. Competitive pressures have created
a need for increasingly sophisticated and time-sensitive methods of information
delivery both inside and outside of the enterprise. A growing number of
organizations are using the Internet to compete more effectively and conduct
business electronically. As a result, e-business has become critical for nearly
every organization seeking to establish and maintain a competitive advantage.
In embracing e-business, organizations are attempting to maximize the
value of their business processes by using the Internet to conduct business
electronically and reach a large number of geographically dispersed users across
the extended enterprise. Some examples of e-business applications include the
electronic distribution of information related to the procurement of goods and
services, presentation of bills and collection of payments over the Internet and
the viewing of reports and other company information utilizing web browsers.
According to a report by International Data Corporation, or IDC, first published
in June 1999, worldwide e-commerce alone represented a $50 billion market in
1998 and is expected to grow to $1.3 trillion by 2003. IDC estimates the market
for e-commerce applications will grow from $444 million in 1998 to $13 billion
in 2003.
The growing business use of the Internet has provided enterprises with
new opportunities and expanded requirements to move beyond the limitations of
current paper-intensive processes. With the emergence of e-business, enterprises
can leverage the convenience and economy of the Internet to achieve substantial
efficiencies in their operations. At the same time, they are challenged to
manage their transition from a paper-based to an e-business environment.
Information now needs to be aggregated from a greater number of disparate
sources, customized to satisfy a richer set of business objectives and delivered
to a broader array of destinations through a variety of media. Sources of
information include e-business applications, enterprise, legacy and custom
applications, external databases and files; destinations include all members of
the extended enterprise; and delivery media alternatives include the Internet,
e-mail, printers, faxes and wireless devices.
TRADITIONAL APPROACHES TO MANAGING BUSINESS INFORMATION
Over the past few decades, organizations have made significant
investments in information systems to automate their business processes and
efficiently manage information. Many organizations have invested in solutions
like enterprise resource planning systems. Enterprise resource planning, or ERP,
systems are information systems that automate and integrate the business
processes of the departments within an organization. For example, ERP systems
from vendors such as J.D. Edwards, Oracle, SAP and others now automate the
financial, manufacturing and human
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resource functions of organizations. ERP installations require significant
investments to license and maintain the software, install the appropriate
infrastructure, re-engineer core business processes, transition legacy data,
train employees and make necessary adjustments to the system to attain
acceptable levels of operating efficiency. Despite the significant investments
required, an increasing number of organizations are expected to install and
enhance ERP systems in the future. According to a report by AMR Research
entitled "Enterprise Resource Planning Software Report, 1998-2003," total ERP
company revenues are expected to grow to $66.6 billion in 2003 from $16.7
billion in 1998, maintaining a compounded annual growth rate of 32%. Management
believes that ERP vendors are also increasingly enhancing their systems to
facilitate e-business.
These applications generate substantial amounts of information created
by ongoing business transactions. As the volume of this information grows,
organizations are challenged by the need to consolidate, customize and deliver
this information by fax, printer and e-mail to their employees, customers,
suppliers and strategic partners in a timely fashion to drive revenue growth and
profitability. Furthermore, when coupled with the challenge of leveraging the
Internet and wireless devices as media for information delivery and supporting
new e-business initiatives that leverage their investments in ERP and other
information systems, organizations will require increasingly sophisticated and
comprehensive solutions to meet their needs.
CURRENT METHODS FOR ACCESSING, CUSTOMIZING AND DELIVERING BUSINESS INFORMATION
Currently, businesses address their increasingly complex information
customization and delivery requirements primarily through the following
solutions:
- Custom software development, which provides a solution that is
specific to the applications and information formats of a
single organization. This approach requires significant
investments of capital, time and human resources. It also
tends to only focus on an organization's existing needs and,
therefore, is highly inflexible and does not readily adapt to
changes in the application, technology infrastructure or
business processes.
- Output management systems generally address the delivery of
documents or allow for a limited amount of customization, but
fail to adequately leverage the connective power and universal
access provided by the Internet.
- E-business enabling solutions, which take advantage of the
Internet as a platform for either delivering, viewing or
exchanging information. These systems often focus on
retrieving information from static databases which produces
information that is less timely and dynamic. They may also
provide limited support for more traditional delivery methods
such as printed documents, fax and e-mail as dictated by the
requirements of their customers, suppliers and partners or
focus solely on report generation and distribution.
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OPPORTUNITY FOR INTERNET-ENABLED INFORMATION ACCESS, CUSTOMIZATION AND DELIVERY
SYSTEM
The effectiveness of an organization's use of information is dependent
on its ability to effectively meet the challenges of today's e-business
environment. The requirements of the e-business model have exposed the
shortcomings of relying on paper-intensive manual processes, ERP systems and
other traditional software applications to manage the organization and delivery
of customized information. This e-business environment has created the need for
a comprehensive solution that maximizes the power of the Internet and gathers
information on a real-time basis from multiple sources, including e-business,
enterprise, legacy and custom applications, external databases and files;
evaluates the information to determine its suitability for business purposes;
customizes and formats the information to meet business objectives; and provides
timely delivery of the information to the appropriate destination.
THE OPTIO SOLUTION
Organizations use Optio's software to improve their communications with
employees, customers, suppliers and partners. These communications include the
viewing of business documents and reports over the Internet, e-business
transactions, printed documents, faxes and e-mail. Organizations using our
software can increase the efficiency of their procurement, purchasing,
inventory, shipping and payment functions by integrating them into a single
business process and producing customized information as required by its
recipients. Applications that produce this information do not require
modifications to interact with Optio's software. As a result, Optio's consulting
services group can rapidly deploy our software and train our customers in its
productive use.
Optio solutions benefit Optio's customers by:
EXTENDING THE REACH OF INFORMATION. Optio's software is designed to
empower users by providing relevant, flexible information more quickly and
cost-effectively than previously possible. For example, with Optio's solution,
an enterprise can aggregate real-time billing information from separate ERP and
legacy systems in a single business process. This information can then be
delivered in one or more forms such as printed documents or high volume fax. It
can also be delivered as Electronic Data Interchange, or EDI, or as Extensible
Markup Language, or XML, to other enterprise applications and systems. EDI is a
predefined format used to exchange data and documents electronically and XML is
a flexible language that allows organizations to define data and documents that
are transmitted over the Internet. Information is delivered to enterprise
information portals where people can securely view summary reports over the
Internet and receive e-mail notifications of significant transactions. Optio's
software can also format this information in ways suitable for delivery to
wireless devices, including alphanumeric pagers and, in the future, personal
digital assistants, or PDAs.
MAXIMIZING EXISTING AND NEW TECHNOLOGY INVESTMENTS. Optio's software
and services enable organizations to leverage the benefits of their investments
in existing information technology infrastructure. By using Optio's software,
organizations are able to utilize information from existing
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enterprise and legacy applications throughout the extended enterprise without
requiring extensive re-engineering. By leveraging these existing applications,
Optio's software offers an attractive value proposition. We believe that as
enterprises increasingly embrace e-business initiatives and applications, our
software will facilitate and optimize their efforts.
ENABLING RAPID DEPLOYMENT AND USE. Optio's software can be installed
quickly by Optio consultants or other third parties with whom Optio has
implementation relationships without the need for extended on-site visits. The
implementation time for Optio's software at a customer site is typically two
weeks. Optio's software is designed to recognize, interpret and utilize
information from many applications including Baan, J.D. Edwards, McKesson HBOC,
Oracle, QAD and SAP. This interoperability enables rapid deployment in these
environments and reduces ongoing maintenance and training costs.
OFFERING SCALABLE ARCHITECTURE. Optio designs its software to scale
effectively when implemented in geographically dispersed enterprise-wide
deployments while maintaining system performance and availability. Optio's
software supports networks composed of multiple operating systems including
Windows NT, UNIX, OS/400 and a variety of applications, databases and services.
Optio's software manages large quantities of information and supports thousands
of users while at the same time minimizing the usage of network and computing
resources. Optio's browser and Java user interfaces effectively leverage the
power of the Internet, significantly reducing the need for client-side
management and administration.
BUSINESS STRATEGY
Optio's objective is to be the leading provider of software and
services that help transition organizations from paper-intensive commerce to
e-business. To achieve these objectives, Optio intends to:
ENHANCE PRODUCT OFFERINGS. Optio will continue to invest in research
and development to improve and enhance its existing software offerings and
introduce new software products designed to solve a greater range of problems
for its customers. In particular, Optio intends to enhance and expand its
software offerings to address the challenges and needs of e-business and to
develop new software that solves problems associated with gathering,
customizing, delivering and exchanging business information. Management believes
that maintaining and enhancing its software is important to its ability to
expand its market share, retain existing customers and acquire new customers.
Optio's research and development expenditures for the years ending January 31,
1998, 1999 and 2000 were $1.6 million, $2.5 million and $3.6 million,
respectively, indicating an increased commitment to research and development
activities.
EXPAND CUSTOMER AWARENESS THROUGH INCREASED MARKETING. Optio intends to
devote significant resources to marketing efforts to increase customer and
industry awareness of its software and services. These increased marketing
efforts will include hiring additional marketing personnel, increasing brand
awareness through advertising, launching a focused press and industry analyst
campaign and expanding participation in related industry events. Through these
marketing efforts,
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Optio intends to demonstrate the value of its software and services to
enterprises and thereby increase its market share.
EXTEND NETWORK OF STRATEGIC RELATIONSHIPS. Optio plans to extend its
existing strategic network and develop new relationships with leading global
systems integrators who specialize in implementing software solutions that
support e-business, ERP and healthcare applications. Optio currently has over 23
strategic implementation relationships, including three new relationships formed
since Optio's initial public offering in December 1999. These include
organizations that install the software purchased by Optio's customers and
provide services that address specific customer needs. These relationships have
allowed Optio to focus on its core competencies while leveraging its strengths
to provide Optio's customers with a complete information customization and
delivery solution. Management believes that these relationships will also
continue to generate additional product sales opportunities.
EXPAND WORLDWIDE SALES. Management believes that international markets
represent a significant growth opportunity as organizations seek global
e-business solutions. Optio currently has a direct sales presence in North
America, the United Kingdom, France, Australia and Singapore. Optio plans to
continue to invest in its worldwide distribution capacity to increase market
share and penetration. This investment will include expanding the direct sales
force and establishing sales offices in other countries in Europe. In addition,
Optio plans to engage local resellers and system integrators and establish joint
marketing agreements with software companies in Japan and the balance of the
Asia Pacific region.
LEVERAGE OPTIO'S SIGNIFICANT CUSTOMER BASE. Management believes its
base of over 3,900 customers provides a significant opportunity for additional
sales of current and future software, as well as ongoing maintenance revenue. A
majority of Optio's customers have not yet purchased Optio's full suite of
software or currently only use Optio's software in specific business units or
locations. Management believes that Optio can sell more deeply into this
customer base by expanding these partial deployments into enterprise-wide
implementations as well as by cross-selling additional software and services.
PURSUE STRATEGIC ACQUISITIONS. Optio's previous acquisitions have
enhanced the business by expanding Optio's product offerings and international
presence. Optio intends to continue pursuing strategic acquisitions that would
provide additional product or service offerings, additional industry expertise,
a broader customer base or an expanded geographic presence. On March 27, 2000,
Optio purchased Muscato Corporation, a provider of business-to-business
e-commerce infrastructure, and its affiliate Translink Solutions Corporation, an
application service provider.
EXTEND TECHNOLOGICAL LEADERSHIP. Optio's software architecture provides
the foundation for the development of new and innovative software and allows
Optio's applications to be easily adapted to new standards, protocols and
platforms. This architecture enables Optio's products to interface with multiple
operating systems, applications, business processes and data sources in a
non-disruptive manner. Management believes that Optio's product capabilities
significantly differentiate Optio from its competitors. Optio intends to advance
our technological leadership by
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investing significantly in research and development and by acquiring and
integrating complementary software and technologies.
PRODUCTS
SOFTWARE
Optio provides suites of software products that enhance the performance
and reliability of its customers' e-business, enterprise, legacy and custom
applications. Optio's software enables the cost-effective, efficient delivery of
highly customized information across the extended enterprise. Our software is
divided into two suites: the Optio Enterprise Suite and the Optio Healthcare
Suite.
The Optio Enterprise Suite is designed to meet the needs of the general
business marketplace. The Optio Healthcare suite is tailored to the special
needs of the Healthcare marketplace.
In each case, Optio's customers may purchase the entire suite or may
purchase one or more of the software products that make up the suite. Typically,
customers buy either Optio DCS or Optio MedForms, as well as one or more other
components of the applicable suite. These other components may include Optio
e.ComPresent, Optio's e-business software. Most of the revenue derived from the
Enterprise Suite is attributable to Optio DCS, and most of the revenue derived
from the Healthcare Suite is attributable to MedForms.
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THE OPTIO ENTERPRISE SUITE
OPTIODCS Forms the foundation of the Optio Enterprise Suite.
It captures information from enterprise, legacy and
other applications by monitoring transactions and
output such as print streams. It then performs
calculations and other data transformations, formats
business information or e-commerce transactions and
delivers them to printers, fax servers, e-mail
servers, web servers, document archives and
e-commerce servers.
OPTIO E.COMPRESENT E-business software that provides secure,
browser-based presentation of customized information.
Information can be grouped in pre-defined or
user-specified folders for easy access. All
information is fully indexed and supports familiar
Internet search techniques. Users are alerted to the
publication of new or updated information with
subscription-based notifications that arrive via
e-mail, pager, fax or printer. e.ComPresent
facilitates the delivery of customized information to
support e-business initiatives like report
distribution, information portals, online bill
presentment and self-service applications.
OPTIO DESIGNSTUDIO Windows based software that allows users to map,
create, model from applications, databases and files,
and create business rules and conditional logic to
automate processing of the information and model the
network of destinations to which the information is
delivered. The design files it creates are then
processed, in real time, by OptioDCS.
OPTIOFAX Software that transmits and receives information
using electronic fax standards and protocols to
support business requirements for distributing
enterprise information.
OPTIO CHECKBOOK An application targeted to the financial payment
needs of the enterprise. Optio Checkbook facilitates
the layout of laser checks, eliminates the need for
pre-printed check stock and provides positive pay
reports to improve accuracy and reduce fraud.
OPTIO ENTERPRISE Substantially complete generic document templates for
PROCESSPACKS common forms such as purchase orders and checks which
facilitate the design of the information
customization and delivery requirements for popular
ERP applications like Baan, J.D. Edwards, Oracle, QAD
and SAP.
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OPTIO E.COMINTEGRATE Optio's next generation server that provides the
(ANNOUNCED MARCH 23, software infrastructure to enable
2000) Business-to-Business ("B2B") integration,
communication, and presentation of critical
information. It builds on the strength of Optio's
core technologies and adds inbound and outbound
processing of XML, enabling organizations to
integrate operations and participate in eMarketplaces
utilizing XML dialects such as CBL, cXML, BizTalk or
ebXML. Organizations seeking to XML enable their
existing applications can map standard purchase
orders, invoices, and shipping advice documents
without application modifications or re-engineering.
OPTIO E.COMPAYMENTS A universal payments platform that enables
(ANNOUNCED APRIL 10, organizations to provide secure, printed or
2000) electronic payments for payroll, travel and expense
reimbursement, vendor payments and other financial
transactions. It also allows remittance advice
documents to be generated and delivered
electronically which reduces the overall cost to
provide payment detail to recipients. When coupled
with Optio e.ComPresent, organizations can provide a
secure web portal and archive for payment
information. This provides an additional cost
savings, as well as enhanced access to payment
history and detail.
THE OPTIO HEALTHCARE SUITE
OPTIO MEDFORMS Forms the foundation of the Optio Healthcare Suite,
is targeted to meet the specialized requirements of
healthcare enterprises. It captures information from
healthcare information systems by monitoring
transactions and output such as print streams. It
then performs calculations and other data
transformations, formats patient, clinical,
diagnostic and business information and delivers it
to printers, fax servers, e-mail servers, web servers
and document archives.
OPTIO MEDFORMSDR Provides routing, reorganization and reproduction of
healthcare information on demand, allowing users
throughout an enterprise to quickly and easily
generate patient documents without expensive
embossers or preprinted labels. Optio MedFormsDR's
temporary data store provides access to vital patient
information if the primary server is interrupted,
which protects data integrity.
OPTIO HL7/CONNECT Enhances Optio MedForms by adding the capability to
detect, process, and customize HL7 messages. HL7 is a
healthcare industry standard that allows healthcare
information systems to exchange data. HL7/Connect
provides intelligent support for healthcare
organizations that have implemented the global HL7
industry standard for interoperability between
healthcare information systems.
OPTIO E.COMPRESENT, Equivalent in functionality to that listed for the
OPTIOFAX, OPTIO CHECKBOOK Optio Enterprise Suite, including Optio e.ComPresent,
our e-business software, but targeted for the
healthcare market.
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OPTIO HEALTHCARE Substantially complete generic document templates for
PROCESSPACKS common functions which facilitate the design of the
information customization and delivery requirements
for specific areas of healthcare operations such as
Admissions, Discharge and Transfer, Patient
Accounting and Business Office and Diagnostic Clinic.
SERVICES
CONSULTING. Optio's consulting services provide customers with
expertise and assistance in evaluating, planning and implementing Optio's
solutions. To ensure a successful implementation of Optio's software,
consultants assist customers with the evaluation, planning and design process,
the initial installation of a system, the integration of Optio's software with
the customer's existing enterprise computing applications and ongoing training
and upgrades. Management believes that consulting services enables rapid
implementation of Optio's software, ensures success with Optio's solution,
strengthens the customer relationship and adds to Optio's industry-specific
knowledge base.
While consulting services are optional, substantially all of Optio's
customers utilize these services to facilitate the rapid implementation of the
software. These services are billed on an hourly or daily basis that varies
based on the type of service provided. Optio plans to continue to increase the
number of consultants to support anticipated growth in product implementations
and upgrades.
As of January 31, 2000, Optio's consulting services group consists of
40 employees comprised of business consultants, systems analysts and technical
personnel devoted to assisting customers in all phases of systems implementation
including evaluation, planning and design, customer-specific configuring of
modules and on-site implementation or conversion from existing systems.
Additionally, eight employees are training staff dedicated to internal, customer
and partner training as well as curriculum development. Optio may increasingly
use third party consultants, such as those from major systems integrators, to
assist in certain implementations.
MAINTENANCE. Optio offers a comprehensive maintenance program which
provides its customers with timely software upgrades offering increased
functionality and technology advances that incorporate emerging e-business and
other industry initiatives. Optio offers customer telephone support during
normal business hours for 18% of the current software license fee per annum and
24 hour maintenance for 30% percent of the current software license fee per
annum. As of January 31, 2000, a majority of Optio's customers had subscribed to
the comprehensive maintenance support program.
13
<PAGE>
PRODUCTS OF MUSCATO CORPORATION AND TRANSLINK SOLUTIONS CORPORATION
On March 27, 2000 Optio announced the acquisition of the Muscato
Corporation and its ASP (application service provider) affiliate TransLink
Solutions Corporation. These acquisitions will enhance the overall
capabilities of our software, Optio e.ComIntegrate in particular, and also
add knowledge and expertise to our staff, particularly in the areas of
Message Queuing, XML, Electronic Document Interchange (EDI) based information
exchange and Health Insurance Portability and Accountability Act (HIPAA)
compliant transactions.
Muscato is a provider of B2B infrastructure software and services that
enable the secure, reliable transformation and exchange of e-commerce, financial
and healthcare transactions across diverse trading communities. Their core
products, ENGIN-TM- and EC (Electronic Commerce) are full-featured, standards
compliant offerings that provide message queuing, transaction management and
trading partner administration to support complex, high volume e-business
environments with real-time reliability. The EC Document Warehouse captures and
archives B2B transactions and makes them available for detailed analysis and
reporting.
Muscato's products are being utilized by organizations in the
healthcare, transportation, insurance, telecommunication, financial, and
services industries, as well as by several government agencies in Europe.
Translink, an affiliate of Muscato, currently provides ASP hosting of
ENGIN, EC and EC Document Warehouse for Muscato's healthcare customers under a
recurring revenue licensing model.
We will actively market the Muscato software and services to our
installed base and new customers, as well as market the existing Optio products
to those customers that are utilizing the Muscato products. Over time we intend
to integrate the Muscato products into our e.Com series of products.
TECHNOLOGY
Optio's software architecture provides the foundation for the
development of new and innovative software and allows Optio's applications to be
easily adapted to new standards, protocols and platforms. This architecture
enables Optio to interface with multiple operating systems, applications,
business processes and data sources in a non-disruptive manner. Optio's
architecture also maximizes the benefit of today's complex enterprise networking
environments, including the Internet and e-business applications.
Optio's software architecture provides the foundation for us to develop
new and innovative software and allows our applications to be easily adapted to
new standards, protocols and platforms. This architecture enables us to
interface with multiple operating systems, applications, business processes and
data sources in a non-disruptive manner. Our architecture also maximizes the
benefit of today's complex enterprise networking environments, including the
Internet and e-business
14
<PAGE>
applications.
Business rules are specified in the Optio Document Customization
Language, a special purpose programming language designed to solve the unique
problem of information gathering and document customization and delivery. The
OptioDCS software is highly optimized to execute programs written using these
business rules, giving it the ability to process large volumes of information.
Its advanced design allows these business rules to control not only the flow of
information through the system but to dynamically change which business rules
are executed based on the information itself. This provides users with a high
degree of control over the automatic creation, formatting and delivery of
documents on a global basis.
The software contains components for: communicating with Optio's visual
design software; collecting information from other enterprise application
programs or databases; performing calculations and other types of data
transformations; formatting the information into human-readable documents,
e-business documents or database transactions; distributing information to a
wide variety of digital destinations including web servers, fax servers, e-mail
servers, alphanumeric pagers, printers, document archives and e-commerce
application servers; maintaining and executing recipient specified rules for
information notification and document delivery; and securely controlling the
distribution and processing of information between multiple computers within the
same network and over the Internet.
Optio's software supports many industry standards for document formats,
document delivery and data access from enterprise databases and other data
sources. Optio's software also supports many of the proprietary formats of
documents and information produced by the software of third parties with whom
Optio has strategic relationships and other enterprise application software
vendors.
The software generates human-readable documents that include a variety
of graphical design elements. E-business documents are generated as Electronic
Data Interchange files or as any of the commercial document standard formats
that use XML. Optio's XML support enables Optio's software to work with existing
or future e-business applications.
TECHNICAL ADVANTAGES
Optio's technology provides users with the following advantages:
- TRANSPARENCY. Optio's technology works with the existing
business processes of an enterprise and is completely
transparent to the user.
- PRESERVATION OF APPLICATION BUSINESS LOGIC. Enterprise
applications use many business rules to validate and control
business information. Optio's software works directly with the
information produced by the execution of these business rules,
which preserves the value and integrity of the original
application business logic and security and maintains the
consistency of the information.
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<PAGE>
- ABILITY TO WORK WITH TIME SENSITIVE DATA. Optio's software
works with business data as it is generated, not only after it
has been stored in a database. Applications can therefore
process time sensitive information much more effectively,
getting the right information to the right person at the right
time.
- POWERFUL LANGUAGE. Optio's Document Customization Language
enables Optio's software to address many complicated business
information processing problems requiring large volumes of
data. This same language allows Optio's software to address
many problems in the areas of e-business and information
delivery that other programming languages and application
servers cannot.
- EASE OF USE. The visual design approach used by Optio
DesignStudio harnesses the power of Optio's Document
Customization Language and puts it into the hands of less
technical users without limiting access to the power of our
technology.
- SCOPE OF SOLUTION. The ability of Optio's software to handle a
wide variety of information sources, document formats and
digital destinations, without requiring third party software.
- SECURE INTERNET ARCHITECTURE. Optio's software utilizes a
proprietary technology built on industry standards which allow
our software to securely distribute and control the processing
of information on the Internet.
SALES AND MARKETING
To date, approximately 80% of Optio's revenue has been generated
through Optio's direct sales force. As of January 31, 2000, Optio had 47
domestic sales representatives, divided into teams that:
- directly market to potential customers based on the ERP system
that they are implementing or have implemented;
- directly market to potential customers in the healthcare
industry; and
- sell to resellers and distributors.
The domestic sales force is split between Optio's East Coast and West
Coast offices. As of January 31, 2000, Optio's international sales organization,
focused on Europe and the Asia Pacific region, was comprised of six sales
representatives. Important resellers or distributors of Optio's products include
Epicor Software Corporation, NxTrend Technology, Inc. and Ross Systems Inc.
Optio also benefits from sales referred to Optio under commercial relationships
with Baan and McKesson HBOC. Optio plans to continue to invest significantly in
expanding our sales, support, services and marketing organizations.
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<PAGE>
STRATEGIC RELATIONSHIPS
Optio has strategic relationships with third parties that help market,
sell, implement, support and enhance Optio's solutions that include:
RESELLER RELATIONSHIPS. Optio has relationships with approximately 100
resellers who market and resell Optio's software as a component of their own
solutions and who provide software related education, implementation and
customization services as well. These resellers have their own software
solutions that typically address a specific market sector and they utilize
Optio's software to enhance the functionality of their own solution. Optio's
software may be sold along with their own solutions under the original Optio
brand name or embedded within the reseller's software and relabeled with their
own name. Because resellers who embed Optio's products within their solutions
provide substantially all of the sales and marketing efforts and the initial
support services with respect to this embedded software, they receive price
discounts on Optio's software.
IMPLEMENTATION RELATIONSHIPS. Optio has relationships with 23
consulting organizations to provide value added services that assist customers
in implementing Optio's software. Optio trains and tests these organizations'
consultants to install and use Optio's software and certify them once they have
demonstrated their proficiency in delivering complete solutions that meet the
needs of the customers.
REFERRAL RELATIONSHIPS. Optio has relationships with Whittman-Hart,
Baan and McKesson HBOC to refer prospects to Optio that may have an interest in
licensing Optio's solution. As part of a defined process, Optio validates that
it is not currently working with that prospect and if Optio secures a licensing
agreement with that prospect within a fixed period of time, Optio will pay a
referral compensation. Referral fees are typically in the range of 10-20% of the
license fee. In addition, Optio has relationships with other referral partners
for which no referral fee is paid. Such relationships include Optio's newest
partner, KPMG Consulting. In the past, these referral relationships have
resulted in significant revenues and Optio expect that they will continue to do
so in the foreseeable future.
VENDOR RELATIONSHIPS. Optio has relationships with six major ERP and
healthcare software vendors, which are Baan, J.D. Edwards, McKesson HBOC,
Oracle, QAD and SAP, whereby Optio has demonstrated that its solutions are
compatible with their applications and provide complimentary functionality. As a
result, these vendors will include descriptions of Optio products' key features
and benefits in their directories which are published periodically and on their
web sites. Optio can also feature their logos in its advertising and promotional
materials, participate in vendor sponsored trade shows, marketing programs and
other events. In the past, these vendor relationships have resulted in
significant revenues and Optio expects that they will continue to do so in the
foreseeable future.
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<PAGE>
CUSTOMERS
Optio's customers consist of enterprises across a broad spectrum of
industries, and include a number of organizations focused on the medical and
healthcare industry. As of January 31, 2000, we licensed our products for use by
more than 3,900 customers, which management believes makes Optio a leading
provider of information customization and delivery software relative to Optio's
competitors.
No single customer accounted for 10% or more of Optio's total revenue
during the years ended January 31, 1998, 1999 or 2000.
COMPETITION
The market for Optio's software and services is intensely competitive,
quickly evolving and subject to rapid technological change. Management expects
competition to intensify in the future. Optio's potential competitors vary in
size and in the scope and breadth of the products and services offered. Our
competitors fit into three separate areas. The first is custom software
developers. The second is comprised of output management solutions from
organizations such as AFP Technology, Dazel, StreamServe, and Tivoli. The third
is comprised of e-business enablement organizations, which we believe we will
compete with increasingly in the future, such as Actuate Software, BottomLine
Technology, Quest Software, and webMethods.
Management believes that Optio is differentiated relative to its
competitors due to its software's ability to combine information customization
capabilities, output management capabilities, information integration and
exchange capabilities and e-business enablement capabilities in one solution.
Management believes that, to the best of its knowledge, none of Optio's
competitors provide all of this functionality in a single solution. Management
believes that Optio also competes on the basis of its software's ability to
operate across multiple operating systems. With respect to the Optio Healthcare
Suite, management believes that Optio compares favorably to its competitors
because Optio offers a vertically-oriented solution to address the needs of the
healthcare marketplace.
Management believes that the principal competitive factors present in
Optio's market include: a significant base of reference customers; a breadth and
depth of product functionality; cost of solution; product quality; and
performance, customer service, core technology, product features, ease of
implementation and extent of value derived from solution.
Although management believes that Optio's products and services
currently compete favorably with respect to each of these factors, Optio's
market is evolving rapidly. Optio may not be able to maintain its competitive
position against current and potential competitors.
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<PAGE>
INTELLECTUAL PROPERTY
Optio distributes its products under software license agreements,
which generally grant clients perpetual licenses to use, rather than own,
Optio's products. These licenses contain various provisions protecting our
ownership and the confidentiality of the underlying technology. The software
is protected from unauthorized use through electronic activation keys tied to
the system on which the software is licensed to operate. The source code, or
the intellectual property underlying Optio's software, is protected as a
trade secret and as unpublished copyrighted work. Optio has registered
"Optio" and "MedForms" as trademarks in the United States. Optio has used the
"Optio" trademark in the European Economic Community since as early as 1997,
but has not registered the mark there. Optio is now aware of an EEC
registration of the same mark which was filed after Optio began using the
mark. Optio has also received notice from a company in the United Kingdom
that has alleged it uses a similar "Optio" mark. No assurance can be given
that Optio will be able to register the "Optio" mark in these markets or that
the existing EEC registration or United Kingdom use will not ultimately have
an adverse affect on Optio's ability to use its "Optio" marks in those
markets.
Optio protects its proprietary rights by relying on copyright, trade
secret, trademark, confidentiality procedures and contractual provisions. Some
of Optio's software, documentation and other written materials are protected
under the federal copyright law. Optio also relies on trade secret laws of the
state of Georgia and the states in which it does business to protect its
software designs and other proprietary information. In addition, non-disclosure
agreements contained in employment contracts protect Optio's proprietary
information from disclosure by current and former employees.
Optio has not applied for any U.S. patents. It is possible that any
patent applications Optio files in the future will not result in the issuance of
patents and that any patents issued may later be successfully challenged. It is
also possible that Optio may not develop proprietary products or technologies
that are patentable, that any patent issued to Optio may not provide Optio with
any competitive advantages, or that the patents of others will seriously harm
our ability to do business.
Despite Optio's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of Optio's products or to obtain and use
information that Optio regards as proprietary. Policing unauthorized use of
Optio's products is difficult, and while Optio is unable to determine the extent
to which piracy of Optio's software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect Optio's proprietary rights to as great an extent as do
the laws of the United States. Optio's means of protecting its proprietary
rights may not be adequate and Optio's competitors may independently develop
similar technology, duplicate Optio's products or design around patents issued
to Optio or Optio's other intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that Optio or its current or potential
future products infringe their intellectual property. Management expects that
software product developers and providers of e-commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in the industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require Optio to enter into royalty or licensing agreements. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
Optio or at all, which could seriously harm our business.
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<PAGE>
EMPLOYEES
As of January 31, 2000, Optio had 208 employees. No employees are
covered by any collective bargaining agreements. Optio considers its
relationships with its employees to be good.
ITEM 2. PROPERTIES
Optio's principal corporate offices are located in approximately 62,000
square feet at 3015 Windward Plaza, Windward Fairways II, Atlanta, Georgia. The
term of this lease is through December 31, 2006. Offices are also located in
California, France and the United Kingdom, providing us with an additional
11,000 square feet.
Optio leases all of its properties with remaining terms between one
and seven years. Management believes that its facilities are adequate for its
current needs and that suitable additional space will be available as required.
ITEM 3. LEGAL PROCEEDINGS
Optio is from time to time involved in routine litigation incidental to
the conduct of its business. Optio is not currently a party to any material
legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Optio and certain information about them are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ---------------------------------------------
<S> <C> <C>
C. Wayne Cape....................... 45 Chairman of the Board of Directors, Chief
Executive Officer and President
G. Robert Beck...................... 41 Senior Vice President-- Sales and Client Services
F. Barron Hughes.................... 42 Chief Financial Officer, Secretary and Treasurer
Daryl G. Hatton..................... 38 Chief Technology Officer
Steven E. Kaye...................... 47 Senior Vice President-- Strategic Marketing
John L. Kopcke...................... 44 Senior Vice President-- Development
Mark White.......................... 38 Vice President-- Information Systems
</TABLE>
C. WAYNE CAPE, the founder of Optio, has served as Chief Executive
Officer and President of Optio since its inception in 1981. Mr. Cape became
Chairman of the Board in September 1999.
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Prior to launching Optio, Mr. Cape was an employee at Digital Communication
Associates from 1974 to 1981 where he served in a variety of technical, sales
and regional sales management positions.
G. ROBERT BECK has served as Senior Vice President, Sales and Client
Services of Optio since April 1996. From January 1996 to April 1996, Mr. Beck
worked as an independent consultant for Sales Builders, Inc., an Atlanta based
sales and consulting management organization. From 1992 to December 1995, Mr.
Beck also served as President of U.S. Operations for Cray Systems, a UK based
provider of application software for tour operators, and from 1989 to 1992, Mr.
Beck served as Vice President of Sales for Computron Technologies, Inc., a
leading provider of financial workflow solutions, which is now a publicly traded
company.
F. BARRON HUGHES has served as Chief Financial Officer and Secretary of
Optio since September 1994. Prior to joining Optio, Mr. Hughes served as Chief
Financial Officer of Millennium Healthcare, Inc. from 1991 to September 1994 and
served as Chief Financial Officer of HealthQuest, a subsidiary of HBO & Co.,
which provides health information solutions from 1985 to 1991. Mr. Hughes is a
Certified Public Accountant.
DARYL G. HATTON has served as Chief Technology Officer for Optio since
February, 1997. From October 1993 to February 1997, he served as director of
research for Optio. From 1988 through 1993, Mr. Hatton was a co-founder and
president of Pacific Genesys Development, Inc., a Canadian corporation in the
electronic forms software development industry, which was acquired by Optio in
1993. Prior to that, Mr. Hatton was Vice President of Product Development for
Modatech Systems, Inc., a publicly traded software developer of sales force
automation solutions.
STEVEN E. KAYE is Senior Vice President of Strategic Marketing for
Optio. Mr. Kaye joined Optio in May 1999. Prior to joining Optio, Mr. Kaye
served as Vice President of Marketing at Softlab, Inc., a BMW company, from
February 1998 to April 1999. Softlab is a vendor of application development
strategies and a provider of knowledge based solutions. From June 1996 to
February 1998, Mr. Kaye served as Senior Vice President of Business Development
for KnowledgeX, Inc., a provider of knowledge management software solutions,
which was acquired by IBM in 1998. From December 1994 to April 1996 Mr. Kaye
served as Vice President of Products and Technology for Deloitte Consulting's
SAP practice and was also Vice President of ISV/OEM Sales for KnowledgeWare,
Inc.
JOHN L. KOPCKE is Senior Vice President of Development for Optio. Mr.
Kopcke joined Optio in March 1999. Mr. Kopcke is responsible for our production
develop organization, including managing and overseeing all future product
development for existing solutions and research and development for new product
introductions. Prior to joining Optio, Mr. Kopcke was Chief Technology Officer
at Softlab, Inc. from January 1996 to March 1999. Prior to that, Mr. Kopcke
served as Chief Technology Officer for Pilot Software from June 1991 to January
1996. From 1987 to 1991, Mr. Kopcke served as President and founder of Kopcke
and Associates, a software development company specializing in specification
implementation of software for software companies. Kopcke and Associates was
acquired by Pilot Software in October 1996.
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<PAGE>
MARK WHITE has served as Vice President of Information Systems for
Optio since February 1998. From March 1993 to February 1998, Mr. White served as
the Director of Development for Optio. From September 1990 to March 19993, Mr.
White served as Vice President of Operations for Millard Wayne, Inc., a
physician practice software company.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
On December 15, 1999, Optio's common stock began trading on the Nasdaq
National Market under the symbol "OPTO". Prior to such date, there was no
established trading market for Optio's common stock. The initial public offering
price per share of common stock was $10.00. On April 26, 2000, the closing price
of the common stock on the Nasdaq National Market was $8.9375. The following
table reflects the range of high and low selling prices of Optio's common stock
by quarter, for each quarter since Optio's initial public offering.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Quarter Ended January 31, 2000
(since December 15, 1999).................... $ 29.25 $ 14.00
</TABLE>
HOLDERS
As of April 26, 2000, there were approximately 34 holders of record
and approximately 8,200 beneficial owners of Optio's common stock.
DIVIDENDS
Optio did not pay any dividends during the year ended January 31, 2000.
Optio intends to retain all of its earnings to finance the expansion of its
business and for general corporate purposes, including future acquisitions, and
does not anticipate paying any cash dividends on its common stock for the
foreseeable future.
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<PAGE>
CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 15, 1999, Optio commenced an initial public offering of its
Common Stock. The registration statement relating to this offering (File No.
333-89181) was declared effective on December 15, 1999. Merrill Lynch & Co.,
Bear, Stearns & Co. Inc. and The Robinson-Humphrey Company were the managing
underwriters of the offering. The number of shares registered, the aggregate
price of the offering amount registered, the amount sold and the aggregate
offering price of the shares were sold were as follows:
<TABLE>
<CAPTION>
Shares of Aggregate Price Amount of Amount Of
Common of Shares Shares Sold Shares Sold Aggregate Price
Registered Registered by Registrant by Shareholders of Shares Sold
----------- ---------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
5,750,000 $57,500,000 5,215,000 535,000 $57,500,000
</TABLE>
Optio incurred the following expenses with respect to the offering
through January 31, 2000:
<TABLE>
<CAPTION>
Underwriting
Discounts
and Finders' Underwriters'
Commissions Fees Expenses Other Expenses Total Expenses
------------ -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
$3,651,000 $0 $0 $1,543,000 $5,194,000
</TABLE>
The net proceeds from the offering to Optio after deducting the
foregoing discounts, commissions, fees and expenses were $47.0 million.
Approximately $1.2 million of the proceeds were used for the repayment of our
indebtedness to three former shareholders incurred in connection with the
repurchase of their common stock in December 1998. In March 2000, $20 million of
the proceeds were used for the acquisition of all of the capital stock of
Muscato Corporation and an additional $5 million was used to acquire the assets
of TransLink Solutions Corporation. Pending use of the net proceeds, Optio has
invested the funds in commercial paper and Federal Home Loan Discount Notes and
used them for general corporate purposes, including working capital. None of the
foregoing expenses constituted direct or indirect payments to our directors,
officers, general partners or their associates or to persons owning 10% or more
of any class of our equity securities or to our affiliates.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected historical financial data
of Optio Software, Inc. The selected financial data should be read together with
the financial statements and related notes and the section of this From 10-K
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected financial data as of and for the years
ended
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<PAGE>
January 31, 1996, 1997, 1998, 1999, and 2000 have been derived from the audited
financial statements of Optio.
<TABLE>
<CAPTION>
Years Ended January 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (in thousands):
Revenue:
License fees $ 4,806 $ 5,802 $ 9,150 $ 12,014 $ 17,114
Services, maintenance and
other 1,984 3,200 4,419 7,525 15,719
-------- -------- -------- -------- --------
Total revenue 6,790 9,002 13,569 19,539 32,833
Costs of revenue:
License fees 589 642 1,088 913 980
Services, maintenance and
other 981 1,814 2,214 4,089 7,997
-------- -------- -------- -------- --------
Total cost of revenue 1,570 2,456 3,302 5,002 8,977
Gross profit 5,220 6,546 10,267 14,537 23,856
Operating expenses:
Sales and marketing 2,470 3,674 5,901 7,534 11,863
Research and development 790 891 1,551 2,530 3,559
General and administrative 1,175 1,143 1,886 2,884 3,848
Depreciation and amortization 761 144 806 941 1,227
-------- -------- -------- -------- --------
Total operating expenses 5,196 5,852 10,144 13,889 20,497
Income from operations 24 694 123 648 3,359
Other income (expense):
Interest income 76 71 32 104 363
Interest expense (42) (42) (77) (257) (120)
Other -- -- 8 (46) (9)
-------- -------- -------- -------- --------
Income before income taxes 58 723 86 449 3,593
Income tax expense 48 304 64 99 1,601
-------- -------- -------- -------- --------
Net income $ 10 $ 419 $ 22 $ 350 $ 1,992
======== ======== ======== ======== ========
Net income per share - basic $ 0.00 $ 0.03 $ 0.00 $ 0.03 $ 0.16
Net income per share - diluted $ 0.00 $ 0.03 $ 0.00 $ 0.02 $ 0.10
Weighted average shares outstanding -
basic 12,095 12,380 12,891 12,825 12,586
Weighted average shares outstanding -
diluted 14,991 15,478 16,424 17,305 20,442
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
At January 31,
------------------------------------------------------
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Cash and cash equivalents $ 1,751 $ 1,646 $ 1,507 $ 1,129 $ 45,948
Working capital (deficiency) 645 880 (152) (1,650) 46,548
Total assets 4,226 4,905 6,978 10,738 60,642
Long-term obligations 254 292 246 1,208 38
Stockholders' equity 702 1,320 1,624 9 48,999
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and related notes thereto and "Item 6. Selected Financial
Data" appearing elsewhere in the report.
OVERVIEW
Optio was incorporated in Georgia in 1981 as Technology Marketing,
Inc., and changed its name to Xpoint Corporation in 1982, then to Optio
Software, Inc. in 1997. For most of Optio's operating history, its primary
business consisted of providing software and services that addressed
organizations' needs for customized information delivered via print, fax and
e-mail to users of enterprise and healthcare applications. Optio has been
profitable since 1996.
Over the past year, Optio has invested in all areas of its business
with a particular emphasis on sales, marketing and research and development. To
date, most of our revenue has been derived from software that was not originally
designed to facilitate e-business, but rather to deliver customized information
by fax, printer and e-mail. During fiscal year 2000, Optio began expanding its
business plan to develop new software and services that would help its customers
move from paper-intensive commerce to e-business. In June 1999, Optio tested its
first e-business product, Optio e.ComPresent, which was then released in
September 1999. In March 2000, Optio announced the initial release of its
e.ComIntegrate -TM- product which provides organizations with the ability to
conduct business-to-business e-commerce and participate in e-marketplaces
through the creation, transformation and exchange of XML documents. In April
2000, Optio announced e.ComPayments-TM-, the third product offering in its
e.ComSeries-TM-. Optio e.ComPayments represents Optio's full-scale payment
platform providing comprehensive support for electronic and traditional
payments.
Optio markets and sells its software primarily through its direct sales
force and certified resellers. As of January 31, 2000, Optio had 53 sales
personnel and approximately 100 resellers. Optio also offers consulting services
which provide customers with implementation assistance and training. In order to
better service customers and support the growth of its consulting business,
Optio has established the Optio Alliance Program. This program certifies
independent consulting
26
<PAGE>
companies that help deliver consulting services to Optio's customer base. As of
January 31, 2000, Optio had over 3,900 customers worldwide using Optio's
software and services. No single customer accounted for 10% or more of Optio's
revenue for the years ended January 31, 1998, 1999, or 2000.
Optio's growth has, in part, been supplemented by acquisitions. On
February 28, 1997 Optio acquired the assets of Devcom Mid-America, Inc. This
acquisition strengthened Optio's software offerings by providing it with a
server-based fax solution. On August 26, 1998 Optio acquired the stock of
Competence Software Europe S.A., which prior to the acquisition was a
distributor of Optio's software. This acquisition provided us entry into
European markets and became Optio's wholly-owned subsidiary, Optio Software,
Europe S.A. ("Optio Europe"). Both acquisitions were accounted for using the
purchase method of accounting and the associated goodwill from these
acquisitions is being amortized over three to five years. In November 1998,
Optio Europe expanded by founding a wholly subsidiary in the United Kingdom
known as Optio Software, UK Pvt. Limited. In May 1999, Optio entered the Asia
Pacific market by establishing a subsidiary in Australia, Optio Software, Asia
Pacific. By opening these offices and acquiring Competence Software Europe,
S.A., Optio further enhanced its presence in the worldwide marketplace. Now, in
addition to operations in the United States, Optio operates three international
offices involved in the direct sales, marketing and support activities of Optio
products throughout France, Germany, the United Kingdom, Australia, Japan,
Singapore and other countries.
REVENUE RECOGNITION. Optio derives its revenue from the sales of
software licenses, services and maintenance. Revenue for license fees is
typically recognized on delivery of our software when: Optio has a signed,
noncancellable license agreement with the customer; the license fee is fixed and
determinable; Optio can objectively allocate the total fee among all elements of
the arrangement; and the collection of the license fee is probable.
Revenue from services, maintenance and other includes fees for
consulting, implementation, training and technical support. Optio recognizes
revenue from services as they are performed. Revenue from maintenance is
recognized ratably over the term of the contract with the customer, typically
one year.
COSTS OF REVENUE. Costs of revenue from license fees consist of costs
relating to the manufacturing, packaging and distribution of software and
related documentation and third party license and referral fees. Costs of
revenue from services, maintenance and other consists of personnel and direct
expenses relating to the cost of providing consulting, implementation, training,
technical support and allocable overhead. Costs of revenue from services,
maintenance and other will vary depending on the mix of services Optio provides
among consulting, implementation, training and support.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales and marketing personnel compensation and benefits, direct expenditures
such as travel, trade shows, direct mail, online marketing, advertising and
promotion and allocable overhead.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of
27
<PAGE>
salaries, benefits, equipment and allocable overhead for software engineers,
pre-production quality assurance personnel, program managers and technical
writers. Research and development expenses also include expenses associated with
independent contractors Optio uses to augment its research and development
efforts. Research and development expenses relate to activities performed prior
to commercial production of a product. To date Optio has not capitalized any
development costs because Optio's short development cycle has historically
resulted in only immaterial amounts of development costs that were eligible for
capitalization.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and human resource functions. General and administrative expenses
also include legal, other professional fees and allocable overhead.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist of depreciation of property and equipment and amortization of intangible
assets related to acquisitions.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Optio recorded deferred
compensation of $373,000 during the year ended January 31, 2000 in connection
with grants of employee share purchase options with exercise prices lower than
the deemed fair market value of Optio's common shares on the date of grant.
Optio is amortizing this amount over the period in which the options vest,
generally three to four years. Optio recognized $77,000 in compensation expense
in the year ended January 31, 2000 and currently expects to recognize $115,000,
$115,000, $61,000, and $5,000 in the years ending January 31, 2001, 2002, 2003
and 2004, respectively.
As a professional sales and value-added services organization, the
Company responds to the product opportunities and service demands from its
clients. Accordingly, the Company has limited control over the timing and
circumstances under which its products and services are provided. Therefore, the
Company can experience volatility in its operating results from quarter to
quarter and year to year. The operating results for any quarter or year are not
necessarily indicative of the results for any future periods.
28
<PAGE>
RESULTS OF OPERATIONS
REVENUES
The following table sets forth certain items from Optio's statements of
operations as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
1998 1999 2000
------ ------ ------
Year Ended January 31,
----------------------
<S> <C> <C> <C>
Revenue:
License fees........................................................................ 67% 61% 52%
Services, maintenance and other..................................................... 33 39 48
--- --- ---
Total revenue.................................................................. 100 100 100
Costs of revenue:
License fees........................................................................ 8 5 3
Services, maintenance and other..................................................... 16 21 24
--- --- ---
Total cost of revenue.......................................................... 24 26 27
--- --- ---
Gross profit.............................................................................. 76 74 73
Operating expenses:
Sales and marketing................................................................. 44 38 36
Research and development............................................................ 11 13 11
General and administrative.......................................................... 14 15 12
Depreciation and amortization....................................................... 6 5 4
--- --- ---
Total operating expenses....................................................... 75 71 63
--- --- ---
Income from operations.................................................................... 1 3 10
Interest and other income................................................................. - (1) 1
--- --- ---
Income before income taxes................................................................ 1 2 11
Income taxes.............................................................................. 1 - 5
--- --- ---
Net income................................................................................ -% 2% 6%
--- --- ---
--- --- ---
</TABLE>
Total revenue increased 68% to $32.8 million in 2000 from $19.5 million
in 1999 and 44% to $19.5 million in 1999 from $13.6 million in 1998.
License fee revenue increased 43% to $17.1 million in 2000 from $12.0
million in 1999 and 31% to $12.0 million in 1999 from $9.2 million in 1998.
License fee revenue grew significantly from 1999 to 2000 due to the
following factors:
- growing market acceptance of Optio's software;
- continued expansion of Optio's sales and marketing
organization from 56 employees in 1999 to 76 employees in
2000;
- the introduction of Optio's e.ComPresent software in
September 1999;
29
<PAGE>
- Optio's growth in the European market; and
- Optio's expansion into the Asian Pacific market in May 1999.
Optio's foreign operations generated revenue from licenses and services
to customers of $4.2 million in the year ended January 31, 2000, representing
13% of total revenue compared to revenue of $986,000 in the year ended January
31, 1999, representing 5% of total revenue.
License revenue increased from 1998 to 1999 as a result of greater
market acceptance of Optio's software, expansion of the sales organization,
introduction of Optio's fax software and Optio's expansion into international
markets through the acquisitions of Optio's European subsidiary in August 1998
and the formation of Optio's United Kingdom subsidiary in November 1998.
Revenue from services, maintenance and other increased 109% to $15.7
million in 2000 from $7.5 million in 1999 and 70% to $7.5 million in 1999 from
$4.4 million in 1998. The increase in revenues from service, maintenance and
other is due to increased sales of software licenses to Optio's customers
resulting in increased implementation, training, and technical support of those
products.
License fee revenue constituted 52%, 61%, and 67% of total revenue in
2000, 1999, and 1998, respectively. Services revenue constituted 33%, 19%, and
16% of total revenue in 2000, 1999 and 1998, respectively. Maintenance revenue
constituted 15%, 19%, and 15% of total revenue in 2000, 1999, and 1998,
respectively. The sales mix shift towards services revenue was due to an
increased focus by management on the marketing of services to Optio's customers
who have purchased software licenses as an additional source of revenue. In
addition, as Optio's products have become more sophisticated, additional
consulting services and training is required, thus increasing services revenue
as a percentage of total revenue.
COSTS OF REVENUE
Costs of revenue from license fees increased 7% to $980,000 in 2000
from $913,000 in 1999 and decreased 16% to $913,000 in 1999 from $1.1 million in
1998. The increase in costs of revenue from license fees in 2000 was the result
of increased referral fees paid to third party vendors associated with the
increase in license revenue. These fees increased from $602,000 in 1999 to
$718,000 in 2000. However, costs of revenue from licenses decreased as a
percentage of license revenue from 8% in 1999 to 6% in 2000. This was the result
of fewer partner software license sales requiring a referral fee. The decrease
in costs of revenue from license fees during 1999 was primarily attributable to
a decrease in the total referral fees paid to third party vendors to $602,000 in
1999 from $826,000 in 1998, as Optio received a higher percentage of referrals
from third party vendors entitled to referral fees at lower rates. Costs of
revenue from license fees represented 6% of total license revenue in 2000, 8% in
1999, and 12% in 1998.
Costs of revenue from services and maintenance increased 96% to $8.0
million in 2000 from $4.1 million in 1999 and 85% to $4.1 million in 1999 from
$2.2 million in 1998. The increase was due to improved training and scheduling
of internal staff and an increase in the number of personnel
30
<PAGE>
providing consulting, training and technical support to customers, both directly
and via subcontract, in an effort to fulfill the obligations associated with the
increased services and maintenance revenue over these periods. Costs of revenue
from services and maintenance represented 51%, 54%, and 50% of total service and
maintenance revenue in 2000, 1999 and 1998, respectively.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 58% to
$11.9 million in 2000 from $7.5 million in 1999 and 28% to $7.5 million in 1999
from $5.9 million in 1998. The increase in 2000 was primarily due to additional
hiring to support Optio's expansion of both its North American and international
operations and Optio's expansion of its product base to include Optio's
e.ComSeries. The increase in sales and marketing expenses in 1999 was due to
additional hiring as Optio expanded its sales and marketing operations. The
associated headcount in sales and marketing was 76, 60, and 46 for the years
2000, 1999 and 1998, respectively. Sales and marketing expenses represented 36%
of total revenue in 2000, 38% in 1999, and 44% in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
41% to $3.6 million in 2000 from $2.5 million in 1999 and 63% to $2.5 million in
1999 from $1.6 million in 1998. The growth in research and development expenses
was due to additional hiring of research and development personnel to assist in
the development of Optio's e.ComSeries of products and other e-business
development efforts in 2000 and Optio's fax product in 1999. Research and
development expenses represented 11%, 13%, and 11% of total revenue in 2000,
1999 and 1998, respectively. Management expects to continue to significantly
increase research and development expenditures with a particular emphasis on
projects related to expanding Optio's e-business effort.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 33% to $3.8 million in 2000 and increased 53% to $2.9 million in 1999
from $1.9 million in 1998. The increase in general and administrative expenses
was the result of increased costs associated with the growth of Optio's business
during these periods, including increased hiring of administrative personnel, as
well as a $700,000 non-recurring charge in 1999 due to a stock repurchase.
General and administrative expenses represented 12%, 15%, and 14% total revenue
in 2000, 1999 and 1998, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 30% to $1.2 million in 2000 and increased 17% to $941,000 in 1999 from
$806,000 in 1998. The increase was principally due to an increase of $94,000 in
2000 and $49,000 in 1999 in the amortization of intangible assets from
acquisitions and an increase of $192,000 in 2000 and $86,000 in 1999 in
depreciation due to increased capital expenditures. Depreciation and
amortization expenses represented 4%, 5%, and 6% of total revenue in 2000, 1999
and 1998, respectively.
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<PAGE>
INTEREST AND OTHER INCOME (LOSS)
Interest and other income increased to $234,000 in 2000 from a loss of
$199,000 in 1999 and declined to a loss of $199,000 in 1999 from a loss of
$37,000 in 1998. The increase in 2000 was due to a combination of increased
interest income resulting from the investment of the $47.0 million net proceeds
of Optio's initial public offering and a decrease in interest expense due to the
pay-off of notes payable to related parties with the proceeds of the initial
public offering. The principal reason for the decline in 1999 was $173,000 of
additional interest expense associated with indebtedness relating to Optio's
stock repurchase in January 1999.
INCOME TAXES
Income tax expense increased 1,517% to $1.6 million in 2000 from
$99,000 in 1999 and 55% to $99,000 in 1999 from $64,000 in 1998. The effective
tax rates for the years ended 2000, 1999, and 1998 were 45%, 22%, and 74%,
respectively. For fiscal year 2000, the costs related to the expansion into the
Asian Pacific market were non-deductible. This was the primary contributing
factor of the 45% tax rate for fiscal year 2000. The 22% effective tax rate for
fiscal 1999 is principally the result of the benefit of a relatively high level
of research and development credits compared to the level of pretax income. The
74% effective tax rate for fiscal 1998 is principally the result of the impact
of non-deductible expenses in relation to the low level of pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Optio has primarily financed its operations and met
its capital expenditure requirements through cash flows from operations and
short and long-term borrowings. At January 31, 2000 and 1999 Optio had $46.8 and
$1.1 million, respectively, of cash and cash equivalents.
The following table sets forth certain selected statements of cash flow
information for the periods presented:
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by operations $ 1,149,000 $ 3,062,000 $ 1,847,000
Net cash used in investing activities (578,000) (1,451,000) (1,196,000)
Net cash provided by (used in) financing activities (710,000) (2,022,000) 45,037,000
Net increase (decrease) in cash and cash
equivalents (139,000) (378,000) 45,697,000
</TABLE>
Cash provided by operating activities for 2000 resulted primarily
from net income of $2.0 million, non-cash charges of $1.1 million, and
changes in working capital which resulted in a $1.7 million use of cash. The
major components of such working capital changes were an increase in accrued
expenses of $1.1 million, reduced by an increase in accounts receivable of
$4.1 million. The increase in accrued expenses and accounts payable is
primarily the result of significant growth in the volume of sales and related
business expenses. Investing activities during 2000 consisted primarily of
the purchase of approximately $1.1 million of property and equipment. Cash
flows from financing activities for 2000 included proceeds
32
<PAGE>
of approximately $47.0 million from Optio's initial public offering in December
1999, netted with payments of approximately $1.9 million of Optio's debt.
For the year ended January 31, 1999, Optio generated net income of
$350,000. Combined with the adjustments to reconcile net income to cash of
$1.8 million, the effect of an increase in accounts receivable of $2.6
million and an increase in deferred revenue of $3.1 million, operating
activities added $3.0 million to cash flows. Accounts receivable increased as
a result of the revenue increase from 1998 to 1999. Deferred revenue
increased as a result increased service revenue and the timing of these
consulting projects in progress at January 31, 1999, and an increase in the
number of customers on maintenance agreements. Investing activities included
the purchase of $571,000 of fixed assets in the ordinary course of business
and advances to a related party of $525,000. Cash used in financing
activities represented payments of $2.0 million for notes payable to related
parties and capital leases.
For the year ended January 31, 1998, the Optio generated net income of
$22,000. Combined with the adjustments to reconcile net income to cash of $1.0
million, the effect of an increase in accounts receivable of $1.0 million, and
an increase in deferred revenue of $793,000, operating activities added $1.1
million to cash flows. Accounts receivable increased as a result of the revenue
increase from 1997 to 1998. Deferred revenue increased as a result of timing of
consulting projects in progress at January 31, 1998.
Optio has notes payable to related parties as of January 31, 2000 of
$228,000, all of which are payable during the year ended January 31, 2001. Optio
also had a line of credit from Premier Lending Corporation at a rate of prime
plus 1% if the average daily loan balance during the month is greater than $1.0
million, and prime plus 2% if the average daily loan balance during the month is
less than $1.0 million. This line of credit was closed effective April 25, 2000.
At January 31, 2000, there was no outstanding balance under this line of credit.
None of these credit agreements contained any material restrictions on Optio's
ability to make expenditures or dividends or require Optio to maintain any
material financial ratios.
Subsequent to January 31, 2000, Optio consummated the acquisitions of
Muscato Corporation and Translink Solutions Corporation. The purchase price for
the common stock of Muscato Corporation was $20,000,000 in cash and an
additional payment of $8,000,000 to be paid on March 27, 2030, pursuant to
promissory notes. The promissory notes provide for mandatory acceleration of
payments of $4,000,000 to be paid on March 27, 2001 and $4,000,000 to be paid on
March 27, 2002, providing certain provisions are met. The purchase price for the
assets acquired from Translink was $5,000,000 in cash. The cash component of
each purchase price was paid out of the net proceeds of Optio's initial public
offering.
Also subsequent to January 31, 2000, Optio entered into a $10.0 million
line of credit arrangement with First Union National Bank. The line of credit
matures on April 14, 2001. The line of credit bears interest at LIBOR plus
1.75%. This debt instrument is due on April 14, 2001 and is collateralized by
accounts receivable of Optio. The agreement contains customary events of default
and a number of customary covenants including certain financial ratios and
restrictions on dividends.
33
<PAGE>
Management believes that the net proceeds from the initial public
offering in December 1999, together with the line of credit, existing cash and
cash equivalents and future funds generated from operations will provide
adequate cash to fund its anticipated cash needs at least through the next
twelve months. To the extent that these amounts are insufficient, we will be
required to raise additional funds through equity or debt financing. There can
be no assurance that we will be able to raise additional funds on favorable
terms, or at all.
YEAR 2000 READINESS
Optio spent considerable internal and external resources from 1997
through 1999 preparing for the "Year 2000" computer issue. The Year 2000 issue
relates to the ability of a computer system to properly process data beginning
on January 1, 2000. The Company's efforts were spent to ensure that its computer
products were "Year 2000 Ready," as defined, and that its internal core
information technology (IT) and non-IT systems were Year 2000 Ready.
Optio believes it successfully implemented its Year 2000 program, as
evidenced by the continued successful operations of its computer products and
core internal IT and non-IT systems. Optio has not encountered significant
problems with its third-party customers, financial institutions, vendors and
others with whom it conducts business. Optio will continue to monitor its
product performance and core IT and non-IT systems throughout 2000 to ensure
ongoing performance. While there can be no assurance that no Year 2000 related
issues will arise, as of January 31, 2000, management believes, based on
information currently available, that Year 2000-related events are not likely to
have a material effect on Optio's results of operation, financial condition or
liquidity.
Optio did not separately track expenditures to achieve Year 2000
readiness. Those expenditures were absorbed within the development organization.
To date, costs related to Year 2000 readiness have not been material relative to
Optio's overall development expenditures. Furthermore, based on Optio's
experience to date, Optio does not anticipate that costs associated with
remediating non-compliant products or internal systems will be material.
Despite the measures Optio is taking, Optio cannot assure you that the
Year 2000 issues will not be discovered in Optio's software or internal software
systems. If Year 2000 issues are discovered, Optio cannot assure you that its
contingency plan will be adequate to deal with them effectively, or that the
costs of making Optio's software and systems Year 2000 ready will not have a
material adverse effect on its business, operating results and financial
condition. Although Optio has not been a party to any litigation or arbitration
proceeding to date involving its software or services related to Year 2000
compliance issues, there can be no assurance that Optio will not in the future
be required to defend its software or services in such proceedings, or to
negotiate resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, regardless of the merits of
such disputes, would harm Optio's business.
34
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-4, DEFERRAL OF
THE EFFECTIVE DATE OF A PROVISION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION,
which delayed for one year the effective date of the provisions within SOP 97-2
that set forth the definition of "vendor-specific objective evidence" of fair
value. In December 1998, the AICPA issued Statement of Position 98-9 ("SOP
98-9"), MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO
CERTAIN TRANSACTIONS." SOP 98-9 extended the effective date to apply the
definition of "vendor-specific objective fair evidence" of fair value under SOP
97-2 through fiscal years beginning on or before March 15, 1999 and introduced
the requirement to recognize revenue using the "residual method" to value
delivered elements of multiple-element contracts under certain circumstances.
The provisions of SOP 98-9 have been adopted by the Company effective February
1, 2000, which did not have a material effect on the Company's financial
position or results of operations.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"). The Company adopted SFAS 131 effective February 1, 1998. The Company has
made the financial statement disclosures necessary to conform to SFAS 131, which
has had no impact on the Company's financial position or results of operations.
In 1998, the AICPA issued Statement of Position 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPMENT OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). The Company adopted SOP 98-1 effective February 1, 1999. The adoption of
this standard did not have a material effect on the Company's financial position
or results of operations.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which established
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure these instruments at fair value.
SFAS No. 133 is expected to be effective for the Company's fiscal year beginning
February 1, 2001. The Company is currently evaluating what impact, if any, SFAS
No. 133 may have on its consolidated financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, or SAB 101. SAB 101 summarizes
specific areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements and will be adopted
by Optio on May 1, 2000. Management believes that its current revenue
recognition principles comply with SAB 101.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Optio provides its services to customers primarily in the United States
and, to a lesser extent, in Europe and elsewhere throughout the world. As a
result, Optio's financial results could be affected by factors, such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. All sales are currently made in both U.S. dollars and local currencies.
A strengthening of the U.S. dollar or the weakening of these local currencies
could make Optio's
35
<PAGE>
products less competitive in foreign markets. Optio's interest income and
expense is sensitive to changes in the general level of U.S. interest rates.
Based on Optio's cash equivalents balance and the nature of its outstanding
debt, Optio believes its exposure to interest rate risk is not material. Optio's
available for sale marketable securities are carried at fair value and subject
to the risks of general market fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements on page F-1. The supplementary data is
included in Part IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 of Part III is
hereby incorporated by reference to the Registrant's Definitive Proxy Statement
on Schedule 14A to be filed not more than 120 days after the year ended January
31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements - see index on Page F-1 herein.
(a)(2) Schedule II - Valuation and Qualifying Accounts - See
page F-26 herein. Other financial statements and schedules
are not presented because they are either not required or the
information required by statements or schedules is presented
elsewhere.
(a)(3) The exhibits filed as part of this Report as required by
Item 601 of Regulation S-K are included in the Index to
Exhibits included elsewhere in this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on April 10, 2000, to disclose Optio's acquisition of
Muscato Corporation and Translink Solutions Corporation.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28th day of
April, 2000.
OPTIO SOFTWARE, INC.
By: /s/ C. Wayne Cape
--------------------------
C. Wayne Cape
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ C. Wayne Cape Chairman of the Board and Chief April 28, 2000
- ------------------------ Executive Officer (Principal
C. Wayne Cape Executive Officer)
/s/ F. Barron Hughes Chief Financial Officer and April 28, 2000
- ------------------------ Secretary (Principal Financial
F. Barron Hughes and Accounting Officer)
/s/ Mitchel Laskey Director April 28, 2000
- ------------------------
Mitchel Laskey
/s/ David Dunn-Rankin Director April 28, 2000
- ------------------------
David Dunn-Rankin
/s/ James Felcyn Director April 28, 2000
- ------------------------
James Felcyn
37
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1** Stock Purchase Agreement dated as of March 27, 2000, by and among Optio
Software, Inc., Muscato Corporation, the Shareholders of Muscato
Corporation, Michael A. Muscato and Nicholas Muscato.
2.2** Asset Purchase Agreement dated as of March 27, 2000, by and among Optio
Software, Inc., TransLink Solutions Corporation, the Shareholders of
TransLink Solutions Corporation, Michael A. Muscato and Nicholas
Muscato.
2.3** Promissory Note dated March 27, 2000 in the amount of $4,000,000 issued
by the Company to Michael Muscato.
2.4** Promissory Note dated March 27, 2000 in the amount of $2,000,000 issued
by the Company to Nicholas Muscato.
2.5** Promissory Note dated March 27, 2000 in the amount of $2,000,000 issued
by the Company to Brian Newton.
3.1** Amended and Restated Articles of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1** See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws of the
Registrant defining rights of the holders of Common Stock of the
Registrant.
4.2** Specimen Stock Certificate.
10.1** Optio Software, Inc. Stock Incentive Plan dated as of January 1, 1997.
10.2** Optio Software, Inc. Outside Director Stock Option Plan dated as of
October 13, 1999.
10.3** Lease Agreement by and between Weeks Realty, L.P. and X-Point
Corporation dated March 18, 1996.
10.4** Sublease Agreement by and between HBO & Company and Optio Software,
Inc. dated March 22, 1999.
10.5** Promissory note by and between Optio Software, Inc. and Premier Lending
Corporation dated January 31, 1999.
10.6** Equipment Security Agreement by and between Optio Software, Inc. and
Premier Lending Corporation dated January 31, 1999.
10.7** Security Agreement by and between Optio Software, Inc. and Premier
Lending Corporation dated January 31, 1999.
10.8** Guaranty Agreement by and between Optio Software, Inc. and Premier
Lending Corporation dated January 31, 1999.
10.9** Promissory note by and between Optio Software, Inc. and David
Dunn-Rankin dated October 13, 1999.
10.10** Stock Option Pledge and Security Agreement by and between Optio
Software, Inc. and David Dunn-Rankin dated October 13, 1999.
10.11** Promissory note by and between Optio Software, Inc. and C. Wayne Cape
dated December 31, 1998.
10.12 Credit Agreement dated as of April 14, 2000, by and among Optio
Software, Inc., as Borrower, and First Union Nation Bank, as Lender.
21.1 List of Subsidiaries.
23.2** Consent of Morris, Manning & Martin (included in Exhibit 5.1).
24.1** Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
99.1** Consent of James J. Felcyn, Jr.
99.2** Consent of Port Huron Hospital.
99.3** Consent of Schlumberger, Ltd.
99.4** Consent of The Home Depot, Inc.
99.5** Consent of AMR Research, Inc.
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
99.6** Consent of International Data Corporation.
99.7** Press Release concerning the Acquisition of Muscato Corporation and
TransLink Solutions Corporation.
99.8 Safe Harbor Compliance Statement for Forward-Looking Statements
</TABLE>
- ----------
** Filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-89181) filed with the Commission on
October 15, 1999, as amended and incorporated herein by reference.
39
<PAGE>
Optio Software, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Report of Independent Auditors.................................................. F-2
Consolidated Balance Sheets as of January 31, 1999 and 2000..................... F-3
Consolidated Statements of Income for the years ended January 31, 1998,
1999, and 2000............................................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended January 31, 1998, 1999, and 2000................................. F-5
Consolidated Statements of Cash Flows for the years ended January 31, 1998,
1999 and 2000................................................................ F-6
Notes to Consolidated Financial Statements...................................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Optio Software, Inc.
We have audited the accompanying consolidated balance sheets of Optio
Software, Inc. as of January 31, 1999 and 2000, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended January 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of Optio
Software, Inc. at January 31, 1999 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2000 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects the information set forth
therein.
Ernst & Young LLP
February 25, 2000, except for Note 15, as to
which the date is April 14, 2000
Atlanta, Georgia
F-2
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,129,000 $ 46,826,000
Marketable securities 372,000 386,000
Accounts receivable, less allowance for doubtful accounts of $118,000 and 5,691,000 9,268,000
$286,000, respectively
Prepaid expenses and other current assets 239,000 670,000
Income tax receivable 171,000 --
Deferred income taxes 175,000 229,000
------------ ------------
Total current assets 7,777,000 57,379,000
Property and equipment:
Property and equipment 1,886,000 2,990,000
Accumulated depreciation (833,000) (1,472,000)
------------ ------------
1,053,000 1,518,000
Other assets:
Notes receivable from related party 525,000 600,000
Note receivable and advances to shareholders 116,000 120,000
Deferred income taxes 297,000 495,000
Intangible assets, net of accumulated amortization of $919,000 and $176,000, 872,000 400,000
respectively
Other 98,000 130,000
============ ============
Total assets $ 10,738,000 $ 60,642,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 696,000 $ 1,388,000
Accrued expenses 1,860,000 2,986,000
Income taxes payable -- 452,000
Current portion of notes payable to related parties 913,000 228,000
Current portion of capital lease obligations 45,000 45,000
Deferred revenue 5,913,000 6,332,000
------------ ------------
Total current liabilities 9,427,000 11,431,000
Notes payable to related parties, less current portion 1,124,000 --
Capital lease obligations, less current portion 84,000 38,000
Deferred revenue 94,000 174,000
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, none issued or -- --
outstanding
Common stock, no par value: 100,000,000 shares authorized; 11,918,640 and
17,133,640 shares issued and outstanding, respectively 1,033,000 48,362,000
(Accumulated deficit) retained earnings (1,071,000) 921,000
Accumulated other comprehensive income 47,000 12,000
Unamortized stock compensation -- (296,000)
------------ ------------
Total shareholders' equity 9,000 48,999,000
============ ============
Total liabilities and shareholders' equity $ 10,738,000 $ 60,642,000
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Optio Software, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
License fees $ 9,150,000 $ 12,014,000 $ 17,114,000
Services, maintenance, and other 4,419,000 7,525,000 15,719,000
------------ ------------ ------------
13,569,000 19,539,000 32,833,000
Cost of revenue:
License fees 1,088,000 913,000 980,000
Services, maintenance, and other 2,214,000 4,089,000 7,997,000
------------ ------------ ------------
3,302,000 5,002,000 8,977,000
------------ ------------ ------------
10,267,000 14,537,000 23,856,000
Operating expenses:
Sales and marketing 5,901,000 7,534,000 11,863,000
Research and development 1,551,000 2,530,000 3,559,000
General and administrative 1,886,000 2,884,000 3,848,000
Depreciation and amortization 806,000 941,000 1,227,000
------------ ------------ ------------
10,144,000 13,889,000 20,497,000
------------ ------------ ------------
Income from operations 123,000 648,000 3,359,000
Other income (expense):
Interest income 32,000 104,000 363,000
Interest expense (77,000) (257,000) (120,000)
Other 8,000 (46,000) (9,000)
------------ ------------ ------------
(37,000) (199,000) 234,000
------------ ------------ ------------
Income before income taxes 86,000 449,000 3,593,000
Income tax expense 64,000 99,000 1,601,000
------------ ------------ ------------
Net income $ 22,000 $ 350,000 $ 1,992,000
============ ============ ============
Net income per share-basic $ 0.00 $ 0.03 $ 0.16
============ ============ ============
Net income per share-diluted $ 0.00 $ 0.02 $ 0.10
============ ============ ============
Weighted average shares outstanding - basic 12,890,904 12,824,532 12,586,037
============ ============ ============
Weighted average shares outstanding - diluted 16,423,952 17,304,829 20,441,759
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Optio Software, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMMON STOCK RETAINED EARNINGS COMPREHENSIVE
----------------------- (ACCUMULATED (LOSS)
SHARES AMOUNT DEFICIT) INCOME
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 1, 1997 12,430,230 $ 404,000 $ 931,000 $ (15,000)
Comprehensive income (loss), net of tax:
Net income -- -- 22,000 --
Unrealized loss on marketable securities available for sale -- -- -- (18,000)
Comprehensive income
Issuance of common stock 500,000 300,000 -- --
---------- ------------ ------------ ------------
Balance at January 31, 1998 12,930,230 704,000 953,000 (33,000)
Comprehensive income, net of tax:
Net income -- -- 350,000 --
Foreign currency translation adjustment -- -- -- 1,000
Unrealized gain on marketable securities available for sale -- -- -- 79,000
Comprehensive income
Issuance of common stock:
Acquisition of business 200,000 160,000 -- --
Exercise of stock options and related tax benefit 500,000 301,000 -- --
Issuance to employee 10,000 15,000 -- --
Purchase and retirement of common stock (1,721,590) (147,000) (2,374,000) --
---------- ------------ ------------ ------------
Balance at January 31, 1999 11,918,640 1,033,000 (1,071,000) 47,000
Comprehensive income, net of tax:
Net income -- -- 1,992,000 --
Foreign currency translation adjustment -- -- -- (40,000)
Unrealized gain on marketable securities available for sale -- -- -- 5,000
Comprehensive income
Issuance of common stock in initial public
offering, net of issuance costs of $5,194,000 5,215,000 46,956,000 -- --
Compensation related to stock option grants -- 373,000 -- --
---------- ------------ ------------ ------------
Balance at January 31, 2000 17,133,640 $ 48,362,000 $ 921,000 $ 12,000
========== ============ ============ ============
<CAPTION>
UNAMORTIZED
STOCK TOTAL SHAREHOLDERS'
COMPENSATION EQUITY
----------------------------------
<S> <C> <C>
Balance at February 1, 1997 $ -- $ 1,320,000
Comprehensive income (loss), net of tax:
Net income -- 22,000
Unrealized loss on marketable securities available for sale -- (18,000)
------------
Comprehensive income 4,000
Issuance of common stock -- 300,000
---------- ------------
Balance at January 31, 1998 -- 1,624,000
Comprehensive income, net of tax:
Net income -- 350,000
Foreign currency translation adjustment -- 1,000
Unrealized gain on marketable securities available for sale -- 79,000
------------
Comprehensive income 430,000
Issuance of common stock:
Acquisition of business -- 160,000
Exercise of stock options and related tax benefit -- 301,000
Issuance to employee -- 15,000
Purchase and retirement of common stock -- (2,521,000)
---------- ------------
Balance at January 31, 1999 -- 9,000
Comprehensive income, net of tax:
Net income -- 1,992,000
Foreign currency translation adjustment -- (40,000)
Unrealized gain on marketable securities available for sale -- 5,000
------------
Comprehensive income 1,957,000
Issuance of common stock in initial public
offering, net of issuance costs of $5,194,000 -- 46,956,000
Compensation related to stock option grants (296,000) 77,000
---------- ------------
Balance at January 31, 2000 $ (296,000) $ 48,999,000
========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Optio Software, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,000 $ 350,000 $ 1,992,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 366,000 457,000 649,000
Amortization of intangible assets 440,000 484,000 578,000
Provision for doubtful accounts 373,000 227,000 473,000
Gain on sale of marketable securities -- (55,000) (18,000)
Loss on sale of property and equipment -- -- 1,000
Non-cash compensation and interest -- 888,000 77,000
Deferred income taxes (225,000) (199,000) (255,000)
Change in assets and liabilities:
Accounts receivable (1,028,000) (2,581,000) (4,138,000)
Prepaid expenses and other assets 67,000 (116,000) (533,000)
Accounts payable (36,000) (156,000) 714,000
Accrued expenses 125,000 742,000 1,141,000
Income taxes payable 252,000 (115,000) 629,000
Deferred revenue 793,000 3,136,000 537,000
------------ ------------ ------------
Net cash provided by operating activities 1,149,000 3,062,000 1,847,000
INVESTING ACTIVITIES
Purchase of marketable securities (27,000) (302,000) (176,000)
Proceeds from sale of marketable securities -- 166,000 188,000
Purchases of property and equipment (544,000) (571,000) (1,135,000)
Proceeds from sale of property and equipment -- -- 6,000
Advances to shareholders (7,000) 4,000 (4,000)
Advances to related party -- (525,000) (75,000)
Acquisition of business, net of cash acquired -- (223,000) --
------------ ------------ ------------
Net cash used in investing activities (578,000) (1,451,000) (1,196,000)
FINANCING ACTIVITIES
Payments of notes payable to related parties and capital
lease obligations (710,000) (2,028,000) (1,919,000)
Proceeds from exercise of stock options -- 1,000 --
Issuance of common stock -- -- 46,956,000
Other -- 5,000 --
------------ ------------ ------------
Net cash (used in) provided by financing activities (710,000) (2,022,000) 45,037,000
Impact of foreign currency rate fluctuations on cash -- 33,000 9,000
Net (decrease) increase in cash and cash equivalents (139,000) (378,000) 45,697,000
Cash and cash equivalents at beginning of year 1,646,000 1,507,000 1,129,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,507,000 $ 1,129,000 $ 46,826,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 48,000 $ 221,000 $ 122,000
============ ============ ============
Cash paid for income taxes $ 127,000 $ 416,000 $ 1,037,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Optio Software, Inc.
Notes to Consolidated Financial Statements
JANUARY 31, 2000
1. DESCRIPTION OF BUSINESS
Optio Software, Inc. (the "Company") is engaged primarily in the
development, sale and support of document customization software to companies
located principally in the United States and Europe. The industry in which the
Company operates is subject to rapid change due to development of new
technologies and products. Effective March 11, 1997, the Company changed its
name from Xpoint Corporation to Optio Software, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's French, British, and
Australian subsidiaries have been translated into United States dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
FOREIGN CURRENCY TRANSLATION, which generally provides for the use of current
exchange rates in translating financial statements. The foreign currency
translation adjustment is included in shareholders' equity.
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. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company typically recognizes software license fee revenue from
sales to end users as well as from sales to resellers and distributors upon
delivery when there is persuasive evidence of an arrangement, the fee is fixed
and determinable and collection of the license fee is probable. For sales to
resellers and distributors, products are delivered either directly to the end
user or to the
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reseller when the reseller has an identified end user. No customers have the
right to return products purchased. When contracts requiring significant
production, modification or customization are entered into, contract revenue is
recognized on a percentage of completion basis using actual costs incurred as a
percentage of expected total costs. Revenue from maintenance contracts is
recognized on a pro-rata basis over the term of each contract, and revenue from
other services, principally training, is recognized as the services are
performed. Deferred revenue represents payments received in advance of
recognizing the related revenue.
Prior to February 1, 1998, the Company recognized revenue in accordance
with the American Institute of Certified Public Accountants ("AICPA") Statement
of Position 91-1, SOFTWARE REVENUE RECOGNITION ("SOP 91-1"). In October 1997 the
AICPA issued Statement of Position 97-2, SOFTWARE REVENUE RECOGNITION ("SOP
97-2"), which superseded SOP 91-1, to clarify guidance on applying generally
accepted accounting principles to software transactions and to provide guidance
on when revenue should be recognized and in what amounts for licensing, selling,
leasing, or otherwise marketing computer software. Effective February 1, 1998,
the Company adopted SOP 97-2, as amended by Statement of Position 98-4, DEFERRAL
OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF SOP 97-2. Such adoption did not
have a material effect on the Company's methods of recognizing revenue.
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Total
advertising expense amounted to approximately $887,000, $1,147,000, and
$1,413,000 during the years ended January 31, 1998, 1999 and 2000, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents at
January 31, 2000 consists primarily of investments in commercial paper totaling
$40,146,000, and mature in three months or less. The carrying amounts of the
Company's investments in commercial paper approximate their fair values due to
the short maturities of these instruments.
MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on these investments are reported as a separate component of accumulated
other comprehensive income, which is included in shareholders' equity, and are
not reported in earnings until realized or until a decline in fair value below
cost is deemed to be other than temporary. The aggregate costs of marketable
securities held as of January 31, 1999 and 2000 are $297,000 and $305,000,
respectively.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
calculated over the estimated useful lives of the related assets (generally
three to seven years) using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Amortization of assets
recorded under capital leases is included in depreciation expense.
Property and equipment at January 31, 1999 and 2000 consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1999 2000
----------- -----------
<S> <C> <C>
Equipment $ 1,159,000 $ 1,820,000
Furniture and fixtures 242,000 439,000
Purchased software 401,000 559,000
Leasehold improvements 84,000 172,000
----------- -----------
1,886,000 2,990,000
Less accumulated depreciation (833,000) (1,472,000)
----------- -----------
Net property and equipment $ 1,053,000 $ 1,518,000
=========== ===========
</TABLE>
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair value of
net tangible assets acquired and include goodwill and other intangible assets,
principally the value of an existing customer base acquired. Intangible assets
are being amortized using the straight-line method over periods of three to five
years for goodwill and three years for other intangible assets.
LONG-LIVED ASSETS
The Company continually monitors events and changes in circumstances
that would indicate the carrying amounts of property, equipment and intangible
assets may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of the respective asset by
determining whether the carrying value of such asset will be recovered through
undiscounted expected future cash flows. Should the Company determine that the
carrying values of the respective assets are not recoverable, the Company would
record a charge to reduce the carrying values of such assets to their fair
values.
F-9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred 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 tax purposes. Such amounts are
measured using enacted tax rates and laws that are expected to be in effect when
the differences reverse.
EMPLOYEE STOCK OPTIONS
The Company accounts for stock based awards using the intrinsic
value method under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations. The pro
forma effect on the accompanying consolidated statements of income of
applying the fair value method under SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), is presented in Note 8.
NON-CASH TRANSACTIONS
Non-cash investing activities during the year ended January 31, 2000
included the issuance of debt in the amount of $89,000 in accordance with the
purchase agreement of Competence Software Europe, S.A. The agreement called for
additional amounts as part of the purchase price if certain aggregate gross
revenue thresholds were met. The additional $89,000 to be paid under the
agreement was charged to goodwill.
COMPREHENSIVE INCOME
As of February 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and the foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. The consolidated financial
statements for the year ended January 31, 1998 have been reclassified to conform
to the requirements of Statement 130. Unrealized gains on marketable securities
as of January 31, 1999 and 2000 are net of income taxes of $28,000 and $31,000,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-4, DEFERRAL OF
THE EFFECTIVE DATE OF A PROVISION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION,
which delayed for one year the effective date of the provisions within SOP 97-2
that set forth the definition of "vendor-specific objective
F-10
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
evidence" of fair value. In December 1998, the AICPA issued Statement of
Position 98-9 ("SOP 98-9"), MODIFICATION OF SOP 97-2, SOFTWARE REVENUE
RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS." SOP 98-9 extended the
effective date to apply the definition of "vendor-specific objective fair
evidence" of fair value under SOP 97-2 through fiscal years beginning on or
before March 15, 1999 and introduced the requirement to recognize revenue using
the "residual method" to value delivered elements of multiple-element contracts
under certain circumstances. The provisions of SOP 98-9 have been adopted by the
Company effective February 1, 2000, which did not have a material effect on the
Company's financial position or results of operations.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"). The Company adopted SFAS 131 effective February 1, 1998. The Company has
made the financial statement disclosures necessary to conform to SFAS 131, which
has had no impact on the Company's financial position or results of operations.
In 1998, the AICPA issued Statement of Position 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPMENT OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). The Company adopted SOP 98-1 effective February 1, 1999. The adoption of
this standard did not have a material effect on the Company's financial position
or results of operations.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), which
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure these instruments
at fair value. SFAS 133 is expected to be effective for the Company's fiscal
year beginning February 1, 2001. The Company is currently evaluating what
impact, if any, SFAS 133 may have on its consolidated financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, or SAB 101. SAB 101 summarizes
specific areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements and will be adopted
by the Company on May 1, 2000. Management believes that its current revenue
recognition policies comply with SAB 101.
3. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities, trade accounts receivable, and notes
receivable from a related party.
F-11
<PAGE>
3. FINANCIAL INSTRUMENTS (CONTINUED)
The Company maintains cash and cash equivalents at various financial
institutions. Company policy is designed to limit exposure at any one
institution. The Company performs periodic evaluations of the relative credit
standing of those financial institutions which are considered in the Company's
investment strategy. Cash equivalents at January 31, 2000 of $40,146,000
represented investments in the commercial paper of a large U.S. company and a
Federal Home Loan Bank Discount Note.
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Receivables generally are due within 30 days, and management records estimates
of expected credit losses and returns of products sold. Bad debt expense for the
years ended January 31, 1998, 1999, and 2000 amounted to $377,000, $227,000 and
$473,000, respectively. Credit risk with respect to the note receivable from
related party is limited as the note is secured by options to purchase 500,000
shares of the Company's common stock.
FAIR VALUES
The carrying amounts reported in the consolidated balance sheets for
cash and cash equivalents, accounts receivable, notes receivable from a related
party, accounts payable and long-term debt approximate their fair value. The
fair values of marketable equity securities are based on quoted market prices.
F-12
<PAGE>
4. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1999 2000
---------- ----------
<S> <C> <C>
Note payable to a shareholder resulting for the purchase of Devcom Mid-America,
Inc. (see Note 10), in the original amount of $379,000 due in monthly
installments of $11,000 including interest at 10%,
through February 2000 $ 141,000 $ 11,000
Notes payable to a shareholder and employee for the purchase of Competence
Software Europe, S.A. (see Note 10) in the original amount of $150,000 due in
two annual payments of $75,000 and accruing interest at 5%. An additional
$89,000 became payable in January 2000 as a result of the achievement of
certain revenue thresholds as defined in the purchase
agreement and is due February 2000 150,000 164,000
Notes payable to three former shareholders and employees for the purchase of
common stock and options to purchase common stock (see Note 9), in the
original amount of $3,283,000, of which $1,612,000 was paid in January 1999,
with the remaining balance due in quarterly installments of $183,000
including interest at 7%, through July 2001. The note was
repaid in December 1999 1,671,000 --
Other notes payable to related parties 75,000 53,000
---------- ----------
2,037,000 228,000
Less current portion 913,000 228,000
---------- ----------
$1,124,000 $ --
========== ==========
</TABLE>
5. CAPITAL LEASES AND LINES OF CREDIT
The Company leases telecommunications, computer equipment and vehicles
under capital leases. Assets under capital leases included in property and
equipment are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 2000
-------------------
<S> <C> <C>
Equipment $215,000 $215,000
Less accumulated amortization 85,000 135,000
-------- --------
$130,000 $ 80,000
======== ========
</TABLE>
F-13
<PAGE>
5. CAPITAL LEASES AND LINES OF CREDIT (CONTINUED)
Future minimum lease payments under capital leases consist of the following at
January 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
2001 $ 53,000
2002 38,000
--------
Total minimum lease payments 91,000
Less amounts representing interest (8,000)
--------
Present value of net minimum lease payments 83,000
Less current portion (45,000)
--------
$ 38,000
========
</TABLE>
The Company had a note payable to a bank in the original amount of
$550,000 due in monthly installments of $11,000 including interest at prime rate
plus .75% (9.0% at January 31, 1998), which was fully paid in November 1998. The
note was secured by substantially all assets, and personally guaranteed by the
majority shareholder.
On May 9, 1997, the Company entered into a line of credit with a bank
under which it could borrow up to $1,500,000 subject to certain limitations,
through May 11, 1998. The line bore interest at the prime rate (8.25% at January
31, 1998). As of January 31, 1998, there were no borrowings outstanding under
the line.
On January 31, 1999, the Company entered into a line of credit with a
bank under which it may borrow up to $2,000,000 subject to certain limitations,
through January 31, 2001. This line of credit was closed effective April 25,
2000. The line bore interest at the prime rate plus one to two percent based on
the balance outstanding under the line of credit (9.5% to 10.5% at January 31,
2000). Virtually all assets were pledged as collateral under the line of credit.
As of January 31, 1999 and 2000, there were no borrowings outstanding under the
line.
6. OPERATING LEASES
The Company leases office and warehouse space under operating leases.
Rent expense under the Company's operating leases was approximately $253,000,
$314,000, and $839,000 during the years ended January 31, 1998, 1999, and 2000,
respectively.
F-14
<PAGE>
6. OPERATING LEASES (CONTINUED)
Future minimum lease payments under noncancellable operating leases,
with initial terms of at least one year at the time of inception, are as follows
at January 31, 2000:
<TABLE>
<S> <C>
2001 $1,491,000
2002 1,389,000
2003 1,276,000
2004 1,272,000
2005 1,253,000
Thereafter 2,233,000
----------
$8,914,000
==========
</TABLE>
7. INCOME TAXES
The provisions for income taxes are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999 2000
-----------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 222,000 $ 120,000 $ 1,265,000
State 39,000 44,000 250,000
Foreign 28,000 134,000 341,000
----------- ----------- -----------
289,000 298,000 1,856,000
Deferred:
Federal (202,000) (178,000) (228,000)
State (23,000) (21,000) (27,000)
----------- ----------- -----------
(225,000) (199,000) (255,000)
----------- ----------- -----------
Total $ 64,000 $ 99,000 $ 1,601,000
=========== =========== ===========
</TABLE>
F-15
<PAGE>
7. INCOME TAXES (CONTINUED)
Pre-tax income attributable to foreign and domestic operations is
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999 2000
---------------------------------------
<S> <C> <C> <C>
U.S. operations $ 86,000 $ 112,000 $ 3,043,000
French operations -- 337,000 295,000
U.K. operations -- -- 598,000
Australian operations -- -- (343,000)
----------- ----------- -----------
$ 86,000 $ 449,000 $ 3,593,000
=========== =========== ===========
</TABLE>
A reconciliation of the provision for income taxes to the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999 2000
-----------------------------------------
<S> <C> <C> <C>
Statutory rate of 34% applied to pre-tax income $ 29,000 $ 153,000 $ 1,220,000
State income taxes, net of Federal tax benefit 7,000 8,000 120,000
Valuation reserve on Australian loss -- -- 117,000
Foreign taxes 28,000 20,000 55,000
Research and development tax credits (56,000) (116,000) (174,000)
Meals and entertainment expense -- -- 50,000
Goodwill amortization -- -- 36,000
Other, net 56,000 34,000 177,000
----------- ----------- -----------
$ 64,000 $ 99,000 $ 1,601,000
=========== =========== ===========
</TABLE>
F-16
<PAGE>
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effect 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>
JANUARY 31,
-------------------
1999 2000
-------------------
<S> <C> <C>
Deferred income tax assets:
Goodwill amortization $289,000 $397,000
Net operating loss carryforwards -- 117,000
Payroll related accruals 104,000 97,000
Allowance for doubtful accounts 43,000 107,000
Deferred revenue 36,000 66,000
Other, net 28,000 88,000
Valuation allowance -- (117,000)
-------- --------
Total deferred income tax assets 500,000 755,000
Deferred income tax liabilities:
Unrealized changes in marketable securities 28,000 31,000
-------- --------
Total deferred income tax liabilities 28,000 31,000
-------- --------
Net deferred tax asset $472,000 $724,000
======== ========
</TABLE>
At January 31, 2000, the Company had net operating loss
carryforwards of approximately $346,000 resulting from its Australian
operations. For financial reporting purposes, a valuation allowance has been
established to offset the deferred tax assets related to these carryforwards.
8. STOCK OPTIONS
Effective January 1, 1997, the Company adopted a stock incentive plan
(the "Plan") for employees and key persons which provides for the issuance of
stock incentives covering up to 12,500,000 shares of common stock. The Plan
provides for the grant of incentive stock options, non-qualified stock options,
restricted stock awards and stock appreciation rights. The terms and conditions
of stock incentives granted under the Plan, including the number of shares, the
exercise price and the time at which such options become exercisable are
determined by the Board of Directors. The term of options granted under the Plan
may not exceed 10 years and generally vest over periods ranging from three to
five years.
On October 15, 1999, the Company adopted a Directors' Stock Option
Plan for directors of the Company who are not officers or employees of the
Company. The Directors' Plan provides for issuance of options to purchase the
Company's common stock at an exercise price equal to fair market value on the
date of grant and expiring 10 years after issuance. The options will become
fully vested as of the date of issuance. The Company has reserved 300,000
shares of the Company's common stock for issuance under the Directors' Plan.
The Company granted options to purchase 30,000 shares of common stock at a
per share price equal to the initial public offering price per share to
directors under the Directors' Plan.
F-17
<PAGE>
8. STOCK OPTIONS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED
NUMBER PER AVERAGE
OF OPTION EXERCISE
SHARES PRICE
---------------------------------------
<S> <C> <C> <C>
Outstanding options at February 1, 1997 5,692,500 $0.002-$0.64 $ 0.27
Options granted 975,000 $0.60-$0.80 $ 0.65
Options cancelled (375,000) $0.03-$0.60 $ 0.27
---------
Outstanding options at January 31, 1998 6,292,500 $0.002-$0.80 $ 0.34
Options granted 4,099,940 $0.80-$1.50 $ 0.80
Options exercised (500,000) $0.002 $ 0.002
Options canceled (790,040) $0.10-$0.80 $ 0.22
---------
Outstanding options at January 31, 1999 9,102,400 $0.002-$1.50 $ 0.56
Options granted 1,392,595 $1.00-$10.00 $ 1.85
Options canceled (906,575) $0.60-$1.70 $ 0.83
---------
Outstanding options at January 31, 2000 9,588,420 $.01-$10.00 $ 0.72
=========
Exercisable options at January 31, 1998 3,840,000 $0.002-$0.80 $ 0.22
=========
Exercisable options at January 31, 1999 4,625,000 $0.002-$0.80 $ 0.39
=========
Exercisable options at January 31, 2000 5,961,250 $0.002-$10.00 $ 0.50
=========
</TABLE>
F-18
<PAGE>
8. STOCK OPTIONS (CONTINUED)
The following table summarizes information concerning options
outstanding and exercisable as of January 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------ ------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE WEIGHTED
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
- ------------------- ------------------ ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$0.002-0.20 2,350,000 4.75 $ 0.07 2,350,000 $ 0.07
$0.60-1.00 6,030,695 7.46 $ 0.74 3,575,000 $ 0.70
$1.50-1.70 1,157,725 9.02 $ 1.54 6,250 $ 1.50
$10.00 50,000 9.83 $ 10.00 30,000 $ 10.00
--------- ---------
9,588,420 7.54 $ 0.72 5,961,250 $ 0.50
========= =========
</TABLE>
The Company has reserved 12,500,000 shares of common stock for issuance
upon exercise of stock options under the Stock Incentive Plan and 300,000 shares
of common stock for issuance upon exercise of stock options under the Directors'
Stock Option Plan.
The Company has elected to follow APB 25 in accounting for its stock
options because, as discussed below, the alternative fair value accounting
provided for under SFAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's stock options equals or exceeds the market price
of the underlying stock on the date of grant, no compensation expense is
recorded.
Pro forma information regarding net income is required by SFAS 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method. The fair value for these options was estimated at
the date of grant using the minimum value method through December 15, 1999, the
date of the Company's initial public offering. The following weighted-average
assumptions were used for the years ended January 31, 1998, 1999 and 2000:
risk-free interest rates of 6.28%, 5.61% and 6.34% respectively; no dividend
yield; and an expected life of the options of 4.99 years.
F-19
<PAGE>
8. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting periods. The
weighted-average fair value of options granted during the year ended January
31, 1998 equaled $0.20 per share for options whose exercise price equaled the
estimated stock value on the grant date and $0.15 per share for options whose
exercise price exceeded the estimated stock value on the grant date. The
weighted-average fair value of options granted during the year ended January
31, 1999 equaled $0.23 per share. The weighted average fair value of options
granted during the year ended January 31, 2000 equaled $0.72 per share. The
Company's pro forma information as determined using the fair value method of
accounting of SFAS 123, was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999 2000
-----------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $ (31,000) $ 123,000 $ 1,437,000
Pro forma net income per share - basic 0.00 0.01 0.11
Pro forma net income per share - diluted 0.00 0.01 0.07
</TABLE>
Since SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.
The Company recorded deferred compensation of $373,000 during the year
ended January 31, 2000 in connection with grants of employee share purchase
options with exercise prices lower than the deemed fair market value per share
of the Company's common stock on the date of grant. Such amounts are being
amortized over the period in which the options vest, generally three to four
years, and accordingly, $77,000 in compensation expense was recognized in the
year ended January 31, 2000.
9. SHAREHOLDERS' EQUITY
On May 1, 1998, the Company issued a note payable for $50,000 to an
employee in exchange for 75,000 shares of the Company's common stock.
Shareholders' equity was reduced by the $50,000 repurchase price.
In December 1998, the Company entered into an agreement (the
"Agreement") with two of its former key employees and a former advisor (the
"Former Shareholders"), whereby the Company paid cash of $60,000 and issued
notes payable totaling $3,283,000 in exchange for 1,646,590 shares of the
Company's common stock, forfeiture of options to purchase 500,000 shares of the
Company's common stock, and accrued interest of $173,000. Shareholders' equity
was reduced by the $1.50 per share purchase price for the 1,646,590 repurchased
shares.
F-20
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
The Company recorded compensation expense of $700,000, which is
included in general and administrative expenses for the year ended January 31,
1999, as a result of the $1.40 per share price paid to the Former Employees for
the options to purchase 500,000 shares of the Company's common stock. The $1.40
price paid represents the estimated fair value of a share of the Company's
common stock of $1.50 less the $0.10 per share exercise price of these options.
During the year ended January 31, 1999, the holder of certain
non-qualified options covering 500,000 shares of the Company's common stock
exercised such options in exchange for the exercise price of $0.002 per share.
As a result the Company recorded a tax benefit of $300,000 in common stock
relative to the difference between the estimated fair value of the Company's
common stock on the exercise date of $1.50 per share and the exercise price paid
of $0.002 per share.
In connection with the agreement, the Company executed an escrow
agreement between the Former Employees and a bank whereby the shares of common
stock purchased by the Company were held in escrow as security for the repayment
of the issued promissory notes. The escrowed shares were released from escrow
upon the pay off of the notes (see Note 4). Such escrowed shares remaining in
escrow at January 31, 1999 were not included as outstanding shares of common
stock. Such shares were cancelled upon the repayment of the notes and are not
included as outstanding shares of common stock at January 31, 2000.
On October 15, 1999, the Company's Board of Directors declared a
5-for-1 common stock split. All common stock and option information, weighted
average shares and net income per share information has been retroactively
restated to reflect the stock split.
10. ACQUISITIONS
On February 28, 1997 the Company acquired all the assets and assumed
all the liabilities of Devcom Mid-America, Inc. ("Devcom"). The purchase price
amounted to $1,671,000 consisting of 500,000 shares of the Company's common
stock valued at $300,000 and assumed liabilities (including notes payable) of
$1,371,000. The transaction was accounted for using the purchase method of
accounting and all assets and liabilities were recorded at fair value. The
excess of purchase price over the net assets acquired is recorded as goodwill of
approximately $1,285,000 which was amortized over a three-year period. The
goodwill was fully amortized as of January 31, 2000. The results of operations
of Devcom have been included in the Company's income statement since the
effective date of the transaction.
The pro forma consolidated results of operations for the year ended
January 31, 1998, assuming the above acquisition had occurred at the beginning
of the year, was not materially different from the Company's consolidated
results of operations for the year ended January 31, 1998.
F-21
<PAGE>
10. ACQUISITIONS (CONTINUED)
On August 26, 1998, the Company acquired all the outstanding shares of
Competence Software Europe, S.A ("Competence"), a software product distributor
in Europe for consideration valued at approximately $730,000 consisting of notes
payable of $150,000, 200,000 shares of the Company's common stock valued at
$160,000 and cash and related acquisition costs of approximately $351,000 and
$69,000 respectively. In accordance with the purchase agreement, the Company
accrued an additional $89,000 as part of the purchase price, based on the
achievement of certain aggregate gross revenue thresholds during the twenty-two
month period ended January 31, 2000. Payment is due in February 2000. In
connection with the transaction, the Company and the seller (the "Seller")
entered into a shareholder agreement whereby the Seller, who received 200,000
shares of the Company's common stock as part of the purchase price, is subject
to certain restrictions on the transfer or sale of shares, including the
Company's right of first refusal to purchase shares to be sold, through March
27, 2000.
The transaction was accounted for using the purchase method of
accounting and its results have been included in the Company's income statement
since the effective date of the acquisition. The Company recorded intangible
assets of approximately $487,000 which represents the excess of the purchase
price over the fair value of assets acquired. The intangible assets were further
allocated $150,000 to the existing customer base, which is being amortized over
three years, and $337,000 to goodwill, which is being amortized over five years.
The additional $89,000 of purchase price accrued at January 31, 2000 was
allocated to goodwill and is being amortized over the remaining life of the
original goodwill.
The following represents the unaudited pro forma consolidated results
of operations for the years ended January 31, 1998 and 1999, assuming the above
acquisition of Competence had occurred at the beginning of the year for the
immediately preceding period:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999
----------------------------
<S> <C> <C>
Net revenue $ 14,167,000 $ 19,899,000
Net loss (70,000) 307,000
Pro forma net (loss) income per share - basic and diluted (0.01) 0.02
</TABLE>
These unaudited pro forma consolidated results do not purport to be
indicative of the results or trends that actually would have been obtained if
the operations were combined during the periods presented, and is not intended
to be a projection of future results or trends.
F-22
<PAGE>
11. EMPLOYEE BENEFIT PLAN
The Company has a combined profit sharing and 401(k) plan (the "Plan")
which covers substantially all employees meeting specified age and
length-of-service requirements. The Company may make a discretionary matching
contribution each year. The Company recognized expense related to the Plan of
approximately $136,000, $127,000 and $263,000 during the years ended January 31,
1998, 1999 and 2000, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has notes receivable and advances to shareholders for
general personal purposes of $116,000 and $120,000 at January 31, 1999 and 2000,
respectively. Included in these amounts are notes amounting to $35,000 as of
January 31, 1999 and 2000, which bear interest at rates ranging from 9.5% to
10% with the principal and interest thereon due upon demand. The remaining
advances do not accrue interest and are due upon demand. The advances and note
receivable are classified as long-term as the shareholders do not intend to
repay the balances within the next fiscal year.
During the year ended January 31, 1999, the Company advanced $525,000
for general personal purposes to an individual who is a director of the Company
and who holds options to purchase 500,000 shares of the Company's common stock.
An additional $75,000 was advanced to this individual during the year ended
January 31, 2000. At January 31, 1999 and 2000, $525,000 and $600,000,
respectively, was owed to the Company from this individual as a result of these
advances. Such advances are secured by the options held by the individual.
13. NET INCOME PER SHARE
Net income per share has been computed in accordance with SFAS 128,
EARNINGS PER SHARE, which requires disclosure of basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of stock options.
Diluted earnings per share includes the impact of potentially dilutive
securities.
F-23
<PAGE>
13. NET INCOME PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1999 2000
<S> <C> <C> <C>
Net income $ 22,000 $ 350,000 $ 1,992,000
=========== =========== ===========
Weighted average shares outstanding - basic 12,890,904 12,824,532 12,586,037
Effect of dilutive stock options 3,533,048 4,480,297 7,855,722
----------- ----------- -----------
Weighted average shares outstanding - diluted 16,423,952 17,304,829 20,441,759
=========== =========== ===========
Net income per share - basic $ 0.00 $ 0.03 $ 0.16
=========== =========== ===========
Net income per share - diluted $ 0.00 $ 0.02 $ 0.10
=========== =========== ===========
</TABLE>
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized around geographic areas. Prior to fiscal 1999,
the Company operated in one geographic segment. During fiscal year 1999, the
Company operated in two geographic segments, the United States and France, and
expanded into the United Kingdom and Australia subsequent to January 31, 1999.
The foreign locations principally function as distributors of products developed
by the Company in the United States. The accounting policies as described in the
summary of significant accounting policies are applied consistently across the
segments. Intersegment sales are based on intercompany transfer prices to
achieve a reasonable margin upon distribution.
Segment information for the years ended January 31, 1999 and 2000 is
summarized below.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999 UNITED STATES FRANCE COMBINED ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees $11,442,000 $ 572,000 $ 12,014,000 $ - $ 12,014,000
Services, maintenance and other 7,111,000 414,000 7,525,000 - 7,525,000
Intersegment revenue 19,000 - 19,000 (19,000) -
------------------------------------------------------------------------------
Total revenue 18,572,000 986,000 19,558,000 (19,000) 19,539,000
Interest income 102,000 2,000 104,000 - 104,000
Interest expense (257,000) - (257,000) - (257,000)
Depreciation and amortization 917,000 24,000 941,000 - 941,000
Income tax expense (benefit) (35,000) 134,000 99,000 - 99,000
Segment net income (loss) 166,000 203,000 369,000 (19,000) 350,000
Total segment assets 9,554,000 1,184,000 10,738,000 - 10,738,000
Expenditures for long-lived assets 1,004,000 107,000 1,111,000 - 1,111,000
</TABLE>
F-24
<PAGE>
14. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
UNITED UNITED
YEAR ENDED JANUARY 31, 2000 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees $ 14,521,000 $1,689,000 $ 796,000 $ 108,000 $17,114,000 $ - $ 17,114,000
Services, maintenance and
other 14,107,000 1,121,000 467,000 24,000 15,719,000 - 15,719,000
Intersegment revenue 599,000 194,000 - - 793,000 (793,000) -
--------------------------------------------------------------------------------------------------
Total revenue 29,227,000 3,004,000 1,263,000 132,000 33,626,000 (793,000) 32,833,000
Interest income 363,000 - - - 363,000 - 363,000
Interest expense (119,000) - - (1,000) (120,000) - (120,000)
Depreciation and amortization 1,177,000 47,000 2,000 1,000 1,227,000 - 1,227,000
Income tax expense 1,260,000 133,000 208,000 - 1,601,000 - 1,601,000
Segment net income (loss) 1,783,000 162,000 390,000 (343,000) 1,992,000 - 1,992,000
Total segment assets 59,195,000 1,875,000 755,000 106,000 61,931,000 (1,289,000) 60,642,000
Expenditures for long-lived
assets 1,094,000 38,000 - 3,000 1,135,000 - 1,135,000
</TABLE>
15. SUBSEQUENT EVENTS
On March 27, 2000, the Company acquired all the outstanding shares of
Muscato Corporation ("Muscato"), and substantially all of the assets of
Translink Solutions Corporation ("Translink"). The purchase price for the shares
of Muscato was $20.0 million in cash and promissory notes of $8.0 million. The
notes provide for repayment on March 27, 2030, except that mandatory
acceleration of payments of $4.0 million on March 27, 2001 and $4.0 million on
March 27, 2002 shall occur, providing employment of the seller by the Company is
maintained. The purchase price for the assets acquired from Translink was $5.0
million in cash. The cash component of each purchase price was paid out of the
net proceeds of the Company's initial public offering. The transactions will be
accounted for using the purchase method of accounting. The acquired assets
consist primarily of accounts receivable, technology, software, machinery,
equipment, furniture and fixtures, cash, and all of the interests, rights and
benefits accruing under any sales orders, sales contracts, and services
agreements. In connection with the acquisitions, the Company also assumed
selected liabilities of the acquired companies, consisting primarily of accounts
payable, accrued payroll, and service agreements.
Effective April 14, 2000, the Company entered into a $10.0 million
line of credit arrangement with First Union National Bank. The line of credit
matures on April 14, 2001. The line of credit bears interest at LIBOR plus
1.75%. This debt instrument is due on April 14, 2001 and is collateralized by
the Company's accounts receivable. The agreement contains customary events of
default and a number of customary covenants including certain financial
ratios and restrictions on dividends.
F-25
<PAGE>
OPTIO SOFTWARE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING OF COSTS AND TO OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1998
Allowance for doubtful accounts............... $126,000 $373,000 $0 $410,000 $ 89,000
Year ended January 31, 1999
Allowance for doubtful accounts............... $ 89,000 $227,000 $0 $198,000 $118,000
Year ended January 31, 2000 $118,000 $473,000 $0 $305,000 $286,000
Allowance for doubtful accounts..................
</TABLE>
F-26
<PAGE>
EXHIBIT 10.12
================================================================================
CREDIT AGREEMENT
dated as of April 14, 2000
by and among
OPTIO SOFTWARE, INC.,
as Borrower,
and
FIRST UNION NATIONAL BANK
as Lender
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 DEFINITIONS.............................................................................................4
SECTION 1.1 Definitions..................................................................................4
SECTION 1.2 General.....................................................................................12
SECTION 1.3 Other Definitions and Provisions............................................................13
ARTICLE 2 REVOLVING CREDIT FACILITY..............................................................................13
SECTION 2.1 Revolving Credit Loans......................................................................13
SECTION 2.2 Procedure for Advances of Loans.............................................................13
SECTION 2.3 Repayment of Loans..........................................................................14
SECTION 2.4 Note........................................................................................14
SECTION 2.5 Permanent Reduction of the Commitment.......................................................14
SECTION 2.6 Use of Proceeds.............................................................................14
ARTICLE 3 GENERAL LOAN PROVISIONS................................................................................15
SECTION 3.1 Interest....................................................................................15
SECTION 3.2 Closing Fee.................................................................................16
SECTION 3.3 Manner of Payment...........................................................................16
SECTION 3.4 Crediting of Payments and Proceeds..........................................................16
SECTION 3.5 Increased Costs.............................................................................16
SECTION 3.6 Capital Requirements........................................................................17
SECTION 3.7 Taxes.......................................................................................17
ARTICLE 4 CLOSING; CONDITIONS OF CLOSING AND BORROWING...........................................................18
SECTION 4.1 Conditions to Closing and Initial Loan......................................................18
SECTION 4.2 Conditions to All Loans.....................................................................20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BORROWER.........................................................21
SECTION 5.1 Representations and Warranties..............................................................21
SECTION 5.2 Survival of Representations and Warranties Etc..............................................27
ARTICLE 6 FINANCIAL INFORMATION AND NOTICES......................................................................27
SECTION 6.1 Financial Statements........................................................................27
SECTION 6.2 Officer's Compliance Certificate............................................................28
SECTION 6.3 Accountants' Certificate....................................................................28
SECTION 6.4 Other Reports...............................................................................28
SECTION 6.5 Notice of Litigation and Other Matters......................................................29
SECTION 6.6 Accuracy of Information.....................................................................29
ARTICLE 7 AFFIRMATIVE COVENANTS..................................................................................30
SECTION 7.1 Preservation of Corporate Existence and Related Matters.....................................30
</TABLE>
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SECTION 7.2 Maintenance of Property....................................................................30
SECTION 7.3 Insurance..................................................................................30
SECTION 7.4 Accounting Methods and Financial Records...................................................30
SECTION 7.5 Payment and Performance of Obligations.....................................................30
SECTION 7.6 Compliance With Laws and Approvals.........................................................31
SECTION 7.7 Environmental Laws.........................................................................31
SECTION 7.8 Compliance with ERISA......................................................................31
SECTION 7.9 Compliance With Agreements.................................................................31
SECTION 7.10 Conduct of Business........................................................................31
SECTION 7.11 Visits and Inspections.....................................................................31
SECTION 7.12 Additional Guarantors......................................................................32
SECTION 7.13 Leverage Ratio.............................................................................32
SECTION 7.14 Quick Ratio................................................................................32
SECTION 7.15 Further Assurances.........................................................................32
SECTION 7.16 Depository Accounts........................................................................32
ARTICLE 8 NEGATIVE COVENANTS.....................................................................................32
SECTION 8.1 Limitations on Debt........................................................................32
SECTION 8.2 Limitations on Liens.......................................................................33
SECTION 8.3 Limitations on Loans, Advances, Investments and Acquisitions...............................34
SECTION 8.4 Limitations on Mergers and Liquidation.....................................................34
SECTION 8.5 Limitations on Sale of Assets..............................................................35
SECTION 8.6 Limitations on Dividends and Distributions.................................................35
SECTION 8.7 Limitations on Exchange and Issuance of Capital Stock......................................35
SECTION 8.8 Transactions with Affiliates...............................................................36
SECTION 8.9 Certain Accounting Changes.................................................................36
SECTION 8.10 Amendments; Payments and Prepayments of Subordinated Debt..................................36
SECTION 8.11 Restrictive Agreements.....................................................................36
ARTICLE 9 DEFAULT AND REMEDIES...................................................................................36
SECTION 9.1 Events of Default..........................................................................36
SECTION 9.2 Remedies...................................................................................38
SECTION 9.3 Rights and Remedies Cumulative; Non-Waiver; etc............................................39
ARTICLE 10 MISCELLANEOUS.........................................................................................39
SECTION 10.1 Notices....................................................................................39
SECTION 10.2 Expenses; Indemnity........................................................................40
SECTION 10.3 Set-off....................................................................................41
SECTION 10.4 Governing Law..............................................................................41
SECTION 10.5 Consent to Jurisdiction....................................................................41
SECTION 10.6 Binding Arbitration; Waiver of Jury Trial..................................................41
SECTION 10.7 Reversal of Payments.......................................................................42
SECTION 10.8 Injunctive Relief; Punitive Damages........................................................43
SECTION 10.9 Accounting Matters.........................................................................43
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SECTION 10.10 Successors and Assigns; Confidentiality...................................................43
SECTION 10.11 Amendments, Waivers and Consents..........................................................44
SECTION 10.12 Performance of Duties.....................................................................44
SECTION 10.13 All Powers Coupled with Interest..........................................................44
SECTION 10.14 Survival of Indemnities...................................................................44
SECTION 10.15 Titles and Captions.......................................................................44
SECTION 10.16 Severability of Provisions................................................................44
SECTION 10.17 Counterparts..............................................................................44
SECTION 10.18 Term of Agreement.........................................................................45
</TABLE>
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Account Designation
Exhibit D - Form of Officer's Certificate
SCHEDULES
Schedule 5.1(a) - Jurisdictions of Organization and
Qualification
Schedule 5.1(b) - Subsidiaries
Schedule 5.1(i) - ERISA Plans
Schedule 5.1(l) - Material Contracts
Schedule 5.1(s) - Debt and Contingent Obligations
Schedule 8.2 - Existing Liens
Schedule 8.3 - Existing Loans, Advances and Investments
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CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of the 14th day of April, 2000, by and among
OPTIO SOFTWARE, INC., a corporation organized under the laws of Georgia (the
"Borrower") and FIRST UNION NATIONAL BANK, as the lender (the "Lender").
STATEMENT OF PURPOSE
The Borrower has requested, and the Lender has agreed, to extend a
revolving credit facility to the Borrower on the terms and conditions of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"AFFILIATE" means, with respect to any Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person or any of its Subsidiaries. The term "control" means (a) the
power to vote five percent (5%) or more of the securities or other equity
interests of a Person having ordinary voting power, or (b) the possession,
directly or indirectly, of any other power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Credit Agreement, as amended or modified from
time to time.
"APPLICABLE LAW" means all applicable provisions of constitutions,
statutes, laws, rules, treaties, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"BASE RATE" means, at any time, the higher of (a) the Prime Rate or (b)
the Federal Funds Rate PLUS 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"BASE RATE LOAN" means any Loan bearing interest at a rate based upon
the Base Rate as provided in Section 3.1.
"BUSINESS DAY" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Atlanta, Georgia and New York,
<PAGE>
New York, are open for the conduct of their commercial banking business, and (b)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, any LIBOR Rate Loan, any day that is a Business
Day described in clause (a) and that is also a day for trading by and between
banks in Dollar deposits in the London interbank market.
"CAPITAL LEASE" means, with respect to the Borrower and its
Subsidiaries, any lease of any property that should, in accordance with GAAP, be
classified and accounted for as a capital lease on a consolidated balance sheet
of the Borrower and its Subsidiaries.
"CAPITAL STOCK" means (a) in the case of a corporation, corporate
stock; (b) in the case of an association or business entity, any and all shares,
interest, participations, rights or other equivalents (however designated) of
equity interests; (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); (d) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person;
and (e) any securities convertible into or exchangeable for any of the foregoing
or any warrants, rights or options to acquire any of the foregoing.
"CLOSING DATE" means the date of this Agreement or such later Business
Day upon which each condition described in Article 4 shall be satisfied or
waived in all respects in a manner acceptable to the Lender, in its sole
discretion.
"CODE" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"COMMITMENT" means the obligation of the Lender to make Loans to the
Borrower hereunder in an aggregate principal at any time outstanding not to
exceed $10,000,000, as the same may be reduced or modified at any time or from
time to time pursuant to the terms hereof.
"CONTINGENT OBLIGATION" means, with respect to the Borrower and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); PROVIDED, that the term Contingent
Obligation shall not include endorsements for collection or deposit in the
ordinary course of business.
"CURRENT ASSETS" means, with respect to the Borrower and its
Subsidiaries, all assets that should, in accordance with GAAP, be classified and
accounted for as current assets on a consolidated balance sheet of the Borrower
and its Subsidiaries; PROVIDED, HOWEVER, that the following assets shall be
excluded from Current Assets: (a) inventory, (b) any Debt owed to Borrower or
any Subsidiary
<PAGE>
by any officer, employee, stockholder, Subsidiary or Affiliate of Borrower or
any Subsidiary and (c) all prepaid expenses.
"CURRENT LIABILITIES" means, with respect to the Borrower and its
Subsidiaries, all liabilities that should, in accordance with GAAP, be
classified and accounted for as current liabilities on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"DEBT" means, with respect to the Borrower and its Subsidiaries at any
date and without duplication, the sum of the following calculated in accordance
with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money
including but not limited to obligations evidenced by bonds, debentures, notes
or other similar instruments of any such Person, (b) all obligations to pay the
deferred purchase price of property or services of any such Person, except trade
payables arising in the ordinary course of business , (c) all obligations of any
such Person as lessee under Capital Leases, (d) all Debt of any other Person
secured by a Lien on any asset of any such Person, (e) all Contingent
Obligations of any such Person, (f) all obligations, contingent or otherwise, of
any such Person relative to the face amount of letters of credit, whether or not
drawn, and banker's acceptances issued for the account of any such Person and
(g) all obligations incurred by any such Person pursuant to Hedging Agreements.
"DEFAULT" means any of the events specified in Section 9.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"DOLLARS" OR "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means, with respect to Borrower and its consolidated
Subsidiaries, for any period of calculation and without duplication, the sum of
(i) Net Income of Borrower and its consolidated Subsidiaries for such period,
PLUS (ii) Interest Expense paid or accrued during such period, PLUS (iii)
depreciation and amortization expense deducted during such period in calculating
Net Income of Borrower and its consolidated Subsidiaries, PLUS (iv) the income
taxes paid or payable in cash by Borrower and its consolidated Subsidiaries in
respect of such period, PLUS (v) to the extent deducted in the calculation of
Net Income, non-cash charges arising out of the issuance of employee stock
options as compensation, calculated in each case on a consolidated basis for
Borrower and its Subsidiaries in accordance with GAAP.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of the
Borrower or any ERISA Affiliate or (b) has at any time within the preceding six
years been maintained for the employees of the Borrower or any current or former
ERISA Affiliate.
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage,
<PAGE>
disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA AFFILIATE" means any Person who together with the Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"EVENT OF DEFAULT" means any of the events specified in Section 9.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"FEDERAL FUNDS RATE" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Lender and confirmed in Federal Reserve
Board Statistical Release H.15 (519) or any successor or substitute publication
selected by the Lender. If, for any reason, such rate is not available, then
"Federal Funds Rate" shall mean a daily rate which is determined, in the opinion
of the Lender, to be the rate at which federal funds are being offered for sale
in the national federal funds market at 9:00 a.m. (Atlanta time). Rates for
weekends or holidays shall be the same as the rate for the most immediate
preceding Business Day.
"FISCAL YEAR" means the fiscal year of the Borrower and its
Subsidiaries ending on January 31 of each year.
"FUNDED DEBT" shall mean, for any Person, collectively but without
duplication, (a) the aggregate principal amount of Debt for borrowed money which
would, in accordance with GAAP, be classified as long-term debt, together with
the current maturities thereof; (b) all Debt outstanding under any revolving
credit, line of credit or similar agreement providing for borrowings (and any
extensions or renewals thereof), notwithstanding that any such Debt is created
within one year of the expiration of such agreement; (c) all obligations of such
Person as lessee under Capital Leases; (d) all debt, obligations or other
liabilities of such Person with respect to letters of credit issued for such
Person's account; (e) Debt that is such by virtue of clause (e) of the
definition thereof, but only to the extent that the obligations Guaranteed are
obligations that would constitute Funded Debt; and (f) Debt that is such by
virtue of clause (g) of the definition thereof, and (g) any other Debt bearing
interest or carrying a similar payment requirement (including any Debt issued at
a discount to its face amount), calculated in all cases for such Person and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrower and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of the Borrower and its
Subsidiaries.
<PAGE>
"GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"GOVERNMENTAL AUTHORITY" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GUARANTORS" means each of Borrower's Subsidiaries which is organized
or formed under the laws of the United States or of any political subdivision
thereof or any territory thereof.
"GUARANTY" means that certain Guaranty executed and delivered by each
of the Guarantors in favor of Lender guaranteeing the payment and performance of
the Obligations.
"HAZARDOUS MATERIALS" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass
or pose a health or safety hazard to persons or neighboring properties, (f)
which are materials consisting of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"HEDGING AGREEMENT" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Borrower under this Agreement, and any
confirming letter executed pursuant to such hedging agreement, all as amended,
restated or otherwise modified.
"INTEREST EXPENSE" means, for any period and without duplication, the
aggregate of all interest expense deducted in computing Net Income of Borrower
and its consolidated Subsidiaries for such period.
"LENDER" means First Union National Bank, a national banking
association, and its successors and assigns.
"LENDER'S OFFICE" means the office of the Lender specified in or
determined in accordance with the provisions of Section 10.1.
"LEVERAGE RATIO" means, for Borrower and its consolidated Subsidiaries
at any date of
<PAGE>
determination thereof, the ratio of (a) Funded Debt of Borrower and its
consolidated Subsidiaries as of such date, to (b) EBITDA of Borrower and its
consolidated Subsidiaries, for the four quarter period ending on or most
recently ended prior to such date, determined in each case on a consolidated
basis for Borrower and its Subsidiaries in accordance with GAAP.
"LIBOR MARKET INDEX RATE" means, for any day, the rate for 1-month
U.S. dollar deposits as reported on Telerate page 3750 of the Telerate Service
as of 11:00 a.m., London time, on such day, or if such day is not a Business
Day, then the immediately preceding Business Day (or if not so reported, then as
determined by Lender from another recognized source or interbank quotation).
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"LOAN" means any revolving loan made to the Borrower pursuant to
Section 2.1, and all such Loans collectively as the context requires.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, any
Hedging Agreement executed by Lender or any of its Affiliates, the Security
Documents and each other document, instrument and agreement executed and
delivered by the Borrower, its Subsidiaries or their counsel in connection with
this Agreement or otherwise referred to herein or contemplated hereby, all as
may be amended, restated or otherwise modified.
"MATERIAL ADVERSE EFFECT" means, with respect to the Borrower or any of
its Subsidiaries, a material adverse effect on the properties, business,
prospects, operations or condition (financial or otherwise) of the Borrower and
its Subsidiaries, taken as a whole or the ability of the Borrower and its
Subsidiaries to perform their respective obligations under the Loan Documents or
Material Contracts, in each case to which it is a party.
"MATERIAL CONTRACT" means (a) any "material contract" as such term is
defined in Item 601(b)(10) of Regulation S-K of the Securities and Exchange
Commission, or (b) any other contract or agreement, written or oral, of the
Borrower or any of its Subsidiaries the failure to comply with which could
reasonably be expected to have a Material Adverse Effect.
"MATURITY DATE" means April 14, 2001 or, in the event the Lender elects
to extend the Maturity Date pursuant to Section 2.3(b), April 14, 2002.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions within the preceding six years.
"NET INCOME" means, for Borrower and its consolidated Subsidiaries, the
net income (or loss) of Borrower and its Subsidiaries for the period in question
after giving effect to deduction of or
<PAGE>
provision for all operating expenses, all taxes and reserves and all other
proper deductions, in each case calculated on a consolidated basis for Borrower
and its Subsidiaries in accordance with GAAP, provided that there shall be
excluded:
(a) the net income (or net loss) of any Person accrued prior
to the date it becomes a Subsidiary of, or is merged into or
consolidated with, the Borrower or any Subsidiary of the Borrower;
(b) the net income (or net loss) of any Person not a
Subsidiary of Borrower in which the Borrower or any of its Subsidiaries
has an ownership interest, except to the extent that any such net
income has actually been received by Borrower or such Subsidiary in the
form of cash dividends or similar distributions;
(c) any restoration of any contingency reserve, except to the
extent that provision for such reserve was made out of income during
such period;
(d) any net gains or losses on the sale or other disposition,
not in the ordinary course of business, of any capital assets, provided
that there shall also be excluded any related charges for taxes
thereon;
(e) any net gain arising from the collection of the proceeds
of any insurance policy;
(f) any write-up of any asset or non-recurring write-down of
any asset; and
(g) any other extraordinary item.
"NOTE" means the Revolving Credit Note made by the Borrower payable to
the order of the Lender, substantially in the form of EXHIBIT A hereto,
evidencing the Loans made hereunder, and any amendments and modifications
thereto, any substitutes therefor, and any replacements, restatements, renewals
or extension thereof, in whole or in part.
"NOTICE OF ACCOUNT DESIGNATION" shall have the meaning assigned thereto
in Section 2.2(b).
"NOTICE OF BORROWING" shall have the meaning assigned thereto in
Section 2.2(a).
"OBLIGATIONS" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (b)
all payment and other obligations owing by the Borrower to the Lender or any
Affiliate of the Lender under any Hedging Agreement and (c) all other fees and
commissions (including attorney's fees), charges, indebtedness, loans,
liabilities, financial accommodations, obligations, covenants and duties owing
by the Borrower to the Lender, of every kind, nature and description, direct or
indirect, absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any note, and
whether or not for the
<PAGE>
payment of money under or in respect of this Agreement, the Note or any of the
other Loan Documents.
"OFFICER'S COMPLIANCE CERTIFICATE" shall have the meaning assigned
thereto in Section 6.2.
"OTHER TAXES" shall have the meaning assigned thereto in Section
3.7(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the
Borrower or any ERISA Affiliates or (b) has at any time within the preceding six
years been maintained for the employees of the Borrower or any of their current
or former ERISA Affiliates.
"PERSON" means an individual, corporation, partnership, association,
trust, business trust, joint venture, joint stock company, pool, syndicate, sole
proprietorship, limited liability company, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"PRIME RATE" means, at any time, the rate of interest per annum
publicly announced from time to time by First Union National Bank, as its prime
rate. Each change in the Prime Rate shall be effective as of the opening of
business on the day such change in the Prime Rate occurs. The parties hereto
acknowledge that the rate announced publicly by First Union National Bank as its
Prime Rate is an index or base rate and shall not necessarily be its lowest or
best rate charged to its customers or other banks.
"QUICK RATIO" means, at any date of determination thereof, the ratio of
Borrower's Current Assets as of such date, to Borrower's Current Liabilities as
of such date, determined in each case on a consolidated basis for Borrower and
its Subsidiaries in accordance with GAAP.
"SECURITY AGREEMENT" means that certain Security Agreement executed and
delivered by Borrower in favor of Lender as security for the Obligations and
granting to Lender a first priority Lien on the accounts receivable of the
Borrower.
"SECURITY DOCUMENTS" means the collective reference to the Guaranty,
the Security Agreement and each other agreement or writing pursuant to which the
Borrower or any Subsidiary thereof pledges or grants a security interest in any
property or assets securing the Obligations or any such Person guaranties the
payment and/or performance of the Obligations.
"SOLVENT" means, as to the Borrower and its Subsidiaries on a
particular date, that any such Person (a) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage and is able to pay its debts as they mature, (b) owns property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
<PAGE>
"SUBORDINATED DEBT" means any Debt of the Borrower or any Subsidiary
subordinated in right and time of payment to the Obligations on terms
satisfactory to the Lender.
"SUBSIDIARY" means as to any Person, any corporation, partnership or
other entity of which more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of directors
or other managers of such corporation, partnership or other entity is at the
time, directly or indirectly, owned by or the management is otherwise controlled
by such Person (irrespective of whether, at the time, Capital Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency). Unless otherwise qualified
references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the
Borrower.
"TAXES" shall have the meaning assigned thereto in Section 3.7(a).
"TERMINATION DATE" means the earliest of (a) the Maturity Date, (b) the
date of termination by the Borrower pursuant to Section 2.5(a), and (c) the date
of termination by the Lender pursuant to Section 9.2(a).
"TERMINATION EVENT" means: (a) a "Reportable Event" described in
Section 4043 of ERISA, or (b) the withdrawal of the Borrower or any ERISA
Affiliate from a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a
Pension Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate, or the appointment of
a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event
or condition which would constitute grounds under Section 4042(a) of ERISA for
the termination of, or the appointment of a trustee to administer, any Pension
Plan, or (f) the partial or complete withdrawal of the Borrower or any ERISA
Affiliate from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA, or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"UCC" means the Uniform Commercial Code as in effect in the State of
Georgia.
SECTION 1.2 GENERAL. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Atlanta time" shall refer to
the applicable time of day in Atlanta, Georgia.
<PAGE>
SECTION 1.3 OTHER DEFINITIONS AND PROVISIONS.
(a) USE OF CAPITALIZED TERMS. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Note and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) MISCELLANEOUS. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE 2.
REVOLVING CREDIT FACILITY
SECTION 2.1 REVOLVING CREDIT LOANS. Subject to the terms and conditions
of this Agreement, Lender agrees to make Loans to the Borrower from time to time
from the Closing Date through the Termination Date as requested by the Borrower
in accordance with the terms of Section 2.2 PROVIDED, that the aggregate
principal amount of all outstanding Loans (after giving effect to any amount
requested) shall not exceed the Commitment. Subject to the terms and conditions
hereof, the Borrower may borrow, repay and reborrow Loans hereunder until the
Termination Date.
SECTION 2.2 PROCEDURE FOR ADVANCES OF LOANS.
(a) REQUESTS FOR BORROWING. The Borrower shall give the Lender
irrevocable prior written notice in the form attached hereto as EXHIBIT B (a
"Notice of Borrowing") not later than 11:00 a.m. (Atlanta time) on the same
Business Day as each Loan, of its intention to borrow, specifying (i) the date
of such borrowing, which shall be a Business Day, (ii) the amount of such
borrowing, which shall be in an aggregate principal amount of at least $100,000
or a whole multiple of $10,000 in excess thereof. Notices received after 11:00
a.m. (Atlanta time) shall be deemed received on the next Business Day.
(b) DISBURSEMENT OF LOANS. Not later than 2:00 p.m. (Atlanta time) on
the proposed borrowing date, Lender will make available to the Borrower the
proceeds of the Loan. The Borrower hereby irrevocably authorizes the Lender to
disburse the proceeds of each borrowing requested pursuant to this Section 2.2
in immediately available funds by crediting or wiring such proceeds to the
deposit account of the Borrower identified in the most recent Notice of Account
Designation substantially in the form of EXHIBIT C hereto (a "Notice of Account
Designation") delivered by the Borrower to the Lender or may be otherwise agreed
upon by the Borrower and the Lender from time to time.
<PAGE>
SECTION 2.3 REPAYMENT OF LOANS.
(a) REPAYMENT ON TERMINATION DATE. The Borrower shall repay the
outstanding principal amount of all Loans in full, together with all accrued but
unpaid interest thereon, on the Termination Date.
(b) REQUEST TO EXTEND MATURITY DATE. The Borrower may, not more than
ninety (90) days and not less than sixty (60) days prior to the then scheduled
Maturity Date, request that the Lender, in its discretion, extend the Maturity
Date for one-year until April 14, 2002. The Lender shall not be required to
extend the Maturity Date upon receipt of such notice, but may do so in its sole
and absolute discretion. In the event the Lender elects to extend the Maturity
Date pursuant to this Section 2.3(b), it shall give the Borrower written notice
of such election not less than thirty (30) days prior to the then scheduled
Maturity Date, whereupon the Maturity Date shall become April 14, 2002.
(c) OPTIONAL REPAYMENTS. The Borrower may at any time and from time to
time repay the Loans, in whole or in part, upon at least two (2) Business Days'
irrevocable notice, specifying the date and amount of repayment. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date set forth in such notice. Partial repayments shall be in an aggregate
amount of at least $100,000 or a whole multiple of $10,000 in excess thereof.
SECTION 2.4 NOTE. The Loans and the obligation of the Borrower to repay
the Loans shall be evidenced by a Note executed by the Borrower payable to the
order of the Lender in the principal face amount of the Commitment or, if less,
the aggregate unpaid. The Note shall be dated the date hereof and shall bear
interest on the unpaid principal amount thereof at the applicable interest rate
per annum specified in Section 3.1.
SECTION 2.5 PERMANENT REDUCTION OF THE COMMITMENT.
(a) The Borrower shall have the right at any time and from time to
time, upon at least five (5) Business Days prior written notice to the Lender,
to permanently reduce, in whole at any tune or in part from time to time,
without premium or penalty, the Commitment in an aggregate principal amount not
less than $100,000 or any whole multiple of $10,000 in excess thereof.
(b) Each permanent reduction permitted or required pursuant to this
Section 2.5 shall be accompanied by a payment of principal sufficient to reduce
the aggregate outstanding Loans after such reduction to the Commitment as so
reduced. Any reduction of the Commitment to zero shall be accompanied by payment
of all outstanding Obligations.
SECTION 2.6 USE OF PROCEEDS. The Borrower shall use the proceeds of the
Loans for working capital and general corporate requirements of the Borrower and
its Subsidiaries, including the payment of certain fees and expenses incurred in
connection with the transactions. No portion of the proceeds of any Loan may be
used by the Borrower in any manner which would cause such Loan or the
application of the proceeds thereof to violate any of Regulations T, U or X of
the Board of Governors of the Federal Reserve System.
<PAGE>
ARTICLE 3.
GENERAL LOAN PROVISIONS
SECTION 3.1 INTEREST.
(a) INTEREST RATE. Subject to the provisions of this Section 3.1, the
aggregate principal amount of the Loans or any portion thereof shall bear
interest at the LIBOR Market Index Rate PLUS 1.75%, as that rate may change from
day to day in accordance with changes in the LIBOR Market Index Rate.
(b) CIRCUMSTANCES AFFECTING LIBOR MARKET INDEX RATE AVAILABILITY. If
the Lender shall determine that, by reason of circumstances affecting the
foreign exchange and interbank markets generally, deposits in eurodollars, in
the applicable amounts are not being quoted via Telerate Page 3750 or offered to
the Lender, then the Lender shall forthwith give notice thereof to the Borrower.
Thereafter, until the Lender notifies the Borrower that such circumstances no
longer exist, the aggregate principal amounts of the Loan or any portion
thereof, shall bear interest at the Base Rate.
(c) LAWS AFFECTING LIBOR MARKET INDEX RATE AVAILABILITY. If, after the
date hereof, the introduction of, or any change in, any Applicable Law or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such Authority,
central bank or comparable agency, shall make it unlawful or impossible for the
Lender to quote or maintain Loans based on the LIBOR Market Index Rate, the
Lender shall promptly give notice thereof to the Borrower. Thereafter, until the
Lender notifies the Borrower that such circumstances no longer exist, the
aggregate principal amounts of the Loan or any portion thereof, shall bear
interest at the Base Rate.
(d) DEFAULT RATE. Upon the occurrence and during the continuance of an
Event of Default, all outstanding Loans shall bear interest at a rate per annum
two percent (2%) in excess of the rate then applicable. Interest shall continue
to accrue on the Note after the filing by or against the Borrower of any
petition seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.
(e) INTEREST PAYMENT AND COMPUTATION. Interest shall be payable in
arrears on the last Business Day of each month commencing April 30, 2000. All
interest rates, fees and commissions provided hereunder shall be computed on the
basis of a 360-day year and assessed for the actual number of days elapsed.
(f) MAXIMUM RATE. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under the Note charged or
collected pursuant to the terms of this Agreement or pursuant to the Note exceed
the highest rate permissible under any Applicable Law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto.
<PAGE>
In the event that such a court determines that the Lender has charged or
received interest hereunder in excess of the highest applicable rate, the rate
in effect hereunder shall automatically be reduced to the maximum rate permitted
by Applicable Law and the Lender shall, at the Lender's option, promptly refund
to the Borrower any interest received by Lender in excess of the maximum lawful
rate or shall apply such excess to the principal balance of the Obligations. It
is the intent hereof that the Borrower not pay or contract to pay, and that the
Lender not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by the Borrower under
Applicable Law.
SECTION 3.2 CLOSING FEE. The Borrower shall pay to the Lender a
non-refundable closing fee equal to $25,000, payable at closing. Such fee is to
compensate Lender for the costs associated with the organization, structuring,
processing, approving and closing of the transactions contemplated by this
Agreement. Such fee shall be fully earned upon payment and shall not be subject
to proration or rebate for any reason whatsoever.
SECTION 3.3 MANNER OF PAYMENT. Each payment by the Borrower on account
of the principal of or interest on the Loans or of any fee, commission or other
amounts payable to the Lender under this Agreement or any Note shall be made not
later than 1:00 p.m. (Atlanta time) on the date specified for payment under this
Agreement to the Lender at the Lender's Office, in Dollars, in immediately
available funds and shall be made without any set-off, counterclaim or deduction
whatsoever. Any payment received after such time but before 2:00 p.m. (Atlanta
time) on such day shall be deemed a payment on such date for the purposes of
Section 9.1, but for all other purposes shall be deemed to have been made on the
next succeeding Business Day. Any payment received after 2:00 p.m. (Atlanta
time) shall be deemed to have been made on the next succeeding Business Day for
all purposes.
SECTION 3.4 CREDITING OF PAYMENTS AND PROCEEDS. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 9.2, all payments received by the
Lender upon the Note and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrower hereunder, then to all indemnity obligations then
due and payable by the Borrower hereunder, then to all fees then due and
payable, then to all commitment and other fees and commissions then due and
payable, then to accrued and unpaid interest on the Note and any termination
payments due in respect of a Hedging Agreement with Lender or any of its
Affiliates, then to the principal amount of the Note, in that order.
SECTION 3.5 INCREASED COSTS. If, after the date hereof, the
introduction of, or any change in, any Applicable Law, or in the interpretation
or administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Lender with any request or directive (whether or not having
the force of law) of such Authority, central bank or comparable agency:
(a) shall subject the Lender to any tax, duty or other charge
with respect to the Note or shall change the basis of taxation of payments to
the Lender of the principal of or interest on the Note or any Loan or any other
amounts due under this Agreement in respect thereof (except
<PAGE>
for changes in the rate of tax on the overall net income of the Lender or of
Lender's Office imposed by the jurisdiction in which the Lender is organized or
is or should be qualified to do business or where Lender's Office is located);
or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by the Lender or shall impose on the Lender or the foreign exchange and
interbank markets any other condition affecting the Note or any Loan;
and the result of any of the foregoing is to increase the costs to the Lender of
maintaining any Loan or to reduce the yield or amount of any sum received or
receivable by the Lender under this Agreement or under the Note in respect of a
Loan, then the Lender shall promptly notify the Borrower of such fact and demand
compensation therefor and, within thirty (30) days after such notice by the
Lender, the Borrower shall pay to the Lender such additional amount or amounts
as will compensate the Lender for such increased cost or reduction. The Lender
will promptly notify the Borrower of any event of which it has knowledge which
will entitle the Lender to compensation pursuant to this Section 3.5; PROVIDED,
that the Lender shall incur no liability whatsoever to the Borrower in the event
it fails to do so. The amount of such compensation shall be determined, in the
Lender's sole discretion, based upon the LIBOR Market Index Rate, and using any
reasonable attribution or averaging methods which the Lender deems appropriate
and practical. A certificate of the Lender setting forth the basis for
determining such amount or amounts necessary to compensate the Lender shall be
forwarded to the Borrower and shall be conclusively presumed to be correct save
for manifest error.
SECTION 3.6 CAPITAL REQUIREMENTS. If either (a) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (b) compliance
with any guideline or request from any central bank or comparable agency or
other Governmental Authority (whether or not having the force of law), has or
would have the effect of reducing the rate of return on the capital of, or has
affected or would affect the amount of capital required to be maintained by,
Lender or any corporation controlling the Lender as a consequence of, or with
reference to the Commitments and other commitments of this type, below the rate
which the Lender or such other corporation could have achieved but for such
introduction, change or compliance, then within thirty (30) days after written
demand by the Lender, the Borrower shall pay to the Lender from time to time as
specified by the Lender additional amounts sufficient to compensate the Lender
or other corporation for such reduction. A certificate as to such amounts
submitted to the Borrower by the Lender, shall, in the absence of manifest
error, be presumed to be correct and binding for all purposes.
SECTION 3.7 Taxes.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the Borrower
hereunder or under the Note shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholding, and all liabilities with respect thereto excluding, (i)
income and franchise taxes imposed by the jurisdiction under the laws of which
the Lender is organized or is or should be qualified to do business or any
political subdivision thereof and (ii)
<PAGE>
income and franchise taxes imposed by the jurisdiction of the Lender's Office or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under the Note, (A) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 3.7) the Lender receives an amount equal to the amount it would
have received had no such deductions been made, (B) the Borrower shall make such
deductions, (C) the Borrower shall pay the full amount deducted to the relevant
taxing authority or other authority in accordance with applicable law, and (D)
the Borrower shall deliver to the Lender evidence of such payment to the
relevant taxing authority or other authority in the manner provided in Section
3.7(d).
(b) STAMP AND OTHER TAXES. In addition, the Borrower shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the other Loan Documents, or the perfection of any rights or security
interest in respect thereto (hereinafter referred to as "Other Taxes").
(c) INDEMNITY. The Borrower shall indemnify the Lender for the full
amount of Taxes and Other Taxes (including, without limitation, any Taxes and
Other Taxes imposed by any jurisdiction on amounts payable under this Section
3.7) paid by the Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Such indemnification shall be
made within thirty (30) days from the date the Lender makes written demand
therefor.
(d) EVIDENCE OF PAYMENT. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the Lender, at
its address referred to in Section 10.1, the original or a certified copy of a
receipt evidencing payment thereof or other evidence of payment satisfactory to
the Lender.
(e) SURVIVAL. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.7 shall survive the payment in full of the
Obligations and the termination of the Commitments.
ARTICLE 4.
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1 CONDITIONS TO CLOSING AND INITIAL LOAN. The obligation of
the Lender to close this Agreement and to make the initial Loan is subject to
the satisfaction of each of the following conditions:
<PAGE>
(a) EXECUTED LOAN DOCUMENTS. This Agreement, the Note, the Security
Documents, and the Loan Documents, shall have been duly authorized, executed and
delivered to the Lender by the parties thereto, shall be in full force and
effect and no default shall exist thereunder, and the Borrower shall have
delivered original counterparts thereof to the Lender.
(b) CLOSING CERTIFICATES; ETC.
(i) OFFICER'S CERTIFICATE OF THE BORROWER. The Lender shall
have received a certificate from the chief executive officer or chief financial
officer of the Borrower, in form and substance satisfactory to the Lender, to
the effect that all representations and warranties of the Borrower and its
Subsidiaries contained in this Agreement and the other Loan Documents are true,
correct and complete; that neither the Borrower nor its Subsidiaries is in
violation of any of the covenants contained in this Agreement and the other Loan
Documents; that, after giving effect to the transactions contemplated by this
Agreement, no Default or Event of Default has occurred and is continuing; and
that the Borrower has satisfied each of the closing conditions.
(ii) SECRETARY'S CERTIFICATES. The Lender shall have received
a certificate of the secretary or assistant secretary of the Borrower and each
of its Subsidiaries certifying that attached thereto is a true and complete copy
of the articles of incorporation of the Borrower or such Subsidiary and all
amendments thereto, certified as of a recent date by the appropriate
Governmental Authority in its jurisdiction of incorporation; that attached
thereto is a true and complete copy of the bylaws of the Borrower or such
Subsidiary as in effect on the date of such certification; that attached thereto
is a true and complete copy of resolutions duly adopted by the Board of
Directors of the Borrower or such Subsidiary authorizing the borrowings
contemplated hereunder (in the case of the Borrower) and the execution, delivery
and performance of this Agreement and the other Loan Documents to which it is a
party; and as to the incumbency and genuineness of the signature of each officer
of the Borrower or such Subsidiary executing Loan Documents to which it is a
party.
(iii) CERTIFICATES OF GOOD STANDING. The Lender shall have
received long-form certificates as of a recent date of the good standing of the
Borrower and its Subsidiaries under the laws of their respective jurisdiction of
organization and each other jurisdiction where the Borrower and its Subsidiaries
are qualified to do business and a certificate of the relevant taxing
authorities of their respective jurisdictions of organization certifying that
such Person has filed required tax returns and owes no delinquent taxes.
(iv) OPINIONS OF COUNSEL. The Lender shall have received
favorable opinions of counsel to the Borrower and its Subsidiaries addressed to
the Lender with respect to the Borrower, such Subsidiaries the Loan Documents
and such other matters as the Lender shall request.
(c) CONSENTS; DEFAULTS.
(i) GOVERNMENTAL AND THIRD PARTY APPROVALS. All necessary
approvals, authorizations and consents, if any be required, of any Person and of
all Governmental Authorities and courts having jurisdiction with respect to the
transactions contemplated by this Agreement and the other Loan Documents shall
have been obtained.
<PAGE>
(ii) NO INJUNCTION. ETC. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain
substantial damages in respect of, or which is related to or arises out of this
Agreement or the other Loan Documents or the consummation of the transactions
contemplated hereby or thereby, or which, in the Lender's discretion, would make
it inadvisable to consummate the transactions contemplated by this Agreement and
such other Loan Documents.
(iii) NO EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing.
(d) FINANCIAL MATTERS.
(i) FINANCIAL STATEMENTS. The Lender shall have received the
most recent audited consolidated financial statements of the Borrower and its
Subsidiaries and the most recent unaudited consolidated financial statements of
Borrower and its Subsidiaries, all in form and substance satisfactory to the
Lender.
(ii) PAYMENT AT CLOSING. There shall have been paid by the
Borrower to the Lender the fees set forth or referenced in Section 3.2 and any
other accrued and unpaid fees or commissions due hereunder (including, without
limitation, legal fees and expenses), and to any other Person such amount as may
be due thereto in connection with the transactions contemplated hereby,
including all taxes, fees and other charges in connection with the execution,
delivery, recording, filing and registration of any of the Loan Documents.
(e) Miscellaneous.
(i) NOTICE OF BORROWING. The Lender shall have received a
Notice of Borrowing from the Borrower in accordance with Section 2.2(a), and a
Notice of Account Designation specifying the account or accounts to which the
proceeds of any loans made after the Closing Date are to be disbursed.
(ii) PROCEEDINGS AND DOCUMENTS. All opinions, certificates and
other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance to
the Lender. The Lender shall have received copies of all other instruments and
other evidence as the Lender may reasonably request, in form and substance
satisfactory to the Lender, with respect to the transactions contemplated by
this Agreement and the taking of all actions in connection therewith.
(iii) DUE DILIGENCE AND OTHER DOCUMENTS. The Borrower shall
have delivered to the Lender such other documents, certificates and opinions as
the Lender reasonably requests.
SECTION 4.2 CONDITIONS TO ALL LOANS. The obligations of the Lender to
make any Loan is subject to the satisfaction of the following conditions
precedent on the relevant borrowing or issue date, as applicable:
<PAGE>
(a) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Article 5 shall be true and correct on and as of
such borrowing or issuance date with the same effect as if made on and as of
such date.
(b) NO EXISTING DEFAULT. No Default or Event of Default shall have
occurred and be continuing hereunder on the borrowing date with respect to such
Loan or after giving effect to the Loans to be made on such date.
(c) NO MATERIAL ADVERSE CHANGE. Since January 31, 1999, there shall not
have occurred any material adverse change in the assets, liabilities, business,
operations or condition (financial or otherwise) of Borrower or its Subsidiaries
taken as a whole, or any event, condition, or state of facts which has had, or
would be expected to have, a Material Adverse Effect.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. To induce the Lender to
enter into this Agreement and to make the Loans, the Borrower hereby represents
and warrants to the Lender that:
(a) ORGANIZATION; POWER; QUALIFICATION. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation, has the power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification and authorization. The
jurisdictions in which the Borrower and its Subsidiaries are organized and
qualified to do business are described on SCHEDULE 5.1(a).
(b) OWNERSHIP. Each Subsidiary of the Borrower is listed on SCHEDULE
5.1(b). All of the issued and outstanding shares of Capital Stock of such
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and, except for director qualifying shares, are owned,
beneficially and of record, by the Borrower. There are no outstanding stock
purchase warrants, subscriptions, options, securities, instruments or other
rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of Capital
Stock of any Subsidiary of Borrower.
(c) AUTHORIZATION OF AGREEMENT, LOAN DOCUMENTS AND BORROWING. Each of
the Borrower and its Subsidiaries has the right, power and authority and has
taken all necessary corporate and other action to authorize the execution,
delivery and performance of this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms. This Agreement
and each of the other Loan Documents have been duly executed and delivered by
the duly authorized officers of the Borrower and each of its Subsidiaries party
thereto, and each such document
<PAGE>
constitutes the legal, valid and binding obligation of the Borrower or its
Subsidiary party thereto, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state or federal debtor relief laws from time to time in
effect which affect the enforcement of creditors' rights in general and the
availability of equitable remedies.
(d) COMPLIANCE OF AGREEMENT, LOAN DOCUMENTS AND BORROWING WITH LAWS,
ETC. The execution, delivery and performance by the Borrower and its
Subsidiaries of the Loan Documents to which each such Person is a party, in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not and will not, by the passage of time,
the giving of notice or otherwise, (i) require any Governmental Approval or
violate any Applicable Law relating to the Borrower or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a default under the
certificate or articles of incorporation, bylaws or other organizational
documents of the Borrower or any of its Subsidiaries or any indenture, agreement
or other instrument to which such Person is a party or by which any of its
properties may be bound or any Governmental Approval relating to such Person, or
(iii) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by such Person other
than Liens arising under the Loan Documents.
(e) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. Each of the Borrower
and its Subsidiaries (i) has all Governmental Approvals required by any
Applicable Law for it to conduct its business, each of which is in full force
and effect, is final and not subject to review on appeal and is not the subject
of any pending or, to the best of its knowledge, threatened attack by direct or
collateral proceeding, and (ii) is in material compliance with each Governmental
Approval applicable to it and in material compliance with all other Applicable
Laws relating to it or any of its respective properties.
(f) TAX RETURNS AND PAYMENTS. Each of the Borrower and its Subsidiaries
has duly filed or caused to be filed all federal, state, local and other tax
returns required by Applicable Law to be filed, and has paid, or made adequate
provision for the payment of, all federal, state, local and other taxes,
assessments and governmental charges or levies upon it and its property, income,
profits and assets which are due and payable. No Governmental Authority has
asserted any Lien or other claim against the Borrower or Subsidiary thereof with
respect to unpaid taxes which has not been discharged or resolved. The charges,
accruals and reserves on the books of the Borrower and any of its Subsidiaries
in respect of federal, state, local and other taxes for all Fiscal Years and
portions thereof since the organization of the Borrower and any of its
Subsidiaries are in the judgment of the Borrower adequate, and the Borrower does
not anticipate any additional taxes or assessments for any of such years.
(g) INTELLECTUAL PROPERTY MATTERS. Each of the Borrower and its
Subsidiaries owns or possesses rights to use all franchises, licenses,
copyrights, copyright applications, patents, patent rights or licenses, patent
applications, trademarks, trademark rights, trade names, trade name rights,
copyrights and rights with respect to the foregoing which are required to
conduct its business. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination of any such
rights, and neither the Borrower nor any Subsidiary thereof
<PAGE>
is liable to any Person for infringement under Applicable Law with respect to
any such rights as a result of its business operations.
(h) ENVIRONMENTAL MATTERS
(i) The properties of the Borrower and its Subsidiaries do not
contain, and to their knowledge have not previously contained, any Hazardous
Materials in amounts or concentrations which (A) constitute or constituted a
violation of, or (B) could give rise to liability under, applicable
Environmental Laws;
(ii) Such properties and all operations conducted in
connection therewith are in compliance, and have been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or about
such properties or such operations which could interfere with the continued
operation of such properties or impair the fair saleable value thereof;
(iii) Neither the Borrower nor any Subsidiary thereof has
received any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of their properties or the operations
conducted in connection therewith, nor does the Borrower or any Subsidiary
thereof have knowledge or reason to believe that any such notice will be
received or is being threatened;
(iv) Hazardous Materials have not been transported or disposed
of from the properties of the Borrower and its Subsidiaries in violation of, or
in a manner or to a location which could give rise to, liability under,
Environmental Laws, nor have any Hazardous Materials been generated, treated,
stored or disposed of at, on or under any of such properties in violation of, or
in a manner that could give rise to liability under, any applicable
Environmental Laws;
(v) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary thereof is or will be
named as a party with respect to such properties or operations conducted in
connection therewith, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with respect to
such properties or such operations; and
(vi) There has been no release, or to the best of the
Borrower's knowledge, the threat of release, of Hazardous Materials at or from
such properties, in violation of or in amounts or in a manner that could give
rise to liability under Environmental Laws.
(i) ERISA.
(i) Neither the Borrower nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit Plans other
than those identified on SCHEDULE 5.1(i);
(ii) the Borrower and each ERISA Affiliate is in material
compliance with all applicable provisions of ERISA and the regulations and
published interpretations thereunder with
<PAGE>
respect to all Employee Benefit Plans except for any required amendments for
which the remedial amendment period as defined in Section 401(b) of the Code has
not yet expired. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified, and each trust related to such plan has been
determined to be exempt under Section 501(a) of the Code. No liability has been
incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for
any taxes or penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan;
(iii) No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code) been
incurred (without regard to any waiver granted under Section 412 of the Code),
nor has any funding waiver from the Internal Revenue Service been received or
requested with respect to any Pension Plan, nor has the Borrower or any ERISA
Affiliate failed to make any contributions or to pay any amounts due and owing
as required by Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under Section 412 of
the Code or Section 302 of ERISA, nor has there been any event requiring any
disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any
Pension Plan;
(iv) Neither the Borrower nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section 406 of the
ERISA or Section 4975 of the Code, (B) incurred any liability to the PBGC which
remains outstanding other than the payment of premiums and there are no premium
payments which are due and unpaid, (C) failed to make a required contribution or
payment to a Multiemployer Plan, or (D) failed to make a required installment or
other required payment under Section 412 of the Code;
(v) No Termination Event has occurred or is reasonably
expected to occur; and
(vi) No proceeding, claim, lawsuit and/or investigation is
existing or, to the best knowledge of the Borrower after due inquiry, threatened
concerning or involving any (A) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or
any ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan.
(j) MARGIN STOCK. Neither the Borrower nor any Subsidiary thereof is
engaged principally or as one of its activities in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each
such term is defined or used in Regulation U of the Board of Governors of the
Federal Reserve System). No part of the proceeds of any of the Loans will be
used for purchasing or carrying margin stock or for any purpose which violates,
or which would be inconsistent with, the provisions of Regulation T, U or X of
such Board of Governors.
(k) GOVERNMENT REGULATION. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company" (as each such term is defined or used in the Investment Company Act of
1940, as amended) and neither the Borrower nor any Subsidiary thereof is, or
after giving effect to any Loan will be, subject to regulation under
<PAGE>
the Public Utility Holding Company Act of 1935 Act, as amended, or any other
Applicable Law which limits its ability to incur or consummate the transactions
contemplated hereby.
(l) MATERIAL CONTRACTS. SCHEDULE 5.1(l) sets forth a complete and
accurate list of all Material Contracts of the Borrower and its Subsidiaries in
effect as of the Closing Date not listed on any other Schedule hereto; other
than as set forth in SCHEDULE 5.1(l), each such Material Contract is, and after
giving effect to the consummation of the transactions contemplated by the Loan
Documents will be, in full force and effect in accordance with the terms
thereof. The Borrower and its Subsidiaries have delivered to the Lender a true
and complete copy of each Material Contract required to be listed on SCHEDULE
5.1(l).
(m) BURDENSOME PROVISIONS. Neither the Borrower nor any Subsidiary
thereof is a party to any indenture, agreement, lease or other instrument, or
subject to any corporate or partnership restriction, Governmental Approval or
Applicable Law which is so unusual or burdensome as in the foreseeable future
could be reasonably expected to have a Material Adverse Effect. The Borrower and
its Subsidiaries do not presently anticipate that future expenditures needed to
meet the provisions of any statutes, orders, rules or regulations of a
Governmental Authority will be so burdensome as to have a Material Adverse
Effect.
(n) FINANCIAL STATEMENTS. The (i) consolidated balance sheets of the
Borrower and its Subsidiaries as of January 31, 1999 and the related statements
of income and retained earnings and cash flows for the Fiscal Years then ended
and (ii) unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as of October 31, 1999 and related unaudited interim statements of
revenue and retained earnings, copies of which have been furnished to the
Lender, are complete and correct and fairly present the assets, liabilities and
financial position of the Borrower and its Subsidiaries as at such dates, and
the results of the operations and changes of financial position for the periods
then ended. All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP except that such
interim financial statement are subject to normal year-end adjustments and
except for the omission of footnotes to such interim financial statements. The
Borrower and its Subsidiaries have no Debt, obligation or other unusual forward
or long-term commitment which is not fairly reflected in the foregoing financial
statements or in the notes thereto.
(o) NO MATERIAL ADVERSE CHANGE. Since January 31, 1999, there has been
no material adverse change in the properties, business, operations, prospects,
or condition (financial or otherwise) of the Borrower and its Subsidiaries and
no event has occurred or condition arisen that could reasonably be expected to
have a Material Adverse Effect.
(p) SOLVENCY. As of the Closing Date and after giving effect to each
Loan made hereunder, the Borrower and each of its Subsidiaries will be Solvent.
(q) TITLES TO PROPERTIES. Each of the Borrower and its Subsidiaries has
such title to the real property owned by it and such leasehold title to the real
property leased by it as is necessary or desirable to the conduct of its
business and valid and legal title to all of its personal property and assets,
including, but not limited to, those reflected on the balance sheets of the
Borrower and its
<PAGE>
Subsidiaries delivered pursuant to Section 5.1(n), except those which have been
disposed of by the Borrower or its Subsidiaries subsequent to such date which
dispositions have been in the ordinary course of business or as otherwise
expressly permitted hereunder.
(r) LIENS. None of the properties and assets of the Borrower or any
Subsidiary thereof is subject to any Lien, except Liens permitted pursuant to
Section 8.2. No financing statement under the Uniform Commercial Code of any
state which names the Borrower or any Subsidiary thereof or any of their
respective trade names or divisions as debtor and which has not been terminated,
has been filed in any state or other jurisdiction and neither the Borrower nor
any Subsidiary thereof has signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect those Liens permitted by Section 8.2 hereof.
(s) DEBT AND CONTINGENT OBLIGATIONS. SCHEDULE 5.1(s) is a complete and
correct listing of all Debt and Contingent Obligations of the Borrower and its
Subsidiaries in excess of $250,000. The Borrower and its Subsidiaries have
performed and are in compliance with all of the terms of such Debt and
Contingent Obligations and all instruments and agreements relating thereto, and
no default or event of default, or event or condition which with notice or lapse
of time or both would constitute such a default or event of default on the part
of the Borrower or its Subsidiaries exists with respect to any such Debt or
Contingent Obligation.
(t) LITIGATION. There are no actions, suits or proceedings pending nor,
to the knowledge of the Borrower, threatened against or in any other way
relating adversely to or affecting the Borrower or any Subsidiary thereof or any
of their respective properties in any court or before any arbitrator of any kind
or before or by any Governmental Authority.
(u) ABSENCE OF DEFAULTS. No event has occurred or is continuing which
constitutes a Default or an Event of Default, or which constitutes, or which
with the passage of time or giving of notice or both would constitute, a default
or event of default by the Borrower or any Subsidiary thereof under any Material
Contract or judgment, decree or order to which the Borrower or its Subsidiaries
is a party or by which the Borrower or its Subsidiaries or any of their
respective properties may be bound or which would require the Borrower or its
Subsidiaries to make any payment thereunder prior to the scheduled maturity date
therefor.
(v) ACCURACY AND COMPLETENESS OF INFORMATION. All written information,
reports and other papers and data produced by or on behalf of the Borrower or
any Subsidiary thereof and furnished to the Lender were, at the time the same
were so furnished, complete and correct in all respects to the extent necessary
to give the recipient a true and accurate knowledge of the subject matter. No
document furnished or written statement made to the Lender by the Borrower or
any Subsidiary thereof in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contains or will
contain any untrue statement of a fact material to the creditworthiness of the
Borrower or its Subsidiaries or omits or will omit to state a fact necessary in
order to make the statements contained therein not misleading. The Borrower is
not aware of any facts which it has not disclosed in writing to the Lender
having a Material Adverse Effect, or insofar as the Borrower can now foresee,
could reasonably be expected to have a Material Adverse Effect.
<PAGE>
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES ETC. All
representations and warranties set forth in this Article 5 and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this Agreement. All representations and warranties
made under this Agreement shall be made or deemed to be made at and as of the
Closing Date, shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lender or any borrowing hereunder.
ARTICLE 6.
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been finally paid and satisfied in full
and the Commitment terminated, unless the prior written consent of the Lender
has been obtained, the Borrower will furnish or cause to be furnished to the
Lender at Lender's Office or such other office as may be designated by the
Lender from time to time:
SECTION 6.1 FINANCIAL STATEMENTS.
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within forty-five (45) days after the end of each fiscal quarter,
unaudited consolidated balance sheets of the Borrower and its Subsidiaries as of
the close of such fiscal quarter and unaudited consolidated statements of
operations and cash flows for the fiscal quarter then ended and that portion of
the Fiscal Year then ended, including the notes thereto, all in reasonable
detail setting forth in comparative form the corresponding figures for the
preceding Fiscal Year and prepared by the Borrower in accordance with GAAP and,
if applicable, containing disclosure of the effect on the financial position or
results of operations of any change in the application of accounting principles
and practices during the period, and certified by the chief financial officer of
the Borrower to present fairly in all material respects the financial condition
of the Borrower and its Subsidiaries as of their respective dates and the
results of operations of the Borrower and its Subsidiaries for the respective
periods then ended, subject to normal year end adjustments.
(b) ANNUAL FINANCIAL STATEMENTS. As soon as practicable and in any
event within one hundred twenty (120) days after the end of each Fiscal Year,
audited consolidated balance sheets of the Borrower and its Subsidiaries as of
the close of such Fiscal Year and audited consolidated statements of operations
and cash flows for the Fiscal Year then ended, including the notes thereto, all
in reasonable detail setting forth in comparative form the corresponding figures
for the preceding Fiscal Year and prepared by an independent certified public
accounting firm acceptable to the Lender in accordance with GAAP and, if
applicable, containing disclosure of the effect on the financial position or
results of operation of any change in the application of accounting principles
and practices during the year, and accompanied by a report thereon by such
certified public accountants that is not qualified with respect to scope
limitations imposed by the Borrower or any of its
<PAGE>
Subsidiaries or with respect to accounting principles followed by the Borrower
or any of its Subsidiaries not in accordance with GAAP.
SECTION 6.2 OFFICER'S COMPLIANCE CERTIFICATE. At each time financial
statements are delivered pursuant to Sections 6.1(a) or (b) and at such other
times as the Lender shall reasonably request, a certificate of the chief
financial officer or the treasurer of the Borrower in the form of EXHIBIT D
attached hereto (an "Officer's Compliance Certificate").
SECTION 6.3 ACCOUNTANTS' CERTIFICATE. At each time financial statements
are delivered pursuant to Section 6.1(b), a certificate of the independent
public accountants certifying such financial statements addressed to the Lender:
(a) stating that in making the examination necessary for the
certification of such financial statements, they obtained no knowledge of any
Default or Event of Default or, if such is not the case, specifying such Default
or Event of Default and its nature and period of existence;
(b) including the calculations prepared by such accountants required to
establish whether or not the Borrower and its Subsidiaries are in compliance
with the financial covenants set forth in Article 7 hereof as at the end of each
respective period; and
(c) including a fully executed copy of a letter from such accountants
to the Borrower (i) expressly acknowledging that a primary intent of the
Borrower (with respect to such statements) is for such accountants' examination
and report with respect to such statements of the Borrower to benefit or
influence the Lender (A) in connection with Loans and other financial
accommodations to the Borrower from time to time, or (B) otherwise in connection
with the preparation, review, execution, delivery, amendment, modification.
administration, collection and/or enforcement of the Loan Documents, and (ii)
expressly authorizing the Lender to rely on the examination and report of such
accountants with respect to the audited financial statements of the Borrower as
of and for such Fiscal Year then ending.
SECTION 6.4 OTHER REPORTS.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower or its Board of Directors by its independent public
accountants in connection with their auditing function, including, without
limitation, any management report and any management responses thereto
(b) Borrower shall, within thirty (30) days after the Closing Date,
deliver to the Lender a true, complete and current listing of all copyrights,
copyright applications, trademarks, trademark rights, trade names, patents,
patent rights or licenses, patent applications and other intellectual property
rights of the Borrower and its Subsidiaries that are registered with any
Governmental Authority as of the Closing Date; and
(c) Such other information regarding the operations, business affairs
and financial condition of the Borrower or any of its Subsidiaries as the Lender
may reasonably request.
<PAGE>
SECTION 6.5 NOTICE OF LITIGATION AND OTHER MATTERS. Prompt (but in no
event later than ten (10) days after an officer of the Borrower obtains
knowledge thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or before
any Governmental Authority and all actions and proceedings in any court or
before any arbitrator against or involving the Borrower or any Subsidiary
thereof or any of their respective properties, assets or businesses which, if
adversely decided, could reasonably be expected to have a Material Adverse
Effect;
(b) any notice of any violation received by the Borrower or any
Subsidiary thereof from any Governmental Authority including, without
limitation, any notice of violation of Environmental Laws which in any such case
could reasonably be expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in, or threatens to result
in, a strike or other work action against the Borrower or any Subsidiary
thereof:
(d) any attachment, judgment, lien, levy or order exceeding $100,000
that may be assessed against or threatened against the Borrower or any
Subsidiary thereof;
(e) any Default or Event of Default, or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default under any Material Contract to which the Borrower or
any of its Subsidiaries is a party or by which the Borrower or any Subsidiary
thereof or any of their respective properties may be bound;
(f) (i) any unfavorable determination letter from the Internal Revenue
Service regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code (along with a copy thereof), (ii) all notices received by the
Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension
Plan or to have a trustee appointed to administer any Pension Plan, (iii) all
notices received by the Borrower or any ERISA Affiliate from a Multiemployer
Plan sponsor concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or
reason to know that the Borrower or any ERISA Affiliate has filed or intends to
file a notice of intent to terminate any Pension Plan under a distress
termination within the meaning of Section 4041(c) of ERISA; and
(g) any event which makes any of the representations set forth in
Section 5.1 inaccurate in any material respect.
SECTION 6.6 ACCURACY OF INFORMATION. All written information, reports,
statements and other papers and data furnished by or on behalf of the Borrower
or its Subsidiaries to the Lender (other than financial forecasts) whether
pursuant to this Article 6 or any other provision of this Agreement, or any of
the Security Documents, shall be, at the time the same is so furnished, complete
and correct in all material respects to the extent necessary to give the Lender
complete, true and accurate knowledge of the subject matter based on the
Borrower's knowledge thereof.
<PAGE>
ARTICLE 7.
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally paid and satisfied in
full and the Commitment terminated, unless the prior written consent of the
Lender has been obtained, the Borrower will, and will cause each of its
Subsidiaries to:
SECTION 7.1 PRESERVATION OF CORPORATE EXISTENCE AND RELATED MATTERS.
Except as permitted by Section 8.4, preserve and maintain its separate corporate
existence and all rights, franchises, licenses and privileges necessary to the
conduct of its business, and qualify and remain qualified as a foreign
corporation and authorized to do business in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect.
SECTION 7.2 MAINTENANCE OF PROPERTY. Protect and preserve all
properties useful in and material to its business, including copyrights,
patents, trade names and trademarks; maintain in good working order and
condition all buildings, equipment and other tangible real and personal
property; and from time to time make or cause to be made all renewals,
replacements and additions to such property necessary for the conduct of its
business, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
SECTION 7.3 INSURANCE. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter deliver
to the Lender upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
SECTION 7.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete in all material respects) as may be required or as may be necessary
to permit the preparation of financial statements in accordance with GAAP and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.
SECTION 7.5 PAYMENT AND PERFORMANCE OF OBLIGATIONS. Pay and perform all
Obligations under this Agreement and the other Loan Documents, and pay or
perform (a) all taxes, assessments and other governmental charges that may be
levied or assessed upon it or any of its property, and (b) all other
indebtedness, obligations and liabilities in accordance with customary trade
practices; PROVIDED, that the Borrower or such Subsidiary may contest any item
described in this Section 7.5(a) or (b) in good faith so long as adequate
reserves are maintained with respect thereto in accordance with GAAP.
<PAGE>
SECTION 7.6 COMPLIANCE WITH LAWS AND APPROVALS. Observe and remain in
compliance with all Applicable Laws in all material respects and maintain in
full force and effect all Governmental Approvals, in each case applicable to the
conduct of its business.
SECTION 7.7 ENVIRONMENTAL LAWS. In addition to and without limiting the
generality of Section 7.6, (a) comply with, and ensure such compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, (b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws, and promptly comply with all lawful orders and directives of
any Governmental Authority regarding Environmental Laws, and (c) defend,
indemnify and hold harmless the Lender, and its parents, Subsidiaries,
Affiliates, employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or liability under any Environmental Laws applicable to the operations of the
Borrower or such Subsidiary, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
reasonable attorney 's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent that
any of the foregoing directly result from the gross negligence or willful
misconduct of the party seeking indemnification therefor.
SECTION 7.8 COMPLIANCE WITH ERISA. In addition to and without limiting
the generality of Section 7.6, (a) comply with all applicable provisions of
ERISA and the regulations and published interpretations thereunder with respect
to all Employee Benefit Plans, (b) not take any action or fail to take action
the result of which could be a liability to the PBGC or to a Multiemployer Plan,
(c) not participate in any prohibited transaction that could result in any civil
penalty under ERISA or tax under the Code, (d) operate each Employee Benefit
Plan in such a manner that will not incur any tax liability under Section 4980B
of the Code or any liability to any qualified beneficiary as defined in Section
4980B of the Code and (e) furnish to the Lender upon the Lender's request such
additional information about any Employee Benefit Plan as may be reasonably
requested by the Lender.
SECTION 7.9 COMPLIANCE WITH AGREEMENTS. Comply in all respects with
each term, condition and provision of all leases, agreements and other
instruments entered into in the conduct of its business including, without
limitation, any Material Contract.
SECTION 7.10 CONDUCT OF BUSINESS. Engage only in businesses in
substantially the same fields as the businesses conducted on the Closing Date
and in lines of business reasonably related thereto.
SECTION 7.11 VISITS AND INSPECTIONS. Permit representatives of the
Lender, from time to time during normal business hours and on at least one (1)
days notice if there exists no Default or Event of Default hereunder but without
any requirement of notice if there exists any Default or Event of Default
hereunder, to visit and inspect its properties; inspect, audit and make extracts
from
<PAGE>
its books, records and files, including, but not limited to, management letters
prepared by independent accountants; and discuss with its principal officers,
and its independent accountants, its business, assets, liabilities, financial
condition, results of operations and business prospects.
SECTION 7.12 ADDITIONAL GUARANTORS. Cause each Person which becomes a
Subsidiary of Borrower after the Closing Date, promptly following such Person's
becoming a Subsidiary, to execute a joinder agreement, in form and substance
satisfactory to Lender (a "Joinder Agreement"), pursuant to which such new
Subsidiary shall become a party to the Guaranty and the Security Agreement and
to execute such other agreements, documents, instruments and financing
statements as the Lender shall require to ensure that the Lender has a
perfected, first priority security interest in all of the accounts receivable of
such new Subsidiary, and cause the Borrower and its other Subsidiaries to
execute such consents and acknowledgments as the Lender may require in
connection therewith.
SECTION 7.13 LEVERAGE RATIO. Maintain, at all times, a Leverage Ratio
of not greater than 2.00 to 1.00.
SECTION 7.14 QUICK RATIO. Maintain at all times a Quick Ratio of not
less than 1.50 to 1.00.
SECTION 7.15 FURTHER ASSURANCES. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Lender may
reasonably require to document and consummate the transactions contemplated
hereby and to vest completely in and insure the Lender its rights under this
Agreement, the Note and the other Loan Documents.
SECTION 7.16 DEPOSITORY ACCOUNTS. Maintain its primary depository
accounts with Lender.
ARTICLE 8.
NEGATIVE COVENANTS
Until all of the Obligations have been finally paid and satisfied in
full and the Commitments terminated, unless the prior written consent of the
Lender has been obtained, the Borrower has not and will not permit any of its
Subsidiaries to:
SECTION 8.1 LIMITATIONS ON DEBT. Create, incur, assume or suffer to
exist any Debt or Contingent Obligations except:
(a) the Obligations;
(b) Debt incurred in connection with a Hedging Agreement with a
counterparty and upon terms and conditions reasonably satisfactory to the
Lender;
(c) Subordinated Debt:
<PAGE>
(d) Debt existing on the Closing Date and not otherwise permitted under
this Section 8.1, as set forth on SCHEDULE 5.1(s) and the renewal and
refinancing (but not the increase) thereof:
(e) purchase money Debt of the Borrower and its Subsidiaries or Debt
incurred in connection with Capital Lease in an aggregate outstanding amount not
to exceed $1,000,000 on any date of determination; and
(f) Debt incurred in connection with acquisitions permitted by Section
8.3 hereof;
PROVIDED, that none of the Debt permitted to be incurred by this Section shall
restrict, limit or otherwise encumber (by covenant or otherwise) the ability of
any Subsidiary of the Borrower to make any payment to the Borrower or any of its
Subsidiaries (in the form of dividends, intercompany advances or otherwise) for
the purpose of enabling the Borrower to pay the Obligations.
SECTION 8.2 LIMITATIONS ON LIENS. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of Capital Stock), real or personal, whether now owned
or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary course
of business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar legislation or
obligations;
(d) Liens of the Lender;
(e) Liens not otherwise permitted by this Section 8.2 and in existence
on the Closing Date and described on SCHEDULE 8.2; and
(f) Liens securing Debt permitted under Section 8.1(e); PROVIDED that
(i) such Liens shall be created substantially simultaneously with the
acquisition of the related asset, (ii) such Liens do not at any time encumber
any property other than the property financed by such Debt, (iii) the amount of
Debt secured thereby is not increased and (iv) the principal amount of Debt
secured by any such Lien shall at no time exceed ninety percent (90%) of the
original purchase price of such property at the time it was acquired.
<PAGE>
SECTION 8.3 LIMITATIONS ON LOANS, ADVANCES, INVESTMENTS AND
ACQUISITIONS. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any Capital Stock, interests in any partnership or joint venture
(including without limitation the creation or capitalization of any Subsidiary),
evidence of Debt or other obligation or security, substantially all or a portion
of the business or assets of any other Person or any other investment or
interest whatsoever in any other Person, or make or permit to exist, directly or
indirectly, any loans, advances or extensions of credit to, or any investment in
cash or by delivery of property in, any Person, or enter into, directly or
indirectly, any commitment or option in respect of the foregoing except:
(a) investments in Subsidiaries existing on the Closing Date and the
other existing loans, advances and investments described on SCHEDULE 8.3;
(b) investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within 120 days from the date of acquisition thereof, (ii) commercial
paper maturing no more than 120 days from the date of creation thereof and
currently having a rating of "A" or better from Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("S&P") or of "P" or
better from Moody's Investors Service, Inc. ("Moody's"), (iii) money market
deposits maintained with brokerage firms having an investment grade rating from
S&P and Moody's; (iv) certificates of deposit maturing no more than 120 days
from the date of creation thereof issued by commercial banks incorporated under
the laws of the United States of America, each having combined capital, surplus
and undivided profits of not less than $500,000,000 and having a rating of "A"
or better by a nationally recognized rating agency; provided, that the aggregate
amount invested in such certificates of deposit shall not at any time exceed
$5,000,000 for any one such certificate of deposit and $10,000,000 for any one
such bank, or (v) time deposits maturing no more than 30 days from the date of
creation thereof with commercial banks or savings banks or savings and loan
associations, the deposits of which are insured by the Federal Deposit Insurance
Corporation and in amounts not exceeding the maximum amounts of insurance
thereunder;
(c) investments made by Borrower or any Subsidiary (i) in any guarantor
of the Obligations hereunder or (ii) in any Subsidiary which is not a Guarantor
provided that the aggregate amount of investments made pursuant to this clause
(ii) does not exceed $1,500,000; and
(d) acquisitions by Borrower of the business or all or substantially
all of the stock or assets of any Person, or any division of any Person, whether
through purchase of Capital Stock, purchase of assets, merger or otherwise;
PROVIDED, HOWEVER, that (i) giving effect to such acquisition, there would exist
no Default or Event of Default hereunder and Borrower and its Subsidiaries are
in compliance, on a pro forma basis, with Sections 7.13 and 7.14 hereof and (ii)
Borrower shall have delivered to Lender an Officer's Compliance Certificate,
prepared on a pro forma basis, demonstrating the satisfaction of the condition
set forth in clause (i) hereof.
SECTION 8.4 LIMITATIONS ON MERGERS AND LIQUIDATION. Merge, consolidate
or enter into any similar combination with any other Person or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution) except:
<PAGE>
(a) any wholly-owned Subsidiary of the Borrower may merge with any
other wholly-owned Subsidiary of the Borrower;
(b) the Borrower may merge with, and any wholly-owned Subsidiary may
merge into or with, any Person being acquired in connection with an acquisition
permitted by Section 8.3; PROVIDED, HOWEVER, that if Borrower is a party to such
merger, the Borrower shall be the corporation surviving such merger; and
(c) any wholly-owned Subsidiary of the Borrower may wind-up into the
Borrower or any other wholly-owned Subsidiary of the Borrower.
SECTION 8.5 LIMITATIONS ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(a) the sale of inventory in the ordinary course of business;
(b) the sale of obsolete assets no longer used or usable in the
business of the Borrower or any of its Subsidiaries and having an aggregate
value of not greater than $750,000;
(c) the transfer of assets to the Borrower or any wholly-owned
Subsidiary of the Borrower pursuant to Section 8.4(c); and
(d) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection thereof.
SECTION 8.6 LIMITATIONS ON DIVIDENDS AND DISTRIBUTIONS. Declare or pay
any dividends upon any of its Capital Stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its Capital Stock, or
make any distribution of cash, property or assets among the holders of shares of
its Capital Stock, or make any change in its capital structure; PROVIDED that:
(a) the Borrower or any Subsidiary may pay dividends in shares of its
own Capital Stock; and
(b) any Subsidiary may pay cash dividends to the Borrower or to any
wholly-owned Subsidiary of Borrower.
SECTION 8.7 LIMITATIONS ON EXCHANGE AND ISSUANCE OF CAPITAL STOCK.
Issue, sell or otherwise dispose of any class or series of Capital Stock that,
by its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would be,
(a) convertible or exchangeable into Debt or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or has,
or upon the happening of an event or passage of time would have, a redemption or
similar payment due.
<PAGE>
SECTION 8.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly: (a)
make any loan or advance to, or purchase or assume any note or other obligation
to or from, any of its officers, directors, shareholders or other Affiliates
(other than a Guarantor), or to or from any member of the immediate family of
any of its officers, directors, shareholders or other Affiliates (other than a
Guarantor), or subcontract any operations to any of its Affiliates (other than a
Guarantor), or (b) enter into, or be a party to, any transaction with any of its
Affiliates (other than a Guarantor), except pursuant to the reasonable
requirements of its business and upon fair and reasonable terms that are fully
disclosed to and approved in writing by the Lender and are no less favorable to
it than it would obtain in a comparable arm's length transaction with a Person
not its Affiliate; PROVIDED, HOWEVER, that the foregoing shall not affect the
ability of the Borrower or any Subsidiary to determine the amount or form of
executive or director compensation from time to time.
SECTION 8.9 CERTAIN ACCOUNTING CHANGES. Change its Fiscal Year end, or
make any change in its accounting treatment and reporting practices except as
required by GAAP.
SECTION 8.10 AMENDMENTS; PAYMENTS AND PREPAYMENTS OF SUBORDINATED DEBT.
Amend or modify (or permit the modification or amendment of) any of the terms or
provisions of any Subordinated Debt, or cancel or forgive, make any voluntary or
optional payment or prepayment on, or redeem or acquire for value (including
without limitation by way of depositing with any trustee with respect thereto
money or securities before due for the purpose of paying when due) any
Subordinated Debt.
SECTION 8.11 RESTRICTIVE AGREEMENTS. Enter into any Debt which contains
any negative pledge on assets or any covenants more restrictive than the
provisions of Articles 7 and 8 hereof, or which restricts, limits or otherwise
encumbers its ability to incur Liens on or with respect to any of its assets or
properties other than the assets or properties securing such Debt.
ARTICLE 9.
DEFAULT AND REMEDIES
SECTION 9.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) DEFAULT IN PAYMENT OF PRINCIPAL OF LOANS. The Borrower shall
default in any payment of principal of any Loan or the Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) OTHER PAYMENT DEFAULT. The Borrower shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan or Note or the payment of any other Obligation, and such
default shall continue unremedied for three (3) Business Days.
<PAGE>
(c) MISREPRESENTATION. Any representation or warranty made or deemed to
be made by the Borrower or any of its Subsidiaries under this Agreement, any
Loan Document or any amendment hereto or thereto, shall at any time prove to
have been incorrect or misleading in any material respect when made or deemed
made.
(d) DEFAULT IN PERFORMANCE OF COVENANTS AND CONDITIONS. The Borrower or
any Subsidiary thereof shall default in (i) any term, covenant, condition or
agreement contained in Sections 6.1 through 6.4, 7.2, 7.6 or 7.15 and such
default shall continued unremedied for fifteen (15) days or (ii) any other term,
covenant, condition or agreement contained in this Agreement (other than as
specifically provided for otherwise in this Section 9.1) or any other Loan
Document.
(e) HEDGING AGREEMENT. Any termination payment shall be due by the
Borrower under any Hedging Agreement and such amount is not paid within three
(3) Business Days of the due date thereof.
(f) DEBT CROSS-DEFAULT. The Borrower or any of its Subsidiaries shall
(i) default in the payment of any Debt (other than the Obligations) having an
aggregate principal balance of $250,000 or more beyond the period of grace if
any, provided in the instrument or agreement under which such Debt was created,
or (ii) default in the observance or performance of any other agreement or
condition relating to any Debt (other than the Obligations) having an aggregate
principal balance of $250,000 or more or contained in any instrument or
agreement evidencing, securing or relating thereto or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Debt (or a
trustee or agent on behalf of such holder or holders) to cause with the giving
of notice if required, any such Debt to become due prior to its stated maturity
(any applicable grace period having expired).
(g) OTHER CROSS-DEFAULTS. The Borrower or any of its Subsidiaries shall
default in the payment when due, or in the performance or observance, of any
obligation or condition of any Material Contract.
(h) CHANGE IN CONTROL. Any "person" or "group" (within the meaning of
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
other than C. Wayne Cape becomes the "beneficial owner" (as defined in Rules
13(d)-3 and 13(d)-5 of the Securities Exchange Act of 1934, as amended) of
securities (including options) having a majority of the ordinary voting power of
Borrower or the directors of Borrower constituting that percentage necessary to
approve corporate action not being current directors of Borrower or directors
designated or approved by such directors or directors approved by such
directors.
(i) VOLUNTARY BANKRUPTCY PROCEEDING. The Borrower or any Subsidiary
thereof shall (i) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (ii) file a petition seeking to take advantage
of any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii) consent
to or fail to contest in a timely and appropriate manner any petition filed
against it in an involuntary case under such bankruptcy laws or other laws, (iv)
apply for or consent to, or fail to contest in a timely and appropriate manner,
the appointment of, or the taking of possession by, a receiver, custodian,
<PAGE>
trustee, or liquidator of itself or of a substantial part of its property,
domestic or foreign, (v) admit in writing its inability to pay its debts as they
become due, (vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of authorizing any of the
foregoing.
(j) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall
be commenced against the Borrower or any Subsidiary thereof in any court of
competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or adjustment of
debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like for the Borrower or any Subsidiary thereof or for all or any
substantial part of their respective assets, domestic or foreign, and such case
or proceeding shall continue undismissed or unstayed for a period of sixty (60)
consecutive days, or an order granting the relief requested in such case or
proceeding (including, but not limited to, an order for relief under such
federal bankruptcy laws) shall be entered.
(k) FAILURE OF AGREEMENTS. Any provision of this Agreement or of any
other Loan Document shall for any reason cease to be valid and binding on the
Borrower or Subsidiary party thereto or any such Person shall so state in
writing, or any Security Document shall for any reason cease to create a valid
and perfected first priority Lien on, or security interest in, any of the
collateral purported to be covered thereby, in each case other than in
accordance with the express terms hereof or thereof.
(l) TERMINATION EVENT. The occurrence of any of the following events:
(i) the Borrower or any ERISA Affiliate fails to make full payment when due of
all amounts which, under the provisions of any Pension Plan or Section 412 of
the Code, the Borrower or any ERISA Affiliate is required to pay as
contributions thereto, (ii) an accumulated funding deficiency in excess of
$50,000 occurs or exists, whether or not waived, with respect to any Pension
Plan, (iii) a Termination Event or (iv) the Borrower or any ERISA Affiliate as
employers under one or more Multiemployer Plan makes a complete or partial
withdrawal from any such Multiemployer Plan and the plan sponsor of such
Multiemployer Plans notifies such withdrawing employer that such employer has
incurred a withdrawal liability requiring payments in an amount exceeding
$50,000.
(m) JUDGMENT. A judgment or order for the payment of money which causes
the aggregate amount of all such judgments to exceed $250,000 in any Fiscal Year
shall be entered against the Borrower or any of its Subsidiaries by any court
and such judgment or order shall continue undischarged, unpaid or unstayed for a
period of thirty (30) days.
SECTION 9.2 REMEDIES. Upon the occurrence of an Event of Default, the
Lender may, by notice to the Borrower:
(a) ACCELERATION; TERMINATION OF COMMITMENT. Declare the principal of
and interest on the Loans, the Note and the other Obligations at the time
outstanding, and all other amounts owed to the Lender under this Agreement or
any of the other Loan Documents, to be forthwith due and payable, whereupon the
same shall immediately become due and payable without presentment,
<PAGE>
demand, protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the other Loan Documents to the contrary
notwithstanding, and terminate the Commitment and any right of the Borrower to
request borrowings hereunder; PROVIDED, that upon the occurrence of an Event of
Default specified in Section 9.1(i) or (j), the Commitment shall be
automatically terminated and all Obligations shall automatically become due and
payable.
(b) RIGHTS OF COLLECTION. Exercise all of its other rights and remedies
under this Agreement, the other Loan Documents and Applicable Law, in order to
satisfy all of the Borrower's Obligations.
SECTION 9.3 RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC.. The
enumeration of the rights and remedies of the Lender set forth in this Agreement
is not intended to be exhaustive and the exercise by the Lender of any right or
remedy shall not preclude the exercise of any other rights or remedies, all of
which shall be cumulative, and shall be in addition to any other right or remedy
given hereunder or under the Loan Documents or that may now or hereafter exist
in law or in equity or by suit or otherwise. No delay or failure to take action
on the part of the Lender in exercising any right, power or privilege shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege preclude other or further exercise thereof or the
exercise of any other right, power or privilege or shall be construed to be a
waiver of any Event of Default. No course of dealing between the Borrower, the
Lender or its agents or employees shall be effective to change, modify or
discharge any provision of this Agreement or any of the other Loan Documents or
to constitute a waiver of any Event of Default.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.1 NOTICES.
(a) METHOD OF COMMUNICATION. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand or
sent by telecopy, (ii) on the next Business Day if sent by recognized overnight
courier service and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to the Lender as
understood by the Lender will be deemed to be the controlling and proper notice
in the event of a discrepancy with or failure to receive a confirming written
notice.
(b) ADDRESSES FOR NOTICES. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
<PAGE>
If to the Borrower: Optio Software, Inc.
3015 Windward Plaza
Fairways II
Alpharetta, GA 30005
Attention: Mr. Barron Hughes
Telephone No.: (770) 576-3504
Telecopy No.: (770) 576-3642
With copies to: Morris Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road N.E.
Atlanta, GA 30326
Attention: John C. Yates
Telephone No.: (404) 233-7000
Telecopy No.: (404) 365-9532
If to Lender: First Union National Bank
P.O. Box 740074
Atlanta, GA 30374
Attention: George C. Flynn, III
Telephone No. (404) 827-7993
Telecopy No.: (404) 225-4011
With copies to: Troutman Sanders LLP
600 Peachtree Street N.E.
Suite 5200
Atlanta, GA 30308
Attention: Hazen H. Dempster, esq.
Telephone No.: (404) 885-3126
Telecopy No.: (404) 885-3995
(c) LENDER'S OFFICE. The Lender hereby designates its office located at
the address set forth above, or any subsequent office which shall have been
specified for such purpose by written notice to the Borrower, as the Lender's
Office referred to herein, to which payments due are to be made and at which
Loans will be disbursed.
SECTION 10.2 EXPENSES; INDEMNITY. The Borrower will (a) pay all
out-of-pocket expenses of the Lender in connection with: (i) the preparation,
execution and delivery of this Agreement and each other Loan Document, whenever
the same shall be executed and delivered, including without limitation all due
diligence expenses and reasonable fees and disbursements of counsel for the
Lender; PROVIDED, HOWEVER, that the fees of counsel to Lender (excluding the
out-of-pocket disbursements of such counsel) in connection with the initial
preparation, execution and delivery of this Agreement shall not exceed $5,000,
(ii) the preparation, execution and delivery of any waiver, amendment or consent
by the Lender relating to this Agreement or any other Loan Document, including
without limitation reasonable fees and disbursements of counsel for the Lender;
<PAGE>
PROVIDED, HOWEVER, that unless there then exists a Default or Event of Default
hereunder (in which case Borrower's obligation hereunder shall not be subject to
any limit), Borrower' obligation to reimburse the Lender for any audit of
Borrower by Lender shall be limited $2,000 per audit; and (iii) the
administration and enforcement of any rights and remedies of the Lender under
this Agreement and the Loan Documents, including consulting with appraisers,
accountants, engineers, attorneys and other Persons concerning the nature, scope
or value of any right or remedy of the Lender hereunder or under any other Loan
Document or any factual matters in connection therewith, which expenses shall
include without limitation the reasonable fees and disbursements of such
Persons, and (b) defend, indemnify and hold harmless the Lender, and its parent,
Subsidiaries, Affiliates, employees, agents, officers and directors, from and
against any losses, penalties, fines, liabilities, settlements, damages, costs
and expenses, suffered by any such Person in connection with any claim,
investigation, litigation or other proceeding (whether or not the Lender is a
party thereto) and the prosecution and defense thereof, arising out of or in any
way connected with the Agreement, any other Loan Document or the Loans,
including without limitation reasonable attorneys' and consultants' fees, except
to the extent that any of the foregoing directly result from the gross
negligence or willful misconduct of the party seeking indemnification therefor.
SECTION 10.3 SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the continuance
thereof, the Lender in accordance with Section 10.10 is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured) and any other indebtedness at any time
held or owing by the Lender to or for the credit or the account of the Borrower
against and on account of the Obligations irrespective of whether or not (a) the
Lender shall have made any demand under this Agreement or any of the other Loan
Documents or (b) the Lender shall have declared any or all of the Obligations to
be due and payable as permitted by Section 9.2 and although such Obligations
shall be contingent or unmatured.
SECTION 10.4 GOVERNING LAW. This Agreement, the Note and the other Loan
Documents, unless otherwise expressly set forth therein, shall be governed by,
construed and enforced in accordance with the laws of the State of Georgia,
without reference to the conflicts or choice of law principles thereof.
SECTION 10.5 CONSENT TO JURISDICTION. The Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Fulton County, Georgia, in any action, claim or other proceeding arising out of
any dispute in connection with this Agreement, the Note and the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations. Nothing in this Section 10.5 shall affect the
right of the Lender to bring any action or proceeding against the Borrower or
its properties in the courts of any other jurisdictions.
SECTION 10.6 BINDING ARBITRATION; WAIVER OF JURY TRIAL.
<PAGE>
(a) BINDING ARBITRATION. Upon demand of any party, whether made before
or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to the Note or any other
Loan Documents ("Disputes"), between or among parties to the Note or any other
Loan Document shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, claims brought as class actions, claims arising from
Loan Documents executed in the future, or claims concerning any aspect of the
past, present or future relationships arising out of or connected with the Loan
Documents. Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Atlanta, Georgia. The expedited procedures set forth in
Rule 51, ET SEQ. of the Arbitration Rules shall be applicable to claims of less
than $250,000. All applicable statutes of limitation shall apply to any Dispute.
A judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted. Notwithstanding the foregoing,
this paragraph shall not apply to any Hedging Agreement that is a Loan Document.
(b) JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE LENDER AND THE
BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS
OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
(c) PRESERVATION OF CERTAIN REMEDIES. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right to proceed in any court of
proper jurisdiction or by self help to exercise or prosecute the following
remedies: (i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted in the Loan Documents or
under applicable law or by judicial foreclosure and sale, (ii) all rights of
self help including peaceful occupation of property and collection of rents, set
off, and peaceful possession of property, (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in filing an involuntary bankruptcy
proceeding, and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
SECTION 10.7 REVERSAL OF PAYMENTS. To the extent the Borrower makes a
payment or payments to the Lender or the Lender receives any payment or proceeds
of the collateral which payments or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
<PAGE>
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds repaid, the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or proceeds had not been received by the Lender.
SECTION 10.8 INJUNCTIVE RELIEF; PUNITIVE DAMAGES.
(a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lender.
Therefore, the Borrower agrees that the Lender, at the its option, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
(b) The Lender and Borrower (on behalf of itself and its Subsidiaries)
hereby agree that no such Person shall have a remedy of punitive or exemplary
damages against any other party to a Loan Document and each such Person hereby
waives any right or claim to punitive or exemplary damages that they may now
have or may arise in the future in connection with any Dispute, whether such
Dispute is resolved through arbitration or judicially.
(c) The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may arise
in the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
SECTION 10.9 ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to determine compliance with any covenant
contained herein, shall, except as otherwise expressly contemplated hereby or
unless there is an express written direction by the Lender to the contrary
agreed to by the Borrower, be performed in accordance with GAAP as in effect on
the Closing Date. In the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board, or any similar accounting body of
comparable standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date the Borrower and the
Lender shall have amended this Agreement to the extent necessary to reflect any
such changes in the financial covenants and other terms and conditions of this
Agreement.
SECTION 10.10 SUCCESSORS AND ASSIGNS; CONFIDENTIALITY.
(a) BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lender, all future holders of the
Note, and their respective successors and assigns, except that the Borrower
shall not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Lender.
<PAGE>
(b) DISCLOSURE OF INFORMATION; CONFIDENTIALITY. The Lender shall hold
all non-public information with respect to the Borrower obtained pursuant to the
Loan Documents in accordance with its customary procedures for handling
confidential information. Lender may, in connection with any assignment,
proposed assignment, participation or proposed participation of the Obligations
or this Agreement, disclose to the assignee, participant. proposed assignee or
proposed participant, any information relating to the Borrower furnished to the
Lender by or on behalf of the Borrower; PROVIDED, that prior to any such
disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with the Borrower or the Lender to preserve the
confidentiality of any confidential information relating to the Borrower
received from the Lender.
SECTION 10.11 AMENDMENTS, WAIVERS AND CONSENTS. Any term, covenant,
agreement or condition of this Agreement or any of the other Loan Documents may
be amended or waived by the Lender, and any consent given by the Lender, if, but
only if, such amendment, waiver or consent is in writing signed by the Lender
and, in the case of an amendment, signed by the Borrower.
SECTION 10.12 PERFORMANCE OF DUTIES. The Borrower's obligations under
this Agreement and each of the Loan Documents shall be performed by the Borrower
at its sole cost and expense.
SECTION 10.13 ALL POWERS COUPLED WITH INTEREST. All powers of attorney
and other authorizations granted to the Lender and any Persons designated by the
Lender pursuant to any provisions of this Agreement or any of the other Loan
Documents shall be deemed coupled with an interest and shall be irrevocable so
long as any of the Obligations remain unpaid or unsatisfied or the Commitment
has not been terminated.
SECTION 10.14 SURVIVAL OF INDEMNITIES. Notwithstanding any termination
of this Agreement, the indemnities to which the Lender is entitled under the
provisions of this Article 10 and any other provision of this Agreement and the
Loan Documents shall continue in full force and effect and shall protect the
Lender against events arising after such termination as well as before.
SECTION 10.15 TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 10.16 SEVERABILITY OF PROVISIONS Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 10.17 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
<PAGE>
SECTION 10.18 TERM OF AGREEMENT. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been irrevocably paid and satisfied in full. No termination of this
Agreement shall affect the rights and obligations of the parties hereto arising
prior to such termination.
[Signature pages to follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above
[CORPORATE SEAL] OPTIO SOFTWARE, INC.
By: /s/ C. Wayne Cape
--------------------------------------
Name: C. Wayne Cape
Title: Chief Executive Officer
Attest: /s/ Barron Hughes
------------------------------------
Name: Barron Hughes
Secretary
FIRST UNION NATIONAL BANK
By: /s/ George C. Flynn
--------------------------------------
Name: George C. Flynn
Title: Vice President
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Optio Software, Europe S.A.
Optio Software, Asia Pacific
Muscato Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 46,826
<SECURITIES> 386
<RECEIVABLES> 9,554
<ALLOWANCES> 286
<INVENTORY> 0
<CURRENT-ASSETS> 57,379
<PP&E> 2,990
<DEPRECIATION> 1,472
<TOTAL-ASSETS> 60,642
<CURRENT-LIABILITIES> 11,431
<BONDS> 0
0
0
<COMMON> 48,362
<OTHER-SE> 637
<TOTAL-LIABILITY-AND-EQUITY> 60,642
<SALES> 0
<TOTAL-REVENUES> 32,833
<CGS> 0
<TOTAL-COSTS> 8,977
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 473
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 3,593
<INCOME-TAX> 1,601
<INCOME-CONTINUING> 1,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,992
<EPS-BASIC> .16
<EPS-DILUTED> .10
</TABLE>
<PAGE>
EXHIBIT 99.8
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
You should consider carefully the following factors in evaluating us and our
business. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us, which we
currently deem immaterial or that are similar to those faced by other companies
in our industry or business in general, may also impair our business operations.
If any of the following risks actually occurs, our business, financial condition
or results of future operations could be materially and adversely affected.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS; AS A RESULT, WE
MAY FAIL TO MEET EXPECTATIONS OF INVESTORS AND ANALYSTS AND OUR STOCK PRICE MAY
DECLINE.
Our revenue and operating results may vary from quarter to quarter. As
a result, we may fail to meet expectations of investors and analysts, which may
cause our stock price to decline. These fluctuations may occur as a result of
the following factors: variations in market acceptance of and demand for our
software; the size and timing of our customer orders; increased expenses,
whether related to sales and marketing, product development or administration;
delays in introducing new software or software enhancements; new software
introductions or changes in pricing policies by our competitors; costs related
to acquisitions of technologies or businesses; and the amount and timing of
expenditures related to expansion of our operations.
The purchase of our software involves a significant commitment of
resources and recurring expenses and attendant delays frequently associated with
approving capital expenditures and reviewing new technologies that affect key
operations. The decision-making processes of our customers' senior management
requires us to provide a significant level of training to prospective customers
regarding the use and benefits of our software. We may expend substantial funds
and management resources during the sales cycle and fail to consummate the sale.
Accordingly, our results of operations for a particular period may suffer if the
sales forecasted for a particular period are delayed or do not otherwise occur.
WE RELY ON OUR STRATEGIC MARKETING RELATIONSHIPS TO GENERATE CUSTOMER REFERRALS
WHICH ACCOUNT FOR APPROXIMATELY HALF OF OUR REVENUE; IF WE DO NOT SUCCESSFULLY
DEVELOP AND MAINTAIN THESE RELATIONSHIPS, OUR REVENUE WILL DECREASE.
Historically, approximately half of our sales have depended on our
strategic marketing relationships. We expect that revenue from sales of our
software and services based on customer referrals generated through these
relationships will continue to account for a significant portion of our revenue.
The loss of a significant number of these relationships would cause our revenue
to decrease. Most of our revenue from these relationships is derived from
strategic marketing relationships with two types of entities: large software
vendors and consulting firms. Large software vendors, such as Baan, J.D.
Edwards, McKesson HBOC, Oracle, QAD and SAP, often recommend our products to
their customers or provide us with customer referrals. Consulting firms, such as
Deloitte Consulting, may recommend our software to their customers. Some of
these organizations
<PAGE>
receive referral fees for these sales and others do not. We receive license fees
from the customers in these sales. We expect that a limited number of our
strategic marketing relationships, such as those with McKesson HBOC, will
account for a substantial portion of our customer referrals and, therefore,
revenue over time. Our strategic relationships are generally terminable by
either party upon 30 to 90 days notice. Therefore, the continuation of these
relationships is uncertain. Furthermore, software manufacturers may decide to
promote technologies and standards that are not compatible with our software, or
they may lose market share for their products, which would cause our revenues to
decrease.
WE RELY IN PART ON THIRD PARTY RESELLER RELATIONSHIPS TO GENERATE REVENUE; IF WE
DO NOT CONTINUE TO DEVELOP AND MAINTAIN THESE RELATIONSHIPS, OUR REVENUE WILL
DECREASE.
We intend to augment our indirect sales channel through additional
third-party reseller arrangements. As a result, we will likely become more
dependent on this type of relationship. We may not be able to successfully
augment these arrangements, and the expansion of indirect resale methods, even
if successful, may not increase revenue. As a result, we may incur expenses that
do not promote the growth of our business.
WE INTEND TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR MARKETS; IF
WE ARE UNABLE TO DO SO, OUR COMPETITIVE POSITION COULD BE WEAKENED.
We intend to continuously evaluate our position within our industry,
and we may acquire complementary technologies or businesses in the future.
However, we may not be able to identify suitable acquisition candidates that are
available for sale at reasonable prices. Due to consolidation trends within the
technology industry, failure to adopt and successfully implement a long-term
acquisition strategy could weaken our competitive position. If we are able to
identify suitable acquisition candidates, we may elect to finance future
acquisitions using some or all of the proceeds of this offering. We may also
elect to finance future acquisitions with debt financing, which would increase
our debt service requirements, or through the issuance of additional common or
preferred stock, which could result in dilution to our shareholders. In
addition, we may not be able to arrange adequate financing for any acquisitions
on acceptable terms.
ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE INTO OUR BUSINESS, MAY LIMIT OUR
ABILITY TO MANAGE OUR OPERATIONS AND MAY RESULT IN ADVERSE ACCOUNTING TREATMENT.
We may be unable to obtain a satisfactory return on our investments in
acquisitions as a result of various factors, including: difficulties in
assimilating the operations, products, technology, information systems and
personnel of the acquired company with our operations; the diversion of our
management's attention from other business concerns; the impairment of
relationships with our employees, affiliates and organizations with which we
have strategic marketing relationships; difficulties maintaining uniform
standards, controls, procedures and policies; our lack of direct prior
experience in the markets of the acquired company; and the loss of key employees
of the acquired company.
Future acquisitions may also involve large one-time write-offs and
amortization expenses related to goodwill and other intangible assets.
WE RELY ON OUR ABILITY TO RETAIN OUR EXISTING KEY PERSONNEL AND ATTRACT
ADDITIONAL KEY PERSONNEL; IF WE ARE UNABLE TO DO SO, WE MAY NOT BE ABLE TO
EFFECTIVELY MANAGE AND EXPAND OUR BUSINESS.
<PAGE>
Our future performance depends on the continued service of our senior
management, product development and sales personnel. The loss of the services of
one or more of our key personnel could seriously harm our ability to manage and
expand our business. In particular, we rely on the experience and knowledge of
our founder and Chief Executive Officer, C. Wayne Cape, who has provided Optio
with management and leadership since its inception in 1981. None of these
persons, including Mr. Cape, is bound by an employment agreement. We maintain
"key person" life insurance in the amount of $1 million on Mr. Cape, but this
amount likely would be inadequate to compensate us for the loss of his services.
Our future success also depends on our continuing ability to attract,
hire, train and retain a substantial number of highly skilled managerial,
technical, sales, marketing and customer support personnel. We are particularly
dependent on hiring additional personnel to increase our direct sales and
research and development efforts. In addition, new hires frequently require
extensive training before they achieve desired levels of productivity.
Competition for qualified personnel is intense and we may fail to retain our key
employees or to attract or retain other highly qualified personnel. If we fail
to attract and retain these personnel, we may not be able to effectively manage
and expand our business.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY; IF WE ARE UNABLE TO COMPETE
SUCCESSFULLY, WE MAY NOT BE ABLE TO SELL OUR SOFTWARE AND SERVICES, WHICH WOULD
HARM OUR OPERATING RESULTS.
If we are unable to satisfy our customers requirements we may lose
those customers to our competitors, which would harm our operating results. The
market for our software and services is intensely competitive, fragmented and
constantly changing. Our customers' requirements and the technology available to
satisfy those requirements continually change. We expect competition to persist
and intensify in the future.
We believe our competitors fit into three segments. The first is custom
software development. The second is comprised of output management solutions
from organizations such as: AFP Technology Ltd.; Create!print International,
Inc.; Cypress Corporation; Dazel Corporation, which is owned by The
Hewlett-Packard Company; New Dimension Software Ltd., which is owned by BMC
Software, Inc.; StreamServe, Inc.; and Tivoli, which is owned by IBM
Corporation.
The third is comprised of e-business enablement organizations, which we
believe we will compete with increasingly in the future, such as: Actuate
Software Corporation; BlueGill Technologies Inc.; BottomLine Technologies Inc.;
Brio Technology Inc.; Extricity Software, Inc.; Quest Software, Inc.; and
webMethods, Inc.
We expect to face increased competition from our current competitors.
In addition, new competitors, alliances among existing and future competitors,
or acquisitions by or consolidations of our competitors may emerge and rapidly
gain significant market share.
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, marketing and other
resources than we do. Many of these companies can also leverage extensive
customer bases and adopt aggressive pricing policies to gain market share. In
addition, it is possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult to acquire and retain
clients and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully
<PAGE>
with existing or new competitors. If we fail to compete successfully, our
business will be harmed.
WE ARE CURRENTLY EXPANDING OUR INTERNATIONAL OPERATIONS; IF WE DO NOT
EFFECTIVELY MANAGE THIS EXPANSION, OUR OPERATING RESULTS WILL BE HARMED.
Substantially all of our current international revenue is derived from
the operations of our two wholly-owned subsidiaries in France and Australia.
Revenue from licenses and services to customers outside of North America were
$986,000 in the year ended January 31, 1999, representing 5% of total revenue,
and approximately $4.2 million in the year ended January 31, 2000, representing
12.8% of total revenue. Our expanding international operations may negatively
affect our operating results because of the following factors: difficulties in
staffing and managing foreign operations; potential losses or gains from
currency fluctuation as a result of transactions and expenses being denominated
in foreign currencies; seasonal reductions in business activity in Europe;
increased financial accounting and reporting burdens and complexities and
potentially adverse tax consequences; delays in delivering language-specific
versions of our software due to our limited experience in creating these
versions; compliance with a wide variety of complex foreign laws and treaties;
reduced protection for intellectual property rights in some countries; and
licenses, tariffs and other trade barriers.
We plan to expand our international operations as part of our business
strategy. The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources and will place additional burdens on our management,
administrative, operational and financial infrastructure. We cannot be certain
that our operations in other countries will produce desired levels of revenue or
profitability.
OUR SOFTWARE MAY SUFFER FROM DEFECTS OR ERRORS, WHICH MAY HARM ITS REPUTATION OR
SUBJECT US TO PRODUCT LIABILITY CLAIMS.
The software we offer is inherently complex. Despite testing and
quality control, current versions, new versions or enhancements of our software
may contain errors after commencement of commercial shipments. Any errors may
harm the reputation of our software or subject us to product liability claims.
Significant technical challenges also arise with our software because our
customers purchase and deploy our software across a variety of computer
platforms and integrate them with a number of third-party software applications
and databases. Any defects or errors that are discovered after commercial
release could result in the loss of revenue or delay in market acceptance of our
software. Moreover, we could face significant product liability claims and
higher development costs if our software contains undetected errors, if we fail
to meet our customers' expectations or if a customer's system experiences
failures following the implementation of our software, regardless of our
responsibility for the failure. Although we maintain general liability insurance
coverage, this coverage may not continue to be available on reasonable terms or
at all, or may be insufficient to cover one or more large claims. In addition, a
product liability claim, whether or not successful, could harm our business by
increasing our costs and distracting our management.
THE THIRD PARTY SOFTWARE WE RELY ON MAY SUFFER FROM DEFECTS OR ERRORS OR MAY
BECOME OBSOLETE, WHICH WOULD HARM OUR SALES.
Our software contains components developed and maintained by
third-party software vendors, and we expect that we will incorporate software
from third-party vendors in our future software. We may not be able to replace
the functionality provided by this third-party software if it
<PAGE>
becomes obsolete, defective or incompatible with future versions of our software
or if it is not adequately maintained or updated. Any significant interruption
in the availability of this third-party software or defects in this software
could harm our sales unless and until we can secure an alternative source. In
addition, we have entered into and plan to continue to enter into strategic
relationships with other companies whereby we license our software for
integration with their software. If the other company's software fails to meet
customer expectations or causes a failure in its customers' systems, the
reputation of our software could be harmed, even if our software performs in
accordance with its functional specifications.
WE MAY EXPERIENCE DELAYS IN ENHANCING EXISTING SOFTWARE AND DEVELOPING NEW
SOFTWARE; THESE DELAYS MAY AFFECT OUR COMPETITIVENESS AND CAUSE US TO LOSE
MARKET SHARE.
Our competitiveness and ability to maintain or increase our market
share will depend, in part, on our ability to develop, test, sell and support
enhancements to our current and new software on a timely basis in response to
changing customer needs, competition, technological developments and emerging
industry standards. Our failure to successfully adapt our software and services
to this rapidly changing market could reduce our revenue and cause our operating
results to suffer. The software industry is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
product and service introductions. These developments could limit the
marketability of our software and services and could render our software and
services obsolete. We may not successfully identify new product opportunities or
develop and bring new and enhanced products and services to the market in a
cost-effective and timely manner. If we fail to release new software and
upgrades on time or if they fail to achieve market acceptance, we may experience
customer dissatisfaction, cancellation of orders and license agreements and loss
of revenue.
WE RELY ON THIRD PARTIES TO PROVIDE PART OF OUR CONSULTING SERVICES; IF THESE
THIRD PARTIES DO NOT PROVIDE SATISFACTORY SERVICE, OUR REPUTATION COULD BE
HARMED AND OUR REVENUE FROM THESE SERVICES COULD DECREASE.
We now contract with, and may increasingly contract with, third party
providers to assist in providing our consulting services. Services provided by
these third parties may include providing assistance to our customers in
installing and implementing our software. If we are unable to continue
contracting with third parties for these consulting services, or if these third
parties do not meet the needs or expectations of our customers, our business and
reputation may be harmed and we will have to perform these functions ourselves.
Providing these services could place a significant strain on our internal
consulting resources, and we may not be able to successfully perform these
services on a timely and cost-effective basis.
WE MAY FAIL TO ESTABLISH A MARKET FOR OUR NEW E-BUSINESS SOFTWARE AND SERVICES,
AND THEREFORE, THEY MAY NOT LEAD TO INCREASED REVENUE.
We have recently developed and are currently developing new software to
assist companies in business-to-business transactions over the Internet. To
date, most of our revenue has been derived from software that was not originally
designed to facilitate e-business, but rather to deliver customized information
by fax, printer and e-mail. License revenue from our e-business software
represented approximately $600,000 of our $17.1 million in license in the year
ended January 31, 2000. If a significant market for e-business software and
services fails to develop, or if we are unable to develop broad market
acceptance for our e-business software, our business in this area may not
<PAGE>
grow as rapidly as we anticipate. In addition, our limited operating history in
the e-business market makes it difficult for us to evaluate our future prospects
in this market. We may encounter risks and difficulties associated with our new
e-business initiatives as often is the case with companies that introduce new
products and services into rapidly evolving markets. Internet usage for
e-business, and therefore the acceptance and adoption of our e-business software
and services, may be inhibited for a number of reasons, including: inadequate
network infrastructure; security concerns; inconsistent quality of service;
unavailability of cost effective, high-speed access to the Internet; and changes
in government regulation of the Internet.
We also believe that awareness of our software and its capabilities
within this evolving market is still developing. While we have devoted
significant resources to promoting awareness of our software and the problems
this software addresses, these efforts may not be sufficient to build market
awareness for our software.
DISPUTES REGARDING OUR INTELLECTUAL PROPERTY COULD NEGATIVELY IMPACT OUR ABILITY
TO SELL OUR SOFTWARE AND SERVICES.
We believe our ability to sell our software and services depends, in
part, on protecting our proprietary intellectual property and favorably
resolving intellectual property claims that may be brought against us. If we
fail to do so, our ability to sell our software and services may be restricted,
as a result of which our operating results would suffer.
We rely on a combination of copyright, trademark and trade secret laws
and contractual provisions to establish and protect our proprietary rights. We
have applied for the federal registration of trademarks for "Optio" and
"MedForms." We have also registered the domain name "optiosoftware.com." We have
not filed any copyrights for our software.
The steps we have taken to protect our proprietary rights may not be
adequate, we may not be able to secure trademark or service mark registrations
for our marks in the United States or in foreign countries and third parties may
infringe upon or misappropriate our copyrights, trademarks, service marks,
domain names and similar proprietary rights. In addition, effective copyright
and trademark protection may be unenforceable or limited in foreign countries.
Also, our competitors or others may adopt product or service names similar to
ours, thereby impeding our ability to build brand identity and possibly leading
to customer confusion. In addition, litigation may be necessary to enforce and
protect our trade secrets, copyrights and other intellectual property rights.
Any litigation would divert management resources, be expensive and may not
effectively protect our intellectual property. Our inability to protect our
marks adequately could harm our business.
We may be subject to litigation for claims of infringement of the
rights of others or to determine the scope and validity of the intellectual
property rights of others. Furthermore, adverse determinations in litigation
could result in the loss of proprietary rights, subject us to significant
liabilities, require us to seek licenses from third parties, or prevent us from
selling our services. If we are required to obtain new licenses from third
parties, we may not be able to obtain them on commercially reasonable terms. Any
of these results could reduce the acceptance of the Optio brand, which would
cause our business to suffer.
SALES OF OUR SHARES COULD CAUSE OUR STOCK PRICE TO FALL.
Future sales of our common stock may depress our stock price. Sales of
a substantial number of shares of our common stock in the public market
following this offering could adversely affect
<PAGE>
the market price of our common stock.
OUR MANAGEMENT AND AFFILIATES CONTROL MORE THAN 56% OF OUR STOCK AND WILL
THEREFORE BE ABLE TO DETERMINE THE OUTCOME OF ANY SHAREHOLDER VOTE.
Over 56% of our stock is controlled by our management and affiliates;
as a result, they can determine the outcome of any shareholder vote. This may
discourage a potential acquirer from offering to purchase or otherwise
attempting to obtain control of Optio, which in turn could reduce our stock
price or prevent our shareholders from realizing a premium over our stock price.
As a result, our officers, directors and affiliated persons will effectively be
able to: elect, or defeat the election of, our directors; amend or prevent
amendment of our Articles of Incorporation or Bylaws; effect or prevent a
merger, sale of assets or other corporate transaction; and control the outcome
of any other matter submitted to the shareholders for vote. Investors will incur
additional dilution upon the exercise of outstanding stock options and warrants.
OUR ARTICLES OF INCORPORATION AND BYLAWS, AS WELL AS GEORGIA LAW, MAY PREVENT OR
DELAY A FUTURE TAKEOVER, THUS PREVENTING INVESTORS FROM REALIZING A PREMIUM ON
OUR STOCK PRICE.
Our articles of incorporation, bylaws and Georgia law could make it
more difficult for a third party to acquire us, even if a change in control
would be beneficial to our shareholders. For example, our articles of
incorporation and bylaws provide, among other things, that: our board of
directors, without shareholder approval, has the authority to issue preferred
stock with rights superior to the rights of the holders of common stock;
shareholders must comply with advance notice provisions contained in our bylaws
to make proposals at shareholder meetings and nominate candidates for election
to our board of directors; our board of directors is classified and directors
have staggered terms; and the shareholders may call a special meeting only upon
request of 50% of the votes entitled to be cast on each issue to be considered
at the special meeting. Georgia law also contains "business combination" and
"fair price" provisions that may have the effect of delaying, deterring or
preventing a change in control of Optio.
THE MARKET FOR TECHNOLOGY COMPANIES HAS EXPERIENCED EXTREME PRICE AND VOLUME
VOLATILITY THAT HAVE OFTEN BEEN UNRELATED OR DISPROPORTIONATE TO THE OPERATING
PERFORMANCE OF THOSE COMPANIES.
These broad market and industry factors may harm our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect relative
valuation levels substantially above historical levels. These trading prices and
relative valuation levels may not be sustained.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THERE ARE UNRESOLVED YEAR 2000
PROBLEMS WITH OUR SOFTWARE AND INTERNAL SYSTEMS THAT WE HAVE NOT DISCOVERED YET.
We spent considerable internal and external resources from 1997 through
1999 preparing for the "Year 2000" computer issue. The Year 2000 issue relates
to the ability of a computer system to properly process data beginning on
January 1, 2000. The Company's efforts were spent to ensure that its computer
products were "Year 2000 Ready," as defined, and that its internal core
information technology (IT) and non-IT systems were Year 2000 Ready.
Optio believes it successfully implemented its Year 2000 program, as
evidenced by the continued successful operation of its computer products and
core internal IT and non-IT systems.
<PAGE>
We have not encountered significant problems with our third-party customers,
financial institutions, vendors and others with whom it conducts business. We
will continue to monitor our product performance and core IT and non-IT systems
throughout 2000 to ensure ongoing performance. While there can be no assurance
that no Year 2000 related issues will arise, as of January 31, 2000, we believe,
based on information currently available, that Year 2000-related events are not
likely to have a material effect on our results of operation, financial
condition or liquidity.
Optio did not separately track expenditures to achieve Year 2000
readiness. Those expenditures were absorbed within the development organization.
To date, costs related to Year 2000 readiness have not been material relative to
Optio's overall development expenditures. Furthermore, based on Optio's
experience to date, Optio does not anticipate that costs associated with
remediating non-compliant products or internal systems will be material.
Despite the measures we are taking, we cannot assure you that Year 2000
issues will not be discovered in our software or internal software systems. If
Year 2000 issues are discovered, we cannot assure you that our contingency plan
will be adequate to deal with them effectively, or that the costs of making our
software and systems Year 2000 ready will not have a material adverse effect on
our business, operating results and financial condition. Although we have not
been a party to any litigation or arbitration proceeding to date involving our
software or services and related to Year 2000 compliance issues, there can be no
assurance that we will not in the future be required to defend our software or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, would harm our business.
