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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
REGISTRATION NUMBER 333-90269
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TRUETIME, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3663 94-3343279
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
TRUETIME, INC.
2835 DUKE COURT
SANTA ROSA, CA 95407
(707) 528-1230
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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ELIZABETH A. WITHERS
TRUETIME, INC.
2835 DUKE COURT
SANTA ROSA, CA 95407
(707) 528-1230
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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CHARLES H. STILL J. KENNETH MENGES, JR., P.C.
FULBRIGHT & JAWORSKI L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1301 MCKINNEY, SUITE 5100 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77010-3095 DALLAS, TEXAS 75201
(713) 651-5151 (214) 969-2800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT RELATING TO
THESE SECURITIES FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE
ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE OR OTHER
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1999
PROSPECTUS
3,000,000 SHARES
[TRUETIME LOGO]
COMMON STOCK
---------------------
This is the initial public offering of TrueTime, Inc. We are offering 1,500,000
shares of our common stock and the selling stockholder is offering 1,500,000
shares of our common stock for resale. No public market currently exists for our
shares. We anticipate that the initial public offering price will be between
$5.00 and $7.00 per share.
The shares we are offering have been approved for quotation on the Nasdaq
National Market under the symbol "TRUE."
---------------------
THIS INVESTMENT INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
5.
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<CAPTION>
PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds, before expenses, to TrueTime...................... $ $
Proceeds, before expenses, to selling stockholder........... $ $
</TABLE>
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TrueTime has granted the underwriters a 30-day option to purchase up to 450,000
additional shares to cover over-allotments.
TrueTime has, as additional underwriting compensation, agreed to issue to C.E.
Unterberg, Towbin warrants to purchase up to 200,000 shares of common stock at
an initial exercise price for each share equal to 110% of the offering price.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
---------------------
C.E. UNTERBERG, TOWBIN
CRUTTENDEN ROTH
INCORPORATED
PENNSYLVANIA MERCHANT GROUP
, 1999
<PAGE> 3
The TrueTime logo in block print, "TrueTime" and "Products" directly
underneath it. Five pictures of TrueTime's products.
The picture of each product also contains a description of what each
product is. The products and descriptions in order from top to bottom are "time
displays," "computer network time servers," "computer plug-in cards," "time code
products," and "precise time and frequency products."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 23
Management.................................................. 33
Relationship with OYO Japan and Related Transactions........ 40
Security Ownership of Management and Principal and Selling
Stockholder............................................... 42
Description of Capital Stock................................ 44
Shares Eligible for Future Sale............................. 49
Underwriting................................................ 51
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find Additional Information................... 54
Index to Financial Statements............................... F-i
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
In the following summary, we will try to provide clear and concise
information which will help you decide whether you wish to buy our common stock.
However, the summary may not contain all the information that is important to
you and we therefore encourage you to read the entire prospectus and our
consolidated financial statements and the notes to those statements before
making your decision.
TRUETIME, INC.
OUR BUSINESS
TrueTime designs, develops, manufactures and markets precision time and
precision electrical signal-generating products that are essential components
used in many technology-based markets. Our products use a variety of external
timing references, including most importantly the Global Positioning System, or
GPS, together with advanced electronic circuitry and software to provide high
quality signals and precise time. The signals our products produce are commonly
referred to as frequencies. We offer a wide variety of products, which can be
divided into the following broad categories:
- precise time and frequency products
- computer plug-in cards with precise timing capabilities
- computer network time servers
- time code products
- time displays
Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. A
substantial portion of our sales is made to numerous, and usually repeat,
customers who purchase small quantities of multiple types of products and who
often have custom or semi-custom specifications. Representative of typical
customers are some of the best-known enterprises engaged in
- telecommunications
- computer networking
- e-commerce
- power utilities
- aerospace
- national defense
- television broadcasting
In fiscal year 1999, we sold our products to more than 1,000 customers. We
believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers.
In the fiscal year ended September 30, 1999, we achieved sales of $20.6
million, an increase of 26.7% over the prior fiscal year, resulting in net
income of $2.3 million, an increase of 40.0% over the same period.
OUR INDUSTRY AND MARKET
Time and frequency products like ours are important to expanding
communications systems of wireline, wireless, satellite and computer network
technologies. We believe that the current trend of wireline, wireless and
computer network systems coming together in unified operations and the
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wide-spread growth of the Internet and e-commerce will lead to increased demand
for precision time and frequency products.
Our products use the highly accurate external time reference available from
GPS U.S. Department of Defense to maintain required accuracy. At least two
marketing research firms that follow the industry provide forecasts for industry
growth by segments, including timing products using GPS as a timing reference.
According to forecast data from their reports,
- the aggregate North American market for GPS related timing products is
projected to grow from $209 million to $368 million during the five-year
period from 2000 through 2004, reflecting a compound annual growth rate
of approximately 15% during such period (Source: Frost & Sullivan) and
- for the same five-year period, the aggregate U.S. market for GPS related
timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period (Source: Allied Business Intelligence).
OUR STRATEGY
We have already established name-recognition in the time and frequency
industry. Our investments in new technology have given us the capability to
enter new segments of the timing market and allow us to reduce the time needed
to market new products. Now, our goals are to
- introduce new products
- form strategic relationships with other enterprises in related
industries
- continue to gain market share in our existing markets
CORPORATE INFORMATION
In 1991, OYO Corporation U.S.A., a Texas corporation and wholly-owned
subsidiary of OYO Corporation, a Japanese corporation, acquired our business as
part of its acquisition of Kinemetrics, Inc., which manufactures and sells
earthquake monitoring instrumentation. Shortly after acquiring Kinemetrics, OYO
U.S.A. established a new California corporation named TrueTime, Inc., and
transferred the ownership of the Kinemetrics/TrueTime business to the newly
established corporation. In November 1999, we were reincorporated in Delaware.
We are located at 2835 Duke Court, Santa Rosa, California 95407. Our telephone
number is (707) 528-1230.
2
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THE OFFERING
Common stock offered by TrueTime........ 1,500,000 shares
Common stock offered by the selling
stockholder............................. 1,500,000 shares
Common stock to be outstanding after
this offering........................... 5,500,000 shares(1)(2)
Use of proceeds......................... We plan to use the proceeds from
this offering for general corporate
purposes, including working
capital, expansion into new
technologies and markets, increased
marketing, sales and operations
capabilities and possible
acquisitions of complementary
businesses or technologies. We will
not receive any proceeds from the
sale of the shares of common stock
offered by the selling stockholder.
See "Use of Proceeds."
Nasdaq National Market symbol........... TRUE
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(1) Assumes no exercise of the underwriters' over-allotment option. Unless we
specifically state otherwise, the information in this prospectus does not
take into account the issuance of up to 450,000 shares of common stock that
the underwriters have the option to purchase solely to cover
over-allotments. If the underwriters exercise their over-allotment option in
full, 5,950,000 shares of our common stock will be outstanding after this
offering.
(2) Excludes 1,650,000 shares of common stock reserved for issuance under our
stock option plans, of which up to 810,000 shares of common stock will be
issuable upon exercise of options that the board of directors intends to
grant to the directors, advisors, officers and certain key employees on or
about the date of this offering. These options will be exercisable at the
offering price. Also, excludes 200,000 shares issuable upon exercise of
warrants to be issued to the underwriters in connection with this offering.
For information on these warrants, see "Underwriting."
All information in this prospectus relating to the number of shares of our
common stock and options and warrants to purchase our common stock has been
adjusted to reflect the initial issuance of our common stock to our sole
stockholder on November 1, 1999, in connection with the reincorporation of our
predecessor, a California corporation of the same name, in Delaware.
3
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SUMMARY FINANCIAL DATA
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YEAR ENDED SEPTEMBER 30,
------------------------------------------
1997 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales..................................................... $13,894 $16,297 $20,645
Cost of sales............................................. 5,783 7,537 9,076
------- ------- -------
Gross profit.............................................. 8,111 8,760 11,569
Operating expenses:
Selling, general and administrative..................... 3,906 4,395 5,905
Research and development................................ 1,855 1,873 2,155
------- ------- -------
Total operating expenses........................ 5,761 6,268 8,060
------- ------- -------
Income from operations.................................... 2,350 2,492 3,509
Interest and other income (expense), net.................. 10 249 305
------- ------- -------
Income before income taxes................................ 2,360 2,741 3,814
Provision for income taxes................................ 964 1,122 1,547
------- ------- -------
Net income................................................ $ 1,396 $ 1,619 $ 2,267
======= ======= =======
Earnings per share -- basic and diluted................... $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding as adjusted for
reincorporation -- basic and diluted.................... 4,000 4,000 4,000
</TABLE>
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<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
AS
HISTORICAL ADJUSTED(1)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents(2)................................ $ 3,539 $11,409
Working capital............................................. 10,808 18,678
Total assets................................................ 15,491 23,361
Stockholders' equity........................................ 12,753 20,623
</TABLE>
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(1) As adjusted to reflect this offering and the application of the net proceeds
therefrom.
(2) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the financial and other information contained in this prospectus, before
you decide whether to buy our common stock.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL
CHANGE AND PRODUCT OBSOLESCENCE.
If we fail to maintain our technological leadership and good reputation
with our customers in the areas of GPS, real-time operating systems and network
technologies, the value of your investment will decrease. The markets for timing
and frequency products are characterized by continual and rapid technological
developments that have resulted in, and will likely continue to result in,
substantial improvements in product function and performance. Our success will
depend on our ability to anticipate changes in technology and industry
requirements and to respond to technological developments on a timely basis,
either internally or through strategic alliances.
We will likely be constantly threatened by current competitors or new
market entrants who may develop new technologies or products or establish new
standards that could render our products obsolete and unmarketable. Thus, we can
offer no assurances that we will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological developments, that are accepted in the marketplace or
that comply with industry standards.
WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR CERTAIN CRITICAL COMPONENTS, AND WE
USE A SINGLE SUPPLIER FOR VIRTUALLY ALL OF ONE OF OUR GPS-BASED COMPONENTS,
MAKING US SUBJECT TO SUPPLY AND QUALITY CONTROL PROBLEMS.
Most of our products incorporate certain components or technology supplied
in part by third parties. From time to time, we experience delays and
disruptions in our supply chain, including some such disruptions in recent
periods. To date, these delays and disruptions have not materially adversely
affected our business. Wherever possible, we try to develop multiple sources of
supply, but we do not always succeed. To the extent that we experience
significant supply or quality control problems with our vendors, these problems
can cause us to have difficulty in controlling our quality and can have a
significant adverse effect on our ability to meet future production and delivery
commitments to our customers.
Currently, Trimble Navigation Limited provides virtually all of a key
component for our GPS-based products. In addition, we believe that Trimble has
begun competing in markets similar to our own. While we have attempted to
address this single-supplier risk by entering into purchase agreements with
Trimble that will secure our supply of the components for the next year or so,
by attempting to establish alternative supply arrangements and by taking steps
to develop our own proprietary products in this area, there can be no assurances
that we will be able to obtain adequate supplies of this component in the
future. If we are unable to obtain adequate supplies of this component for any
reason, we will likely experience delays or reductions in production and
increased expenses while we redesign our GPS-based products or accelerate the
introduction of new GPS-based products that do not use this component. Our
operations will be negatively affected if we experience inadequate supplies of
any key components.
OUR TRADE SECRETS, TRADEMARKS AND PATENTS MAY NOT BE ADEQUATE OR ENFORCEABLE AND
OTHERS MAY USE OUR PROPRIETARY TECHNOLOGY.
Historically, we have not filed patents to protect our intellectual
property. While we hope our intellectual property is adequately protected by our
confidential trade-secret protection plans and programs, we cannot be sure that
our competitors will be prevented from gaining access to our proprietary and
confidential technologies. Furthermore, although we have applied for a patent
related to a computer network timing product, we can offer no assurances that a
patent will be issued for this patent application
5
<PAGE> 10
or other future applications and, if issued, that any patents will be
enforceable. If the protection of our intellectual property proves to be
inadequate or unenforceable, others may use our proprietary developments without
compensation to us and in competition against us, giving cost advantages to our
competitors.
WE FACE THE RISK OF LITIGATION ALLEGING OUR INFRINGEMENT OF OTHER PEOPLE'S
INTELLECTUAL PROPERTY RIGHTS.
We do not know of any instances where our products violate the intellectual
property rights of others or inappropriately use their technology. However,
technology-based companies are often very litigious. Therefore, we face the risk
of adverse claims and litigation alleging infringement of other people's
intellectual property rights. These claims could result in costly litigation and
divert management's attention from other matters. Alternatively, these claims
could practically require us to obtain licenses in order to use, manufacture and
sell certain of our products, regardless of the merits of the infringement
claims, in order to maintain business levels or we could otherwise be excluded
from participation in certain markets. We cannot be certain that any necessary
licenses will be available or that, if available, they can be obtained on
reasonable terms acceptable to us.
OUR PRODUCTS AND SOFTWARE MAY NOT BE Y2K COMPLIANT AND CUSTOMERS MAY MAKE CLAIMS
AGAINST US.
We sell products and software that could fail at the transition between
December 31, 1999 and January 1, 2000, leading to claims against us by our
customers. At the Y2K transition date, certain computers and information
technology equipment may not continue to work properly. Although the latest
versions of our software are designed to be Y2K compliant, it is not possible to
determine with complete accuracy that all Y2K problems affecting our products
have been identified or corrected due to their complexity and the fact that
these products interact with other third party vendor products and operate on or
with computer systems that are not under our control.
A small number of customers who had older TrueTime products and had not
checked their equipment for Y2K compliance reported product failure following
August 21, 1999, the date when the GPS counter rolled over from 1024 to 0000, as
it was designed to do. While these customers had not had their products updated
and the costs of servicing the customers were not material, this could be
indicative of claims by customers having older TrueTime products on January 1,
2000. A significant number of operational inconveniences and inefficiencies may
result from the Y2K event and divert our time and attention and financial and
human resources from our ordinary activities. While we do not believe it likely,
serious system failures and customer claims may result from the Y2K issue.
Y2K ISSUES MAY ADVERSELY IMPACT OUR NEAR-TERM SALES.
While we have not to date experienced any declines in orders nor have our
customers advised us of any intentions in that regard, other companies in
technology-related industries have recently reported some decreases in sales and
orders and have attributed those decreases to the postponement of purchases
until after the Y2K event. There can, however, be no assurances that we will not
be adversely affected by any such decisions by our customers.
OUR COMPETITORS MAY USE THEIR GREATER RESOURCES AND BROADER PRODUCT OFFERINGS TO
INCREASE COMPETITION AND REDUCE OUR SALES AND PROFITABILITY.
Many of our existing and potential competitors have substantially greater
marketing, financial and technical resources than we have. In addition, some of
our competitors have broader product offerings and manufacture internally
certain critical components of time and frequency products. Currently, we do not
have a complete offering of precision time and frequency products nor do we
manufacture internally certain critical components, placing us at a disadvantage
to some of our competitors. In addition, we believe that some of our competitors
have obtained and maintained business that loses money -- "loss leading" -- in
order to maintain a competitive advantage with regard to specific customers or
products. If
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our competitors were to use such tactics in the future, we would be unable to
maintain our market position without incurring a negative impact on our
profitability.
The race for a leading position in new technological advances is always
very competitive. Advances in technology may reduce the cost for potential
competitors to gain market entry, particularly for less expensive time and
frequency products. We cannot assure you that sales of our products will
continue at current volumes or prices in any event but especially if our current
competitors or new market entrants introduce new products with better features,
better performance or lower prices or having other characteristics that are more
attractive than our own. Competitive pressures or other factors also may result
in significant price competition that could have a material adverse effect on
our results of operations.
OUR INDUSTRY MAY NOT GROW AS FORECASTED AND OUR REVENUES AND OPERATING RESULTS
MAY BE DIMINISHED.
Our future successful performance is inextricably tied to the growth of our
industry. While we do not disagree with the overall market growth forecasts
cited in this prospectus from Frost & Sullivan and Allied Business Intelligence
reports, we did not participate in making such forecasts or in developing the
assumptions upon which they are based or the methodology used in developing
necessary data. Accordingly, we cannot assure you that such forecasted growth
can be achieved or that assumptions upon which such forecasts are based will
prove to be accurate. As is the case with all forward-looking information
contained in this prospectus, actual events or results may differ materially
from forecasted data. Moreover, even if our industry grows as forecast, there
can be no assurance that we will be able to grow consistently with our industry.
OUR RELATIONSHIPS WITH OUR SALES REPRESENTATIVES COULD BE IMPAIRED AND CAUSE US
TO LOSE ORDERS.
More than 80% of our orders come through our 26 domestic and worldwide
sales representative organizations. Many of these representatives act as
relationship brokers and the loss of any key representatives could have a
negative effect on our sales.
WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, DELAYING PRODUCT
DEVELOPMENT AND MANUFACTURING.
Our success depends upon attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
technical professionals, and our failure to continue to attract and retain such
individuals could adversely affect our ability to compete in the industry. In
addition, our success will depend to a significant extent upon the abilities and
efforts of several members of our senior management.
BECAUSE MANY OF OUR KEY CUSTOMERS ARE UNITS OF THE U.S. GOVERNMENT AND ENTITIES
THAT ARE DEPENDENT UPON U.S. GOVERNMENT FUNDING FOR PURCHASES, DECREASED
GOVERNMENT SPENDING COULD ADVERSELY AFFECT OUR BUSINESS.
Our defense, military and aerospace based business depends largely on U.S.
government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. In recent years, units of the
U.S. government have collectively accounted for approximately 21% to 28% of our
annual revenues. There can be no assurances as to whether future governmental
spending will adequately support our business in those areas, and substantial
decreases in government spending or loss of U.S. governmental customers could
materially and adversely affect our operations.
OUR MARKET IS SEGMENTED INTO A LIMITED NUMBER OF CUSTOMER GROUPS, THE LOSS OR
CHANGE OF WHICH COULD SIGNIFICANTLY DECREASE OUR SALES.
While we sell our products to a large number of individual customers, the
number of customer groups is limited. These groups include telecommunications,
computer networking, aerospace, military, satellite, U.S. government and power
utility customers. The loss, or changes in the purchasing behavior, of one or
more of these groups of customers could cause a material decrease in the sale of
our products.
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THE FAILURE OF GPS AND OTHER TIME AND FREQUENCY REFERENCES WOULD CAUSE OUR
PRODUCTS TO FAIL TO PERFORM TO SPECIFICATION.
The time and frequency products that we manufacture rely upon the
availability of highly accurate timing references, primarily GPS operated by the
U.S. Department of Defense, and to a lesser degree, other timing references
operated by the U.S. National Institute of Science and Technology and other
outside signal sources. The failure of these timing references, particularly
GPS, would create many problems for our products and our customers and seriously
disrupt the sale of our products.
OUR PRODUCTS COULD FAIL TO PERFORM ACCORDING TO SPECIFICATION OR PROVE TO BE
UNRELIABLE, CAUSING DAMAGE TO OUR CUSTOMER RELATIONSHIPS AND INDUSTRY REPUTATION
AND RESULTING IN LOSS OF SALES.
Our customers require demanding specifications for product performance and
reliability. Because our precision time and frequency products are complex and
often use state-of-the-art components, processes and techniques, undetected
errors and design flaws may occur. Product defects result in higher product
service and warranty and replacement costs and may cause serious damage to our
customer relationships and industry reputation, all of which will negatively
impact our sales and business.
IF WE ARE UNABLE TO EXPAND OUR PRODUCTION CAPACITY TO MAINTAIN COMPETITIVE
DELIVERY TIMES, WE WILL LIKELY LOSE CUSTOMERS.
Our production capacity and ability to fill orders for our customers on a
timely basis is limited by our equipment, the size of our production facilities,
the ability of our suppliers to meet our needs and our human resources. These
resources in turn are limited by the availability of capital and the time
required to increase capacity, particularly to construct additional facilities
and to hire and train employees. We cannot assure you that we will have
sufficient capital and resources to expand our production capacity and to
maintain delivery times which our customers consider appropriate. Further, an
increase in our delivery times may result in loss of customers.
OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED IF WE DO NOT HAVE ENOUGH
DEMAND FOR OUR PRODUCTS TO JUSTIFY OUR INCREASED CAPACITY.
To meet our goals for future growth, we plan to move into new, larger
manufacturing and office facilities in the first half of 2000, using a portion
of our working capital to build out and equip the new facilities. The additional
manufacturing capacity provided by the new facilities and equipment will allow
us to more than double our output given sufficient market demand. However, after
increasing our production capacity, we may find that demand for our products
does not remain sufficiently high for us to realize a satisfactory return on the
capital we have spent to increase capacity.
OYO U.S.A. WILL BE IN A POSITION TO CONTROL MATTERS REQUIRING A STOCKHOLDER
VOTE, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK OR PREVENT
OUR STOCKHOLDERS FROM REALIZING A PREMIUM ON THEIR SHARES.
Upon completion of this offering, OYO U.S.A. and its parent corporation,
OYO Corporation, will beneficially own 45.5% of our outstanding common stock
(42.0% if the underwriters exercise their over-allotment option in full). As a
practical matter, with this substantial ownership, OYO U.S.A. will have
sufficient voting power to control our management, as well as the outcome of
matters submitted to our stockholders for approval, including the election of
directors and any merger, consolidation or sale of substantially all our assets.
The concentration of ownership of our common stock could delay or prevent proxy
contests, mergers, tender offers, open-market purchase programs or other
purchases of our common stock that could give you the opportunity to realize a
premium over the then-prevailing market price for our common stock.
Several members of our board of directors also serve as officers or
directors of the selling stockholder and its parent company. Satoru Ohya, who
will be appointed as a member of our board of directors immediately prior to the
closing of this offering, is the President of OYO Corporation, as well as a
director
8
<PAGE> 13
of various of its affiliates. Katsuhiko Kobayashi, the chairman of our board of
directors, is a managing director of OYO Corporation and a director and officer
of OYO U.S.A. and serves in various other director and officer positions with
respect to other subsidiaries of OYO U.S.A. Charles H. Still, who will be
appointed as a member of our board of directors immediately prior to the closing
of this offering and currently serves as our corporate secretary, is the
corporate secretary of OYO U.S.A. and of various of its other subsidiaries and,
through his law firm, serves as regular legal counsel to OYO Corporation, OYO
U.S.A. and various of their other affiliates. While no specific conflicts of
interest are known to exist at present, it is possible that conflicts of
interest may arise in the future with respect to the relationship between OYO
Corporation or OYO U.S.A. and us. Future conflicts could include differences in
views as to mergers and acquisitions, transactions involving a change in control
of TrueTime and other strategic matters.
FOLLOWING THIS OFFERING, WE WILL NOT BE ABLE TO OBTAIN FINANCIAL ASSISTANCE FROM
OYO U.S.A. OR OYO CORPORATION.
Prior to this offering, we have operated as a wholly owned subsidiary of
OYO U.S.A. We have been a participant in various financing, cash management and
service arrangements provided by OYO U.S.A. to us and to its other subsidiaries
and have relied on the financial strength of OYO U.S.A. and OYO Corporation to
assist us if financing needs arose. In the past, we have not needed to call upon
OYO U.S.A. for direct financial assistance. However, we cannot be sure that
additional financing will not be required in the future, and if required, we may
find that financing is not available on terms that we consider acceptable. As a
result of this offering, OYO U.S.A.'s stockholdings in TrueTime will be reduced
from 100% to 45.5% or less, and we will no longer rely on OYO U.S.A. or OYO
Corporation for financial support.
FLUCTUATIONS IN QUARTERLY PERFORMANCE CAN RESULT IN INCREASES IN OUR INVENTORY
AND RELATED CARRYING COSTS, CAN DIMINISH OUR OPERATING RESULTS AND CASH FLOW AND
CAN RESULT IN A LOWER TRUETIME STOCK PRICE.
Historically, the rate of incoming orders for our products has varied
substantially from quarter to quarter. In past fiscal years, our highest sales
quarter has been as much as 250% of our lowest sales quarter. This quarter to
quarter variation is not seasonal or predictable. We attempt to accurately
forecast orders for our products and commence purchasing and manufacturing prior
to the receipt of such orders. However, it is highly unlikely that we will
consistently accurately forecast the timing and rate of orders. This aspect of
our business makes our planning inexact and, in turn, affects our shipments,
costs, inventories, operating results and cash flow for any given quarter. In
addition, our quarterly operating results are affected by competitive pricing,
announcements regarding new product developments and cyclical conditions in the
industry. Accordingly, we may experience wide quarterly fluctuations in our
operating performance and profitability, which may adversely affect our stock
price even if our year to year performance is more stable, which it also may not
be. In addition, many of our products require significant manufacturing time,
making it difficult to increase production on short notice. If we are unable to
satisfy unexpected customer orders, our business and customer relationships
could suffer.
WE MAY FAIL TO EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS, IF ANY, THEREBY
DISRUPTING OUR BUSINESS, DILUTING SHAREHOLDER VALUE AND CAUSING FINANCIAL
LOSSES.
We may acquire other businesses in the future, which may complicate our
management tasks. These acquisitions may be in the precise timing industry or
other business areas that, although complimentary to our business, may be in
areas in which we currently do not compete and may not have prior management or
operating experience. We may need to integrate entirely new operations and
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from operating our existing business. Our failure to
manage future acquisitions successfully could seriously harm our operating
results. Further, our shareholders' equity could be diluted if we finance the
acquisitions by issuing equity securities.
9
<PAGE> 14
WE MAY VIOLATE EXISTING OR FUTURE GOVERNMENT REGULATIONS, CAUSING INTERRUPTIONS
TO OUR OPERATIONS AND FINANCIAL LOSSES.
Our operations are subject to a variety of federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic or other hazardous substances used in our manufacturing process. Our
failure to comply with current or future regulations could result in the
imposition of substantial fines, suspension of production, alteration of our
manufacturing processes or cessation of operations. We could also be required to
undertake expensive remediation efforts. The imposition of liabilities or
penalties from noncompliance with environmental regulations will increase our
expenses and diminish our cash flows.
RISKS RELATED TO THIS OFFERING AND SECURITIES MARKETS
A SIGNIFICANT AMOUNT OF THE NET PROCEEDS OF THIS OFFERING ARE UNALLOCATED, AND
WE MAY NOT ULTIMATELY USE THESE PROCEEDS IN A MANNER THAT INCREASES OR MAINTAINS
STOCKHOLDER VALUE.
We have not designated any specific uses for a significant portion of our
net proceeds from this offering other than general working capital purposes.
Therefore, we will have broad discretion in how we use these net proceeds. While
we intend to use the remaining net proceeds for working capital in anticipation
of expanded business, we may ultimately use the proceeds for business expansion
in other ways and for other general corporate purposes. Investors will,
therefore, be relying on the judgment of our management regarding the
application of our net proceeds from this offering.
SINCE WE DO NOT CURRENTLY INTEND TO PAY DIVIDENDS, YOU WILL NOT HAVE ON-GOING
CASH FLOW FROM YOUR INVESTMENT.
We do not anticipate declaring or paying dividends on our common stock in
the foreseeable future because we plan to retain the cash generated from our
operations to support the cash demands which may be required to expand our
company. Investors who anticipate a need for regular cash flow from their
investments should not purchase shares of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY, POSSIBLY REDUCING YOUR
OPPORTUNITY TO SELL YOUR SHARES AT A PREMIUM, SHOULD ONE BE OFFERED.
Our governing documents contain provisions that make it more difficult to
implement certain corporate actions and may delay, deter or prevent a change in
control. You might consider a change in control in your best interest because
you might receive a premium for your common stock. Examples of these provisions
include
- a vote of more than two-thirds of the outstanding voting stock is
required for stockholders to amend specified provisions of our
certificate of incorporation and bylaws;
- our board of directors is divided into three classes, each serving
three-year terms; and
- members of our board of directors may be removed only for cause.
Our board of directors has the ability, without stockholder action, to
issue shares of common and preferred stock and rights to acquire such shares
that could, depending on the terms of preferred stock or rights to acquire
common or preferred stock, delay, discourage or prevent a change in control of
TrueTime. In addition, the Delaware General Corporation Law, under which we are
incorporated, contains provisions that impose restrictions on business
combinations, such as mergers, between us and a holder of 15% or more of our
voting stock. You should read "Description of Capital Stock" for a more complete
description of these provisions.
10
<PAGE> 15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "likely" or
"continue" or the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements, and you are encouraged to exercise
caution in considering such forward-looking statements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of
these statements. We are not under any duty to update any of the
forwarding-looking statements after the date of this prospectus to conform these
statements to actual results.
11
<PAGE> 16
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 1,500,000 shares of
common stock offered by us will be approximately $7.9 million, assuming an
initial public offering price of $6.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. Our net
proceeds from this offering are estimated to be $10.4 million if the
underwriters' over-allotment option is exercised in full. We will receive no
proceeds from the sale of the 1,500,000 shares of common stock offered by the
selling stockholder.
We plan to use the proceeds from this offering together with our existing
funds, for general corporate purposes, including working capital, expansion of
new technologies and markets, increased marketing, sales and operations
capabilities and possible acquisitions of complementary businesses or
technologies. Approximately $1.0 million of our working capital will be used to
build out and equip a new office and manufacturing facility that we plan to
occupy under a long-term lease in the first half of 2000. Pending these uses, we
will invest the net proceeds of this offering in U.S. government securities or
investment grade, interest-bearing securities. In addition, we anticipate that
this offering will create a public market for our common stock to facilitate our
future access to public capital markets and permit the creation of equity
incentives for our employees through stock plans tied to publicly traded
securities.
DIVIDEND POLICY
We currently intend to retain all available funds and any future earnings
for use in the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.
12
<PAGE> 17
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis to reflect our capitalization as of September 30,
1999, with adjustments for the reincorporation of the company in Delaware
on November 1, 1999, and our resulting new certificate of incorporation,
providing for an authorized capital stock of 20,000,000 shares of common
stock and 1,000,000 shares of undesignated preferred stock, and a
conversion of all the outstanding common stock of our predecessor into
4,000,000 outstanding shares of our common stock upon such
reincorporation; and
- on an as adjusted basis to reflect our capitalization as of September 30,
1999, with the preceding adjustments reflected on the "actual" basis plus
the receipt of the estimated net proceeds from our sale of 1,500,000
shares of common stock at an assumed initial public offering price of
$6.00 per share.
None of the columns reflects (1) 1,650,000 shares of common stock reserved
for issuance under our stock-based award plans, of which approximately 810,000
shares are subject to options estimated to be outstanding immediately upon
consummation of this offering, (2) up to 200,000 shares which C.E. Unterberg,
Towbin may purchase at 110% of the offering price upon exercise of warrants to
be issued in connection with this offering or (3) 450,000 shares of common stock
that the underwriters have the option to purchase solely to cover
over-allotments.
The table below should be read in conjunction with our balance sheet as of
September 30, 1999, and the related notes, which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------
AS
ACTUAL ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 3,539 $11,409
======= =======
Stockholders' equity:
Preferred stock, Actual and As Adjusted -- $.01 par value,
1,000,000 shares authorized, no shares issued and
outstanding............................................ -- --
Common stock and additional paid-in capital,
Actual -- $.01 par value, 20,000,000 shares authorized,
4,000,000 shares issued and outstanding; As
Adjusted -- 20,000,000 shares authorized, 5,500,000
shares issued and outstanding.......................... $ 4,730 $12,600
Retained earnings......................................... 8,023 8,023
------- -------
Total stockholders' equity........................ 12,753 20,623
------- -------
Total capitalization.............................. $12,753 $20,623
======= =======
</TABLE>
(1) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
13
<PAGE> 18
DILUTION
Our net tangible book value as of September 30, 1999, was approximately
$11.9 million, or $2.98 per share after giving effect to the reincorporation in
Delaware on November 1, 1999. Net tangible book value per share represents the
amount of our total tangible assets at September 30, 1999, reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of 1,500,000 shares of common stock offered by us at an
assumed initial public offering price of $6.00 per share, and after deducting
the underwriting discount and estimated offering expenses payable by us, our pro
forma net tangible book value at September 30, 1999, would have been
approximately $19.8 million or $3.60 per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $0.62 per share to
the existing stockholder and an immediate dilution of $2.40 per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.00
Net tangible book value per share before offering......... $2.98
Increase per share attributable to new investors.......... 0.62
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.60
-----
Dilution per share to new investors......................... $2.40
=====
</TABLE>
14
<PAGE> 19
SELECTED FINANCIAL DATA
The following statement of operations data for the years ended September
30, 1997, 1998 and 1999, and the balance sheet data as of September 30, 1998 and
1999, are derived from our audited financial statements appearing elsewhere in
this prospectus. The selected financial data shown below as of September 30,
1995, 1996 and 1997, and for the years ended September 30, 1995 and 1996, are
derived from our unaudited financial statements. In our opinion, such unaudited
financial information includes all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of our results of
operations for the periods then ended and our financial position as of such
date. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................ $11,260 $11,292 $13,894 $16,297 $20,645
Cost of sales........................ 4,978 5,111 5,783 7,537 9,076
------- ------- ------- ------- -------
Gross profit......................... 6,282 6,181 8,111 8,760 11,569
Operating expenses:
Selling, general and
administrative.................. 2,960 2,960 3,906 4,395 5,905
Research and development........... 1,480 1,840 1,855 1,873 2,155
------- ------- ------- ------- -------
Total operating expenses... 4,440 4,800 5,761 6,268 8,060
------- ------- ------- ------- -------
Income from operations............... 1,842 1,381 2,350 2,492 3,509
Interest and other income (expense),
net................................ (5) 37 10 249 305
------- ------- ------- ------- -------
Income before income taxes........... 1,837 1,418 2,360 2,741 3,814
Provision for income taxes........... 754 588 964 1,122 1,547
------- ------- ------- ------- -------
Net income........................... $ 1,083 $ 830 $ 1,396 $ 1,619 $ 2,267
======= ======= ======= ======= =======
Earnings per share -- basic and
diluted............................ $ 0.27 $ 0.21 $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding
as adjusted for
reincorporation -- basic and
diluted............................ 4,000 4,000 4,000 4,000 4,000
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.......... $ -- $ -- $ -- $ 38 $ 3,539(1)
Working capital.................... 3,981 6,030 7,381 8,641 10,808
Total assets....................... 6,701 9,071 11,018 12,160 15,491
Stockholders' equity............... 5,405 7,471 8,867 10,486 12,753
</TABLE>
- ---------------
(1) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this prospectus.
OVERVIEW
In recent years, the time and frequency industry has undergone changes in
- its conversion from other timing sources to primarily GPS sources,
- the increasing utilization of timing and frequency in computer networks
and the Internet, and
- the increasing need for higher-accuracy frequencies for
broader-communications bandwidth in wireline, wireless and satellite
communications.
We have developed and introduced products for these and other markets that
have contributed to increased sales. As a result, sales have increased from
$11.3 million in the fiscal year 1995 to $20.6 million in the fiscal year 1999.
We generate revenues primarily from sales of our products. We also receive
small amounts of revenue, which are included in sales, from service and
non-recurring engineering charges. We record sales when a product ships and
title passes. In fiscal 1999, our sales came from over 1,000 different customers
and we sold dozens of different products.
We ship most products within 60 days of the date they are ordered, so order
backlog is not a satisfactory predictor of our future performance. Since we do
not maintain a substantial backlog and customer ordering patterns fluctuate, we
experience variations in results from quarter to quarter.
Cost of goods sold includes direct material, direct labor and the overhead
associated with the manufacturing of products.
We expense selling, commissions, general and administrative costs in the
period in which they are incurred. Research and development costs are also
expensed as they are incurred. Capital expenditures are capitalized and
depreciated, usually over a five-year life.
Net income has increased from $1.1 million in fiscal year 1995 to $2.3
million in fiscal year 1999.
16
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth for fiscal 1997, 1998 and 1999, the
percentage of income statement items to total sales:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Sales.................................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 41.6 46.2 44.0
----- ----- -----
Gross profit........................................... 58.4 53.8 56.0
Operating expenses:
Selling, general and administrative.................. 28.1 27.0 28.6
Research and development............................. 13.4 11.5 10.4
----- ----- -----
Total operating expenses.......................... 41.5 38.5 39.0
----- ----- -----
Income from operations................................. 16.9 15.3 17.0
Interest and other income, net......................... 0.1 1.5 1.5
----- ----- -----
Income before income taxes............................. 17.0 16.8 18.5
Provision for income taxes............................. 7.0 6.9 7.5
----- ----- -----
Net income............................................. 10.0% 9.9% 11.0%
===== ===== =====
</TABLE>
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
Sales. Sales for fiscal 1999 were $20.6 million, an increase of $4.3
million, or 26.7%, from $16.3 million in fiscal 1998. The increase in sales is
attributable to increased demand for our products, the introduction of new
products and an increased number of customers purchasing our products during the
year.
Cost of Sales. Cost of sales for fiscal 1999 was $9.1 million, and increase
of $1.5 million, or 20.4%, from $7.5 million in fiscal 1998. Cost of sales
decreased as a percentage of total sales to 44.0% in fiscal 1999 from 46.2% in
fiscal 1998. Such percentage decrease is the result of decreased material, labor
and overhead costs as a percentage of sales resulting from economies of scale.
Operating Expenses. Operating expenses for fiscal 1999 were $8.1 million,
an increase of $1.8 million, or 28.6%, from $6.3 million in fiscal 1998.
Operating expenses increased as a percentage of total sales to 39.0% in fiscal
1999 from 38.5% in fiscal 1998. Selling, general and administrative expenses for
fiscal 1999 were $5.9 million, an increase of $1.5 million, or 34.4%, from $4.4
million in fiscal 1998. Selling, general and administrative expenses increased
as a percentage of total sales to 28.6% in fiscal 1999 from 27.0% in fiscal 1998
because we increased our sales, customer service and administration teams to
support further growth. Research and development expenses for fiscal 1999 were
$2.2 million, an increase of $300,000, or 15.1%, from $1.9 million in fiscal
1998. Research and development expenses decreased as a percentage of total sales
to 10.4% in fiscal 1999 from 11.5% in fiscal 1998 because we did not increase
research and development expenses as fast as we increased sales.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 1999 was $305,000, an increase or $56,000 or 22.5%,
from $249,000 in fiscal 1998. This income was earned on our cash deposits held
in OYO U.S.A.'s central cash management system. Such increase is attributable to
an increase in the level of our deposits held by OYO U.S.A.
Income Taxes. TrueTime's effective income tax rate for the year ended
September 30, 1999 was 40.6% compared to 40.9% for the year ended September 30,
1998. Our effective income tax rate differs from the statutory federal rate of
34% primarily as a result of the effect of state income taxes.
17
<PAGE> 22
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Sales. Sales for fiscal 1998 were $16.3 million, an increase of $2.4
million, or 17.3%, from $13.9 million in fiscal 1997. The increase in sales is
attributable to increased demand for our products, increased numbers of
customers and increased purchases per customer.
Cost of Sales. Cost of sales for fiscal 1998 was $7.5 million, an increase
of $1.8 million, or 30.3%, from $5.8 million in fiscal 1997. Cost of sales
increased as a percentage of total sales to 46.2% in fiscal 1998 from 41.6% in
fiscal 1997. Such percentage increase is the result of change in product mix and
manufacturing overhead costs including increased engineering costs to support
customer-specific applications.
Operating Expenses. Operating expenses for fiscal 1998 were $6.3 million,
an increase of $500,000, or 8.8%, from $5.8 million in fiscal 1997. Operating
expenses decreased as a percentage of total sales to 38.5% in fiscal 1998 from
41.5% in fiscal 1997. Selling, general and administrative expenses for fiscal
1998 were $4.4 million, an increase of $500,000, or 12.5%, from $3.9 million in
fiscal 1997. Selling, general and administrative expenses decreased as a
percentage of total sales to 27.0% in fiscal 1998 from 28.1% in fiscal 1997
because of lower relative sales and commission costs. Research and development
expenses for fiscal 1998 were $1.9 million, an increase of $19,000, or 1.0%,
from $1.9 million in fiscal 1997. Research and development expenses decreased as
a percentage of total sales to 11.5% in fiscal 1998 from 13.4% in fiscal 1997
because research and development expenses increased only slightly while sales
increased 17.3%.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 1998 was $249,000, an increase of $239,000 from
$10,000 in fiscal 1997. This income was earned on our cash deposits held in OYO
U.S.A.'s central cash management system. The increase is attributable to the
implementation of OYO U.S.A.'s policy in fiscal 1998, effective October 1, 1997,
of allocating the earnings on cash deposits from investments and borrowings made
to other OYO U.S.A. subsidiaries to those subsidiaries that maintain positive
cash balances in the central cash management system.
Income Taxes. TrueTime's effective income tax rate for the year ended
September 30, 1998 was 40.9% compared to 40.8% for fiscal 1997. Our effective
income tax rate differs from the statutory federal rate of 34% primarily as a
result of the effect of state income taxes.
TERMINATION OF CASH MANAGEMENT AND COST SHARING ARRANGEMENTS
As a wholly-owned subsidiary of OYO U.S.A., we have historically
participated in OYO U.S.A.'s central cash management system and have received an
allocation of investment earnings on our cash deposits held by OYO U.S.A. In
addition, we have been allocated our share of certain costs from OYO U.S.A.
related primarily to accounting, tax and employee benefit matters. In connection
with this offering, we will terminate all such arrangements with OYO U.S.A. and
operate as a stand-alone entity. The investment earnings and shared costs
allocated to us by OYO U.S.A. have not been materially different from the
investment earnings and costs that we would have earned and incurred as a
stand-alone entity. We do not expect that the termination of these arrangements
will have a material impact on our net sales or income from operations or cause
a material change in the relationship between costs and sales.
LIQUIDITY AND SOURCES OF CAPITAL
Historically, we have financed our operations through operating cash flow.
Cash provided by operating activities was $1.6 million in fiscal 1999 as
compared to $900,000 in fiscal 1998. The net increase of $700,000 is primarily
the result of an increase in net income of $600,000 during fiscal 1999, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, an increase in the change in
operating assets in the amount of $1.5 million principally resulting from
accounts receivable and inventories related to increased sales, and an increase
in the change in operating liabilities of $1.5 million principally resulting
from trade accounts payable related to the increase in inventories and accrued
expenses related to an increase in employees. Cash provided by operating
activities was $900,000 in fiscal 1998 as compared to $100,000 in fiscal 1997.
The increase of $800,000 is
18
<PAGE> 23
the result of the increase in net income of $200,000 during fiscal 1998, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, and a reduction in the net
increase in net operating assets of $500,000 related primarily to a small
increase in accounts receivable during fiscal 1998 as compared to fiscal 1997 as
a result of the timing of sales and related collections.
We currently participate in OYO U.S.A.'s central cash management system in
which the net cash provided or used by our operations is transferred to or from
OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for the
cumulative amount by which the cash provided by operating activities, including
current income taxes allocated from OYO U.S.A., has exceeded our working capital
and capital expenditure requirements. The change in this receivable is an
investing cash flow activity. The receivable was $433,000 at September 30, 1999
as compared to $2.7 million at September 30, 1998. The decrease resulted from
the collection of $3.5 million from OYO U.S.A. in September 1999 for the
preliminary and partial settlement of our receivable balance. The receivable was
$2.7 million at September 30, 1998 as compared to $2.5 million at September 30,
1997. The increase resulted from the excess of operating cash flows generated in
fiscal 1998 over capital expenditures. As soon as practical following the
closing of this offering, we will separate from OYO U.S.A.'s central cash
management system and the remaining receivable at that date will be collected in
cash. Beginning October 1, 1997, OYO U.S.A. implemented a policy of crediting
interest on the receivable balance, excluding the reduction in the receivable
balance for allocated current income taxes. Interest credited and added to the
receivable balance was $305,000 for fiscal 1999 and $249,000 for fiscal 1998.
In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for the investment until such time
that we have established our own short-term investment program. On December 1,
1999, the trust was terminated and the trust assets (consisting of cash and cash
equivalents) were distributed to us.
Other investing activities consist principally of capital expenditures in
the amount of $442,000 for fiscal 1999, $632,000 for fiscal 1998 and $245,000
for fiscal 1997 for investments in machinery and equipment. We are negotiating a
long-term lease agreement on a new larger manufacturing and office facility of
approximately 50,000 - 75,000 square feet, into which we intend to move in the
first half of calendar year 2000. We intend to use approximately $1.0 million of
our working capital to build out and equip the new manufacturing and office
facility. We also intend to retain an option to purchase the building. We expect
to incur $1.0 million in fiscal 2000 on other capital expenditures. A portion of
our working capital expected to be used to finance these planned capital
expenditures. Other than the use of the net proceeds of this offering for
planned capital expenditures or for other working capital purposes, we expect to
invest the net proceeds of this offering in U.S. governmental securities or
investment grade, interest-bearing securities until suitable uses are
determined.
We do not have any indebtedness since operating cash flow has satisfied our
working capital and capital expenditure requirements. Although we have no
current requirements for debt financing, in all likelihood, we will attempt to
establish a facility with a bank to provide funds in the future if needed.
We sell on open account with terms that usually require payment within 30
days of invoice. Many customers pay later than the agreed-upon terms allow, but
generally not later than 30 days after the original due date. We had no
write-offs for bad debt in fiscal years 1997 and 1999, and $14,000 in fiscal
1998. We have included the effects of anticipated increased accounts receivable
in our plans for future working capital requirements.
Cash and cash equivalents were $3.5 million at September 30, 1999 as
compared to less than $100,000 at September 30, 1998. The increase reflects a
$3.5 million collection from OYO U.S.A. in September 1999 related to the
preliminary and partial settlement of our receivable from OYO U.S.A. Cash
equivalents are invested on a short-term basis with a major bank. We expect that
the combination of
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cash and cash equivalents, cash flow from operations and the proceeds of this
offering should provide us with sufficient capital resources and liquidity to
fund our operations during fiscal 2000 and support our expansion and acquisition
strategy as described elsewhere in this prospectus.
Inflation has not had a significant impact on our operations to date.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We will be exposed to market risks related to changes in interest rates in
the future. Proceeds from this offering will be invested short term in financial
instruments, the value of which will be subject to interest rate risk and could
fall if interest rates rise. Additionally, while we have no plans for future
borrowings, any future borrowings will likely have a variable rate component
that will fluctuate as interest rates change. If market interest rates were to
increase immediately and uniformly by 10%, there would not be a material effect
on the results of operations or on our balance sheet because we currently have
no debt.
YEAR 2000 READINESS ISSUES
At the transition between December 31, 1999 and January 1, 2000, certain
computers and information technology equipment may not continue to work
properly. In particular, this may occur when programs and data that use
six-digit dates such as 12/31/99 should convert to 01/01/00, but fail to do so
or fail to properly process the date data. Similar problems were suspected at
the GPS Week Number Roll-Over (WNRO) which occurred August 21, 1999 when the GPS
week counter rolled over from 1024 to 0000 as it was designed to do; on
September 9, 1999 which was a common program test date; and on February 29, 2000
which is an unusual leap day. Most century years such as 1800, 1900 and 2100 do
not have leap days. These groups of problems are known collectively as Y2K.
GPS WNRO. No significant problems were found with the GPS WNRO. A small
number of customers who had older TrueTime products and had not checked their
equipment did later report their products failed to report the proper date and
have contacted TrueTime to have their products updated. There were no claims
against us and the costs of servicing the customers was not material.
9/9/99 Test Date. No problems have been reported related to the 9/9/99 test
date.
State of Readiness. We have completed extensive efforts related to
operations and products for Y2K.
Products. Our Y2K product effort has included the purchase of a GPS
simulator, the staffing of dedicated test program, testing of new and old
products, notification on the Internet of the status of each of our products,
and the modification and upgrade of products as appropriate. In some cases, we
provide modifications and upgrades at no charge. In other cases, a modest charge
for the modifications and upgrades is made to the customer. We have been
conducting our Y2K product program since November 1997 and believe all
significant products have been tested and the results have been reported.
Modifications and upgrades to old products will continue into the fiscal year
2000.
Product Costs. We have spent approximately $200,000 in each of fiscal years
1998 and 1999 on our Y2K product efforts. We estimate that we will spend
$200,000 in fiscal year 2000 on our Y2K product efforts. Such costs are
accounted for in the selling, general and administrative costs.
Insurance. We have reviewed our guarantee and warranty provisions and
determined that our exposure is limited to the original purchase prices of
equipment bought by our customers. We have specifically declined to indemnify,
hold harmless or be responsible for consequential damages when requested by
customers. We have evaluated our liability insurance and determined that Y2K
liability is explicitly excluded from insurance coverage and cannot be
reasonably added to our insurance coverages.
Operations. Our Y2K operations efforts have included supplier assessments,
internal information technology, or IT assessments and modifications and
upgrades, IT vendor assessments, and internal systems assessments.
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We have surveyed key suppliers and have received assurances that we will
continue to receive our uninterrupted supplies of goods and services.
We have, or have had, evaluated our internal information systems, including
network hardware and software and user hardware and software. Numerous
components were found to be non-Y2K compliant. We have purchased and installed
upgrades, modifications and replacements. A small number of non-critical work
stations were planned for replacement. The hardware has been purchased and the
installation is now complete.
IT vendors such as our value added reseller that provides electronic data
interchange services, its Internet service provider and payroll processing
provider have been surveyed and assure us that we will continue to receive
uninterrupted services.
Internal systems including heating, ventilation and air conditioning, alarm
system and process controls have been evaluated and found not to have Y2K
problems. The compliance of test equipment was completely evaluated during
October 1999.
We maintain a disaster recovery program, including tape back-up on IT
systems and other measures, that is applicable to any Y2K problems or other
disaster. We believe the program is adequate to prevent unrecoverable losses
from any disaster.
Operations Costs. We estimate we have spent about $100,000 in the fiscal
year 1998 and $200,000 in the fiscal year 1999 on our Y2K operations efforts. We
estimate that we will spend less than $100,000 in the fiscal year 2000 on our
Y2K operations efforts. The costs of our Y2K operations efforts are accounted
for in selling, general and administrative costs.
International Risks. We have about 15% of our installed base in
international locations and receive approximately 5% of our materials directly
from international locations. From our evaluations, the risks in the
international locations are similar to those in domestic locations because our
customers in these areas have up-to-date equipment and we do not have many
international vendors.
Risks. Should we not fully complete our efforts related to operations and
products, the results could include disruptions in business, lost revenue,
increased operating costs, loss of customers and other business interruptions,
any of which could have a material adverse effect on our business, financial
condition and results of operations.
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BUSINESS
TRUETIME
TrueTime designs, develops, manufactures and markets precision time and
precision electrical signal-generating products that are essential components
used in telecommunications, computer networking, e-commerce, aerospace and
various other commercial markets. Our products use a variety of external timing
references, including most importantly GPS, together with advanced electronic
circuitry and software to provide high quality signals and precise time. We
offer a wide variety of products, which can be divided into the following broad
categories:
- precise time and frequency products
- computer plug-in cards with precise timing capabilities
- computer network time servers
- time code products
- time displays
Our products, incorporated as components in complex systems, allow
customers to
- improve clarity and quality of voice, video and data in wireline,
wireless and satellite communications,
- authenticate the time of stock market and other e-commerce transactions,
- monitor and control the frequency of electric utility power grids to
prevent power black-outs and quickly locate power line faults,
- transmit television signals at designated frequencies to meet regulatory
requirements,
- meet requirements for secure communications, particularly in national
defense and security contexts, and
- time high resolution data collected in military ranges and in space
launches with a high degree of accuracy.
During the past decade, we have strived to produce state-of-the-art precise
time and frequency technology. We have developed and implemented five
generations of precision time products based on GPS technology through the use
of our significant technology resources in the areas of GPS, frequency control,
real-time operating systems and computer networking. Our increased investments
in research and development have allowed us to develop a new platform -- a
combination of new hardware and software -- for many products, decrease time to
market for new products and improve product quality and robustness. Our new
platform also provides a means through which TrueTime can enter new markets.
Advanced technologies also offer opportunities to reduce manufacturing costs and
support expenses by increasing volumes of common products.
TrueTime is recognized in the industries we serve for our commitment to
customer satisfaction, broad product offerings and advanced technical
capabilities. We are recognized by our community and employees for stable
employment and a corporate culture that provides leadership, opportunity and a
shared commitment to success.
In the fiscal year ended September 30, 1999, we achieved sales of $20.6
million, an increase of 26.7% over the prior fiscal year, resulting in net
income of $2.3 million, an increase of 40.0% over the same period.
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MARKET OVERVIEW
Time and frequency products like ours are important to expanding
communications systems of wireline, wireless, satellite and computer network
technologies. The increase in demand for precision timing is due in part to the
growth in communications and computer network systems worldwide. Growth in data,
voice and video transmissions on these networks is anticipated to lead to an
increased demand for substantial bandwidth compared to traditional voice
traffic. We believe that the current trend of wireline, wireless, satellite and
computer network systems coming together in unified operations and the
wide-spread growth of the Internet and e-commerce will lead to increased demand
for precision time and frequency products.
Precision time and frequency devices normally require use of an external
timing reference to maintain required accuracy. Currently, the predominantly
used standard is the highly accurate time reference available from GPS operated
by the U.S. Department of Defense. The demand for precision time and frequency
referenced to GPS has grown with the increased use of digital wireless
communication and is now, in addition to more traditional uses in the aerospace,
utility and broadcast industries, being incorporated into wireless, computer and
high-speed wireline networks.
Two marketing research firms that follow the GPS industry are Frost &
Sullivan and Allied Business Intelligence. These firms provide forecasts for
industry growth by segments, including forecasts in the growth in timing
products using GPS as a timing reference. Their forecasts for future growth of
the timing product segment are consistent, but not identical.
According to forecast data from a Frost & Sullivan report we obtained, the
aggregate North American market for GPS related timing products is projected to
grow from $209 million to $368 million during the five-year period from 2000
through 2004, reflecting a compound annual growth rate of approximately 15%
during such period.
According to forecast data from an Allied Business Intelligence report we
obtained, covering the same five-year period, the aggregate U.S. market for GPS
related timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period.
According to Frost and Sullivan, the European GPS timing market is trailing
the North American market in terms of total revenue, with the 2000 revenue
forecast in European markets being $11.2 million. However, the compound annual
growth rate for GPS timing products in Europe from 2000 through 2004 is forecast
to be 20%, as compared to 15% in North American markets. The strong growth
forecast for the GPS timing market reflects the strong growth of the
applications for which timing products are sold.
TECHNOLOGY OVERVIEW
THE PRECISION CLOCK
The basic clock consists of an oscillator and a counter. While early clocks
used pendulums as the oscillator, today, piezoelectric quartz crystals or atomic
atoms such as rubidium or cesium are used as the resonating reference. In either
instance, a counter tracks the number of oscillations and translates that into a
common time increment, usually a second. High quality quartz oscillators are the
most common oscillators found in precision time and frequency clocks.
Once a precision clock has been built it is possible to maintain accurate
time and generate precise signals, also called frequencies. Accurate time is
used in time stamping applications such as telecommunications billing and
electronic transactions and can be transferred to other devices for purposes of
synchronization. Frequency generation benefits from an accurate clock because it
becomes possible to create repetitive signals with respect to a very precise
time interval, including high frequency sine waves or digital pulses, both of
which are used in many telecommunications applications.
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IMPROVING ON THE PRECISION CLOCK
Quartz based clocks are subject to physical factors that effect the overall
clock accuracy and stability. The two primary contributors to clock error are
temperature changes and aging. The oscillation frequency of the quartz crystal
can speed up or slow down depending on variations in temperature. Similarly, the
oscillation frequency of a quartz crystal changes over time. Combined, these two
factors cause the clock to drift, resulting in incorrect time and a shift in the
output frequencies.
The resonant frequency of the quartz crystal can be adjusted to correct for
physical factors contributing to the clock error. Much like a person
periodically adjusts a wristwatch to the correct time, an oscillator can be
periodically adjusted to the correct frequency. This technique is called
oscillator disciplining. One factor that distinguishes one precision clock from
another is how well the oscillator is disciplined to an external time reference.
One of TrueTime's areas of expertise is in superior oscillator disciplining
technology to create extremely accurate and stable clocks.
An external time reference is typically another clock of higher accuracy
and precision than the local clock being disciplined. The time base used in all
precision clocks is known as Universal Time Coordinated, or UTC. UTC is
maintained in the United States by the U.S. Naval Observatory, or USNO, in
Washington, D.C. The National Institute of Standards and Technology, or NIST,
plays a major role in distributing that time for commercial use. Oscillator
disciplining focuses on the UTC time transfer mechanism from the reference to
the local clock and the accuracy of that time transfer.
UTC time is made available for synchronization in several different ways
with varying degrees of accuracy. The primary means of synchronization to UTC
are via the following references:
- GPS
- Internet/network clocks
- AM radio broadcasts
- Dial-up phone connections
Timing for GPS is maintained by the U.S. Air Force, using time directly
from the USNO. NIST is responsible for time distribution using the other
techniques. TrueTime manufactures clocks that use all of these references. The
timing accuracy provided by GPS, however, is so superior that it has become the
external timing reference of choice.
GPS AS A TIME REFERENCE
GPS is best known for its tremendous impact on markets that are focused on
geographical position. Aviation and marine navigation, as well as land surveying
and car navigation systems, now enjoy positioning accuracy levels never seen in
the past. However, very precise time is integral in determining an accurate
position when using a satellite based navigation system.
Each GPS satellite has on board several atomic clocks that are precisely
synchronized to UTC. Coded signals are broadcast by each of the 24 GPS
satellites with the exact time and the position of each satellite. GPS receivers
use an antenna to receive the signals and special semiconductor chip sets to
decode them to calculate the position of the antenna. By using a GPS receiver,
optimized for time and not position, it is possible to get timing accuracy's of
plus or minus 1 millionth of a second to UTC. TrueTime's low end products
provide this level of accuracy. By applying sophisticated GPS tracking
algorithms developed by TrueTime to discipline clock oscillators, an accuracy of
40 billionths of a second to UTC is routinely achieved in our products.
A significant advantage offered by GPS compared to any other time reference
is the worldwide availability of the signals. GPS satellites continuously orbit
the earth broadcasting the coded signals. Provided the GPS antenna on the
receiving device can receive the signals, precise synchronization to UTC is
possible anywhere on the planet. This facilitates an accurate and common time
base to synchronize systems across a country or around the world. Events on one
continent can be very closely correlated with
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events on others. Similarly, widely distributed networks such as the
Synchronized Optical Network, or SONET, that carries most of the long haul voice
traffic in the U.S., can be precisely synchronized to improve efficiency and
bandwidth use.
OUTPUTS OF THE PRECISION CLOCK
As a clock becomes more and more precise, the applications shift from
providing the precise time to generating very high quality frequencies.
Applications for precision clocks generally fall into one of three categories:
precise time, frequency generation, and time transfer.
Precise Time. Precise time is a measurement that tells the user what
the exact time is. A common application for precise time is time stamping of
electronic transactions or data. Electric power utilities also use precise time
to measure and maintain operating current and locate transmission faults in the
system. For scientific applications, precise time is used to time tag events
with very high resolution for comparison with other events. Even directives such
as the Emergency 911 initiative for locating cellular based callers will require
precision time stamping. Current state-of-the-art time stamping is to the
millionth of a second referenced to UTC.
Frequency Generation. The generation of signals such as high frequency sine
waves, or a once per second pulse, benefits from a precision clock. Externally
disciplined precision clocks can create near perfect wave forms and pulses and
can be precisely synchronized with a superior external reference, such as GPS.
The fastest growing application for GPS referenced precision clocks is the
generation of pulses and frequencies for telecommunications systems. For
example, many current wireless base stations use precision GPS references to
provide the signals used to create the carrier frequency and to coordinate
handoffs between cell sites. Frequency generation also includes high frequency
digital pulse generation. These signals are widely used to synchronize
communications networks and form the basis for signals that will carry data over
networks and satellite systems.
Time Transfer. Time transfer is an integral part of synchronization. It is
not feasible to place a precision clock with every computer or instrument that
requires precise time. Time distribution then becomes a critical role of the
precision clock. The most cost effective ways to distribute time are via wires
such as computer serial cables, coaxial cables or ethernet networks.
A popular time transfer technique in military and aerospace applications
involves time codes sent over coaxial cables. These codes have been standardized
and are known as Inter-Range Instrumentation Group, or IRIG, time codes. IRIG
codes are used to synchronize most of the military and government test ranges
and launch facilities across the U.S. They are also the primary means to
synchronize computers to one millionth of a second to each other.
The fastest growing time transfer technique, and the one with the greatest
potential, uses ethernet networks or the Internet as the transfer medium. Using
a client server technique known as the Network Time Protocol, or NTP, a single
precision clock configured as a time server can synchronize tens of thousands of
client computers per hour. A packet exchange initiated by the client computer to
the time server can synchronize the client to the satisfactory level for such
purposes of one thousandth of a second to the time server.
TRUETIME'S SOLUTIONS
TrueTime meets the growing timing and frequency needs of modern
communication and computer systems by using the following technologies:
GPS TECHNOLOGY -- We strive to develop state-of-the-art products using
current GPS timing references. GPS signals are the most accurate,
widely-available and cost-effective source of timing references today. We
are continually working on next-generation designs and applications to
maintain and advance our GPS technologies.
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OSCILLATOR SELECTION AND CONTROL -- We generally use a quartz crystal
oscillator as a fundamental component in our precision timing products.
Using and controlling an extremely stable oscillator is critical to
maintaining accurate time and frequencies, especially if synchronization
reference sources are lost (such as the loss of satellite signals when a
GPS antenna is accidentally damaged). We believe that we have strong
relationships with our oscillator suppliers and a variety of technological
advantages in the ability to test, select and control high-stability
oscillators.
REAL-TIME OPERATING SYSTEMS -- We incorporate real-time operating
systems in our newest products. These operating systems are required to
control precision timing devices and frequency sources and to process data
in real time without introducing timing delays and synchronization
problems. We believe this provides us with advantages in next-generation
applications that will speed the introduction of new products.
INTERNET INTERFACES -- We produce precision timing devices that can be
controlled using a browser over the Internet or through a local area
network. This permits the user to control the unit from anywhere in the
world. We believe this is an essential step in the future of networked
equipment. Additionally, we produce a series of NTP products that allow
customers to synchronize computers and other equipment over the Internet.
OUR STRATEGY
We have already established name-recognition in the time and frequency
industry. Our investments in new technology have given us the capability to
enter new segments of the timing market and allow us to reduce the time needed
to market new products. Now, our goals are to
-- Introduce new products by
- targeting the growing telecommunications, e-commerce, computer
networking and digital wireless market segments,
- increasing our research and development budget and capabilities, and
- applying core technologies in new markets.
-- Form strategic relationships by
- developing alliances with companies that offer complementary products
and technologies, and
- exploring opportunities to acquire companies with technologies that
will enhance our product lines, add new related products or add
economies of scale to our existing operations.
-- Continue to gain market share by
- developing, manufacturing and marketing the highest quality precision
time and frequency products,
- applying new technology to current applications,
- increasing international sales through increased marketing activities
abroad, and
- improving distribution channels.
TRUETIME'S PRODUCTS AND SERVICES
We offer a wide variety of precision clock products upon which we have
built a reputation for quality and diversity. Our products can generally be
divided into the following broad categories:
PRECISE TIME AND FREQUENCY PRODUCTS -- We manufacture precision time
products that allow our customers to keep accurate time within
40 billionths of a second. In many ways, our precise time products are
similar to clocks and stopwatches -- our clocks tell us the time of day and
allow us to
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measure the time interval between when an event starts and when it stops.
The difference between conventional time measuring devices and our precise
time products lies in the accuracy of the measurements. To place the
accuracy of our clocks in perspective, a clock which accumulates a 40
billionths of a second time error over a 24 hour period will require more
than 500,000 years to accumulate an error of one second.
In the last three fiscal years, more than 75% of our revenues were
from the sale of our timing products that use GPS as a timing reference for
continuously disciplining our oscillators, the fundamental component that
determines the accuracy of our time and frequency products. A schematic
illustrating how a TrueTime GPS synchronized timing device operates is
shown below.
THE ARCHITECTURE OF A PRECISION TIMING DEVICE
[SCHEMATIC]
Quartz-based clocks are subject to numerous physical factors that
affect the overall clock accuracy and stability, including temperature
changes and aging. We rely upon GPS as a reference for continuously
disciplining our oscillators. GPS provides 24 hour worldwide coverage that
is not affected by weather conditions. The coverage of the 24 satellites in
six near-polar orbits together with numerous ground monitoring/verifying
stations produces a readily available and highly accurate timing reference
with state-of-the-art reliability and performance. However, GPS navigation
receivers tend to deliver compromised results when used as a time and
frequency receiver. To overcome this shortcoming in a standard GPS
receiver, we have developed a product line which implements a suite of
operations that extract optimal accuracy and stability from the clock
measurements provided by the GPS core receiver. We believe our products
provide superior oscillator discipline and enable us to offer the most
accurate quartz oscillator timing products in the industry.
COMPUTER PLUG-IN CARDS -- We manufacture a broad line of precision
timing products in the form of plug-in cards for computers. These cards
provide precise timing capabilities to computers equipped with very common
bus components. Aside from providing accurate time measurement, these cards
can provide a variety of time and frequency and other time outputs and
functions, as well as time transfer for synchronization. Currently, plug-in
cards connected by cables provide one of the easiest and most accurate ways
to synchronize the clocks of two or more computers. We also offer
state-of-the-art software development tools to speed the integration of
these cards into software applications, which may save software developers
significant time and money.
COMPUTER NETWORK TIME SERVERS -- We manufacture two products for
computer network time distribution. These products provide an extremely
powerful and efficient manner in which to bring entire networks of
computers into precise time synchronization. Designated computers run
programs in the background that periodically correct the time of each local
computer to that of the time server. As a result, we believe that network
synchronization of thousands of computers to an accuracy of a second or
less is achievable using these products. With the pervasive growth of the
Internet and e-commerce and increasing electronic transactions, we believe
that the demand for such synchronization products will continue to
increase.
TIME CODE PRODUCTS -- We offer a wide variety of time code generation,
translation and synchronization products, including timing output options
for our precise clocks. A time code is a data
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format for recording and processing time measurements. Time codes arose
from the need to synchronize the instruments used to monitor the many
aspects of a real time weapons test and to share the collected data with
others monitoring the same test at different locations. Time codes provide
the digital data format necessary for computers to transfer and correlate
encoded time data among computers in a highly accurate manner.
TIME DISPLAYS -- We manufacture a variety of time displays. These
one-half-inch to four-inch light-emitting diode, or LED, displays often
present a variety of information, including the time of day, frequency
information regarding system electrical current or "countdown-to-launch"
arrays. In many cases, the display is sold as an accessory to a precision
clock to display the precise time in an instrument rack or control room.
TRUETIME'S CUSTOMERS
Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. Our major
customer groups include:
TELECOMMUNICATION COMPANIES -- Telecommunication companies are
continually seeking to deliver greater bandwidth and connectivity to
transmit data reliably at faster speeds. Wireline telephone companies that
transmit audio, video and other data over wires encounter many problems if
timing or synchronization is not precise. These problems include unreadable
facsimiles and corrupted or lost data as well as frozen images on video
conference screens. Similarly, wireless telephone carriers using cellular
or satellite communication need precise time and synchronization to avoid
static and blocked calls.
COMPUTER NETWORKS -- Our customers include computer network designers
and users because today's computer network technology is characterized by
increasingly faster data transfer and throughput rates. Most major national
and world-wide businesses operate large computer networks. The operation of
computer networks is also becoming standard for many smaller businesses.
Synchronization of timing in the network can increase the quality of data
transmission and reduce the risk of system downtime.
AEROSPACE INDUSTRY AND NATIONAL DEFENSE -- Among our long-standing
customers are many different government agencies, including the U.S.
Department of Defense, NASA and the State Department, as well as
organizations operating test ranges for the Department of Defense. These
customers make measurements of fast moving objects such as aircraft,
weaponry projectiles, missiles and spacecraft. These customers also need
highly accurate clocks to record critical, high resolution measurements and
gather required data for events that are changing rapidly.
E-COMMERCE -- The amount of data being transmitted over the Internet
is expanding rapidly because of the growing number of users and the
increasing range of data-intensive activities for which the Internet is
used. Businesses increasingly enhance their reach to customers and
suppliers with applications such as electronic commerce, supply chain
management, global marketing and customer support via the Internet.
Consumers use the Internet to communicate, collect and publish information,
make retail purchases and access online entertainment. These network-based
businesses and consumer activities require the transmission of increasingly
large amounts of data quickly and reliably. As a result, broadband access
is becoming increasingly important, and this creates a growing need for our
precise time and frequency products.
POWER UTILITIES -- Our power utility customers use precise time to
maintain a precise frequency of 60 Hz for the electricity that literally
runs our nation. Precise monitoring and control of the power line
alternating current frequency helps to prevent power brown-outs and
black-outs. Precise timing also aids in the location of power line faults.
TELEVISION BROADCASTING -- Television stations need both accurate time
and frequency references to keep their transmissions synchronized, their
transmitters operating at the correct frequency and to switch between feeds
cleanly. Our GPS timing products provide both time and frequency outputs
for these purposes.
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In fiscal year 1999, we sold our products to more than 1,000 customers. Our
customers include companies that order a large number of very similar products,
as well as customers that order a small number of special order products. The
majority of our sales are made to numerous and usually repeat, customers who
purchase small quantities of multiple types of products and who often have
custom or semi-custom specifications. For larger orders, we often deliver
multiple types of products to multiple locations. The diversity of our customers
requires significant customer support, flexible manufacturing and a wide array
of product inventory. Our engineering and manufacturing operations and business
systems have been adapted for fast-turn, customer-specific product variations.
We believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers. While
the large number of our customers results in many customers generating
relatively small amounts of sales, typical customers are some of the best-known
enterprises engaged in
- telecommunications -- Lucent Technologies, PanAmSat Corporation and
companies which were part of the old AT&T system,
- computer networking -- Novell, Inc., Lucent Technologies and Cisco
Systems, Inc.,
- e-commerce -- NYSE, Nasdaq Stock Market, Chicago Mercantile Exchange,
Chicago Board of Trade and Ameritrade Information Service,
- power utilities -- PG&E Corporation and Bonneville Power Administration,
- aerospace -- The Boeing Company, Northrup Grumman Corporation, FAA and
Allied Signal Aerospace,
- national defense -- separate purchasing arms of the Department of Defense
and Hughes Network Systems, Lockheed Martin Corporation, Motorola, Inc.,
Raytheon Systems Company, Litton Denro (a subsidiary of Litton
Industries, Inc.) and NASA, and
- television broadcasting -- CNN, Westwood One and WHDTV, the
high-definition television model station.
Among our largest customers during the last three fiscal years have been
separate purchasing arms of the U.S. military services and Hughes Network
Systems, Lockheed Martin Corporation, Motorola, Inc., Raytheon Systems Company,
Litton Denro and NASA. Generally, our largest customers tend to change or rotate
from year to year, although U.S. governmental units are consistently among our
largest customers. During fiscal years 1998 and 1999, purchases by the U.S. Army
comprised approximately 10% and 18%, respectively, of our sales. Similarly,
during fiscal years 1997 and 1998, purchases by Hughes Network Systems accounted
for 10% of our sales each year. Sales to the U.S. government, as a whole,
comprised 21%, 23% and 28% of our sales during fiscal years 1997, 1998 and 1999,
respectively.
SALES AND MARKETING
In fiscal years 1997, 1998 and 1999, approximately 19%, 18% and 16%,
respectively, of our sales have been in international markets, but we are
attempting to increase our international marketing efforts. We market and sell
our products through three primary channels:
SALES REPRESENTATIVES -- More than 80% of our orders come through our
26 domestic and worldwide sales representative organizations. These
representatives are independent firms, each assigned a geographical area
for promoting and selling TrueTime products. Representatives covering our
domestic sales areas receive commissions on the sales generated in their
areas, but TrueTime actually confirms and invoices the sale to the
customer. Our arrangements with our international representatives are
different in that these representatives buy our products at a discount and
then resell the products to their customers at prices dictated by their
local market conditions.
DIRECT CONTACT BY TRUETIME EMPLOYEES -- We have 25 employees in our
Sales and Marketing Department, including our customer service personnel.
Six of these employees are Regional Managers and are in direct contact with
our customers. Most of the other employees work in customer service. We
place special emphasis on making sure our products are performing within
specifications and our customers are satisfied doing business with
TrueTime.
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<PAGE> 34
SALES AND MARKETING VIA INTERNET -- We have established an Internet
website for extending the reach of our marketing and sales efforts.
Although customers are not yet able to order our products over the
Internet, our website provides added convenience for our customers who are
increasingly using the Internet for choosing products which meet their
needs. Because of the growing importance of our Internet link to customers,
we are committed to the continual enhancement of our website and
improvement of our procedures for responding to customer inquiries received
through our website.
Because we typically turn our orders on hand up to five or more times per
year, we do not regard so-called "backlog" as an indicator of our future
prospects.
TRUETIME'S COMPETITION
The development, manufacture and sale of precise time and frequency
products is an intensely competitive industry. According to the previously noted
Frost & Sullivan report, there are more than 20 companies offering products in
the GPS timing field. These companies range from separate timing divisions in
very large companies to small stand alone companies with revenues of less than
$1 million annually. Our principal competitors are Bancomm/Timing (a division of
Datum, Inc.), Odetics Telecom (an Odetics, Inc. division), Trak Systems, Inc. (a
Tech-Sym Corporation subsidiary) and Brandywine Communications, Inc. In
addition, more than a dozen companies produce products that are sold into the
time and frequency markets as indirect competition. These competitors consist
primarily of component suppliers or integrated system suppliers. As we continue
to grow, we will likely encounter these firms as more direct competitors. In
general, most of our competitors have more financial resources than we do, and
may be capable of offering more attractive packages for retaining and recruiting
employees.
INTELLECTUAL PROPERTY
Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. Historically, we have not filed patents to protect our
intellectual property, but have instead relied upon the confidential handling of
our designs, nondisclosure agreements with employees and trade secret law to
protect our product designs. Only recently have we decided to begin filing for
formal patents. Accordingly, our proprietary products are subject to examination
and possibly "reverse engineering" by our competitors. While we hope our
intellectual property is adequately protected by our confidential trade-secret
protection plans and programs, we cannot be sure that our competitors will be
prevented from gaining access to our proprietary and confidential technologies.
The use of our technology by others could eliminate any competitive advantages
we may have and cause us to lose sales. Moreover, the laws of other countries
where we market our products may afford even less protection for our
intellectual property.
Some of our trade identifiers and product names have been trademarked,
including our name, "TrueTime."
No single patent, trademark or group thereof is considered essential to the
success of TrueTime. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail. There are no proceedings currently pending relating
to our intellectual property.
REGULATORY MATTERS
Our operations are subject to numerous local, state and federal laws and
regulations. While we do not foresee the need for significant expenditures to
ensure continued compliance with current environmental protection laws,
regulations in this area are subject to change, and we cannot be sure that
future laws and regulations will not have a material adverse effect on our
company. We use very few chemicals or other hazardous materials in our
operations and do not expect that significant costs will be incurred in
continuing to comply with existing environmental and other laws. We can offer no
assurance that future laws or regulations will not increase the costs of
compliance, and this could have a materially adverse effect on our company.
Upon completion of this offering, we will no longer be a wholly owned
indirect subsidiary of OYO Japan. Therefore, TrueTime may enjoy some benefits by
no longer being considered a foreign-owned
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<PAGE> 35
corporation for certain regulatory purposes such as access to certain defense
contracts and government purchases of TrueTime products by system integrators.
MANUFACTURING OPERATIONS AND FACILITIES
We currently manufacture and service our products at our single leased
facility of about 25,000 square feet in Santa Rosa, California. We are
negotiating a long-term lease agreement on a new larger manufacturing and office
facility of approximately 50,000 - 75,000 square feet, into which we intend to
move in the first half of year 2000. Since the lease on our current facilities
does not expire until 2008, we plan to sublease the facility upon moving our
operations. In addition, we anticipate that the new lease agreement will provide
us with an option to purchase the new facility, which the board of directors may
choose to exercise in the future if it concludes that ownership of our facility
is an economic use of our general corporate funds. We plan to use approximately
$1.0 million of our working capital to build out and equip our new office and
manufacturing facility.
We use our production capacity to support top-level assembly and
modification and to conduct sophisticated tests of our products. We subcontract
base-level fabrication, low-level assembly and surface mount production to key
suppliers with expertise in these areas. All operations are performed under
TrueTime's ISO 9001 certification.
RESEARCH AND DEVELOPMENT
In fiscal 1999, we spent $2.2 million developing network time servers,
network interface features and higher levels of integration and capabilities in
GPS and real time operating systems. In fiscal 1998, we spent $1.9 million
building the research and development organization and developing the core
technology platform for new products. In fiscal 1997, we spent $1.9 million
developing high end data rate clock and distribution system products, updating
our GPS products and increasing the options offered in GPS products.
SUPPLIERS
We depend upon our suppliers for parts and services. Most of our parts and
services are obtainable from multiple sources, although some parts and services
are obtainable from only one source. Currently, Trimble Navigation Limited
provides virtually all of our supply of a key component for our GPS-based
products. While to date we have not had difficulty obtaining these parts and
services, if single-source products or services were to become unavailable, our
ability to provide products would be materially affected. We believe that
advances and investment in development technologies and modular designs will
allow us to respond quickly if part availability affects production, but there
can be no assurance as to that circumstance.
Our current delivery times have been affected from time to time by
disruptions in the supply chain. Current deliveries range from (1) one to two
weeks for standard products kept in inventory, (2) two weeks to 45 days for
products that require configuration and (3) 60 to 90 days for custom products
that must be specially built to our customers' specifications.
We sell on open account. Therefore, we use working capital to pay for the
wages of our employees and to carry inventories and accounts receivable pending
collections from our customers.
EMPLOYEES
As of November 27, 1999, we employed 120 people on a full-time basis, all
of whom work at our facility in Santa Rosa, California. We have never
experienced a work stoppage and none of our employees is unionized. Over one
half of our employees have scientific and technical backgrounds.
LEGAL PROCEEDINGS
From time to time, we may be a party to litigation and proceedings that may
be considered part of the ordinary course of our business. Since our
incorporation in 1991, we have not been a defendant in any lawsuit.
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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
In connection with this offering, the board of directors of TrueTime will
be set at six positions. Our certificate of incorporation provides for the
classification of the board into three classes of directors (Class I, Class II
and Class III), with the term of each class expiring at successive annual
stockholders' meetings. Beginning with the annual meeting of stockholders
following the fiscal year ending September 30, 2000, all nominees of the class
standing for election will be elected for three-year terms. The directors named
below, other than Mr. Hall, will constitute the board of TrueTime at the time of
the consummation of this offering.
<TABLE>
<CAPTION>
CLASS/YEAR
TERM AS DIRECTOR
NAME AGE POSITION WILL EXPIRE(1)
- ---- --- -------- ----------------
<S> <C> <C> <C>
Satoru Ohya(2)......................... 67 Director Class III / 2002
Katsuhiko Kobayashi(3)(4).............. 54 Chairman of the Board and Director Class III / 2002
Elizabeth A. Withers................... 40 President and Chief Executive Officer Class II / 2001
and Director
Haresh C. Patnaik...................... 57 Senior Vice President and Chief
Technical Officer
Donald H. Mitchell..................... 64 Vice President and Director of Sales
and Marketing
Michael P. Von der Porten.............. 43 Vice President and Chief Financial
Officer
Ernest M. Hall, Jr.(5)................. 74 Director (retiring prior to the
closing of this offering)
Charles J. Abbe(2)(3)(4)............... 58 Director Class I / 2000
Charles H. Still(2)(3)................. 57 Director Class II / 2001
A. Robert Towbin(2)(3)(4).............. 64 Director Class I / 2000
</TABLE>
- ---------------
(1) Term of director expires when successor is elected at annual meeting of
stockholders following the end of the fiscal year indicated.
(2) To be elected as a director immediately prior to the closing of this
offering.
(3) Member of the compensation committee of the board of directors.
(4) Member of the audit committee of the board of directors.
(5) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.
Satoru Ohya will be elected, and has consented to serve, as a director of
TrueTime immediately prior to the closing of this offering. He has been
President of OYO Corporation since 1993. For over 40 years, Mr. Ohya has been an
employee, officer or director of OYO Corporation and various of its
subsidiaries. He is a director of OYO Geospace Corporation.
Katsuhiko Kobayashi joined OYO Corporation in 1995 and has been a Managing
Director since March 1999. Mr. Kobayashi is responsible for OYO Corporation's
international business activities. From 1996 to 1999, he served as Treasurer of
TrueTime's predecessor and he has served as a director thereof since 1999. From
1973 to 1995 he was employed by Sanwa Bank in its international banking area,
where he last held the position of general manager of the International Credit
Administration Department from 1993 to 1995. He is a director of OYO Geospace
Corporation.
Elizabeth A. Withers joined TrueTime in 1991. She has been a director and
President and Chief Executive Officer of TrueTime since September 1999. From
November 1998 until her appointment as
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<PAGE> 37
President and Chief Executive Officer, Ms. Withers served as Vice President of
Operations. She has also held the positions of Operations Manager and Materials
Supervisor. Ms. Withers was formerly Manufacturing Manager at Asea Brown Boveri,
Production Manager at Delphian Corporation and Field Engineering Supervisor at
Fortune Systems. She holds a B.S. degree in Organizational Behavior from the
University of San Francisco and the CPIM certification from the American
Production and Inventory Control Society (APICS). Ms. Withers filed a personal
bankruptcy proceeding under federal laws in 1995.
Haresh C. Patnaik has been Senior Vice President and Chief Technical
Officer of TrueTime since September 1999. From March 1998 until September 1999,
he served as Vice President of Research and Development. Mr. Patnaik joined
TrueTime in 1998 to build the Research and Development function and to assist
TrueTime with his broad management experience. From October 1991 until October
1997, Mr. Patnaik served as Vice President of Engineering at Tegal Corp.,
publicly-traded company in the semiconductor equipment manufacturing industry.
He has also served as the International Liaison and Program Director at Teradata
Corp., the Vice President of Engineering at Kennedy Co. and Director of
Engineering and Operations Program Manager at NCR Corporation. Mr. Patnaik holds
an M.S. degree in Electrical Engineering from Purdue University and a B.S.
degree in Electrical Engineering from IIT in Kharagpur, India. He has also
completed the Executive Management Program at UCLA Graduate School of Business.
Donald H. Mitchell joined TrueTime in 1991 and has served as Vice President
and Director of Sales and Marketing since September 1999. He was Vice President
of Sales from July 1999 until September 1999 and Time and Frequency Director
from November 1991 until July 1999. Prior to joining TrueTime, Mr. Mitchell was
Sales and Marketing Manager at Austron, Inc./Frequency and Time Systems, Sales
and Marketing Manager at Datum, Inc. and Program Manager at Kentron
International. At Ling Temco Vought, Mr. Mitchell performed several roles,
including Program Manager responsible for the Hill Wendover Dugway Test Range at
Hill Air Force Base, Dugway Proving Grounds and Yuma Proving Grounds. He served
as Electronic Support Systems Manager at Khalalein Missile Test Range. Mr.
Mitchell has previous experience as Systems Manager for NASA in Kauai, Hawaii
and as Data Reduction Manager at the Navy Parachute Test Facility in El Centro,
California.
Michael P. Von der Porten joined True Time in 1990 and has been Vice
President and Chief Financial Officer since September 1999. He served as Vice
President of Finance and Administration from November 1998 until September 1999.
He served as Controller and Manager of Administrative Services from June 1994
until November 1998. He served as Manager of Administrative Services from May
1991 until 1994. He has also held the position of Manufacturing Manager. Before
joining TrueTime, Mr. Von der Porten was the Director of Operations and
Secretary at Laser Scanning Products, Inc. and Materials Manager, Production
Manager and Program Manager at Microsource, Inc. Prior to that, he was
Headquarters Sales Manager and a Financial Analyst at Advanced Micro Devices.
Mr. Von der Porten holds an M.B.A. with concentrations in marketing and
production and operations management from the University of Chicago and a B.S.
in Engineering from Harvey Mudd College.
Ernest M. Hall, Jr. has been a director since the formation of TrueTime and
its predecessors in 1991. From August 1994 until his retirement in September,
1999, Mr. Hall was the President of TrueTime. He will retire as a director of
TrueTime immediately prior to the effectiveness of the registration statement
relating to this offering. He has held various positions with the OYO group of
companies since 1980. He was President of OYO U.S.A. from 1985 until 1995, and
from 1997 to the present. From 1980 to 1985, Mr. Hall served as a consultant to
OYO U.S.A. He is a director of OYO Geospace Corporation. Following the offering,
Mr. Hall will continue to serve as President of OYO U.S.A. and will be an
advisor to our management and Board.
Charles J. Abbe will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Abbe has been
a director of Optical Coating Laboratory, Inc. (OCLI) since 1997, President
since November 1997 and Chief Executive Officer since April 1998. He served as
Vice President and General Manager of OCLI's Santa Rosa Division from April 1996
through October 1997 when he was appointed President, Chief Operating Officer
and director. Prior to joining
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<PAGE> 38
OCLI, Mr. Abbe held various senior management positions with Raychem Corporation
from 1989 to 1996. From 1971 to 1989, he was employed at McKinsey & Company,
Inc.
Charles H. Still will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering and has been
corporate secretary of TrueTime since the formation of our predecessor in 1991.
He has been a partner in the law firm of Fulbright & Jaworski L.L.P., which
serves as legal counsel to OYO Corporation, OYO U.S.A. and TrueTime in various
matters, since 1975. He is a director of OYO Geospace Corporation.
A. Robert Towbin will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Towbin has
served as Co-Chairman of C.E. Unterberg, Towbin since November 1999. From
December 1995 until November 1999, Mr. Towbin served as Senior Managing Director
of C.E. Unterberg, Towbin. He was President and Chief Executive Officer of the
Russian-American Enterprise Fund from January 1994 to August 1995. From 1987
until 1993, he was a Managing Director at Lehman Brothers Inc. He is a director
of Bradley Real Estate Inc., Gerber Scientific, Inc., Globalstar
Telecommunications Ltd., Globecomm Systems Inc. and K&F Industries, Inc.
From August 1994 until September 1999, TrueTime was managed by a team of
either four or five persons. Together, this group of managers was responsible
for the typical functions of executive officers and they reported to Ernest M.
Hall, Jr., who served as President. In preparation for this offering, Mr. Hall
resigned as President on September 15, 1999, and Ms. Withers was elected
President and Chief Executive Officer. Prior to being elected President, Ms.
Withers was Vice President and Operations Manager, and a member of the four
person management team serving TrueTime. Messrs. Patnaik, Mitchell and Von der
Porten were also members of that management team.
BOARD COMMITTEES
Our board of directors has established an audit committee and a
compensation committee. The audit committee is charged with recommending to the
board of directors the appointment of our independent auditors, reviewing the
compensation of such auditors and reviewing with such auditors the plans for and
the results and scope of their auditing engagement. The compensation committee
reviews the performance and compensation of officers and makes recommendations
to the board of directors with respect thereto. It also administers our 1999
Employee Stock Plan. See "-- Employee Stock Option Plan."
DIRECTOR COMPENSATION
Directors of TrueTime currently are not compensated for their services as
directors. All directors of the Company are reimbursed, however, for ordinary
and necessary expenses incurred in attending board or committee meetings. We
intend to begin compensating non-employee directors and board advisors for their
services at a rate of $12,000 per year (plus expenses) and an initial grant of
options to purchase 10,000 shares of common stock pursuant to the 1999
Non-Employee Director Stock Plan. In addition, we will annually grant additional
stock options to such directors and advisors for the purchase of shares of
common stock pursuant to the terms of that plan.
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<PAGE> 39
EXECUTIVE COMPENSATION
The following table provides information about the current President and
Chief Executive Officer of TrueTime, the former President and Chief Executive
Officer of TrueTime and the three other executive officers of TrueTime who
received salary and bonus in the year ended September 30, 1999, that exceeded
$100,000, these persons being collectively referred to as "named executive
officers." The following compensation data includes bonuses awarded in fiscal
2000 for performance in fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR ENDED SEPTEMBER 30, 1999
--------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Elizabeth A. Withers
President and Chief Executive Officer(1)............. $ 98,077(2) $ 71,546 $4,617(3)
Ernest M. Hall, Jr.
Former President(1)(4)............................... -- -- --
Haresh C. Patnaik
Senior Vice President and Chief Technical Officer.... 135,193(2) 71,546 4,980(3)
Donald H. Mitchell
Vice President and Director of Sales and Marketing... 83,429(2) 207,272(5) 6,473(3)
Michael P. Von der Porten
Vice President and Chief Financial Officer........... 102,268(2) 71,546 4,764(3)
</TABLE>
- ---------------
(1) Mr. Hall retired from the office of President effective September 15, 1999.
Ms. Withers was appointed to that office effective the same date. Following
this offering, Mr. Hall will continue to serve as an advisor to TrueTime
management and our board.
(2) Beginning October 1, 1999, Ms. Withers' base annual salary is $160,000. Her
compensation for fiscal 1999 related to her position as Vice President of
Operations until September 15, 1999. In addition, effective October 1, 1999,
Messrs. Patnaik's, Mitchell's and Von der Porten's base annual salaries were
$155,000, $150,000 and $140,000, respectively.
(3) Represents contributions by TrueTime to a 401(k) savings plan and premiums
paid on group-term life insurance.
(4) Mr. Hall did not receive compensation from TrueTime for his services as
President. He was compensated by OYO U.S.A. for his services to OYO U.S.A.
and its subsidiaries, including TrueTime, since his duties were primarily
limited to overseeing the interests of OYO U.S.A. in TrueTime, and have not
included active involvement in our daily activities.
(5) Includes commissions from sales and bonuses.
EMPLOYEE STOCK OPTION PLAN
Our Board has established an incentive stock option and restricted stock
plan, the TrueTime, Inc. 1999 Employee Stock Plan (the Employee Plan), pursuant
to which options to purchase shares of common stock and awards of restricted
shares of common stock will be available for future grant to officers,
employees, consultants and advisors of TrueTime. The Employee Plan is designed
to provide selected employees, consultants and advisors, including officers,
with additional incentives to promote the success of our business and to enhance
our ability to attract and retain the services of qualified persons.
The Employee Plan will be administered by a committee of no less than two
persons appointed by the board. Under the Employee Plan, options to purchase
common stock and restricted stock awards up to an aggregate of 1,500,000 shares
of common stock may be granted by the committee. The exercise price of an option
granted pursuant to the Employee Plan may not be less than the fair market value
of the common stock on the date of grant and is determined by the committee on
the date the option is granted. In the case of a grant of an option designated
in the Employee Plan as an "incentive option" (which qualifies for special
treatment under federal tax law) to an employee who owns ten percent or more of
the outstanding shares of common stock (a 10% stockholder), the exercise price
of each such option under the Employee
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<PAGE> 40
Plan may not be less than 110% of the fair market value of the common stock on
the date of the grant. No option may be granted under the Employee Plan for a
period of more than ten years. In the case of a 10% stockholder, no option
designated as an incentive option may be granted for a period of more than five
years. Options designated as incentive options under the Employee Plan may not
be granted to the extent the aggregate fair market value of the stock, valued as
of the date of the grant, with respect to which options first are exercisable by
the option holder in any calendar year, under the Employee Plan or any other
incentive stock option plan of TrueTime, exceeds $100,000. Under the Employee
Plan, the committee may issue shares of restricted stock to employees for no
payment by the employee or for a payment below the fair market value on the date
of grant. The restricted stock is subject to certain restrictions described in
the Employee Plan, with no restrictions continuing for more than ten years from
the date of the award.
To date the Board has not granted any options or restricted stock awards
under the Employee Plan. In connection with this offering, however, the board
intends to grant options for shares of common stock to certain officers and
employees, exercisable at the initial public offering price.
The following table provides information on stock options to be granted on
or about the closing date of this offering to our named executive officers.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED EMPLOYEES PRICE DATE
- ---- ------------------ ------------- -------- ----------
<S> <C> <C> <C> <C>
Elizabeth A. Withers......................... 105,000 14% (1) (2)
Haresh C. Patnaik............................ 90,000 12% (1) (2)
Donald H. Mitchell........................... 90,000 12% (1) (2)
Michael P. Von der Porten.................... 90,000 12% (1) (2)
</TABLE>
- ---------------
(1) Exercise price will be equal to the initial public offering price.
(2) Options will expire ten years from date of grant.
In the 1993 Omnibus Budget Reconciliation Act, Congress generally limited
to $1 million per year the tax deduction available to public companies for
certain compensation paid to designated executives. These executives include the
President and Chief Executive Officer and the next four highest compensated
officers of TrueTime. An exception is provided from this deduction limitation
for "performance-based" compensation if specified statutory requirements are
satisfied. The Employee Plan is generally designed to satisfy these statutory
requirements for stock options. We anticipate being entitled to deduct an amount
equal to the ordinary income reportable by an optionee on exercise of
nonqualified options and the early disposition of shares of stock acquired by
exercise of incentive stock options. Restricted stock awards become vested based
on service to TrueTime, and generally will not be exempt from the $1 million
deduction cap. Because of special transition rules applicable to companies which
first become public in an initial public offering, we do not anticipate that
application of this deduction cap will have a material impact on awards issued
under the Employee Plan.
The Employee Plan may be amended by the board of directors without any
requirement of stockholder approval, except as required by the incentive option
rules of the Internal Revenue Code of 1986.
DIRECTOR STOCK PLAN
Our board of directors has also established the 1999 Non-Employee Director
Plan (the Director Plan), pursuant to which options to purchase shares of common
stock will be available for future grant to non-employee directors and advisors
based on the fair market value thereof, as determined under the Director Plan,
at the date of grant. The Director Plan is designed to enhance our ability to
attract and retain the services of qualified persons as directors and to provide
such directors with a direct proprietary interest in our success. The Director
Plan will be administered by the board of directors. Under the
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<PAGE> 41
Director Plan, an aggregate of 150,000 shares of common stock will be available
for grant of options to purchase common stock and, possibly in the future, for
issuance in partial payment of directors' annual fees. The exercise price of an
option granted pursuant to the Director Plan may not be less than the fair
market value of the common stock on the date of grant and is determined by the
board on the date the option is granted. No option may be granted under such
Plan for a period of more than ten years. Shares issued to directors in payment
of part of their annual fees, if any, shall be issued based on the fair market
value thereof on the date of issuance.
To date the board has not granted options under the Director Plan and no
shares have been issued under such plan in respect of director fees. In
connection with this offering, however, the board intends to grant options to
each non-employee director and Mr. Hall, as an advisor to our board of
directors, to acquire 10,000 shares of common stock at an exercise price equal
to the initial public offering price as set forth on the cover page of this
prospectus. Thereafter, the Director Plan provides for the grant of an option to
acquire 10,000 shares to any newly elected member of the board of directors and
an annual grant of an option to acquire 3,000 shares of common stock to those
non-employee directors who are serving on the board and certain advisors to the
board following each annual meeting of the stockholders. The Director Plan
generally may be amended by the board of directors without any requirement of
stockholder approval except to the extent required by Rule 16b-3.
401(k) PLAN
We have adopted a 401(k) Plan, effective as of the closing of this
offering, under which substantially all employees of TrueTime and its
subsidiaries who have completed at least six months of service will be eligible
to participate. The TrueTime 401(k) Plan permits eligible employees to
contribute up to 17% of their annual compensation up to a maximum dollar amount
established in accordance with Section 401(k) of the Internal Revenue Code of
1986. We may, in our discretion, make matching contributions of up to 50 percent
of the employees' deferrals of up to six percent of their compensation, or other
amounts as approved by the board of directors. During the fiscal year ended
September 30, 1999, our predecessor made matching contributions under a 401(k)
plan sponsored by OYO U.S.A. in an aggregate amount of approximately $19,000 for
Ms. Withers and Messrs. Patnaik, Mitchell and Von der Porten.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that the liability of the
directors for monetary damages shall be limited to the fullest extent
permissible under Delaware law.
Our bylaws provide that we indemnify our directors and officers to the
fullest extent possible under Delaware law. These indemnification provisions
require us to indemnify such persons against certain liabilities and expenses to
which they may become subject by reason of their service as a director or
officer of TrueTime or any of our affiliated enterprises. The provisions also
set forth certain procedures, including the advancement of expenses, that apply
in the event of a claim for indemnification. We also intend to enter into
indemnification agreements with each of our officers and directors pursuant to
which we will indemnify each such person to the fullest extent permitted by law.
Further, we intend to obtain insurance to protect our officers and directors
from liability.
EMPLOYMENT AGREEMENTS
We plan to enter into an employment agreement with each of Ms. Withers and
Messrs. Patnaik, Von der Porten and Mitchell effective as of October 1, 1999,
subject to the consummation of this offering. These employment agreements will
set Ms. Withers' base annual salary at $160,000, Mr. Patnaik's base annual
salary at $155,000, Mr. Mitchell's base annual salary at $150,000 and Mr. Von
der Porten's base annual salary at $140,000, in each case subject to adjustment
by our Board. Each of these employees will also be entitled to participate in
our 401(k) Plan and any bonus plan we adopt and to receive certain employee
benefits and vacation.
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Each employment agreement will provide that Ms. Withers and Messrs.
Patnaik, Von der Porten and Mitchell receive the severance benefits described
below upon termination of his or her employment unless the termination (a)
results from the death, disability or retirement of such employee, (b) is by
TrueTime for Cause (as defined in the employment agreement) or (c) is by such
employee other than for Good Reason (as defined in the employment agreement).
Under these employment agreements, "Cause" is defined to mean the employee's
willful and continued failure to perform his or her duties after a demand for
such performance or the employee's willfully engaging in gross misconduct
materially and demonstrably injurious to TrueTime. Under these employment
agreements, "Good Reason" is defined to mean a demotion, a reduction in base
salary, a relocation of the employee's base location of employment, the
discontinuation of any employee benefit without comparable substitution, the
failure of any successor of TrueTime to assume the employment agreement or a
purported termination not in compliance with the employment agreement. The
severance benefits to which Ms. Withers or Messrs. Patnaik, Mitchell or Von der
Porten would be entitled include (i) his or her salary through the date of
termination, (ii) his or her base salary and pro-rated bonus for the fiscal year
of termination multiplied by one and one-half, (iii) any relocation and
indemnity payments to which he or she is entitled and any costs and legal fees
incurred in connection with any dispute over the employment agreement and (iv) a
gross-up for any applicable "excess parachute payment" tax imposed on the
employee by the Internal Revenue Code of 1986.
Each employment agreement will have a two-year term and be automatically
renewable unless we timely elect not to renew. In these employment agreements,
each of Ms. Withers and Messrs. Patnaik, Mitchell and Von der Porten will agree
that he or she will not disclose or misappropriate any of our confidential
information. These employment agreements will also contain customary
non-competition provisions for a California-based enterprise and California
employees, which are limited by state law.
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RELATIONSHIP WITH OYO CORPORATION AND RELATED TRANSACTIONS
OFFICER AND DIRECTOR POSITIONS WITH OYO AFFILIATES
We are a wholly owned subsidiary of OYO U.S.A., which in turn is a wholly
owned subsidiary of OYO Corporation, a Japanese corporation. Mr. Kobayashi, the
chairman of our board of directors, is Managing Director of OYO Corporation. He
also holds offices with other of its subsidiaries. Mr. Ohya, who is to become a
director of the Company in conjunction with the consummation of this offering,
is president of OYO Corporation. Mr. Still is also to become a director of the
Company in conjunction with the consummation of this offering. Mr. Still serves
as the corporate secretary of TrueTime, OYO U.S.A. and most of the subsidiaries
of OYO U.S.A. In addition, Mr. Still is a partner in the law firm of Fulbright &
Jaworski L.L.P., which regularly acts as legal counsel to the OYO group of
companies, including TrueTime, in various matters and receives customary fees
for its services. Messrs. Ohya, Kobayashi and Still are also directors of OYO
Geospace Corporation, a majority-owned subsidiary of OYO U.S.A.
TRANSITION SERVICES AGREEMENT
To effect a complete separation of the administrative operation of TrueTime
from OYO Corporation, OYO U.S.A. and their affiliates, we have entered into a
transition services agreement with OYO U.S.A. Under this agreement, OYO U.S.A.
and TrueTime have each agreed to compensate the other for use of the other's
personnel for up to one year following the consummation of this offering. We
anticipate that the transition services will primarily be used for accounting,
tax and employee benefit matters. Under the agreement, no employee of either
party will be required to provide more than 50 hours per month in service for
the benefit of the other party. Our 401(k) Plan has been administered with
affiliated companies under OYO U.S.A.'s control. We have paid our proportionate
share of related costs (administration fees to third parties). Upon the
consummation of this offering, we will contract for all services on our own
behalf.
TAX SEPARATION AGREEMENT
We also intend to enter into a tax separation agreement with OYO U.S.A.
Under the agreement
- any tax liability, assessments, adjustments or refunds relating to our
income, gains, losses, deductions or credits utilized or reflected or to
be utilized or reflected in OYO U.S.A.'s consolidated, combined, or
unitary returns for the current year or for any period which includes all
or any portion of the taxable period ended as of the closing date of this
offering will be allocated between us and OYO U.S.A.
- any tax assessments, adjustments or refunds relating to our tax
attributes reflected or utilized in OYO U.S.A.'s consolidated, combined
or unitary returns as a result of an audit by a taxing authority will be
allocated between us and OYO U.S.A.
CASH MANAGEMENT SYSTEM AND TRUST AGREEMENT
We currently participate in the central cash management system of OYO
U.S.A. in which the net cash provided or used by our operations is transferred
to or from OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for
the cumulative amount by which the cash provided by operating activities,
including current income taxes allocated from OYO U.S.A., has exceeded our
working capital and capital expenditure requirements. The receivable was
approximately $433,000 at September 30, 1999. This amount reflects a collection
of $3.5 million from OYO U.S.A. in September 1999 for the preliminary and
partial settlement of the receivable balance. To the extent not already done, as
soon as practical following the closing of this offering, we will separate from
OYO U.S.A.'s central cash management system and the remaining receivable at that
date will be collected in cash. Beginning October 1, 1997, OYO U.S.A.
implemented a policy of crediting interest on the receivable balance, excluding
the reduction in the receivable balance for allocated current income taxes.
Interest credited and added to the receivable balance was $305,000 for fiscal
1999.
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<PAGE> 44
In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for investment until such time that
we have established our own short-term investment program. On December 1, 1999,
the trust was terminated and the cash and cash equivalents held in trust were
distributed to us.
OYO U.S.A. REGISTRATION RIGHTS AGREEMENT
In connection with this offering, we have entered into a registration
rights agreement pursuant to which we granted to OYO U.S.A. piggy-back and
demand registration rights for shares of our common stock owned by OYO U.S.A.
after the consummation of this offering. We are not obligated to effect a
registration if securities for which registration is demanded can be sold within
a single 90-day period pursuant to Rule 144 under the Securities Act of 1933. In
general, we will bear all registration expenses incurred in connection with
these registrations, but OYO U.S.A. will pay all underwriting discounts and
commissions applicable to the sale of securities sold by it. OYO U.S.A. has
entered into a lock-up agreement pursuant to which it has agreed not to offer or
sell shares of our common stock held by it for a period of one year from the
date of this prospectus without the prior written consent of C.E. Unterberg,
Towbin on behalf of the underwriters. OYO U.S.A. has advised us that it has no
plans at present to sell additional shares of our common stock following the
consummation of this offering, but it will not be restricted in doing so except
during the lock-up period pursuant to the lock-up agreement with the
underwriters.
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SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL AND SELLING STOCKHOLDER
Of the shares of common stock being offered hereby, 1,500,000 are being
offered by OYO U.S.A., the selling stockholder. Prior to this offering, TrueTime
has been a wholly owned subsidiary of the selling stockholder, which held
4,000,000 shares. The selling stockholder is a wholly owned subsidiary of OYO
Corporation, a Japanese corporation. See "Relationship with OYO Corporation and
Related Transactions." Following this offering, the selling stockholder will
hold 2,500,000 shares of common stock. TrueTime and the selling stockholder will
proportionately share the underwriting discount and the expenses of this
offering.
Prior to this offering, our members of management owned no shares of our
common stock. Contemporaneously with this offering, members of management will
be issued options to acquire shares of common stock, as set forth below,
pursuant to the Employee Plan. See "Management -- Employee Stock Plan." The
following table sets forth as of the closing of this offering the beneficial
ownership of shares of common stock, and as a percentage of outstanding common
stock, of each of our directors, each named executive officer, each beneficial
owner of more than 5% of our outstanding common stock and all our directors and
executive officers as a group. Each person named has sole voting and investment
power with respect to the shares indicated except as otherwise stated in the
notes to the table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AFTER OFFERING
-------------------------------------------
PERCENTAGE
-------------------------------
IF UNDERWRITER IF UNDERWRITER
OVER-ALLOTMENT OVER-ALLOTMENT
OPTION IS NOT OPTION IS
NAME OF BENEFICIAL OWNER SHARES EXERCISED EXERCISED
- ------------------------ --------- -------------- --------------
<S> <C> <C> <C>
OYO Corporation(1)...................................... 2,500,000 45.5% 42.0%
Ichigaya Building
4-2-6 Kudan Kita
Chiyoda-ku, Tokyo 102
Japan
OYO Corporation U.S.A................................... 2,500,000 45.5% 42.0%
7334 N. Gessner Road
Houston, Texas 77040
Satoru Ohya(2)(6)....................................... 2,510,000 45.6% 42.0%
2-42-10 Takinagara
Kita-ku, Tokyo 114
Japan
Katsuhiko Kobayashi(3)(6)............................... 10,000 * *
Elizabeth A. Withers.................................... -- -- --
Haresh C. Patnaik....................................... -- -- --
Donald H. Mitchell...................................... -- -- --
Michael P. Von der Porten............................... -- -- --
Ernest M. Hall, Jr.(4).................................. 10,000 * *
Charles J. Abbe(5)(6)................................... 10,000 * *
Charles H. Still(5)(6).................................. 10,000 * *
A. Robert Towbin(5)(6).................................. 10,000 * *
Executive officers and directors as a group (9
people)(7)............................................ 2,550,000 45.9% 42.5%
</TABLE>
- ---------------
* Less than one percent.
(1) The shares indicated as beneficially owned by OYO Corporation, a Japanese
corporation, are held directly by its wholly owned subsidiary OYO
Corporation U.S.A.
(2) The shares indicated as beneficially owned by Mr. Ohya are owned directly by
OYO U.S.A. and are included because Mr. Ohya is an affiliate of OYO
Corporation. Mr. Ohya disclaims beneficial ownership of the shares of common
stock owned by OYO U.S.A. within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Mr. Ohya owns 298,800 ordinary shares of
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<PAGE> 46
OYO Corporation, and his wife and children collectively own 19,741 shares of
OYO Corporation. Mr. Ohya disclaims beneficial ownership of the shares of
OYO Corporation owned by his children within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934.
(3) Mr. Kobayashi owns 3,420 ordinary shares of OYO Corporation.
(4) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.
(5) To be elected as a director immediately prior to the closing of this
offering.
(6) Represents options to purchase 10,000 shares to be granted in connection
with this offering, which vest immediately.
(7) Does not include shares beneficially owned by Mr. Hall, who is retiring
prior to the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary description of the material terms of our capital
stock. This summary is not intended to be complete. Since the terms of our
capital stock must comply with the provisions of our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus is a part, as well as the General Corporation
Law of the State of Delaware, you should read those two exhibit documents
carefully.
We have the authority to issue up to 20,000,000 shares of common stock, par
value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at any time, if any, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as our board of directors from time to time
may determine. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders. Cumulative voting for
the election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon our
liquidation, dissolution or winding-up the assets legally available for
distribution to stockholders would be distributable ratably among the holders of
our common stock after payment of liquidation preferences, if any, on any
outstanding preferred stock and payment of our creditors. Each outstanding share
of our common stock is, and all shares of our common stock to be outstanding
upon completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations under
Delaware law that may apply, to issue shares of preferred stock in one or more
series. The board can fix the rights, preferences and privileges of the shares
of each series and any qualifications, limitations or restrictions thereon.
Our board may authorize the issuance of shares of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of shares of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of TrueTime. We have no current plan
to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation law regulating corporate takeovers. This statute prevents Delaware
corporations like us from engaging, under certain circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, or a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as affiliates
and associates of any such persons, for three years following the date that such
stockholder became an "interested stockholder" unless
- the transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date the
interested stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transactions commenced, excluding those shares owned by persons who
are directors and also officers and, under certain circumstances, shares
held in employee stock plans; or
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<PAGE> 48
- the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.
Under some circumstances, Section 203 makes it more difficult for a person
who would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed under Section 203. Our
certificate of incorporation does not exclude us from the restrictions imposed
under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board of directors since the stockholder approval requirement would be avoided
if a majority of the directors then in office approves, prior to the date on
which a stockholder becomes an interested stockholder, either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary below describes provisions of our certificate of incorporation
and bylaws. The provisions of our certificate of incorporation and bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by our board of directors but that you might consider to be in your best
interest. Those provisions include
- restrictions on the rights of stockholders to remove directors;
- prohibitions against stockholders calling a special meeting of
stockholders or acting by unanimous written consent in lieu of a meeting;
and
- requirements for advance notice of actions proposed by stockholders for
consideration at meetings of the stockholders.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING VACANCIES
Our certificate of incorporation and bylaws provide that the Board shall be
divided into three classes of directors, designated Class I, Class II and Class
III, with the classes to be as nearly equal in number as possible. The term of
office of each class shall expire at the third annual meeting of stockholders
for the election of directors following the election of such class. See
"Management -- Directors and Officers" for identification of the directors in
each class. Each director is to hold office until his or her successor is duly
elected and qualified, or until his or her earlier resignation or removal.
Our certificate of incorporation provides that the number of directors will
be fixed from time to time by a resolution adopted by the board of directors;
provided that the number so fixed shall not be more than nine nor less than
three directors. Our certificate of incorporation also provides that any
vacancies will be filled only by the affirmative vote of two-thirds of the
remaining directors, even if less than a quorum. Accordingly, absent an
amendment to the certificate of incorporation, our board could prevent any
stockholder from enlarging the board and filling the new directorships with such
stockholder's own nominees. Moreover, our certificate of incorporation and
bylaws provide that directors may be removed only for cause and only upon the
affirmative vote of holders of at least a majority of our outstanding voting
stock at a special meeting of stockholders called expressly for that purpose.
The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of the board of directors.
At least two annual meetings of stockholders, instead of one, would generally be
required to effect a change in a majority of the board. Such a delay may help
ensure that our directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. The classification provisions will apply to every
election of directors, however,
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<PAGE> 49
regardless of whether a change in the composition of the board would be
beneficial to us and our stockholders and whether or not a majority of our
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect to discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of us, even though such an attempt might be
beneficial to us and our stockholders. The classification of the board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of our stock by purchasers whose
objective is to take control of us and remove a majority of the board, the
classification of the board could tend to reduce the likelihood of increases in
the market price of our common stock that might result from accumulations of
large blocks. Accordingly, you could be deprived of opportunities to sell your
shares of our common stock at a higher market price than might otherwise be the
case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and stockholder
action may not be taken by written consent in lieu of a meeting. Special
meetings of stockholders can be called only by our board of directors by a
resolution adopted by two-thirds of the members of the board, or by the chairman
of the board or the Chief Executive Officer. Moreover, the business permitted to
be conducted at any special meeting of stockholders is limited to the business
brought before the meeting under the notice of meeting given by us.
The provisions of our certificate of incorporation prohibiting stockholder
action by written consent and permitting special meetings to be called only by
the chairman of the board of directors or the Chief Executive Officer, or at the
request of two thirds of the members of the board, may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
The provisions would also prevent the holders of a majority of our voting stock
from unilaterally using the written consent procedure to take stockholder
action. Moreover, a stockholder could not force stockholder consideration of a
proposal over the opposition of the chairman or President or two thirds of the
members of the board by calling a special meeting of stockholders prior to the
time such parties believe such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
Our bylaws establish an advance notice procedure for stockholders to
nominate candidates for election as directors or bring other business before an
annual meeting of stockholders.
The stockholder notice procedure provides that only persons who are
nominated by, or at the direction of, the board of directors, or by a
stockholder who has given timely notice containing specified information to our
corporate secretary prior to the meeting at which directors are to be elected,
will be eligible for election as our directors. The stockholder notice procedure
also provides that at an annual meeting only business that has been brought
before the meeting by, or at the direction of, the board of directors or by a
stockholder who has given timely written notice containing specified information
to our corporate secretary may be conducted. For notice of stockholder
nominations or proposals to be made at an annual meeting to be timely, the
notice must be received by us not less than 90 days nor more than 180 days in
advance of the meeting. However, in the event that less than 100 days notice or
prior public disclosure of the date of the meeting of stockholders is given or
made to the stockholders, to be timely, notice of a nomination or proposal
delivered by the stockholder must be received by our corporate secretary not
later than the close of business on the tenth day following the day on which
notice of the date of the meeting of stockholders was mailed or such public
disclosure was made to the stockholders. If the board or, alternatively, the
presiding officer at a meeting (in the case of a stockholder proposal) or the
chairman of the meeting (in the case of a stockholder nomination to the board)
determines at or prior to the meeting that business was not brought before the
meeting, or a person was not nominated, in accordance with the stockholder
notice procedure, that business will not be conducted at the meeting, or that
person will not be eligible for election as a director.
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<PAGE> 50
By requiring advance notice of nominations by stockholders, the stockholder
notice procedure will afford our board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent considered
necessary or desirable by the board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent considered
necessary or desirable by the board, will provide the board with an opportunity
to inform stockholders, prior to such meetings, of any business proposed to be
conducted at such meetings, together with any recommendations as to the board's
position regarding action to be taken regarding such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our stockholders.
AMENDMENTS
Our certificate of incorporation provides that we reserve the right to
amend, alter, change or repeal any provision contained in our certificate of
incorporation, and all rights conferred to stockholders are granted subject to
such reservation. The affirmative vote of holders of not less than two-thirds of
our voting stock, voting together as a single class, is required to alter,
amend, adopt any provision inconsistent with or repeal specified provisions of
our certificate of incorporation, including certain provisions discussed in this
section. In addition, our certificate of incorporation provides that
stockholders may only adopt, amend or repeal our bylaws by the affirmative vote
of holders of not less than a majority of our voting stock, voting together as a
single class. Our bylaws may also be amended by our board of directors.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
Our certificate of incorporation authorizes the board of directors to
create and issue rights, warrants and options entitling the holders of them to
purchase from us shares of any class or classes of our capital stock or other
securities or property on such terms and conditions as the board of directors
may deem advisable.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We have also entered
into separate indemnification agreements with our directors and officers that
provide them indemnification protection to the maximum extent permitted by law
in the event our certificate of incorporation is subsequently amended or we are
taken over and also to provide for certain procedural matters for our directors
that safeguard or enhance their indemnity rights. The form of the indemnity
agreements is included as an exhibit to the registration statement of which this
prospectus is a part and you should read that document carefully, together with
our certificate of incorporation and bylaws, which are also included as
exhibits, if you want further information as to our indemnity arrangements
relating to directors and officers.
Our certificate of incorporation and bylaws provide that we will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. Such provisions may have
the effect of preventing changes in our management.
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LISTING
We are applying to have the shares we are offering approved for quotation
on the Nasdaq National Market under the symbol "TRUE."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company and they can be reached at 40 Wall Street, New York,
New York 10005, (212) 936-5100.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 5,500,000 shares of our common stock will be
outstanding (5,950,000 shares if the underwriters exercise their over-allotment
option from us in full), and there are 810,000 estimated shares of common stock
issuable upon the exercise of authorized and outstanding options under our stock
plans (see "Management"), and 200,000 shares issuable under warrants issued to
the underwriters in connection with this offering (see "Underwriting"). Of these
shares, the 3,000,000 shares (3,450,000 shares if the underwriters exercise
their over-allotment options in full) sold in this offering will be freely
tradable without restrictions under the Securities Act, except for any shares
purchased by any of our affiliates, defined as any person that, directly or
indirectly, controls, or is controlled by, or is under common control with,
TrueTime. The remaining 2,500,000 shares (not including shares issuable under
options, warrants or pursuant to restricted stock awards as to which special
restrictions apply) are restricted securities, defined as
- securities acquired directly or indirectly from us, or from an affiliate
of ours, or in a transaction or chain of transactions not involving any
public offering; and
- securities acquired from us that are subject to the resale limitations
under the Securities Act.
Restricted securities generally may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rule 144 under the Securities Act.
Our officers and directors and the selling stockholder have entered into
lock-up agreements pursuant to which they have agreed not to offer or sell any
shares of common stock for a period of one year after the date of this
prospectus without the prior written consent of C.E. Unterberg, Towbin, which
may, at any time and without notice, waive any of the terms of these lock-up
agreements. These shares will not be eligible for sale in the public market
without registration under the Securities Act unless such sales meet the
conditions and restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
1% of the then-outstanding shares of common stock and (2) the average weekly
trading volume of the common stock during the four calendar weeks immediately
preceding the date on which the notice of such sale on Form 144 is filed with
the SEC. Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about the Company. In addition, a person (or persons whose shares are
aggregated) who has not been an affiliate of the Company at any time during the
90 days immediately preceding a sale of our common stock, and who has
beneficially owned the shares for at least two years, would be entitled to sell
shares owned thereby under Rule 144(k) without regard to the volume limitation
and other conditions described above. The foregoing summary of Rule 144 is not
intended to be a complete description.
As soon as practicable following the consummation of this offering, we
intend to file a registration statement under the Securities Act to register the
shares of our common stock available for issuance under our stock plans. Shares
issued under these plans and warrants generally will be available for sale in
the open market when options or warrants or exercised or restricted stock awards
vest, subject to the expiration of the one-year lock-up period.
48
<PAGE> 53
We will grant C.E. Unterberg, Towbin registration rights covering the
200,000 shares of our common stock they may acquire upon exercise of the
warrants to be issued to them in connection with this offering. We intend to
grant OYO U.S.A. piggyback and demand registration rights covering the 2,500,000
shares of common stock it will own after this offering.
49
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, C.E.
Unterberg, Towbin, Cruttenden Roth Incorporated, and Pennsylvania Merchant
Group, has severally agreed to purchase from us the number of shares of common
stock set forth below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
C.E. Unterberg, Towbin......................................
Cruttenden Roth Incorporated................................
Pennsylvania Merchant Group.................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions. The nature of the underwriters'
obligations is that they are committed to purchase and pay for all of the above
shares of common stock if any are purchased.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION
The underwriters propose initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and these dealers may re-allow, a discount not in excess of $ per
share on sales to certain other dealers. After commencement of this offering,
the offering price, discount price and re-allowance may be changed by the
underwriters. No such change will alter the amount of proceeds to be received by
us as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option, which may be exercised within
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriters exercise their over-allotment option to
purchase any of these additional 450,000 shares of common stock, these
additional shares will be sold by the underwriters on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters if the underwriters exercise their over-allotment option. The
underwriters may exercise their over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered by this prospectus.
UNDERWRITING COMPENSATION
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholder in connection with this offering:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by us.................. $ $ $
Underwriting discounts paid by the selling
stockholder......................................
Total.................................... $ $ $
</TABLE>
As additional underwriting compensation, we will issue C.E. Unterberg,
Towbin, for its own account, warrants covering an aggregate of up to 200,000
shares of common stock exercisable at the price per share equal to 110% of the
initial public offering price. C.E. Unterberg, Towbin may exercise these
warrants as to all or any lesser number of the underlying shares of common stock
commencing on the first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of the warrants
50
<PAGE> 55
require us to register the common stock for which the warrants are exercisable
within one year from the effective date of the registration statement.
For one year from the effective date of this offering, the warrants will be
restricted from sale, transfer, pledge, assignment or hypothecation, except to
officers or partners of C.E. Unterberg, Towbin. The exercise price of the
warrants and the number of shares of common stock for which the warrants are
exercisable are subject to adjustment to protect the warrant holder against
dilution in certain events.
INDEMNIFICATION OF UNDERWRITERS
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in connection with these
liabilities.
LOCK-UP AGREEMENTS
We, the selling stockholder and all of our directors and officers have
agreed to a "lock-up" arrangement for a period of one year after the date of
this prospectus, subject to certain exceptions. Under this lock-up arrangement,
we may not, without the prior written consent of C.E. Unterberg, Towbin, enter
into or effect certain transactions involving the capital stock of TrueTime or
any securities convertible into or exchangeable for our capital stock. For
example, we and they may not offer, sell, pledge or otherwise dispose of, file a
registration statement with the SEC relating to any shares of our capital stock.
STABILIZATION AND OTHER TRANSACTIONS
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which the underwriters may bid for, or purchase, common stock for
the purpose of stabilizing the market price. The underwriters also may create a
short position by selling more common stock in connection with this offering
than they are committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriters may
impose "penalty bids" whereby they may reclaim from a dealer participating in
this offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in the paragraph is required, and, if
they are undertaken, they may be discontinued at any time.
51
<PAGE> 56
At our request, the Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members friends and to business associates of TrueTime, including, customers,
sales representatives, suppliers and other friends. These persons must commit to
purchase after the registration statement has become effective but before the
open of business on the following business day. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
DISCRETIONARY ACCOUNTS
The underwriters have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriters. Among the factors
considered in determining the initial public offering price were our results of
operations, our current financial condition, our future prospects, the state of
the markets for our services, the experience of our management, the economics of
the precision timing industry in general, the general condition of the equity
securities market and the demand for similar securities of companies considered
comparable to us.
52
<PAGE> 57
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Fulbright & Jaworski L.L.P., Houston, Texas. Charles H. Still, a
partner in such firm, will become a member of our board of directors immediately
prior to the consummation of this offering and will be granted options to
purchase 10,000 shares of common stock under the 1999 Director Plan at the
offering price. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The financial statements as of September 30, 1998 and 1999, and for each of
the three years in the period ended September 30, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of our
common stock being sold in this offering. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits
filed with the registration statement. For further information with respect to
TrueTime and our common stock, we refer you to the registration statement and
the exhibits filed with the registration statement. Statements contained in this
prospectus regarding the contents of any contract or any other document filed as
an exhibit are not necessarily complete, and, in each instance, we refer you to
the copy of such contract or other document filed as an exhibit to the
registration statement and each such statement is qualified in all respects by
the contract or other document in question. A copy of the registration statement
and the exhibits and schedules filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees charged by the SEC. You may obtain information on the operation of
the SEC's public reference facilities by calling 1-800-SEC-0330. The SEC also
maintains a World Wide Web site that contains registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the site is
http://www.sec.gov. We maintain a website at www.truetime.com.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU WRITTEN
INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO MATTERS
NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SHARES OF COMMON STOCK OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE IT WOULD NOT BE PERMITTED OR LEGAL. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE OF THIS PROSPECTUS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF
THIS PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR THE AFFAIRS OF TRUETIME, INC. HAVE NOT CHANGED SINCE THE DATE OF THIS
PROSPECTUS.
53
<PAGE> 58
TRUETIME, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Balance Sheets as of September 30, 1998 and 1999............ F-2
Statements of Operations for the Years Ended September 30,
1997, 1998 and 1999....................................... F-3
Statements of Changes in Stockholder's Equity for the Years
Ended September 30, 1997, 1998 and 1999................... F-4
Statements of Cash Flows for the Years Ended September 30,
1997, 1998 and 1999....................................... F-5
Notes to Financial Statements............................... F-6
</TABLE>
F-i
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
TrueTime, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholder's equity and cash flows present fairly, in
all material respects, the financial position of TrueTime, Inc. (a wholly owned
subsidiary of OYO Corporation U.S.A.) at September 30, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with accounting principles generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
November 2, 1999, except for Note 8, as
to which the date is December 1, 1999
F-1
<PAGE> 60
TRUETIME, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 38,348 $ 3,538,851
Receivables:
Trade accounts, net of allowance of $10,000 at each
date.................................................. 2,945,038 4,270,985
Affiliates............................................. 3,171 42,760
Receivable from Parent.................................... 2,741,589 432,608
Inventories............................................... 4,217,828 5,064,779
Prepaid expenses and other current assets................. 148,655 23,753
Deferred income tax....................................... 220,151 172,791
----------- -----------
Total current assets.............................. 10,314,780 13,546,527
Property and equipment, net................................. 1,003,205 1,128,275
Goodwill, net of accumulated amortization of $188,906 and
$214,682.................................................. 842,327 816,552
----------- -----------
Total assets...................................... $12,160,312 $15,491,354
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.................................... $ 436,547 $ 767,337
Accrued expenses.......................................... 1,237,362 1,971,066
----------- -----------
Total current liabilities......................... 1,673,909 2,738,403
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,000,000 shares issued and outstanding.... 40,000 40,000
Additional paid-in capital................................ 4,689,838 4,689,838
Retained earnings......................................... 5,756,565 8,023,113
----------- -----------
Total stockholder's equity........................ 10,486,403 12,752,951
----------- -----------
Total liabilities and stockholder's equity........ $12,160,312 $15,491,354
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 61
TRUETIME, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................................. $13,893,904 $16,296,604 $20,645,240
Cost of sales......................................... 5,783,298 7,536,409 9,076,137
----------- ----------- -----------
Gross profit.......................................... 8,110,606 8,760,195 11,569,103
Operating expenses:
Selling, general and administrative................. 3,906,323 4,395,159 5,905,203
Research and development............................ 1,854,596 1,873,365 2,155,597
----------- ----------- -----------
Total operating expenses.................... 5,760,919 6,268,524 8,060,800
----------- ----------- -----------
Income from operations................................ 2,349,687 2,491,671 3,508,303
----------- ----------- -----------
Interest and other income (expense):
Interest income..................................... -- 259,824 300,109
Other, net.......................................... 9,972 (10,916) 4,982
----------- ----------- -----------
Total interest and other income, net........ 9,972 248,908 305,091
----------- ----------- -----------
Income before provision for income taxes.............. 2,359,659 2,740,579 3,813,394
Provision for income taxes............................ 963,410 1,121,608 1,546,846
----------- ----------- -----------
Net income............................................ $ 1,396,249 $ 1,618,971 $ 2,266,548
=========== =========== ===========
Weighted average shares outstanding as adjusted for
reincorporation:
Basic and diluted................................... 4,000,000 4,000,000 4,000,000
=========== =========== ===========
Earnings per share:
Basic and diluted................................... $ 0.35 $ 0.40 $ 0.57
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 62
TRUETIME, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Stockholder's equity, October 1,
1996............................... 4,000,000 $40,000 $4,689,838 $2,741,345 $ 7,471,183
Net income......................... -- -- -- 1,396,249 1,396,249
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1997............................. 4,000,000 40,000 4,689,838 4,137,594 8,867,432
Net income......................... -- -- -- 1,618,971 1,618,971
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1998............................. 4,000,000 40,000 4,689,838 5,756,565 10,486,403
Net income......................... -- -- -- 2,266,548 2,266,548
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1999............................. 4,000,000 $40,000 $4,689,838 $8,023,113 $12,752,951
========= ======= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 63
TRUETIME, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,396,249 $1,618,971 $2,266,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes.............................. 47,382 47,531 47,360
Depreciation and amortization...................... 200,123 265,874 342,888
Effects of changes in operating assets and
liabilities:
Receivables...................................... (1,327,617) 127,736 (1,365,536)
Inventories...................................... (777,342) (675,414) (846,951)
Prepaid expenses and other current assets........ 5,917 (35,391) 124,902
Trade accounts payable........................... 275,335 (516,230) 330,790
Accrued expenses................................. 275,953 39,426 733,704
----------- ---------- ----------
Net cash provided by (used in) operating
activities.................................. 96,000 872,503 1,633,705
----------- ---------- ----------
Cash flows from investing activities:
Decrease (increase) in receivable from Parent......... 148,824 (201,936) 2,308,981
Capital expenditures.................................. (244,824) (632,219) (442,183)
----------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. (96,000) (834,155) 1,866,798
----------- ---------- ----------
Increase in cash and cash equivalents................... -- 38,348 3,500,503
Cash and cash equivalents, beginning of period.......... -- -- 38,348
----------- ---------- ----------
Cash and cash equivalents, end of period................ $ -- $ 38,348 $3,538,851
=========== ========== ==========
Supplemental cash flow information:
Noncash settlement of cumulative allocated current
income taxes by offset against receivable from
Parent............................................. $ -- $ -- $4,229,878
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 64
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
TrueTime, Inc. (the "Company") is a wholly owned subsidiary of OYO
Corporation U.S.A. (the "Parent"). The Parent is a wholly owned subsidiary of
OYO Corporation, a Japanese corporation. The Company designs, develops and
manufactures precision time products that are essential components in modern
communications and computer systems. The Company's products are used in its
telecommunications, computer networking and aerospace industries as well as in
various other commercial markets. The Company's products use a variety of
external timing references, including most importantly the Global Positioning
System, together with state-of-the-art clocks to provide high quality signals
(frequencies) and precision time.
The significant accounting policies followed by the Company are summarized
below:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of precision time and frequency
instruments. Revenue is recognized when products are shipped and title has
passed to the customer.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
ALLOCATION OF OPERATING EXPENSES FROM THE PARENT
The Company and the Parent have separate management, operating facilities
and administrative functions and do not conduct shared research and development
activities. The Parent arranges for specific shared services for its
subsidiaries related primarily to accounting, tax and employee benefit matters.
The costs of such shared services are charged directly to the subsidiaries when
the vendor provides a specific subsidiary breakout of the total costs or is
allocated to the subsidiaries based on total revenues or other reasonable
allocation bases. Management believes that the method for allocating the costs
of shared services is reasonable and that such costs allocated to the Company
for all periods presented in the accompanying financial statements are not
materially different from the costs that would have been incurred if the Company
had operated on a stand alone basis.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with an
original or remaining maturity at the time of purchase of three months or less
to be cash equivalents. Subsequent to September 30, 1999, cash and cash
equivalents include amounts held in trust with the Parent as more fully
described in Note 8.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and trade
accounts receivable.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. Management believes the financial strength
of the financial institutions minimizes the credit risk related to such
deposits.
F-6
<PAGE> 65
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company sells products to customers throughout the United States and
various foreign countries. The Company's normal credit terms for trade
receivables are 30 days. In certain situations, credit terms may be extended to
60 days. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Allowances are maintained for estimated
credit losses. The Company's provision for bad debts was none, $13,700 and none
for the years ended September 30, 1997, 1998 and 1999, respectively. The
Company's write off of bad debts against the allowance for doubtful accounts was
none, $13,700 and none for the years ended September 30, 1997, 1998 and 1999,
respectively.
INVENTORIES
Inventories are stated at the lower of cost (as determined by a method that
approximates the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is provided
by the straight-line method over an estimated useful life of 5 years for all
property and equipment except leasehold improvements, which are depreciated over
the shorter of the economic life or the term of the lease.
Expenditures for renewals and betterments are capitalized. Repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and any gain or loss thereon is reflected in operations.
GOODWILL
The Parent acquired the Company in 1991. Goodwill represents the Parent's
purchase price of the Company in excess of the fair values of the Company's
assets and liabilities at the purchase date. Goodwill is amortized to expense
using the straight-line method over an estimated useful life of 40 years.
Goodwill and other long-lived assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount of the
assets may not be recoverable. The impairment review includes comparison of
future cash flows expected to be generated by the Company's operations with the
carrying value of goodwill and other long-lived assets. If the carrying value of
such assets exceeds the expected undiscounted future cash flows, an impairment
loss is recognized to the extent the carrying amount of the assets exceeds their
fair values.
PRODUCT WARRANTIES
The Company sells products under one-year warranties. The estimated future
cost under existing warranties is accrued.
INCOME TAXES
The Company joins in the consolidated U.S. income tax return of the Parent,
which includes all U.S. subsidiaries of the Parent, and in the consolidated
California state income tax return, which includes all subsidiaries that are
included in the consolidated U.S. income tax return. Federal and state income
taxes are provided by the Company as if it filed separate income tax returns.
The Company follows the liability method of accounting for income taxes
whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws. The Company provides a
valuation allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.
F-7
<PAGE> 66
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Finished goods.............................................. $1,030,747 $ 948,393
Work in process............................................. 769,541 1,375,575
Raw materials............................................... 2,417,540 2,740,811
---------- ----------
$4,217,828 $5,064,779
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Machinery and equipment..................................... $1,451,660 $ 1,712,419
Furniture and fixtures...................................... 341,963 342,716
Transportation equipment.................................... 2,142 26,767
Leasehold improvements...................................... 132,716 141,728
---------- -----------
1,928,481 2,223,630
Accumulated depreciation.................................... (925,276) (1,095,355)
---------- -----------
$1,003,205 $ 1,128,275
========== ===========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Employee bonuses............................................ $ 530,331 $ 873,157
Payroll and other compensation.............................. 437,941 725,063
Compensated absences........................................ 230,213 246,984
Product warranty............................................ 12,000 12,000
Legal and professional fees................................. 25,867 26,102
Other accrued expenses...................................... 1,010 87,760
---------- ----------
$1,237,362 $1,971,066
========== ==========
</TABLE>
F-8
<PAGE> 67
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal......................................... $775,564 $ 909,378 $1,269,555
State........................................... 140,464 164,699 229,931
-------- ---------- ----------
916,028 1,074,077 1,499,486
-------- ---------- ----------
Deferred:
Federal......................................... 40,061 40,201 40,051
State........................................... 7,321 7,330 7,309
-------- ---------- ----------
47,382 47,531 47,360
-------- ---------- ----------
$963,410 $1,121,608 $1,546,846
======== ========== ==========
</TABLE>
The differences between the effective tax rate reflected in the total
provision for income taxes and the statutory federal tax rate of 34% were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes at the statutory
rate.............................................. $802,284 $ 931,797 $1,296,554
State income taxes, net of federal income tax
benefit......................................... 147,785 172,029 237,240
Goodwill amortization............................. 8,764 8,764 8,764
Other............................................. 4,577 9,018 4,288
-------- ---------- ----------
Provision for income taxes........................ $963,410 $1,121,608 $1,546,846
======== ========== ==========
Effective income tax rate......................... 40.8% 40.9% 40.6%
======== ========== ==========
</TABLE>
Deferred income taxes under the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred income tax
liabilities and assets were as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................... $ 4,000 $ 4,000
Accrued product warranty.................................. 5,000 5,000
Inventories............................................... 34,390 43,311
Accrued compensated absences.............................. 92,900 99,635
Other..................................................... 85,748 32,560
-------- --------
222,038 184,506
Deferred income tax liability:
Property and equipment.................................... (1,887) (11,715)
-------- --------
Net deferred income tax asset..................... $220,151 $172,791
======== ========
</TABLE>
Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical
F-9
<PAGE> 68
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income record and taxable income available in carryback years,
management believes that the Company will realize the deferred tax assets.
6. STOCKHOLDER'S EQUITY:
Effective November 1, 1999, the Company was reincorporated from California
to Delaware under the name TrueTime, Inc. (also referred to as the "Company").
The reincorporation was accomplished by the issuance of 4,000,000 shares of $.01
par value common stock in a newly formed Delaware corporation to the Parent and
the tax-free merger of the California corporation into the Delaware corporation.
After the reincorporation, the Company has 20,000,000 authorized shares of $.01
par value common stock, of which 4,000,000 issued and outstanding common shares
are owned by the Parent. The accompanying financial statements reflect the
capital structure of the Company after the reincorporation and the assets,
liabilities, total stockholder's equity and results of operations of the
previous California corporation for all dates and periods presented. Earnings
per share information has been computed giving effect to the common shares
outstanding after the reincorporation for all periods presented.
Effective with the reincorporation, the Company has 1,000,000 authorized
shares of $0.01 par value preferred stock. No preferred shares have been issued.
In conjunction with a planned initial public offering, the Company has
filed a registration statement with the Securities and Exchange Commission to
offer 3,000,000 common shares, including 1,500,000 common shares owned by
Parent. The Company has agreed to grant options to the underwriters for the
purchase of up to 450,000 additional common shares to cover over-allotments, if
any. In addition, the Company has agreed to issue warrants to the underwriters
for the purchase of up to 200,000 common shares at an exercise price equal to
110% of the offering price.
The board of directors have established the TrueTime, Inc. 1999 Employee
Stock Plan and the 1999 Non-Employee Director Plan and have reserved an
aggregate of 1,500,000 common shares and 150,000 common shares, respectively,
for issuance thereunder. No stock awards have been granted under either plan.
7. RETIREMENT PLAN:
The Company's employees are participants in a 401(k) plan (the "Plan")
provided by the Parent, which covers substantially all eligible employees in the
United States. The Plan is a qualified salary reduction plan in which all
eligible participants may elect to have a percentage of their compensation
contributed to the Plan, subject to annual limitations. The Company's share of
discretionary contributions was approximately $92,000, $112,000 and $136,000 for
the years ended September 30, 1997, 1998 and 1999, respectively.
8. RELATED PARTY TRANSACTIONS:
Sales to the Parent and other affiliated companies were approximately
$97,000, $40,000 and $52,000 during the years ended September 30, 1997, 1998 and
1999, respectively.
The Company participates in the central cash management system of the
Parent in which the net cash provided or used by operations is transferred to or
from the Parent on a daily basis. Since the implementation of the central cash
management system, the Company's cash flow provided from operating activities
have exceeded capital expenditure and, as a result, the Company has maintained a
receivable from the Parent for the excess that is held in the cash management
system. Beginning October 1, 1997, the Parent implemented a policy of crediting
interest on the receivable balance. Interest credited and added to the
receivable balance was $259,824 and $300,109 for the years ended September 30,
1998 and 1999, respectively. For financial reporting purposes, the receivable
from the Parent represents the
F-10
<PAGE> 69
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cumulative amount of cash contributed to the central cash management system,
plus the interest credited thereon, net of the cumulative amount of current
federal income taxes that have been allocated from the Parent.
On September 30, 1999, the Company and the Parent conducted a partial and
preliminary settlement of the receivable from Parent. On that date, the Parent
formally settled the cumulative amount of allocated current income taxes of
$4,229,878 by offsetting such amount against the receivable from the Parent for
the cumulative amount of cash contributed to the central cash management system.
In addition, the Parent paid the Company $3,500,000 in cash as a partial
settlement of the resulting net receivable balance. At September 30, 1999, after
considering this transaction, the remaining receivable from Parent was $432,608.
In October 1999, the Company transferred $3,500,000 in cash to the Parent
subject to the terms of a Trust Agreement with the Parent. Under the terms of
the Trust Agreement, the Parent acknowledged and agreed that it held $3,500,000,
plus the investment income earned thereon, for the Company's benefit and managed
the trust assets as part of the Parent's other cash management activities. This
action was taken to maximize the return on the Company's assets available for
investment. On December 1, 1999, the Trust Agreement was terminated and the cash
and cash equivalents held in trust in the amount of $3,530,089 were distributed
to the Company.
9. COMMITMENTS:
OPERATING LEASES
The Company leases certain office space and manufacturing facilities under
noncancelable operating leases. For fiscal years ending after September 30,
1999, the approximate future minimum rental commitments under noncancelable
operating leases were as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
2000.................................................... $ 185,000
2001.................................................... 185,000
2002.................................................... 185,000
2003.................................................... 185,000
2004.................................................... 186,000
Thereafter.............................................. 783,000
----------
$1,709,000
==========
</TABLE>
Rent expense for the years ended September 30, 1997, 1998 and 1999, was
approximately $178,000, $191,000 and $353,000, respectively.
10. SEGMENT INFORMATION:
The Company manages its business on a total product-line basis and has one
reportable segment. The product-line and related accounting policies are
described in Note 1.
F-11
<PAGE> 70
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues related to continuing operations in the United States and foreign
countries are presented below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States............................... $11,337,000 $13,445,000 $17,276,000
Foreign:
Europe................................... 1,524,000 1,387,000 1,869,000
Other.................................... 936,000 1,425,000 1,448,000
</TABLE>
All of the Company's long-lived assets related to continuing operations are
located in the United States.
Various branches and agencies of the U.S. Government utilize the Company's
products in varying applications. Total products sales to the U.S. Government
comprised 21%, 23% and 28% of revenues during the years ended September 30,
1997, 1998 and 1999, respectively. Sales to one branch of the U.S. Government
comprised 18% of the Company's revenues for the year ended September 30, 1999.
In addition, sales to a private-sector customer comprised 10% of revenues for
each of the two years in the period ended September 30, 1998.
F-12
<PAGE> 71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
[TRUETIME LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
C.E. UNTERBERG, TOWBIN
CRUTTENDEN ROTH
INCORPORATED
PENNSYLVANIA MERCHANT GROUP
, 1999
UNTIL , 2000, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and other underwriter compensation,
payable by TrueTime in connection with the sale of common stock being
registered. All amounts are estimates except the SEC registration fee, the NASD
filing fees and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration fee..................................... $ 6,714
NASD filing fee.......................................... 2,915
Nasdaq National Market initial listing fee............... 63,725
Printing and engraving................................... 100,000
Legal fees and expenses.................................. 125,000
Accounting fees and expenses............................. 85,000
Directors and Officers Liability Insurance............... 50,000
Blue sky fees and expenses............................... 10,000
Transfer agent fees...................................... 25,000
Miscellaneous............................................ 31,646
--------
Total.......................................... $500,000
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Corporation Law permits a corporation to
include in its charter documents and in agreements between the corporation and
its directors and officers provisions as to the scope of indemnification.
Article 7 of TrueTime's Certificate of Incorporation, to be filed in
connection with this offering, provides for indemnification of officers and
directors to the fullest extent permissible under Delaware law.
Section 52 of TrueTime's By-laws provides for the indemnification of
officers and directors acting on behalf of TrueTime if any such person so
indemnified acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of TrueTime, and, with respect to any criminal
action or proceeding, any such person had no reason to believe his or her
conduct was unlawful.
TrueTime has entered into indemnification agreements with its officers and
directors, in addition to indemnification provided for in TrueTime's By-laws,
and intends to enter into indemnification agreements with any new officers and
directors in the future.
Delaware law permits TrueTime to purchase and maintain insurance on behalf
of any director, officer, employee or agent of TrueTime against any liability
asserted against or incurred by any of them in such capacity or arising out of
the status thereof as such whether or not TrueTime would have the power to
indemnify such director, officer, employee or agent against such liability under
the applicable provisions of Delaware law, the Certificate of Incorporation or
the By-laws.
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the liabilities and expenses arising from his or her service
as such.
II-1
<PAGE> 73
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
TrueTime, Inc. was incorporated in Delaware on October 13, 1999, for the
purpose of effecting this offering. On November 1, 1999, its predecessor
TrueTime, Inc., a California corporation, was merged into TrueTime, Inc., a
Delaware corporation, to accomplish a reincorporation in Delaware. In connection
with such merger the single outstanding share of common stock of TrueTime, Inc.
(a California corporation) was converted into 4,000,000 newly issued shares of
common stock, $.01 par value, of TrueTime, Inc. (a Delaware corporation),
constituting all the outstanding shares thereof. The issuance of such shares
upon the reincorporation of TrueTime, Inc. in Delaware was exempt from the
registration provisions of the Securities Act of 1933 under Section 4(2)
thereof. Such issuance was a transaction not involving any public offering of
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Warrant Agreement and Warrant (to be issued to
the C.E. Unterberg, Towbin).
3.1** -- Certificate of Incorporation of the Registrant.
3.2** -- By-laws of the Registrant.
4.1* -- Specimen Certificate of the Registrant's common stock
(previously filed with Amendment No. 1, but re-filed to
correct inadvertent errors in Exhibit).
4.2 -- See Exhibit 3.1 for provisions of the Registrant's
Certificate of Incorporation defining the rights of the
holders of common stock.
4.3 -- See Exhibit 3.2 for provisions of the Registrant's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Fulbright & Jaworski L.L.P., counsel to the
Registrant.
10.1** -- Form of Indemnification Agreement between the Registrant
and its officers and directors.
10.2** -- TrueTime, Inc. 1999 Key Employee Stock Option Plan.
10.3* -- TrueTime, Inc. 1999 Non-Employee Director Plan
(previously filed with Amendment No. 1, but re-filed to
correct inadvertent errors in Exhibit).
10.4** -- Form of Employment Agreement.
10.5* -- Form of Tax Separation Agreement between the Registrant
and OYO Corporation U.S.A. (previously filed with
Amendment No. 1, but re-filed to correct inadvertent
errors in Exhibit).
10.6** -- Form of Transition Services Agreement between the
Registrant and OYO Corporation U.S.A.
10.7** -- Trust Agreement between the Registrant and OYO
Corporation U.S.A. for the benefit of the Registrant.
10.8** -- Form of Registration Rights Agreement between the
Registrant and OYO Corporation U.S.A.
10.9** -- Standard Industrial Lease between Manor Development Co.
and the Registrant.
21.1 -- List of Subsidiaries of the Registrant -- None.
23.1* -- Consent of PricewaterhouseCoopers LLP, public
accountants.
23.2* -- Consent of Fulbright & Jaworski L.L.P., counsel to the
Registrant. Reference is made to Exhibit 5.1.
</TABLE>
II-2
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.3** -- Consent of named director (Satoru Ohya).
23.4** -- Consent of named director (Charles J. Abbe).
23.5** -- Consent of named director (Charles H. Still).
23.6** -- Consent of named director (A. Robert Towbin).
24.1** -- Power of Attorney. (Reference is made to page II-4 of the
original Registration Statement filed November 3, 1999).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted as the required information
is inapplicable or the information is presented in the Financial Statements or
the related Notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Santa Rosa, State of California, on this 15th day of December, 1999.
TRUETIME, INC.
By /s/ ELIZABETH A. WITHERS
-----------------------------------
Elizabeth A. Withers
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KATSUHIKO KOBAYASHI December 15, 1999
- ----------------------------------------------------- Chairman of the Board
Katsuhiko Kobayashi
/s/ ELIZABETH A. WITHERS President, Chief Executive December 15, 1999
- ----------------------------------------------------- Officer and Director
Elizabeth A. Withers (Principal Executive
Officer)
/s/ MICHAEL P. VON DER PORTEN Vice President and Chief December 15, 1999
- ----------------------------------------------------- Financial Officer (Principal
Michael P. Von der Porten Financial and Accounting
Officer)
/s/ ERNEST M. HALL, JR. December 15, 1999
- ----------------------------------------------------- Director
Ernest M. Hall, Jr.
</TABLE>
II-4
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Warrant Agreement and Warrant (to be issued to
the C.E. Unterberg, Towbin).
3.1** -- Certificate of Incorporation of the Registrant.
3.2** -- By-laws of the Registrant.
4.1* -- Specimen Certificate of the Registrant's common stock
(previously filed with Amendment No. 1, but re-filed to
correct inadvertent errors in Exhibit).
4.2 -- See Exhibit 3.1 for provisions of the Registrant's
Certificate of Incorporation defining the rights of the
holders of common stock.
4.3 -- See Exhibit 3.2 for provisions of the Registrant's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Fulbright & Jaworski L.L.P., counsel to the
Registrant.
10.1** -- Form of Indemnification Agreement between the Registrant
and its officers and directors.
10.2** -- TrueTime, Inc. 1999 Key Employee Stock Option Plan.
10.3* -- TrueTime, Inc. 1999 Non-Employee Director Plan
(previously filed with Amendment No. 1, but re-filed to
correct inadvertent errors in Exhibit).
10.4** -- Form of Employment Agreement.
10.5* -- Form of Tax Separation Agreement between the Registrant
and OYO Corporation U.S.A. (previously filed with
Amendment No. 1, but re-filed to correct inadvertent
errors in Exhibit).
10.6** -- Form of Transition Services Agreement between the
Registrant and OYO Corporation U.S.A.
10.7** -- Trust Agreement between the Registrant and OYO
Corporation U.S.A. for the benefit of the Registrant.
10.8** -- Form of Registration Rights Agreement between the
Registrant and OYO Corporation U.S.A.
10.9** -- Standard Industrial Lease between Manor Development Co.
and the Registrant.
21.1 -- List of Subsidiaries of the Registrant -- None.
23.1* -- Consent of PricewaterhouseCoopers LLP, public
accountants.
23.2* -- Consent of Fulbright & Jaworski L.L.P., counsel to the
Registrant. Reference is made to Exhibit 5.1.
23.3** -- Consent of named director (Satoru Ohya).
23.4** -- Consent of named director (Charles J. Abbe).
23.5** -- Consent of named director (Charles H. Still).
23.6** -- Consent of named director (A. Robert Towbin).
24.1** -- Power of Attorney. (Reference is made to page II-4 of the
original Registration Statement filed November 3, 1999).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
TRUETIME, INC.
3,000,000 SHARES*/
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
December ___, 1999
New York, New York
December ___, 1999
C.E. Unterberg, Towbin
Cruttenden Roth Incorporated
Pennsylvania Merchant Group
As Representatives of the several Underwriters
c/o C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street
22nd Floor
New York, NY 10022
Ladies and Gentlemen:
Subject to the terms and conditions contained in this Agreement,
TrueTime, Inc., a Delaware corporation (the "Company"), proposes to issue and
sell 1,500,000 shares of common stock, par value $.01 per share (the "Common
Stock") of the Company (the "Company Securities") and OYO Corporation U.S.A., a
Texas corporation and sole stockholder of the Company (the "Selling
Stockholder"), proposes to sell 1,500,000 shares of Common Stock of the Company
(the "Stockholder Securities" and, together with the Company Securities, the
"Underwritten Securities") to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives. The Company also proposes to grant to the Underwriters an
option to purchase up to 450,000 additional shares of Common Stock to cover
over-allotments (the "Option Securities" and the Option Securities, together
with the Underwritten Securities, the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires.
The terms which follow, when used in this Agreement, shall have the
meanings indicated.
- -----------------------
*/ Plus an option to purchase from TrueTime, Inc. up to 450,000 additional
shares to cover over-allotments.
1
<PAGE> 2
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Business Day" means any day other than a Saturday, a Sunday or a legal
holiday or a day on which banking institutions or trust companies are authorized
or obligated by law to close in New York City.
"Commission" means the United States Securities and Exchange Commission
(or any successor regulatory agency thereto).
"Effective Date" means each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" means the date and time that this Agreement is
executed and delivered by the parties hereto.
"Preliminary Prospectus" means any preliminary prospectus referred to
in Section 1(a)(1) hereof and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" means the prospectus relating to the Securities that is
first filed pursuant to Rule 424(b) after the Execution Time or, if no filing
pursuant to Rule 424(b) is required, means the form of final prospectus relating
to the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" means the registration statement referred to
in Section 1(a)(1) hereof, including exhibits and financial statements, as
amended at the Execution Time (or, if not effective at the Execution Time, in
the form in which it shall become effective) and, in the event any
post-effective amendment thereto or any Rule 462(b) Registration Statement
becomes effective prior to the Closing Date, also means such registration
statement as so amended or any Rule 462(b) Registration Statement, as the case
may be. Such term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462(b)" refer to such rules under the
Act.
"Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" means a registration statement and
any amendments hereto filed pursuant to Rule 462(b) relating to the offering
covered by the registration statement referred to in Section 1(a)(1) hereof.
2
<PAGE> 3
"Warrant Agreement" means that certain Warrant Agreement dated as of
even date, between the Company and C.E. Unterberg, Towbin.
"Warrants" mean the 200,000 warrants to purchase 200,000 shares of the
Company's Common Stock issued pursuant to the Warrant Agreement.
1. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Selling Stockholder jointly and
severally represent and warrant to, and agree with, each Underwriter as
set forth below in this Section 1(a).
(1) The Company has filed with the Commission a
Registration Statement (file number 333-90269) on Form S-1,
including a related preliminary prospectus, for the
registration under the Act, of the offering and sale of the
Securities. The Company may have filed one or more amendments
thereto, including a related preliminary prospectus, each of
which has previously been furnished to you. The Company will
next file with the Commission either (A) prior to the
Effective Date of such Registration Statement, a further
amendment to such Registration Statement (including the form
of final prospectus) or (B) after the Effective Date of such
Registration Statement, (x) a final prospectus in accordance
with Rules 430A and 424(b) and (y) if required to do so, a
Registration Statement filed pursuant to Rule 462(b). In the
case of clause (B), the Company has included in such
Registration Statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the
Act and the rules thereunder to be included in such
Registration Statement and the Prospectus. As filed, such
amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together
with all other such required information, and, except to the
extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company
has advised you, prior to the Execution Time, will be included
or made therein.
(2) On the Effective Date, the Registration Statement
did or will, when the Prospectus is first filed (if required)
in accordance with Rule 424(b), and on the Closing Date (as
defined in Section 3 hereof) and on any date on which Option
Securities are purchased, if such date is not the Closing Date
(a "settlement date"), the Prospectus (and any supplements
thereto) will comply in all material respects with the
applicable requirements of the Act and the rules thereunder.
On the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the
Effective Date, the
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<PAGE> 4
Prospectus, if not filed pursuant to Rule 424(b), will not,
and on the date of any filing pursuant to Rule 424(b) and on
the Closing Date and any settlement date, the Prospectus
(together with any supplement thereto) will not include any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company
and the Selling Stockholder make no representations or
warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Company by or on
behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(3) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware and has full corporate power and
authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(4) The Company's authorized equity capitalization is
as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description
thereof contained in the Prospectus; the outstanding shares of
Common Stock have been duly and validly authorized and issued
and are fully paid and nonassessable; the Securities being
sold hereunder by the Company have been duly and validly
authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities have been duly
authorized for listing and trading, subject to official notice
of issuance, on the Nasdaq National Market; the certificates
for the Securities and the Warrants are in valid and
sufficient form; the holders of outstanding shares of capital
stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities and, except as set
forth in the Prospectus, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or
rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership
interests in the Company are outstanding.
(5) The Company does not have any subsidiaries, does
not directly or indirectly own any capital stock or other
equity interests in any corporation, partnership or other
entity and is not a member of or a participant in any
partnership, joint venture or similar entity.
(6) There is no franchise, contract or other document
of a character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit thereto,
which is not described or filed as required.
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<PAGE> 5
(7) This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable in accordance
with its terms.
(8) The Company is not and, after giving effect to
the offering and sale of the Securities and the application of
the proceeds thereof as described in the Prospectus, will not
be an "investment company" as defined in the Investment
Company Act of 1940, as amended (the "Investment Company
Act").
(9) No consent, approval, authorization, filing with
or order of any court or governmental agency or body is
required in connection with the transactions contemplated
herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(10) Neither the issuance and sale of the Securities
nor the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict with, or result in a breach or violation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (A) the charter
or by-laws of the Company, (B) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant
or instrument to which the Company is a party or bound or to
which its property is subject, or (C) any statute, law, rule,
regulation, judgment, order or decree applicable to the
Company of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties.
(11) Except for the Selling Stockholder and C.E.
Unterberg, Towbin, no holder of securities of the Company has
any right to the registration of such securities under the
Registration Statement.
(12) The consolidated financial statements and
schedules of the Company included in the Prospectus and the
Registration Statement present fairly in all material respects
the financial condition, results of operations and cash flows
of the Company as of the dates and for the periods indicated,
comply as to form with the applicable accounting requirements
of the Act and the rules and regulations thereunder and have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein). The
selected financial data set forth under the caption "Selected
Financial Data" in the Prospectus and Registration Statement
fairly present, on the basis stated in the Prospectus and the
Registration Statement, the information included therein.
(13) No action, suit or proceeding by or before any
court or
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<PAGE> 6
governmental agency, authority or body or any arbitrator
involving the Company or its property is pending or, to the
best knowledge of the Company, threatened that (A) could
reasonably be expected to have a material adverse effect on
the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (B) could
reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, whether or not arising
from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive
of any supplement thereto).
(14) The Company owns or leases all such properties
as are necessary to the conduct of its operations as presently
conducted.
(15) The Company is not in violation or default of
any provision of its charter or by-laws, and is not in
violation or default of (A) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant
or instrument to which it is a party or bound or to which its
property is subject, or (B) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory
body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of
its properties; that could have a material adverse effect on,
in the case of any violation or default covered by clauses (A)
and (B) above, (i) the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or
(ii) the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(16) PricewaterhouseCoopers LLP, who have certified
certain financial statements of the Company and delivered
their report with respect to the audited consolidated
financial statements and schedules included in the Prospectus,
are independent public accountants with respect to the Company
within the meaning of the Act and the applicable published
rules and regulations thereunder.
(17) There are no transfer taxes or other similar
fees under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in
connection with the execution and delivery of this Agreement
or the issuance by the Company or sale by the Company of the
Securities.
(18) The Company has filed all foreign, Federal,
state and local tax returns that are required to be filed or
has requested extensions thereof (except in any case in which
the failure so to file would not have a material adverse
effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, whether or
not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto)) and has paid
all taxes required to be paid by it and any
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<PAGE> 7
other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently
being contested in good faith or as would not have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(19) No labor problem or dispute with the employees
of the Company exists or is threatened or, to the knowledge of
the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any
of its principal suppliers or contractors that could have a
material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
(20) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in
which it is engaged; all policies of insurance and fidelity or
surety bonds insuring the Company or its business, assets,
employees, or officers and directors are in full force and
effect; the Company is in compliance with the terms of such
policies and instruments in all material respects; and there
are no claims by the Company under any such policy or
instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause;
the Company has not been refused any insurance coverage sought
or applied for; and the Company does not have any reason to
believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not
have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
(21) The Company possesses all licenses,
certificates, permits and other authorizations issued by the
appropriate Federal, state or foreign regulatory authorities
necessary for the ownership or lease of its properties and the
conduct of its business the failure of which to possess could
have a material adverse effect on (i) the performance of this
Agreement or the consummation of any of the transactions
contemplated hereby or (ii) the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto). The Company
has not received any notice of proceedings relating to the
revocation or modification of any such license, certificate,
permit or authorization which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
7
<PAGE> 8
would have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or
properties of the Company, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(22) The Company is not in violation of any Federal
or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of
hazardous or toxic materials, which violation could have a
material adverse effect on (i) the performance of this
Agreement or the consummation of any of the transactions
contemplated hereby or (ii) the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto). The Company
has received all permits, licenses or other approvals required
of it under applicable Federal and state occupational safety
and health and environmental laws and regulations to conduct
its business, and the Company is in compliance with all terms
and conditions of any such permit, license or approval, except
any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses
or approvals which would not, singly or in the aggregate, have
a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
(23) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with
management's general or specific authorizations, (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability,
(C) access to assets is permitted only in accordance with
management's general or specific authorization, and (D) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(24) The Company has not taken, directly or
indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result, under
the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(25) The Company owns or has obtained licenses for
the patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, copyrights,
licenses, inventions, trade secrets, technology, know-how and
other intellectual property referenced or described in the
Prospectus as being owned by or licensed to it (collectively,
the "Intellectual Property") the failure of
8
<PAGE> 9
which to own or to have obtained could have a material adverse
effect on (i) the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or
(ii) the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto). There is no (A) third party with rights
to any such Intellectual Property, whose rights could have a
material adverse effect on (i) the performance of this
Agreement or the consummation of any of the transactions
contemplated hereby or (ii) the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto), (B) material
infringement by third parties of any such Intellectual
Property, which could have a material adverse effect on (i)
the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (ii) the condition
(financial or otherwise), prospects, earnings, business or
properties of the Company, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto), (C) pending or threatened action, suit, proceeding
or claim by others challenging the Company's rights in or to
any such Intellectual Property, and the Company is unaware of
any facts which would form a reasonable basis for any such
claim, (D) pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such
Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim, (E)
pending or threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any
patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of
any other fact which would form a reasonable basis for any
such claim, (F) U.S. patent or published U.S. patent
application which contains claims that dominate or may
dominate any Intellectual Property described in the Prospectus
as being owned by or licensed to the Company or that
interferes with the issued or pending claims of any such
Intellectual Property, which could have a material adverse
effect on (i) the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or
(ii) the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto) and (G) prior art of which the Company is
aware that may render any U.S. patent held by the Company
invalid or any U.S. patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent
and Trademark Office. The Company owns, possesses, licenses or
has other rights to use, on reasonable terms, all Intellectual
Property necessary for the conduct of the Company's business
as now conducted or as proposed in the Prospectus to be
conducted the failure of which to own, possess, license or
have other rights could have a material adverse effect on (i)
the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (ii) the condition
(financial or otherwise), prospects, earnings, business or
properties of the Company, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
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<PAGE> 10
(26) The Company has implemented a comprehensive,
detailed program to analyze and address the risk that the
computer hardware and software used by it may be unable to
recognize and properly execute date-sensitive functions
involving certain dates prior to and any dates after December
31, 1999 (the "Year 2000 Problem"), and has determined that
such risk will be remedied on a timely basis without material
expense and will not have a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
business or properties of the Company; and the Company
believes, after due inquiry, that each supplier, vendor,
contractor or financial service organization used or served by
the Company has remedied or will remedy on a timely basis the
Year 2000 Problem, except to the extent that a failure to
remedy by any such supplier, vendor, contractor, or financial
service organization would not have a material adverse effect
on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company. The Company
has complied with the disclosure guidelines of Release No.
33-7558 under the Act, dated July 29, 1998, related to Year
2000 compliance where the failure to be in such compliance
could have a material adverse effect on (i) the performance of
this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(27) Except as described in the Prospectus, the
Company does not maintain any plan or arrangement, other than
the Company's medical and dental insurance and reimbursement
plans, that is subject to the provisions of, or that provides
any benefits described in, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and
published interpretations thereunder.
(28) The Warrant Agreement has been duly authorized
by the Company and, when duly executed and delivered by the
Company, will constitute a valid and binding obligation of the
Company enforceable in accordance with its terms; the Warrants
will conform in all material respects to the description of
the Warrants in the Prospectus and in the Warrant Agreement;
the Warrants to be issued by the Company to the Representative
pursuant to the Warrant Agreement have been duly and validly
authorized and, when duly executed, issued and delivered as
contemplated by the Warrant Agreement will be duly and validly
issued and will constitute the valid and binding obligations
of the Company, entitled to the benefits of the Warrant
Agreement and enforceable in accordance with their terms.
(29) When the Securities are delivered and paid for
pursuant to this Agreement on the Closing Date, the Warrants
will be exercisable for shares of Common Stock of the Company
("Warrant Shares") in accordance with their terms at any time
or from time to time after [DECEMBER ____, 2000]; the Warrant
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<PAGE> 11
Shares initially issuable upon the exercise of such Warrants
have been duly authorized and reserved for issuance upon such
exercise in accordance with the terms of the Warrants and,
when issued upon such exercise, will be validly issued, fully
paid and nonassessable; and the stockholders of the Company
have no preemptive rights with respect to the Warrant Shares.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.
(b) The Selling Stockholder represents and warrants to, and
agrees with, each Underwriter as set forth below in this Section 1(b).
(1) The Selling Stockholder is the lawful owner of
the Stockholder Securities to be sold to the several
Underwriters and the Selling Stockholder will convey to the
Underwriters good and marketable title to such Stockholder
Securities, free and clear of all liens, encumbrances,
equities and claims whatsoever.
(2) The Selling Stockholder has not taken, directly
or indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result,
under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(3) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by the Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained
under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such
other approvals as have been obtained.
(4) None of the sale of the Stockholder Securities or
the consummation of any other of the transactions herein
contemplated by the Selling Stockholder or the fulfillment of
the terms hereof by the Selling Stockholder will conflict
with, result in a breach or violation of, or constitute a
default under any law or the charter or by-laws of the Selling
Stockholder or the terms of any indenture or other agreement
or instrument to which the Selling Stockholder or any of its
subsidiaries is a party or bound, or any judgment, order or
decree applicable to the Selling Stockholder or any of its
subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction
over the Selling Stockholder or any of its subsidiaries.
Any certificate signed by the Selling Stockholder, or any officer of
the Selling Stockholder, and delivered to the Representative or counsel for the
Underwriters in connection
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<PAGE> 12
with the offering of the Securities shall be deemed a representation and
warranty by the Selling Stockholder, as to matters covered thereby, to each
Underwriter.
(2) PURCHASE AND SALE.
(a) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company and
the Selling Stockholder agree, severally and not jointly, to sell to
each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company and the Selling Stockholder, at a
purchase price of [$_____] per share, the amount of the Underwritten
Securities set forth opposite such Underwriter's name in Schedule I
hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally and
not jointly, up to 450,000 shares of Option Securities at the same
purchase price per share as the Underwriters shall pay for the
Underwritten Securities. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Securities by the
Underwriters. Said option may be exercised in whole or in part at any
time on or before the 30th day after the date of the Prospectus upon
written or telegraphic notice by the Representative to the Company
setting forth the number of shares of Option Securities as to which the
several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option Securities, and
payment therefor, shall be made as provided in Section 3 hereof. The
number of shares of the Option Securities to be purchased by each
Underwriter shall be the same percentage of the total number of shares
of the Option Securities to be purchased by the several Underwriters as
such Underwriter is purchasing of the Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate
any fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 A.M., New York City time, on [DECEMBER
___, 1999], or at such time on such later date not more than three Business Days
after the foregoing date as the Representative shall designate, which date and
time may be postponed by agreement between the Representative and the Company or
as provided in Section 9 hereof (such date and time of delivery and payment for
the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representative for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representative of the respective aggregate purchase prices of the Securities
being sold by the Company and the Selling Stockholder to or upon the order of
the Company or the Selling Stockholder by wire transfer payable in same day
funds to the accounts specified by the Company and the Selling Stockholder.
Delivery of the Underwritten Securities and the Option Securities shall be made
through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
The Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the
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<PAGE> 13
transfer to the several Underwriters of the Stockholder Securities to be
purchased by them from the Selling Stockholder and the respective Underwriters
will pay any additional stock transfer taxes involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives on the
date specified by the Representative (which shall be within three Business Days
after exercise of said option), against payment by the several Underwriters
through the Representatives thereof to or upon the order of the Company by wire
transfer payable in same day funds to the accounts specified by the Company.
Delivery of the Option Securities shall be made through facilities of The
Depository Trust Company unless the Representatives shall otherwise instruct. If
settlement for the Option Securities occurs after the Closing Date, the Company
will deliver to the Representatives on the settlement date for the Option
Securities, and the obligation of the Underwriters to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. AGREEMENTS.
(a) The Company agrees with the several Underwriters that:
(1) The Company will use its best efforts to cause
the Registration Statement, if not effective at the Execution
Time, and any amendment thereof, to become effective. Prior to
the termination of the offering of the Securities, the Company
will not file any amendment of the Registration Statement or
supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your
review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under
Rule 424(b), the Company will cause the Prospectus, properly
completed, and any supplement thereto to be filed with the
Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The
Company will promptly advise the Representatives (i) when the
Registration Statement, if not effective at the Execution
Time, shall have become effective, (ii) when the Prospectus,
and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b) or when
any Rule 462(b) Registration Statement shall have been filed
with the Commission, (iii) when, prior to termination of the
offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (iv) of
any request by the Commission or its staff for any amendment
of the Registration
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<PAGE> 14
Statement, or any Rule 462(b) Registration Statement, or for
any supplement to the Prospectus or of any additional
information, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding
for that purpose and (vi) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the
issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible
the withdrawal thereof.
(2) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any
event occurs as a result of which the Prospectus as then
supplemented would include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be
necessary to amend the Registration Statement or supplement
the Prospectus to comply with the Act or the rules thereunder,
the Company promptly will (A) notify the Representatives of
any such event, (B) prepare and file with the Commission,
subject to the second sentence of Section 5(a)(1), an
amendment or supplement which will correct such statement or
omission or effect such compliance and (C) supply any
supplemented Prospectus to you in such quantities as you may
reasonably request.
(3) As soon as practicable, the Company will make
generally available to its security holders and to the
Representatives an earnings statement or statements of the
Company which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act.
(4) The Company will furnish to the Representatives
and counsel for the Underwriters, without charge, signed
copies of the Registration Statement (including exhibits
thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long
as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as
the Representatives may reasonably request.
(5) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of
such jurisdictions as the Representatives may designate and
will maintain such qualifications in effect so long as
required for the distribution of the Securities.
(6) The Company will not, for a period of one year
following the Execution Time, without the prior written
consent of C.E. Unterberg, Towbin, offer, sell, contract to
sell, pledge or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to,
result in the disposition
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<PAGE> 15
(whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the
Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company)
directly or indirectly, including the filing (or participation
in the filing) of a registration statement with the Commission
in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position
within the meaning of the rules promulgated under Section 16
of the Exchange Act with respect to, any other shares of
Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock, or publicly announce
an intention to effect any such transaction; provided,
however, that the Company may issue and sell Common Stock
pursuant to any employee or director stock option plan, stock
ownership plan or dividend reinvestment plan of the Company
described in the Prospectus, the Company may issue Common
Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at the Execution Time and,
after 180 days following the Execution Time, the Company may
issue Common Stock in connection with (A) any acquisition of
any business or property and (B) any underwritten offering of
Common Stock.
(7) The Company will not take, directly or
indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result, under
the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the company to
facilitate the sale or resale of the Securities.
(8) The Company and the Selling Stockholder jointly
and severally agree to pay the costs and expenses relating to
the following matters: (A) the preparation, printing or
reproduction and filing with the Commission of the
Registration Statement (including financial statements and
exhibits thereto), each Preliminary Prospectus, the
Prospectus, and each amendment or supplement to any of them;
(B) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, and all amendments or
supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering
and sale of the Securities; (C) the preparation, printing,
authentication, issuance and delivery of certificates for the
Securities, including any stamp or transfer taxes in
connection with the original issuance and sale of the
Securities; (D) the printing (or reproduction) and delivery of
this Agreement, any blue sky memorandum and all other
agreements or documents printed (or reproduced) and delivered
in connection with the offering of the Securities; (E) the
registration of the Securities under the Exchange Act and the
listing of the Securities on the Nasdaq National Market; (F)
any registration or qualification of the Securities for offer
and sale under the securities or blue sky laws of the several
states (including filing fees and the reasonable fees and
expenses of counsel for the Underwriters relating to such
registration and qualification); (G) any filings required to
be made with the National Association of Securities Dealers,
Inc. (including filing fees and the
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<PAGE> 16
reasonable fees and expenses of counsel for the Underwriters
relating to such filings); (H) the transportation and other
expenses incurred by or on behalf of Company representatives
in connection with presentations to prospective purchasers of
the Securities; (I) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including
local and special counsel) for the Company and the Selling
Stockholder; and (J) all other costs and expenses incident to
the performance by the Company and the Selling Stockholder of
their obligations hereunder. The Company and the Selling
Stockholder may agree, as among themselves and without
limiting the rights of the Underwriters under this Section
5(a)(8), as to the respective amounts of such costs and
expenses for which they each shall be responsible.
(b) The Selling Stockholder agrees with the several
Underwriters that:
(1) The Selling Stockholder will not, for a period of
one year following the Execution Time, without the prior
written consent of C.E. Unterberg, Towbin, offer, sell,
contract to sell, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or could be
expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash
settlement or otherwise) by the Selling Stockholder or by the
Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company)
directly or indirectly, including the filing (or participation
in the filing) of a registration statement with the Commission
in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position
within the meaning of the rules promulgated under Section 16
of the Exchange Act with respect to, any shares of capital
stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction,
other than shares of Common Stock disposed of as bona fide
gifts approved by C.E. Unterberg, Towbin.
(2) The Selling Stockholder will not take any action
designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale
of the Securities.
(3) The Selling Stockholder will advise you promptly,
and if requested by you, will confirm such advice in writing,
so long as delivery of a prospectus relating to the Securities
by an underwriter or dealer may be required under the Act, of
(A) any material change in the Company's condition (financial
or otherwise), prospects, earnings, business or properties,
(B) any change in information in the Registration Statement or
the Prospectus relating to the Selling Stockholder or (C) any
new material information relating to the Company or relating
to any matter stated in the Prospectus which comes to the
attention of the Selling Stockholder.
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<PAGE> 17
(4) The Selling Stockholder will comply with the
agreement contained in Section 5(a)(8).
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the Underwriters to purchase the Underwritten Securities and the Allotment
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholder contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Stockholder made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become
effective not later than (i) 6:00 PM New York City time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 PM New York City time on such date or (ii)
9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Representatives
the opinion of Fulbright & Jaworski, L.L.P., counsel for the Company,
dated the Closing Date and addressed to the Representatives, to the
effect that: (1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has full corporate power and authority to own or lease,
as the case may be, and to operate its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification; (2) the
Company's authorized equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable; the
Securities being sold hereunder by the Company have been duly and
validly authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Company has been notified by the Nasdaq National
Market that the Securities are duly approved for quotation, subject to
official notice of issuance, on the Nasdaq National Market; the
certificates for the Securities are in valid and sufficient form; and
the holders of outstanding shares of capital stock of the Company are
not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, to the
knowledge of such counsel, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to
17
<PAGE> 18
convert any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company are outstanding;
(3) to the knowledge of such counsel, there is no pending or threatened
action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or
its property of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; (4) the Registration Statement has
become effective under the Act; any required filing of the Prospectus,
and any supplements thereto pursuant to Rule 424(b), has been made in
the manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial information contained therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules thereunder;
(5) this Agreement has been duly authorized, executed and delivered by
the Company; (6) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act; (7) no consent,
approval, authorization, filing with or order of any court or
governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated in this
Agreement and in the Prospectus and such other approvals (specified in
such opinion) as have been obtained; (8) to the knowledge of such
counsel, the Company is not in violation of its charter or by-laws; (9)
none of the issuance and sale of the Securities, the issuance of the
Warrants, the consummation of any other of the transactions herein
contemplated or the fulfillment of the terms hereof will conflict with,
result in a breach or violation of, or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to,
(A) the charter or by-laws of the Company, (B) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition or covenant or
instrument to which the Company is a party or bound or to which its
property is subject, which is included as an exhibit to the
Registration Statement or of which such counsel has knowledge, or (C)
any statute, law, rule, or regulation, or (D) to the knowledge of such
counsel, any judgment, order or decree applicable to the Company of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or
any of its properties; and (10) to the knowledge of such counsel,
except the Selling Stockholder and C.E. Unterberg, Towbin, no holders
of securities of the Company have rights to the registration of such
securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States of
Texas, California and New York,
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<PAGE> 19
the General Corporation Law of the State of Delaware or the Federal laws of the
United States, to the extent they deem proper and specified in such opinion,
upon the opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters and (B) as to
matters of fact, to the extent they deem proper, on the representations and
warranties of the Company contained in this Agreement, certificates of
responsible officers of the Company contemplated by this Agreement and
certificates of responsible officers of the Company and the Selling Stockholder
and public officials. References to the Prospectus in this paragraph (b) include
any supplements thereto at the Closing Date.
In addition to the foregoing opinion, the Company shall have furnished
to the Representatives a letter from Fulbright & Jaworski L.L.P., counsel to the
Company, which may be a separate part of the letter in which such opinion is
incorporated (but which shall not be regarded as an opinion of such counsel) to
the following effects. Such counsel may state they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, and they
have not independently verified the accuracy, completeness or fairness of such
statements. Without limiting the foregoing, such counsel may state that they
assume no responsibility for and have not independently verified the accuracy,
completeness or fairness of the financial statements or any financial or
statistical data included in the Registration Statement and the Prospectus, and
they have not examined the accounting, financial or other records or sources
from which such statements and data are derived. Such counsel may state that
although certain portions of the Registration Statement and the Prospectus have
been included therein on the authority of "experts" within the meaning of the
Securities Act, they are not experts with respect to any portion of the
Registration Statement or the Prospectus. However, such counsel shall state that
they have participated in conferences with officers, legal counsel and other
representatives of the Company, representatives of the independent accountants
of the Company and with representatives of, and legal counsel for, the
Underwriters, at which the contents of the Registration Statement and Prospectus
and related matters were discussed. Such counsel shall state that they have also
reviewed certain corporate documents furnished to them by the Company or
obtained from public officials. Based on such participation and review (relying
as to materiality to a certain extent upon the officers and the other
representatives of the Company), and subject to the limitation described above,
such counsel shall advise the Underwriters that no facts have come to their
attention that cause them to believe that the Registration Statement at the time
it became effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date or as
of the date of such letter, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) The Selling Stockholder shall have furnished to the
Representatives the opinion of Fulbright & Jaworski, L.L.P., counsel
for the Selling Stockholder, dated the Closing Date and addressed to
the Representatives, to the effect that:
(1) this Agreement has been duly authorized, executed
and delivered by the Selling Stockholder, and the Selling
Stockholder has full legal right and
19
<PAGE> 20
authority to sell, transfer and deliver in the manner provided
in this Agreement the Stockholder Securities;
(2) assuming that the Underwriters are "protected
purchasers" written the meaning of Sections 8-303 and 8-302 of
the New York Uniform Commercial Code ("NYUCC"), upon delivery
of the Stockholder Securities in certificated form registered
in the Selling Stockholder's name to the Underwriters in the
State of New York so that they have control of such
securities, the Underwriters will acquire all of the Selling
Stockholder's rights in the Stockholder Securities free of any
adverse claims (within the meaning of Sections 8-303 and
8-102(a)(12) of the NYUCC);
(3) no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by the Selling Stockholder of the transactions
contemplated herein, except such as may be have been obtained
under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such
other approvals (specified in such option) as have been
obtained; and
(4) none of the sale of the Stockholder Securities or
the consummation of any other of the transactions herein
contemplated by the Selling Stockholder or the fulfillment of
the terms hereof by the Selling Stockholder will conflict
with, result in a breach or violation of, or constitute a
default under any law or the charter or by-laws of the Selling
Stockholder or the terms of any indenture or other agreement
or instrument known to such counsel and to which the Selling
Stockholder or any of its subsidiaries is a party or bound, or
any judgment, order or decree known to such counsel to be
applicable to the Selling Stockholder or any of its
subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction
over the Selling Stockholder or any of its subsidiaries.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other
than the States of Texas, California and New York, the General
Corporation Law of the State of Delaware or the Federal laws of the
United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters, and (B) as to matters of fact, to the extent they deem
proper, on the representations and warranties of the Selling
Stockholder contained in this Agreement, certificates of responsible
officers of the Selling Stockholder contemplated by this Agreement and
certificates of responsible officers of the Selling Stockholder and
public officials.
(d) The Representatives shall have received from Akin, Gump,
Strauss, Hauer & Feld, L.L.P, counsel for the Underwriters, such
opinion or opinions, dated the Closing Date and addressed to the
Representatives, with respect to the issuance and sale of the
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<PAGE> 21
Securities, the Registration Statement, the Prospectus (together with
any supplement thereto) and other related matters as the
Representatives may reasonably require, and the Company and the Selling
Stockholder shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(1) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing
Date;
(2) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's
knowledge, threatened; and
(3) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse change
in the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, whether or
not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(f) The Selling Stockholder shall have furnished to the
Representatives a certificate, signed by the Chairman of the Board or
the President and the principal financial or accounting officer of the
Selling Stockholder, dated the Closing Date, to the effect that the
signer or signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that the representations and
warranties of the Selling Stockholder in this Agreement are true and
correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date.
(g) At the Execution Time and at the Closing Date,
PricewaterhouseCoopers LLP shall have furnished to the Representatives
letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants of
the Company within the meaning of the Act and the applicable published
rules and regulations adopted by the Commission thereunder and stating
in effect that:
(1) in their opinion the audited financial statements
and financial statement schedules included in the Registration
Statement and the Prospectus
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<PAGE> 22
and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the
Act and the related published rules and regulations adopted by
the Commission;
(2) on the basis of a reading of the latest unaudited
financial statements made available by the Company; carrying
out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which
would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of
the minutes of the meetings of the stockholders, directors and
the audit and compensation committees of the Company; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company as to transactions and events subsequent to September
30, 1999, nothing came to their attention which caused them to
believe that:
(i) with respect to the period subsequent to
September 30, 1999, there were any changes, at a
specified date not more than five days prior to the
date of the letter, in the total liabilities of the
Company or capital stock of the Company or increases
in the stockholders' deficit of the Company or
decreases in working capital (or increases in working
capital deficit, as the case may be) of the Company
as compared with the amounts shown on the September
30, 1999, consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the
period from October 1, 1999 to such specified date
there were any decreases, as compared with the
corresponding period in the preceding year in
revenues or gross profit, or for the period from
October 1, 1999 to such specified date there were any
increases, as compared with the corresponding period
in the preceding year, in loss from operations or net
loss or in per share amounts of net loss of the
Company, except in all instances for changes or
increases or decreases set forth in such letter, in
which case the letter shall be accompanied by an
explanation by the Company as to the significance
thereof unless said explanation is not deemed
necessary by the Representatives; or
(ii) the information included in the
Registration Statement and Prospectus in response to
Regulation S-K, Item 301 (Selected Financial Data),
Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) is not in
conformity with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other
specified procedures as a result of which they
determined that certain information of an accounting,
financial or statistical nature (which is limited to
accounting, financial or statistical information
derived from the general accounting records of the
Company) set forth in the Registration Statement and
the Prospectus, including the information set forth
under the captions "Summary Financial
22
<PAGE> 23
Information", "Dilution", "Capitalization", "Selected
Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of
Operations", "Business", "Management", and "Certain
Transactions" in the Prospectus, agrees with the
accounting records of the Company, excluding any
questions of legal interpretation.
References to the Prospectus in this paragraph (h) include any
supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(h) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company, whether or
not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto) the effect of which, in any case referred to in
clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(i) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto from each officer, director stockholder and option holder of the
Company addressed to the Representatives.
(j) The Company shall have caused the Securities to be
eligible for trading on the Nasdaq National Market upon issuance, and
satisfactory evidence thereof shall have been provided to the
Representatives.
(k) At the time of Closing, the Company shall have executed
and delivered the Warrant Agreement to the Representatives.
(l) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
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<PAGE> 24
The documents required to be delivered by this Section 6 shall be
delivered at the office of Akin, Gump, Strauss, Hauer & Feld, L.L.P, counsel for
the Underwriters, at 1900 Pennzoil Place, 711 Louisiana Street, Houston, Texas,
on the Closing Date.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If, for any reason, the
Company or the Selling Stockholder elects not to complete the offering of the
Securities, the Company will reimburse the Underwriters severally through C.E.
Unterberg, Towbin up to $150,000 for expenses incurred in such offering.
However, if the reasons for not completing the offering of the Securities cannot
reasonably be attributed to the Company or the Selling Stockholder, then the
Company will not be required to reimburse expenses of the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Stockholder jointly and
severally agree to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each
person who controls any Underwriter within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement for the registration of the Securities as originally filed or
in any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arise out of or are
based upon any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner
to, the Common Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered above,
and agrees to reimburse each such indemnified party, as incurred, for
any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that (i) the Company and the Selling
Stockholder will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion
therein and (ii) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or any
director, officer, employee or agent of such Underwriter or any person
controlling such Underwriter) from whom the person asserting any such
loss, claim, damage or liability purchased the Securities that are the
subject thereof if such person did not receive a copy of the Prospectus
(or the Prospectus as supplemented) excluding documents incorporated
therein by reference at or prior to the confirmation of the sale of
such Securities to such person in any case where such delivery is
required under the Act and any untrue
24
<PAGE> 25
statement or omission of a material fact contained in any Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as
supplemented). This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholder may otherwise
have.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each
person who is named in the Registration Statement as about to become a
director, each of its officers who signs the Registration Statement,
and each person who controls the Company within the meaning of either
the Act or the Exchange Act and the Selling Stockholder, to the same
extent as the foregoing indemnity from the Company and the Selling
Stockholder to each Underwriter, but only with reference to written
information relating to such Underwriter or the "Underwriting" section
of the Prospectus furnished to the Company by or on behalf of such
Underwriter through the Representatives specifically for inclusion in
the documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any Underwriter
may otherwise have. The Company and the Selling Stockholder acknowledge
that the statements set forth under the heading "Underwriting" (and as
they are repeated or summarized elsewhere in the Prospectus) constitute
the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
in writing of the commencement thereof; but the failure so to notify
the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, Gin any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying
party shall be entitled to appoint counsel of the indemnifying party's
choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case
the indemnifying party shall not thereafter be responsible for the fees
and expenses of any separate counsel retained by the indemnified party
or parties except as set forth below); provided, however, that such
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local
counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have
25
<PAGE> 26
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company and the
Selling Stockholder, jointly and severally, and the Underwriters
severally agree to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively
"Losses") to which the Company, the Selling Stockholder and one or more
of the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and by the Underwriters on the
other from the offering of the Securities; provided, however, that in
no case shall any Underwriter (except as may be provided in any
agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the
Selling Stockholder, jointly and severally, and the Underwriters
severally shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of
the Company and the Selling Stockholder on the one hand and of the
Underwriters on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company shall be
deemed to be equal to the total net proceeds from the offering (before
deducting expenses) as set forth on the cover page of the Prospectus,
benefits received by each Selling Stockholder shall be deemed to be
equal to the aggregate purchase price of the Stockholder Securities
sold by the Selling Stockholder and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting
discounts and commissions as set forth on the cover page of the
Prospectus. Relative fault shall be determined by reference to, among
other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information provided by the Company or the Selling
Stockholder on the one hand or the Underwriters on the other, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement
or omission. The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation
which does not take account of the equitable considerations referred to
above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the
26
<PAGE> 27
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The liability of the Selling Stockholder under the Selling
Stockholder's representations and warranties contained in Section 1
hereof and under the indemnity and contribution agreements contained in
this Section 8 shall be limited to an amount equal to the aggregate
purchase price of the Stockholder Securities sold by the Selling
Stockholder to the Underwriters. The Company and the Selling
Stockholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective
amounts of such liability for which they each shall be responsible.
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Stockholder or the Company. In the event of a default by any Underwriter
as set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding five Business Days, as the Representatives shall determine
in order that the required changes in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Underwriter of its
liability, if any, to the Company, the Selling Stockholder and any nondefaulting
Underwriter for damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limiting of minimum prices shall have been established on either of
27
<PAGE> 28
such Exchange or the Nasdaq National Market, (ii) a banking moratorium shall
have been declared either by Federal or New York State authorities, (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war, or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Prospectus
(exclusive of any supplement thereto), (iv) there shall have occurred any
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in the sole judgment of the Representatives adversely affects, or will
adversely affect, the business, prospects, financial condition or results of
operations of the Company, or (v) any federal, state or local government or
agency takes any action in respect of its monetary or fiscal affairs which in
the sole judgment of the Representatives has a material adverse effect on the
financial markets in the United States.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling Stockholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
the Selling Stockholder or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and will be mailed, delivered or telefaxed and
confirmed as follows:
If to the Representatives: C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street, 20th Floor
New York, New York 10022
Attention: A. Robert Towbin
(fax no.: (212) 888-8611)
With a copy to: J. Kenneth Menges, Jr., P.C.,
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
(fax no.: (214) 969-4343)
If to the Company: TrueTime, Inc.
2835 Duke Court
Santa Rosa, California 95407
Attention: Elizabeth A. Withers
(fax no.: (707) 528-1230)
28
<PAGE> 29
With a copy to: Charles H. Still
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
(fax no.: (713) 651-5246)
If to the Selling Stockholder: OYO Corporation U.S.A.
7334 Gessner Drive
Houston, Texas 77040
Attention: Ernest M. Hall
(fax no.: (713) 937-8262)
With a copy to: Charles H. Still
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
(fax no.: (713) 651-5246)
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
15. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. HEADINGS. The section headings used herein are for convenience only
and shall not affect the construction hereof.
29
<PAGE> 30
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholder and the several Underwriters.
Very truly yours,
TrueTime, Inc.
By: _______________________________________
Name: Elizabeth A. Withers
Title: President and Chief Executive Officer
OYO Corporation U.S.A.
By: _______________________________________
Name: Ernest M. Hall
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
C.E. UNTERBERG, TOWBIN
Cruttenden Roth Incorporated
Pennsylvania Merchant Group
By: C.E. Unterberg, Towbin
By: __________________________________
Name: A. Robert Towbin
Title: Managing Director
For themselves and the other several
Underwriters named in Schedule I
to the foregoing Agreement
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
C.E. Unterberg, Towbin........................................
Cruttenden Roth Incorporated..................................
Pennsylvania Merchant Group...................................
-----------------
TOTAL
=================
</TABLE>
<PAGE> 32
EXHIBIT A
[Name of Director, Officer or Selling Stockholder]
TrueTime, Inc.
Public Offering of Common Stock
________, 1999
C.E. Unterberg, Towbin
Cruttenden Roth Incorporated
Pennsylvania Merchant Group
As Representative of the several Underwriters,
c/o C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, New York 10022
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), among TrueTime, Inc., a
Delaware corporation (the "Company"), OYO Corporation U.S.A. (the "Selling
Stockholder") and each of you as representatives of a group of Underwriters
named therein (the "Underwriters"), relating to an underwritten initial public
offering of Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of C.E. Unterberg, Towbin, offer, sell, contract to sell, pledge or
otherwise dispose of or file a registration statement with the Securities and
Exchange Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended, with respect
to, any shares of capital stock of the Company or any securities convertible
into or exercisable or exchangeable for such capital stock, or publicly announce
an intention to effect any such transaction, for a period of one year after the
date of the final prospectus filed in connection with the initial public
offering, other than shares of Common Stock disposed of as bona fide gifts
approved by C.E. Unterberg, Towbin.
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
[signature of Director, Officer or
Selling Stockholder]
[Name and address of Director, Officer or
Selling Stockholder]
<PAGE> 1
EXHIBIT 1.2
WARRANT AGREEMENT
DATED AS OF
DECEMBER __, 1999
BETWEEN
TRUETIME, INC.
AND
C.E. UNTERBERG, TOWBIN
----------------------------------
Warrants for
Common Stock of
TrueTime, Inc.
----------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.01 Definitions 1
Section 1.02 Other Definitions 3
Section 1.03 Rules of Construction 3
ARTICLE 2
Warrant Certificates
Section 2.01 Form and Dating 3
Section 2.02 Legend 4
Section 2.03 Execution 4
Section 2.04 Registration 4
Section 2.05 Transfer and Exchange 5
Section 2.06 Replacement Certificates 6
ARTICLE 3
Exercise Terms
Section 3.01 Exercise Price 6
Section 3.02 Exercise Periods 6
Section 3.03 Expiration 7
Section 3.04 Manner of Exercise 7
Section 3.05 Issuance of Warrant Shares 7
Section 3.06 Fractional Warrant Shares 8
Section 3.07 Reservation of Warrant Shares 8
Section 3.08 Compliance with Law 9
ARTICLE 4
Antidilution Provisions
Section 4.01 Changes in Common Stock 9
Section 4.02 Cash Dividends and Other Distributions 9
Section 4.03 Rights Issued to All Holders of Common Stock 10
Section 4.04 Other Issuances of Common Stock or Rights 11
Section 4.05 Combination; Liquidation 12
Section 4.06 Superseding Adjustment 13
Section 4.07 Minimum Adjustment 13
Section 4.08 Notice of Adjustment 13
Section 4.09 Notice of Certain Transactions 14
Section 4.10 Adjustment to Warrant Certificate 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5
Registration Rights
Section 5.01 Effectiveness of Registration Statements 15
Section 5.02 Blue Sky 16
Section 5.03 Accuracy of Disclosure 16
Section 5.04 Indemnification 17
Section 5.05 Additional Acts 20
Section 5.06 Expenses 20
ARTICLE 6
Miscellaneous
Section 6.01 SEC Reports and Other Information 22
Section 6.02 Persons Benefitting 22
Section 6.03 Rights of Holders 22
Section 6.04 Amendment 22
Section 6.05 Notices 22
Section 6.06 Governing Law 23
Section 6.07 Successors 23
Section 6.08 Multiple Originals 23
Section 6.09 Table of Contents 23
Section 6.10 Severability 24
EXHIBITS
Exhibit A Form of Face of Warrant Certificate
</TABLE>
ii
<PAGE> 4
This WARRANT AGREEMENT, dated as of [December] ___, 1999 (this
"Agreement"), is between TRUETIME, INC., a Delaware corporation (the "Company"),
and C.E. UNTERBERG, TOWBIN (the "Underwriter").
WHEREAS, the Company desires to issue to the Underwriter warrants (the
"Warrants") to purchase 200,000 shares of the Company's common stock, par value
$.01 per share (the "Common Stock") in connection with an initial public
offering by the Company of 3,000,000 shares of the Common Stock (including
shares offered by the selling stockholder, but excluding shares offered pursuant
to the over-allotment option (the "Shares")).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS.
"AFFILIATE" of any Person means any other Person, directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; provided, however, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be decreed to be control. The terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"BOARD" means the Board of Directors of the Company or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"BUSINESS DAY" means each day that is not a Saturday, a Sunday or a day
on which banking institutions are not required to be open in the State of New
York.
"CASHLESS EXERCISE RATIO" means a fraction, the numerator of which is
the excess of the Current Market Value per share of Common Stock on the Exercise
Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
"COMBINATION" means an event in which the Company consolidates with,
merges with or into, or sells all or substantially all of its assets to another
Person.
1
<PAGE> 5
"CURRENT MARKET VALUE" per share of Common Stock or any other security
at any date means: (i) if the security is not registered under the Exchange Act,
(a) the value of the security, determined in good faith by the Board and
certified in a Board resolution, based on the most recently completed
arm's-length transaction between the Company and a Person other than an
Affiliate of the Company, the closing of which occurred on such date or within
the six-month period preceding such date, or (b) if no such transaction shall
have occurred on such date or within such six-month period, the value of the
security as determined by an independent financial expert; or (ii) if the
security is registered under the Exchange Act, the arithmetic mean average of
the last reported sale price of the Common Stock on the Nasdaq National Market
or any other exchange or market on which the Common Stock is traded (or the
equivalent in an over-the-counter market) for each Business Day during the
period commencing 15 Business Days before such date and ending on the date one
day prior to such date, or if the security has been registered under the
Exchange Act for less than 15 consecutive Business Days before such date, the
arithmetic mean average of the last reported sale prices (or such equivalent)
for all of the Business Days before such date for which daily closing bid prices
are available (provided, however, that if the closing bid price is not
determinable for at least 10 Business Days in such period, the "Current Market
Value" of the security shall be determined as if the security were not
registered under the Exchange Act).
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXERCISE DATE" means the day on which the Warrants are exercised
pursuant to Section 3.04.
"ISSUE DATE" means the date on which the Warrants are initially issued.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"SEC" means the Securities and Exchange Commission, or any successor
agency or body performing substantially similar functions.
"SECURITIES ACT" means the Securities Act of 1933.
"WARRANT CERTIFICATES" mean the registered certificates issued by the
Company under this Agreement representing the Warrants.
"WARRANT SHARES" mean the shares of Common Stock (and any other
securities) for which the Warrants are exercisable.
2
<PAGE> 6
SECTION 1.02. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
---- ----------
"Agreement" Recitals
"Cashless Exercise" 3.04
"Certificate Register" 2.04
"Common Stock" Recitals
"Company" Recitals
"Exercise Price" 3.01
"Expiration Date" 3.02(b)
"Holders" 2.04
"Registrar" 3.07
"Registration Statement" 5.01
"Shares" Recitals
"Successor Company" 4.05(a)
"Transfer Agent" 3.05
"Underwriter" Recitals
"Warrants" Recitals
SECTION 1.03. RULES OF CONSTRUCTION. Unless the text otherwise
requires:
(i) a defined term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE 2
WARRANT CERTIFICATES
SECTION 2.01. FORM AND DATING. The Warrant Certificates shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Agreement. The Warrant Certificates may have
notations, legends or endorsements required by law, stock exchange rules,
agreements to which the Company is subject, if any, or usage and shall bear the
legends required by Section 2.02. The Warrant
3
<PAGE> 7
Certificates shall be dated the date of its countersignature. The terms of the
Warrant Certificates set forth in Exhibit A are part of the terms of this
Agreement.
SECTION 2.02. LEGEND. Each Warrant Certificate shall bear the following
legend:
THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF TRUETIME, INC. FOR WHICH
THESE WARRANTS ARE EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS OR IN
CONFORMITY WITH REGULATION S UNDER THE SECURITIES ACT. ACCORDINGLY, NO
HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANT AT ANY TIME
UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE
BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO STOP
ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS
BEEN ISSUED BY THE SEC, OR (ii) THE ISSUANCE OF SUCH SHARES IS
PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT, OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS"
(AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER IS RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT.
SECTION 2.03. EXECUTION. Either the Company's President or any Vice
President, on behalf of the Company, shall execute the Warrants entitling the
Underwriter to purchase in the aggregate up to 200,000 Warrant Shares, with such
signature attested by the Company's Secretary or Assistant Secretary.
SECTION 2.04. REGISTRATION LEDGER. The Warrants shall be numbered and
shall be registered by the Company in an appropriate registration ledger as they
are issued. The
4
<PAGE> 8
Company shall keep an appropriate registration ledger ("Certificate Register")
of the Warrant Certificates and of their transfer and exchange. The Certificate
Register shall show the name and address of the Holder (as defined below) and
the date and number of Warrants represented on the face of each Warrant
Certificate. The Company shall be entitled to treat the registered holder(s) of
the Warrants (the "Holders") as the owner in fact thereof for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other Person, and shall not be liable for any
registration or transfer of any Warrant which is registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary. Two hundred thousand
(200,000) Warrants shall be registered initially in the name of "C.E. Unterberg,
Towbin."
SECTION 2.05. TRANSFER AND EXCHANGE. The Warrants may not be
transferred, assigned, sold or hypothecated by the Holders except in accordance
with this Section 2.05 or in an involuntary assignment by operation of law to
the Holders' personal representative.
(a) Each Holder of the Warrants, by acceptance thereof, represents
and acknowledges that the Warrants have not been and will not be
registered under the Securities Act on the grounds that the
issuance of the Warrants is exempt from registration under
Section 4(2) of the Securities Act as not involving any public
offering. Each Holder of the Warrants represents and warrants
that the Holder (i) is acquiring such Warrants for investment for
the Holder's own account, with no intention of reselling or
otherwise distributing the same, subject, nevertheless, to any
requirement of law that the disposition of the Holder's property
shall at all times be within such Holder's control, (ii) is an
"accredited investor" as defined in Rule 501 of Regulation D
under the Securities Act, (iii) has such knowledge and experience
in financial and business matters that it is capable of
evaluating the merits and risks of the investments made or to be
made in connection with the acquisition and exercise of the
Warrants, and (iv) has been provided all such information and
access to information concerning the Holder's investment
hereunder as the Holder has requested from the Company. The
Warrants may not be transferred except (1) to officers and
partners of the Underwriter, (2)(x) pursuant to an effective
registration statement under the Act or (y) in the case of
transfers other than those described in clause (2)(x), upon the
conditions specified in the second paragraph of the legend
contained in Section 2.02 hereof, which conditions are intended,
among other things, to ensure compliance with the provisions of
the Act in respect of the transfer of such Warrants, and (3) upon
compliance with applicable state securities laws.
(b) The Warrant Certificates shall be issued in registered form only
and shall be transferable only upon the surrender of the Warrant
Certificate for registration of transfer. When any Warrant
Certificate is presented to the Company with a request to
register a transfer, the Company shall register
5
<PAGE> 9
the transfer as requested if the requirements of Section 8-401(1)
of the Uniform Commercial Code as in effect in the State of New
York are met. Any Warrant Certificates issued upon any
registration of transfer or exchange of any Warrant Certificate
shall be the valid obligations of the Company, entitled to the
same benefits under this Agreement as the Warrant Certificates
surrendered upon such registration of transfer or exchange. No
service charge will be made to the Holders for any registration
of transfer or exchange upon surrender of the Warrant
Certificates. However, the Company may require payment of a sum
sufficient to cover any tax, assessment or other governmental
charge that may be imposed in connection with any registration of
transfer or exchange of the Warrant Certificates but not for any
exchange or original issuance (not involving a transfer) pursuant
to Section 3.04 or 3.05.
SECTION 2.06. REPLACEMENT CERTIFICATE. If a mutilated Warrant
Certificate is surrendered to the Company or if a Holder of a Warrant
Certificate claims that the Warrant Certificate has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement Warrant Certificate if
the requirements of Section 8-405 of the Uniform Commercial Code as in effect in
the State of New York are met. Such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company to protect the Company from any loss
which it may suffer if a Warrant Certificate is replaced. The Company may charge
the Holder for its expenses in replacing a Warrant Certificate. Every
replacement Warrant Certificate is an additional obligation of the Company. The
Company may not issue new Warrant Certificates to replace the Warrant
Certificates to the extent it represents Warrants which have been exercised or
Warrants which the Company has purchased or otherwise acquired.
ARTICLE 3
EXERCISE TERMS
SECTION 3.01. EXERCISE PRICE. The Warrants shall initially entitle the
Holders thereof, subject to adjustment pursuant to the terms of this Agreement,
to purchase an aggregate of 200,000 shares of Common Stock for a per share
exercise price (the "Exercise Price") of $[EQUAL TO 110% OF THE INITIAL PUBLIC
OFFERING PRICE].
SECTION 3.02. EXERCISE PERIODS.
(a) Subject to the terms and conditions set forth herein, the
Warrants shall be exercisable at any time or from time to time
after [DECEMBER] _____, 2000; provided, however, that the Holders
will be able to exercise their Warrants only if (i) the
Registration Statement relating to the Warrant Shares is
effective, or (ii) the exercise of the Warrants is exempt from
the registration requirements of the Securities Act, and the
Warrant Shares are qualified for sale or exempt from
qualification under the applicable
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securities laws of the states or other jurisdictions in which
such holders reside.
(b) The Warrants shall not be exercisable after DECEMBER _____, 2004
(the "Expiration Date").
SECTION 3.03. EXPIRATION. The Warrants shall terminate and become void
as of the earlier of (i) the close of business on the Expiration Date or (ii)
the date the Warrants are exercised.
SECTION 3.04. MANNER OF EXERCISE. The Warrants may be exercised upon
(i) surrender to the Company, or its duly authorized agent, of the Warrant
Certificate, together with the form of election to purchase Common Stock on the
reverse thereof duly filled in and signed by the Holder thereof, and (ii)
payment to the Company, or its duly authorized agent, for the account of the
Company, of the Exercise Price for each Warrant Share issuable upon the exercise
of the Warrants then exercised. Such payment shall be made (i) in cash or by
certified or official bank check payable to the order of the Company or by wire
transfer of funds to an account designated by the Company for such purpose or
(ii) without the payment of cash, by reducing the number of shares of Common
Stock obtainable upon the exercise of the Warrants so as to yield a number of
shares of Common Stock upon the exercise of the Warrants equal to the product of
(a) the number of shares of Common Stock issuable as of the Exercise Date upon
the exercise of the Warrants (if payment of the Exercise Price were being made
in cash) and (b) the Cashless Exercise Ratio. An exercise of the Warrants in
accordance with the immediately preceding sentence is herein called a "Cashless
Exercise." Upon surrender of the Warrant Certificate representing more than one
Warrant in connection with the Holder's option to elect a Cashless Exercise, the
number of shares of Common Stock deliverable upon a Cashless Exercise shall be
equal to the number of shares of Common Stock issuable upon the exercise of the
Warrants that the Holder specifies are to be exercised pursuant to a Cashless
Exercise multiplied by the Cashless Exercise Ratio. All provisions of this
Agreement shall be applicable with respect to a surrender of the Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. Subject to Section 3.02, the rights represented by
the Warrants shall be exercisable at the election of the Holder thereof either
in full at any time or from time to time in part and in the event that the
Warrant Certificate is surrendered for exercise of less than all the Warrants
represented by the Warrant Certificate at any time prior to the Expiration Date,
a new Warrant Certificate representing the remaining Warrants shall be issued by
the Company.
SECTION 3.05. ISSUANCE OF WARRANT SHARES. Subject to Section 2.06, upon
the surrender of the Warrant Certificate and payment of the per share Exercise
Price, as set forth in Section 3.04, the Company shall issue and cause a
transfer agent and registrar for the Common Stock ("Transfer Agent") to
countersign and deliver to or upon the written order of the Holders and in such
name or names as the Holders may designate a certificate or certificates for the
number of full Warrant Shares so purchased upon the exercise of such Warrants or
other securities or property to which it is entitled, registered
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or otherwise, to the Person or Persons entitled to receive the same, together
with cash as provided in Section 3.06 in respect of any fractional Warrant
Shares otherwise issuable upon such exercise. Such certificate or certificates
shall be deemed to have been issued and any Person so designated to be named
therein shall be deemed to have become a holder of record of such Warrant Shares
as of the date of the surrender of the Warrant Certificate and payment of the
per share Exercise Price, as aforesaid; provided, however, that if, at such
date, the transfer books for the Warrant Shares shall be closed, the
certificates for the Warrant Shares in respect of which the Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened and until such date the Company shall be under no duty to deliver any
certificates for such Warrant Shares; provided further, however, that such
transfer books, unless otherwise required by law, shall not be closed at any one
time for a period longer than 20 calendar days.
SECTION 3.06. FRACTIONAL WARRANT SHARES. The Company shall not be
required to issue fractional Warrant Shares on the exercise of the Warrants. If
any fraction of a Warrant Share would, except for the provisions of this Section
3.06, be issuable on the exercise of the Warrants (or specified portion
thereof), the Company shall pay at the time of exercise an amount in cash equal
to the Current Market Value per Warrant Share, as determined on the day
immediately preceding the date the Warrants are exercised, multiplied by such
fraction, computed to the nearest whole cent.
SECTION 3.07. RESERVATION OF WARRANT SHARES. The Company shall at all
times keep reserved out of its authorized shares of Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The Transfer Agent shall at all times until the Expiration Date
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent.
All Warrant Shares which may be issued upon exercise of the Warrants shall, upon
issue, be fully paid, nonassessable, free of preemptive rights and free from all
taxes, liens, charges and security interests with respect to the issue thereof.
The Company will supply the Transfer Agent with duly executed stock certificates
for such purpose and will itself provide or otherwise make available any cash
which may be payable as provided in Section 3.06. The Company will furnish to
the Transfer Agent a copy of all notices of adjustments (and certificates
related thereto) transmitted to the Holders.
Before taking any action which would cause an adjustment pursuant to
Article 4 to reduce the Exercise Price below the then par value (if any) of the
Common Stock, the Company shall take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock at the
Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may be
issued upon exercise of the Warrants will, upon issue, be fully paid,
nonassessable, free of preemptive rights, free from all taxes and free from all
liens, charges and security interests, created by or through the Company, with
respect to the issue thereof.
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SECTION 3.08. COMPLIANCE WITH LAW. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Holders be entitled to exercise
the Warrants unless (i) a registration statement filed under the Securities Act
in respect of the issuance of the Warrant Shares is then effective or (ii) in
the opinion of counsel to the Company the exercise of such Warrants is exempt
from the registration requirements of the Securities Act and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the States or other jurisdictions in which such holders reside.
ARTICLE 4
ANTIDILUTION PROVISIONS
SECTION 4.01. CHANGES IN COMMON STOCK. In the event that at any time or
from time to time the Company shall (i) pay a dividend or make a distribution on
its Common Stock in shares of its Common Stock or other shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the number of shares of Common Stock issuable upon
exercise of the Warrants immediately after the happening of such event shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that the Holders would have owned or have been entitled to receive upon
exercise had the Warrants been exercised immediately prior to the happening of
the events described above (or, in the case of a dividend or distribution of
Common Stock or other shares of capital stock, immediately prior to the record
date therefor) by a fraction, the numerator of which shall be the total number
of shares of Common Stock outstanding immediately after the happening of the
events described above and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the happening of the
events described above; and subject to Section 4.08, the Exercise Price for each
Warrant shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such event by such fraction. An adjustment made pursuant to
this Section 4.01 shall become effective immediately after the effective date of
such event, retroactive to the record date therefor in the case of a dividend or
distribution in shares of Common Stock or other shares of the Company's capital
stock.
SECTION 4.02. CASH DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that
at any time or from time to time the Company shall distribute to all holders of
Common Stock (i) any dividend or other distribution of cash, evidences of its
indebtedness, shares of its capital stock or any other assets, properties or
securities or (ii) any options, warrants or other rights to subscribe for or
purchase any of the foregoing (other than, in each case, (w) the issuance of any
rights under a shareholder rights plan, (x) any dividend or distribution
described in Section 4.01, (y) any rights, options, warrants or securities
described in Section 4.03 and (z) any cash dividends or other cash distributions
from current or retained earnings), then the number of shares of Common Stock
issuable upon
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the exercise of the Warrants shall be increased to a number determined by
multiplying the number of shares of Common Stock issuable upon the exercise of
the Warrants immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be the Current Market
Value per share of Common Stock on the record date for such dividend or
distribution and the denominator of which shall be such Current Market Value per
share of Common Stock on the record date for such dividend or distribution less
the sum of (x) the amount of cash, if any, distributed per share of Common Stock
and (y) the fair value (as determined in good faith by the Board, whose
determination shall be evidenced by a board resolution, a copy of which will be
sent to Holders upon request) of the portion, if any, of the distribution
applicable to one share of Common Stock consisting of evidences of indebtedness,
shares of stock, securities, other assets or property, warrants, options or
subscription or purchase rights; and, subject to Section 4.08, the Exercise
Price shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such record date by the above fraction. Such adjustments
shall be made whenever any distribution is made and shall become effective as of
the date of distribution, retroactive to the record date for any such
distribution; provided, however, that the Company is not required to make an
adjustment pursuant to this Section 4.02 if at the time of such distribution the
Company makes the same distribution to the Holders of the Warrants as it makes
to holders of Common Stock pro rata based on the number of shares of Common
Stock for which the Warrants are exercisable (whether or not currently
exercisable). No adjustment shall be made pursuant to this Section 4.02 which
shall have the effect of decreasing the number of shares of Common Stock
issuable upon exercise of the Warrants or increasing the Exercise Price.
SECTION 4.03. RIGHTS ISSUED TO ALL HOLDERS OF COMMON STOCK. In the
event that at any time or from time to time the Company shall issue to all
holders of Common Stock without any charge, rights, options or warrants
entitling the holders thereof to subscribe for shares of Common Stock, or
securities convertible into or exchangeable or exercisable for Common Stock,
entitling such holders to subscribe for or purchase shares of Common Stock at a
price per share that is lower at the record date for such issuance than the then
Current Market Value per share of Common Stock other than in connection with the
adoption of a shareholder rights plan by the Company, then the number of shares
of Common Stock issuable upon the exercise of the Warrants shall be increased to
a number determined by multiplying the number of shares of Common Stock
theretofore issuable upon exercise of the Warrants by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights, options, warrants or securities plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options,
warrants or securities plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by the Company (assuming the
exercise or conversion of all such rights, options, warrants or securities)
would purchase at the then Current Market Value per share of Common Stock.
Subject to Section 4.08, in the event of any such adjustment, the Exercise Price
shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such date of issuance by
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the aforementioned fraction. Such adjustment shall be made immediately after
such rights, options or warrants are issued and shall become effective,
retroactive to the record date for the determination of stockholders entitled to
receive such rights, options, warrants or securities. No adjustment shall be
made pursuant to this Section 4.03 which shall have the effect of decreasing the
number of shares of Common Stock purchasable upon exercise of the Warrants or of
increasing the Exercise Price.
SECTION 4.04 OTHER ISSUANCES OF COMMON STOCK OR RIGHTS. In the event
that at any time or from time to time the Company shall issue (i) shares of
Common Stock (subject to the provisions below), (ii) rights, options or warrants
entitling the holders thereof to subscribe for shares of Common Stock (provided,
however, that no adjustment shall be made upon the exercise of such rights,
options or warrants), or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (provided, however, that no adjustment shall be
made upon the conversion, exchange or exercise of such securities (other than
issuances specified in (i), (ii) or (iii) which are made as the result of
anti-dilution adjustments in such securities)), at a price per share at the
record date of such issuance that is less than the then Current Market Value per
share of Common Stock, then the number of shares of Common Stock issuable upon
the exercise of the Warrants shall be increased to a number determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of the Warrants by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such sale or
issuance plus the number of additional shares of Common Stock offered for
subscription or purchase or into or for which such securities that are issued
are convertible, exchangeable or exercisable, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
sale or issuance plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by the Company (assuming the
exercise or conversion of all such rights, options, warrants or securities, if
any) would purchase at the then Current Market Value per share of Common Stock;
and subject to Section 4.08 the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such date of
issuance by the aforementioned fraction; provided, however, that no adjustment
to the number of Warrant Shares issuable upon the exercise of the Warrants or to
the Exercise Price shall be made as a result of (i) the issuance of shares of
Common Stock under any warrants, options or other rights existing on the date
hereof, (ii) the issuance of shares of Common Stock in bona fide public
offerings that are underwritten or in which a placement agent is retained by the
Company, (iii) the issuance of options, or shares of Common Stock pursuant to
any option, under any employee benefit plans approved by the Board of Directors,
or (iv) the issuance of shares of Common Stock in connection with an acquisition
or merger; provided, however, that the Board of Directors has determined that
the consideration to be received for such shares in connection with (iv) above
is equal to or greater than the Current Market Value per share of the Common
Stock. Such adjustments shall be made whenever such rights, options or warrants
or convertible securities are issued. No adjustment shall be made pursuant to
this Section 4.04 which shall have the effect of decreasing the number of shares
of Common Stock issuable upon exercise of each warrant or of increasing the
Exercise Price. For purposes of Section 4.04 only, any issuance of
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Common Stock, or rights, options or warrants to subscribe for, or other
securities convertible into or exercisable or exchangeable for, Common Stock,
which issuance (or agreement to issue) (A) is in exchange for or otherwise in
connection with the acquisition of the property (excluding any such exchange
exclusively for cash) of any Person and (B) is at a price per share equal to the
lower of the Current Market Value at the time an agreement in principle is
reached or at the time a definitive agreement is entered into, shall be deemed
to have been made at a price per share equal to the Current Market Value per
share at the record date with respect to such issuance (the time of closing or
consummation of such exchange or acquisition) if such definitive agreement is
entered into within 90 days of the date of such agreement in principle.
SECTION 4.05. COMBINATION; LIQUIDATION.
(a) Except as provided in Section 4.05(b), in the event of a
Combination, the Holders shall have the right to receive upon
exercise of the Warrants the kind and amount of shares of capital
stock or other securities or property which the Holders would
have been entitled to receive upon or as a result of such
Combination had the Warrants been exercised immediately prior to
such event. Unless Section 4.05(b) is applicable to a
Combination, the Company shall provide that the surviving or
acquiring Person (the "Successor Company") in such Combination
will enter into an agreement confirming the Holders' rights
pursuant to this Section 4.05(a) and providing for adjustments,
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 4. The provisions of
this Section 4.05(a) shall similarly apply to successive
Combinations involving any Successor Company.
(b) In the event of (i) a Combination where consideration to the
holders of Common Stock in exchange for their shares is payable
solely in cash or (ii) the dissolution, liquidation or winding-up
of the Company, the Holders of the Warrants shall be entitled to
receive, upon surrender of their Warrant Certificates,
distributions on an equal basis with the holders of Common Stock
or other securities issuable upon exercise of the Warrants, as if
the Warrants had been exercised immediately prior to such event,
less the Exercise Price.
In case of any Combination described in this Section 4.05(b), the
surviving or acquiring Person and, in the event of any
dissolution, liquidation or winding-up of the Company, the
Company, shall deposit promptly with an independent agent
appointed for such purpose the funds, if any, necessary to pay to
the Holders of the Warrants the amounts to which they are
entitled as described above. After such funds and the surrendered
Warrant Certificate is received, such agent is required to
deliver a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is
appropriate)
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to such Person or Persons as it may be directed in writing by the
Holder surrendering the Warrants.
SECTION 4.06. SUPERSEDING ADJUSTMENT. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges which resulted in
adjustments pursuant to this Article 4, if any thereof shall not have been
exercised, the number of Warrant Shares issuable upon the exercise of the
Warrants shall be readjusted pursuant to the applicable section of Article 4 as
if (A) the only shares of Common Stock issuable upon exercise of such rights,
options, warrants, conversion or exchange privileges were the shares of Common
Stock, if any, actually issued upon the exercise of such rights, options,
warrants or conversion or exchange privileges and (B) shares of Common Stock
actually issued, if any, were issuable for the consideration actually received
by the Company upon such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion or exchange privileges whether or not
exercised and the Exercise Price shall be readjusted inversely; provided,
however, that no such readjustment shall (except by reason of an intervening
adjustment under Section 4.01) have the effect of decreasing the number of
Warrant Shares purchasable upon the exercise of the Warrants or increase the
Exercise Price by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion or exchange privileges.
SECTION 4.07. MINIMUM ADJUSTMENT. The adjustments required by the
preceding Sections of this Article 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Exercise Price or the number of shares of Common Stock issuable upon
exercise of the Warrants that would otherwise be required shall be made unless
and until such adjustment either by itself or with other adjustments not
previously made increases or decreases by at least 1% the Exercise Price or the
number of shares of Common Stock issuable upon exercise of the Warrants
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount shall be carried forward and made as
soon as such adjustment, together with other adjustments required by this
Article 4 and not previously made, would result in a minimum adjustment. For the
purpose of any adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence. In computing adjustments
under this Article 4, fractional interests in Common Stock shall be taken into
account to the nearest one-hundredth of a share.
SECTION 4.08. NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, issuable upon
exercise of the Warrants are adjusted, as herein provided, the Company shall
promptly deliver to the Holders in accordance with Section 6.05 a certificate of
the Company's chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which (i) the Board
determined the fair value of any evidences of indebtedness, other securities or
property or warrants, options or other subscription or purchase rights and (ii)
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the Current Market Value of the Common Stock was determined, if either of such
determinations were required), and specifying the Exercise Price and the number
of shares of Common Stock issuable upon exercise of the Warrants after giving
effect to such adjustment.
SECTION 4.09. NOTICE OF CERTAIN TRANSACTIONS. In the event that the
Company shall publicly propose to (a) pay any dividend payable in securities of
any class to the holders of its Common Stock or to make any other non-cash
dividend or distribution to the holders of its Common Stock, (b) offer the
holders of its Common Stock rights to subscribe for or to purchase any
securities convertible into shares of Common Stock or shares of stock of any
class or any other securities, rights or options, (c) issue any (i) shares of
Common Stock, (ii) rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or (iii) securities convertible into or
exchangeable or exercisable for Common Stock (in the case of (i), (ii) and
(iii), if such issuance or adjustment would result in an adjustment hereunder),
(d) effect any capital reorganization, reclassification, or combination, (e)
effect the voluntary or involuntary dissolution, liquidation or winding-up of
the Company or (f) make a tender offer or exchange offer with respect to the
Common Stock, the Company shall within 5 days after any public proposal send to
the Holders a notice of such proposed action or offer. Such notice shall be
mailed to each Holder at its address as it appears in the Certificate Register,
which shall specify the record date for the purposes of such dividend,
distribution or rights, or the date such issuance or event is to take place and
the date of participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall briefly indicate the effect of such action on the
Common Stock and on the number and kind of any other shares of stock and on
other property, if any, and the number of shares of Common Stock and other
property, if any, issuable upon exercise of the Warrants and the Exercise Price
after giving effect to any adjustment pursuant to Article 4 which will be
required as a result of such action. Such notice shall be given as promptly as
possible and (x) in the case of any action covered by clause (a) or (b) above,
at least 10 days prior to the record date for determining holders of the Common
Stock for purposes of such action or (y) in the case of any other such action,
at least 20 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of Common Stock, whichever shall be
the earlier.
SECTION 4.10. ADJUSTMENT TO WARRANT CERTIFICATE. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article 4, and the Warrant Certificate issued after such adjustment may state
the same Exercise Price and the same number of shares of Common Stock issuable
upon exercise of the Warrants as is stated in the Warrant Certificate initially
issued pursuant to this Agreement. The Company, however, may at any time in its
sole discretion make any change in the form of Warrant Certificate that it may
deem appropriate to give effect to such adjustments and that does not affect the
substance of the Warrant Certificate, and the Warrant Certificate thereafter
issued or countersigned, whether in exchange or substitution for an outstanding
Warrant Certificate or otherwise, may be in the form as so changed.
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ARTICLE 5
REGISTRATION RIGHTS
SECTION 5.01. EFFECTIVENESS OF REGISTRATION STATEMENT.
(a) The Company shall cause to be filed pursuant to Rule 415 (or any
successor provision) of the Securities Act a registration
statement covering the resale of the Warrant Shares by the
Holders (the "Registration Statement") and shall use all
commercially reasonable efforts to cause the Registration
Statement to be declared effective on or before the tenth day
following the first anniversary of the effective date of the
Company's registration statement on Form S-1 (file No.
333-90269). The Company shall cause the Registration Statement to
remain effective until the earlier of (i) such time as all
Warrants have been exercised and (ii) two years after the
Registration Statement is declared effective by the Commission,
unless extended pursuant to Section 5.01(c). The Company shall
(i)furnish to the Holders, without charge, at least one copy of
the Registration Statement and any amendments thereto, (ii) for
so long as any Registration Statement is effective, deliver to
the Holders, without charge, as many copies of the final
prospectus included in such Registration Statement and any
amendment or supplement thereto as the Holders may reasonably
request and (iii) if in the opinion of counsel for the Holders
any amendment or supplement to the Registration Statement is
legally required to enable the Holders to resell Warrant Shares,
effect such amendments or supplements (during which time after
notice of such undertaking to make such amendment or supplement,
sales of Warrant Shares will be deferred until such amendment or
supplement is effected) and cooperate in any arrangement with
respect to such resale.
(b) If the Company receives notice of a proposed sale under the
Registration Statement, the Company may give notice to the Holder
requesting such sale that such sale under the Registration
Statement must be deferred and not made for up to 60 days (less
the number of days that the use of a prospectus was already
suspended pursuant to Sections 5.01(b) and (c)) after the date of
receipt by the Company of such notice of proposed sale if at the
time the Company receives such notice, the Company is engaged in
confidential negotiations or other confidential business
activities, disclosure of which would be required to be made in
the prospectus included in the Registration Statement (but would
not be required if such sale were not made) in order to prevent
such prospectus from containing any untrue statement of a
material fact or omitting to state any material fact necessary to
make the statements therein not misleading and the Board of
Directors of the Company, based on the advice of counsel,
reasonably determines in good faith that such disclosure would be
materially detrimental to the Company. A deferral of such
proposed sale
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pursuant to this Section 5.01(b) shall be lifted, and the sale
may be forthwith made if the negotiations or other activities are
disclosed or terminated.
(c) If in the reasonable opinion of counsel for the Company any
amendment or supplement to the Registration Statement is legally
required to enable the Holders to resell Warrant Shares, the
Company shall use all commercially reasonable efforts to effect
such amendments or supplements as soon as possible during which
time, after notice of such undertaking to make such amendment or
supplement, sales of Warrant Shares will be deferred until such
amendment or supplement is effected. If the Company defers sales
pursuant to this Section 5.01(c), the Company will extend the
period of effectiveness of the Registration Statement required in
Section 5.01(a) by either (i) one additional day for each day
over 60 days that sales were suspended or (ii) three additional
days for each day over 60 days that sales were suspended, if it
is determined that such suspension was not legally required.
In order to defer sales under the Registration Statement pursuant
to (b) or (c) of this Section 5.01, the Company shall promptly,
upon determining to seek such deferral, deliver to the Holders, a
certificate signed by the President or Chief Financial Officer of
the Company stating that the Company is deferring sales under the
Registration Statement and indicating whether such deferral is
pursuant to Section 5.01(b) or (c).
SECTION 5.02. BLUE SKY. The Company shall use its reasonable efforts to
register or qualify the Warrant Shares under all applicable securities laws,
blue sky laws or similar laws of all jurisdictions in the United States and
Canada in which the Holders of the Warrants may or may be deemed to purchase
Warrant Shares upon the exercise of the Warrants and shall use its reasonable
efforts to maintain such registration or qualification through the earlier of
(i) such time as the Warrants have been exercised in full or (ii) the Expiration
Date; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 5.02 or to take any action which would
subject it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.
SECTION 5.03. ACCURACY OF DISCLOSURE. To the extent the Holders use the
Registration Statement for any resale of Warrant Shares as provided in clause
(iii) of Section 5.01, the Company represents and warrants to the Holders and
agrees for the benefit of the Holders that (i) the Registration Statement and
any amendment thereto will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; and (ii) the prospectus
delivered to the Holders upon the exercise of the Warrants and the documents
incorporated by reference therein will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they
16
<PAGE> 20
were made, not misleading; provided, however, that the Company shall have no
liability under clauses (i) or (ii) of this Section 5.03 with respect to any
such untrue statement or omission made in any Registration Statement in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Holders specifically for inclusion therein.
SECTION 5.04. INDEMNIFICATION. To the extent the Holders use the
Registration Statement for any resale of Warrant Shares as provided in clause
(iii) of Section 5.01:
(a) In connection with any Registration Statement, the Company agrees
to indemnify and hold harmless the Holders of the Warrants and/or
Warrant Shares and each person, if any, who controls the Holders
within the meaning of the Securities Act or the Exchange Act (the
Holders and such controlling persons being referred to
collectively as the "Indemnified Parties") from and against any
losses, claims, damages or liabilities, joint or several, or any
actions in respect thereof (including but not limited to any
losses, claims, damages, liabilities or actions relating to
purchases and sales of the Warrant Shares) to which each
Indemnified Party may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement or prospectus or in
any amendment or supplement thereto, or arise out of, or are
based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading, and shall reimburse, as incurred,
the Indemnified Parties for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action in
respect thereof; provided, however, that (i) the Company shall
not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or any
preliminary or final prospectus or in any amendment or supplement
thereto in reliance upon and in conformity with written
information pertaining to the Holders and furnished to the
Company by or on behalf of the Holders specifically for inclusion
therein, (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any prospectus
relating to such Registration Statement, the indemnity agreement
contained in this subsection (a) shall not inure to the benefit
of any person as to which there is a prospectus delivery
requirement (a "Delivering Seller") that sold the Warrant Shares
to the person asserting any such losses, claims, damages or
liabilities to the extent that any such loss, claim, damage or
liability of such Delivering Seller results from the fact that
there was not sent or given to such person, on or prior to the
written confirmation of such sale, a copy of the relevant
17
<PAGE> 21
prospectus, as amended and supplemented, provided that (I) the
Company shall have previously furnished copies thereof to such
Delivering Seller in accordance with this Agreement and (II) such
furnished prospectus, as amended and supplemented, would have
corrected any such untrue statement or omission or alleged untrue
statement or omission, and (iii) this indemnity agreement will be
in addition to any liability which the Company may otherwise have
to such Indemnified Party.
(b) In connection with any Registration Statement, the Holders of the
Warrants and/or Warrant Shares will indemnify and hold harmless
the Company and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act and
the directors, officers, agents and employees of such controlling
persons from and against any losses, claims, damages or
liabilities or any actions in respect thereof to which the
Company or any such controlling person or director, officers,
agent or employee of such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out
of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration
Statement or preliminary or final prospectus or in any amendment
or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, but in
each case only to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information
pertaining to the Holders and furnished to the Company by or on
behalf of the Holders specifically for inclusion therein; and,
subject to the limitation set forth immediately preceding this
clause, shall reimburse, as incurred, the Company or any legal or
other expenses reasonably incurred by the Company or any such
controlling person in connection with investigating or defending
any loss, claim, damage, liability or action in respect thereof.
This indemnity agreement will be in addition to any liability
which the Holders may otherwise have to the Company or any of its
controlling persons.
(c) Promptly after receipt by an indemnified party under this section
of notice of the commencement of any action or proceeding
(including a governmental investigation), such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this section, notify the indemnifying
party of the commencement thereof; but the omission so to notify
the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph
(a) or (b) above, except to the extent that it is prejudiced or
harmed in any material respect by failure to give such prompt
notice. In case any such
18
<PAGE> 22
action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and,
to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, with one counsel (and local counsel as necessary)
reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying
party to such indemnified party of its election so to assume the
defense thereof the indemnifying party will not be liable to such
indemnified party under this section for any legal or other
expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without
the prior written consent of the indemnified party, not to be
unreasonably withheld, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from
all liability on any claims that are the subject matter of such
action. No indemnifying party shall be liable for any amounts
paid in settlement of any action or claim without its written
consent, which consent shall not be unreasonably withheld, but if
settled in accordance with its written consent or if there be a
final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this section is
unavailable or insufficient to hold harmless an indemnified party
under subsections (a) or (b) above for any reason other than as
provided in subsection (c) above, then each indemnifying party
shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified
party on the other or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative
fault of the indemnifying party or parties on the one hand and
the indemnified party on the other in connection with the
statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof) as well as
any other relevant equitable considerations. The relative fault
of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to
19
<PAGE> 23
information supplied by the Company on the one hand or the
Holders or such other indemnified person, as the case may be, on
the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 5(d), the
Holders shall not be required to contribute any amount in excess
of the amount by which the net proceeds received by the Holders
from the sale of the Warrant Shares pursuant to the Registration
Statement exceeds the amount of damages which the Holders would
have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d),
each officer, director, employee, representative and agent of an
indemnified party and each person, if any, who controls such
indemnified party within the meaning of the Securities Act or the
Exchange Act shall have the same rights to contribution as such
indemnified party, and each officer, director, employee,
representative and agent of the Company and each person, if any,
who controls the Company within the meaning of the Securities Act
or the Exchange Act shall have the same rights to contribution as
the Company.
(e) The agreements contained in this section shall survive the sale
of the Warrant Shares pursuant to the Registration Statement, as
the case may be, and shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement
or any investigation made by or on behalf of any indemnified
party.
SECTION 5.05 ADDITIONAL ACTS. If the issuance or sale of any Common
Stock or other securities issuable upon the exercise of the Warrants requires
registration or approval of any governmental authority (other than the
registration requirements under the Securities Act), or the taking of any other
action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then the Company covenants that it will, in good
faith and as expeditiously as reasonably possible, use all reasonable efforts to
secure and maintain such registration or approval or to take such other action,
as the case may be.
SECTION 5.06. EXPENSES. All expenses incident to the Company's
performance of or compliance with its obligations under this Article 5 will be
borne by the Company,
20
<PAGE> 24
including without limitation: (i) all SEC, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance with state
securities or blue sky laws, (iii) all reasonable expenses of any Persons
incurred by or on behalf of the Company in preparing or assisting in preparing,
printing and distributing the Registration Statement or any other registration
statement, prospectus, any amendments or supplements thereto and other documents
relating to the performance of and compliance with this Article 5, (iv) the fees
and disbursements of counsel for the Company and (v) the fees and disbursements
of the independent public accountants of the Company, including the expenses of
any special audits or comfort letters required by or incident to such
performance and compliance.
21
<PAGE> 25
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. SEC REPORTS AND OTHER INFORMATION. Notwithstanding that
the Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall file with the SEC and thereupon
provide the Holders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
SECTION 6.02. PERSONS BENEFITTING. Nothing in this Agreement is
intended or shall be construed to confer upon any Person other than the Company
and the Holders any right, remedy or claim under or by reason of this agreement
or any part hereof.
SECTION 6.03. RIGHTS OF THE HOLDERS. The Holders of the unexercised
Warrants are not entitled to (i) receive dividends or other distributions, (ii)
receive notice of or vote at any meeting of the stockholders, (iii) consent to
any action of the stockholders, (iv) receive notice as stockholders of any other
proceedings of the Company, (v) exercise any preemptive rights or (vi) exercise
any other rights whatsoever as stockholders of the Company.
SECTION 6.04. AMENDMENT. This Agreement may be amended by the parties
hereto without the consent of the Holders for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or adding or changing any other provisions with respect to
matters or questions arising under this Agreement as the Company may deem
necessary or desirable (including without limitation any addition or
modification to provide for compliance with the transfer restrictions set forth
herein); provided, however, that such action shall not adversely affect the
rights of the Holders. Any amendment or supplement to this Agreement that has an
adverse effect on the interest of the Holders shall require the written consent
of the Holders of a majority of the then outstanding Warrants. The consent of
the Holders affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares issuable upon
exercise of the Warrants would be decreased (other than pursuant to adjustments
provided herein) or the exercise period with respect to the Warrants would be
shortened. In determining whether the Holders of the required number of Warrants
have concurred in any direction, waiver or consent, Warrants owned by the
Company or by any Affiliate of the Company shall be disregarded and deemed not
to be outstanding. Subject to the foregoing, only Warrants outstanding at the
time shall be considered in any such determination.
SECTION 6.05. NOTICES. Any notice or communication shall be in writing
and delivered in Person or mailed by first-class mail addressed as follows:
22
<PAGE> 26
if to the Company:
TrueTime, Inc.
2835 Duke Court
Santa Rosa, California
Attention: Elizabeth Withers
with a copy to:
Charles H. Still, Esq.
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
if to the Underwriter:
C.E. Unterberg, Towbin
Swiss Bank Tower
10 East 50th Street, 20th Floor
New York, NY 10022
Attention: A. Robert Towbin
The Company or the Underwriter by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to the Holders shall be mailed to
Holders's address as it appears on the Certificate Register and shall be
sufficiently given if so mailed within the time prescribed. Failure to mail a
notice or communication to any Holder or any defect in it shall not affect its
sufficiency with respect to other Holders, if any. If a notice or communication
is mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
SECTION 6.06. GOVERNING LAW. The laws of the State of New York shall
govern this Agreement and the Warrant Certificates.
SECTION 6.07. SUCCESSORS. All agreements of the Company in this
Agreement and the Warrant Certificates shall bind its successors.
SECTION 6.08. MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Agreement.
SECTION 6.09. TABLE OF CONTENTS. The table of contents and headings of
the Articles and Sections of this Agreement have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
23
<PAGE> 27
SECTION 6.10. SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
24
<PAGE> 28
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
TRUETIME, INC.
By:
----------------------------------------
Elizabeth A. Withers
President and Chief Executive Officer
C.E. UNTERBERG, TOWBIN
By:
----------------------------------------
A. Robert Towbin
Co-Chairman
Warrant Agreement Signature Page
<PAGE> 29
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF TRUETIME, INC. FOR WHICH
THIS WARRANTS ARE EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND
ANY APPLICABLE STATE SECURITIES LAWS, OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS OR IN CONFORMITY WITH REGULATION S UNDER THE
SECURITIES ACT. ACCORDINGLY, THE HOLDER SHALL NOT BE ENTITLED TO EXERCISE ITS
WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED
EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO STOP
ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN
ISSUED BY THE SEC, OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT, OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS" (AS DEFINED IN REGULATION S
UNDER THE SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER IS RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT.
No. [ ]
Certificate for __________ Warrants
to Purchase ________ shares of Common Stock
VOID AFTER 5:00 P.M. NEW YORK TIME ON [DECEMBER] ____, 2004
WARRANT TO PURCHASE COMMON STOCK OF TRUETIME, INC.
THIS CERTIFIES THAT [ ], or its registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants").
Each Warrant entitles the registered holder thereof (the "Holder"), at its
option and subject to the provisions contained herein and in the Warrant
Agreement referred to below, to purchase from TrueTime, Inc., a Delaware
corporation (the "Company"), [ ] shares of Common Stock, par value of $.01 per
share, of the Company (the "Common Stock") at the per share exercise price of $[
] (the "Exercise Price"), or by Cashless Exercise referred to below. This
Warrant Certificate shall terminate and become void as of the close of business
on [December] ___, 2004 (the "Expiration Date") or upon the exercise hereof as
to all the shares of Common Stock subject hereto. The number of shares issuable
upon exercise of the Warrants and the Exercise Price per share shall be subject
to adjustment from time to time as set forth in the Warrant Agreement.
<PAGE> 30
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of [December] ____, 1999 (the "Warrant Agreement"),
between the Company and C.E. Unterberg, Towbin (the "Underwriter"), and is
subject to the terms and provisions contained in the Warrant Agreement, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full statement of the respective rights, limitations of rights,
duties and obligations of the Company and the Holder of the Warrants.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Warrant Agreement. A copy of the Warrant Agreement may be
obtained for inspection by the Holder hereof upon written request to the Company
at 2835 Duke Court, Santa Rosa, California 95407, Attention: [ ].
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part (i) by presentation of this Warrant Certificate
with the Election to Purchase attached hereto duly executed and with the
simultaneous payment of the Exercise Price in cash (subject to adjustment) to
the Company or its duly authorized agent for the account of the Company at the
principal office of the Company or (ii) by Cashless Exercise. Payment of the
Exercise Price in cash shall be made by certified or official bank check payable
to the order of the Company or by wire transfer of funds to an account
designated by the Company for such purpose. Payment by Cashless Exercise shall
be made without the payment of cash by reducing the amount of Common Stock that
would be obtainable upon the exercise of a Warrant and payment of the Exercise
Price in cash so as to yield a number of shares of Common Stock upon the
exercise of such Warrant equal to the product of (1) the number of shares of
Common Stock for which such Warrants are exercisable as of the Exercise Date (if
the Exercise Price were being paid in cash) and (2) a fraction, the numerator of
which is the excess of the Current Market Value per share of Common Stock on the
Exercise Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time on
or after the first anniversary of the date of the effective date of the
Company's registration statement (file No. 333-90269) on Form S-1; provided,
however, that the Holder of Warrants will be able to exercise its Warrants only
if a shelf registration statement relating to the Common Stock underlying the
Warrants is effective or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act of 1933 and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states or other jurisdictions in which the Holder resides; provided
further, however, that no Warrant shall be exercisable after the fifth
anniversary of the date of the Closing.
In the event the Company enters into a Combination, the Holder will be
entitled to receive upon exercise of the Warrants the kind and amount of shares
of capital stock or other securities or other property of such surviving entity
as the Holder would have been entitled to receive upon or as a result of the
combination had the Holder exercised its Warrants immediately prior to such
Combination; provided, however, that in the event that, in connection with such
Combination, consideration to holders of Common Stock in exchange for their
shares is payable solely in cash or in the event of the dissolution, liquidation
or winding-up of the Company, the Holder will be entitled to receive such cash
distributions as the Holder would have received had the Holder exercised its
Warrants immediately prior to such Combination, less the Exercise Price.
As provided in the Warrant Agreement, the number of shares of Common
Stock issuable upon the exercise of the Warrants and the Exercise Price are
subject to adjustment upon the happening of certain events.
<PAGE> 31
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificate pursuant to Section 2.05 of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificate, the exercise of the
Warrants or the issuance of the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be countersigned
and issued to the Holder hereof a new Warrant Certificate representing those
Warrants which were not exercised. This Warrant Certificate may be exchanged at
the principal office of the Company by presenting this Warrant Certificate
properly endorsed with a request to exchange this Warrant Certificate for other
Warrant Certificates evidencing an equal number of Warrants. No fractional
Warrant Shares will be issued upon the exercise of the Warrants, but the Company
shall pay an amount in cash equal to the Current Market Value per Warrant Share
on the day immediately preceding the date the Warrants are exercised, multiplied
by the fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the exercise of
the Warrants shall, upon such issue, be duly and validly issued and fully paid
and non-assessable.
The Company shall be entitled to treat the Holder of the Warrant as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in the Warrant on the part of any other
Person, and shall not be liable for any registration or transfer of the Warrant
which is registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary.
The Warrant does not entitle any holder hereof to any of the rights of
a shareholder of the Company.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been attested by the Secretary or Assistant
Secretary of the Company.
TRUETIME, INC.
By:
----------------------------------
Name:
--------------------------------
Title: [President or Vice President]
DATED:
---------------------------------
Attest:
--------------------------------
Name:
----------------------------------
Title: [Secretary or Assistant Secretary]
<PAGE> 32
FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon
exercise of Warrants)
TRUETIME, INC.
The undersigned hereby irrevocably elects to exercise Warrants at an
exercise price per Warrant (subject to adjustment) of $[ ] to acquire shares of
Common Stock, par value $0.01 per share, of TrueTime, Inc. on the terms and
conditions specified within the Warrant Certificate and the Warrant Agreement
therein referred to, surrenders this Warrant Certificate and all right, title
and interest therein to TrueTime, Inc. and directs that the shares of Common
Stock deliverable upon the exercise of such Warrants be registered or placed in
the name and at the address specified below and delivered thereto.
Date:
--------------------------
-----------------------------
(Signature of Owner)
-----------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
[Signature must be guaranteed
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in an
approved guarantee medallion
program pursuant to
Securities and Exchange
Commission Rule b 17Ad-5]
Securities and/or check to be issued to:
Please insert social security or identifying number:
-----------------------
Name:
--------------------------------
Street Address:
----------------------
City, State and Zip Code:
------------
Any unexercised Warrants represented by the Warrant Certificate to be issued to:
Please insert social security or identifying number:
--------------------
Name:
--------------------------------
Street Address:
----------------------
City, State and Zip Code:
------------
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
[TRUETIME LOGO]
Incorporated Under the Laws of the State of Delaware
CUSIP: 897868 10 5
TR
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT [SPECIMEN]
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 EACH OF
TRUETIME, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly authorized officers and its facsimile seal to
be affixed hereto.
Dated:
Countersigned and Registered: [TRUETIME, INC. CORPORATE SEAL]
American Stock Transfer & Trust Company /s/ CHARLES H. STILL /s/ ELIZABETH A. WITHERS
Transfer Agent and Registrar
Secretary Secretary
By
Authorized Officer
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated:
--------------------------
X
----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
----------------------------------------
----------------------------------------
ALL GUARANTEES MUST BE MADE BY A
FINANCIAL INSTITUTION (SUCH AS A BANK OR
BROKER) WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM ("STAMP") THE NEW YORK STOCK
EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM ("MSP"), OR THE STOCK EXCHANGES
MEDALLION PROGRAM ("SEMP") AND MUST NOT
BE DATED. GUARANTEES BY A NOTARY PUBLIC
ARE NOT ACCEPTABLE
----------------------------------------
<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
December 10, 1999
TrueTime, Inc.
2835 Duke Court
Santa Rosa, California 95407
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (Registration No.
333-90269), as amended (the "Registration Statement"), filed by TrueTime, Inc.,
a Delaware corporation (the "Company"), with the Securities and Exchange
Commission under the Securities Act of 1933, relating to (i) the offer by the
Company of 1,500,000 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), and up to 450,000 shares of Common Stock that may be
sold by the Company in the event the underwriters for the offering elect to
exercise their over-allotment option and (ii) the offer by the selling
stockholder of the Company listed in the Registration Statement (the "Selling
Stockholder") of 1,500,000 shares of Common Stock.
As counsel to the Company, we have examined such corporate records,
documents and questions of law as we have deemed necessary or appropriate for
the purposes of this opinion. In such examinations, we have assumed the
genuineness of signatures and the conformity to the originals of the documents
supplied to us as copies. As to various questions of fact material to this
opinion, we have relied upon statements and certificates of officers and
representatives of the Company.
Upon the basis of such examination, we are of the opinion that:
(i) The 1,950,000 shares of Common Stock offered by the
Company, when sold in accordance with the terms agreed upon in the
Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement, will be legally issued, fully paid and nonassessable.
(ii) The 1,500,000 shares of Common Stock offered by the
Selling Stockholder have been legally issued and are fully paid and
nonassessable.
<PAGE> 2
TrueTime, Inc.
December 10, 1999
Page 2
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities Act
of 1933.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 10.3
TRUETIME, INC.
1999 NON-EMPLOYEE DIRECTOR PLAN
<PAGE> 2
TRUETIME, INC. 1999 NON-EMPLOYEE DIRECTOR PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
PURPOSE......................................................................................................... 1
ADMINISTRATION.................................................................................................. 2
AVAILABLE SHARES................................................................................................ 3
AUTHORITY TO GRANT OPTIONS AND STOCK............................................................................ 4
ELIGIBILITY FOR OPTIONS AND STOCK............................................................................... 5
OPTION GRANT SIZE AND GRANT DATES............................................................................... 6
OPTION PRICE.................................................................................................... 7
FAIR MARKET VALUE............................................................................................... 8
DURATION OF OPTIONS............................................................................................. 9
WHEN EXERCISABLE............................................................................................... 10
EXERCISE OF OPTIONS............................................................................................ 11
TRANSFERABILITY OF OPTIONS..................................................................................... 12
TERMINATION OF DIRECTORSHIP OF OPTIONEE........................................................................ 13
ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE.......................................................... 14
REQUIREMENTS OF LAW............................................................................................ 15
NO RIGHTS AS STOCKHOLDERS...................................................................................... 16
NO EMPLOYMENT OR NOMINATION OBLIGATION......................................................................... 17
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE..................................................................... 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
TERMINATION AND AMENDMENT OF PLAN.............................................................................. 19
WRITTEN AGREEMENT.............................................................................................. 20
COMPLIANCE WITH SEC REGULATIONS................................................................................ 21
GENDER......................................................................................................... 22
HEADINGS....................................................................................................... 23
GOVERNING LAW.................................................................................................. 24
</TABLE>
<PAGE> 4
TRUETIME, INC.
1999 Non-Employee Director Plan
1. PURPOSE. The 1999 Non-Employee Director Plan (the "Plan")
is a plan for non-employee directors and advisors to the Board of Directors (the
"Board") of TrueTime, Inc. (the "Company") and its subsidiary corporations and
is intended to advance the best interests of the Company, its subsidiaries and
its stockholders by providing the Company's non-employee directors an
opportunity to obtain or increase their proprietary interest in the success of
the Company and its subsidiaries by becoming owners of the common stock, $.01
par value, of the Company (the "Stock") or, in the event that the outstanding
shares of common stock are later changed into or exchanged for a different class
of stock or securities of the Company or another corporation, that other stock
or security.
2. ADMINISTRATION. The Plan shall be administered by the
Board. Subject to the terms of the Plan, the Board shall have the power to
construe the provisions of the Plan, or of options granted hereunder (the
"Options") or Stock issued hereunder, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for administering
the Plan as the Board deems desirable.
3. AVAILABLE SHARES. The total amount of the Stock with
respect to with Options and Stock paid in lieu of the directors' annual
retainers that may be granted under this Plan shall not exceed in the aggregate
150,000 shares; provided, that the class and aggregate number of shares of Stock
which may be granted hereunder shall be subject to adjustment in accordance with
the provisions of Paragraph 18 hereof. Such shares of Stock may be treasury
shares or authorized but unissued shares of Stock. In the event that any
outstanding Option for any reason shall expire or is terminated or cancelled,
the shares of Stock allocable to the unexercised portion of such Option may
again be subject to an Option or Options or Stock issuance under the Plan.
4. AUTHORITY TO GRANT OPTIONS AND STOCK. All Options granted
under the Plan shall be non-qualified stock options which are not intended to be
governed by section 422 of the Internal Revenue Code of 1986, as amended. No
Options or Stock shall be granted under the Plan subsequent to December 9, 2009.
5. ELIGIBILITY FOR OPTIONS AND STOCK. The individuals who
shall be eligible to receive Options under the Plan shall be the non-employee
directors ("Non-Employee Directors") and those Board advisors as the Board shall
from time to time determine (together with the NonEmployee directors, the
"Eligible Directors") of the Company.
6. OPTION GRANT SIZE AND GRANT DATES. (a) An option to
purchase 10,000 shares of Stock (as adjusted pursuant to Paragraph 18) shall be
granted to each Eligible Director on
1
<PAGE> 5
the closing date of the initial public offering ("IPO") of the Stock of this
Company at an exercise price equal to the per share price to the public, subject
to the closing of the IPO. (b) Thereafter, an Option to purchase 3,000 shares of
Stock (as adjusted pursuant to Paragraph 18) shall be granted each year to each
Eligible Director who continues to serve the Company in that capacity on the
date following the Annual Meeting of the stockholders of the Company ("Annual
Grants"). (c) Subject to the availability under the Plan of a sufficient
number of shares of Stock that may be issued upon the exercise of outstanding
Options, each person who shall become a Non-Employee Director after the closing
date of the IPO shall be granted, on the date of his election, whether by the
stockholders of the Company or the Board in accordance with applicable law, an
Option under the Plan to purchase 10,000 shares of Stock. Notwithstanding the
foregoing, no Non-Employee Director who has received an Option pursuant to
subsection (a) of this Paragraph shall be eligible to receive an Option
pursuant to this subsection (c).
7. OPTION PRICE. The price at which shares of Stock may be
purchased by an Eligible Director pursuant to an Option (the "Optionee") shall
be the fair market value of the shares of Stock on the date the Option is
granted.
8. FAIR MARKET VALUE. With respect to the initial option grant
described in Section 6(a), fair market value shall mean the IPO price. Fair
market value of the Stock as of any date thereafter means (a) the closing price
of the Stock on that date on the principal securities exchange on which the
Stock is listed; or (b) if the Stock is not listed on a securities exchange, the
average of the high and low sale prices of the Stock on that date as reported on
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system); or (c) if the Stock is not listed on the
National Association of Securities Dealers Automated Quotation National Market
System (or successor system), the average of the high and low bid quotations for
the Stock on that date as reported by the National Quotation Bureau
Incorporated; or (d) if none of the foregoing is applicable, an amount at the
election of the Board equal to (x) the average between the closing bid and ask
prices per share of Stock on the last preceding date on which those prices were
reported or (y) that amount as determined by the Board.
9. DURATION OF OPTIONS. The term of each Option hereunder
shall be ten years, and no Option shall be exercisable after the expiration of
ten years from the date such Option is granted.
10. WHEN EXERCISABLE. An Option shall be fully exercisable
from the date of grant for all purposes of this Plan.
11. EXERCISE OF OPTIONS. Options shall be exercised by the
delivery of written notice to the Company setting forth the number of shares of
Stock with respect to which the Option is to be exercised, together with cash,
wire transfer, certified check, bank draft or postal or express money order
payable to the order of the Company (the "Acceptable Funds") for an amount equal
to the Option price of such shares of Stock, or at the election of the Optionee,
by exchanging shares of Stock owned by the Optionee, so long as the total fair
market value (determined in accordance with Paragraph 8, as of the date of
exercise) of the exchanged shares of Stock plus the Acceptable Funds paid, if
any, equals the purchase price of the shares to be acquired upon exercise of
that Option, and specifying the address to which the certificates for such
shares are to be mailed. Whenever an Option is exercised by exchanging shares of
Stock theretofore owned by the Optionee: (1) no shares of Stock received upon
exercise of that Option thereafter may be exchanged to pay the Option price for
additional shares of Stock within the following six months; (2) the aggregate
fair market value
2
<PAGE> 6
of the shares of Stock tendered must be equal to or less than the aggregate
exercise price of the shares being purchased upon exercise of the Option, and
any difference must be paid in Acceptable Funds; and (3) the Optionee shall
deliver to the Company certificates registered in the name of such Optionee
representing a number of shares of Stock legally and beneficially owned by such
Optionee, free of all liens, claims, and encumbrances of every kind, accompanied
by stock powers duly endorsed in blank by the record holder of the share
represented by such certificates, with signature guaranteed by a commercial bank
or trust company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to the Secretary
of the Company, or may be sent by mail to the Secretary of the Company, in which
case delivery shall be deemed made on the date such notice is received. As
promptly as practicable after receipt of such written notification and payment,
the Company shall deliver to the Optionee certificates for the number of shares
with respect to which such Option has been so exercised, issued in the
Optionee's name; provided, that such delivery to the Optionee shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the
Optionee, at the address specified by the Optionee. The delivery of certificates
upon the exercise of Options is subject to the condition that the person
exercising such Option provide the Company with such information as the Company
may reasonably request to such exercise, sale or other disposition.
12. TRANSFERABILITY OF OPTIONS. Options shall not be
transferable by the Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's lifetime, only by
the Optionee or his legal guardian or representative.
13. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the
date of expiration of the Option, the Optionee shall cease to be a director of
the Company, the Option shall terminate on the earlier of the date of expiration
or three years after the date the Optionee ceases to be a director. In such
event, the Optionee shall have the right prior to the termination of such Option
to exercise all or any part of such Option, subject to Paragraph 10, if
applicable.
14. ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE. At
the Company's option, all or any portion of each Eligible Director's annual
retainer fee for service as a member of the Company's Board may be paid in Stock
(a "Stock Award"). If the Company elects to pay all or any portion of the annual
retainer fees in Stock, the shares of the Stock shall be issued the day
following each Annual Meeting of the stockholders of the Company, to each
Eligible Director who continues to serve on that date. The number of shares to
be issued shall be that number equal to (i) the lesser of all or that portion of
the annual retainer fee then in effect for service as a member of the Company's
Board to be paid in Stock divided by (ii) the fair market value of the Stock on
that date, as determined pursuant to Paragraph 8 above. No fractional shares
shall be issued, but the number of shares shall be rounded up to the nearest
whole share.
15. REQUIREMENTS OF LAW. The Company shall not be required to
issue any shares under any Option or as partial payment for annual retainer fees
if the issuance of such shares
3
<PAGE> 7
would be violated by the Optionee or the Company of any provisions of any law or
regulation of any governmental authority.
16. NO RIGHTS AS STOCKHOLDERS. No Optionee shall have rights
as a stockholder with respect to shares covered by an Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 18 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date thereof is prior to the date of issuance of
such certificate.
17. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of
any Option shall not require the Company or its stockholders to retain any
Optionee or to continue to nominate any Optionee for election as a director of
the Company.
18. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence
of outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property, then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under this
Plan shall be appropriately adjusted in such a manner as to entitle an Eligible
Director to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately prior to such merger,
consolidation or other reorganization), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than an entity wholly-owned by the
Company), (iii) the Company is to be dissolved, or (iv) the Company is a party
to any other corporate transaction (as defined under section 424(a) of the Code
and applicable Treasury Regulations) that is not described in clauses (i), (ii)
or (iii) of
4
<PAGE> 8
this sentence (each such event is referred to herein as a "Corporate Change"),
then (x) except as otherwise provided in an Option Agreement or as a result of
the Board's effectuation of one or more of the alternatives described below,
there shall be no acceleration of the time at which any Option then outstanding
may be exercised, and (y) no later than ten days after the approval by the
stockholders of the Company of such Corporate Change, the Board, acting in its
sole and absolute discretion without the consent or approval of any Optionee,
shall act to effect one or more of the following alternatives, which may vary
among individual Optionees and which may vary among Options held by any
individual Optionee:
(1) accelerate the time at which some or all of the Options
then outstanding may be exercised so that such Options may be exercised
in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Board, after which
specified date all such Options that remain unexercised and all rights
of Optionees thereunder shall terminate,
(2) require the mandatory surrender to the Company by all or
selected Optionees of some or all of the then outstanding Options held
by such Optionees (irrespective of whether such Options are then
exercisable under the provisions of this Plan or the Option Agreements
evidencing such Options) as of a date, before or after such Corporate
Change, specified by the Board, in which event the Board shall
thereupon cancel such Options and the Company shall pay to each such
Optionee an amount of cash per share equal to the excess, if any, of
the per share price offered to stockholders of the Company in
connection with such Corporate Change over the exercise price(s) under
such Options for such shares,
(3) with respect to all or selected Optionees, have some or
all of their then outstanding Options (whether vested or unvested)
assumed or have a new Option substituted for some or all of their then
outstanding Options (whether vested or unvested) by an entity which is
a party to the transaction resulting in such Corporate Change and which
is then employing him, or a parent or subsidiary of such entity,
provided that (A) such assumption or substitution is on a basis where
the excess of the aggregate fair market value of the shares subject to
the Option immediately after the assumption or substitution over the
aggregate exercise price of such shares is equal to the excess of the
aggregate fair market value of all shares subject to the Option
immediately before such assumption or substitution over the aggregate
exercise price of such shares, and (B) the assumed rights under such
existing Option or the substituted rights under such new Option as the
case may be will have the same terms and conditions as the rights under
the existing Option assumed or substituted for, as the case may be,
(4) provide that the number and class of shares of Stock
covered by an Option (whether vested or unvested) theretofore granted
shall be adjusted so that
5
<PAGE> 9
such Option when exercised shall thereafter cover the number and class
of shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled
pursuant to the terms of the agreement and/or plan relating to such
Corporate Change if, immediately prior to such Corporate Change, the
Optionee had been the holder of record of the number of shares of Stock
then covered by such Option, or
(5) make such adjustments to Options then outstanding as the
Board deems appropriate to reflect such Corporate Change (provided,
however, that the Board may determine in its sole and absolute
discretion that no such adjustment is necessary).
In effecting one or more of alternatives (3), (4) or (5)
above, and except as otherwise may be provided in an Option Agreement,
the Board, in its sole and absolute discretion and without the consent
or approval of any Optionee, may accelerate the time at which some or
all Options then outstanding may be exercised.
In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 4.5,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Board in its sole and absolute discretion as to the
number and price of shares of stock or other consideration subject to such
Options. In the event of any such change in the outstanding Stock, the aggregate
number of shares available under this Plan may be appropriately adjusted by the
Board, whose determination shall be conclusive.
The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options
or Stock Awards.
19. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors
of the Company may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion.
20. WRITTEN AGREEMENT. Each Option granted hereunder shall be
embodied in a written agreement (an "Option Agreement"), which shall be subject
to the terms and conditions prescribed above and shall be signed by the Eligible
Director and by the Chairman of the Board, the President or any Vice President
of the Company for and in the name and on behalf of the Company.
6
<PAGE> 10
21. COMPLIANCE WITH SEC REGULATIONS. It is the Company's
intent that the Plan comply in all respects with Rule 16b-3 of the Exchange Act,
and any successor rule pursuant thereto. If any provision of this Plan is later
found not to be in compliance with the Rule, the provision shall be deemed null
and void or shall be reformed by the Board in such manner so as to comply. All
grants of Options and issuance of Stock and all exercises of Options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and any regulations promulgated thereunder, so as to avoid the
consequences of noncompliance to the Eligible Directors.
22. GENDER. If the context requires, words of one gender when
used in this Plan shall include the others and words used in the singular or
plural shall include the other.
23. HEADINGS. Headings of Articles and Sections are included
for convenience of reference only and do not constitute part of the Plan and
shall not be used in construing the terms of the Plan.
24. GOVERNING LAW. This Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware, without reference to principles of conflict of laws, and shall be
construed accordingly.
7
<PAGE> 1
EXHIBIT 10.5
TAX SEPARATION AGREEMENT
dated as of December ___ , 1999
by and among
OYO CORPORATION U.S.A.
and
TRUE TIME, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. DEFINITIONS.........................................................................................-1-
SECTION 2. PREPARATION AND FILING OF TAX RETURNS...............................................................-6-
2.1 IN GENERAL..........................................................................................-6-
2.2 MANNER OF PREPARING AND FILING TAX RETURNS..........................................................-6-
2.3 AGENT...............................................................................................-7-
SECTION 3. PAYMENT OF TAXES TO TAX AUTHORITIES.................................................................-7-
3.1 FEDERAL INCOME TAXES................................................................................-8-
3.2 NON-FEDERAL COMBINED TAXES..........................................................................-8-
3.3 NON-FEDERAL SEPARATE TAXES..........................................................................-8-
3.4 OTHER FEDERAL TAXES.................................................................................-8-
3.5 TRANSFER TAXES......................................................................................-8-
SECTION 4. ALLOCATION OF TAXES.................................................................................-8-
4.1 TRUE TIME LIABILITY FOR FEDERAL INCOME TAXES AND NON-
FEDERAL COMBINED TAXES.........................................................................-8-
4.2 TRUE TIME FEDERAL INCOME TAX LIABILITY..............................................................-8-
4.3 TRUE TIME COMBINED TAX LIABILITY....................................................................-9-
4.4 COOPERATION.........................................................................................-9-
4.5 TAX SHARING INSTALLMENT PAYMENTS....................................................................-9-
4.6 TAX SHARING TRUE-UP PAYMENTS.......................................................................-10-
4.7 REDETERMINATION AMOUNTS............................................................................-10-
4.8 PAYMENT OF TAXES FOR POST-DECONSOLIDATION PERIODS..................................................-11-
SECTION 5. TAX ATTRIBUTES.....................................................................................-11-
5.1 ALLOCATION OF TAX ITEMS............................................................................-11-
5.2 POST-DECONSOLIDATION...............................................................................-12-
SECTION 6. ADDITIONAL OBLIGATIONS.............................................................................-12-
6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION....................................................-12-
6.2 INDEMNIFICATION. ..................................................................................-13-
6.3 TAX CONSEQUENCES OF PAYMENTS.......................................................................-13-
6.4 INTEREST...........................................................................................-15-
SECTION 7. AUDITS.............................................................................................-15-
7.1 IN GENERAL.........................................................................................-15-
7.2 NOTICE.............................................................................................-16-
7.3 FAILURE TO NOTIFY..................................................................................-16-
7.4 REMEDIES...........................................................................................-16-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8. DISPUTE RESOLUTION...............................................................................-16-
SECTION 9. IPO RELATED ITEMS................................................................................-16-
9.1 LIABILITY FOR DECONSOLIDATION TAXES; GOOD FAITH..................................................-16-
9.2 TAX REPORTING OF IPO RELATED ITEMS...............................................................-17-
9.3 AUDITS RELATING TO IPO...........................................................................-17-
SECTION 10. MISCELLANEOUS....................................................................................-17-
10.1 EFFECTIVENESS....................................................................................-17-
10.2 NOTICES..........................................................................................-17-
10.3 CHANGES IN LAW...................................................................................-18-
10.4 SUCCESSORS AND ASSIGNS...........................................................................-18-
10.5 AUTHORIZATION, ETC...............................................................................-18-
10.6 COMPLETE AGREEMENT...............................................................................-18-
10.7 INTERPRETATION...................................................................................-19-
10.8 GOVERNING LAW....................................................................................-19-
10.9 COUNTERPARTS.....................................................................................-19-
10.10 LEGAL ENFORCEABILITY.............................................................................-19-
10.11 NO THIRD PARTY BENEFICIARIES.....................................................................-19-
10.12 JURISDICTION; FORUM..............................................................................-19-
10.13 AMENDMENT AND MODIFICATION.......................................................................-20-
</TABLE>
-ii-
<PAGE> 4
TAX SEPARATION AGREEMENT
TAX SHARING AGREEMENT (this "Agreement"), dated as of December , 1999,
by and between OYO Corporation, U.S.A. ("OYO"), a Texas corporation, and True
Time, Inc. ("True Time"), a Delaware corporation and wholly-owned subsidiary of
OYO Corporation.
RECITALS
WHEREAS, OYO is the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504(a) of the Code (as defined
herein) and of consolidated, combined, unitary and other similar groups as
defined under similar laws of other jurisdictions, and True Time is a member of
such groups;
WHEREAS, the groups, of which OYO Corporation is the common parent and
True Time is a member, file or intend to file Consolidated Returns and Combined
Returns (as defined herein);
WHEREAS, the Board of Directors of OYO has determined that it is in the
best interests of OYO and its stockholders to offer 3,000,000 shares of Common
Stock, par value $.01 per share (the "Common Stock") of True Time for sale to
the public pursuant to an initial public offering (Registration No. 333-90269)
(the "IPO");
WHEREAS, it is appropriate and desirable to set forth the principles
and responsibilities of the parties to this Agreement regarding the allocation
of Taxes (as defined herein) and other related liabilities and adjustments with
respect to Taxes, Audits (as defined herein) and other related Tax matters.
NOW THEREFORE, in consideration of the premises or promises and the
mutual covenants contained herein and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS - Capitalized terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined).
"AUDIT" includes any audit, assessment of Taxes, other examination by
any Tax Authority (as defined herein), proceeding, or appeal of such a
proceeding relating to Taxes, whether administrative or judicial.
"CODE" means the United States Internal Revenue Code of 1986, as
amended, or any successor statute.
"COMBINED GROUP" means a group of corporations or other entities that
files a Combined Return (as defined herein) or a corporation or other entity
that files a Combined Return described in clause (ii) of the definition of
"Combined Return."
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"COMBINED RETURN" means any Tax Return (as defined herein) with respect
to NonFederal Taxes (as defined herein) (i) filed on a consolidated, combined
(including nexus combination, worldwide combination, domestic combination, line
of business combination or any other form of combination) or unitary basis
wherein True Time joins in the filing of such Tax Return (for any taxable period
or portion thereof) with OYO or one or more OYO Affiliates (as defined herein),
or (ii) pursuant to which Tax Items (as defined herein) or Tax Assets (as
defined herein) of (A) OYO (or any OYO Affiliate) are included on a separate Tax
Return of True Time or (B) True Time are included on a separate Tax Return of
OYO (or any OYO Affiliate).
"COMMON STOCK" has the meaning set forth in the recitals.
"CONSOLIDATED GROUP" means an affiliated group of corporations within
the meaning of Section 1504(a) of the Code that files a Consolidated Return.
"CONSOLIDATED RETURN" means any Tax Return with respect to Federal
Income Taxes (as defined herein) filed on a consolidated basis wherein True Time
joins in the filing of such Tax Return (for any taxable period or portion
thereof) with OYO or one or more OYO Affiliates.
"DECONSOLIDATION" means with respect to each Tax Return (i) any event
pursuant to which True Time ceases to be a subsidiary corporation includible in
the Consolidated Return, (ii) any event pursuant to which True Time ceases to
continue to be included in a Combined Return which includes OYO and/or an OYO
Affiliate, or (iii) any event pursuant to which a Tax Return described in clause
(ii) of the definition of Combined Return no longer includes Tax Items or Tax
Assets of both OYO (or any OYO Affiliate) and True Time.
"DECONSOLIDATION DATE" means the day on which a Deconsolidation occurs
(such as the IPO).
"DECONSOLIDATION TAX" means any Tax, resulting from a Deconsolidation,
taken into account under Section 1.1502-13 or Section 1.1502-19 or any
predecessor provision of the Treasury Regulations (as defined herein) (or any
similar provision under Non-Federal Tax law).
"ESTIMATED FEDERAL INCOME TAX INSTALLMENT DATE" means the installments
due dates prescribed in Sections 6655(c), (i) of the Code (presently January 15,
March 15, June 15 and September 15).
"FEDERAL INCOME TAX" means any Tax imposed under Subtitle A of the Code
or any other provision of United States federal Income Tax (as defined herein)
law (including the Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the
Code), and any interest, additions to Tax or penalties applicable or related
thereto.
"FEDERAL TAX" means any Tax imposed under the Code or otherwise under
United States federal Tax law.
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"FINAL DETERMINATION" means the final resolution of any Tax (or other
matter) for a taxable period, including related interest or penalties, that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including (1) by the expiration of a statute
of limitations or a period for the filing of claims for refunds, amending Tax
Returns, appealing from adverse determinations, or recovering any
refund(including by offset), (2) by a decision, judgment, decree, or other order
by a court of competent jurisdiction, which has become final and non-appealable,
(3) by a closing agreement or an accepted offer in compromise under Section 7121
or 7122 of the Code, or comparable agreements under laws of other jurisdictions,
(4) by execution of an Internal Revenue Service Form 870 or 870AD, or by a
comparable form under the laws of other jurisdictions (excluding, however, with
respect to a particular Tax Item for a particular taxable period any such form
that reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the Tax Authority to
assert a further deficiency with respect to such Tax Item for such period), or
(5) by any allowance of a refund or credit, but only after the expiration of all
periods during which such refund or credit may be recovered (including by way of
offset).
"INCOME TAX" means (a) any Tax based upon, measured by, or calculated
with respect to (1) net income or profits (including, without limitation, any
capital gains Tax, minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real or personal property, gross or net receipts, transfer
or similar Taxes) or (2) multiple bases if one or more of the bases upon which
such Tax may be based, measured by, or calculated with respect to, is described
in clause(1) above, or (b) any state or local franchise Tax.
"INDEMNIFIABLE LOSS DEDUCTION" has the meaning set forth in Section
6.3(b) of this Agreement.
"INDEMNIFIED LOSS" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEMNITEE" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEMNITOR" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEPENDENT FIRM" has the meaning set forth in Section 8 of this
Agreement.
"INTEREST ACCRUAL PERIOD" has the meaning set forth in Section 6.4 of
this Agreement.
"IPO" has the meaning set forth in the recital.
"LOSS" means all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to any Tax which is
the subject of a claim for indemnification under Section 6.2.
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"NON-FEDERAL COMBINED TAX" means any Non-Federal Tax with respect to
which a Combined Return is filed.
"NON-FEDERAL SEPARATE TAX" means any Non-Federal Tax other than a
Non-Federal Combined Tax.
"NON-FEDERAL TAX" means any Tax other than a Federal Tax.
"OYO AFFILIATE" means any corporation or other entity in which OYO owns
more than fifty percent (50%) of the total combined voting power (at any time
after the completion of the IPO, other than True Time.
"OYO GROUP" means the affiliated group of corporations as defined in
Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions, of which OYO is the
common parent, and any corporation or other entity which is a member of such
group for the relevant taxable period or portion thereof, but excluding True
Time.
"PAYMENT PERIOD" has the meaning set forth in Section 6.4 of this
Agreement.
"POST-DECONSOLIDATION PERIOD" means any taxable period with respect to
a Consolidated Return or Combined Return, as the case may be, beginning after a
Deconsolidation Date.
"PRE-DECONSOLIDATION PERIOD" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning and ending
on or before a Deconsolidation Date.
"PRIOR ARRANGEMENT" means Oyo's existing finance policy for allocation
of Taxes.
"PRIVILEGE" means any privilege that may be asserted under applicable
law including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client and work product privileges), the
accountant-client privilege, and any privilege relating to internal evaluation
processes.
"PRO FORMA TRUE TIME COMBINED RETURN" means a pro forma Non-Federal
Combined Tax return (or other schedule in connection therewith) prepared
pursuant to Section 4.3 of this Agreement.
"PRO FORMA TRUE TIME TAX RETURN" means a pro forma consolidated Federal
Income Tax return (or other schedule in connection therewith) prepared pursuant
to Section 4.2 of this Agreement.
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"RESTATED TAX SAVING AMOUNT" has the meaning set forth in Section
6.3(c) of this Agreement.
"SEPARATE RETURN" means any Tax Return with respect to Non-Federal
Separate Taxes filed by OYO, True Time, or any of their respective affiliates.
"SERVICE" means the Internal Revenue Service or any successor agency or
authority.
"STRADDLE PERIOD" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning on or
before the Deconsolidation Date and ending after the Deconsolidation Date.
"TAX" means any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway use,
commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, additions to tax, or
penalties applicable or related thereto.
"TAX ASSET" means any Tax Item that could reduce a Tax, including a net
operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction or credit related to alternative minimum tax or any other
Tax credit.
"TAX AUTHORITY" means a governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or
imposition of any Tax (including, without limitation, the Service).
"TAX ITEM" means any item of income, gain, loss, deduction or credit,
or other attribute that may have the effect of increasing or decreasing any Tax.
"TAX RETURN" means any return, report, certificate, form or similar
statement or document (including any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"TAX SAVING AMOUNT" has the meaning set forth in Section 6.3(b) of this
Agreement.
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"TRANSFER TAXES" means all transfer, documentary, sales, use,
registration, value-added and other similar Taxes (including any applicable real
estate transfer Taxes) and related amounts (including any penalties, interest
and additions to Tax) arising as a result of or otherwise incurred by any of the
parties hereto as a result of any of the transactions effected in connection
with the IPO.
"TREASURY REGULATIONS" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
"TRUE TIME COMBINED TAX LIABILITY" means, with respect to any taxable
period, True Time's liability for Non-Federal Combined Taxes as determined under
Section 4.3 of this Agreement.
"TRUE TIME FEDERAL INCOME TAX LIABILITY" means, with respect to any
taxable period, True Time's liability for Federal Income Taxes as determined
under Section 4.2 of this Agreement.
"TRUE TIME DECONSOLIDATION TAX RETURN" has the meaning set forth in
section 9.2(a) of this Agreement.
SECTION 2. PREPARATION AND FILING OF TAX RETURNS
2.1 IN GENERAL. (a) OYO shall have the sole and exclusive
responsibility for the preparation (except to the extent provided in Sections
2.2(c) and (d) of this Agreement) and filing of: (1) all Consolidated Returns
and (2) all Combined Returns. Notwithstanding the immediately preceding
sentence, True Time shall (subject to Section 2.2(b) of this Agreement) be
responsible for preparing and filing any Combined Return of True Time described
in clause (ii)(A) of the definition of "Combined Return."
(b) Except as otherwise provided in Section 2.1(a) of this Agreement,
True Time shall have the sole and exclusive responsibility for the preparation
and filing of all Tax Returns of True Time; provided that, for taxable periods
during all or part of which OYO owns directly or indirectly fifty percent (50%)
or more of the outstanding stock (by vote or value) of True Time, True Time
shall, at the request of OYO, submit such Tax Returns to OYO (no later than
fifteen (15) days prior to the due date for the filing of such Tax Returns
(taking into account applicable extensions)) for OYO's review and approval,
which approval shall not be unreasonably withheld.
2.2 MANNER OF PREPARING AND FILING TAX RETURNS. (a) All Tax Returns
filed after the date of this Agreement by OYO, any OYO Affiliate, or True Time
shall be (1) prepared in a manner that is consistent with Section 5.1 of this
Agreement, and (2) filed on a timely basis (taking into account applicable
extensions) by the party responsible for such filing under Section 2.1 of this
Agreement.
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(b) Subject to Sections 2.2(c) and (d) of this Agreement, OYO shall
have the exclusive right, in its sole discretion, with respect to any Tax Return
described in the first sentence of Section 2.1(a) of this Agreement(without
regard to which party is responsible for preparing and filing such Tax Return)
to determine (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions
and principles of taxation to be used and the manner in which any Tax Item shall
be reported, (2) whether any extensions may be requested, (3) the elections that
will be made by OYO, any OYO Affiliate, and True Time on such Tax Return, (4)
whether any amended Tax Returns shall be filed, (5) whether any claims for
refund shall be made, (6) whether any refunds shall be paid by way of refund or
credited against any liability for the related Tax, and (7) whether to retain
outside firms to prepare or review such Tax Return.
(c) True Time shall be responsible for preparing the portions of the
Consolidated Returns and Combined Returns (including making any related
elections) that relate exclusively to True Time. True Time shall submit (1) any
portions of the Tax Returns referred to in the immediately preceding sentence or
(2) any Combined Return referred to in the last sentence of Section 2.1(a) of
this Agreement to OYO at least forty-five (45) days (or such shorter period as
agreed to by OYO) prior to the due date for the filing of such Tax Returns
(taking into account applicable extensions) for OYO's review and approval, which
approval shall not be unreasonably withheld. True Time shall advise OYO, each
time that it delivers the portion of a Consolidated Return or Combined Return
for which it is responsible pursuant to this Section 2.2(c) or any Combined
Return referred to in the last sentence of Section 2.1(a) of this Agreement,
that there is substantial authority (within the meaning of Section 1.6662-4(d)
of the Treasury Regulations) with respect to United States federal, state and
local Tax Returns or similar appropriate authoritative support with respect to
any Tax Return other than United States federal, state and local Tax Returns for
each of the positions set forth on such portion of the Tax Return or such
Combined Return.
(d) True Time shall have the right to request that OYO file an amended
Tax Return or claim for refund relating to the portion of any Consolidated
Return or Combined Return which True Time is responsible for preparing under
Section 2.2(c) of this Agreement. True Time shall be responsible for preparing
the portion of such amended Tax Return or claim for refund relating to the
portion of the Consolidated Return or Combined Return which True Time is
responsible for preparing under Section 2.2(c) of this Agreement. True Time
shall submit such portion of the amended Tax Return or claim for refund to OYO
no later than forty-five (45) days prior to its filing for OYO's review and
approval, which approval shall not be unreasonably withheld.
2.3 AGENT. Subject to the other applicable provisions of this
Agreement, True Time hereby irrevocably designates OYO as its sole and exclusive
agent and attorney-in-fact to take such action (including execution of
documents) as OYO, in its sole discretion, may deem appropriate in any and all
matters (including Audits) relating to any Tax Return described in Section
2.1(a) of this Agreement. True Time agrees to execute such powers of attorney
and to take such other actions as may be necessary to confirm Oyo's status as
its agent hereunder.
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SECTION 3. PAYMENT OF TAXES TO TAX AUTHORITIES
3.1 FEDERAL INCOME TAXES. OYO shall pay (or cause to be paid) to the
Service all Federal Income Taxes with respect to any Consolidated Return due and
payable for all PreDeconsolidation Periods.
3.2 NON-FEDERAL COMBINED TAXES. OYO shall pay (or cause to be paid) to
the appropriate Tax Authorities all Non-Federal Combined Taxes with respect to
any Combined Return due and payable for all Pre-Deconsolidation Periods;
provided that, with respect to those Tax Returns described in clause (ii) of the
definition of "Combined Return," OYO shall pay (or cause to be paid) to the
appropriate Tax Authorities all Taxes due with respect to any Tax Return of OYO
(or any OYO Affiliate) and True Time shall pay (or cause to be paid) to the
appropriate Tax Authorities all Taxes due with respect to any Tax Return of True
Time.
3.3 NON-FEDERAL SEPARATE TAXES. True Time shall pay (or cause to be
paid) to the appropriate Tax Authorities all Non-Federal Separate Taxes of True
Time.
3.4 OTHER FEDERAL TAXES. The parties shall each pay (or cause to be
paid) to the appropriate Tax Authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Deconsolidation Periods which are
governed by Section 3.1 of this Agreement).
3.5 TRANSFER TAXES. True Time shall pay (or cause to be paid) to the
appropriate Tax Authorities all the Transfer Taxes.
SECTION 4. ALLOCATION OF TAXES
4.1 TRUE TIME LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL
COMBINED TAXES FOR PRE-DECONSOLIDATION PERIODS. For each Pre-Deconsolidation
Period, True Time shall be liable for and shall pay to OYO an amount equal to
the sum of the True Time Federal Income Tax Liability and the True Time Combined
Tax Liability for such taxable period in accordance with the Prior Arrangement.
4.2 TRUE TIME FEDERAL INCOME TAX LIABILITY FOR STRADDLE PERIODS.
With respect to each Straddle Period, the True Time Federal Income Tax Liability
for such taxable period shall be True Time's liability for Federal Income Taxes
for such taxable period, as determined on a Pro Forma True Time Tax Return
prepared: (a) on a basis consistent with the preparation of the Tax Return for
such period (including whether regular Tax or federal alternative minimum Tax
applies with respect to the Tax Return), determined by including only Tax Items
of True Time which are included in the Tax Return and by allocating Tax Assets
to True Time to the extent that the Tax Asset was created by True Time and such
Tax Asset was actually utilized on the relevant Tax Return; and (b) applying the
highest statutory marginal corporate income Tax rate in effect for such taxable
period (or portion thereof); provided that, in the event that the federal
alternative minimum Tax applies to the Tax Return, the True Time Federal Income
Tax Liability shall equal the lesser of
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(i) the alternative minimum Tax liability with respect to the Tax Return that
would result by including only Tax Items and Tax Assets of True Time included in
the Tax Return or (ii) the aggregate Tax liability payable with respect to such
Tax Return.
4.3 TRUE TIME COMBINED TAX LIABILITY FOR STRADDLE PERIODS. With
respect to any Straddle Period, the True Time Combined Tax Liability shall be
the sum for such taxable period of True Time's liability for each Non-Federal
Combined Tax, as determined on Pro Forma True Time Combined Returns prepared in
a manner consistent with the principles and procedures set forth in Section 4.2
hereof.
4.4 COOPERATION. (a) OYO and True Time shall prepare jointly any Pro
Forma True Time Tax Returns and Pro Forma True Time Combined Returns. OYO and
True Time agree to cooperate in good faith in connection with the preparation of
such pro forma tax returns and agree to make reasonably available any documents,
information or employees in connection therewith.
(b) The Pro Forma True Time Tax Returns and Pro Forma True Time
Combined Returns shall be completed no later than sixty (60) days following the
date on which the related Tax Return or Combined Return, as the case may be, is
filed with the appropriate Tax Authority. Any disputes relating to the reporting
of any Tax Item on the pro forma tax returns that have not been resolved within
the sixty (60) day period referred to in the immediately preceding paragraph
shall be referred to the Independent Firm, in accordance with the principles and
procedures set forth in Section 8 of this Agreement.
4.5 TAX SHARING INSTALLMENT PAYMENTS. (a) FEDERAL INCOME TAXES.
Not later than two (2) business days prior to each Estimated Federal Income Tax
Installment Date with respect to the Straddle Period, the parties shall,
consistent with past practice, determine under the principles of Section 6655 of
the Code the estimated amount of the related installment of the True Time
Federal Income Tax Liability. True Time shall pay to OYO no later than five (5)
business days after such Estimated Tax Installment Date the amount thus
determined. The parties acknowledge and agree that, for purposes of this Section
4.5(a), True Time has paid to OYO $0 as of the date hereof, with respect to the
taxable period beginning October 1, 1999.
(b) NON-FEDERAL COMBINED TAXES. (1) OYO TAX RETURNS. OYO shall, in
connection with any installment payment (payable with respect to any Combined
Return prepared and filed by OYO) with respect to Non-Federal Combined Taxes for
any Straddle Period, consistent with past practice, determine the estimated
amount of the related installment of the True Time Combined Tax Liability.
Within the first ten (10) business days of any month, OYO may provide True Time
with a written statement setting forth amounts owed by True Time in connection
with any installment payments with respect to Non-Federal Combined Taxes made by
OYO for the immediately preceding month and any other month for which a
statement has not previously been provided by OYO. True Time shall pay the
amounts set forth on any statement within seven (7) business days following the
receipt of such statement. The parties acknowledge and agree that, for
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purposes of this Section 4.5(b)(1), True Time has paid to OYO $0 in the
aggregate as of the date hereof, with respect to any Straddle Periods.
(2) TRUE TIME TAX RETURNS. True Time shall, in connection with
any installment payment (payable with respect to any Combined Return prepared
and filed by True Time) with respect to Non-Federal Combined Taxes for any
Straddle Period, consistent with past practice, determine the estimated amount
of the related installment of the True Time Combined Tax Liability. Within the
first ten (10) business days of any month, True Time may provide OYO with a
written statement setting forth amounts owed by OYO in connection with any
installment payments with respect to Non-Federal Combined Taxes made by True
Time for the immediately preceding month and any other month for which a
statement has not previously been provided by True Time. The amount payable by
OYO pursuant to the immediately preceding sentence shall equal the aggregate
amount of the installment payment made by True Time less the estimated amount of
the True Time Combined Tax Liability related to such installment as determined
in the first sentence of this Section 4.5(b)(2). OYO shall pay the amounts set
forth on any statement within seven (7) business days following the receipt of
such statement.
4.6 TAX SHARING TRUE-UP PAYMENTS . (a) FEDERAL INCOME TAXES. Not later
than fifteen (15) days following the completion of any Pro Forma True Time Tax
Return (as prepared initially or as revised), True Time shall pay to OYO, or OYO
shall pay to True Time, as appropriate, an amount equal to the difference, if
any, between the True Time Federal Income Tax Liability for the Straddle Period
and the aggregate amount paid by True Time with respect to such period under
Section 4.5(a) of this Agreement.
(b) NON-FEDERAL COMBINED TAXES. Not later than fifteen (15) days
following the completion of any Pro Forma True Time Combined Return, True Time
shall pay to OYO, or OYO shall pay to True Time, as appropriate, an amount equal
to the difference, if any, between the True Time Combined Tax Liability for any
Straddle Period and the amounts paid by True Time with respect to such period
under Sections 4.5(b)(1) and (2) of this Agreement. For purposes of this Section
4.6(b), the amounts paid by True Time under (i) Section 4.5(b)(1) shall be the
amounts paid to OYO and (ii) Section 4.5(b)(2) shall be the amounts paid to the
relevant Tax Authority less any amounts received from OYO.
4.7 REDETERMINATION AMOUNTS. (a) STRADDLE PERIODS. For any Straddle
Period, in the event of a redetermination of any Tax Item of any member of a
Consolidated Group or Combined Group as a result of a Final Determination, the
filing of a Tax refund claim or the filing of an amended Tax Return pursuant to
which Taxes are paid to a Tax Authority or a refund of Taxes is received from a
Tax Authority, OYO and True Time shall prepare jointly, in accordance with the
principles and procedures set forth in Sections 4.2 and 4.3, revised Pro Forma
True Time Tax Returns and/or revised Pro Forma True Time Combined Returns, as
appropriate, to reflect the redetermination of such Tax Item as a result of such
Final Determination, filing of a Tax refund claim or filing of an amended Tax
Return such pro forma tax returns to be completed no later than 60 days
following the date of the Final Determination, the filing of the tax refund
claim or the
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amended tax return, as the case may be. Following the completion of such revised
pro forma tax returns, True Time's obligations under Sections 4.2 and 4.6 hereof
to make or receive payments shall be redetermined, and True Time shall make or
receive such payments within 15 days of the completion of the revised Pro Forma
True Time Tax Returns.
(b) PRE-DECONSOLIDATION PERIODS. For any Pre-Deconsolidation Period, in
the event of a redetermination of any Tax Item of any member of a Consolidated
Group or Combined Group as a result of a Final Determination, the filing of a
Tax refund claim or the filing of an amended Tax Return pursuant to which Taxes
are paid to a Tax Authority or a refund of Taxes is received from a Tax
Authority, OYO and True Time shall prepare jointly, in accordance with the
principles and procedures set forth in Sections 4.2 and 4.3, Pro Forma True Time
Tax Returns and Pro Forma True Time Combined Returns, as appropriate, both
without regard to the redetermined Tax Item(which may be different than the
amount allocated to True Time under the Prior Agreement) and with regard to the
redetermined Tax Item, such pro forma tax returns to be completed no later than
60 days following the date of the Final Determination, the filing of the Tax
refund claim or the amended Tax Return, as the case may be. Following the
completion of such revised pro forma returns, True Time shall pay to OYO the
amount by which True Time's Tax liability reflected on the pro forma tax return
with regard to the redetermined Tax Item exceeds True Time's Tax liability
reflected on the pro forma tax return without regard to the redetermined Tax
Item, and OYO shall pay to True Time the amount by which True Time's Tax
liability reflected on the pro forma tax return without regard to the
redetermined Tax Item exceeds True Time's Tax liability reflected on the pro
forma tax return with regard to the redetermined Tax Item, in either case such
payment to be made within 15 days of the completion of the pro forma tax returns
dealing with the redetermined Tax Item.
4.8 PAYMENT OF TAXES FOR POST-DECONSOLIDATION PERIODS. Except as
otherwise provided in this Agreement, OYO shall pay or cause to be paid all
Taxes and shall be entitled to receive and retain all refunds of Taxes with
respect to Tax Returns relating to PostDeconsolidation Periods for which OYO has
filing responsibility, including under this Agreement. Except as otherwise
provided in this Agreement, True Time shall pay or cause to be paid all Taxes
and shall be entitled to receive and retain all refunds of Taxes with respect to
Tax Returns relating to Post- Deconsolidation Periods for which True Time has
filing responsibility, including under this Agreement.
SECTION 5. TAX ATTRIBUTES
5.1 ALLOCATION OF TAX ITEMS. (a) IN GENERAL. All Tax computations for
(i) any Pre-Deconsolidation Period, (ii) the immediately following taxable
period of True Time or any True Time Affiliate and (iii) any Straddle Period,
shall be made pursuant to the principles of Section1.1502-76(b) of the Treasury
Regulations or of a corresponding provision under the laws of other
jurisdictions and, to the extent possible, in a manner consistent with the
principles set forth in Section 4.2(a) and (b) of this Agreement.
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(b) REATTRIBUTION. In the event of a Deconsolidation, OYO may, at its
option, elect to reattribute to itself certain Tax Items of True Time pursuant
to Section 1.1502-20(g) of the Treasury Regulations. If OYO makes such election,
True Time shall comply with the requirements of Section1.1502-20(g)(5) of the
Treasury Regulations.
5.2 POST-DECONSOLIDATION. To the extent permitted by applicable law,
following any Deconsolidation and except as otherwise provided herein, the
relevant Tax Assets with respect to the Consolidated Group or Combined Group, as
the case may be, shall be allocated to the corporation or entity that created or
generated the Tax Asset.
SECTION 6. ADDITIONAL OBLIGATIONS
6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION. (a) OYO,
OYO Affiliates, and True Time shall (1) furnish to the other in a timely manner
such information, documents and other materials as the other may reasonably
request for purposes of (i) preparing any Tax Return (or pro forma Tax return
prepared in accordance with Section 4 hereof) or portion hereof for which the
other has responsibility for preparing under this Agreement, (ii) contesting or
defending any Audit, and (iii) making any determination or computation necessary
or appropriate under this Agreement, (2) make its employees available to the
other to provide explanations of documents and materials and such other
information as the other may reasonably request in connection with any of the
matters described in subclauses (i), (ii) and (iii)of clause (1) above, (3)
reasonably cooperate in connection with any Audit.
(b) OYO, OYO Affiliates and True Time shall retain and provide on
reasonable demand to each other books, records, documentation or other
information relating to any Tax Return or Audit, with respect to any taxable
period in which OYO owns, directly or indirectly, 50% or more (by vote or value)
of the outstanding stock of True Time, until the later of (i) the expiration of
the applicable statute of limitations (after giving effect to any extension,
waiver, or mitigation thereof) and (ii) in the event any claim is made under
this Agreement or by any Tax Authority for which such information is relevant,
until a Final Determination is reached with respect to such claim.
Notwithstanding anything to the contrary included in this Agreement, the parties
will comply in all respects with the requirements of any applicable record
retention agreement with the Service or other Tax Authority.
(c) Notwithstanding any other provision of this Agreement, no member of
the OYO Group shall be required to provide True Time access to or copies of (1)
any Tax information that relates exclusively to any member of the OYO Group, (2)
any Tax information as to which any member of the OYO Group is entitled to
assert the protection of any Privilege, or (3) any Tax information as to which
any member of the OYO Group is subject to an obligation to maintain the
confidentiality of such information. OYO shall use reasonable efforts to
separate any such information from any other information to which True Time is
entitled to access or to which True Time is entitled to copy under this
Agreement, to the extent consistent with preserving its rights under this
Section 6.1(c).
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(d) Notwithstanding any other provision of this Agreement, with respect
to Tax information that relates to any taxable period in which True Time is no
longer included in the Consolidated Group of which OYO is the common parent and
no Combined Return is filed, True Time shall not be required to provide OYO or
any OYO Affiliate access to or copies of (1) any Tax information as to which
True Time is entitled to assert the protection of any Privilege or (2) any Tax
information as to which True Time is subject to an obligation to maintain the
confidentiality of such information. True Time shall use reasonable efforts to
separate any such information from any other information to which OYO is
entitled to access or to which OYO is entitled to copy under this Agreement, to
the extent consistent with preserving its rights under this Section 6.1(d).
6.2 INDEMNIFICATION. (a) FAILURE TO PAY. OYO and each OYO Affiliate
shall jointly and severally indemnify True Time and its directors, officers and
employees, and it and each of them hold them harmless from and against any Tax
or Loss that is attributable to, or results from the failure of OYO or any OYO
Affiliate to make any payment required to be made under this Agreement. True
Time shall jointly and severally indemnify OYO, each OYO Affiliate and their
respective directors, officers and employees, and hold each of them harmless
from and against any Tax or Loss that is attributable to, or results from, the
failure of True Time to make any payment required to be made under this
Agreement.
(b) INACCURATE OR INCOMPLETE INFORMATION. OYO and each OYO Affiliate
shall jointly and severally indemnify True Time and its directors, officers and
employees, and hold it and each of them harmless from and against any Tax or
Loss attributable to the negligence of OYO or any OYO Affiliate in supplying
True Time with inaccurate or incomplete information, in connection with the
preparation of any Tax Return or any Audit. True Time shall jointly and
severally indemnify OYO, each OYO Affiliate and their respective directors,
officers and employees, and hold each of them harmless from and against any Tax
or Loss attributable to the negligence of True Time in supplying OYO or any OYO
Affiliate with inaccurate or incomplete information, in connection with the
preparation of any Tax Return or any Audit.
6.3 TAX CONSEQUENCES OF PAYMENTS. (a) TAX CHARACTERIZATION OF PAYMENTS.
For all Tax purposes and notwithstanding any other provision of this Agreement,
to the extent permitted by applicable law, the parties hereto shall treat any
payment made pursuant to this Agreement (other than any payment made in
satisfaction of an intercompany obligation) as a payment of its share of Taxes
or as a capital contribution or dividend distribution, as the case may be,
immediately prior to the date hereof and, accordingly, as not includible in the
taxable income of the recipient. If, as a result of a Final Determination, it is
determined that the receipt or accrual of any payment made under this Agreement
is taxable to the Indemnitee (as defined in Section 6.3(b) of this Agreement),
the Indemnitor (as defined in Section 6.3(b) of this Agreement) shall pay to the
Indemnitee an amount equal to any increase in the Income Taxes of the Indemnitee
as a result of receiving the payment from the Indemnitor (grossed up to take
into account such payment, if applicable).
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(b) ADJUSTMENTS TO PAYMENTS. Any party that has received a
payment("Indemnitee") under this Agreement from another party ("Indemnitor")
with respect to any Taxes suffered or incurred by the Indemnitee ("Indemnified
Loss") shall pay to such Indemnitor an amount equal to any "Tax Saving Amount"
realized by the Indemnitee promptly upon its receipt. For purposes of this
Section 6.3(b), the Tax Saving Amount shall equal the amount by which the Income
Taxes of the Indemnitee or any of its affiliates are reduced (including, without
limitation, through the receipt of a refund, credit or otherwise), plus any
related interest received from a Tax Authority, as a result of claiming as a
deduction or offset on any relevant Tax Return amounts attributable to an
Indemnified Loss (the "Indemnifiable Loss Deduction"), net of the amount by
which the Income Taxes of the Indemnitee or any of its affiliates are increased
(including, without limitation, through the receipt of a refund, credit or
otherwise), plus any related interest assessed by a Tax Authority as a result of
reporting the indemnity payment on any relevant Tax Return.
(c) REPORTING OF INDEMNIFIABLE LOSS. In the event that an Indemnitee
incurs an Indemnified Loss, such Indemnitee shall claim as a deduction or offset
on any relevant Tax Return (including, without limitation, any claim for
refund)such Indemnified Loss to the extent such position is supported by
"substantial authority" (within the meaning of Section 1.6662-4(d) of the
Treasury Regulations) with respect to United States federal, state and local Tax
Returns or has similar appropriate authoritative support with respect to any Tax
Return other than United States federal, state and local Tax Returns. The
Indemnitee shall have primary responsibility for the preparation of its Tax
Returns and reporting thereon such Indemnifiable Loss Deduction; provided, that
the Indemnitee shall consult with, and provide the Indemnitor with a reasonable
opportunity to review and comment on the portion of the Indemnitee's Tax Return
relating to the Indemnified Loss. If a dispute arises between the Indemnitee and
the Indemnitor as to whether there is "substantial authority" (with respect to
United States federal, state and local Tax Returns) or similar appropriate
authoritative support (with respect to any Tax Return other than United States
federal, state and local Tax Returns) for the claiming of an Indemnifiable Loss
Deduction, such dispute shall be resolved in accordance with the principles and
procedures set forth in Section 8 of this Agreement. Both OYO and True Time
shall act in good faith to coordinate their Tax Return filing positions with
respect to the taxable periods that include an Indemnifiable Loss Deduction.
There shall be an adjustment to any Tax Saving Amount calculated under Section
6.3(b) hereof in the event of an Audit which results in a Final Determination
that increases or decreases the amount of the Indemnifiable Loss Deduction
reported on any relevant Tax Return of the Indemnitee. The Indemnitee shall
promptly inform the Indemnifying Party of any such Audit and shall attempt in
good faith to sustain the Indemnifiable Loss Deduction at issue in the Audit.
Upon receiving a written notice of a Final Determination in respect of an
Indemnifiable Loss Deduction, the Indemnitee shall redetermine the Tax Saving
Amount attributable to the Indemnifiable Loss Deduction under Section 6.3(b)
hereof, taking into account the Final Determination (the "Restated Tax Saving
Amount"). If the Restated Tax Saving Amount is greater than the Tax Saving
Amount, the Indemnitee shall promptly pay the Indemnitor an amount equal to the
difference between such amounts. If the Restated Tax Saving Amount is less than
the Tax Saving Amount, then the Indemnitor shall promptly pay the Indemnitee an
amount equal to the difference between such amounts.
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6.4 INTEREST. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement, or if no period is prescribed,
within fifteen (15) days after demand for payment is made (the "Payment Period")
shall bear interest for the period from and including the date immediately
following the last date of the Payment Period through and including the date of
payment (the "Interest Accrual Period") at a per annum rate equal to the
long-term applicable federal rate ("AFR") in effect on the last day of such
Payment Period, plus 200 basis points. Such interest will be payable at the same
time as the payment to which it relates and shall be calculated on the basis of
a year of 365 days and the actual number of days for which due.
SECTION 7. AUDITS
7.1 IN GENERAL. (a) Subject to Section 7.1(b) of this Agreement, OYO
shall have the exclusive right, in its sole discretion, to control, contest, and
represent the interests of OYO, any OYO Affiliate, and True Time in any Audit
relating to any Tax Return described in Section 2.1(a) of this Agreement (other
than those returns described in clause (ii)(A) of the definition of "Combined
Returns") and to resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with or as a result of any such
Audit. OYO's rights shall extend to any matter pertaining to the management and
control of an Audit, including, without limitation, execution of waivers, choice
of forum, scheduling of conferences and the resolution of any Tax Item.
(b) True Time shall have the right to control, contest and represent
the interests of True Time in any Audit relating directly to any Tax Item
included on the portion of any Consolidated Return or Combined Return (such as
those returns described in clause (ii)(A) of the definition of "Combined
Return") which True Time is responsible for preparing pursuant to Section 2.2(c)
of this Agreement and to resolve, settle or agree to any deficiency, claim or
adjustment proposed, asserted or assessed in connection with or as a result of
such Audit; provided that, the entering into of any such resolution, settlement
or agreement or any decision in connection with (including the entering into of)
any judicial or administrative proceeding relating to Taxes shall be subject to
the review and approval of OYO, which approval shall not be unreasonably
withheld.
(c) True Time shall have the exclusive right, in its sole discretion,
to control, contest, and represent the interests of True Time in any Audit
relating to any Tax Return described in Section 2.1(b) of this Agreement as the
sole responsibility of True Time and to resolve, settle, or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Audit; provided that, for taxable periods during
all or part of which OYO owns fifty percent (50%) or more of the outstanding
stock (by vote or value) of True Time, the entering into of any such resolution,
settlement or agreement or any decision in connection with (including the
entering into of) any judicial or administrative proceeding relating to Taxes
shall be subject to OYO's review and approval, which approval shall not be
unreasonably withheld.
7.2 NOTICE. If OYO or any member of the OYO Group receives written
notice of, or relating to, an Audit from a Tax Authority that asserts, proposes
or recommends a deficiency, claim or adjustment that, if sustained, would result
in the redetermination of a Tax Item of a member of
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True Time, OYO shall promptly provide a copy of such notice to True Time (but in
no event later than thirty (30) days following the receipt of such notice). If
any member of True Time receives written notice of, or relating to, an Audit
from a Tax Authority with respect to a Tax Return described in Section 2.1(a) of
this Agreement, True Time shall promptly provide a copy of such notice to OYO
(but in no event later than thirty (30) days following the receipt of such
notice).
7.3 FAILURE TO NOTIFY. The failure of OYO or True Time to notify the
other of any matter relating to a particular Tax for a taxable period or to take
any action specified in this Agreement shall not relieve such other party of any
liability and/or obligation which it may have under this Agreement with respect
to such Tax for such taxable period except to the extent that such other party's
rights hereunder are materially prejudiced by such failure.
7.4 REMEDIES. True Time agrees that no claim against OYO and no defense
to True Time's liabilities to OYO under this Agreement shall arise from the
resolution by OYO of any deficiency, claim or adjustment relating to the
redetermination of any Tax Item of OYO or an OYO Affiliate.
SECTION 8. DISPUTE RESOLUTION. In the event that OYO, on the one hand, and True
Time, on the other hand, disagree as to the amount or calculation of any payment
to be made under this Agreement, or the interpretation or application of any
provision under this Agreement, the parties shall attempt in good faith to
resolve such dispute. If such dispute is not resolved within sixty (60) days
following the commencement of the dispute, OYO and True Time shall jointly
retain a tax attorney that is a member of a nationally recognized law firm or
"big five" accounting firm, which firm is independent of both parties (the
"Independent Firm"), to resolve the dispute. The Independent Firm shall act as
an arbitrator to resolve all points of disagreement and its decision shall be
final and binding upon all parties involved. Following the decision of the
Independent Firm, OYO and True Time shall each take or cause to be taken any
action necessary to implement the decision of the Independent Firm. The fees and
expenses relating to the Independent Firm shall be borne equally by OYO and True
Time.
SECTION 9. IPO RELATED ITEMS.
9.1 LIABILITY FOR DECONSOLIDATION TAXES; GOOD FAITH. Notwithstanding
any other provision of this Agreement, OYO shall be responsible for the payment
of, and shall indemnify and hold True Time harmless from and against
Deconsolidation Taxes, except those Deconsolidation Taxes related to the
intercompany items attributed to True Time under section 1.1502-13 of the
Treasury Regulations which shall be the liability and obligation of True Time.
Each of the parties hereto agrees to act in good faith and without negligence in
connection with the Tax reporting of and all other aspects related to the Tax
consequences of the IPO and Deconsolidation and shall be responsible for any
Taxes or Losses arising from any failure to act in good faith or any negligent
act or omission with respect thereto.
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9.2 TAX REPORTING OF IPO RELATED ITEMS. Any Tax Return (or portion
thereof) that includes any Tax Item relating to any Deconsolidation (to the
extent resulting in Deconsolidation Taxes) shall be prepared and filed by the
party responsible for preparing and filing such Tax Return (or portion thereof)
under Sections 2.1 and 2.2 of this Agreement; provided that, notwithstanding any
other provision of this Agreement, if True Time is the party responsible for
preparing any such Tax Return (or portion thereof) (each a "True Time
Deconsolidation Tax Return"), True Time shall provide any such True Time
Deconsolidation Tax Return (or portion thereof) to OYO (no later than forty-five
(45) days (or such shorter period as agreed to by OYO) prior to the due date for
the filing of such Tax Return (taking into account applicable extensions)), for
OYO's review and approval, which approval, to the extent it relates to any Tax
Item relating to any Deconsolidation (to the extent resulting in Deconsolidation
Taxes), may be withheld by OYO in its sole discretion and any such Tax Item
shall be reported as determined by OYO in its sole discretion (so long as such
reporting position is supported by "substantial authority" (within the meaning
of Section 1.6662-4(d) of the Treasury Regulations) with respect to United
States federal, state and local Tax Returns or has similar appropriate
authoritative support with respect to any Tax Return other than United States
federal, state and local Tax Returns).
9.3 AUDITS RELATING TO IPO. Notwithstanding any other provision of this
Agreement, OYO shall have the exclusive right, or its sole discretion, to
control, contest, and represent the interests of OYO, any OYO Affiliate, or True
Time in any Audit with respect to Tax Items related to the Deconsolidation (to
the extent resulting in Deconsolidation Taxes), and to resolve, settle or agree
to any deficiency, claim or adjustment proposed, asserted or assessed in
connection with or as a result of any such Audit. OYO's rights shall extend to
any matter pertaining to the management and control of an Audit, including
execution of waivers, choice of forum, scheduling of conferences and there
solution of any Tax Item.
SECTION 10. MISCELLANEOUS
10.1 EFFECTIVENESS. This Agreement shall become effective upon
execution by both parties hereto.
10.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and, unless otherwise provided herein,
shall be deemed to have been duly given (i) on the date of service if served
personally on the party to whom notice is given, (ii) on the day of transmission
if sent via facsimile transmission to the facsimile number given below;
provided, telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the business day after delivery to an
overnight courier service or the Express mail service maintained by the United
States Postal Service; provided, receipt of delivery has been confirmed, or
(iv)on the fifth day after mailing; provided, receipt of delivery is confirmed,
if mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, properly addressed and return-receipt
requested, to the party as follows:
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If to OYO or any OYO Affiliate, to:
OYO Corporation U.S.A.
Attn: Mr. Ernest M. Hall, Jr.
7334 Gessner Road
Houston, Texas 77040
Telephone: (713) 939-9700
If to True Time to:
TRUE TIME, INC.
2835 Duke Court
Santa Rose, CA 95407
Telephone: (707) 528-1230
Facsimile:
Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.
10.3 CHANGES IN LAW. Any reference to a provision of the Code or a law
of another jurisdiction shall include a reference to any applicable successor
provision or law.
10.4 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either
party without the prior written consent of the other party.
10.5 AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
10.6 COMPLETE AGREEMENT. This Agreement shall constitute the entire
agreement between OYO or any OYO Affiliate and True Time with respect to the
subject matter hereof and shall supersede all previous agreements (including the
Prior Arrangement which shall be terminated between Oyo and True Time on the
effective date of the IPO), negotiations, commitments and writings with respect
to such subject matter. Notwithstanding the Prior Arrangement shall be
terminated on the effective date of the IPO, the Taxes allocated to True Time
under the Prior
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Arrangement for Pre-Deconsolidation Periods shall remain so allocated with only
the Pre- Deconsolidation Period redetermination amounts determined after the
effective date of the IPO and any ancillary effects thereto to be determined
under this Agreement. Unless the context indicates otherwise, any reference to
True Time in this Agreement shall refer to True Time and any reference to OYO in
this Agreement shall refer to OYO and the OYO Affiliates.
10.7 INTERPRETATION. The Section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. Whenever any words are used herein in the masculine gender, they
shall be construed as though they were also used in the feminine gender in all
cases where they would so apply.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas (regardless of
the laws that might otherwise govern under applicable principles of conflicts
law) as to all matters, including, without limitation, matters of validity,
construction, effect, performance and remedies.
10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.11 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of OYO, the OYO Affiliates, and True Time, and is not intended to confer
upon any other person any rights or remedies hereunder.
10.12 JURISDICTION; FORUM. (a) By the execution and delivery of this
Agreement, OYO, OYO Affiliates and True Time submit to the personal jurisdiction
of any state or federal court in the State of Texas in any suit or proceeding
arising out of or relating to this Agreement.
(b) To the extent that OYO, OYO Affiliates, and True Time, has or
hereafter may acquire any immunity from jurisdiction of any Texas court or from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) with respect
to itself or its property, OYO, OYO Affiliates, or True Time, as the case may
be, hereby irrevocably waives such immunity in respect of its obligations with
respect to this Agreement.
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(c) The parties hereto agree that an appropriate and convenient,
non-exclusive forum for any disputes between any of the parties hereto or the
OYO Affiliates arising out of this Agreement shall be in any state or federal
court in the State of Texas.
10.13 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.
OYO CORPORATION U.S.A.
on behalf of itself and the OYO Affiliates
By_______________________________________
Name: Ernest M. Hall, Jr.
Title: President
TRUE TIME, INC.
By_______________________________________
Name: Michael P. Von der Porten
Title: Vice President and Chief Financial Officer
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 2, 1999, except for Note 8, as to which the date is
December 1, 1999, relating to the financial statements of TrueTime, Inc. which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Houston, Texas
December 15, 1999
