<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
REGISTRATION NO. 333-03629
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PRINTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3577 41-1522267
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
1270 EAGAN INDUSTRIAL ROAD
ST. PAUL, MN 55121
(612) 456-1400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
DANIEL A. BAKER, PH.D.
PRINTWARE, INC.
1270 EAGAN INDUSTRIAL ROAD
ST. PAUL, MN 55121
(612) 456-1400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPY TO:
Richard D. McNeil, Esq. Michele D. Vaillancourt, Esq.
Mary S. Giesler, Esq. Trevor V. Gunderson, Esq.
Lindquist & Vennum P.L.L.P. Winthrop & Weinstine, P.A.
4200 IDS Center 3000 Dain Bosworth Plaza
80 South 8th Street 60 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 371-3211 (612) 347-0700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value.............. 1,840,000 $7.00 $12,880,000 $4,441.02
</TABLE>
(1) Includes 240,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
PRINTWARE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Additional Information;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Outside Front Cover Page; Prospectus Summary; Risk
Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal and Selling Shareholders; Outside Front
Cover Page; Inside Front Cover Page; Underwriting
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........... Prospectus Summary; Dividend Policy; Capitalization;
Description of Capital Stock
10. Interest of Named Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant........... Outside Front Cover Page; Prospectus Summary; Risk
Factors; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal and
Selling Shareholders; Description of Capital Stock
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 18, 1996
PROSPECTUS
1,600,000 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 1,600,000 shares of Common Stock offered hereby, 1,200,000 are being
sold by Printware, Inc. ("Printware" or the "Company") and 400,000 shares are
being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
the shares by the Selling Shareholders.
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company and no assurance can be given that a market will
develop or be maintained after the Offering. It is currently estimated that the
initial public offering price will be between $6.00 and $7.00 per share. See
"Underwriting" for the factors considered in determining the initial public
offering price. The Company has applied for listing of the Common Stock on the
Nasdaq National Market under the symbol "PRTW."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE SENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3).................. $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders, on a pro rata basis, have agreed
to pay R. J. Steichen & Company, as the representative of the Underwriters
(the "Representative"), a nonaccountable expense allowance equal to 2.0% of
the total Price to Public for all shares purchased. The Company has also
agreed to sell to the Representative, for nominal consideration, a five-year
warrant (the "Representative's Warrant") to purchase up to 120,000 shares of
Common Stock exercisable at a price per share equal to 120% of the per share
Price to Public. The Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated offering expenses payable of $393,000, which
includes the portion of the nonaccountable expense allowance described in
Note 1 above which is being paid by the Company.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 240,000 additional shares of Common Stock
solely to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ , respectively.
See "Underwriting."
The shares of Common Stock are offered by the Underwriters on a "firm
commitment" basis subject to prior sale when, as and if delivered to and
accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made on or about , 1996 in Minneapolis, Minnesota.
[R.J. STEICHEN LOGO]
The date of this Prospectus is , 1996
<PAGE>
[Inside Front Cover Graphics]
Photo: Printware's Model 3240 Platesetter
Text above photo: Printware, Inc. is a leader in Computer-to-Plate
Systems, which produce offset printing plates
faster and less expensively than traditional
methods.
Text below photo: Printware's Model 3240 Platesetter, sold under the
Mitsubishi name, produces photographic offset
printing plates directly from a computer.
PRIOR TO THIS OFFERING, THE COMPANY HAS NOT BEEN SUBJECT TO THE REPORTING
REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934. AFTER COMPLETION OF THIS
OFFERING, THE COMPANY INTENDS TO DISTRIBUTE TO ITS STOCKHOLDERS AN ANNUAL REPORT
CONTAINING AUDITED FINANCIAL STATEMENTS AND QUARTERLY REPORTS CONTAINING
UNAUDITED FINANCIAL INFORMATION FOR THE FIRST THREE QUARTERS OF EACH FISCAL
YEAR.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY PROSPECTIVE INVESTORS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) DOES NOT INCLUDE UP TO 120,000 SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE REPRESENTATIVE'S WARRANT, AND
(III) REFLECTS A ONE-FOR-FOUR REVERSE SPLIT OF THE COMMON STOCK EFFECTIVE APRIL
25, 1996. SEE "DESCRIPTION OF CAPITAL STOCK." THIS PROSPECTUS CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS.
THE COMPANY
Printware, Inc. ("Printware" or the "Company") designs, builds and markets
"Computer-to-Plate" systems which are used by the offset printing industry to
create printing plates directly from computer data. These systems replace the
traditional process of typesetting, paste-up, camera work and processing film to
produce a printing plate. Computer-to-Plate technology provides one-step plate
making (including text, graphics and photographic halftones) directly from
computer data, much as a laser printer makes printed pages directly from
computer data. The key benefits of Computer-to-Plate technology are lower costs,
faster turnaround times, fewer pieces of equipment and fewer environmental
limitations on disposal of by-products. The key hardware element of a
Computer-to-Plate system is called a Platesetter, which produces the printing
plate by imaging the computer data on the physical plate material. The Company
sells Platesetters, supplies for use in Platesetters and raster image processors
for connecting the Platesetter to the customer's computer network. Sales of
supplies accounted for approximately 55% of the Company's 1995 revenues.
The Company is a leader in the development and introduction of
Computer-to-Plate systems. To date the Company has sold over 300 Platesetters,
which it believes is more than any other single competitor. The Company's
marketing strategy is to offer a wide range of Computer-to-Plate products to the
broad market of "mainstream" printers who use small format (18" wide or less)
presses, typically for high-volume printing applications such as check printing,
social printing (such as wedding invitations) and envelope printing. The
Company's customers include leading printers such as Deluxe Corporation
("Deluxe"), Pitney Bowes, Thomson Publishing, Liberty Check Printers and
Northrup-Grumman.
The Company currently manufactures two lines of Platesetters in various
configurations. The end-user price ranges from $75,000 to $150,000 for the Model
1440, depending on the configuration, and from $85,000 to $100,000 for the Model
3240. The Company markets the Model 1440 through its own sales force, and the
Model 3240 is marketed by Mitsubishi Imaging (MC), Inc. ("Mitsubishi") under its
name. Both of these Platesetter lines use patented resonant galvanometer
technology which was licensed to the Company by Minnesota Mining and
Manufacturing Company ("3M") when the Company was organized in 1985. The
resonant galvanometer technology provides precise scanning of the laser beam
which writes the digital image on the blank plate. In 1993 the Company began to
focus exclusively on Computer-to-Plate products and phased out its manufacturing
of laser printers and film imagers. Phasing out of these lower-margin products
resulted in a reduction in revenue in 1993 and 1994. The focus on
Computer-to-Plate products resulted in an improvement in profitability in 1994
and 1995 due to the higher margins provided by those products and lower research
and development and sales and marketing expenditures.
The Company is incorporated in Minnesota and has its principal executive
office and manufacturing facility at 1270 Eagan Industrial Road, St. Paul,
Minnesota 55121. Its telephone number is (612) 456-1400.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY THE COMPANY.......... 1,200,000 shares
COMMON STOCK OFFERED BY THE SELLING
SHAREHOLDERS................................ 400,000 shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERING.................................... 4,829,713 shares(1)
USE OF PROCEEDS.............................. Product development, sales and marketing and
working capital
PROPOSED NASDAQ NATIONAL MARKET SYMBOL....... PRTW
</TABLE>
- ---------------------------
(1) Does not include, as of March 30, 1996 (i) 135,567 shares issuable upon
exercise of stock options held by executive officers and employees of the
Company, (ii) 120,000 shares issuable upon exercise of the Representative's
Warrant, and (iii) 5,000 shares issuable upon exercise of warrants held by
Deluxe.
RISK FACTORS AND DILUTION
An investment in the Common Stock involves a high degree of risk. See "Risk
Factors." Purchasers will experience immediate and substantial dilution in net
tangible book value per share. See "Dilution."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------- YEAR ENDED DECEMBER 31,
MARCH 30, APRIL 1, -----------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 1,832,013 $ 1,807,623 $ 8,388,148 $ 6,626,925 $ 7,296,484
Gross margin............................ 721,967 806,752 3,384,192 2,524,524 1,951,965
Income (loss) from operations........... 304,555 330,105 1,554,183 622,184 (1,213,897)
Net income (loss)(1).................... 330,898 326,483 1,793,425 784,029 (1,204,707)
Net income (loss) per common and common
equivalent share(1).................... $.09 $.09 $.48 $.21 $(.33)
Weighted average common and common
equivalent shares outstanding(2)....... 3,705,403 3,705,627 3,705,627 3,685,580 3,635,226
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(3)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 2,795,856 $ 9,695,856
Working capital.................................................................. 4,491,641 11,391,641
Total assets..................................................................... 5,396,406 12,296,406
Shareholders' equity............................................................. 4,655,666 11,555,666
</TABLE>
- ---------------------------
(1) Net income in 1994 includes an extraordinary item of $140,927, consisting of
a gain on extinguishment of debt. The income per common and common
equivalent share attributable to such extraordinary gain was $.04.
(2) See Note 1 to Financial Statements for an explanation of the determination
of weighted average common and common equivalent shares outstanding.
(3) As adjusted to reflect the sale of shares offered hereby, assuming a Price
to Public of $6.50 per share, and the application of the estimated net
proceeds therefrom of $6.9 million. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN EVALUATING THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER
SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A
RESULT, IN PART, OF THE RISK FACTORS SET FORTH BELOW.
DEPENDENCE ON CERTAIN CUSTOMERS. The Company is heavily dependent on two
customers, Deluxe and Mitsubishi. Sales to these customers represented 41.7% and
17.5%, respectively, of 1995 revenues and 43.0% and 2.1%, respectively, of 1994
revenues. Deluxe is a provider of checks and related electronic-based financial
systems. As of March 30, 1996 Deluxe owned 51.3% of the Company's outstanding
Common Stock and two of its executive officers are members of the Company's
Board of Directors. Mitsubishi is a world wide supplier of equipment and
supplies to the printing industry and markets the Company's Model 3240
Platesetter under Mitsubishi's trade name. Loss of either of these customers or
a substantial reduction in their purchases would have a material adverse effect
on the Company. See "Business -- Overview," "Business -- Customers -- Revenues
from Deluxe" and "Certain Transactions."
DEPENDENCE ON CERTAIN SUPPLIERS. The Company is dependent on several key
single-source suppliers, including the supplier of its planned Adobe
PostScript-Registered Trademark- raster image processor, the raster image
processing software used in its ZAPrip-Registered Trademark- product and the
plate materials which the Company sells for the Model 1440. All of the Company's
agreements with suppliers can be canceled by either party under certain
circumstances. Furthermore, there can be no assurance that technical or other
problems might not cause supply interruptions. Such interruptions could
seriously jeopardize the Company's ability to provide products that are critical
to the Company's business and operations. See "Business--Suppliers."
DEPENDENCE ON LIMITED PRODUCT LINE. The Company's business is focused on
Computer-to-Plate products for the offset printing industry and its product line
is limited to the Model 3240 Platesetter, three variations of the Model 1440
Platesetter and Model 1440 consumable supplies. Thus the Company's ability to
generate revenue is dependent on a limited number of products in a single line
of business. A material decline in revenues from any of the Company's products
could have a material adverse effect on the Company which might not be offset by
revenues from other products. See "Business--Products."
COMPETITION. The Company faces considerable competition in its business.
Most of the Company's competitors and potential competitors are established
companies that have significantly greater financial, technical and marketing
resources than the Company. There can be no assurance that the Company's
competitors will not succeed in developing and marketing products which perform
better or are less expensive than those developed and marketed by the Company,
or that would render the Company's products and technology obsolete or
noncompetitive. There can be no assurance that competition might not adversely
affect the profitability or viability of the Company's supplies business. The
Company is highly dependent on its ability to develop new products with higher
performance and lower costs, and there can be no assurance these development
efforts will be successful. See "Business--Competition."
OPERATING RESULTS. The Company has experienced net income (loss) of
$330,898 for the three months ended March 30, 1996 and $1,793,425, $784,029,
($1,204,707), ($2,543,602) and $103,077 for the five years ended December 31,
1995, 1994, 1993, 1992 and 1991, respectively. As of March 30, 1996 the Company
had an accumulated deficit of $10,866,572. Although the Company has reported net
income in the last two years and the first quarter of 1996, no assurance can be
given that the Company's operations will continue to be profitable. See
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Statements."
RAPID TECHNOLOGICAL AND MARKET CHANGES. Certain segments of the printing
industry are characterized by rapid technological change and the frequent
introduction of new products. The Company's future success will depend, in part,
on its ability to develop and introduce new products that take advantage of
technological advances and to respond promptly to new customer requirements.
There can be no assurance that a shift
5
<PAGE>
to large-format presses or higher-quality color printing might not render the
Company's products and technology obsolete. Technology such as xerographic
printers, digital presses or electronic publishing could replace offset
printing, rendering the Company's current products and technology obsolete.
There can be no assurance that the Company's resonant galvanometer technology
will remain competitive with other types of laser scanners. See
"Business--Competition."
PROTECTION OF PROPRIETARY TECHNOLOGY. Printware seeks to protect its
proprietary technology by seeking patents or entering into confidentiality
agreements with employees and suppliers, depending on the circumstances. The
Company holds patents or is the licensee of patented technology covering certain
aspects of its Platesetters. There can be no assurance that such patent rights
will not be challenged, rendered unenforceable, invalidated or circumvented, or
that the rights granted thereunder or under licensing agreements will provide a
competitive advantage to the Company. Efforts to legally enforce patent rights
can involve substantial expense and may not be successful. Further, there can be
no assurance that others will not independently develop similar or superior
technologies or duplicate any technology developed by the Company, or that the
Company's technology will not infringe upon patents or other rights owned by
others. Thus the patents held by or licensed to the Company may not afford it
any meaningful competitive advantage. There can also be no assurance that the
Company's confidentiality agreements will provide meaningful protection of the
Company's proprietary information. The Company's inability to maintain its
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations. See "Business--Proprietary
Rights."
DEPENDENCE ON KEY PERSONNEL; LACK OF EMPLOYMENT AGREEMENTS. The Company's
success depends in large part on its ability to attract and retain highly
qualified management, technical and marketing personnel. The Company has no
employment agreements with any of its management or other personnel and, except
for $300,000 of key person coverage on Dr. Baker, has no key person insurance
covering any such individuals. Competition for such personnel is generally
intense and there can be no assurance that the Company will be able to attract
and retain the personnel necessary for the development and operation of its
business. The loss of the services of key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
CONCENTRATION OF OWNERSHIP. Following this Offering, Deluxe, the Company's
current principal shareholder, will continue to own approximately 32.9% of the
outstanding Common Stock. Two executive officers of Deluxe serve as directors of
the Company. Two of the Company's other directors, Donald Mager and Allen
Taylor, will also own after this Offering 8.1% and 7.1%, respectively, of the
outstanding Common Stock. Accordingly, Deluxe and Messrs. Mager and Taylor will
have the ability to control the election of the Company's Board of Directors and
most corporate actions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company. See "Principal and
Selling Shareholders."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY. Prior to this
Offering, there has been no public market for the Common Stock and there can be
no assurance that an active trading market for the Common Stock will develop or
be sustained following this Offering. The initial public offering price will be
determined through negotiations between the Company and the Representative and
may bear no relationship to the price at which the Common Stock will trade
following this Offering. There can be no assurance that future market prices of
the Common Stock will not be lower than the initial offering price. In addition,
the stock market historically has experienced volatility which has affected the
market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. Announcements of new
products and services by the Company or its competitors, technological
innovations, developments with respect to patents or other proprietary rights,
changes in stock market analyst recommendations regarding the Company, other
technology companies or the Company's industry generally and other external
factors, as well as period-to-period fluctuations in the Company's financial
results, may have a significant effect on the market price of the Common Stock.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of Common Stock
in the public market after this Offering could adversely affect the market price
of the Common Stock. Unless purchased by an affiliate
6
<PAGE>
of the Company, the 1,600,000 shares of Common Stock to be sold in this Offering
will be freely transferable without restriction. Upon conclusion of this
Offering, in addition to the shares being sold hereby, 748,876 shares of Common
Stock will be eligible for sale in the public market without registration.
Certain of the Company's existing shareholders, holding 2,383,425 shares of
Common Stock, have agreed that they will not, without the consent of the
Representative, sell or otherwise dispose of any equity securities of the
Company for a period of six months following the effective date of this
Offering. However, sale of substantial amounts of shares in the public market
following that period could adversely affect the market price of the Company's
Common Stock. In addition, certain shareholders holding 109,961 shares of Common
Stock have the right, subject to certain conditions, to participate in future
Company registrations and to cause the Company to register certain Common Stock
owned by them. See "Shares Eligible For Future Sale."
POSSIBLE ISSUANCES OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The Board
of Directors is authorized to issue up to 1,000,000 shares of Preferred Stock
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
Company's shareholders. The rights of the holders of the Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Although there is no current
intention to do so, the issuance of Preferred Stock could have the effect of
delaying, deferring or preventing a change in control of the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at a premium. Additionally, the Company could adopt in the
future one or more additional anti-takeover measures, such as a shareholder
rights plan, without first seeking shareholder approval, which measures could
also make a change in control of the Company more difficult. The Company is also
subject to provisions of the Minnesota Business Corporation Act that make
certain business combinations or potential acquisitions of the Company more
difficult. See "Description of Capital Stock."
DILUTION. Purchasers of shares of Common Stock in this Offering will incur
immediate and substantial dilution of $4.11 per share. Investors may also
experience additional dilution as a result of the exercise of outstanding stock
options and warrants. See "Dilution" and "Shares Eligible for Future Sale."
NO DIVIDENDS. The Company has never paid any cash dividends on its Common
Stock and does not anticipate paying such dividends for the foreseeable future.
See "Dividend Policy."
7
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,200,000 shares of Common Stock offered by the Company hereby, after deducting
the estimated underwriting discount and offering expenses, are estimated to be
approximately $6.9 million ($8.0 million if the Underwriters' over-allotment
option is exercised in full) at an assumed offering price of $6.50 per share.
The Company will not receive any of the proceeds from the sale of Common Stock
by the Selling Shareholders. The Company intends to apply these proceeds
approximately as follows:
<TABLE>
<S> <C>
Product development..................................... $3,200,000
Sales and marketing..................................... 1,800,000
Working capital......................................... 1,900,000
---------
Total................................................. $6,900,000
---------
---------
</TABLE>
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the success of product development
efforts, market conditions and customer preferences. Pending application of the
net proceeds described above, the Company intends to invest the net proceeds of
this Offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any future earnings for use in
developing its business and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future.
CAPITALIZATION
The following table sets forth the Company's capitalization as of March 30,
1996, giving retroactive effect to the authorization of 1,000,000 shares of
Preferred Stock and as adjusted to give effect to the sale of the 1,200,000
shares of Common Stock being offered by the Company at an assumed offering price
of $6.50 per share and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 30, 1996
------------------------------
ACTUAL(1) AS ADJUSTED
-------------- --------------
<S> <C> <C>
Long-term debt.................................................................... $ -- $ --
Shareholders' equity:
Preferred Stock, no specified par value; 1,000,000 shares authorized; no shares
issued and outstanding......................................................... -- --
Common Stock, no par value, 15,000,000 shares authorized, 3,629,713 shares
issued and outstanding, and 4,829,713 shares issued and outstanding, as
adjusted(2).................................................................... 15,522,238 22,422,238
Accumulated deficit............................................................. (10,866,572) (10,866,572)
-------------- --------------
Total shareholders' equity.................................................... 4,655,666 11,555,666
-------------- --------------
Total capitalization........................................................ $ 4,655,666 $ 11,555,666
-------------- --------------
-------------- --------------
</TABLE>
- ---------------------------
(1) Derived from the Company's unaudited financial statements. See "Financial
Statements."
(2) Does not include, as of March 30, 1996 (i) 135,567 shares issuable upon
exercise of stock options held by executive officers and other employees of
the Company, (ii) 120,000 shares issuable upon exercise of the
Representative's Warrant, and (iii) 5,000 shares issuable upon exercise of
warrants held by Deluxe.
8
<PAGE>
DILUTION
The net tangible book value of the Company as of March 30, 1996 was
$4,622,060 or $1.27 per share. Net tangible book value per share represents the
total amount of the Company's tangible assets reduced by the amount of its total
liabilities and divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 1,200,000 shares of Common
Stock offered hereby (after deducting the underwriting discount and estimated
offering expenses payable by the Company) at an initial public offering price of
$6.50 per share, and without taking into account any other changes in net
tangible book value after March 30, 1996, the pro forma net tangible book value
of the Company at March 30, 1996 would have been $11,522,060 or $2.39 per share.
This represents an immediate increase in net tangible book value of $1.12 per
share to the Company's existing shareholders and an immediate dilution in net
tangible book value of $4.11 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 6.50
Net tangible book value per share at March 30, 1996..... $ 1.27
Increase per share attributable to new investors........ 1.12
---------
Pro forma net tangible book value per share after this
Offering................................................... 2.39
---------
Dilution per share to new investors......................... $ 4.11
---------
---------
</TABLE>
The following table summarizes as of March 30, 1996, the differences in the
total consideration paid and the average price per share paid by the existing
shareholders and the new investors with respect to the 1,200,000 shares of
Common Stock to be issued by the Company. The calculations in this table with
respect to shares of Common Stock to be purchased by new investors in the
Offering reflect an assumed Price to Public of $6.50 per share (before deducting
the underwriting discount and estimated offering expenses payable by the
Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............ 3,629,713 75.15% $ 15,522,238 66.56% $ 4.28
New investors(1).................... 1,200,000 24.85% 7,800,000 33.44% $ 6.50
---------- ----------- ------------- -----------
Total........................... 4,829,713 100.00% $ 23,322,238 100.00%
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
</TABLE>
- ---------------------------
(1) Sales by the Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders to 3,229,713 shares, or 66.9% of the
total number of shares of Common Stock to be outstanding after the Offering,
and will increase the number of shares held by new investors to 1,600,000
shares, or 33.1% of the total number of shares of Common Stock to be
outstanding after the Offering.
The computations in the tables above exclude, as of March 30, 1996, an
aggregate of 140,567 shares issuable upon exercise of outstanding stock options
and warrants at a weighted average exercise price of $3.00 per share and up to
120,000 shares of Common Stock issuable upon exercise of the Representative's
Warrant. See "Description of Capital Stock" and "Underwriting."
9
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31 and for each of the
five years in the period ended December 31, 1995 has been derived from the
financial statements of the Company which have been audited by Deloitte & Touche
LLP, independent auditors, whose report on the financial statements as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 appears elsewhere in this Prospectus. The financial data as of
March 30, 1996 and for the three month periods ended March 30, 1996 and April 1,
1995 has been derived from the Company's unaudited financial statements. The
unaudited financial statements reflect, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of these dates and
results of operations for such periods. The results of operations for any
interim period are not necessarily indicative of the results to be expected for
the entire year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------- YEAR ENDED DECEMBER 31,
MARCH 30, APRIL 1, -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from non affiliates........ $1,125,959 $1,005,934 $4,889,761 $3,775,958 $ 4,348,484 $ 8,059,260 $ 9,012,735
Revenues from affiliates(1)......... 706,054 801,689 3,498,387 2,850,967 2,948,000 2,600,734 5,272,575
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total revenues...................... 1,832,013 1,807,623 8,388,148 6,626,925 7,296,484 10,659,994 14,285,310
Cost of revenues.................... 1,110,046 1,000,871 5,003,956 4,102,401 5,344,519 8,234,092 8,907,147
---------- ---------- ---------- ---------- ----------- ----------- -----------
Gross margin........................ 721,967 806,752 3,384,192 2,524,524 1,951,965 2,425,902 5,378,163
Research and development expenses... 178,941 205,778 757,131 956,807 1,314,355 1,913,431 1,829,219
Selling, general and administrative
expenses........................... 238,471 270,869 1,072,878 945,533 1,851,507 3,022,684 3,394,216
---------- ---------- ---------- ---------- ----------- ----------- -----------
Income (loss) from operations....... 304,555 330,105 1,554,183 622,184 (1,213,897) (2,510,213) 154,728
Other income (expense), net......... 32,843 8,378 261,742 22,918 10,299 (31,214) (47,651)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary income........... 337,398 338,483 1,815,925 645,102 (1,203,598) (2,541,427) 107,077
Income taxes........................ 6,500 12,000 22,500 2,000 1,109 2,175 4,000
---------- ---------- ---------- ---------- ----------- ----------- -----------
Income (loss) before extraordinary
item............................... 330,898 326,483 1,793,425 643,102 (1,204,707) (2,543,602) 103,077
Extraordinary income(2)............. -- -- -- 140,927 -- -- --
---------- ---------- ---------- ---------- ----------- ----------- -----------
Net income (loss)................... $ 330,898 $ 326,483 $1,793,425 $ 784,029 $(1,204,707) $(2,543,602) $ 103,077
---------- ---------- ---------- ---------- ----------- ----------- -----------
---------- ---------- ---------- ---------- ----------- ----------- -----------
Net income (loss) per common and
common equivalent share(3):
Income (loss) before extraordinary
item............................. $ .09 $ .09 $ .48 $ .17 $ (.33) $ (.84) $ .03
---------- ---------- ---------- ---------- ----------- ----------- -----------
---------- ---------- ---------- ---------- ----------- ----------- -----------
Net income (loss)(2).............. $ .09 $ .09 $ .48 $ .21 $ (.33) $ (.84) $ .03
---------- ---------- ---------- ---------- ----------- ----------- -----------
---------- ---------- ---------- ---------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding(3)... 3,705,403 3,705,627 3,705,627 3,685,580 3,635,226 3,025,699 3,000,390
---------- ---------- ---------- ---------- ----------- ----------- -----------
---------- ---------- ---------- ---------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 30, APRIL 1, ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $2,795,856 $ 626,267 $2,568,852 $ 860,668 $1,288,821 $ 561,655 $ 98,551
Current assets......................... 5,232,381 3,464,348 5,087,328 3,255,959 4,371,149 4,826,294 5,620,695
Working capital........................ 4,491,641 2,643,532 4,151,595 2,292,562 1,441,554 2,544,209 2,173,719
Total assets........................... 5,396,406 3,669,342 5,252,401 3,476,928 4,633,747 5,180,631 6,097,071
Shareholders' equity................... 4,655,666 2,848,526 4,316,668 2,513,531 1,704,152 2,898,546 2,650,095
</TABLE>
- ---------------------------
(1) All but an immaterial portion of revenues from affiliates consists of
revenues from sales to Deluxe Corporation.
(2) During 1994 the Company recognized an extraordinary gain of $140,927
resulting from the extinguishment of debt. The income per common and common
equivalent share attributable to such extraordinary gain was $.04.
(3) See Note 1 to Financial Statements as to method of calculation.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Printware designs, builds and markets Computer-to-Plate systems which
provide faster, less expensive production of offset printing plates. The
Company's products, called Platesetters, make printing plates directly from
computer data, primarily for high-volume printing. In 1988 the Company began
selling its first Platesetter, the Model 1440 electrostatic Platesetter. The
Company also sold laser printers and film imagers. In 1993 Printware began to
focus exclusively on Computer-to-Plate products and phased out its manufacturing
of laser printers and film imagers. Phasing out of these lower margin products
resulted in a reduction in total revenues in 1993 and 1994. Revenues from laser
printers and film imagers declined from approximately $3.40 million in 1992 to
approximately $65,000 for 1995. The phase out of laser printers and film imagers
also resulted in an improvement in profitability in 1994 and 1995 due to the
higher margins provided by Computer-to-Plate products and lower research and
development and sales and marketing expenditures. Prototype shipments of a new
photographic Platesetter, the Model 3240, began in late 1993. First deliveries
of the production version were made in 1995.
Revenues are generated from the sale of Printware's Model 1440 and Model
3240 Platesetters, as well as from the sale of consumable supplies for the Model
1440. Sales of photographic Platesetters have increased rapidly since production
began in 1994. The Company anticipates that future sales of photographic
Platesetters will grow faster than sales of electrostatic Platesetters. There
can be no assurance, however, that this growth will continue.
Sales of supplies used in Model 1440 Platesetters comprised approximately
55% of the Company's 1995 revenues. In addition to equipment and supplies, the
Company separately charges for installation, training, service and spare parts.
Company technicians provide telephone support as well as on-site service.
Printware also trains its customers' technicians for self-sufficiency and
maintains a significant spare-parts inventory to support its installed base.
Revenues related to installation, training and support are recognized when the
services are performed. Printware has contracts with many of its Model 1440
customers to provide preventive and emergency maintenance. Such maintenance
contracts generally have a one-year term. Telephone and on-site support are
billed per incident for customers without support contracts. Printware provides
a 90-day warranty on its products, which may be extended to up to one year based
on additional customer supplies purchases.
The Company's largest customer, accounting for 41.7% and 43.0% of 1995 and
1994 revenues, is Deluxe, to whom the Company sells both equipment and supplies.
Revenues from sales to Deluxe constitute all but an immaterial portion of the
revenues from affiliates referred to in the Company's financial statements. The
breakdown of affiliate revenues in 1995 was approximately 10% from sales of
equipment, 76% from supplies and 14% from other sales (principally spares,
repairs and research and development). The breakdown of affiliate revenues in
1994 was approximately 26% from equipment, 60% from supplies and 14% from other
sales. Supplies revenues are more recurring and predictable than equipment
revenues, and the Company has entered into an agreement with Deluxe under which
Deluxe has agreed to purchase a minimum annual amount of paper printing plate
material for each of 1995, 1996 and 1997 at a fixed price. This agreement
resulted in an increase in the Company's supplies sales to Deluxe in 1995,
compared to prior years, and the Company does not anticipate any reduction in
revenues from supplies sold to Deluxe in 1996 and 1997. Revenues from equipment
sales to end-user customers tend to be more variable than revenues from
supplies. The Company has not sold any Platesetter equipment to Deluxe since
September 1995. Deluxe is under no contractual obligation to continue purchasing
equipment from the Company and the Company does not know of any plans for new
equipment orders by Deluxe. See "Certain Transactions."
Deluxe has recently announced a major consolidation program concerning its
entire operations and specifically the operations that utilize the paper
printing plate materials that it purchases from Printware. Deluxe has not
indicated to the Company that it intends to reduce the amount of printing which
uses the paper printing plate material supplied by the Company, and the Company
believes that Deluxe's consolidation program will not materially affect the
Company's revenues from paper printing plate materials to Deluxe until at least
the end of 1997. See "Business -- Customers -- Revenues from Deluxe" and
"Certain Transactions."
11
<PAGE>
Research and development efforts are focused on enhancing and improving
existing products and supplies and developing new Platesetter versions.
Management estimates that 87% of product (non-service) revenues in 1995 were
from products introduced within the prior three years. Future research and
development expenses are expected to increase as a result of the Company's
strategy to broaden its Platesetter line. There can be no assurance, however, of
attaining revenues from this effort.
Printware believes its selling expenses are relatively low compared to other
companies in similar industries. Printware's two largest customers, Deluxe and
Mitsubishi, are house accounts and no commissions are paid on those sales. Most
of Printware's selling expenses are related to the direct selling effort
associated with the Model 1440 Platesetter product line. These efforts are
currently aimed at high-volume printers in printing niches such as check
printing, social printing, technical/legal publishing, and newspapers, which the
Company has found can best utilize the product. The Company reaches these niches
with targeted marketing approaches such as trade shows, direct mailings and
sales calls. Consistent with this targeted approach, there is currently very
little advertising for the Model 1440. Sales and marketing expenses are expected
to increase considerably as the Company attempts to broaden its distribution
network.
Except for historical information, the matters discussed in this Prospectus
are forward looking statements which involve risks and uncertainties, including
but not limited to economic, competitive, and technological factors affecting
the Company's operations, markets, products, services, prices and other factors,
which may cause actual results to differ materially from the results discussed
in the forward looking statements.
RESULTS OF OPERATIONS
The following table summarizes the percentage of revenues for various items
in the Company's Statements of Operations for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------- YEAR ENDED DECEMBER 31,
MARCH 30, APRIL 1, ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from non affiliates........ 61.5% 55.6% 58.3% 57.0% 59.6% 75.6% 63.1%
Revenues from affiliates............ 38.5 44.4 41.7 43.0 40.4 24.4 36.9
------ ----------- ----------- ----------- ----------- ----------- -----------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues.................... 60.6 55.4 59.7 61.9 73.2 77.2 62.4
------ ----------- ----------- ----------- ----------- ----------- -----------
Gross margin........................ 39.4 44.6 40.3 38.1 26.8 22.8 37.6
Research and development expenses... 9.8 11.4 9.0 14.4 18.0 17.9 12.8
Selling, general and administrative
expenses........................... 13.0 15.0 12.8 14.3 25.4 28.4 23.8
------ ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations....... 16.6 18.2 18.5 9.4 (16.6) (23.5) 1.0
Other income (expense), net......... 1.8 0.5 3.1 0.3 0.1 (0.3) (0.3)
------ ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item............. 18.4 18.7 21.6 9.7 (16.5) (23.8) 0.7
Income taxes........................ 0.3 0.6 0.2 0.0 0.0 0.0 0.0
Extraordinary income................ -- -- -- 2.1 -- -- --
------ ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................... 18.1% 18.1% 21.4% 11.8% (16.5)% (23.8)% 0.7%
------ ----------- ----------- ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
THREE MONTHS ENDED MARCH 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 1, 1995
REVENUES. First-quarter total revenues in 1996 were $1.83 million, an
increase of 1% over first-quarter 1995 total revenues of $1.81 million. This was
the sixth consecutive quarter in which total revenues increased from the
corresponding quarter in the previous year. Total revenues were up despite a
decrease in supplies sales. Supplies revenues declined to $900,000 in the first
quarter of 1996 from $1.06 million in the first quarter of 1995. This was due in
part to several customers who determined that they had excess supplies inventory
and cut back their purchases in the first quarter of 1996. Model 3240 revenues
for the 1996 period increased 53% compared to 1995, primarily due to an increase
in unit sales. Management expects the Model 3240 to continue to provide an
increasing portion of Printware's revenues in the long term. Model 1440 revenues
also increased in the first quarter of 1996. Revenues from non affiliates were
up $120,000 due primarily to strong Model 3240 sales. Revenues from affiliates
were down $96,000 in the first quarter of
12
<PAGE>
1996 due to unusually strong raster image processor sales in the first quarter
of 1995 which did not recur in 1996. Management expects that, because of
anticipated supplies revenues from Deluxe, anticipated total revenues from
affiliates through 1997 will remain at approximately current levels.
GROSS MARGIN. The Company's gross margin was $722,000 in the first quarter
of 1996 compared to $807,000 in the comparable 1995 period. Gross margin as a
percentage of revenues declined from 45% in the first quarter of 1995 to 39% in
the first quarter of 1996. The lower margin in 1996 was due primarily to a
change in the product mix towards the lower-margin Model 3240 Platesetter.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $179,000 in the first quarter of 1996 from $206,000 in the first
quarter of 1995. Although research and development labor expenses were up 10% in
1996, expenses associated with the Model 3240 declined as the product design was
completed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $238,000 in the first quarter of 1996 from
$271,000 in the first quarter of 1995. Selling expenses decreased by
approximately $10,000 in the first quarter from 1995 to 1996, due primarily to
eliminating the remaining laser-printer salesperson subsequent to the first
quarter of 1995. Legal expenses in the 1996 period were approximately $15,000
less than in the 1995 period, primarily because of unusually high expenses in
the 1995 period associated with a dispute with A.B. Dick Company. The expenses
on that matter were ultimately netted against the arbitration award to the
Company, which was recognized as other income in the third quarter of 1995.
INTEREST, OTHER INCOME AND INCOME TAXES. Interest, other income and income
taxes were $26,000 in the 1996 period compared to $4,000 in 1995. The change was
primarily caused by an increase in net interest income to $33,000 from $8,000
due to higher cash balances (cash and short-term cash investments were $2.80
million at March 30, 1996, compared to $626,000 at April 1, 1995). Tax expense
decreased to $7,000 in 1996 from $12,000 in 1995. Tax expense is relatively
small because the Company has net operating loss carryforwards which are
available to offset against taxable income. The Company is subject to
alternative minimum taxes, however.
NET INCOME. Net income for the first quarter of 1996 was $331,000, or $.09
per common and common equivalent share, up from $326,000 or $.09 per share in
1995, as lower margins were more than offset by lower expenses and higher
interest income.
1995 COMPARED TO 1994
REVENUES. Total revenues were up 27% to $8.39 million in 1995 from $6.63
million in 1994. Model 3240 revenues increased 192% compared to 1994 as the
Model 3240 gained customer acceptance. Model 3240 revenues accounted for
approximately 20% of the Company's total revenue in 1995, up from 9% in 1994.
Laser printer revenues declined to $65,000 in 1995 from $491,000 in 1994 as the
Company continued to phase out that product line to focus on Computer-to-Plate
products. Non affiliate revenues increased by $1.11 million due to a sharp
increase in unit sales of the Model 3240 Platesetter line. Affiliate revenues
increased in 1995 over 1994 by $647,000 due largely to increased supplies sales.
GROSS MARGIN. The Company's gross margin increased 34% to $3.38 million in
1995 from $2.52 million in 1994, primarily as a result of increased revenues and
prices. Gross margin as a percentage of revenues improved slightly to 40% in
1995 from 38% in 1994. The basic Model 1440 list price was increased by
approximately 15% in 1995, and margins on Model 1440 supplies and service
increased slightly. The Model 1440 and supplies gross margin increases were
partially offset by a change in product mix towards the lower-margin Model 3240.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $757,000 in 1995 from $957,000 in 1994. Expenses associated with
the Model 3240 declined as the product design was completed. In 1995 the Company
also relied more on raster image processor software from third parties and
de-emphasized continuing development of its own raster image processor software.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 13% to $1.07 million in 1995 from $946,000 in
1994. Selling expenses decreased to $380,000 in 1995 from
13
<PAGE>
$447,000 in 1994 as the Company continued to focus on efficiently serving the
target markets for the Model 1440 Platesetter. In late 1994 the Company reduced
selling expenses by combining domestic, international and OEM sales functions.
General and administrative expenses remained at approximately 8% of revenues,
increasing to $693,000 in 1995 from $499,000 in 1994. In 1995 the Company made
investments to upgrade its computers, Internet link, information system
databases and voice mail. Employee profit-sharing also began in 1995.
INTEREST, OTHER INCOME AND INCOME TAXES. The Company had $69,000 of net
interest income in 1995, compared to $23,000 in 1994. The increase coincided
with the Company's cash position increasing significantly due to cash flow from
operations (cash and short-term cash investments increased to $2.57 million at
the end of 1995 from $861,000 at the end of 1994). Other income in 1995 was due
to a $334,000 arbitration award for A. B. Dick Company's 1994 order
cancellation. Out-of-pocket arbitration expenses of $142,000 were incurred,
resulting in a net gain of $192,000.
NET INCOME. The Company had net income of $1.79 million or $.48 per common
and common equivalent share in 1995. 1995 net income was 21% of revenue,
compared to 12% in 1994. The improvement in profitability came from significant
revenue growth in 1995 and lower operating expenses (operating expenses were 22%
of revenues in 1995 versus 29% in 1994).
For federal income tax purposes, the Company had net operating loss
carryforwards of approximately $10.5 million as of December 31, 1995. If not
used, these carryforwards will begin to expire in 2001. Under current tax law
certain changes in ownership resulting from the sale or issuance of stock may
limit the amount of net operating loss carryforwards which can be utilized on an
annual basis. Management does not believe that the Offering will result in a
change in ownership which will trigger that limitation.
1994 COMPARED TO 1993
REVENUES. Total revenues declined to $6.63 million in 1994 from $7.30
million in 1993. Non affiliate revenues declined $573,000, which was primarily
due to reduced sales of laser printers and film imagers caused by the Company's
shift to Computer-to-Plate products. The decline was partially offset by sales
of the Model 3240 Platesetter, which increased 275% from 1993 to account for
approximately 9% of 1994 revenues. Affiliate revenues declined slightly to $2.85
million in 1994 from $2.95 million in 1993 due to a decrease in supplies
revenues that was partially offset by an increase in equipment revenues.
GROSS MARGIN. Despite lower revenues, gross margin increased 30% to $2.52
million in 1994, from $1.95 million in 1993. Gross margin as a percentage of
revenues was 38% in 1994 versus 27% in 1993. The higher margin in 1994 was due
to lower costs, a deliberate move away from lower-margin laser printer and film
imager products and higher prices. Printware was able to raise the average
selling price of a basic Model 1440 Platesetter by 15% in 1994. Higher prices
were possible because models introduced in that year, such as the Model 1440
ZNX, had new features such as larger plate-size capability and digital machine
settings.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 27%
to $957,000 in 1994 from $1.31 million in 1993. This was primarily due to
completing substantial portions of the Model 3240 product development in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by nearly 50% to $946,000 from $1.85 million.
As part of Printware's new mission to focus exclusively on Computer-to-Plate
products, direct-selling efforts were targeted at specific printing niches. As
part of that strategy, in late 1993 the Company reduced its sales force and
closed its field sales offices, centralizing its sales force in the Company's
St. Paul headquarters. These steps resulted in much lower selling expenses in
1994 than in the previous year. Selling expenses decreased 57% to $447,000 in
1994 from $1.05 million in 1993 (to 7% of revenues in 1994 from 14% in 1993).
General and administrative expenses decreased to $499,000 (8% of revenues) in
1994 from $801,000 (11% of revenues) in 1993. General and administrative
expenses were high in 1993 due to reserves recorded for legal disputes related
to events which occurred in prior years. These disputes were resolved in 1994.
INTEREST, OTHER INCOME AND INCOME TAXES. The Company had $23,000 in net
interest income in 1994, compared to $10,000 in 1993, as the Company was able to
repay its short-term debt in 1993 with cash flow
14
<PAGE>
from operations. Other income in 1994 came from a $141,000 extraordinary gain
from settlement of a debt agreement with Minnesota Technology, Inc. ("MTI"). The
Company issued 5,500 shares of Common Stock to MTI.
NET INCOME. The Company had net income of $784,000 (12% of revenues) in
1994, compared to a $1.20 million loss (17% of revenues) in 1993. The
improvement in profitability for 1994 came from lower operating expenses (29% of
revenues in 1994 versus 43% in 1993) and a higher gross margin (38% in 1994
versus 27% in 1993). Net income was $.21 per common and common equivalent share
in 1994, compared to a loss of $.33 per share in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Prior to becoming profitable in 1994, the Company financed its operations
through private placements of Common Stock, customer prepayments for merchandise
and short-term borrowings. Beginning in 1994, the Company was able to fulfill
prepayment obligations and meet its working capital and capital expenditure
requirements from cash flow from operations. During 1995, 1994 and 1993, the
Company generated (used) cash of $1.72 million, ($377,000), and $70,000,
respectively, from operating activities. During the first quarter of 1996, the
Company's operating activities generated cash flow of $241,000. Cash and
short-term cash investments were $2.80 million at March 30, 1996, compared to
$2.57 million at December 31, 1995 and $626,000 at April 1, 1995. The Company's
current ratio (current assets to current liabilities) improved to 7.1 at March
30, 1996, compared to 5.4 at December 31, 1995 and 4.2 at April 1, 1995.
Inventories were $1.62 million at March 30, 1996, compared to $1.73 million at
December 31, 1995 and $2.12 million at April 1, 1995, due to a continuing effort
to increase inventory turnover. The Company has recorded inventory reserves
approximating $550,000 at March 30, 1996 and December 31, 1995 and 1994 to
reduce the inventory to its estimated net realizable value. These reserves
result from the continuous modification and upgrading of the Company's products,
the need to provide repair parts for its installed base of equipment which are
no longer in current production and price erosion for electronic components.
Management estimates that the Company will need to continue to carry inventory
which may exceed its net realizable value in amounts approximating the
historical level of the reserve.
The Company's liquidity was such that management elected not to renew the
Company's $1 million bank line of credit, which expired September 1, 1995. The
Company purchased property and equipment of $15,000, $50,000 and $73,000 in
1995, 1994 and 1993, respectively. The Company purchased property and equipment
of $15,000 during the first quarter of 1996. The Company anticipates capital
expenditures of approximately $100,000 in the remainder of 1996. The Company has
no material non-cancelable commitments for the purchase of products or services
other than inventory purchases in the normal course of business. The Company
believes that existing cash balances and cash generated from operations will be
sufficient to finance its existing operations through at least December 31,
1997.
BACKLOG
The Company's backlog of customer orders was approximately $3.0 million as
of both March 30, 1996 and April 1, 1995. All backlog orders are expected to be
filled within one year. Backlog consists primarily of the portion of supplies on
long-term contracts expected to be shipped within one year and Platesetter
orders. The Platesetter backlog as of March 30, 1996 is expected to be filled by
September 30, 1996, although the Company expects additional orders to be placed
by that time.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). SFAS 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) application of
the fair value recognition provision of SFAS 123 to such arrangements. SFAS 123
is required to be adopted for reporting purposes by the Company in 1996.
Companies are permitted, however, to continue to apply APB opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
investment awarded. The Company will continue to apply APB opinion No. 25 to its
stock based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.
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BUSINESS
GENERAL
Printware designs, builds and markets "Computer-to-Plate" systems which are
used by the offset printing industry to create printing plates directly from
computer data. These systems replace the traditional process (see figure below)
of typesetting, paste-up, camera work and film processing to produce a printing
plate:
TRADITIONAL PLATEMAKING PROCESS
[CHART]
Chart: Drawing depicting Traditional Platemaking Process of typesetting,
paste-up, camera work and film processing to produce a printing plate.
Computer-to-Plate technology provides one-step platemaking (including text,
graphics and photographic halftones) directly from computer data, much as a
laser printer makes printed pages directly from computer data (see figure
below):
COMPUTER-TO-PLATE PROCESS
[CHART]
Chart: Drawing depicting Computer-to-Plate Process in which a plate is made
directly from computer data.
The key benefits of Computer-to-Plate technology are:
- Lower costs from savings in supplies and labor
- Faster turnaround times
- Fewer pieces of equipment
- Fewer environmental limitations on by-product disposal
Some of the Company's customers have found that Computer-to-Plate technology
can reduce their costs for some printing operations by up to 50%. The check
printing, social printing and envelope printing segments of the printing
industry have been early adopters of Computer-to-Plate technology, largely
because of higher volumes and early computerization.
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The key hardware element of a Computer-to-Plate system is called a
Platesetter, which produces the printing plate by imaging the computer data on
the physical plate material. The heart of Printware's Platesetters is a
high-resolution laser marker system, the key technology obtained from 3M in
1985. The system is based on a resonant galvanometer, which management believes
has certain performance advantages over conventional systems which use rotating
multifaceted mirrors. The Company's system uses a proprietary method where a
mirror mounted on a resonating torsion bar, in conjunction with
microprocessor-controlled electronics, precisely controls the laser raster scan.
The method was first used in Printware's laser printers, then later in its
Platesetters. In 1990 Printware's Model 1440 Platesetter received the InterTech
Technology Award for Innovative Excellence from the Graphic Arts Technical
Foundation. This award is reserved for products judged to have the potential for
a major impact in the industry. There can be no assurance that the Company's
resonant galvanometer technology will remain competitive with other types of
laser scanners. The Company is continually monitoring and evaluating advances in
relevant technologies, such as scanning mirrors and holographic systems, which
could provide cost or performance advantages.
Printware was organized in 1985 and began deliveries in 1987 of its first
product, a high resolution laser printer. In 1988 Printware began selling its
first Platesetter, the Model 1440 electrostatic Platesetter. Printware
subsequently expanded its product line with new Platesetter models, new laser
printers and filmsetters. In 1993, however, Printware began to focus exclusively
on Computer-to-Plate products and phased out its other product lines. This
resulted in reduced revenues in 1993 and 1994, but a significant improvement in
profitability. During this period Printware completed development of and began
to deliver a new photographic process (silver-halide) Platesetter, called the
Model 3240, to serve a broader range of users. The Model 3240 is marketed for
the Company by Mitsubishi under Mitsubishi's brand name.
INDUSTRY OVERVIEW
According to Printing Industries of America ("PIA"), a trade association,
there were approximately 52,400 printing firms in the United States in 1995. The
Company believes that most of the printing presses installed at these firms are
small format (18" wide or less), one and two color presses, which is the market
segment of the printing industry that the Company serves.
Printers in the United States are rapidly computerizing. Vantage Strategic
Marketing, a market research firm, estimates that 29% of print jobs now
originate electronically and that this will grow to 53% by the year 2000.
Although only a small percentage of printers now use Computer-to-Plate
technology, this is expected to grow rapidly. A 1995 poll by PIA of 6,000
printers in the United States and Canada indicated that approximately 6% were
using Computer-to-Plate technology. According to PIA, this percentage is
expected to grow to 33% by 1997. State Street Consultants, a consulting firm
which focuses on the graphic arts industry, surveyed 232 in-plant, commercial
and newspaper printers and found in 1995 that:
- 82% expect Computer-to-Plate technology to be widely accepted by the year
2000
- 80% expect to buy a Computer-to-Plate system eventually
- nearly 70% of newspapers expect to shift to Computer-to-Plate technology
Mills-Davis, a consulting firm, in a study commissioned by the Association
for Suppliers of Printing and Publishing Technologies ("NPES"), predicted that
because of competitive pressure on printers to increase efficiency and reduce
costs, "Direct-to-Plate will be a boom industry by 1997 and for the years that
follow." According to the NPES QUARTERLY ECONOMIC FORECAST for the fourth
quarter of 1995, much of the growth in imaging/prepress equipment shipments in
the next two years will stem from the purchase of computer-related equipment,
with only a minor portion attributed to gains in traditional prepress equipment.
A 1995 study by Professor Frank Romano of the Rochester Institute of Technology
estimates that Platesetter equipment sales will exceed $2 billion for the
six-year period between 1995 and the year 2000.
CUSTOMERS
OVERVIEW. The Company has sold over 300 Platesetters to date, which it
believes, based on trade journal reports, is more than any other single
competitor. Printware's customers include a number of leading
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printers, such as Deluxe, Pitney Bowes, Thomson Publishing, Liberty Check
Printers and Northrop-Grumman. Most of the Company's large customers have one or
two year contracts for service and supplies. Sales to Deluxe accounted for $3.50
million and $2.85 million of revenue in 1995 and 1994, respectively, which
constituted 41.7% and 43.0% of 1995 and 1994 revenue, respectively. Sales to
Mitsubishi, principally of the Model 3240 which it markets for the Company under
Mitsubishi's brand name, accounted for $1.46 million and $140,000 of revenue in
1995 and 1994, respectively, which constituted 17.5% and 2.1% of 1995 and 1994
revenue, respectively. The loss of Deluxe or Mitsubishi as a customer, or a
substantial reduction in their purchases, would have a material adverse effect
on the Company. The Company provides a majority of the Platesetter supplies used
by Deluxe under a multi-year contract that expires at the end of 1997. See
"Certain Transactions."
REVENUES FROM DELUXE. The Company sells both equipment and consumable
supplies to Deluxe. In 1994 the Company entered into a purchase agreement with
Deluxe under which Deluxe has agreed to purchase from the Company a minimum
annual amount of this plate material for each of 1995, 1996 and 1997 at a fixed
price. The 1994 agreement resulted in increased sales of paper plate material by
the Company to Deluxe in 1995, and the Company does not expect any reduction in
such revenues in 1996 and 1997. Deluxe also purchases paper printing plate
material for the Model 1440 from other suppliers.
During the period from 1991 to 1995 the Company sold to Deluxe various
Platesetters, film imagers and other equipment under certain development and
purchase order contracts. The Company has no current commitments from Deluxe
under these equipment contracts, except for an order to retrofit certain Deluxe
equipment with the results of a software research and development contract from
Deluxe which the Company is performing. See "Certain Transactions."
BUSINESS STRATEGY
Printware's strategic plan is to continue to focus on Computer-to-Plate
products and pursue these specific strategies:
COVER A BROAD RANGE OF MAINSTREAM PRINTING. In the past several years the
Company has focused on providing a broad Computer-to-Plate product line for
"mainstream" printing, which management believes currently accounts for most
printing. The Company has no plans to pursue "high-end" Platesetter business
geared toward magazine-quality color printing (above 2,400 dots per inch
resolution) or large presses over 18" wide.
CUSTOMER DRIVEN INNOVATION. The Company's product strategy is primarily
driven by customer requirements, rather than technology. The Company believes
that this strategy will allow it to bring products and services to the
marketplace with the best chance of success. The Company endeavors to have all
areas of the Company maintain a close relationship with current and prospective
customers.
INCREMENTAL INNOVATION FROM CORE PRODUCTS. Printware's philosophy is to
develop new products from modules and technologies that are already available,
either within Printware or from third parties. The Company believes that this
philosophy will allow the Company to broaden its product line without excessive
research and development expenses or inordinate technical risks.
MAINTAIN EXCEPTIONAL QUALITY. The Company believes that its customers
demand near-perfect quality, and that quality demands will increase in the
future. The Company maintains a detailed problem reporting system and devotes
considerable engineering resources to improving designs and promptly eliminating
problems. The Company has improved and broadened its incoming inspection and
vendor quality efforts. Especially in the area of supplies, the Company has
tightened its specifications in response to customer requirements and instituted
more rigorous testing programs. Management believes that these efforts have
resulted in significant quality improvements in recent years.
PRODUCTS
The Company makes two lines of Platesetters, the Model 3240 Platesetter line
for digital photographic (silver-halide) plates and the Model 1440 family of
digital electrostatic Platesetters. Photograhic Platesetters use silver-halide
based chemistry in which the plate is chemically developed and fixed after
exposure. Electrostatic Platesetters use a process where toner is fused onto a
plate in the image areas. The Company also sells service and proprietary
supplies (primarily digital plate material for the Model 1440 product line).
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MODEL 3240 PLATESETTER. This versatile product uses commodity silver-halide
plate material for a wide range of printing applications. The product is sold by
Mitsubishi under its brand name internationally and through several leading
domestic graphic arts dealers, giving it broad market coverage. The Model 3240
is approximately 3' wide by 4' high by 4' long, and consists of two integrated
modules: an imager module, where a laser "writes" the digital image on the
plate; and a processor module, where the plate is developed and fixed, similar
to conventional photography. It has a liquid-crystal operator panel to enter
machine settings and for checking machine status. The Model 3240 has input and
output cassettes for rolls of plate material. Imaged plates exit the machine
into a tray already dried, cut to size and press-ready.
MODEL 1440 PLATESETTER. This product line has three models: one for
economical paper-based plates; another for durable metal plates; and a third for
either paper or metal. The Model 1440 serves niche markets such as check
printing, social printing and envelope printing. It is sold by the Company's own
sales force, which has expertise in the specialized applications served by the
Model 1440. The Model 1440 is approximately 3' wide by 1 1/2' high by 2 1/2'
deep, and has liquid crystal operator panels to enter machine settings and for
checking machine status. The units have an area to load a roll of plate material
stock, or in the case of the metal plate version, a plate sheet feeder. Imaged
plates exit the machine into a tray or into optional post-processing modules.
The Company sells in-line plate handling modules for fully automated systems.
Optional equipment includes plate converters for paper plates, plate decoaters
for metal plates and plate sheet feeders for metal plates.
The Model 3240 resolution is 3,240 thousand dots per square inch (1,800 dots
per inch), which is suitable for high quality color and photographs. The Model
1440 resolution is 1,440 thousand dots per square inch (1,200 dpi), which is
suitable for text, graphics and medium-quality photographs. The imaging speed of
the Model 3240 is up to 36 inches per minute, and for the Model 1440 is 40
inches per minute. Based on independent surveys conducted by THE SEYBOLD REPORT
ON PUBLISHING SYSTEMS ("THE SEYBOLD REPORT"), a trade journal, in 1995 and
PrintCom Consulting Group in 1996, the Company believes that its products are
among the fastest Platesetters available.
End-user pricing is $85,000 to $100,000 for Model 3240 Platesetters and
$75,000 to $150,000 for Model 1440 Platesetters, depending on the specific model
and configuration. The Company also provides consulting services, software,
support and training for the Model 1440. The Company has been able to raise the
list prices of Model 1440 units by more than 50% since 1993 because of the
unique value it provides in certain applications.
RASTER IMAGE PROCESSORS (RIPS). Printware sells RIPs to connect
Platesetters to the customer's computer network and convert computer data to the
digital images which appear on the printing plate. The Company's RIPs are fully
compatible with the industry-standard PostScript language and most popular
networks. The Company has two RIP models, the economical ZipRip and the
high-speed ZAPrip.
SUPPLIES. Printware specifies, tests and markets supplies for Model 1440
Platesetters. These supplies consist mostly of digital laser sensitive plate
material used in the Platesetter. The Company also sells a paper-based plate
material for cost-sensitive applications and an aluminum-based plate material
for longer-run printing. Approximately 90% of the Company's supplies revenue is
from plate materials, but other supplies sold by the Company include developer
(toner), conversion solution, press fountain solution, dispersant, decoating
solution and plate gum.
The Company believes that its metal printing plates have unique
environmental advantages over other metal printing plates. Tests conducted by an
engineering consulting firm concluded that by-products from processing the
Company's plates can be disposed of without special treatment. Printware's paper
and metal printing plates are both recyclable and contain no heavy metals such
as silver. The Company knows of no other digital plates that can be recycled as
easily as its plates. The Company believes that the environmental advantages of
its plates will become increasingly important to printers.
Printware's current generation of paper plate material, called Platinum
grade, was introduced in 1995. This plate material uses a zinc-oxide coating and
a triple plastic-coated paper base stock. The Company believes that this
plasticized stock provides more stability and consistency than other paper
plates. The plates
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can be used for run lengths of up to 5,000 impressions, handling work which
would otherwise require more expensive metal or silver-halide plates. Platinum
plate material comes in 425-foot rolls in various widths up to 16 inches. The
plates are cut to exact length by the Platesetter. The Company believes that
paper-based printing plates used in Printware Platesetters are the lowest cost
digital plates available.
PRODUCT WARRANTY. The Company provides a 90-day limited warranty on its
Platesetters under which the Company will provide repair or replacement for
defects in materials or workmanship. On Platesetters sold by Mitsubishi, the
warranty covers 90 days from first installation, up to a maximum of 180 days
from shipment by the Company. Mitsubishi also has the right to purchase an
extended warranty for Model 3240 Platesetters it markets. For the Model 1440,
the Company offers parts under warranty if the customer purchases supplies
exclusively from Printware for the first year after the Model 1440 is purchased,
or if the customer enters into an extended term agreement to purchase supplies.
The Company provides a one-year limited warranty on plate materials and most
of the related chemical supplies for the Model 1440. This warranty provides
replacement of any defective material returned to the Company. To the extent the
Company experiences warranty claims related to the sale of consumable supplies,
the Company has generally received replacement supplies or a credit from the
Company's vendor. The warranty claims made to the Company to date have been
minimal for both Platesetters and supplies.
MARKETING
Printware has separate marketing strategies for its two different
Platesetter lines. The Model 3240 Platesetter is sold by Mitsubishi, Printware's
marketing partner, who sells the Model 3240 to customers directly or through
graphic arts dealers. The Company has retained the right to market the Model
3240 directly or through other marketing partners. The Model 1440 line is sold
directly by Printware's own sales force, which has expertise in the specialized
applications served by the Model 1440.
Through its original equipment manufacturer ("OEM") partnership with
Mitsubishi, the Company is enjoying much broader product exposure. Mitsubishi
began a significant advertising campaign in late 1994 to introduce the Model
3240 and explain its benefits. Advertisements have been placed in several trade
publications, including AMERICAN PRINTER, INPLANT GRAPHICS and PRINTING
IMPRESSIONS. In 1995 the Model 3240 was introduced at tradeshows in the U. S.,
Canada, Europe and Japan by Mitsubishi. Pitman Co., the largest graphic arts
dealer in the country, and other dealers are exhibiting and promoting the
product.
The Company believes that its OEM strategy for the Model 3240 allows
Mitsubishi to add value, such as brand awareness, promotion, distribution and
service. Mitsubishi also couples the sale of the Model 3240 to the sale of its
plate material supplies. The Company believes that Mitsubishi is the world's
leading supplier of photographic plate material. The Company has been satisfied
with the results of the Mitsubishi partnership, but there can be no assurance
that the relationship will continue or that the business level will continue to
grow. Currently the supplies marketed by Mitsubishi for the Model 3240 do not
materially affect the Company's sales of supplies for the Model 1440.
The Company's goal is to significantly expand distribution of its products
in order to reach a broader customer base. Management envisions this expansion
taking place gradually as the Computer-to-Plate market grows. The Company plans
to use a portion of the net proceeds of this Offering to expand its distribution
by hiring additional sales and marketing personnel, expanding advertising and
attending trade shows.
RESEARCH AND DEVELOPMENT
Printware has research and development programs underway or planned to
develop higher performance RIPs, faster Platesetters and lower-cost
Platesetters. The Company believes that these programs are necessary to maintain
its competitive advantage and that the technology to accomplish these programs
is already developed. The Company plans to continue to make use of outside
suppliers as part of these development efforts. No assurance can be given that
any of these programs will be successful in producing revenue for the Company.
HIGHER-PERFORMANCE RIPS. The Company is developing a next-generation raster
image processor using the current industry standard Adobe Level 2 PostScript
software interface. Products using this interface are
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intended to be available in 1996, and will allow Printware equipment to
integrate more easily with a wider range of computer and network systems. The
Company believes that offering the widely-accepted Adobe software interface will
improve the market acceptance of the Company's products. In addition, Printware
plans to improve the speed of its RIPs with higher-speed microprocessors and
other higher speed components.
FASTER PLATESETTERS. Based on independent surveys conducted by THE SEYBOLD
REPORT in 1995 and PrintCom Consulting Group in 1996, the Company believes that
its Platesetters are among the fastest in the industry, with a top speed of 40
inches per minute. The Company plans to maintain and extend its speed advantage
by developing a next generation of even faster Platesetters. Through changes in
the laser marker system, the Company believes it can increase the speed of its
Platesetters by up to 50%. If this can be accomplished, the Company believes it
will provide an important competitive advantage by helping the Company meet the
printing industry's ever-increasing productivity demands.
LOWER-COST PLATESETTERS. Printware plans to develop a Platesetter with an
end-user price in the $50,000 range, compared to $75,000 for Printware's current
lowest-priced model. Costs will be reduced by scaling down the maximum plate
width to approximately 13" and by eliminating certain features. The 13" width
would allow printing of up to two 8 1/2" by 11" pages simultaneously, and would
be compatible with a large number of small-format printing presses (sometimes
called duplicator presses). Management believes that such a product would allow
customers with lower plate volumes to justify a Platesetter purchase, thus
making it viable for smaller printing operations in segments such as business
forms and technical/legal publishing. Printware had completed the development of
such a product for a former OEM partner (A. B. Dick Company) in 1994. A. B. Dick
canceled its orders for the product, but the Company believes parts of that
design can be used in the new product. A current customer has expressed strong
interest in such a product, although pricing and other supply terms have not
been agreed to, and there is no assurance that an acceptable supply agreement
can be reached with the customer.
In addition to new products, the Company is committed to the continual
improvement of its existing products. Based on the results of rigorous quality
audits, the Company believes that Model 3240 product quality has improved
steadily since its introduction. The product meets the strenuous quality demands
of the world market and a number of Model 3240 units have been exported to
Japan. In 1996 the Company introduced an enhanced external design of the Model
3240, which is stronger and has a more rounded look.
In the long term (three to five years), the Company plans to develop more
highly automated digital printing systems built around Computer-to-Plate
technology. There can be no assurance that such a development effort will be
successful. The Company believes that there is and will continue to be
significant competition in this area.
COMPETITION
The growth in the Computer-to-Plate business has attracted considerable
competition. The Company's competitors and potential competitors are established
companies that have significantly greater financial, technical and marketing
resources than the Company. There can be no assurance that the Company's
competitors will not succeed in developing and marketing products which perform
better and are less expensive than the Company's products, or that will render
the Company's products and technology obsolete or noncompetitive in other ways.
The Company divides its competition into four categories: other platesetters;
film imagers; enhanced xerographic/laser printers; and supplies competitors.
OTHER PLATESETTERS. The Company believes, based on surveys reported in THE
SEYBOLD REPORT and by the PrintCom Consulting Group and others, that there are
at least 50 Platesetter models currently being marketed by more than 20
companies. THE SEYBOLD REPORT recently identified the four leaders as Printware,
Gerber Scientific, Creo Products and the Optronics division of Intergraph.
Another company, Presstek, a leader in digital presses, has recently introduced
Platesetters. THE SEYBOLD REPORT noted that: "...Printware has manufactured more
[Platesetters] than anyone else, giving it an enviable position in the market."
The Company believes that it has a head start over Platesetter competition,
although there can be no assurance the Company will be able to maintain that
advantage.
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All major competitors mentioned above use metal plates, and most of their
Platesetters are relatively expensive ($250,000 to $500,000), as they are geared
towards the relatively small market for high-end color printing. Creo Products
serves large printers, such as magazine publishers. Gerber Scientific
specializes in metal Platesetters, and Optronics focuses on craft-oriented
printing.
Printware's products are focused at mainstream, smaller presses and
mid-range quality, which management believes currently accounts for most
printing. The Company believes that this type of printing will continue for the
foreseeable future, although there can be no assurance that a shift to large
format presses or higher-quality color printing might not render the Company's
products obsolete. From independent industry surveys, the Company believes its
Platesetters are unmatched in cost-effectiveness and speed. Gerber Scientific
and Presstek have announced lower cost models, but the Company believes they are
still more expensive to buy and to operate than Printware's products. All four
major competitors use metal plates, which are much more expensive than the
Printware's economical paper plates. Presstek has introduced a nonmetallic
version of its plate, but the plate is still much more costly than Printware's
paper-based plates. Printware's latest Platesetter for paper-based plates, the
Model 1440 ZNX, costs $75,000, which the Company believes is less than most
competitive Platesetters. The Company also believes that Printware Platesetters
have the lowest variable platemaking cost of any digital method.
In addition to the metal Platesetter competition summarized above, the
Company also faces significant competition from other photographic Platesetters
which use non-metallic printing plates. This competition could particularly
affect the Model 3240 photographic Platesetter. Management believes the most
significant of these competitors include A. B. Dick Company, Eskofot
International and PrePress Systems. The Company believes that its advantages
over those products include higher speed, less plate waste and the reputation of
the Mitsubishi brand name.
FILM IMAGERS. Digital film imagers are used in the traditional multi-step
platemaking process being obviated by Platesetters. Several film imager
manufacturers are attempting to adapt film imagers to image plates directly.
Competitors in this category include the Agfa division of Bayer Corp.,
Linotype-Hell and ECRM Incorporated. From discussions with customers, the
Company believes that such "plate-enabled" film imagers represent a slow,
awkward approach, compared to the Company's Platesetters. The Company's systems
are fully daylight-safe (no darkrooms) and chemical processing steps are
contained, providing so-called "dry-to-dry" operation. The Company's
Platesetters are faster than most film imagers and, unlike film imagers, have
virtually no plate waste.
XEROGRAPHIC/LASER PRINTERS. Enhanced xerographic/laser printers can replace
offset printing in certain applications, but are currently limited to
lower-quality applications such as overseas check printing and low-quality
business forms. These devices also have a higher variable cost per impression
than Computer-to-Plate technology. Companies in this area include Check
Technology Corporation, Delphax Systems and Xerox Corporation. Management
believes that competitors in this area are making efforts to improve the quality
and reduce the cost of their systems, and there can be no assurance that systems
marketed by the Company will sustain their advantage.
SUPPLIES COMPETITION. Printware has competitors that sell paper plate
supplies for Model 1440 Platesetters. The Company is not aware of competition
for metal plates used in the Model 1440. The most significant competitive paper
plate material is made by a Japanese paper mill and sold through a U. S.
distributor. There have also been several less significant competitors in this
market from time to time. Printware has addressed the competitive threat with
lower prices where appropriate and a program to improve the quality and
consistency of its supplies. The Company believes that competitive materials are
inferior to Printware supplies in certain respects, such as strength and
dimensional stability, but not inferior in other respects. The Company also
believes that many of its customers would prefer to purchase their supplies from
Printware as the manufacturer of the equipment. The Company expects supplies
revenues to grow at a modest rate, but there can be no assurance that the
Company will be able to maintain its product advantage or that competition might
not adversely affect the profitability or viability of its supplies business.
PROPRIETARY RIGHTS
PATENTS AND TRADE SECRETS. Printware's policy is to attempt to protect its
technology by seeking patents, maintaining certain trade secrets and continuing
technological innovation. As of March 30, 1996, the
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Company had rights to 17 patents, consisting of 11 granted to Printware and six
licensed from 3M. The 3M patents expire between 2002 and 2004; the royalties
which the Company paid to 3M in 1995, 1994 and 1993 for licenses of these
patents were not material to the Company. The Company's own patents begin to
expire in 2004. There can be no assurance that such patent rights will not be
challenged, rendered unenforceable, invalidated or circumvented. Efforts to
enforce patent rights can involve substantial expense and may not be successful.
In addition to patents, the Company relies on trade secrets and other unpatented
proprietary technology. Printware seeks to protect its trade secrets and
proprietary know-how with confidentiality agreements with employees and
suppliers. There can be no assurance that the Company's patent portfolio will
provide a competitive advantage in the future, or that the Company's agreements
will adequately protect the Company's trade secrets.
PRODUCT SUPPLY AGREEMENTS. In 1995 Printware obtained the non-exclusive
right to use Adobe Systems' software interface for all of its Platesetters.
Adobe originated the printing industry standard PostScript language and is
viewed as controlling its future evolution. The Company entered into a
development and license agreement with a licensee of Adobe to develop software
to utilize the Adobe software with the Model 3240 Platesetter and to supply the
combined software to Printware at defined prices. The Company also has
non-exclusive rights for the ZAPrip for fixed prices for an indefinite term,
fonts in the ZipRip under a current license amendment through 1997, and to the
plate processor module under a sale of technology and parts supply agreement.
The Company has the exclusive right to sell the proprietary plate materials made
by its suppliers. The Company has a supply agreement for paper plate material
with the vendor on a defined price basis and on an exclusive basis subject to
minimum annual volumes. The Company has a supply agreement for metal plate
material with the vendor on a defined price and exclusive basis. All of the
product supply agreements to which the Company is a party can be canceled by
either party under certain circumstances. Such cancellation would seriously
jeopardize the Company's ability to provide products that are critical to the
Company's revenues.
SUPPLIERS
The Company has a number of single source suppliers for materials that are
critical to production of its products. For the Model 1440 and Model 3240, these
single source suppliers provide spherical mirrors, galvanometer mirrors,
application specific integrated circuits and galvanometer torsion bar material,
all of which are supplied to the Company on a purchase order basis, and ZAPrip
dongles which are supplied under a supply agreement. For the supplies sold by
the Company for the Model 1440, the single source suppliers provide paper plate
material, metal plate material, paper plate toner and metal plate toner, all of
which are supplied to the Company on a purchase order basis. Any significant
interruption of supply from any of these vendors would have a material adverse
effect on the Company. The Company has not identified or qualified alternate
suppliers for the materials now being obtained from single sources.
MANUFACTURING AND FACILITIES
Printware's manufacturing operation consists of the assembly, integration,
testing and quality audits of equipment. The Company purchases all of its
supplies and many of the hardware components it uses from third-party vendors,
some of which are single-source vendors. Printware's principal manufacturing
areas include laser markers, transport mechanisms, electronics/RIPs and final
assembly/test. Printware makes extensive use of computer-aided design and
transmits most of its fabricated part drawings to its suppliers electronically.
The Company believes that this use of technology shortens turnaround time and
improves quality.
Printware's offices and manufacturing facility are located at 1270 Eagan
Industrial Road, St. Paul, Minnesota. The Company occupies 35,410 square feet
pursuant to a lease which expires July 31, 1998. Management believes that this
facility will be adequate for Printware's needs at least until the expiration of
the lease. The lease also has an option to extend for three additional years at
then-existing market rates. Monthly rent expense is currently $7,029, plus a pro
rata share of real estate taxes and common area maintenance.
23
<PAGE>
EMPLOYEES
As of March 30, 1996, Printware had 48 employees, including 44 full-time
employees and 4 part-time or contract employees. Of the 44 full-time employees,
17 were in manufacturing, 5 were in marketing, sales and customer service, 14
were in research and development and 8 were in general and administrative
functions. Management considers the future success of the Company to be
dependent in part upon its continued ability to maintain a highly-skilled
workforce and to attract, motivate and retain qualified employees. Accordingly,
Printware began an employee profit-sharing plan in 1995. The program provides
payments to each non-officer employee of up to 3% of salary, depending on the
Company's performance against quarterly profit goals. No Printware employees are
covered by collective bargaining agreements and the Company considers its
relationship with its employees to be good.
LEGAL PROCEEDINGS
The Company is involved in various legal actions in the normal course of
business. Management is of the opinion that the outcome of such actions will not
have a significant effect on the Company's financial position or its results of
operations.
24
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Allen L. Taylor, Ph.D.(1)(2) 60 Co-chairman of the Board, Director
Donald V. Mager(2) 60 Co-chairman of the Board, Director
Daniel A. Baker, Ph.D 38 President, Chief Executive Officer and Director
Thomas W. Petschauer 56 Executive Vice President and Chief Financial Officer
Joseph F. Dayton 49 Senior Vice President
Brian D. Shiffman(1)(2) 56 Director, Secretary
Jerry K. Twogood(2) 55 Director
Charles M. Osborne(1) 42 Director
</TABLE>
- ---------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee
ALLEN L. TAYLOR, PH.D. has served as Co-chairman of the Board since February
1993 and prior to that time as Chairman of the Board beginning in May 1985. Dr.
Taylor is a co-founder of the Company but has never been an employee of the
Company. He has been an employee of 3M (a publicly-held diversified
manufacturer) for over 30 years and was instrumental in obtaining for the
Company in 1985 a license from 3M for the key galvanometer technology.
DONALD V. MAGER has served as Co-chairman of the Board since February 1993
and prior to that time was President, Chief Executive Officer and a director of
the Company since May 1985. Mr. Mager is a co-founder of the Company. Since
February 1993 Mr. Mager has been a part-time employee acting in a consulting
capacity and is no longer active in the day-to-day management of the Company.
Mr. Mager's employment by the Company will terminate on June 1, 1996.
Previously, he was employed by Sperry Corporation (a publicly-held manufacturer
of computer systems) and its predecessors for 30 years, most recently as
Director of New Product Ventures.
DANIEL A. BAKER, PH.D. has served as the Company's President and a member of
its Board of Directors since February 1993 and as Chief Executive Officer since
January 1995. Dr. Baker joined the Company in
May 1990 as Vice President of Engineering and was later appointed Vice President
of Sales, Marketing and Product Development. He has 20 years of experience in
high-tech industry, and personally holds 15 patents. His previous experience
includes executive positions at Minntech Corporation (a publicly-held
manufacturer of medical and industrial devices) and Percom Data Corporation (a
privately-held manufacturer of computer peripherals).
THOMAS W. PETSCHAUER has served as a Vice President of the Company since
June 1985 and was named Executive Vice President and Chief Financial Officer in
January 1995. Mr. Petschauer is a co-founder of the Company. He has over 30
years of technical, managerial and business experience in the computer and
peripheral field. Prior to joining Printware, he was Venture Executive at Sperry
Corporation, where he was employed for over 20 years.
JOSEPH F. DAYTON has served as a Vice President of the Company since October
1986 and was named Senior Vice President of Manufacturing and Customer Service
in January 1995. Prior to October 1986 he was employed by E. F. Johnson Company
(a publicly-held manufacturer of cellular radio systems), where he held
increasingly responsible executive positions in program management, quality and
manufacturing functions.
25
<PAGE>
BRIAN D. SHIFFMAN has served on the Board of Directors since the Company's
incorporation in May 1985. Mr. Shiffman has been Business Development Manager at
Minnesota Project Innovation, Inc. since 1991. Previously, Mr. Shiffman was Vice
President at the Minnesota Cooperation Office, as a loaned executive from
Control Data Corporation, and was instrumental to the formation of the Company.
Mr. Shiffman was employed at Control Data Corporation (a publicly-held computer
systems business) for over 20 years.
JERRY K. TWOGOOD has served on the Board of Directors since January 1987.
Mr. Twogood has been the Executive Vice President of Deluxe (a publicly-held
provider of checks and related electronic-based payment systems) since 1987 and
since November 1995 has been its President of Manufacturing. He has also been a
member of the Board of Directors of Deluxe since 1987, where he has been
employed since 1959. Deluxe owned 51.3% of the Company's outstanding Common
Stock as of March 30, 1996 and is one of the Company's major customers.
CHARLES M. OSBORNE joined the Company's Board of Directors in January 1989.
Mr. Osborne has been Deluxe's Chief Financial Officer since 1984 and Senior Vice
President since 1989. He has been employed by Deluxe since 1981. Previously, Mr.
Osborne was at Deloitte & Touche LLP, public accountants. In 1996 Mr. Osborne
completed a term as President of the Financial Stationers Association. He also
serves on the board of directors of Graco Corporation (a publicly-held paint
sprayer business) and of Computer Petroleum Corporation (a publicly-held
provider of market research to the petroleum industry).
In addition to the above executive officers and directors, the Company has
certain other employees who the Company believes are important to its
operations. These key employees are: RODNEY S. CERAR, age 48, who has been with
the Company since March 1992 and has been Director of Platesetter Engineering
since February 1993 and was previously employed by ADC Telecommunications (a
publicly-held manufacturer of telecommunications equipment) from February 1990
to November 1991 as Manager of Manufacturing; ALEXANDER K. KOSS, age 37, who
joined the Company in July 1985 and has been Director of Product Development
since August 1994; TIMOTHY S. MURPHY, age 32, who has been employed by the
Company since October 1987 and has been Director of Marketing and Sales since
August 1994; and CORDELL E. LOMEN, age 50, who has been the Company's Controller
since October 1986.
The Company's Articles of Incorporation provide that the Board of Directors
may consist of up to 11 members. Currently the Board of Directors has 6 members.
Each director is elected to hold office until the next annual meeting of
shareholders.
The Company has not paid any fees to members of its Board of Directors, with
the exception of Mr. Shiffman, who receives $750 per quarter for serving as
Secretary. Under the Company's 1996 Stock Plan, each of the non-employee
directors (except for Messrs. Osborne and Twogood) was automatically granted a
non-qualified stock option for 1,000 shares of Common Stock (at an exercise
price of $3.00 per share) on April 25, 1996 when the Plan was approved by
shareholders and will be automatically granted an option for an additional 1,000
shares (at an exercise price equal to the then fair market value of the Common
Stock) upon each election or re-election as a member of the Board of Directors
(see "Stock Plans" below).
There are no family relationships among any of the Company's directors and
executive officers.
BOARD OF DIRECTORS COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee consists of Messrs. Osborne, Shiffman and Taylor.
This committee will review the Company's accounting, auditing and reporting
practices, make recommendations concerning the work of the Company's independent
auditors and review the adequacy of internal controls. The Compensation
Committee consists of Messrs. Taylor, Shiffman, Twogood and Mager. This
committee is responsible for establishing salaries, bonuses and other
compensation for the Company's executive officers, and for the administration of
the 1996 Stock Plan and the Employee Stock Purchase Plan. See "Stock Plans"
below.
26
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation earned for services rendered in
all capacities to the Company by the President and Chief Executive Officer and
the two other most highly compensated executive officers of the Company whose
salary and bonuses exceeded $100,000 for the year ended December 31, 1995 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE FOR 1995
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
- ---------------------------------------- -------- ------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Baker $110,000 $44,814 $ 0 $ 7,500(1) 11,203(2) $1,413(3)
President and CEO
Thomas W. Petschauer 95,000 38,703 0 0 9,675(2) 1,226(3)
Executive Vice President and CFO
Joseph F. Dayton 83,000 33,814 0 0 8,453(2) 956(3)
Senior Vice President
</TABLE>
- ---------------------------
(1) Represents the value of a restricted stock award of 2,500 shares approved
by the Board of Directors.
(2) Consists of Incentive Stock Options awarded under the Company's 1995 Bonus
Plan for executive officers (see "Executive Bonus Plan").
(3) Consists of matching contributions made under the Company's 401(k) Plan
(see "401(k) Profit Sharing Plan").
None of the executive officers and directors of the Company are parties to
any employment or severance agreements, except for a Change in Control Severance
Agreement with Dr. Baker. This agreement provides that in the event of a change
in control of the Company followed by termination of Dr. Baker's employment
within one year thereafter, he will generally receive a lump sum severance
payment equivalent to two years of compensation.
The following table summarizes option grants in 1995 to each of the Named
Executive Officers:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE
---------------------------------------------------------------------------- APPRECIATION FOR
NUMBER OF SECURITIES PERCENTAGE OF TOTAL EXERCISE OR OPTION TERM
UNDERLYING OPTIONS OPTIONS GRANTED BASE PRICE EXPIRATION --------------------
GRANTED EMPLOYEES IN 1995 PER SHARE DATE 5%(1) 10%(1)
----------------------- --------------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel A Baker(2).......... 8,000 34.4% $ 3.00 Jan. 13, 2005 $ 15,093 $ 38,250
Thomas W. Petschauer(2).... 7,000 30.0 3.00 Jan. 13, 2005 13,207 33,469
Joseph F. Dayton(2)........ 6,250 26.9 3.00 Jan. 13, 2005 11,792 29,883
</TABLE>
- ---------------------------
(1) Represents the potential net realizable value of each grant of options
assuming that the market price of the underlying Common Stock appreciates
in value from its fair market value on the date of grant to the end of the
option term at the indicated annual rates. As determined by the Company's
Board of Directors, the fair market value of the Common Stock on the date
of grant of the options described in the table was $3.00 per share.
(2) The options were granted under the 1986 Incentive Stock Option Plan and are
currently 100% vested.
27
<PAGE>
The following table summarizes the value of options held at December 31,
1995 by the Named Executive Officers. There were no options exercised by the
Named Executive Officers during 1995.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
- ---------------------------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Daniel A. Baker..................................... 18,750 11,203 $ 65,625 $ 39,211
Thomas W. Petschauer................................ 22,125 9,675 77,438 33,863
Joseph F. Dayton.................................... 25,700 8,453 89,950 29,586
</TABLE>
- ---------------------------
(1) The amounts set forth represent the difference between the assumed Price to
Public of $6.50 per share and the exercise price of the options, multiplied
by the applicable number of shares underlying the options.
(2) The unexercisable options were granted in January 1996 for 1995
performance.
STOCK PLANS
1996 STOCK PLAN
The shareholders approved the Company's 1996 Stock Plan (the "Plan") on
April 25, 1996. The Plan is administered by the Compensation Committee of the
Board of Directors and expires on April 25, 2006. The Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to employees of the
Company and non-qualified stock options and restricted stock awards to
employees, consultants and directors of the Company. Options and awards of
restricted stock for up to 500,000 shares of Common Stock are authorized under
the Plan. The Compensation Committee has broad discretion to prescribe
conditions (such as the completion of a period of employment with the Company
following the grant of an option to an employee) to be satisfied before an
option becomes exercisable. The Plan also provides for the automatic grant of a
non-qualified stock option for 1,000 shares at 100% of the fair market value,
fully vested upon grant, exercisable for five years, to each non-employee
director upon adoption of the Plan and upon each election or re-election as a
member of the Board of Directors.
The Company's 1986 Incentive Stock Option Plan and the Company's original
Incentive Stock Option Plan have been utilized to grant all of the Company's
options through March 30, 1996. The original plan expired in June 1995. Although
the 1986 Incentive Stock Option Plan will not terminate until October 1996, the
Company decided not to grant any additional options under this plan after March
30, 1996.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was adopted on April 25, 1996 and provides for the issuance of up to 100,000
shares of Common Stock. The Stock Purchase Plan is administered by the
Compensation Committee of the Board of Directors. With certain exceptions, all
employees of the Company who have been employed by the Company for at least six
months and who are employed at least 20 hours per week and at least five months
per year, including officers and directors who are employees, are eligible to
participate in the Stock Purchase Plan. The Stock Purchase Plan consists of
periodic offerings, with the first such offering planned to begin on April 1,
1997. Each offering under the Stock Purchase Plan will be for a period
determined by the Compensation Committee of the Board of Directors, but not to
exceed 27 months. An employee may elect to have up to a maximum of 10% deducted
from his or her regular salary for the purpose of purchasing shares under the
Stock Purchase Plan. The price at which the employee's shares are purchased is
the lower of (a) 85% of the closing price of the Common Stock on the day that
the offering commences or (b) 85% of the closing price of the Common Stock on
the day that the offering terminates. No shares have been issued under the Stock
Purchase Plan.
28
<PAGE>
401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") became
effective August 1, 1994. The 401(k) Plan is intended to qualify under Section
401(k) of the Code. All employees employed by the Company in the United States
for at least 30 hours per week are eligible to participate in the 401(k) Plan as
of the next calendar quarter following one year after date of hire by the
Company. Each eligible employee may contribute to the 401(k) Plan, through
payroll deductions, up to 15% of his or her salary, subject to statutory
limitations. The 401(k) Plan permits, but does not require, additional
contributions to the 401(k) Plan by the Company of up to 2% of the compensation
paid by the Company to each employee in the previous calendar quarter. The
Company's contributions are made at the discretion of the Board of Directors,
within the limits of the 401(k) Plan. The Company has made a contribution of 1%
of the compensation of each participating employee each quarter since the
adoption of the 401(k) Plan. Under Section 401(k) of the Code, contributions by
employees or by the Company to the 401(k) Plan and income earned on plan
contributions are not taxable to employees until withdrawn from the 401(k) Plan.
Contributions by the Company, if any, will be deductible by the Company when
made.
EXECUTIVE BONUS PLAN
The Compensation Committee authorizes and approves an executive officer
bonus plan ("Bonus Plan") near the beginning of each year based on the Company's
financial plan for the year and based on its view of the overall compensation of
the executive officers. For 1996 the Bonus Plan provides for a formula-
determined cash payment of up to 52% of the base salary of each of the executive
officers based on the overall revenues and profit of the Company in 1996. The
Compensation Committee also reserves the right to make additions to the awarded
bonuses based on additional subjective measures of executive officer performance
and achievement. In addition, each executive officer will receive a grant of an
Incentive Stock Option for a number of shares of Common Stock determined by
dividing by four the number of dollars of Bonus Plan cash payment to each
officer. These Incentive Stock Options will be exercisable at the fair market
value of the Common Stock on the date of grant, will be 100% vested after one
year and will be exercisable for nine years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of the current non-employee directors is entitled to receive
compensation in the form of cash for their services as directors. At present,
and during the year ended December 31, 1995, no director or executive officer of
the Company and no member of the Compensation Committee is, or was during the
year ended December 31, 1995, a director or compensation committee member of any
other business entity which had a director that sits on the Company's Board of
Directors or Compensation Committee.
29
<PAGE>
CERTAIN TRANSACTIONS
Deluxe owned 51.3% of the Company's outstanding Common Stock as of March 30,
1996 and two of its executive officers (Messrs. Osborne and Twogood) are members
of the Company's Board of Directors. From time to time over the last nine years,
the Company has had agreements with Deluxe to develop or deliver products,
supplies and services to Deluxe. Under some of these agreements the Company
received prepayments as a source of financing in exchange for providing
favorable pricing to Deluxe. The Company has recorded these prepayments as a
deferred revenue liability and no revenue was recognized until the Company
delivered the goods or services to Deluxe.
In February 1991 Deluxe ordered several units of a film imager version of
the Model 3240 and associated ZipRip raster image processors for a purchase
price and advance payment of $516,000. The Company offered favorable pricing to
Deluxe due to the Company's desire to receive financing from the advance payment
and the need for Deluxe to wait for completion of the development and subsequent
production of the units. A change to the product resulted in Deluxe paying an
additional $40,000 in November 1991. The Company delivered a portion of the
Model 3240 film imagers in 1993. In August 1994 Deluxe replaced its order with
another order for the Platesetter version of the Model 3240. The replacement
order was for a number of Model 3240 Platesetters, ZAPrips and a film imager
Model 3240, for an increase of $155,000 in the aggregate price. The Company
delivered the products for the replacement order in 1995.
In August 1993 the Company and Deluxe entered into a contract that called
for the Company to provide special equipment to Deluxe for $1.59 million.
Approximately $635,000 of the contract amount was paid as a down payment in
order to allow the Company to finance the procurement of components and
assemblies to ensure their availability for subsequent equipment production.
Deluxe later determined not to proceed with the transaction and paid the Company
an additional $45,000. As a result of the contract cancellation, the Company
wrote down the related inventory. The Company had no material gain or loss
resulting from the contract cancellation and settlement.
Effective in January 1995, the Company entered into a three year supply
contract with Deluxe to supply Deluxe with Model 1440 plate material. The
contract calls for Deluxe to purchase a fixed quantity of plate material each
year. In 1995 this contract produced revenues to the Company of between $2 and
$3 million. The Company believes this contract will produce similar revenues for
the Company in 1996 and 1997.
In February 1996, the Company entered into an $80,000 contract with Deluxe
under which the Company is performing software research and development work. In
April 1996 Deluxe placed a $102,000 purchase order for the Company to retrofit
certain Deluxe equipment to incorporate the results of this software research
and development work.
The Company believes that its agreements and transactions with Deluxe have
been on terms (taking into account advance payments and delayed delivery dates)
that are no less favorable to the Company than could have been obtained in arm's
length transactions with an unaffiliated party. The Company's policy with
respect to future transactions with affiliates is that where such transactions
are material, approval will be required by a majority of the disinterested
members of the Company's board of directors.
30
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 30, 1996 and as adjusted to
reflect the sale of the shares offered hereby by (i) each person known to the
Company to beneficially own more than five percent (5%) of Common Stock, (ii)
each director, (iii) each of the Named Executive Officers, (iv) all directors
and executive officers of the Company as a group and (v) each Selling
Shareholder. Except as otherwise indicated below, to the knowledge of the
Company, all shareholders have sole voting and investment power over the shares
beneficially owned, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING SHARES TO OFFERING
----------------------- BE SOLD -----------------------
NAME NUMBER PERCENT IN OFFERING NUMBER PERCENT
- -------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Deluxe Corporation(1) ............................ 1,862,290 51.31% 274,600 1,587,690 32.87%
P.O. Box 64235
St. Paul, MN 55164-0235
Donald V. Mager(2)(3) ............................ 454,862 12.53% 62,300 392,562 8.13%
c/o Printware, Inc.
1270 Eagan Industrial Rd.
St. Paul, MN 55121
Allen L. Taylor(3) ............................... 405,875 11.18% 62,300 343,575 7.11%
c/o Printware, Inc.
1270 Eagan Industrial Rd.
St. Paul, MN 55121
Thomas W. Petschauer(4)........................... 99,823 2.75% 0 99,823 2.07%
Daniel A. Baker(5)................................ 28,750 * 0 28,750 *
Joseph F. Dayton(6)............................... 25,800 * 0 25,800 *
Minnesota Technology, Inc......................... 5,500 * 800 4,700 *
Brian D. Shiffman................................. 500 * 0 500 *
Jerry K. Twogood(7)............................... 1,862,290 51.31% ** 1,587,690 32.87%
Charles M. Osborne(7)............................. 1,862,290 51.31% ** 1,587,690 32.87%
Directors and executive officers as a group (8
persons)(8)...................................... 2,877,900 79.29% 399,200 2,478,700 51.32%
</TABLE>
- ---------------------------
* Less than 1%
** Not applicable
(1) Includes 5,000 shares issuable upon the exercise of warrants exercisable
within 60 days of March 30, 1996. Deluxe is a major customer of the Company
and two of its officers are members of the Company's Board of Directors. See
"Business-- Customers" and "Management."
(2) Includes 18,700 shares issuable upon the exercise of options exercisable
within 60 days of March 30, 1996.
(3) Mr. Mager and Mr. Taylor are members of the Company's Board of Directors.
(4) Includes 22,125 shares issuable upon the exercise of options exercisable
within 60 days of March 30, 1996. The shares listed above for Mr. Petschauer
include 5,000 issued to his wife, as to which Mr. Petschauer disclaims
beneficial ownership.
(5) Includes 18,750 shares issuable upon the exercise of options exercisable
within 60 days of March 30, 1996.
(6) Includes 25,700 shares issuable upon the exercise of options exercisable
within 60 days of March 30, 1996.
(7) Shares indicated for Messrs. Twogood and Osborne consist entirely of shares
owned by Deluxe, as to which Messrs. Twogood and Osborne disclaim beneficial
ownership. They are officers of Deluxe and members of the Company's Board of
Directors.
(8) Includes 85,275 shares issuable upon the exercise of options exercisable
within 60 days of March 30, 1996, the shares owned by Deluxe and 5,000
shares issuable to Deluxe upon the exercise of its warrants exercisable
within 60 days of March 30, 1996.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, no par value per share, and 1,000,000 shares of Preferred Stock.
The following summary of the terms and provisions of the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Articles of Incorporation and applicable law.
COMMON STOCK
On March 30, 1996, there were 3,629,713 shares of Common Stock outstanding
held by 209 shareholders of record. All shares of Common Stock have equal voting
rights and have one vote per share in all matters to be voted upon by
shareholders. Cumulative voting in the election of directors is not allowed. No
share of Common Stock is entitled to preference over any other share of Common
Stock, and each share of Common Stock is equal to any other share of Common
Stock in all respects. All of the outstanding shares of Common Stock are, and
the shares to be sold pursuant to this offering will be, fully paid and
nonassessable.
The shares of Common Stock have no preemptive or conversion rights, no
redemption or sinking fund provisions and are not liable for further call or
assessment. Subject to the rights of holders of the Preferred Stock, each share
of Common Stock is entitled to receive a return of paid-in capital and to
participate pro rata in any distribution of capital assets, whether voluntary or
involuntary, after creditors have been paid in full.
Subject to the rights of holders of the Preferred Stock, shareholders of
Common Stock are entitled to receive dividends when and as declared by the
Company's Board of Directors out of funds legally available thereof. Any such
dividends may be paid in cash, property or shares of Common Stock. The Company
has not paid any cash dividends since its inception and presently anticipates
that no dividends on its Common Stock will be declared in the foreseeable
future.
PREFERRED STOCK
There are no shares of Preferred Stock issued and outstanding. The Preferred
Stock is issuable by the Board of Directors from time to time in one or more
series without approval of the Company's shareholders. Each series will have a
distinctive designation or title as is fixed by the Board of Directors. Each
series of Preferred Stock will have such voting power (or no voting power),
preferences, rights, qualifications, limitations or restrictions as are adopted
by the Board of Directors prior to the issuance of the series, and would likely
have rights superior to the rights of Common Stock. The Company presently has no
plan to issue any Preferred Stock.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws and Minnesota law require the Company to indemnify any
director, officer, employee or agent of the Company who was or is a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, against certain liabilities and
expenses incurred in connection with the action, suit or proceeding, except
where such persons have not acted in good faith or did not reasonably believe
that the conduct was in the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or other persons controlling the Company pursuant to the foregoing
provisions, the opinion of the Securities and Exchange Commission (the
"Commission") is that such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Certain provisions of Minnesota law described below could have an
anti-takeover effect. These provisions are intended to provide management
flexibility to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to discourage an unsolicited takeover of the Company, if the
Board determines that such a takeover is not in
32
<PAGE>
the best interests of the Company and its shareholders. However, these
provisions could have the effect of discouraging certain attempts to acquire the
Company which could deprive the Company's shareholders of opportunities to sell
their shares of Common stock at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act ("MBCA") provides
that, unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by a majority of the disinterested shareholders of the
Company, the shares acquired above such new percentage level of voting control
will not be entitled to voting rights. The Company is required to hold a special
shareholders' meeting to vote on any such acquisition within 55 days after the
delivery to the Company by the acquiror of an information statement describing,
among other things, the acquiror and any plans of the acquiror to liquidate or
dissolve the Company and copies of definitive financing agreements for any
financing of the acquisition not to be provided by funds of the acquiror. If any
acquiror does not submit an information statement to the Company within ten days
after acquiring shares representing a new threshold percentage of voting control
of the Company, or if the disinterested shareholders vote not to approve such an
acquisition, the Company may redeem the shares so acquired by the acquiror at
their market value. Section 302A.671 generally does not apply to a cash offer to
purchase all shares of voting stock of the issuing corporation if such offer has
been approved by a majority vote of disinterested board members of the issuing
corporation.
Section 302A.673 of the MBCA restricts certain transactions between the
Company and a shareholder who becomes the beneficial holder of 10% or more of
the Company's outstanding voting stock (an "interested shareholder") unless a
majority of the disinterested directors of the Company have approved, prior to
the date on which the shareholder acquired a 10% interest, either the business
combination transaction suggested by such a shareholder or the acquisition of
shares that made such a shareholder a statutory interested shareholder. If such
prior approval is not obtained, the statute imposes a four-year prohibition from
the statutory interested shareholder's share acquisition date on mergers, sales
of substantial assets, loans, substantial issuances of stock and various other
transactions involving the Company and the statutory interested shareholder or
its affiliates.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Common Stock will be
American Securities Transfer, Incorporated of Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Sales of substantial amounts of Common Stock of the Company in the
public market after restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon the completion of this Offering, the Company will have 4,829,713 shares
of Common Stock outstanding, assuming no exercise of currently outstanding
options or warrants. Of these shares, the 1,600,000 shares sold in this Offering
will be freely tradeable without restriction under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 3,229,713 shares of Common stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144, 144(k) or 701 under the Securities
Act. Holders of an aggregate of 2,383,425 shares of Common Stock and holders of
options and warrants to purchase an additional 119,606 shares, have entered into
lock-up agreements under which they have agreed not to offer, sell or otherwise
dispose, or directly or indirectly cause or permit the offer, sale or other
disposition, of any Common Stock of the Company owned of record or beneficially
and of which such shareholder has the power to control the disposition for a
period of six months after the date of this Prospectus, without the prior
written consent of the Underwriter. The Company has entered into a similar
agreement, except that the Company may grant options and issue stock under its
current stock option plans and pursuant to other currently outstanding options.
33
<PAGE>
As of March 30, 1996, 135,567 shares were subject to outstanding options.
Following this Offering, the Company intends to file a Registration Statement on
Form S-8 covering shares issuable under the Company's Incentive Stock Option
Plan adopted in 1985, 1986 Incentive Stock Option Plan, 1996 Stock Plan and 1996
Employee Stock Purchase Plan, thus permitting the resale of such shares in the
public market without restrictions under the Securities Act after expiration of
the applicable lock-up agreements.
Upon the effective date of the Offering, 748,876 shares of Common Stock will
become eligible for sale in the public market pursuant to Rule 144(k). Beginning
90 days after the date of this Prospectus, 23,698 additional shares of Common
Stock (including 14,792 shares subject to outstanding vested options) will
become available for sale in the public market subject, in certain cases, to the
vesting requirements and volume and manner of sale limitations of Rule 144. Upon
expiration of the lock-up agreements, an additional 2,473,700 shares of Common
Stock (including 66,575 shares subject to outstanding vested options and 5,000
shares subject to outstanding vested warrants) will become eligible for
immediate public resale, subject in some cases to vesting provisions and volume
limitations pursuant to Rule 144. The remaining 4,700 shares will become
eligible for public resale at various times over a period of less than two years
following the completion of this Offering, subject in some cases to vesting
provisions and volume limitations.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 48,297 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the Securities
Act, persons who purchase shares upon exercise of options granted prior to the
effective date of this Offering are entitled to sell such shares 90 days after
the effective date of this Offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modification may have a material effect on the
time when shares of the Company's Common Stock become eligible for resale.
REGISTRATION RIGHTS
In connection with their acquisition of securities of the Company, two of
the Company's existing shareholders, 3M and Minnesota Technology, Inc., have
agreements with the Company under which these shareholders have the right to
have a total of 109,961 shares of Common Stock owned by them included in future
registration statements filed by the Company under the Securities Act. The
Company would bear most of the expense associated with including the additional
shares in such a registration.
34
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each
Underwriter named below has severally agreed to purchase, and the Company and
the Selling Stockholders have agreed to sell to such Underwriters, the number of
shares of Common Stock set forth opposite the name of such Underwriter below, at
the Price to Public set forth on the cover page of this Prospectus, less the
underwriting discount.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
R.J. Steichen & Company.............................................................
----------
Total............................................................................. 1,600,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of the Common Stock offered hereby if any are
purchased.
The Company and the Selling Shareholders have been advised by the
Representative that the Underwriters propose to offer the shares of Common Stock
to the public at the Price to Public set forth on the cover page of this
Prospectus and to certain selected dealers at such Price to Public less usual
and customary concessions not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.05 per
share to certain other securities dealers. Each of the concessions allowed will
be to members of the National Association of Securities Dealers, Inc. After the
initial public offering, the offering price and other selling terms may be
changed by the Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to an additional 180,000 shares of Common Stock from the Company,
and up to an additional 60,000 shares from the Selling Shareholders, at the
Price to Public less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 1,600,000 shares are being offered.
The Company and the Selling Shareholders have agreed to pay, on a pro rata
basis, to the Representative a nonaccountable expense allowance equal to 2.0% of
the aggregate offering price of the shares offered hereby, including the shares
sold by the Selling Shareholders, or $ ($ if the over-allotment
option is exercised in full), of which $10,000 has been paid. Such allowance is
included in the expenses of the Offering set forth on the cover page of this
Prospectus.
The Company has agreed to sell to the Representative upon the closing of
this Offering, for nominal consideration, the Representative's Warrant to
purchase 120,000 shares of Common Stock at an exercise price per share equal to
120% of the Price to Public. The Representative's Warrant contains anti-dilution
provisions providing for appropriate adjustments upon the occurrence of certain
events and contains a one-time demand and certain "piggyback" registration
rights with respect to the shares of Common Stock issuable upon the exercise of
the Representative's Warrant. The Representative's Warrant will have a "cashless
exercise" feature entitling the holder to convert the Representative's Warrant
into shares of Common Stock. This provision allows the holder of the
Representative's Warrant to apply the difference
35
<PAGE>
between the exercise price of the Representative's Warrant and the higher fair
market value of the Common Stock underlying the Representative's Warrant to the
payment of the exercise price. The Representative's Warrant will be exercisable
commencing one year from the date of this Prospectus until five years after such
date. The Representative's Warrant is not transferable for a period of one year
after the effective date of the Offering, except for transfers by operation of
law, by will or pursuant to the laws of descent and distribution or to officers
of the Representative. Furthermore, the Representative's Warrant will not be
transferable absent an exemption from applicable state and federal securities
laws. Any profits realized upon the sale of the Representative's Warrant or the
Common Stock issuable upon exercise thereof may be deemed to constitute
additional underwriting compensation.
The Company, the Selling Shareholders and the Underwriters have agreed in
the Underwriting Agreement to indemnify each other or provide contribution with
respect to certain liabilities, including liabilities under the Securities Act
and liabilities arising from breaches of representations and warranties
contained in the Underwriting Agreement. Such indemnification is limited or
unavailable in certain circumstances, including where legally unavailable.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company 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.
Shareholders of the Company holding in the aggregate 2,383,425 shares of
Common Stock and holders of options and warrants to purchase an additional
119,606 shares have agreed not to offer, sell or otherwise dispose, or directly
or indirectly cause or permit the offer, sale or other disposition, of any
Common Stock of the Company owned of record or beneficially and of which such
shareholder has the power to control the disposition for a period of six months
after the date of this Prospectus without the prior consent of the
Representative. See "Shares Eligible for Future Sale."
The Underwriters have advised the Company that they do not intend to confirm
sales to any account over which any of them exercises discretionary authority.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representative. Among the factors considered in such negotiations will be
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representative believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota. Certain legal
matters relating to the Offering will be passed upon for the Underwriters by
Winthrop & Weinstine, P.A., Minneapolis, Minnesota.
36
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Common Stock, reference is made to such
Registration Statement and exhibits. Statements made in this Prospectus as to
the contents of any contract, agreement or other documents referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved. The
Registration Statement and exhibits may be inspected without charge and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; Citicorp Center, 500 West Madison, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, New York, New York
10048. Copies of such material may be obtained at prescribed rates from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PRINTWARE, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................... F-2
Balance Sheets as of March 30, 1996 (unaudited) and December 31, 1995
and 1994............................................................. F-3
Statements of Operations for the three months ended March 30, 1996 and
April 1, 1995 (unaudited) and the years ended December 31, 1995, 1994
and 1993............................................................. F-4
Statements of Changes in Shareholders' Equity for the three months
ended March 30, 1996 (unaudited) and the years ended December 31,
1995, 1994 and 1993.................................................. F-5
Statements of Cash Flows for the three months ended March 30, 1996 and
April 1, 1995 (unaudited) and the years ended December 31, 1995, 1994
and 1993............................................................. F-6
Notes to Financial Statements for the three months ended March 30,
1996 and April 1, 1995 (unaudited) and the years ended December 31,
1995, 1994 and 1993.................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders of Printware, Inc.:
We have audited the accompanying balance sheets of Printware, Inc. (the
Company) as of December 31, 1995 and 1994 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Printware, Inc. at December 31, 1995 and
1994 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 2, 1996
(April 25, 1996 as to the
first paragraph of Note 3)
F-2
<PAGE>
PRINTWARE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
MARCH 30, ------------ ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,795,856 $ 2,568,852 $ 860,668
Receivables from non affiliates (Note 2).................. 441,384 511,085 276,290
Receivables from affiliates (Note 10)..................... 301,710 262,655 231,652
Inventories (Notes 1 and 2)............................... 1,624,238 1,727,342 1,843,698
Prepaid expenses.......................................... 69,193 17,394 43,651
------------ ------------ ------------
Total current assets.................................... 5,232,381 5,087,328 3,255,959
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization (Notes 1 and 2)............................... 130,419 130,677 183,415
INTANGIBLE ASSETS, net of accumulated amortization (Notes 1
and 2)..................................................... 33,606 34,396 37,554
------------ ------------ ------------
$ 5,396,406 $ 5,252,401 $ 3,476,928
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 390,602 $ 436,852 $ 445,059
Accrued expenses (Notes 1 and 2).......................... 308,650 469,108 342,988
Deferred revenues (Note 7)................................ 41,488 29,773 175,350
------------ ------------ ------------
Total current liabilities............................... 740,740 935,733 963,397
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 7 and 11)
SHAREHOLDERS' EQUITY (Note 3):
Preferred Stock, no specified par value; 1,000,000 shares
authorized; none issued and outstanding.................. -- -- --
Common Stock, no par value, authorized 15,000,000 shares:
issued and outstanding 3,629,713 shares at March 30,
1996; 3,627,013 and 3,623,776 shares at December 31, 1995
and 1994, respectively................................... 15,522,238 15,514,138 15,504,426
Accumulated deficit....................................... (10,866,572) (11,197,470) (12,990,895)
------------ ------------ ------------
Total shareholders' equity.............................. 4,655,666 4,316,668 2,513,531
------------ ------------ ------------
$ 5,396,406 $ 5,252,401 $ 3,476,928
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PRINTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------- YEAR ENDED DECEMBER 31,
MARCH 30, APRIL 1, -----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM NON AFFILIATES (Note 1, 7, and 8)............. $1,125,959 $1,005,934 $4,889,761 $3,775,958 $ 4,348,484
REVENUES FROM AFFILIATES (Note 10).......................... 706,054 801,689 3,498,387 2,850,967 2,948,000
---------- ---------- ---------- ---------- -----------
TOTAL REVENUES.............................................. 1,832,013 1,807,623 8,388,148 6,626,925 7,296,484
COST OF REVENUES............................................ 1,110,046 1,000,871 5,003,956 4,102,401 5,344,519
---------- ---------- ---------- ---------- -----------
Gross margin................................................ 721,967 806,752 3,384,192 2,524,524 1,951,965
PERIOD COSTS:
Research and development.................................. 178,941 205,778 757,131 956,807 1,314,355
Selling, general and administrative....................... 238,471 270,869 1,072,878 945,533 1,851,507
---------- ---------- ---------- ---------- -----------
Total................................................... 417,412 476,647 1,830,009 1,902,340 3,165,862
---------- ---------- ---------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS............................... 304,555 330,105 1,554,183 622,184 (1,213,897)
OTHER INCOME (EXPENSE):
Net gain on arbitration award (Note 11)................... -- -- 192,335 -- --
Interest expense.......................................... (235) (1,250) (3,333) (4,457) (8,143)
Interest and other income................................. 33,078 9,628 72,740 27,375 18,442
---------- ---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.... 337,398 338,483 1,815,925 645,102 (1,203,598)
INCOME TAXES (Note 9)....................................... 6,500 12,000 22,500 2,000 1,109
---------- ---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 330,898 326,483 1,793,425 643,102 (1,204,707)
EXTRAORDINARY ITEM -- GAIN ON EXTINGUISHMENT OF DEBT (Note
3)......................................................... -- -- -- 140,927 --
---------- ---------- ---------- ---------- -----------
NET INCOME (LOSS)........................................... $ 330,898 $ 326,483 $1,793,425 $ 784,029 $(1,204,707)
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(Note 1):
Income (loss) before extraordinary item................... $ .09 $ .09 $ .48 $ .17 $ (.33)
Extraordinary item........................................ -- -- -- .04 --
---------- ---------- ---------- ---------- -----------
Net income (loss)......................................... $ .09 $ .09 $ .48 $ .21 $ (.33)
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (Note 1)................................ 3,705,403 3,705,627 3,705,627 3,685,580 3,635,226
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PRINTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 30, 1996 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
---------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.......................... 3,611,889 $ 15,468,763 $ (12,570,217) $ 2,898,546
Shares issued pursuant to exercise of stock options... 750 2,250 -- 2,250
Shares redeemed and retired at $3.00 per share........ (700) (2,100) -- (2,100)
Shares issued for services performed for the
Company.............................................. 3,387 10,163 -- 10,163
Net loss.............................................. -- -- (1,204,707) (1,204,707)
---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1993.......................... 3,615,326 15,479,076 (13,774,924) 1,704,152
Shares issued in connection with extinguishment of
debt................................................. 5,500 16,500 -- 16,500
Shares issued pursuant to exercise of stock options... 150 450 -- 450
Shares issued for services performed for the
Company.............................................. 2,800 8,400 -- 8,400
Net income............................................ -- -- 784,029 784,029
---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1994.......................... 3,623,776 15,504,426 (12,990,895) 2,513,531
Shares issued pursuant to exercise of stock options... 737 2,212 -- 2,212
Shares issued for services performed for the
Company.............................................. 2,500 7,500 -- 7,500
Net income............................................ -- -- 1,793,425 1,793,425
---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1995.......................... 3,627,013 15,514,138 (11,197,470) 4,316,668
Shares issued pursuant to exercise of stock options
(unaudited).......................................... 200 600 -- 600
Shares issued for services performed for the Company
(unaudited).......................................... 2,500 7,500 -- 7,500
Net income (unaudited)................................ -- -- 330,898 330,898
---------- ------------- -------------- -------------
BALANCE AT MARCH 30, 1996 (UNAUDITED)................. 3,629,713 $ 15,522,238 $ (10,866,572) $ 4,655,666
---------- ------------- -------------- -------------
---------- ------------- -------------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PRINTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------- YEARS ENDED DECEMBER 31,
MARCH 30, APRIL 1, ------------------------------------
1996 1995 1995 1994 1993
---------- --------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 330,898 $ 326,483 $1,793,425 $ 784,029 $(1,204,707)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 16,097 20,432 71,271 92,813 190,217
Common Stock issued for services.......................... 7,500 7,500 7,500 8,400 10,163
Extraordinary item........................................ -- -- -- (140,927) --
Changes in operating assets and liabilities:
Receivables from non affiliates......................... 69,701 (156,636) (234,795) 98,149 535,864
Receivables from affiliates............................. (39,055) (9,524) (31,003) (31,652) 160,573
Inventories............................................. 103,104 (273,018) 116,356 636,099 405,332
Prepaid expenses........................................ (51,799) (3,612) 26,257 (15,559) 80,542
Accounts payable........................................ (46,250) 106,558 (8,207) (479,317) 56,946
Accrued expenses........................................ (160,458) (96,089) 126,120 (227,093) 221,916
Deferred revenues....................................... 11,715 (153,050) (145,577) (1,102,361) (387,064)
---------- --------- ---------- ----------- -----------
Net cash provided by (used in) operating activities... 241,453 (230,956) 1,721,347 (377,419) 69,782
---------- --------- ---------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment....................... (15,049) (4,457) (15,375) (50,200) (72,771)
Increase in intangible assets............................. -- -- -- (984) (25,707)
---------- --------- ---------- ----------- -----------
Net cash used in investing activities................. (15,049) (4,457) (15,375) (51,184) (98,478)
---------- --------- ---------- ----------- -----------
FINANCING ACTIVITIES:
Advances on equipment and consumable sales................ -- -- -- -- 755,712
Proceeds from issuance of Common Stock.................... 600 1,012 2,212 450 2,250
Common Stock redeemed and retired......................... -- -- -- -- (2,100)
---------- --------- ---------- ----------- -----------
Net cash provided by financing activities............. 600 1,012 2,212 450 755,862
---------- --------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 227,004 (234,401) 1,708,184 (428,153) 727,166
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 2,568,852 860,668 860,668 1,288,821 561,655
---------- --------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $2,795,856 $ 626,267 $2,568,852 $ 860,668 $ 1,288,821
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest................................................ $ 236 $ 1,250 $ 3,333 $ 4,457 $ 8,143
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
Income taxes............................................ $ 6,500 $ 12,000 $ 15,488 $ 2,000 $ 1,109
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
OTHER NON CASH ITEM:
Issuance of Common Stock for extinguishment of debt (Note
3)....................................................... -- -- -- $ 16,500 --
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Printware, Inc. ("Printware" or the "Company") designs, builds and markets
"Computer-to-Plate" systems that are used by the offset printing industry to
create printing plates directly from computer data. These systems replace the
traditional process of typesetting, paste-up, camera work and processing film to
produce a printing plate.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 30, 1996 and the statements of
operations and cash flows for the three months ended March 30, 1996 and April 1,
1995, the statement of shareholders' equity for the three months ended March 30,
1996 and the interim information as of and for the three months ended March 30,
1996 and April 1, 1995 appearing in the notes to financial statements are
unaudited. In the opinion of management, such unaudited financial statements
include all adjustments, consisting of only normal, recurring accruals,
necessary for a fair presentation thereof. The results of operations for any
interim period are not necessarily indicative of the results for the year.
REVENUE RECOGNITION
Revenue for equipment and supply sales is recognized at the time of shipment
to customers. Revenue from development projects and their related costs is
recognized as the work is performed. Revenue related to installation, training
and support is recognized when the services are performed. Revenue from
development projects, installation, training and support is less than 10% of
total revenues for the three months ended March 30, 1996 and April 1, 1995 and
the years ended December 31, 1995, 1994 and 1993.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share is computed by
dividing net income (loss) by the weighted average number of shares of Common
Stock and dilutive Common Stock equivalents outstanding. The total weighted
average number of common and common equivalent shares outstanding has been
adjusted to give effect to the reverse stock split authorized by the Company's
shareholders effective April 25, 1996 (Note 3). Common Stock equivalents result
from dilutive stock options and warrants. Common equivalent shares are not
included in the per share calculations when the effect of their inclusion would
be antidilutive, except that, in accordance with Securities and Exchange
Commission requirements, common and common equivalent shares issued during the
12 months prior to the Company's proposed initial public offering have been
included in the calculation (using the treasury stock method based on an assumed
initial public offering price of $6.50 per share) as if they were outstanding
for all periods presented. The net income (loss) per common share will change if
the actual initial public offering price differs from the assumed initial public
offering price per share utilized in this calculation. Fully diluted earnings
(loss) per common share is substantially equivalent to primary earnings per
share and is therefore not separately presented.
CASH EQUIVALENTS
Cash equivalents consist primarily of investments in commercial paper and
certificate of deposits, which have original maturities of three months or less.
CREDIT RISK
The Company generally does not require collateral for its trade accounts
receivable. The Company manages credit risk by evaluating creditworthiness
regularly. Accounts receivable for which collectibility is not assured are
reserved for through establishment of an allowance for doubtful accounts.
Customer accounts considered by management to be uncollectible are written off.
F-7
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (determined on a first-in,
first-out basis) or market. The Company has recorded inventory valuation
reserves of $562,000 at March 30, 1996 and $545,000 and $516,000 at December 31,
1995 and 1994, respectively.
Inventories are periodically reviewed for obsolescence or surplus stock.
Items considered obsolete or surplus are written off or a valuation reserve is
established to write such inventories down to their net realizable value.
The Company is dependent on several key suppliers for plate material and
raster image processing software. All of the Company's agreements with these
suppliers can be canceled by either party under certain circumstances.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Office equipment, software,
machinery and equipment and tooling are depreciated on a straight-line basis
over five years. Motor vehicles are depreciated on a straight-line basis over
three years. Leasehold improvements are amortized on a straight-line basis over
the term of the lease.
IMPAIRMENT OF LONG-LIVED ASSETS
Management periodically reviews the carrying value of long-term assets for
potential impairment by comparing the carrying value of these assets to the
estimated undiscounted future cash flows expected to result from the use of
these assets. Should the sum of the related, expected future net cash flows be
less than the carrying value, an impairment loss would be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the fair value of the asset. To date, management has
determined that no impairment of these assets exists.
INTANGIBLE ASSETS
Intangible assets are recorded at cost and are being amortized on a
straight-line basis over the following lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Patents.......................................................... 17
License rights................................................... 2-5
</TABLE>
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are charged to expense as incurred.
ACCOUNTING FOR WARRANTY COSTS
The Company records estimated future warranty costs when the equipment is
shipped to customers.
MANAGEMENT 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.
F-8
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL RISKS AND UNCERTAINTIES
In accordance with American Institute of Certified Public Accountants
Statement of Position No. 94-6, DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND
UNCERTAINTIES, the Company has disclosed in the financial statements certain
financial risks and uncertainties to which it is subject, including
concentration of sales to a limited number of customers, certain suppliers of
raw materials and other key components included in its manufactured equipment
and the use of estimates to review the carrying value of long-lived assets. The
nature of the Company's operations exposes the Company to certain business
risks. The market for "Computer-to-Plate" systems is highly competitive and
subject to rapid technological change and evolving industry standards that may
affect both the operations, operating results and financial condition of the
Company and its customers.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123). SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
application of the fair value recognition provisions of SFAS 123 to such
arrangements. SFAS 123 is required to be adopted for reporting purposes by the
Company in 1996. Companies are permitted, however, to continue to apply APB
opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB opinion
No. 25 to its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
F-9
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
2. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 30, ----------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
RECEIVABLES FROM NON AFFILIATES:
Trade...................................... $ 463,855 $ 532,883 $ 296,811
Employees.................................. 2,442 3,115 1,017
Allowance for doubtful accounts............ (24,913) (24,913) (21,538)
---------- ---------- ----------
Total receivables from non affiliates.... $ 441,384 $ 511,085 $ 276,290
---------- ---------- ----------
---------- ---------- ----------
INVENTORIES:
Raw materials.............................. $ 687,200 $ 782,189 $ 860,885
Work-in-process............................ 153,292 165,246 109,701
Finished goods............................. 783,746 779,907 873,112
---------- ---------- ----------
Total inventories........................ $1,624,238 $1,727,342 $1,843,698
---------- ---------- ----------
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Office equipment........................... $ 400,061 $ 395,650 $ 386,697
Software................................... 98,685 94,547 94,154
Machinery and equipment.................... 232,406 225,906 219,876
Leasehold improvements..................... 74,762 74,762 74,763
Tooling and spares......................... 334,001 334,001 334,001
Motor vehicles............................. 10,063 10,063 10,063
---------- ---------- ----------
Total property and equipment............. 1,149,978 1,134,919 1,119,554
Less accumulated depreciation and
amortization.............................. 1,019,559 1,004,252 936,139
---------- ---------- ----------
Net property and equipment............... $ 130,419 $ 130,677 $ 183,415
---------- ---------- ----------
---------- ---------- ----------
INTANGIBLE ASSETS:
License rights............................. $ 560,020 $ 560,020 $ 560,020
Patents.................................... 53,701 53,701 53,701
---------- ---------- ----------
Total intangible assets.................. 613,721 613,721 613,721
Less accumulated amortization.............. 580,115 579,325 576,167
---------- ---------- ----------
Net intangible assets.................... $ 33,606 $ 34,396 $ 37,554
---------- ---------- ----------
---------- ---------- ----------
ACCRUED EXPENSES:
Accrued payroll and related................ $ 50,560 $ 77,339 $ 75,932
Accrued vacation and benefits.............. 127,927 126,479 102,750
Accrued professional services.............. 77,844 204,175 97,175
Accrued warranty reserve................... 31,965 33,038 29,310
Accrued income taxes....................... -- 7,012 --
Accrued other.............................. 20,354 21,065 37,821
---------- ---------- ----------
Total accrued expenses................... $ 308,650 $ 469,108 $ 342,988
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-10
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
3. SHAREHOLDERS' EQUITY
On April 25, 1996, the Company's shareholders approved a one-for-four
reverse stock split, effective immediately. All references in the financial
statements to the number of shares, per share amounts, stock option plan data
and the statements of shareholders' equity have been restated to reflect the
split. On April 25, 1996 the Company's shareholders approved an amendment to the
Company's Articles of Incorporation, whereby the authorized stock of the Company
was stated as 15,000,000 shares of Common Stock, no par value and 1,000,000
shares of Preferred Stock, no specified par value. The Company's Board of
Directors may designate any series and fix any relative rights and preferences
of the Preferred Stock. The authorized shares have been restated in the
financial statements to reflect the impact of this amendment. No shares of
Preferred Stock are issued and outstanding.
During the three months ended March 30, 1996 and the years ended December
31, 1995, 1994 and 1993, certain employees exercised their options and purchased
a total of 200, 737, 150 and 750 shares of Common Stock, respectively, at $3.00
per share.
The Company also issued 2,500, 2,500, 2,800 and 3,387 shares of Common Stock
valued at $7,500, $7,500, $8,400 and $10,163 in consideration for services
rendered during the three months ended March 30, 1996 and the years ended
December 31, 1995, 1994 and 1993, respectively.
During 1994, the Company extinguished debt of $157,427 through the issuance
of 5,500 shares of the Company's Common Stock valued at $16,500 which resulted
in an extraordinary gain of $140,927. The repurchase of the debt canceled the
Company's obligation under a research agreement with a governmental agency.
Common Stock values were based on management's estimates of the fair value
of the Company's Common Stock.
STOCK OPTIONS
On April 25, 1996 the Company's shareholders approved a new stock option
plan (the 1996 Stock Plan) which provides for the granting of options and
restricted stock to certain officers, employees, directors and consultants to
purchase up to 500,000 shares of Common Stock. On April 25, 1996, the Company
granted options to purchase 900 shares of the Company's Common Stock under this
plan to certain employees. The options become exercisable 33 1/3% per year for
three years. The exercise price is $3.00 per share. The options expire six years
after the date of grant. The 1996 Stock Plan also provides for the automatic
grant of an option for 1,000 shares of the Company's Common Stock, exercisable
for a period of five years, to each non-employee director, upon the adoption of
the 1996 Stock Plan and upon the election or re-election as a member of the
Board of Directors. Such Board of Directors options will be issued with an
exercise price equal to the fair market value of the Common Stock on the date
the option is granted. On April 25, 1996, options to purchase 2,000 shares of
Common Stock were granted under this plan with an exercise price of $3.00 per
share.
The Company's prior incentive stock option plans provided that stock options
to purchase an aggregate of 375,000 shares of Common Stock may be granted to
certain officers and employees. The exercise price could not be less than 100%
of the fair market value of the Common Stock on the date the option was granted.
No additional options under the Company's prior plans will be granted.
All options issued after August 1992 and before March 30, 1996 are
exercisable 33 1/3% per year for three years or 100% one year after grant. All
of these options expire either five, six or ten years from the date of grant.
F-11
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
3. SHAREHOLDERS' EQUITY (CONTINUED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRICE PER EXERCISE
EMPLOYEE STOCK OPTIONS SHARES SHARE PRICE
- --------------------------------------------- --------- ------------ ---------
<S> <C> <C> <C>
Balance at December 31, 1992................. 116,028 $3.00 $ 348,084
Granted.................................... 3,175 3.00 9,525
Canceled................................... (23,293) 3.00 (69,879)
Exercised.................................. (750) 3.00 (2,250)
--------- ---------
Balance at December 31, 1993................. 95,160 3.00 285,480
Granted.................................... 1,912 3.00 5,736
Canceled................................... (14,516) 3.00 (43,548)
Exercised.................................. (150) 3.00 (450)
--------- ---------
Balance at December 31, 1994................. 82,406 3.00 247,218
Granted.................................... 23,087 3.00 69,261
Canceled................................... (1,784) 3.00 (5,352)
Exercised.................................. (737) 3.00 (2,211)
--------- ---------
Balance at December 31, 1995................. 102,972 3.00 308,916
Granted.................................... 33,382 3.00 100,146
Canceled................................... (587) 3.00 (1,761)
Exercised.................................. (200) 3.00 (600)
--------- ---------
Balance at March 30, 1996.................... 135,567 $3.00 $ 406,701
--------- ---------
--------- ---------
</TABLE>
At March 30, 1996 and December 31, 1995, there were 100,067 and 79,548
options exercisable at $3.00 per share, respectively.
WARRANTS
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993................. 530,069 $3.00 - 12.00 $ 5,515,119
Canceled..................................... (525,069) 9.22 - 12.00 (5,500,119)
--------- -----------
Balance at December 31, 1994 and 1995 and
March 30, 1996.............................. 5,000 $3.00 $ 15,000
--------- -----------
--------- -----------
</TABLE>
All outstanding warrants expire on August 28, 1997.
RESTRICTED STOCK
The Company has entered into a restricted stock compensation plan with an
officer of the Company under which the Company issued 10,000 shares of
restricted stock to the officer over a four year period, provided that the
officer remained an employee of the Company as of the anniversary date of the
plan. Under this plan the last 2,500 shares were issued as of March 30, 1996.
Compensation expense related to these restricted stock issuances has been
recorded in the statements of operations.
F-12
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
3. SHAREHOLDERS' EQUITY (CONTINUED)
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was adopted on April 25, 1996 and provides for the issuance of up to 100,000
shares of Common Stock. With certain exceptions, all employees of the Company
who have been employed by the Company for at least six months and who are
employed at least 20 hours per week and at least five months per year, including
officers and directors who are employees, are eligible to participate in the
Stock Purchase Plan. The Stock Purchase Plan consists of periodic offerings,
with the first offering planned to begin on April 1, 1997. Each offering under
the Stock Purchase Plan will be for a period determined by the Compensation
Committee of the Board of Directors, but not to exceed 27 months. An employee
may elect to have up to a maximum of 10% deducted from his or her regular salary
for the purpose of purchasing shares under the Stock Purchase Plan. The price at
which the employee's shares are purchased is the lower of (a) 85% of the closing
price of the Common Stock on the day that the offering commences or (b) 85% of
the closing price of the Common Stock on the day that the offering terminates.
No shares have been issued under the Stock Purchase Plan.
4. LEASES
During 1993, the Company moved into new leased office and manufacturing
space of 35,410 square feet under a noncancelable operating lease which expires
on July 31, 1998 and contains an option to renew for up to three additional
years. The Company is also responsible for all taxes, utilities, and
assessments. Rent expense for all leases was approximately $21,000 for each of
the three month periods ended March 30, 1996 and April 1, 1995, and $87,000,
$107,000 and $129,000 for the years ended December 31, in 1995, 1994 and 1993,
respectively.
At December 31, 1995, future minimum lease payments due, excluding taxes and
utilities, were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
--------------- --------
<S> <C>
1996....................................... $ 84,000
1997....................................... 84,000
1998....................................... 50,000
--------
$218,000
--------
--------
</TABLE>
5. LICENSING AND ROYALTY AGREEMENTS
The Company has a licensing agreement with a minority shareholder whereby it
received all associated laser printer technology, including rights to patents,
know-how, software, firmware, documentation and access to their experts who were
involved in the development effort. The Company also received multiple
prototypes of two models. In return, the minority shareholder receives royalties
of up to 2% of net revenues from laser imager sales and received warrants to
purchase shares of Common Stock of the Company which were issued in 1987. The
warrants expired during 1994. Royalty expense relating to this agreement was
$600 and nil for the three months ended March 30, 1996 and April 1, 1995,
respectively, and $1,800, $9,014 and $11,640 for the years ended December 31, in
1995, 1994 and 1993, respectively.
The Company had a software development and license agreement with a third
party in which the Company was to fund certain software development costs, and
to pay royalties on products sold. The agreement expired during 1994. Royalty
expense relating to this agreement was insignificant during 1994 and 1993.
F-13
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
5. LICENSING AND ROYALTY AGREEMENTS (CONTINUED)
The Company has purchased license rights for up to 100,000 copies of 300
fonts (typefaces) for $395,000. In December 1989, the Company paid $100,000 to
extend the original agreement through December 31, 1993. These payments have
been included in intangible assets and were amortized over the four years ended
December 31, 1993. During 1994 and 1995, the Company extended this agreement
through December 31, 1997 at no additional cost.
6. BANK LINE OF CREDIT
During 1995, due to its cash position, the Company did not renew its line of
credit with a local bank. The agreement had provided for borrowings up to the
lesser of $1,000,000 or 75% of receivables outstanding less than 90 days from
invoice date.
7. DEFERRED REVENUES
During 1993, the Company entered into several agreements with customers for
the purchase of new products, supplies and research and development projects. As
part of these agreements, the Company received advance payments totaling
$755,712 during 1993. The Company had shipped equipment and supplies under these
agreements totaling $142,750, $385,450 and $387,064 during 1995, 1994 and 1993,
respectively. During 1994, a customer, who is a shareholder, canceled a contract
for equipment which led to the forfeiture of certain equipment advances totaling
$679,434. As a result of the contract cancellation, the Company devalued the
related inventory. There was no material gain or loss resulting from the
contract cancellation.
8. MAJOR CUSTOMERS AND EXPORT REVENUES
Revenues to one customer, excluding the related party total revenues (see
note 10), amounted to $539,000 (29.4% of total revenues) and $253,000 (14.0%)
for the three months ended March 30, 1996 and April 1, 1995 and $1,464,000
(17.5%), $140,000 (2.1%) and nil for the years ended December 31, 1995, 1994 and
1993, respectively. No other customer accounted for 10% or more of total
revenues for these periods.
The Company's export revenues did not exceed 10% of total revenues for the
three months ended March 30, 1996 and April 1, 1995 or the years ended December
31, 1995, 1994 and 1993.
9. INCOME TAXES
The Company records income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
For income tax purposes, the Company had net operating loss carryforwards of
approximately $10,500,000 as of December 31, 1995. If not used, these
carryforwards will begin to expire in 2001. Under the Tax Reform Act of 1986,
certain future changes in ownership resulting from the sale or issuance of stock
may limit the amount of net operating loss carryforwards which can be utilized
on an annual basis.
Deferred tax assets and liabilities represent temporary differences between
the basis of assets and liabilities for financial reporting purposes and tax
purposes. Deferred tax assets are primarily comprised of reserves which have
been deducted for financial statement purposes, but have not been deducted for
income tax purposes and the tax effect of net operating loss carryforwards. The
Company has recorded a valuation allowance to reduce recorded deferred tax
assets to zero because management believes it is more likely than not that the
Company will not utilize the deferred tax assets.
F-14
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred taxes as of December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory reserves......................... $ 192,000 $ 181,000
Accrued vacation........................... 35,000 30,000
Allowance for doubtful accounts............ 9,000 8,000
Other...................................... 18,000 24,000
Valuation allowance........................ (254,000) (243,000)
----------- -----------
Total.................................... $ -- $ --
----------- -----------
----------- -----------
Long-term deferred tax assets:
Tax net operating loss carryforwards....... 3,675,000 4,305,000
Tax credit carryforwards................... 32,000 --
Valuation allowance........................ (3,707,000) (4,305,000)
----------- -----------
Total.................................... $ -- $ --
----------- -----------
----------- -----------
</TABLE>
A reconciliation of the expected federal income taxes, using the effective
statutory federal rate of 35%, with the provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Expected federal expense (benefit)........... $ 635,000 $ 275,000 $(421,300)
State taxes, net of federal benefits......... 2,000 2,000 1,109
Net operating loss which cannot currently be
recognized.................................. -- -- 419,200
Change in valuation allowance................ (587,000) (275,000) --
Other........................................ (27,500) -- 2,100
--------- --------- ---------
$ 22,500 $ 2,000 $ 1,109
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company sells products to two of its shareholders and also contracts for
certain products and production services with these shareholders. In addition to
revenues from affiliates and accounts receivable from affiliates as shown on the
financial statements, a summary of these transactions as of and for the three
months ended March 30, 1996 and April 1, 1995 and the years ended December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 30, APRIL 1, ----------------------------------
1996 1995 1995 1994 1993
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total purchases of production services....... $ 1,000 $ 1,000 $ 44,000 $ 91,000 $ 210,000
Accounts payable............................. 1,000 1,000 -- 8,000 28,000
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
During 1995, the Company received a favorable arbitration award from a
dispute with A. B. Dick Company, a former customer. The Company recognized a
gain of $192,000 after expenses of approximately $142,000 in this dispute. This
gain is included in the statements of operations under other income (expense).
F-15
<PAGE>
PRINTWARE, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved in various other legal actions in the normal course
of business. Management is of the opinion that the outcome of such actions will
not have a significant effect on the Company's financial position or results of
operations.
401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") became
effective August 1, 1994. The 401(k) Plan is intended to qualify under Section
401(k) of the Internal Revenue Code. All employees employed by the Company in
the United States for at least 30 hours per week are eligible to participate in
the 401(k) Plan as of the next calendar quarter following one year after date of
hire by the Company. Each eligible employee may contribute to the 401(k) Plan,
through payroll deductions, up to 15% of his or her salary, subject to statutory
limitations. The 401(k) Plan permits, but does not require, additional
contributions to the 401(k) Plan by the Company of up to 2% of the compensation
paid by the Company to each employee in the previous calendar quarter. The
Company's contributions are made at the discretion of the Board of Directors,
within the limits of the 401(k) Plan. The Company has made a contribution of 1%
of the compensation of each participating employee each quarter since the
adoption of the 401(k) Plan. The Company's contributions to the 401(k) Plan were
$4,576 and $4,246 for the three months ended March 30, 1996 and April 1, 1995
and $13,352 and $4,769 for the years ended December 31, 1995 and 1994,
respectively. There were no contributions in 1993.
12. SUBSEQUENT EVENTS
The Company is planning an initial public offering of 1,200,000 shares of
Common Stock at an assumed initial public offering price of $6.50 per share. In
addition, current shareholders are planning to offer 400,000 shares of Common
Stock to the public at such time. The Company will grant to the Underwriters an
over-allotment option pursuant to which an additional 240,000 shares may be sold
(180,000 shares from the Company and 60,000 shares from existing shareholders)
on the same terms for the purpose of covering any over-allotment sales made in
the public offering. In connection with the proposed initial public offering,
the Representative of the Underwriters would be granted warrants to purchase up
to 120,000 shares of Common Stock at 120% of the price to public, exercisable
commencing one year after the date of the Offering for a period of four years.
F-16
<PAGE>
[INSIDE BACK COVER GRAPHICS]
Photographs showing various Printware products:
Top right-hand photo: Model 1440 APF Platesetter
Text below photo: The Model 1440 APF Platesetter for bulk-fed metal
printing plates.
Middle right-hand photo: Model 1440 EZ Platesetter
Text next to photo: The Model 1440 EZ Platesetter produces paper and
metal printing plates.
Lower right-hand photo: Supplies for Model 1440 Platesetters
Text next to photo: Printware provides a full line of supplies for its
Model 1440 Platesetters.
Top left-hand photo: Model 1440 ZNX Platesetter
Text below photo: The Model 1440 ZNX Platesetter produces paper
printing plates directly from a computer.
Bottom left-hand photo: Raster Image Processor
Text below photo: Raster Image Processor (RIPs) connect Platesetters
to computer networks.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE UNDERWRITERS OR THE SELLING SHAREHOLDERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 8
Dividend Policy........................................................... 8
Capitalization............................................................ 8
Dilution.................................................................. 9
Selected Financial Data................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Business.................................................................. 16
Management................................................................ 25
Certain Transactions...................................................... 30
Principal and Selling Shareholders........................................ 31
Description of Capital Stock.............................................. 32
Shares Eligible for Future Sales.......................................... 33
Underwriting.............................................................. 35
Experts................................................................... 36
Legal Matters............................................................. 36
Additional Information.................................................... 37
Index to Financial Statements............................................. F-1
</TABLE>
---------------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,600,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
------------------
[R.J. STEICHEN LOGO]
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following fees and expenses will be paid by the Company in connection
with issuance and distribution of the securities registered hereby and do not
include underwriting commissions and discounts. All of such expenses, except for
the SEC, NASD and Nasdaq fees are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 4,441
NASD filing fee................................................... 1,788
Nasdaq fee........................................................ 36,750
Legal fees and expenses........................................... 55,000
Accounting fees and expenses...................................... 50,000
Blue Sky fees and expenses........................................ 1,800
Transfer agent and registrar fees................................. 1,000
Printing expenses................................................. 60,000
Miscellaneous..................................................... 26,221
---------
Total......................................................... $ 237,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and Bylaws of Printware, Inc. provide for
indemnification of directors to the full extent permitted by the Minnesota
Business Corporation Act. Minnesota Statutes Section302A.521 provides that a
Minnesota business corporation shall indemnify any director, officer, employee
or agent of the corporation made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity (as defined
therein) of the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding if
certain statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of Printware, Inc.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Printware, Inc.
pursuant to the foregoing provisions, Printware, Inc. has been informed 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.
Under Section 7(c) of the Underwriting Agreement filed as Exhibit 1.1
hereto, the Underwriters agree to indemnify, under certain conditions, the
Company, its directors, certain of its officers and persons who control the
Company within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The information in this Item gives retroactive effect to the one-for-four
reverse stock split of the Company which was effective April 25, 1996.
II-1
<PAGE>
The Company has sold the following unregistered securities during the past
three years (since March 30, 1993):
<TABLE>
<CAPTION>
NO. SHARES OF PRICE
DATE PURCHASER COMMON STOCK PER SHARE
- --------- --------------------------------- ----------------- -----------
<C> <S> <C> <C>
04/21/93 William Fuess, Esq.(1) 587 $ 3.00
09/01/93 William Fuess, Esq.(1) 300 3.00
11/26/93 Employee ISO exercise 650 3.00
11/26/93 Employee ISO exercise 50 3.00
12/27/93 Employee ISO exercise 50 3.00
01/22/94 Daniel A. Baker(2) 2,500 3.00
02/11/94 Employee ISO exercise 50 3.00
03/14/94 Employee ISO exercise 50 3.00
03/18/94 William Fuess, Esq.(1) 300 3.00
08/30/94 Employee ISO exercise 25 3.00
10/28/94 Employee ISO exercise 25 3.00
12/29/94 Minnesota Technology, Inc.(3) 5,500 3.00
01/20/95 Employee ISO exercise 75 3.00
01/22/95 Daniel A. Baker(2) 2,500 3.00
03/24/95 Employee ISO exercise 262 3.00
09/29/95 Employee ISO exercise 25 3.00
12/01/95 Employee ISO exercise 375 3.00
01/22/96 Daniel A. Baker(2) 2,500 3.00
02/28/96 Employee ISO exercise 200 3.00
</TABLE>
- ---------------------
(1) These shares were issused to William Fuess, Esq., the Company's patent
counsel, in consideration for patent services he provided to the Company.
(2) These shares were issued to Dr. Baker pursuant to an agreement made between
him and the Company in January 1993 that provided that if he remained
employed by the Company he would be issued a total of 10,000 shares in
annual installments of 2,500 shares. Each issuance of shares has been
accounted for as taxable compensation.
(3) These shares were issued to Minnesota Technology, Inc. as part of the
extinguishment of debt owed to it by the Company that is referred to in the
fourth paragraph of footnote 3 to the Financial Statements.
Each of the above transactions involved the offering of such securities to a
limited number of persons who took the securities as an investment for his, her
or its own account and not with a view to a distribution thereof. Based in part
on the foregoing the Company has been advised by counsel that the transactions
enumerated above were transactions not involving any public offering within the
meaning of Sections 3(b) or 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Underwriting Agreement
1.2 Selected Dealers' Agreement
1.3 Agreement Among Underwriters
3.1* Articles of Incorporation, as amended
3.2* Bylaws of the Company
4.1 Form of Common Stock Certificate
5.1 Opinion of Lindquist & Vennum P.L.L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.1* Incentive Stock Option Plan of 1985
10.2* 1986 Incentive Stock Option Plan
10.3* 1996 Stock Plan
10.4* 1996 Employee Stock Purchase Plan
10.5* Form of 1996 Bonus Compensation Plan for executive officers
10.6* Change in Control Severance Agreement dated April 25, 1996
10.7* Office/Warehouse Lease dated December 22, 1992 between the Company and
The Northwestern Mutual Life Insurance Company
10.8* Plate Material Agreement dated December 11, 1991 between the Company
and E.J. Gaisser, Inc.(1)
10.9* Supply Agreement dated May 2, 1991 between the Company and Polychrome
Corporation(1)
10.10* License Agreement dated May 17, 1985 among the Company, Minnesota
Mining and Manufacturing Company and Allen L. Taylor
10.11* Purchase Agreement dated January 1, 1995 between the Company and
Deluxe Corporation, as amended December 12, 1995(1)
11.1* Statement re computation of Per Share Earnings/Losses
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Lindquist & Vennum P.L.L.P., included in Exhibit 5.1
24.1* Power of Attorney, included in the Signature Page
</TABLE>
- ---------------------------
* Previously filed with the initial filing of this Registration Statement.
(1) Certain information has been deleted from this exhibit and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 406.
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are either not
required, are not applicable, or the required information is shown in the
Financial Statements and related notes.
ITEM 17. UNDERTAKINGS
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
had been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) It will provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-3
<PAGE>
(2) 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.
(3) 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 this offering of such securities at that
time be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of St.
Paul, State of Minnesota, on the 18th day of June, 1996.
PRINTWARE, INC.
By: /s/ DANIEL A. BAKER
-----------------------------------
Daniel A. Baker, Ph.D.,
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below on June 18, 1996 by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------
<C> <S> <C>
* President, Chief
------------------------------------ Executive Officer and
Daniel A. Baker, Ph.D. Director
Executive Vice President
* and Chief Financial
------------------------------------ Officer (principal
Thomas W. Petschauer financial and
accounting officer)
*By /s/ DANIEL A. BAKER
* ----------------------
------------------------------------ Director ATTORNEY-IN-FACT
Allen L. Taylor, Ph.D. June 18, 1996
*
------------------------------------ Director
Donald V. Mager
*
------------------------------------ Director and Secretary
Brian D. Shiffman
*
------------------------------------ Director
Jerry K. Twogood
*
------------------------------------ Director
Charles M. Osborne
</TABLE>
II-5
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO DEDUCTIONS -- BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS WRITE-OFFS OF PERIOD
- ------------------------------------- ------------ ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for Doubtful
Accounts........................ $ 21,538 $ -- $ 4,335(1) $ (960) $ 24,913
Inventory Reserve................ 516,039 374,000 -- (344,920) 545,119
Year ended December 31, 1994
Allowance for Doubtful
Accounts........................ $ 67,263 $ (31,000) $ -- $ (14,725) $ 21,538
Inventory Reserve................ 525,126 215,000 679,434(2) (903,521) 516,039
Year ended December 31, 1993.........
Allowance for Doubtful
Accounts........................ $ 67,600 $ 36,000 $ -- $ (36,337) $ 67,263
Inventory Reserve................ 553,690 560,000 -- (588,564) 525,126
</TABLE>
- ---------------------
(1) Collection of customer accounts previously written off.
(2) Inventory related to cancelled production contract.
<PAGE>
PRINTWARE, INC.
1,600,000 SHARES OF COMMON STOCK(1)
UNDERWRITING AGREEMENT
___________, 1996
R. J. Steichen & Company
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, MN 55402
Ladies/Gentlemen:
Printware, Inc., a Minnesota corporation (the "Company"), and the
shareholders of the Company named in Schedule I hereto (the "Selling
Shareholders"), addressing you as the representative (the "Representative")
of each of the underwriters, including the Representative, named in Schedule
II hereto (the "Underwriters"), hereby severally confirm their agreement to
sell to the Underwriters an aggregate of 1,600,000 shares (the "Firm Shares")
of common stock, no par value ("Common Stock"), of the Company. The Firm
Shares consist of 1,200,000 authorized but unissued shares of Common Stock to
be issued and sold by the Company and, as described in Schedule I hereto,
400,000 outstanding shares of Common Stock to be sold by the Selling
Shareholders. The Company and the Selling Shareholders also hereby severally
confirm their agreement to grant to the Underwriters an option to purchase up
to 240,000 additional shares of Common Stock (the "Option Shares") on the
terms and for the purposes set forth in Section 2(b) hereof. The Option
Shares consist of 180,000 authorized but unissued shares of Common Stock to
be issued and sold by the Company and 60,000 outstanding shares of Common
Stock to be sold by the Selling Shareholders. As used in this Agreement, the
term "Shares" shall consist of the Firm Shares and the Option Shares. The
Company also hereby confirms its agreement to issue to the Representative
warrants for the purchase of a total of 120,000 shares of Common Stock as
described in Section 6 hereof (the "Representative's Warrants"), assuming
purchase by the Underwriters of the Firm Shares. The shares issuable upon
exercise of the Representative's Warrants are referred to in this Agreement
as the "Warrant Shares."
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
(a) The Company represents and warrants to and agrees with each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-03629) with
respect to the Shares, including a prospectus subject to completion,
has been prepared by
- ----------------
(1) Plus an option to purchase up to 240,000 additional shares to cover over-
allotments.
-1-
<PAGE>
the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") thereunder and has been filed with
the SEC under the Securities Act; one or more amendments to such
registration statement have also been so prepared and have been, or
will be, so filed. Copies of the registration statement and
amendments and each related preliminary prospectus to date have
been delivered by the Company to the Underwriters. If the Company
has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an
amendment to the registration statement and an amended prospectus.
If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, it will prepare and file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. Such registration statement
as amended at the time it is or was declared effective by the SEC
and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such
registration statement as so amended (but only from and after the
effectiveness of such amendment), including the information deemed
to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable, is
hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was
declared effective by the SEC is hereinafter called the
"Prospectus," except that if any prospectus filed by the Company
with the SEC pursuant to Rule 424(b) of the Rules and Regulations
or any other prospectus provided to the Underwriters by the Company
for use in connection with the offering of the Shares (whether or
not required to be filed by the Company with the SEC pursuant to
Rule 424(b) of the Rules and Regulations) differs from the
prospectus on file at the time the Registration Statement is or was
declared effective by the SEC, the term "Prospectus" shall refer to
such differing prospectus from and after the time such prospectus
is filed with the SEC or transmitted to the SEC for filing pursuant
to such Rule 424(b) or from and after the time it is first provided
to the Underwriters by the Company for such use. The term
"Preliminary Prospectus" as used herein means any preliminary
prospectus included in the Registration Statement prior to the time
it becomes or became effective under the Securities Act and any
prospectus subject to completion as described in Rule 430A of the
Rules and Regulations.
(ii) At the time the Registration Statement is or was declared
effective by the SEC and at all times subsequent thereto up to the
"First Closing Date" and the "Second Closing Date" (as such terms
are hereinafter defined), the Registration Statement and
Prospectus, and all amendments thereof and supplements thereto,
will comply or complied with the provisions and requirements of the
Securities Act and the Rules and Regulations. Neither the SEC nor
any state securities authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or requiring the
recirculation of a Preliminary Prospectus, or issued a stop order
with respect to the offering of the Shares (if the Registration
Statement has been declared effective), or instituted or, to the
Company's knowledge, threatened the institution of, proceedings for
any of such purposes. When the
-2-
<PAGE>
Registration Statement shall become effective and when any
post-effective amendment thereto shall become effective, the
Registration Statement (as amended, if the Company shall have filed
with the SEC any post-effective amendments thereto) will not or did
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. When the Registration Statement is or was declared
effective by the SEC and at all times subsequent thereto up to the
First Closing Date and the Second Closing Date, the Prospectus (as
amended or supplemented, if the Company shall have filed with the
SEC any amendment thereof or supplement thereto) will not or did
not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. When any Preliminary Prospectus was first filed
with the SEC and when any amendment thereof or supplement thereto
was first filed with the SEC, such Preliminary Prospectus and any
amendment thereof and supplement thereto complied in all material
respects with the applicable provisions of the Securities Act and
the Rules and Regulations and did not contain an untrue statement
of a material fact and did not omit to state any material fact
necessary in order to make the statements therein not misleading.
None of the representations and warranties in this Subsection 1(a)
shall apply to statements in, or omissions from, the Registration
Statement or the Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information
relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such amendment or
supplement.
(iii) The Company has no subsidiaries and is not affiliated with
any other company or business entity, except as disclosed in the
Prospectus. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority
(corporate and other) to own, lease and operate its properties and
conduct its business as described in the Registration Statement and
Prospectus; the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the ownership or lease of its properties or the conduct of
its business requires such qualification and in which the failure
to be qualified or in good standing would have a material adverse
effect on the condition (financial or otherwise), earnings,
operations or business of the Company; and no proceeding has been
instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(iv) The Company has and is operating in material compliance with
all authorizations, licenses, certificates, consents, permits,
approvals and orders of and from all state, federal and other
governmental regulatory officials and bodies necessary to own its
properties and to conduct its business as described in the
Registration Statement and Prospectus, all of which are, to the
Company's knowledge, valid and in full force and effect; the
Company is conducting its
-3-
<PAGE>
business in substantial compliance with all applicable laws, rules
and regulations of the jurisdictions in which it is conducting
business; and the Company is not in material violation of any
applicable law, order, rule, regulation, writ, injunction, judgment
or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over
its properties. Except as set forth in the Registration Statement
and Prospectus, (A) the Company is in material compliance with all
material rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection
of health or the environment (the "Environmental Laws") which are
applicable to its business, (B) the Company has received no notice
from any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be disclosed
in the Registration Statement and the Prospectus, (C) the Company
will not be required to make any future material capital
expenditures to comply with Environmental Laws, and (D) no
property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive
Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601, ET SEQ.), or otherwise designated as a
contaminated site under applicable state or local law.
(v) The Company is not in violation of its articles of
incorporation or bylaws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, lease, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which
it is a party or by which it or its properties are bound, which
default is material to the business of the Company.
(vi) The Company has full requisite power and authority to enter
into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on
the part of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited
by the application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific
performance, and except as the enforceability of the
indemnification or contribution provisions hereof may be affected
by applicable federal or state securities laws. The performance of
this Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation of
any of the terms and provisions of, or constitute a material
default under, (A) any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note, agreement or other evidence of
indebtedness, any lease, contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which
the Company is a party or by which the Company or its properties
may be bound, (B) the articles of incorporation or bylaws of the
Company, or (C) any material applicable law, order, rule,
regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its
-4-
<PAGE>
properties. No consent, approval, authorization or order of or
qualification with any court, governmental agency or body, domestic
or foreign, having jurisdiction over the Company or over its
properties is required for the execution and delivery of this
Agreement and the consummation by the Company of the transactions
herein contemplated, except such as may be required under the
Securities Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or under state or other securities or Blue
Sky laws, all of which requirements have been satisfied.
(vii) Except as is otherwise expressly described in the
Registration Statement or Prospectus, there is not any pending or,
to the best of the Company's knowledge, threatened, any action,
suit, claim or proceeding against the Company or any of its
officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers
or properties or otherwise which (i) might result in any material
adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company or might materially and
adversely affect its properties, assets or rights, or (ii) might
prevent consummation of the transactions contemplated hereby.
(viii) The Company has, and at the First Closing Date and Second
Closing Date (collectively, the "Closing Dates") will have, the
duly authorized and outstanding capitalization set forth in the
Prospectus. All outstanding shares of capital stock of the Company
(including the Shares to be sold hereunder by the Selling
Shareholders) are duly authorized and validly issued, fully paid
and non-assessable, have been issued in compliance with all federal
and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities, and the authorized and outstanding capital
stock of the Company conforms in all material respects with the
statements relating thereto contained in the Registration Statement
and the Prospectus; the Shares to be sold hereunder by the Company
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of
this Agreement, will be duly and validly issued and fully paid and
nonassessable and will be sold free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first
refusal or other similar right of shareholders exists with respect
to any of the Shares to be sold hereunder by the Company or the
issuance and sale thereof, or the issuance and sale or exercise of
the Representative's Warrants, other than those that have been
expressly waived prior to the date hereof or those that have been
or will be satisfied by the participation of the Selling
Shareholders in the transactions to which this Agreement relates.
Except as disclosed in the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The certificates
evidencing the Shares
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<PAGE>
comply as to form with all applicable provisions of the laws of the
State of Minnesota.
(ix) The Representative's Warrants and the Warrant Shares have
been duly authorized. The Representative's Warrants, when issued
and delivered to the Representative, will constitute valid and
binding obligations of the Company in accordance with their terms,
except as enforceability may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and by judicial
limitations on the right of specific performance. The Warrant
Shares, when issued in accordance with the terms of this Agreement
and pursuant to the Representative's Warrants, will be fully paid
and non-assessable and subject to no preemptive rights or similar
rights on the part of any person or entity. A sufficient number of
shares of Common Stock of the Company has been reserved for
issuance by the Company upon exercise of the Representative's
Warrants.
(x) Deloitte & Touche L.L.P., which has expressed its opinion with
respect to the financial statements filed as part of the
Registration Statement and included in the Registration Statement
and Prospectus, are independent accountants within the meaning of
the Securities Act and the Rules and Regulations. The financial
statements of the Company set forth in the Registration Statement
and Prospectus comply in all material respects with the
requirements of the Securities Act and fairly present the financial
position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (subject, in
the case of unaudited financial statements, to normal year-end
adjustments which in the opinion of management of the Company are
not material, and except as otherwise stated therein); and the
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The selected
and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein
and have been compiled on a basis consistent with the audited
financial statements presented therein. No other financial
statements or schedules are required by the Securities Act or the
Rules and Regulations to be included in the Registration Statement.
(xi) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and at each
Closing Date, except as is otherwise disclosed in the Registration
Statement or Prospectus, there has not been: (A) any change in the
capital stock or long-term debt (including any capitalized lease
obligation) or material increase in the short-term debt of the
Company; (B) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company; (C) any material adverse change, or any development
involving a material adverse change, in or affecting the condition
(financial or otherwise), earnings, operations, business, or
business prospects, management, financial position, stockholders'
equity, results of operations or general condition of the Company;
(D) any material transaction
-6-
<PAGE>
entered into by the Company; (E) any material obligation, direct or
contingent, incurred by the Company, except obligations incurred in
the ordinary course of business that, in the aggregate, are not
material; (F) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company; or (G) any loss
or damage (whether or not insured) to the property of the Company
which has been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company.
(xii) Except as is otherwise expressly disclosed in the
Registration Statement or Prospectus, (A) the Company has good and
marketable title to all of the property, real and personal, and
assets described in the Registration Statement or Prospectus as
being owned by it, free and clear of any and all pledges, liens,
security interests, encumbrances, equities, charges or claims,
other than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company, (B) the agreements to which the Company is
a party described in the Registration Statement and Prospectus are
valid agreements, enforceable by the Company, except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by judicial
limitations on the right of specific performance, and (C) the
Company has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus as leased by
it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by
judicial limitations on the right of specific performance. Except
as set forth in the Registration Statement and Prospectus, the
Company owns or leases all such properties as are necessary to its
operations as now conducted.
(xiii) The Company has timely filed (or has timely requested an
extension of time to file) all necessary federal and state income
and franchise tax returns and has paid all taxes shown thereon as
due; there is no tax deficiency that has been or, to the best of
the Company's knowledge, could be asserted against the Company that
might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or properties of the
Company; and all tax liabilities are adequately provided for in the
books of the Company.
(xiv) No labor disturbance by the employees of the Company exists
or, to the best of the Company's knowledge, is imminent. Except as
disclosed in the Registration Statement and the Prospectus, no
collective bargaining agreement exists with any of the employees of
the Company and, to the best of the Company's knowledge, no such
agreement is imminent.
(xv) The Company owns, or possesses adequate rights to use, all
patents, patent rights, inventions, trade secrets, know-how,
technology, service marks, trade names, copyrights, trademarks and
proprietary rights or information which are necessary for the
conduct of its present or intended business as described in the
-7-
<PAGE>
Registration Statement or Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks,
trade names or copyrights would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or
business of the Company; and the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict
with the asserted rights of others with respect to any patent,
patent rights, inventions, trade secrets, know-how, technology,
trade marks, service marks, trade names or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business
or business prospects of the Company. Except as disclosed in the
Registration Statement or Prospectus, the Company is not obligated
or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, patent rights, inventions, trade secrets,
know-how, technology, service marks, trade names, trademark,
copyright or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise.
(xvi) The Shares have been approved for quotation on The Nasdaq
National Market.
(xvii) The Company has no defined benefit pension plan or other
pension benefit plan which is intended to comply with the
provisions of the Employee Retirement Income Security Act of 1974
as amended from time to time, except as disclosed in the
Registration Statement.
(xviii) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its
directors, officers, shareholders or others) which has constituted
or is designed to, or which might reasonably be expected to, cause
or result in stabilization or manipulation, as defined in the
Exchange Act or otherwise, of the price of any security of the
Company to facilitate the sale or resale of the Shares. The
Company has not distributed and will not distribute prior to the
later of (A) the First Closing Date or the Second Closing Date, as
the case may be, and (B) completion of the distribution of the
Shares, any offering material in connection with the offering and
sale of the Shares other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and other materials, if any,
permitted by the Securities Act. Except as is otherwise disclosed
in the Registration Statement or Prospectus, and to the best of the
Company's knowledge, no person is entitled, directly or indirectly,
to compensation from the Company for services as a "finder" or
otherwise in connection with the transactions contemplated by this
Agreement.
(xix) The Company maintains insurance, which is in full force and
effect, with insurers of recognized financial responsibility of the
types and in the amounts generally deemed adequate for their
respective businesses and, to the best of the Company's knowledge,
in line with the insurance maintained by similar companies and
businesses; and the Company has no reason to believe that it will
not be able
-8-
<PAGE>
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company.
(xx) Each officer and director of the Company has agreed pursuant
to the form of Lock-up Agreement attached hereto as Appendix A (the
"Lock-up Agreement") that such person will not, for a period of six
(6) months from the date (the "Effective Date") that the
Registration Statement is declared effective by the SEC (the
"Lock-up Period"), without the prior written consent of the
Representative, offer to sell, contract to sell, sell, pledge,
hypothecate, transfer or otherwise dispose of, or grant any rights
with respect to (collectively, a "Disposition"), any shares of
Common Stock and options, warrants and other rights to purchase any
shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock now owned or
hereafter acquired by such person (collectively, "Securities") or
with respect to which such person has or hereafter acquires the
power of Disposition, other than the sale of the Shares by the
Selling Shareholders pursuant to this Agreement and other than as
permitted by the Lock-Up Agreement. The Lock-Up Agreements shall
not be construed to prohibit the surrender to the Company for
cancellation shares of Common Stock in payment of the exercise
price of stock options granted under the Company's 1996 Stock Plan
("1996 Plan"), 1986 Incentive Stock Option Plan ("1986 Plan"), or
the original Incentive Stock Option Plan adopted in 1985 ("1985
Plan"). (The 1996 Plan, 1986 Plan, and 1985 Plan shall herein be
collectively referred to as the "Plans"). The Company has provided
to counsel for the Underwriters ("Underwriters' Counsel") true,
accurate and complete copies of all of the Lock-up Agreements. The
Company has provided to Underwriters' Counsel a complete and
accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder.
(xxi) The Company has not at any time during the last five (5)
years made any unlawful contribution to any candidate for an office
or failed to disclose fully any contribution in violation of law,
or made any payment to any federal or state governmental officer or
official, domestic or foreign, or other person charged with similar
public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction
thereof. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that
transactions are executed in accordance with management's general
or specific authorizations, transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets, access to assets is permitted only in
accordance with management's general or specific authorization, and
the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
-9-
<PAGE>
(xxii) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(b) Each Selling Shareholder represents and warrants to and agrees with
each of the Underwriters as follows:
(i) Such Selling Shareholder now has, and on each Closing Date
will have, valid title to the Shares to be sold by such Selling
Shareholder on that Closing Date, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest
other than pursuant to this Agreement; and upon payment for and
delivery of such Shares hereunder, the Underwriters will obtain
valid and marketable title thereto, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest.
Such Selling Shareholder is selling the Shares to be sold by such
Selling Shareholder for such Selling Shareholder's own account and
is not selling such Shares, directly or indirectly, for the benefit
of the Company, and no part of the proceeds of such sale received
by such Selling Shareholder will inure, either directly or
indirectly, to the benefit of the Company.
(ii) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the
Representative, an irrevocable Power of Attorney of Selling
Shareholder (the "Power of Attorney") appointing Daniel A. Baker
and Thomas W. Petschauer as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Custody
Agreement (the "Custody Agreement") with American Securities
Transfer, Incorporated, as custodian (the "Custodian"); each of the
Power of Attorney and the Custody Agreement constitutes a valid and
binding agreement on the part of such Selling Shareholder,
enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by judicial limitations on
the right of specific performance; and each of the Attorneys,
acting alone, is authorized to execute and deliver this Agreement
and the certificate referred to in Section 5(l) hereof signed by or
on behalf of such Selling Shareholder, to determine the purchase
price to be paid by the several Underwriters to such Selling
Shareholder as provided in Section 2(a) hereof, to authorize the
delivery of the Shares to be sold by such Selling Shareholder under
this Agreement, to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a separate
stock power or powers with respect thereto, to accept payment
therefor, and otherwise to act on behalf of such Selling
Shareholder in connection with this Agreement.
(iii) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Shareholder of the
Power of Attorney and the Custody Agreement, the execution and
delivery by or on behalf of such Selling Shareholder of this
Agreement and the sale and delivery of the Shares to be sold by
such Selling Shareholder under this Agreement (other than, at the
time of the execution hereof, if the Registration Statement has not
yet been declared effective by the SEC, the issuance of the order
of the SEC declaring the
-10-
<PAGE>
Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other
securities or Blue Sky laws) have been obtained and, to the Selling
Shareholder's knowledge, are in full force and effect; such Selling
Shareholder, if other than a natural person, has been duly
organized and is validly existing in good standing under the laws
of the jurisdiction of its organization as the type of entity that
it purports to be; and such Selling Shareholder has the requisite
power and authority to enter into and perform its obligations under
this Agreement and the Power of Attorney and Custody Agreement, and
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Shareholder under this Agreement.
(iv) During the Lock-Up Period, such Selling Shareholder will not,
without the prior written consent of the Representative, effect the
Disposition of any Securities now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such
Selling Shareholder has or hereafter acquires the power of
disposition. Such Selling Shareholder also agrees and consents to
the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such Selling
Shareholder except in compliance with this restriction.
(v) Pursuant to the Custody Agreement, certificates in negotiable
form for all Shares to be sold by such Selling Shareholder under
this Agreement, together with a stock power or powers duly endorsed
in blank by such Selling Shareholder and any other instruments,
agreements or documents necessary to validate the transfer of title
thereto, have been placed in custody with the Custodian for the
purpose of effecting delivery hereunder.
(vi) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person, it has been duly executed
and delivered by or on behalf of each Selling Shareholder, and it
is a valid and binding agreement of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance with its
terms, except as rights to indemnification hereunder may be limited
by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by judicial limitations on the right of specific
performance; and the performance of this Agreement and the
consummation of the transactions herein contemplated will not
result in a material breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture,
note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder, or any
Shares to be sold by such Selling Shareholder hereunder, may be
bound or, to such Selling Shareholders' knowledge, after reasonable
inquiry, result in any material violation of any applicable law,
order, rule, regulation, writ, injunction, judgment or decree of
any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Shareholder or over
the properties of such Selling
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<PAGE>
Shareholder, or, if such Selling Shareholder is other than a
natural person, result in any violation of any provisions of the
charter, bylaws or other organizational documents of such Selling
Shareholder.
(vii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(viii) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Shares other than the Prospectus
or the Registration Statement or, with respect to any such
distribution prior to the date hereof, any Preliminary Prospectus
current at such time.
(ix) All written information furnished to the Company by or on behalf
of such Selling Shareholder specifically for inclusion in the
Registration Statement or the Prospectus is, and the representations
and warranties of such Selling Shareholder set forth in such Selling
Shareholder's Power of Attorney are, and at the time the Registration
Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on each Closing Date, was or
will be, true, correct and complete in all material respects, and
does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent
thereto up to and on each Closing Date will not, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information
not misleading. Based on the current knowledge of each of Jerry K.
Twogood ("Twogood") and Charles M. Osborne ("Osborne") (who are
executive officers of Deluxe Corporation ("Deluxe") and directors
of the Company), Deluxe hereby represents and warrants that the
information concerning Deluxe appearing under the caption "Certain
Transactions" in any Preliminary Prospectus and in the Prospectus
does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent
thereto and on each Closing Date will not, contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make such information not
misleading.
(x) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part
to be complied with or satisfied pursuant to this Agreement on or
prior to each Closing Date and will advise one of its Attorneys and
the Representative prior to each Closing Date if any statement to
be made on behalf of such Selling Shareholder in the certificate
contemplated by Section 5(l) would be inaccurate if made as of such
Closing Date.
(xi) Such Selling Shareholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares
that are to be sold by the Company or any of the other Selling
Shareholders to the Underwriters pursuant to this Agreement; such
Selling Shareholder does not have, or has waived prior to the date
hereof, any registration right or other similar right to
participate in the offering made by the Prospectus, other than such
rights of participation as have been satisfied by the participation
of such Selling Shareholder in the transactions to which this
Agreement relates; and such Selling Shareholder does not own any
warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights,
warrants, options or other securities from the
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<PAGE>
Company, other than those included in the aggregate amount of such
securities described in the Registration Statement and the
Prospectus.
(xii) To the knowledge of such Selling Shareholder except Deluxe, the
representations and warranties of the Company set forth in Section 1(a)
hereof are true and correct. To the knowledge of Deluxe, which is
based upon the current knowledge of each of Twogood and Osborne, the
representations and warranties of the Company set forth in Section 1(a)
hereof are true and correct in all material respects.
(c) Any certificate signed by any officer of the Company and delivered to
you or to Underwriters' Counsel shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered
thereby; and any certificate signed by or on behalf of any Selling
Shareholder as such and delivered to the Representative or to
Underwriters' Counsel shall be deemed a representation and warranty by such
Selling Shareholder to each Underwriter as to the matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set
forth, the Company and the Selling Shareholders agree, severally and not
jointly, to sell to the Underwriters, and each Underwriter agrees,
severally and not jointly, to purchase from the Company and the Selling
Shareholders, at a purchase price of $__________ per share, the
respective number of Firm Shares set forth opposite the names of the
Company and the Selling Shareholders in Schedule I hereto. The
obligation of each Underwriter to each of the Company and the Selling
Shareholders shall be to purchase from each of the Company and the
Selling Shareholders that number of Firm Shares (to be adjusted by the
Representative to avoid fractional shares) which represents the same
proportion of the number of Firm Shares to be sold by each of the
Company and the Selling Shareholders pursuant to this Agreement as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto represents to the total number of Firm Shares to be
purchased by all Underwriters pursuant to this Agreement; and except as
provided in Section 2(c), the agreement of each Underwriter is to
purchase only the respective number of Firm Shares specified in Schedule
II. The Underwriters will purchase all of the Firm Shares if any are
purchased.
The Firm Shares will be delivered by the Company and the Custodian (for
the benefit of Selling Shareholders) to you for the accounts of the
several Underwriters against payment of the purchase price therefor by
wire transfer or other same day funds payable to the order of the
Company or the Custodian, as appropriate, at the offices of R. J.
Steichen & Company, Midwest Plaza, Suite 1100, 801 Nicollet Mall,
Minneapolis, Minnesota 55402 (or at such other place as may be agreed
upon by the Representative and the Company), at 9:00 a.m., Minneapolis,
Minnesota time, on (i) the third (3rd) full business day following the
date hereof if the price of the Firm Shares is determined before 3:30
p.m. Minneapolis, Minnesota time, (ii) the fourth (4th) full business
day following the date hereof if the price of the Firm Shares hereunder
is determined after 3:30 p.m. Minneapolis, Minnesota time, or (iii) such
other time and date as the Representative and the Company may determine,
such time and date of payment and delivery being herein called the
"First Closing Date." Delivery of the Firm Shares will be made by
credit to
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<PAGE>
"full fast" transfer to the accounts at The Depository Trust Company
designated by the Representative.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters
to purchase an aggregate of up to 180,000 Option Shares, and the Selling
Shareholders, severally and not jointly, hereby grant to the several
Underwriters an option to purchase an aggregate of up to 60,000 Option
Shares, all at the same purchase price as the Firm Shares, for use
solely in covering any over-allotments made by the Underwriters in the
sale and distribution of the Firm Shares. The option granted hereunder
may be exercised by the Representative on behalf of the several
Underwriters at any time (but not more than once), in whole or in part,
during the period of thirty (30) days after the date of this Agreement
by giving written notice to the Company and the Attorneys, which notice
shall set forth the aggregate number of Option Shares as to which the
Underwriters are exercising the option, the names and denominations in
which the certificates for the Option Shares are to be registered, and
the date and time, as determined by the Representative, when the Option
Shares are to be delivered, such time and date being herein referred to
as the "Second Closing Date;" provided, however, that the Second Closing
Date shall not be earlier than the First Closing Date nor earlier than
the second business day after the date on which the option shall have
been exercised. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage of the total number of Option
Shares to be purchased by the Underwriters as the number of Firm Shares
to be purchased by such Underwriter bears to the total number of Firm
Shares to be purchased by the Underwriters, as adjusted by the
Representative in its sole discretion in such manner as it shall deem
advisable to avoid fractional shares. No Option Shares shall be sold
and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered. The number of Option Shares to
be sold by the Company and by each Selling Shareholder is described on
Schedule I hereto. If fewer than all Option Shares are purchased, the
amounts purchased will be reduced pro rata among the Company and the
Selling Shareholders.
The Option Shares will be delivered by the Custodian and the Company,
as appropriate, to the Representative for the accounts of the
Underwriters against payment of the purchase price therefor by wire
transfer or other same day funds payable to the order of the Custodian
or the Company, as appropriate, at the offices of R. J. Steichen &
Company, Midwest Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis,
Minnesota, 55402 (or at such other place as may be agreed upon by the
Representative and the Company) at 9:00 a.m., Minneapolis, Minnesota
time, on the Second Closing Date. Delivery of the Option Shares will be
made by credit to "full fast" transfer to the accounts at The Depository
Trust Company designated by the Representative.
(c) It is understood that any of the Underwriters, may (but shall not
be obligated to) make payment to the Company or the Selling
Shareholders, on behalf of any Underwriter, for the Shares to be
purchased by such Underwriter. Any such payment shall not relieve any
such Underwriter of any of its obligations hereunder. Nothing herein
contained shall
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<PAGE>
constitute any of the Underwriters an unincorporated association or
partner with the Company or any Selling Shareholder.
3. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company hereby covenants and agrees with each of the
Underwriters as follows:
(i) If the Registration Statement has not already been declared
effective by the SEC, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments
thereto to become effective as promptly as possible; the Company
will notify the Representative promptly of the time when the
Registration Statement or any post-effective amendment to the
Registration Statement has become effective or any supplement to
the Prospectus has been filed and of any request by the SEC for any
amendment or supplement to the Registration Statement or Prospectus
or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will file a
Prospectus containing the information omitted therefrom pursuant to
such Rule 430A with the SEC within the time period required by, and
otherwise in accordance with the provisions of, Rules 424(b) and
430A of the Rules and Regulations; the Company will prepare and
file with the SEC, promptly upon your request, any amendments or
supplements to the Registration Statement or Prospectus that, in
your opinion, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; and the Company
will not file any amendment or supplement to the Registration
Statement or Prospectus to which the Representative shall
reasonably object by notice to the Company after having been
furnished a copy a reasonable time prior to the filing.
(ii) The Company will advise the Representative, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance
by the SEC of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of
the Shares for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceeding for any such purpose;
and the Company will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a
stop order should be issued.
(iii) Within the time during which a prospectus relating to the
Shares is required to be delivered under the Securities Act, the
Company will comply as far as it is able with all requirements
imposed upon it by the Securities Act, as now and hereafter
amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or
dealings in the Shares as contemplated by the provisions hereof and
the Prospectus. If, during such period, any event occurs as a
result of which the Prospectus would include an untrue statement of
a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances then
existing, not misleading, or if, during such period, it is
necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Securities Act, the
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Company will promptly notify the Representative and will amend the
Registration Statement or supplement the Prospectus (at the expense
of the Company) so as to correct such statement or omission or
effect such compliance.
(iv) The Company will use its best efforts to arrange for the
qualification of the Shares for offering and sale under the
securities laws of such jurisdictions as the Representative may
designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares;
provided, however, that in no event shall the Company be obligated
to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to the
service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not
now so subject. In each jurisdiction in which the Shares shall
have been qualified as herein provided, the Company will make and
file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will
include all exhibits), each Preliminary Prospectus, the Prospectus,
and all amendments and supplements to such documents, in each case
as soon as available and in such quantities as the Representative
may from time to time reasonably request.
(vi) For a period of five years from the Effective Date, the
Company will furnish directly to the Representative as soon as the
same shall be sent to its shareholders generally copies of all
annual or interim shareholder reports of the Company and will, for
the same period, also furnish the Representative with the following:
(1) One copy of any report, application or document
(other than exhibits, which, however, will be furnished on your
request) filed by the Company with the SEC, Nasdaq, the NASD or
any securities exchange;
(2) As soon as the same shall be sent to
shareholders generally, copies of each communication sent to
shareholders; and
(3) From time to time, such other information
concerning the Company as the Representative may reasonably and
specifically request, provided that the Company shall not be
required to furnish any information pursuant hereto that is not
furnished to its shareholders or not otherwise made publicly
available.
The Company will, for a period of two (2) years from the Effective
Date, furnish directly to the Representative quarterly profit and
loss statements, reports of the Company's cash flow, and statements
of application of the proceeds of the offering of the Shares by the
Company in such reasonable detail as the Representative may request.
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(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the
fifteen (15) months after the end of the Company's current fiscal
quarter, an earnings statement (which will be in reasonable detail
but need not be audited) complying with the provisions of Section
11(a) of the Securities Act and Rule 158 of the Rules and
Regulations and covering a twelve (12)-month period beginning after
the Effective Date of the Registration Statement.
(viii) The Company will prepare and file with the SEC reports on
Form SR in accordance with the Securities Act and the Rules and
Regulations.
(ix) After completion of the offering of the Shares, the Company
will make all filings required to maintain the quotation of the
Common Stock on The Nasdaq National Market or any national stock
exchange.
(x) The Company will apply the net proceeds from the sale of the
Shares being sold by it substantially in the manner set forth under
the caption "Use of Proceeds" in the Prospectus.
(xi) During the Lock-Up Period, the Company will not, without the
prior written consent of the Representative, effect the Disposition
of, directly or indirectly, any Securities including, without
limitation, any Securities that are convertible into or
exchangeable or exercisable for Common Stock, and shall not
accelerate the exercisability of any Securities that are
convertible into or exchangeable or exercisable for Common Stock,
except for the sale of Shares by the Company pursuant to this
Agreement, the exercise of options granted under the Company's
Plans, and the grant of options in the ordinary course under the
1996 Stock Plan.
(xii) The Company will not take, and will use its best efforts to
cause each of its officers and directors not to take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or
resale of the Shares.
(xiii) The Company will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the
distribution of the Shares by the Underwriters if it commences
engaging in business with the government of Cuba or with any person
or affiliate located in Cuba. Such information shall be provided
within 90 days after the commencement thereof or after a change
occurs with respect to previously reported information.
(b) Each Selling Shareholder covenants and agrees with each of the
Underwriters as follows:
(i) The Shares to be sold by such Selling Shareholder, represented
by the certificates on deposit with the Custodian pursuant to the
Custody Agreement of
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such Selling Shareholder, are subject to the interest of the
Underwriters and the other Selling Shareholders; the arrangements
made for such custody are, except as specifically provided in the
Custody Agreement, irrevocable; and the obligations of such Selling
Shareholder hereunder shall not be terminated, except as provided
in this Agreement or in the Custody Agreement, by any act of such
Selling Shareholder, by operation of law, whether by the
liquidation, dissolution or merger of such Selling Shareholder, by
the death of such Selling Shareholder, or by the occurrence of any
other event. If any Selling Shareholder should liquidate, dissolve
or be a party to a merger or if any other such event should occur
before the delivery of the Shares hereunder, certificates for the
Shares deposited with the Custodian shall be delivered by the
Custodian in accordance with the terms and conditions of this
Agreement as if such liquidation, dissolution, merger or other
event had not occurred, whether or not the Custodian shall have
received notice thereof.
(ii) Such Selling Shareholder will not, without the prior written
consent of the Representative, make any Disposition of Securities
during the Lock-up Period, except to the Underwriters pursuant to
this Agreement.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(iv) Such Selling Shareholder shall immediately notify you if any
event occurs, or of any change in information relating to such
Selling Shareholder or any new information relating to such Selling
Shareholder stated in the Prospectus or any supplement thereto,
which results in the Prospectus (as supplemented) including an
untrue statement of a material fact or omitting to state any
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4. EXPENSES.
(a) The Company and each Selling Shareholder agrees with each
Underwriter that:
(i) Whether or not this Agreement becomes effective or is
terminated or cancelled or the sale of the Shares hereunder is
consummated, and regardless of the reason for or cause of any such
termination, cancellation, or failure to consummate, the Company
and the Selling Shareholders will pay or cause to be paid (A) all
expenses (including any transfer taxes) incurred in connection with
the delivery to the Underwriters of the Shares, (B) all expenses
and fees (including, without limitation, fees and expenses of the
Company's accountants and of counsel to the Company and the Selling
Shareholders, excluding, however, fees of the Underwriters'
Counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules, and
exhibits thereto), each
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Preliminary Prospectus, the Prospectus, and any amendment thereof
or supplement thereto, (C) all fees and reasonable expenses,
including all reasonable counsel fees of counsel to the Company and
the Selling Shareholders, incurred in connection with the
qualification of the Shares for offering and sale by the
Underwriters or by dealers under the securities or Blue Sky laws of
the states and other jurisdictions which the Representative may
designate in accordance with Section 3(a)(iv) hereof, (D) all costs
and expenses incident to qualification with The Nasdaq National
Market, (E) postage and express charges and other expenses in
connection with delivery to the Underwriters of the Preliminary
Prospectus and Prospectus, and (F) all other costs and expenses
incident to the performance of their obligations hereunder that are
not otherwise specifically described herein. In addition to and
not in lieu of the foregoing, the Company and the Selling
Shareholders shall pay to the Representative on each Closing Date
for out-of-pocket expenses (including fees of Underwriters'
Counsel) a nonaccountable expense allowance equal to two percent
(2.0%) of the aggregate Price to Public for all the Shares sold to
the Underwriters on each Closing Date, including Shares sold
pursuant to orders received through the Company. The obligation of
the Company and the Selling Shareholders to pay such nonaccountable
expense allowance shall be several and not joint, and the amount of
the nonaccountable expense allowance that the Company and each
Selling Shareholder shall be obligated to pay shall be determined
pro rata, in proportion to the number of Shares being sold by the
Company and each Selling Shareholder pursuant to this Agreement.
The Representative acknowledges receipt of a total of $10,000 from
the Company as an advance against such nonaccountable expense
allowance. If the Underwriters withdraw from the sale of the
Shares as herein proposed for any reason beyond their control and
through no fault of their own, or if the sale of the Shares as
herein proposed is abandoned by the Company, the Company will pay
to the Representative the greater of (AA) the $10,000 nonrefundable
advance described herein or (BB) the amount of all actual
accountable expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Representative in connection
with the contemplated purchase, offer, and sale of the Shares,
including, without limitation, expenses incurred in its
investigation, preparation to market, and marketing of the Shares,
and in contemplation of performing and in performance of its
obligations hereunder, up to an aggregate of $20,000. If the
Underwriters withdraw from the offering for any reason within their
control, including but not limited to an opinion of the NASD
regarding the compensation arrangements of the Underwriters, the
Company shall pay to the Representative only the $10,000
nonrefundable advance. The provisions of this Section 4(a)(i) are
intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Shareholders and the Company
hereby agree to pay but shall not affect any agreement which the
Selling Shareholders and the Company may make, or may have made,
for the sharing of any of such expenses and costs. Such agreement
shall not impair the obligations of the Company and the Selling
Shareholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Sections 7(a) and
8 hereof, the Company agrees that, as an interim measure during the
pendency of any claim,
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action, investigation, inquiry or other proceeding described in
Section 7(a), it will reimburse the Underwriters on a monthly basis
for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in The
Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30)
largest banks (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(iii) In addition to their other obligations under Section 7(b)
hereof, each Selling Shareholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 7(b) hereof relating to such
Selling Shareholder, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of such Selling Shareholder's obligation to
reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling
Shareholders, together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made by the Selling Shareholders to the
Underwriters within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
Notwithstanding anything in this Section 4(a)(iii) to the contrary,
Deluxe shall be obligated hereunder as a Selling Shareholder to the
extent, but only to the extent, that the Company has not fully
reimbursed the Underwriters pursuant to Section 4(a)(ii) hereof; and
the obligation of Deluxe hereunder shall not exceed the amount equal
to the purchase price set forth in Section 2(a) multiplied by the
number of Shares sold by Deluxe pursuant to this Agreement. Moreover,
the Company shall be obligated to promptly pay to Deluxe the amount of
any payment made hereunder by Deluxe to the Underwriters, together with
interest, compounded daily, determined on the basis of the Prime Rate.
(b) It is agreed that any controversy rising out of the operation
of the interim reimbursement arrangements set forth in Sections 4(a)(ii)
and 4(a)(iii) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts, and the
basis on which such amounts shall be apportioned among the reimbursing
parties, shall be settled by arbitration conducted pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration
tribunal. If the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so.
Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 4(a)(ii) and 4(a)(iii)
hereof and will not resolve the ultimate propriety or enforceability of
the
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obligation to indemnify for expenses which is created by the provisions
of Sections 7(a), 7(b) and 7(c) hereof or the obligation to contribute
to expenses which is created by the provisions of Section 8(a) hereof.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of the
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy of the representations and warranties of the Company
and the Selling Shareholders, in the case of the Firm Shares, as of the date
hereof and the First Closing Date (as if made on and as of the First Closing
Date), and in the case of the Option Shares, as of the date hereof and the
Second Closing Date (as if made on and as of the Second Closing Date); to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder; and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not
later than 4:00 p.m. Minneapolis, Minnesota time on the date of this
Agreement, or such later date or time as shall be consented to in
writing by you (the "Effective Date"); and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company
and of the Selling Shareholders, or any of the Underwriters, threatened
by the SEC or any state securities commission or similar regulatory
body; and any request of the SEC for additional information (to be
included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of the Underwriters
and Underwriters' Counsel.
(b) The Underwriters shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to
be stated therein or is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this Section 5(b) shall not apply to
statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, which are
based upon and conform to written information furnished to the Company
by the Underwriters specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such amendment or
supplement.
(c) Subsequent to the Effective Date and prior to each Closing
Date, there shall not have occurred any change, or any development
involving a prospective change, which materially and adversely affects
the Company's condition (financial or otherwise), earnings, operations,
properties, business or business prospects from that set forth in the
Registration Statement or Prospectus, and which, in the Representative's
sole judgment, is material and adverse and that makes it, in the
Representative's sole judgment, impracticable or inadvisable to proceed
with the public offering of the Shares as contemplated by the Prospectus
and this Agreement.
(d) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the
Prospectus, and the registration,
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authorization, issue, sale and delivery of the Shares, shall have been
reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as it may
reasonably have requested to enable it to pass upon the matters referred
to in this Section.
(e) On each Closing Date, the Underwriters shall have received the
opinion of Lindquist & Vennum P.L.L.P., counsel for the Company, dated
as of such Closing Date, satisfactory in form and substance to the
Underwriters and Underwriters' Counsel, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and
authority to own, lease and operate its properties and to conduct
its business as currently being carried on and as described in the
Registration Statement and Prospectus.
(ii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct
of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company. To the best of
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other
entity.
(iii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus
under the caption "Description of Capital Stock." The issued and
outstanding shares of capital stock of the Company (including the
Shares to the sold by the Selling Shareholders) have been duly and
validly issued and are fully paid and nonassessable, and the
holders thereof are not subject to any personal liability by reason
of being such holders.
(iv) The Shares to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders. Except as
otherwise stated in the Registration Statement and Prospectus,
there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any
shares of Common Stock pursuant to the Company's articles of
incorporation, by-laws or any agreement or other instrument known
to such counsel to which the Company is a party or by which the
Company is bound. To the best of such counsel's knowledge, except
as set forth in the Prospectus, neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights for or
relating to the registration of any shares of Common Stock or other
securities of the Company and no such rights exist, other than
those rights that have been waived prior to the
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date hereof or those rights that have been or will be satisfied by
the participation of the Selling Shareholders in the transactions
to which this Agreement relates. To the best of such counsel's
knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts
or rights in existence to purchase or acquire from the Company any
shares of capital stock of the Company.
(v) The Company has the requisite corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder.
This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution
and delivery by the Representative on behalf of the Underwriters,
is a valid, legal and binding agreement of the Company, enforceable
in accordance with its terms, except insofar as indemnification and
contribution provisions may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(vi) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose has
been instituted or is pending or threatened under the Securities
Act.
(vii) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, (other than the financial
statements, including the notes thereto and the supporting
schedules, and other financial, numerical, statistical and
accounting data derived therefrom, as to which such counsel need
express no opinion), comply as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations.
(viii) The form of certificates evidencing the Common Stock and
filed as an exhibit to the Registration Statement complies with
Minnesota law.
(ix) The description in the Registration Statement and the
Prospectus of the Company's articles of incorporation and bylaws
and of statutes, legal and governmental proceedings, contracts and
other documents are accurate in all material respects and fairly
present the information required to be presented by the Securities
Act and the applicable Rules and Regulations; and such counsel does
not know of any statutes or legal or governmental proceedings
required to be described in the Prospectus that are not described
as required, or of any agreements, contracts, leases or documents
of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit
to the Registration Statement which are not described or referred
to therein or filed as required.
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(x) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated (other
than performance of the Company's indemnification and contribution
obligations hereunder, concerning which no opinion need be
expressed) do not result in any violation of the Company's articles
of incorporation or bylaws or result in a breach or violation of
any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any
material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other material agreement or instrument
known to such counsel to which the Company is a party or by which
its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to the best of such counsel's
knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or
any of its material properties or operations;
(xi) No consent, approval, authorization or order of, or filing
with, or qualification with, any court, government or governmental
agency or body is necessary in connection with the execution,
delivery and performance of this Agreement or for the execution,
delivery and performance of this Agreement or for the consummation
of the transactions herein contemplated, except such as have been
obtained under the Securities Act or such as may be required under
state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xii) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act or the Rules and
Regulations, other than those described therein.
(xiii) To the best of such counsel's knowledge, the Company is not
presently (A) in material violation of its respective articles of
incorporation or bylaws, (B) in material breach or violation of any
applicable statute, rule or regulation known to such counsel or any
order, writ or decree of any court or governmental agency or body,
or (C) in material breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, loan agreement or any other
material contract, lease or other instrument to which the Company
is subject or by which it may be bound, or to which any of the
material assets or property of the Company is subject.
(xiv) To the best of such counsel's knowledge, the Company holds,
and is operating in compliance in all material respects with, all
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any government or
self-regulatory body required for the conduct of its business, and
all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in
full force and effect.
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(xv) To the best of such counsel's knowledge, each Selling
Shareholder that is a natural person has the requisite capacity and
each other Selling Shareholder has full right, power and authority
to enter into and to perform its obligations under the Power of
Attorney and Custody Agreement executed and delivered by him or it
in connection with the transactions contemplated herein; the Power
of Attorney and Custody Agreement of each Selling Shareholder that
is not a natural person has been duly authorized by it; the Power
of Attorney and Custody Agreement of each Selling Shareholder has
been duly executed and delivered by or on behalf of each Selling
Shareholder; and the Power of Attorney and Custody Agreement of
each Selling Shareholder constitutes valid and binding agreement of
such Selling Shareholder, enforceable in accordance with their
respective terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws relating to or affecting
creditors' rights generally or by judicial limitations on the right
of specific performance.
(xvi) To the best of such counsel's knowledge, the execution and
delivery of this Agreement, the Custody Agreement and the Power of
Attorney and the performance of the terms hereof and thereof and the
consummation of the transactions herein and therein contemplated will
not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, rule or regulation, or
any agreement or instrument known to such counsel to which such Selling
Shareholder is a party or by which such Selling Shareholder is bound or
to which any of its or his property is subject, the charter or bylaws
of any Selling Shareholder that is not an individual, or any order or
decree known to such counsel of any court or government agency or body
having such jurisdiction over such Selling Shareholder or any of its
respective properties; and no consent, approval, authorization or order
of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement,
the Custody Agreement and the Power of Attorney or for the consummation
of the transactions contemplated hereby and thereby, including the sale
of the Shares being sold by such Selling Shareholder, except such as
may be required under the Securities Act or state securities laws or
blue sky laws.
(xvii) To the knowledge of such counsel, each of the Selling
Shareholders is the sole record and beneficial owner of the Shares to
be sold by such Selling Shareholder. Upon delivery of the certificates
for the Shares to be sold by each Selling Shareholder pursuant to this
Agreement, and upon payment therefor by the Underwriters, the
Underwriters will acquire all the rights of such Selling Shareholder in
the Shares (assuming the Underwriters have purchased in good faith and
without notice of an adverse claim), free and clear of any security
interests, claims, liens or other encumbrances.
(xviii) On the basis of information obtained as a result of
discussions and meetings with officers and other representatives of the
Company, discussions with representatives of the independent public
accountants for the Company in
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connection with the preparation of the Registration Statement and
the Prospectus, and the examination of other information and
documents requested by such counsel, nothing has come to such
counsel's attention that has caused them to believe that the
Registration Statement and any amendment thereof, at the time it
became effective and at all times subsequent thereto up to and on
that Closing Date, contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make
the statements therein not misleading, or that the Prospectus, and
any amendment or supplement thereto, at the first date of its
issuance and up to and at all times subsequent thereto up to and on
that Closing Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Such counsel may further state that in making the
foregoing comments, such counsel does not intend them to include or
cover the financial statements and notes thereto and related
schedules and other financial, numerical, statistical and
accounting data contained or omitted from the Registration
Statement and any amendment or supplement thereto and the
Prospectus.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of
Minnesota, upon opinions of local counsel, and, as to questions of fact,
upon representations or certificates of officers of the Company, the
Selling Shareholders, or officers of the Selling Shareholders (when the
Selling Shareholder is not a natural person), and of government
officials, in which case their opinion is to state the extent of such
reliance. Copies of any opinion, representation or certificate so
relied upon shall be delivered to the Representative and to
Underwriters' Counsel.
(f) The Underwriters shall have received from Winthrop & Weinstine,
P.A., Underwriters' Counsel, such opinion or opinions as the
Underwriters may reasonably require, dated as of the First Closing Date
and the Second Closing Date, which are satisfactory in form and
substance to the Underwriters, with respect to the sufficiency of
corporate proceedings and other legal matters relating to this Agreement
and the transactions contemplated hereby, and the Company shall have
furnished to Underwriters' Counsel such documents as it may have
requested for the purpose of enabling it to pass upon such matters. In
connection with such opinion, as to matters of fact relevant to
conclusions of law, Underwriters' Counsel may rely, to the extent that
it deems proper, upon representations or certificates of public
officials and of responsible officers of the Company.
(g) At the time of execution of this Agreement, the Underwriters shall
have received from Deloitte & Touche LLP a letter dated the date of such
execution, in form and substance satisfactory to the Representative, to
the effect that they are independent accountants with respect to the
Company within the meaning of the Securities Act and the applicable
published instructions, and the Rules and Regulations thereunder, and
further stating in effect that:
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(i) In their opinion, the audited financial statements included in
the Registration Statement and Prospectus covered by their report
included therein comply as to form in all material respects with
the applicable requirements of the Securities Act, the published
instructions and the Rule and Regulations.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since
January 1, 1996, (B) inquiries of certain officials of the Company
responsible for financial and accounting matters, (C) a reading of
the Company's monthly operating statements for the three-month
periods ended March 30, 1996 and April 1, 1995, and (D) other
specified procedures and inquiries (but not an audit in accordance
with generally accepted accounting principles), nothing came to their
attention causing them to believe that:
(1) the unaudited consolidated financial statements of the
Company contained in the Prospectus and any amendment thereof
or supplement thereto do not comply as to form, in all
material respects, with the applicable accounting requirements
of the Securities Act and the published Rules and Regulations
or were not prepared in conformity with generally accepted
accounting principles and practices applied on a basis
consistent in all material respects with those followed in the
preparation of the audited consolidated financial statements
of the Company included therein; or
(2) the unaudited consolidated amounts of revenues, income
before provision for income taxes, net income and ratio of
earnings to fixed charges of the Company, if any, contained in
the Prospectus, or any amendment thereof or supplement
thereto, were not derived from consolidated financial
statements prepared in conformity with generally accepted
accounting principles and practices applied on a basis
consistent in all material respects with those followed in the
preparation of the audited consolidated financial statements
of the Company included therein; or
(3) the unaudited pro forma consolidated financial statements
of the Company and recently-acquired companies, if any,
contained in the Prospectus or any amendment thereof or
supplement thereto, were not properly compiled in accordance
with generally accepted accounting principles or did not
provide for all adjustments necessary for a fair presentation
of the information purported to be shown thereby; or
(4) with respect to the period subsequent to March 30, 1996,
there were, at a specified date, not more than five (5)
business days prior to the date of the letter, any changes or
any material increases or decreases in capital stock,
long-term or short-term debt or shareholders' equity,
decreases in net assets, net current assets, or net worth or
any material decrease, as compared with the corresponding
period of the prior year, in revenues or net income of the
Company as compared with the amounts shown in the
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consolidated balance sheet included in the Registration
Statement, except as disclosed or referred to in the
Prospectus and Registration Statement.
(iii) Certain information set forth on the cover of the Prospectus
and in the Prospectus under the headings "Prospectus Summary"
(including the subheading "Summary Financial Data"), "Risk
Factors," "Use of Proceeds," "Capitalization," "Dilution,"
"Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business,"
"Management," "Certain Transactions," "Principal and Selling
Shareholders," "Description of Capital Stock" and "Shares Eligible
for Future Sale" and that are expressed in dollars (or percentages
derived from dollar amounts) or numbers have been compared to
accounting records of the Company which were subject to the
internal accounting controls of the Company and are in agreement
with such records or computations made therefrom, excluding any
questions of legal interpretation.
(h) The Underwriters shall have received from Deloitte & Touche LLP a
letter dated as of each Closing Date to the effect that such accountants
reaffirm, as of such Closing Date, and as though made on such Closing
Date, the statements made in the letter furnished by such accountants
pursuant to Section 5(g), except that the specified date referred to in
such letter will be a date not more than five (5) business days prior to
such Closing Date.
(i) The Underwriters shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing
Date, of the principal executive officer and the principal financial or
accounting officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of such 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, such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the
qualification of the Shares for offering or sale has been issued,
and no proceedings for that purpose has been instituted or, to the
best of their knowledge, is contemplated by the SEC or any state or
regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus and any amendments
thereof or supplements thereto, and (A) such documents contain all
statements and information required to be included therein; the
Registration Statement, or any amendment thereof, does not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading; and the Prospectus, as
amended or supplemented, does not include any untrue statement of
material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which
they were made,
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not misleading; (B) since the Effective Date of the Registration
Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set
forth; (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not incurred any material liabilities
or material obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business
consistent with past practice, or declared or paid any dividends or
made any distribution of any kind with respect to its capital
stock, and except as disclosed in the Prospectus, there has not
been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of
shares upon the exercise of outstanding options or warrants or
pursuant to employee benefit plans described to in the Registration
Statement), or any material increase in the short-term debt or
long-term debt, or in the issuance of options, warrants,
convertible securities or other rights to purchase the capital
stock, of the Company, or any material adverse change or any
development involving a prospective material adverse change
(whether or not arising in the ordinary course of business) in the
general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations
of the Company, and (D) except as stated in the Registration
Statement and Prospectus, there is not pending or, to their
knowledge, threatened or contemplated, any action, suit or
proceeding to which the Company is a party before or by any court
or governmental agency, authority or body, or any arbitrator, which
might result in any material adverse change of the condition,
(financial or otherwise), business, prospects, or results of
operations of the Company.
(j) On each Closing Date, there shall have been furnished to you a
certificate of Secretary of the Company, dated as of such Closing Date,
with the documents listed herein attached, and to the effect and
certifying as follows:
(i) Attached thereto are true and correct copies of the articles
of incorporation of the Company, as amended to the date of the
certificate, and stating that there have been no changes or
amendments to the attached articles of incorporation of the
Company, and no resolutions have been adopted by the Board of
Directors or shareholders of the Company relating to (A) the
amendment of said articles of incorporation, (B) the merger,
consolidation or dissolution of the Company, or (C) the sale of
all or substantially all of the assets or business of the Company,
and that the Company is in good standing in the State of Minnesota
and has paid all of its corporate franchise taxes due as of the
date of such certificate.
(ii) Attached thereto is a true and correct copy of the bylaws of
the Company as in effect as of the date of such certificate and no
resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to changes or amendments to
the attached Bylaws.
(iii) Attached thereto are true and correct copies of the
resolutions of the Board of Directors of the Company relating to
the preparation and signing of the
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Registration Statement and this Agreement, the issuance and sale of
the Shares and other related matters, and such resolutions have not
been amended, modified or rescinded and are in full force and
effect as of the date of such certificate and are the only
resolutions adopted by the Board of Directors of the Company with
respect to the offering contemplated by the Registration Statement.
(iv) Attached thereto are true and correct copies of all material
correspondence with respect to the Registration Statement and
Prospectus and related matters between the Company, its counsel,
Deloitte & Touche LLP and the SEC.
(v) This Agreement, as executed and delivered by the Company, is
in the form presented to and approved by officers authorized to do
so by the Board of Directors of the Company.
(vi) Attached thereto is a specimen of the certificate for the
Common Stock in the form authorized and approved for use by the
Board of Directors of the Company.
(vii) The persons who have signed the Registration Statement and
all amendments thereto were duly elected at the respective times of
such signing and duly acting as officers and directors of the
Company or as an attorney-in-fact therefor, as set forth in the
Registration Statement.
(k) The Underwriters shall have received from each of the officers and
directors of the Company a written agreement in the form of Appendix A
hereto whereby each such person agrees that during the Lock-up Period
such person will not, without the Representative's prior written
consent, effect the Disposition of any Securities now owned or hereafter
acquired directly or indirectly by such person other than by gift to
donees who agree to be bound by the same restriction or by will or the
laws of descent.
(l) On each Closing Date, there shall have been furnished to the
Representative a certificate or certificates, dated as of such Closing
Date, signed by each of the Selling Shareholders or either of the
Attorneys, to the effect that the representations and warranties of such
Selling Shareholder contained in this Agreement are true and correct as
if made as of such Closing Date and that such Selling Shareholder has
complied with all the agreements and satisfied all the conditions on
such Selling Shareholder's part to be performed or satisfied at or prior
to such Closing Date.
(m) The Common Stock of the Company shall be included and quoted on the
Nasdaq National Market.
(n) Lindquist & Vennum P.L.L.P. shall deliver to the Representative a
Blue Sky Memorandum reasonably satisfactory to the Representative
confirming that all requisite actions for the offer and sale of the
Shares in all jurisdictions requested by the Representative have been
taken.
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(o) The Company shall have furnished to the Representative and to
Underwriters' Counsel such additional certificates, documents and
evidence as the Representative shall reasonably request.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Representative and Underwriters' Counsel. All statements
contained in any certificate, letter or other document delivered pursuant
hereto by, or on behalf of, the Company shall be deemed to constitute
representations and warranties of the Company.
The Representative may waive in writing the performance of any one or
more of the conditions specified in this Section 5 or extend the time for
their performance.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled and if the
fulfillment of said condition has not been waived by the Representative, this
Agreement and all obligations of the Underwriters hereunder may be canceled
at, or at any time prior to, each Closing Date by the Representative on
behalf of the Underwriters. Any such cancellation shall be without liability
of the Underwriters to the Company and shall not relieve the Company of its
obligations under Section 4(a) hereof. Notice of such cancellation shall be
given to the Company at the address specified in Section 12 hereof in
writing, or by telegraph or telephone confirmed in writing.
6. REPRESENTATIVE'S WARRANTS. In consideration of the agreement of the
Representative to act as an Underwriter and as Representative of the
Underwriters, and upon payment of a purchase price of $______, on the First
Closing Date the Company will issue and deliver to the Representative, for
its account, the Representative's Warrants to purchase Shares in an amount
equal to ten percent (10%) of the number of Firm Shares sold by the Company
and purchased by the Underwriters in the offering. Such Warrants shall be
issued on the First Closing Date and shall be dated as of the Effective Date.
The Representative's Warrants shall be exercisable commencing one year after
the Effective Date for a period of four years thereafter at a price equal to
120% of the Price to Public per Share set forth on the cover page of the
Prospectus. As to other terms, the Representative's Warrants shall be in
form and substance substantially the same as Appendix B hereto. The Company
represents and warrants that the Representative's Warrants have been duly
authorized and, when granted and delivered in accordance wit the terms
hereof, will be valid, binding and enforceable obligations of the Company;
the securities issuable upon exercise of the Representative's Warrants have
been duly authorized and reserved for issuance upon exercise; and upon
receipt by the Company of the consideration for such securities in accordance
with the terms of the Representative's Warrants, the Warrant Shares shall
have been duly and validly issued, fully paid and nonassessable.
7. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such
Underwriter or each such controlling person may become subject under the
Securities Act, the Exchange Act, the common law or otherwise, insofar
as such losses,
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claims, damages or liabilities (or actions in respect thereof) arise out
of, or are based upon, (i) any breach of any representation, warranty,
agreement or covenant of the Company contained in this Agreement, (ii)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof or
supplement thereto, or the omission or alleged omission to state in the
Registration Statement or any amendment thereof or supplement thereto a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; (iii) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, if used prior to the Effective
Date of the Registration Statement, or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iv) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify
the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement 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. The Company will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or controlling person in connection with
investigating or defending against any such loss, claim, damage,
liability or action; provided, however, that the Company 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 an untrue statement or
alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information relating to any
Underwriter furnished to the Company by such Underwriter or through you
specifically for use in the preparation of the Registration Statement or
any such post-effective amendment thereof, any such Preliminary
Prospectus, or the Prospectus, or any such amendment thereof or
supplement thereto, or in any application or other statement executed by
the Company or the Underwriters filed in any jurisdiction in order to
qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction; and
provided further that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any
Preliminary Prospectus but eliminated or remedied in the Prospectus,
such indemnity agreement shall not inure to the benefit of an
Underwriter if the person asserting any loss, claim, damage or liability
purchased the Shares from such Underwriter which is the subject thereof
(or to the benefit of any person who controls such Underwriter), if a
copy of the Prospectus was not sent or given to such person with, or
prior to, the written confirmation of the sale of such Shares to such
person. This indemnity agreement is in addition to any liability which
the Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or
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liabilities, joint or several, to which such Underwriter or each
controlling person may become subject under the Securities Act, the
Exchange Act, the common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of, or are based upon, (i) any breach of any representation, warranty,
agreement or covenant of such Selling Shareholder contained in this
Agreement; (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state in the Registration Statement or any amendment thereof or
supplement thereto 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; (iii) any untrue statement
or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, if used prior to the Effective Date of the
Registration Statement, or in the Prospectus (as amended or as
supplemented, if the Company shall have filed with SEC any amendment
thereof or supplement thereto), or the omission or alleged omission to
state therein the material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iv) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares
or the sale thereof from qualification under, the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement 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; in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
the Company by the Selling Shareholder specifically for use in the
preparation of the Registration Statement or any such post-effective
amendment thereof, any such Preliminary Prospectus, or the Prospectus or
any such amendment thereof or supplement thereto, or in any application
or other statement executed by the Company and filed in any
jurisdiction. Each Selling Shareholder will reimburse each Underwriter
and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter or controlling person in
connection with investigating or defending against any such loss, claim,
damage, liability or action; provided, however, that each Selling
Shareholder 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 an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written
information relating to any Underwriter furnished by such Underwriter or
through you specifically for use in the preparation of the Registration
Statement or any such post-effective amendment thereof, any such
Preliminary Prospectus, or the Prospectus, or any such amendment thereof
or supplement thereto or in any application or other statement executed
by the Company or the Underwriters filed in any jurisdiction in order to
qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction; and
provided further that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in any
Preliminary Prospectus but eliminated or remedied in the Prospectus,
such indemnity
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agreement shall not inure to the benefit of an Underwriter if the person
asserting any loss, claim, damage or liability purchase the Shares from
such Underwriter which is the subject thereof (or to the benefit of any
person who controls such Underwriter), if a copy of the Prospectus was
not sent or given to such person with, or prior to, the written
confirmation of the sale of such Shares to such person. The
indemnification liability of Deluxe hereunder shall be limited to an
amount equal to the purchase price per Share set forth in Section 2(a)
multiplied by the number of Shares sold by Deluxe pursuant to this
Agreement. This indemnity agreement is in addition to any liability
which each Selling Shareholder may otherwise have.
(c) Each Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the
Registration Statement, and each person who controls the Company within
the meaning of Section 15 of the Securities Act, and each Selling
Shareholder, against any losses, claims, damages or liabilities to which
the Company or any such director, officer or controlling person or
Selling Shareholder may become subject under the Securities Act, the
Exchange Act, the common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of, or are based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state in the Registration Statement or any amendment thereof
or supplement thereto, a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, if used prior to the Effective Date of the
Registration Statement, or in the Prospectus (as amended or as
supplemented, if the Company shall have filed with the SEC any amendment
thereof or supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; or (iii) any untrue
statement or alleged untrue statement of a material fact contained in
any application or other statement executed by the Company or by the
Underwriters and filed in any jurisdiction in order to qualify the
Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement 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; in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by, or on behalf of,
the Underwriters specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any
such Preliminary Prospectus, or the Prospectus or any such amendment
thereof or supplement thereto, or in any application or other statement
executed by the Company or by the Underwriters and filed in any
jurisdiction; and the Underwriters will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, or controlling person or the Selling Shareholders in connection
with investigating or defending against any such loss, claim, damage,
liability or action. This indemnity agreement is in addition to any
liability which the Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party
shall, if a claim in respect
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thereof is to be made against any indemnifying party under this Section
7, notify in writing the indemnifying party of the commencement thereof.
The omission so to notify the indemnifying party will relieve it from
any liability under this Section 7 as to the particular item for which
indemnification is then being sought, but not from any other liability
which it may have to any indemnified party. In case any such action is
brought against any indemnified party, and the indemnified party
notifies an 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 counsel who
shall be reasonably satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party, and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the fees and
expenses of such separate counsel shall be borne by the indemnifying
party. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
8. CONTRIBUTION.
(a) In order to provide for just and equitable contribution in any
action in which the Underwriters or the Company (or any person who
controls the Underwriters or the Company within the meaning of Section
15 of the Securities Act) or the Selling Shareholders makes claim for
indemnification pursuant to Section 7 hereof, but such indemnification
is unavailable or insufficient to hold harmless and indemnify a party
under Section 7, 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 referred to in Section 7 above
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one
hand and the Underwriters on the other from the offering of the Shares
hereunder 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 such clause (i)
but also the relative fault of the Company and the Selling Shareholders
on the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before the deducting expenses) received by the
Company and Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each
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case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material or the
omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Shareholders or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement
or omission. The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant
to this Section 8 were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the
equitable considerations referred to in the first sentence of this
Section 8. 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 Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the
subject of this Section 8. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission; and Deluxe shall not
be required to contribute any amount in excess of the amount equal to the
purchase price per share set forth in Section 2(a) multiplied by the
number of Shares sold by Deluxe pursuant to this Agreement. 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 is not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8 to contribute are several in
proportion to the respective underwriting obligations and not joint.
(b) Promptly after receipt by a party to this Agreement of notice of
the commencement of any action, suit or proceeding, such person will, if
a claim for contribution in respect thereof is to be made against
another party (the "Contributing Party"), notify the Contributing Party
of the commencement thereof; but the omission so to notify the
Contributing Party will not relieve the Contributing Party from any
liability which it may have to any party other than under this Section
8. Any notice given pursuant to Section 7 hereof shall be deemed to be
like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party
of the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at immediately after the time
at which the Registration Statement shall become effective under the
Securities Act upon the Effective Date of the Registration Statement.
(b) Until the First Closing Date, this Agreement may be terminated by
the Representative on behalf of the Underwriters, at its option, by
giving notice to the Company, and the option referred to in Section
2(b), if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused, or
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<PAGE>
been unable, at or prior to such Closing Date, to perform any agreement
on its part to be performed hereunder, (ii) any other condition of the
Underwriters' obligations hereunder is not fulfilled or waived by the
Representative, (iii) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or in the over-the-counter
market shall have been suspended, (iv) minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for
securities shall be required, on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market, by such
Exchange or by Nasdaq or by order of the SEC or any other governmental
authority having jurisdiction, (v) a banking moratorium shall have been
declared by federal, New York, or Minnesota authorities, (vi) there
shall have been such a serious, unusual and material change in general
economic, monetary, political or financial conditions, or the effect of
international conditions on the financial markets in the United States
shall be such as, in the judgment of the Representative, makes it
inadvisable to proceed with the delivery of the Shares, (vii) the
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 judgment of the Representative,
materially and adversely affects or will materially and adversely affect
the business or operations of the Company, or (viii) there shall be a
material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the United
States and any foreign power, or a formal declaration of war by the
United States of America shall have occurred. Any such termination
shall be without liability of any party to any other party, except as
provided in Sections 7 and 8 hereof; provided, however, that the Company
shall remain obligated to pay costs and expenses to the extent provided
in Section 4 hereof.
(c) If the Representative elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 9, it shall notify the Company and the Attorneys promptly by
telegram or telephone, confirmed by letter sent to the address specified
in Section 12 hereof. If the Company shall elect to prevent this
Agreement from becoming effective, it shall notify the Underwriters and
the Attorneys promptly by telegram or telephone, confirmed by letter
sent to the addresses specified in Section 12 hereof.
10. DEFAULT BY ONE OR MORE OF THE SELLING SHAREHOLDERS OR THE COMPANY. If
one or more of the Selling Shareholders shall fail at either Closing Date to
sell and deliver the number of Shares which such Selling Shareholder or
Selling Shareholders are obligated to sell hereunder, and the remaining
Selling Shareholders do not exercise the right hereby granted to increase,
pro rata or otherwise, the number of Shares to be sold by them hereunder to
the total number of Shares to be sold by all Selling Shareholders as set
forth in Schedule I, then the Underwriters may, at the Representative's
option, by notice from the Representative to the Company and the
non-defaulting Selling Shareholders, either (i) terminate this Agreement
without any liability on the part of any non-defaulting party or (ii) elect
to purchase the Shares which the Company and the non-defaulting Selling
Shareholders have agreed to sell hereunder.
In the event of a default by any Selling Shareholder as referred to in
this Section, either the Representative or the Company or, by joint action
only, the non-defaulting Selling Shareholders, shall have the right to
postpone either Closing Date for a period not exceeding
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<PAGE>
seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.
If the Company shall fail at the First Closing Date to sell and deliver
the number of Shares which it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the Company or any
Selling Shareholders so defaulting from liability, if any, in respect of such
default.
11. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company, the Selling Shareholders and the Underwriters contained in Sections
7 and 8; the respective representations and warranties of the Company and the
Selling Shareholders set forth in Section 1 hereof; and the respective
covenants and agreements of the Company and the Selling Shareholders set
forth in Section 3 hereof, shall remain operative and in full force and
effect, regardless of any investigation made by, or on behalf of, the
Underwriters, the Company, any of its officers and directors, or any
controlling person referred to in Sections 7 and 8, or the Selling
Shareholders, and shall survive the delivery of and payment for the Shares.
The aforesaid indemnity and contribution agreements shall also survive any
termination or cancellation of this Agreement. Any successor of any party or
of any such controlling person, or any legal representative of such
controlling person, as the case may be, shall be entitled to the benefit of
the respective indemnity and contribution agreements.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telegraphed, and confirmed, as follows:
If to the Representative or
the Underwriters, to: R. J. Steichen & Company
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Mr. Patrick M. Sidders
with a copy to: Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Michele D. Vaillancourt, Esq.
If to the Company, to: Printware, Inc.
1270 Eagan Industrial Road
St. Paul, Minnesota 55121
Attention: Daniel A. Baker, Ph.D.
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<PAGE>
with a copy to: Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attention: Richard D. McNeil, Esq.
If to the Selling Shareholders, to: Daniel A. Baker, Ph.D.
Thomas W. Petschauer
Printware, Inc.
1270 Eagan Industrial Road
St. Paul, Minnesota 55121
13. INFORMATION FURNISHED BY THE UNDERWRITERS AND DELUXE. The statements
relating to the stabilization activities of the Underwriters and the
statements under the caption "Underwriting" in any Preliminary Prospectus and
in the Prospectus constitute the written information furnished by, or on
behalf of, the Underwriters specifically for use with reference to the
Underwriters referred to in Section 1(a)(ii) and Sections 7(a) and 7(b)
hereof. The name and address of Deluxe, the statements set forth opposite
the name of Deluxe (other than information related to percentages of
outstanding shares before and after the offering of Shares) in the table
appearing under the caption "Principal and Selling Shareholders" in any
Preliminary Prospectus and in the Prospectus, and the dollar amounts and the
identity of the payors and the payees thereof set forth under the caption
"Certain Transactions" in any Preliminary Prospectus and in the Prospectus,
constitute the written information furnished by, or on behalf of Deluxe
specifically for use with reference to Deluxe referred to in Section 1(b)(ix)
and Section 7(b) hereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Underwriters, the Company, and the Selling
Shareholders and their respective successors and assigns, and the officers,
directors and controlling persons referred to in Sections 7 and 8. Nothing
expressed in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto, their respective
successors and assigns, and the controlling persons, officers and directors
referred to in Sections 7 and 8 any legal or equitable right, remedy or claim
under, or in respect of, this Agreement or any provision herein contained,
this Agreement and all conditions and provisions hereof being intended to be
and being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors, assigns and such
controlling persons, officers and directors, and for the benefit of no other
person or corporation. No purchaser of any Shares from the Underwriters
shall be construed a successor or assign merely by reason of such purchase.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed counterpart of this
Agreement, whereupon it will become a binding agreement among the Company,
the Underwriters and the Selling Shareholders in accordance with its terms.
Very truly yours,
PRINTWARE, INC.
By
----------------------------------
Signature
-------------------------------------
Name Typed or Printed
Its
----------------------------------
Title Typed or Printed
SELLING SHAREHOLDERS named on
Schedule I hereto
By
----------------------------------
Signature of Attorney-in-Fact
for Selling Shareholders
-------------------------------------
Name Typed or Printed
ACCEPTANCE
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us as of
the date first above written.
R. J. STEICHEN & COMPANY
By
----------------------------------
Signature
- -------------------------------------
Name Type or Printed
Its
----------------------------------
Title Typed or Printed
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<PAGE>
SCHEDULE I
Number of
Firm Shares Additional
COMPANY to be Sold Over-Allotment Shares
- ------- ----------- ---------------------
Printware, Inc. 1,200,000 180,000
Selling Shareholders
- --------------------
Deluxe Corporation 274,600 41,190
Donald V. Mager 62,300 9,345
Allen L. Taylor 62,300 9,345
Minnesota Technology, Inc. 800 120
--------- -------
Total ......................... 1,600,000 240,000
--------- -------
--------- -------
<PAGE>
SCHEDULE II
Number of
Underwriters Firm Shares (1)
- ------------ ---------------
R. J. Steichen & Company, Inc.
---------------
Total ........................................ 1,600,000
---------
---------
- -------------------
(1) The Underwriters may purchase up to an additional 240,000 Option Shares,
to the extent the option described in Section 2(b) of the Agreement is
exercised, in the proportions and in the manner described in the
Agreement.
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<PAGE>
APPENDIX A
FORM OF "LOCK-UP" AGREEMENT FOR
DIRECTORS AND OFFICERS
LOCK-UP AGREEMENT
R. J. STEICHEN & COMPANY
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Re: Printware, Inc.
Ladies and Gentlemen:
The undersigned, a beneficial owner of common stock, no par value (the
"Common Stock") of Printware, Inc. (the "Company"), understands and
acknowledges that the Company has filed with the Securities and Exchange
Commission a Registration Statement on Form S-1 (the "Registration
Statement") for the registration of the offer and sale of 1,600,000 shares of
Common Stock (plus up to an additional 240,000 shares subject to the
Underwriters' over-allotment option) (collectively, the "Shares"). The
undersigned further understands that the Company, as issuer, and R. J.
Steichen & Company, on behalf of the underwriters (collectively, the
"Underwriters") named in Schedule II to that certain proposed underwriting
agreement expected to be entered into in connection with the public offering
of the Shares by the Underwriters (the "Underwriting Agreement"), contemplate
entering into such Underwriting Agreement.
In order to induce the Underwriters to proceed with the public offering,
the undersigned agrees, for the benefit of the Company and the Underwriters,
that should such public offering be effectuated, the undersigned will not,
without the prior written consent of the R. J. Steichen & Company, during the
six (6) months commencing on the effective date of the Registration Statement:
(i) offer to sell, contract to sell, sell, pledge, hypothecate,
transfer or otherwise dispose of, grant any rights with respect to
(collectively, a "Disposition"), any shares of Common Stock of the
Company, and options, warrants and other rights to purchase any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock now owned or hereafter acquired
by the undersigned (collectively, "Securities") or with respect to which
the undersigned has or hereafter acquires the power of Disposition; or
(ii) effect any Disposition of any of the Securities
A-1
<PAGE>
other than by gifts to donees who agree in writing to be bound by the
same restriction, or by will or the laws of descent.
The undersigned hereby agrees to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities
except in compliance with this Agreement.
Dated: ___________, 1996 Very truly yours,
-------------------------------------
Signature
-------------------------------------
Name Typed or Printed
A-2
<PAGE>
APPENDIX B
FORM OF REPRESENTATIVE'S WARRANTS
<PAGE>
PRINTWARE, INC.
COMMON STOCK PURCHASE WARRANT
NO. _____ _______ SHARES
FOR GOOD AND VALUABLE CONSIDERATION, Printware, Inc., a Minnesota
corporation (the "Company"), hereby certifies that R.J. Steichen & Company,
Minneapolis, Minnesota (the "Representative"), or its registered assigns, is
entitled to subscribe for and purchase from the Company at any time or from
time to time after [ONE YEAR FROM EFFECTIVE DATE], to and including
[FIVE YEARS FROM EFFECTIVE DATE], One Hundred Twenty Thousand (120,000) fully
paid and nonassessable shares of the Common Stock of the Company at the
purchase price of $_____ per share [120% OF INITIAL PUBLIC OFFERING PRICE]
(the "Warrant Exercise Price"), subject to adjustment as provided herein.
Reference is made to this Warrant in the Underwriting Agreement dated
___________, 1996 by and between, among others, the Company and the
Representative. As used herein, (i) this warrant and all warrants hereafter
issued in exchange or substitution for this warrant are referred to as the
"Warrants;" (ii) the shares which may be acquired upon exercise of the
Warrants are referred to herein as the "Warrant Shares;" (iii) the term
"Holder" means the Representative, any party who acquires all or a part of
this Warrant as a registered transferee of the Representative, or any record
holder or holders of the Warrant Shares issued upon exercise, whether in
whole or in part, of the Warrant; (iv) the term "Common Stock" means and
includes the Company's presently authorized common stock, no par value,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor; and (v) the term
"Convertible Securities" means any stock or other securities convertible
into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and
conditions, to which each Holder hereof consents and agrees:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock) by written notice of exercise (in the form attached hereto)
delivered to the Company at the principal office of the Company prior to the
expiration of this Warrant and accompanied or preceded by the surrender of
this Warrant along with a check in payment of the Warrant Exercise Price for
the Warrant Shares being acquired upon such exercise.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred (other than by will, pursuant to the
operation of law, or where directed by a court of competent jurisdiction upon
the dissolution or liquidation of a corporate Holder hereof), except to (i) a
person who is both an officer and a shareholder of the Representative, (ii) a
successor in interest to the business of the Representative, (iii) a person
who is both an officer and a shareholder of a successor, or (iv) a person who
is an employee of the Representative or a successor, but only if such
employee is also an officer of the Representative or successor; such transfer
to be by endorsement (by the Holder hereof executing the form of
<PAGE>
assignment attached hereto) and delivery in the same manner as in the case of
a negotiable instrument transferable by endorsement and delivery. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations, nor may any Warrant
Shares issued pursuant to exercise of this Warrant be transferred, except as
provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the
Company at its office for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of
such surrender. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant; provided, however, that if the
Representative shall be such Holder, an agreement of indemnity by such Holder
shall be sufficient for all purposes of this Section 2. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection
with any exchange or replacement. The Company shall pay all expenses, taxes
(other than stock transfer taxes), and other charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
upon exercise of this Warrant shall be and are deemed to be issued to the
Holder as of the close of business on the date on which this Warrant shall
have been surrendered and the payment made for such Warrant Shares as
aforesaid. Subject to the provisions of Section 3(b), the Company shall
deliver or cause to be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the rights represented by this Warrant
shall have been so exercised, certificates for the Warrant Shares so
purchased, and, unless this Warrant has expired, a new Warrant representing
the right to purchase the number of Warrant Shares, if any, with respect to
which this Warrant shall not then have been exercised shall also be delivered
to the Holder within such time.
(b) Notwithstanding the foregoing, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time
as either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar
days from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to
execute such documents and make such representations, warranties, and
agreements as may be reasonably required solely to comply with
-2-
<PAGE>
the exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully
paid, nonassessable and free from all taxes, liens and charges with respect
to the issue thereof. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved for the
purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately
prior to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (A) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (B) the total number of shares of Common Stock outstanding
immediately after such event (including in each case the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted Warrant
Exercise Price per share. An adjustment made pursuant to this subsection
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination, reclassification or
other event. If, as a result of an adjustment made pursuant to this
subsection, the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other capital stock of the Company, the
Board of Directors (whose determination shall be conclusive) shall determine
the allocation of the adjusted Warrant Exercise Price between or among shares
of such classes of capital stock or shares of Common Stock and other capital
stock. All calculations under this subsection shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be. In the event
that at any time as a result of an adjustment made pursuant to this
subsection, the holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive any shares of the Company other than shares
of Common Stock, thereafter the Warrant Exercise Price of such other shares
so receivable upon exercise of any
-3-
<PAGE>
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this subsection.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until
another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in
effect prior to such adjustment) by the Warrant Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the adjusted
Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is
a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), there shall be no adjustment
under Subsection (a) of this Section above but the Holder of each Warrant
then outstanding shall have the right thereafter to convert such Warrant into
the kind and amount of shares of stock and other securities and property
which he would have owned or have been entitled to receive immediately after
such consolidation, merger, statutory exchange, sale, or conveyance had such
Warrant been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale, or conveyance and in any
such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this subsection with respect to
the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this subsection shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this
subsection shall similarly apply to successive consolidations, mergers,
statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall (i) give written notice thereof, by
first-class mail, postage prepaid, within ten (10) calendar days after the
date when the circumstances giving rise to the adjustment occurred, addressed
to the Holder as shown on the books of the Company, which notice shall state
the Warrant Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares of Common Stock purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based;
and (ii) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new Warrant Exercise Price.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
-4-
<PAGE>
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such Holder's
intention to do so, describing briefly the manner of any proposed transfer.
Promptly upon receiving such written notice, the Company shall present copies
thereof to the Company's counsel and to counsel to the original purchaser of
this Warrant. If, in the opinion of each such counsel, the proposed transfer
may be effected without registration or qualification (under any federal or
state securities laws), the Company, as promptly as practicable, shall notify
the Holder of such opinion, whereupon the Holder shall be entitled to
transfer this Warrant or to dispose of Warrant Shares received upon the
previous exercise of this Warrant, all in accordance with the terms of the
notice delivered by the Holder to the Company; provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares describing restrictions upon transfer thereof necessary or advisable
in the opinion of counsel and satisfactory to the Company to prevent further
transfers which would be in violation of Section 5 of the Securities Act of
1933, as amended (the "Securities Act") and applicable state securities laws;
and provided further that the prospective transferee or purchaser shall
execute such documents and make such representations, warranties, and
agreements as may be required solely to comply with the exemptions relied
upon by the Company for the transfer or disposition of the Warrant or Warrant
Shares.
(b) If, in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section
7 may not be effected without registration or qualification of this Warrant
or such Warrant Shares, the Company shall promptly give written notice
thereof to the Holder, and the Holder will limit its activities in respect to
such transfer or disposition as, in the opinion of both such counsel, are
permitted by law.
(c) Until this Warrant is duly transferred on the books of the
Company, the Company shall treat the registered Holder of this Warrant as
absolute owner hereof for all purposes without being affected by any notice
to the Company.
8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for
the provisions of this Section, be entitled under the terms hereof to receive
a fractional share, the Company shall, upon the exercise of this Warrant for
the largest number of whole shares then called for, pay a sum in cash equal
to the sum of (a) the excess, if any, of the "Fair Market Value" (as defined
in Section 10(d) hereof) of such fractional share over the proportional part
of the Warrant Exercise Price represented by such fractional share, plus (b)
the proportional part of the Warrant Exercise Price represented by such
fractional share.
9. REGISTRATION RIGHTS.
(a) The Company agrees that, if at any time (but on a one-time
basis only) during the period commencing one year from the date of this
Warrant and ending five (5) years from [DATE OF EFFECTIVENESS], and provided
that a Registration Statement on Form S-3
-5-
<PAGE>
(or its equivalent) is then available to the Company, the Holder of this
Warrant and/or the Holders of any other Warrants and/or Warrant Shares who
collectively shall hold not less than 50% of the Warrants and/or Warrant
Shares outstanding at such time and not previously sold pursuant to this
Section 9, shall request that the Company file a registration statement
covering all or any part of the Warrant Shares:
(i) the Company will promptly notify the Holder and all other
registered Holders, if any, of other Warrants and/or Warrant Shares that
such registration statement will be filed and that the Warrant Shares
which are then held and/or which may be acquired upon the exercise of the
Warrants by the Holder and such other Holders will be included in such
registration statement at the Holder's and such Holders' request; and
(ii) the Company will cause such registration statement to
include all Warrant Shares which it has been so requested to include, will
take all necessary steps to register or qualify such Warrant Shares under
the Securities Act and the securities laws of such states as the holders
may reasonably request, and will use its best efforts to cause such
registration statement and qualifications to become effective as soon as
practicable.
The Company shall keep effective and maintain any registration,
qualification, notification, or approval specified in this Section 9(a) for
such period as may be reasonably necessary for such Holder or Holders of such
Warrant Shares to dispose thereof and from time to time shall amend or
supplement the prospectus used in connection therewith to the extent
necessary in order to comply with applicable law; provided, that the Company
need not maintain the effectiveness of any such registration, qualification,
notification or approval, whether or not at the request of the Holders, more
than nine (9) months following the effective date thereof.
(b) The Company agrees that, if at any time and from time to time
during the period commencing one year from the date of this Warrant and
ending two (2) years after complete exercise of this Warrant (but not more
than seven (7) years from the date of this Warrant), the Company proposes to
file a registration statement under the Securities Act (other than a Form S-4
or Form S-8 Registration Statement or any successor forms thereto) or qualify
for a public distribution under Section 3(b) of the Securities Act, any of
its securities in connection with the proposed offer of such securities by
the Company or any of its shareholders:
(i) the Company will promptly notify the Holder and all other
registered Holders, if any, of other Warrants and/or Warrant Shares, at
least thirty (30) days prior to each such filing, that it intends to file
such registration statement or effect such qualification, and that the
Warrant Shares which are then held and/or which may be acquired upon the
exercise of the Warrants by the Holder and such other Holders will be
included in such registration statement or qualification at the Holder's
and such Holders' request; and
(ii) the Company will use its best efforts to cause such
registration statement or qualification to include all Warrant Shares
which it has been so requested to include; provided, however, that if a
greater number of Warrant Shares is offered for participation in the
proposed offering than in the reasonable opinion of the managing
underwriter of the proposed offering can be accommodated without adversely
affecting
-6-
<PAGE>
the proposed offering, then the amount of Warrant Shares proposed to be
offered by such Holders for registration, as well as the number of
securities of any other selling shareholders participating in the
registration, shall be excluded or proportionately reduced to a number
deemed satisfactory by the managing underwriter.
The Holder and such other Holders may request that their Warrant Shares be
included in such registration statement or qualification by making written
request to the Company specifying the number of Warrant Shares to be so
included. Such request shall be made within twenty (20) days after receipt
from the Company of notice of such intended registration or qualification.
(c) With respect to each inclusion of securities in a registration
or qualification pursuant to this Section 9, the Company shall bear all fees,
costs, and expenses thereof, including, without limitation, all filing fees,
fees imposed by the National Association of Securities Dealers, Inc.,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company is required to bear such fees
and disbursements), all internal expenses, the premiums and other costs of
policies of insurance against liability arising out of the public offering,
and legal fees and disbursements and other expenses of complying with state
securities laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of special counsel
and accountants for the selling Holders, underwriting discounts and
commissions, and transfer taxes for selling Holders shall be borne by the
selling Holders.
(d) The Company will furnish the Holders whose Warrant Shares are
included in a registration or qualification pursuant to this Section 9 with a
reasonable number of copies of any prospectus and/or other offering materials
included in such filings and will amend or supplement the same as required
during the period of required use thereof. In connection with any
registration filed or qualification made pursuant to this Section 9 in which
Warrant Shares are included, and to the extent permissible under the
Securities Act and controlling precedent thereunder, the Company and each
Holder whose Warrant Shares are so included in such registration or
qualification shall provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each in connection therewith.
(e) Each Holder of Warrant Shares included in a registration or
qualification pursuant to this Section 9 agrees to cooperate with the Company
in the preparation and filing of any such registration statement or other
offering materials and in the furnishing of information concerning the Holder
for inclusion therein, or in any efforts by the Company to establish that the
proposed sale is exempt under the Securities Act as to any proposed
distribution.
10. RIGHT TO CONVERT.
(a) The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right"), at any time after
one year from the date of this Warrant and prior to its expiration, into
shares of Common Stock as provided for in this Section 10. Upon exercise of
the Conversion Right by the Holder, the Company shall deliver to the Holder
(without payment by the Holder of any exercise price) that number of shares
of Common Stock equal to the quotient obtained by dividing (x) the value of
the Warrant at the time the
-7-
<PAGE>
Conversion Right is exercised (determined by subtracting the aggregate
Warrant Exercise Price for the Warrant Shares in effect immediately prior to
the exercise of the Conversion Right from the aggregate "Fair Market Value"
(as determined below) for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one share
of Common Stock immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any
time or from time to time, prior to its expiration, on any business day, by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company exercising the Conversion Right an specifying (i) the
total number of shares of Common Stock the Holder will purchase pursuant to
such conversion, and (ii) a place, and a date not less than five (5) nor more
than twenty (20) business days from the date of the Conversion Notice, for
the closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant, (ii) the Company will deliver or cause to be delivered
to the Holder a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with cash, in lieu of
any fraction of a share, and (iii) the Company will deliver to the Holder a
new Warrant representing the number of shares of Common Stock, if any, with
respect to which the Warrant shall not have been converted.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on The Nasdaq National Market or Nasdaq SmallCap Market, then
the average closing or last sale prices, respectively, reported for the
ten (10) business days immediately preceding the Determination Date.
(ii) If the Company's Common Stock is not traded on an
exchange or on The Nasdaq National Market or SmallCap Market but is traded
in the over-the-counter market, then the average of the closing bid and
asked prices as reported by Metro Data Company, Inc. (or a similar
organization) from quotations by market makers in such Common Stock on the
Minneapolis-St. Paul local over-the-counter market for the
ten (10) business days immediately preceding the Determination Date.
11. MISCELLANEOUS. The Company shall not, by amendment of its articles
of incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act or deed, avoid
or seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by the
Company, but will, at all times in good faith, assist, insofar as it is able,
in the carrying out of all provisions hereof and in the taking of all other
action which may be necessary in order to protect the rights of the Holders
against dilution.
Upon written request of the Holder of this Warrant, the Company will
promptly provide such Holder with a then current written list of the names
and addresses of all Holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
-8-
<PAGE>
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. This Warrant shall be interpreted
under the laws of the State of Minnesota.
IN WITNESS WHEREOF, Printware, Inc. has caused this Warrant to be
signed by its duly authorized officer and to be dated ___________, 1996.
PRINTWARE, INC.
By________________________________
Signature
__________________________________
Name Typed or Printed
Its_______________________________
Title Typed or Printed
MPLS:78347-2
-9-
<PAGE>
NOTICE OF EXERCISE OF WARRANT
(To be signed upon the exercise of the Warrant for cash or by check)
The undersigned hereby irrevocably elects to exercise the attached
Warrant and to purchase thereunder, for cash, ________________ of the shares
of Common Stock of Printware, Inc. issuable upon the exercise of such
Warrant, herewith makes payment of $___________ therefor in cash or by check,
and requests that certificates for such shares (together with a new Warrant
to purchase the number of shares, if any, with respect to which this Warrant
is not exercised) be issued in the name set forth below and be delivered to
the address set forth below.
Dated: ________________
_______________________________________
(Signature)
_______________________________________
(Name Typed or Printed)
_______________________________________
(Address)
_______________________________________
(Social Security or Tax Ident. No.)
* The signature on the Notice of Exercise of Warrant must exactly correspond
to the name as written upon the face of the Warrant in every particular
without alteration or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
-10-
<PAGE>
NOTICE OF WARRANT CONVERSION
(To be signed only upon conversion of warrant)
The undersigned hereby irrevocably elects to exercise the conversion
right provided in Section 10 of the attached Warrant and to purchase
thereunder _____________ Shares of the Common Stock of Printware, Inc. to
which such Warrant relates and herewith tenders the Warrant in full payment
of the shares and requests that the certificates for such shares be issued in
the name of, and be delivered to _________________________, whose address is
set forth below the signature of the undersigned.
Dated: ________________
_______________________________________
(Signature)
_______________________________________
(Name Typed or Printed)
_______________________________________
_______________________________________
(Address)
* The signature on the Assignment of Warrant must exactly correspond to the
name as written upon the face of the Warrant in every particular without
alteration or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
-11-
<PAGE>
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase _______________
shares of the Common Stock of Printware, Inc. to which the within Warrant
relates and appoints _________________________________, as attorney-in-fact,
to transfer said right on the books of Printware, Inc. with full power of
substitution in the premises.
Dated: ________________
_______________________________________
(Signature)
_______________________________________
(Name Typed or Printed)
_______________________________________
(Address)
_______________________________________
(Social Security or Tax Ident. No.)
* The signature on the Assignment of Warrant must exactly correspond to the
name as written upon the face of the Warrant in every particular without
alteration or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
-12-
<PAGE>
RESTRICTION ON TRANSFER
The security evidenced hereby has not been registered under the
Securities Act of 1933 or any state securities laws and may not be sold,
transferred, assigned, offered, pledged or otherwise distributed for value
unless there is an effective registration statement under such act or laws
covering such security or the company receives an opinion of counsel for the
Company stating that such sale, transfer, assignment, pledge or distribution
is exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 and all applicable state securities laws.
-13-
<PAGE>
EXHIBIT 1.2
1,600,000 Shares(1)
PRINTWARE, INC.
Common Stock
SELECTED DEALERS' AGREEMENT
Gentlemen:
1. R.J. Steichen & Company and the other Underwriters named in the
Prospectus referred to below (the "Underwriters"), acting through us as
Representative, have severally agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the Prospectus
(the "Underwriting Agreement"), from Printware, Inc., a Minnesota corporation
(the "Company"), and certain selling shareholders of the Company named in the
Underwriting Agreement (the "Selling Shareholders"), an aggregate of 1,600,000
shares (the "Firm Shares") of the Company's common stock, no par value
("Common Stock"). Of the Firm Shares, 1,200,000 Firm Shares are to be
sold by the Company and 400,000 Firm Shares are to be sold by the Selling
Shareholders. In addition, the several Underwriters have been granted an option
to purchase from the Company and the Selling Shareholders up to an aggregate of
an additional 240,000 shares of Common Stock (the "Option Shares") to cover
overallotments in connection with the sale of the Firm Shares. The Firm Shares
and the Option Shares are hereinafter collectively called the "Shares." The
Shares and the terms upon which they are to be offered for sale by the several
Underwriters are more particularly described in the enclosed Prospectus.
2. The Shares are to be offered to the public by the several Underwriters
at a price of $_______ per share (hereinafter called the "Public Offering
Price") and in accordance with the terms of offering set forth in the
Prospectus.
3. Subject to the terms and conditions hereof, some or all of the several
Underwriters are severally offering a portion of the Shares for sale to (i)
certain dealers which are members of the National Association of Shares Dealers,
Inc. (the "NASD") and which agree to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation with respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice, and (ii) foreign dealers or institutions ineligible for
membership in the NASD which agree (x) not to resell the Shares (A) to
purchasers in, or to persons who are nationals or residents of, the United
States of America, or (B) when there is a public demand for the Shares, to
persons specified as those to whom members of the NASD participating in a
distribution may not sell, and (y) to comply, as though such foreign dealer or
institution were a member of the NASD, with such Interpretation with respect to
Free-Riding and Withholding and with Sections 8, 24, 25 (as such Section applies
to foreign non-members) and 36 of such Rules of Fair Practice (such dealers and
institutions agreeing to purchase Shares hereunder being hereinafter referred to
as "Selected Dealers") at the Pubic Offering Price less a selling
________________________
(1) Plus an option to purchase up to 240,000 additional shares to cover
over-allotments.
<PAGE>
concession of $________ per share, payable as hereinafter provided, out of which
concession an amount not exceeding $______ per share may be reallowed by
Selected Dealers to members of the NASD or to foreign dealers or institutions
ineligible for membership therein which agree as aforesaid. This offering is
made subject to delivery of the Shares and their acceptance by us, to the
approval of all legal matters by counsel and to the terms and conditions herein
set forth. Some or all of the Underwriters may be included among the Selected
Dealers. Each of the Underwriters has agreed that, during the term of this
Agreement, it will be governed by the terms and conditions hereof whether or not
such Underwriter is included among the Selected Dealers.
4. We, acting as Representative, and with our consent, any Underwriter,
may buy Shares from, or sell Shares to, any Selected Dealer, or any other
Underwriter, and any Selected Dealer may buy Shares from, or sell Shares to, any
other Selected Dealer or any Underwriter at the Public Offering Price less all
or any part of the concession. We, acting as Representatives, after the initial
public offering, may change the concession and the reallowance.
5. If, prior to the termination of this Agreement, we purchase or
contract to purchase, in the open market or otherwise, for the account of any
Underwriter, any Shares purchased by you hereunder, you agree to pay us on
demand for the accounts of the several Underwriters an amount equal to the
concession on such Shares. In addition, we may charge you with any transfer
taxes and broker's commissions or dealer's mark-up paid in connection with such
purchase or contract to purchase.
6. We shall act on behalf of the Underwriters under this Agreement and
shall have full authority to take such action as we may deem advisable in
respect of all matters pertaining to the public offering of the Shares.
7. If you desire to purchase any of the Shares, your subscription should
reach us promptly by telephone by calling Ms. Vicki Anderson at (612) 341-6276
or by telegraph at the offices of R.J. Steichen & Company, 801 Nicollet Mall,
Suite 1100, Minneapolis, Minnesota 55402, and we will use our best efforts to
fill the same. We reserve the right to reject all subscriptions, in whole or
in part, to make allotments and to close the subscription books at any time
without notice. The Shares allotted to you will be confirmed, subject to the
terms and conditions of this Agreement.
8. The privilege of purchasing the Shares is extended to you only on
behalf of the several Underwriters, if any, that may lawfully sell the Shares to
dealers in your state.
9. Any of the Shares purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of the
offering thereof set forth herein and in the Prospectus, subject to the
securities laws of the various states. Neither you nor any other person is or
has been authorized to give any information or to make any representations in
connection with the sale of the Shares other than as contained in the
Prospectus.
10. This Agreement will terminate when we shall have determined that the
public offering of the Shares has been completed and upon telegraphic notice to
you of such
-2-
<PAGE>
termination, but, if not previously terminated, this Agreement will terminate
at the close of business on the thirtieth (30th) full business day after the
date hereof; provided, however, that we shall have the right to extend this
Agreement for an additional period or periods not exceeding thirty (30) full
business days in the aggregate upon telephonic notice to you. Promptly after
the termination of this Agreement, there shall become payable to you the
selling concession on the number of Shares that you shall have purchased
hereunder and that shall not have been purchased or contracted for (including
certificates issued upon transfer) by us, in the open market or otherwise
(except pursuant to Section 12 hereof), during the term of this Agreement for
account of one or more of the several Underwriters.
11. For the purpose of stabilizing the market in the Common Stock of the
Company, we have been authorized to make purchases and sales thereof, in the
open market or otherwise, and, in arranging for sale of the Shares, to over-
allot.
12. You agree to advise us from time to time upon request, prior to the
termination of this Agreement, of the number of Shares purchased by you
hereunder and remaining unsold at the time of such request, and if, in our
opinion, any such Shares shall be needed to make delivery of the Shares sold or
over-allotted for the account of one or more of the Underwriters, you will,
forthwith upon our request, grant to us for the account or accounts of such
Underwriter or Underwriters the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the Public
Offering Price less the selling concession or such part thereof as we shall
determine, such number of Shares owned by you as shall have been specified in
our request.
13. On becoming a Selected Dealer, and in offering and selling the Shares,
you agree (which agreement shall also be for the benefit of the Selling
Shareholders and the Company) to comply with all applicable requirements of the
Securities Act of 1933, as amended (the "Act"), and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). You confirm that you are familiar
with Rule 15c2-8 under the Exchange Act relating to the distribution of
preliminary and final prospectuses for securities of an issuer and confirm that
you have complied and will comply therewith.
14. Upon request, you will be informed as to the jurisdictions in which we
have been advised that the Shares have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but neither we nor
any of the Underwriters assume any obligation or responsibility as to the right
of any Selected Dealer to sell the Shares in any jurisdiction or as to any sale
therein. You authorize us to file a Further State Notice with respect to the
Shares with the State of New York, if required.
15. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
16. It is expected that public advertisement of the Shares will be made
no sooner than the first day after the effective date of the Registration
Statement or such later date as the initial offering price of the Shares is
determined if the Company elects to rely on Rule 430A under the Act.
Twenty-four (24) hours after such advertisement shall have appeared, but not
before, you will be free to advertise at your own expense, over your own
name, subject to any restriction of local
-3-
<PAGE>
laws, but your advertisement must conform in all respects to the requirements
of the Act, and neither we nor the Underwriters shall be under any obligation
or liability in respect of your advertisement.
17. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Shares to the public or otherwise.
18. We and the several Underwriters shall not be under any liability for
or in respect of the value, validity or form of the Shares, or delivery of the
certificates for the Shares, or the performance by anyone of any agreement on
his part, or the qualification of the Shares for sale under the laws of any
jurisdiction, or for or in respect of any matter connected with this Agreement,
except for lack of good faith and for obligations expressly assumed by use or by
the several Underwriters in this Agreement. The foregoing provisions shall not
be deemed a waiver of any liability imposed under the Act.
19. Payment for the Shares sold to you hereunder is to be made at the
Public Offering Price, on or about ___________________, 1996 or such later date
as we may advise, by certified or official bank check, payable to the order of
R.J. Steichen & Company, in current funds, at such place as we shall specify on
one day's notice to you against delivery of the Shares. Notwithstanding the
foregoing, if actions in the Shares can be settled through the facilities of The
Depository Trust Company, payment for and delivery of Shares purchased by you
hereunder will be made through the facilities of The Depository Trust Company,
if you are a member, unless you have otherwise notified us prior to the date
specified in our telex or telegram to you, or, if you are not a member,
settlement may be made through a correspondent who is a member pursuant to
instructions you may send us prior to such specified date.
20. Notice to us should be addressed to R.J. Steichen & Company, Midwest
Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis, Minnesota 55402. Notices to
you shall be deemed to have been duly given if telegraphed or mailed to you at
the address to which this letter is addressed.
21. If you desire to purchase any of the Shares, please confirm your
subscription by signing and returning to us your confirmation overleaf on the
duplicate copy of this letter enclosed herewith, even though you have previously
advised us thereof by telephone, teletype or telegraph.
Very truly yours,
R.J. STEICHEN & COMPANY
As Representative
By: _______________________________
Managing Director
__________________, 1996
-4-
<PAGE>
CONFIRMATION
R.J. STEICHEN & COMPANY
As Representative
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Dear Sirs:
We hereby agree to purchase __________________ shares of common stock, $.01
par value per share, of Printware, Inc., in accordance with all terms and
conditions stated in the foregoing letter. We hereby acknowledge receipt of the
Prospectus referred to in the first paragraph thereof relating to said Shares.
We further state that in purchasing said Shares we have relied upon said
Prospectus and upon no other statement whatsoever, written or oral. We hereby
confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (a) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (b) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934 who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons who
are nationals thereof or residents therein. We hereby agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice and, if we are a foreign dealer
and not a member of the NASD, we also agree to comply with such Interpretation
with respect to Free-Riding and Withholding and to comply, as though we were a
member of the NASD, with the provisions of Sections 8, 24, 25 (as such Section
applies to foreign non-members) and 36 of Article III of such Rules of Fair
Practice. We confirm that we will not sell any of the Shares to discretionary
accounts.
______________________________________
By: __________________________________
Authorized Representative
Address ______________________________
Dated: _________________, 1996.
MPLS:80186-1
<PAGE>
EXHIBIT 1.3
1,600,000 Shares(1)
PRINTWARE, INC.
Common Stock
AGREEMENT AMONG UNDERWRITERS
R. J. STEICHEN & COMPANY ______________, 1996
As Representative of the several Underwriters
named in Schedule II to Exhibit A annexed hereto
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Dear Sirs:
1. UNDERWRITING AGREEMENT. We understand that an underwriting
agreement (the "Underwriting Agreement") attached hereto as EXHIBIT A with
respect to 1,600,000 shares (the "Firm Shares") of common stock, no par value
("Common Stock"), of Printware, Inc., a Minnesota corporation (the "Company"),
proposed to be sold by the Company and by certain shareholders of
the Company (the "Selling Shareholders") is to be entered into among the
Company, the Selling Shareholders, and you and other prospective underwriters,
including us, acting severally and not jointly. The parties on whose behalf you
execute the Underwriting Agreement are named in Schedule II thereto and are
herein called the "Underwriters." The Underwriting Agreement also provides for
the grant by the Company and the Selling Shareholders to the several
Underwriters of an option, on the terms and conditions set forth therein, to
purchase up to an additional 240,000 shares of Common Stock (the "Option
Shares"). The Firm Shares and any Option Shares purchased pursuant to the
Underwriting Agreement are hereinafter collectively called the "Shares." It is
also understood that changes may be made to those who are to be Underwriters and
to the respective aggregate number of Shares to be purchased by them, but that
the aggregate number of the Shares to be purchased by us as set forth in the
accompanying form of Underwriting Agreement will not be changed without our
consent except as provided herein or in the Underwriting Agreement.
2. REGISTRATION STATEMENT AND PROSPECTUS. As used herein, the terms
"Registration Statement," "Preliminary Prospectus" and "Prospectus" shall have
the meanings ascribed to them in the Underwriting Agreement. You will furnish
to us as soon as possible copies of the Prospectus to be used in connection with
the offering of the Shares. We confirm that, if requested by you as
Representative, we have furnished a copy of any amended Preliminary Prospectus
to each person to whom we have furnished a copy of any previous Preliminary
Prospectus, and we confirm that we have delivered and agree that we will deliver
all Preliminary Prospectuses and Prospectuses and all supplements thereto
required for compliance with the
________________________
(1) Plus an option to purchase up to 240,000 additional shares to cover
over-allotments.
<PAGE>
provisions of Rule 15c2-8 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). We consent to being named in the Prospectus as one of the
Underwriters of the Shares.
3. AUTHORITY AND COMPENSATION. We hereby authorize you, as our
Representative and on our behalf, to enter into the Underwriting Agreement with
the Company in substantially the form attached hereto as EXHIBIT A and to take
such action as you deem advisable in connection with the performance of the
Underwriting Agreement and this Agreement and the purchase, carrying, sale and
distribution of the Shares. You may waive performance or satisfaction by the
Company of other obligations or conditions included in the Underwriting
Agreement if, in your judgment, such waiver will not have a material adverse
effect upon the interests of the Underwriters.
As compensation for your services, we will pay you an amount equal to
$_____ per share with respect to each share of the Shares which we agree to
purchase under the Purchase Agreement, and you may charge our account therefor.
4. PUBLIC OFFERING. In connection with the public offering of the
Shares, we authorize you, in your discretion:
(a) To determine the time of the initial public offering, to
change the public offering price and the concessions and discounts to
dealers after the initial public offering, to furnish the Company with the
information to be included in the Registration Statement or Prospectus with
respect to the terms of offering and to determine all matters relating to
advertising and communications with dealers or others;
(b) To reserve for sale to dealers selected by you ("Selected
Dealers") and to others, all or any part of our Shares, such reservations
for sales to others to be as nearly as practicable in proportion to the
respective underwriting obligations of the Underwriters unless you agree to
a smaller proportion at the request of any Underwriter and, from time to
time, to add to the reserved Shares any Shares retained by us remaining
unsold and to release to us any of our Shares reserved but not sold;
(c) To sell reserved Shares, as nearly as practicable in
proportion to the respective reservations, to Selected Dealers at the
public offering price less the Selected Dealers' concession and to others
at the public offering price; and
(d) To buy Shares for our account from Selected Dealers at the
public offering price less such amount not in excess of the Selected
Dealers' concession as you determine.
We authorize you to determine the form and manner of any communications or
agreements with Selected Dealers. If there shall be any agreements with
Selected Dealers, you are authorized to act as manager thereunder, and we agree
in such event to be governed by the terms and conditions of such agreements.
The form of Selected Dealers' Agreement attached hereto as EXHIBIT B is
satisfactory to us.
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Sales of Shares between Underwriters may be made with your prior consent,
or as you deem advisable for Blue Sky purposes.
After advice from you that the Shares have been released for public
offering, we will offer to the public in conformity with the terms of offering
set forth in the Prospectus such of our Shares as you advise us are not
reserved.
If, prior to the termination of this Agreement, you shall purchase or
contract to purchase, in the open market or otherwise, any Shares sold by us
(otherwise than through you) pursuant to this Agreement, we agree to repurchase
such Shares on demand at a price equal to the total cost of such purchase made
by you as Representative, including commissions, if any, and transfer taxes on
the redelivery. Certificates for the Shares delivered on such repurchase need
not be the identical certificates so purchased by you. In lieu of such action,
you may in your discretion sell for our account the Shares so purchased and
debit or credit our account for the loss or profit resulting from such sale, or
charge our account with an amount not in excess of the Selected Dealers'
concession with respect to such Shares.
5. PAYMENT AND DELIVERY. We authorize you to make payment on our
behalf to the Company of the purchase price of our Shares, to take delivery of
our Shares, registered as you may direct in order to facilitate deliveries, and
to deliver our reserved Shares against sales. At your request, we will pay you
an amount equal to the public offering price, less the selling concession, of
either our Shares or our unreserved Shares as you direct, and such payment will
be directed to our account and applied to the payment of the purchase price.
After you receive payment for reserved Shares sold for our account, you will
remit to us the purchase price (if any) paid by us for such Shares and credit or
debit our account with the difference between the sale price and the purchase
price thereof. You will deliver to us our unreserved Shares promptly, and our
reserved but unsold Shares against payment of the purchase price therefor
(except in the case of Shares for which payment has previously been made), as
soon as practicable after the termination of the provisions referred to in
Section 9 hereof, except that if the aggregate number of reserved but unsold
Shares upon such termination does not exceed 10% of the total number of the
Shares, you may in your discretion sell such reserved but unsold Shares for the
accounts of the several Underwriters as soon as practicable after such
termination, at such prices and in such manner as you determine.
6. AUTHORITY TO BORROW. In connection with the purchase or carrying
of our Shares, we authorize you, in your discretion, to advance your funds for
our account, charging current interest rates, to arrange loans for our account,
and in connection therewith to execute and deliver any notes or other
instruments and to hold or pledge as security any of our Shares. Any lender may
rely upon your instructions in all matters relating to any such loan. Any
Shares held by you for our account may be delivered to us for carrying purposes
and, if so delivered, will be redelivered to you upon demand.
7. STABILIZATION AND OVER-ALLOTMENT. We authorize you, in your
discretion, to make purchases and sales of Shares and of the outstanding shares
of Common Stock, in the open market or otherwise, for long or short account, on
such terms as you deem advisable, and to over-allot in arranging sales. Such
purchases and sales and over-allotments will be made for the accounts of the
Underwriters as nearly as practicable in proportion to their respective
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<PAGE>
underwriting obligations. We authorize you, in your discretion, to cover any
short position incurred pursuant to this Section by purchasing securities on
such terms as you deem advisable. At no time will our net commitment under the
foregoing provisions of this Section exceed 15% of our underwriting obligation.
We will on demand take up at cost any securities so purchased and deliver any
securities so sold or over-allotted for our account, and, if any other
Underwriter defaults in its corresponding obligation, we will assume our
proportionate share of such obligation without relieving the defaulting
Underwriter from liability. Upon request, we will advise you of the Shares
retained by us and unsold and will sell to you for the account of one or more of
the Underwriters such of our unsold Shares at such price, not less than the net
price to Selected Dealers nor more than the public offering price, as you
determine.
If you effect stabilizing purchases pursuant to Section 7 hereof, you will
notify us promptly of the initiation and termination thereof. If stabilization
is effected, we will furnish to you not later than three business days following
the date on which stabilizing was commenced such information as is required by
Rule 17a-2(d) under the Exchange Act.
8. OPEN MARKET TRANSACTIONS. We and you agree not to bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any Shares or outstanding shares of Common Stock, except as brokers pursuant to
unsolicited orders and as otherwise provided in this Agreement.
We represent that we have not participated in any transaction prohibited by
the preceding paragraph and that we have at all times complied with the
provisions of Rule l0b-6 and l0b-6A of the Securities and Exchange Commission as
applicable to the offering of the Shares.
9. TERMINATION. The provisions of the last two paragraphs of
Section 4, the first sentence of Section 7, and all of Section 8 hereof, will
terminate at the close of business on the thirtieth (30th) day after the date of
the initial public offering of the Shares, unless sooner terminated as
hereinafter provided. You may terminate such provisions at any time by notice
to us to the effect that the offering provisions of this Agreement are
terminated.
10. EXPENSES AND SETTLEMENT. You may charge our account with any
transfer taxes on sales made by you of Shares purchased by us under the
Underwriting Agreement and with our proportionate share (based upon our
underwriting obligation) of all other expenses incurred by you under this
Agreement or in connection with the purchase, carrying, sale or distribution of
the Shares. The accounts hereunder will be settled as promptly as practicable
after the termination of the provisions referred to in Section 9 hereof, but you
may reserve such amount as you may deem advisable for additional expenses. Your
determination of the amount to be paid to or by us will be conclusive. You may
at any time make partial distributions of credit balances or call for payment of
debit balances. Any of our funds in your hands may be held with your general
funds without accountability for interest. Notwithstanding any settlement, we
will remain liable for any taxes on transfers for our account, and for our
proportionate share (based upon our underwriting obligation) of all expenses and
liabilities which may be incurred by or for the accounts of the Underwriters.
11. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters
hereunder or under the Underwriting Agreement will not release the other
Underwriters from their obligations
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<PAGE>
or affect the liability of any defaulting Underwriter to the other
Underwriters for damages resulting from such default. If one or more
Underwriters default under the Underwriting Agreement, you may arrange for
the purchase by others, including nondefaulting Underwriters, of Shares not
taken up by the defaulting Underwriter or Underwriters.
12. POSITION OF REPRESENTATIVE. You will be under no liability to us
for any act or omission except for obligations expressly assumed by you herein,
and no obligation on your part will be implied hereby or inferred herefrom. The
rights and liabilities of the Underwriters are several and not joint, and
nothing will constitute the Underwriters a partnership, association or separate
entity.
If for federal income tax purposes the Underwriters should be deemed to
constitute a partnership, then each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1986, as amended. You, as Representative of the several Underwriters, are
authorized, in your discretion, to execute on behalf of the Underwriters such
evidence of such election as may be required by the Internal Revenue Service.
13. INDEMNIFICATION. We will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act of 1933, as amended (the "Act"), or
Section 20(a) of the Exchange Act, and reimburse your and their expenses, to the
extent and upon the terms upon which each Underwriter agrees to indemnity the
Company in the Underwriting Agreement.
14. CONTRIBUTION. Each Underwriter (including you) will pay upon
your request, as contribution, its proportionate share, based upon its
underwriting obligation, of any losses, claims, damages or liabilities, joint or
several, paid or incurred by any Underwriter to any person other than an
Underwriter, arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any related Preliminary
Prospectus, or any other selling or advertising material approved by you for use
by the Underwriters in connection with the sale of the Shares, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading (other than
an untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by an Underwriter specifically for use therein); and will pay such
proportionate share of any legal or other expenses reasonably incurred by you or
with your consent in connection with investigating or defending any such loss,
claim, damage or liability, or any action in respect thereof. In determining the
amount of any Underwriter's obligation under this Section, appropriate
adjustment may be made by you to reflect any amounts received by one or more
Underwriters in respect of such claim from the Company pursuant to Section 6 of
the Underwriting Agreement or otherwise. There shall be credited against any
amount paid or payable by us pursuant to this Section any loss, damage,
liability or expense which is incurred by us as a result of any such claim
asserted against us, and if such loss, claim, damage, liability or expense is
incurred by us subsequent to any payment by us pursuant to this Section,
appropriate provisions shall be made to effect such credit, by refund or
otherwise. If any such claim is asserted, you may take such action in
connection therewith as you deem necessary or desirable, including retention
of counsel for the
-5-
<PAGE>
Underwriters, and in your discretion separate counsel for any
particular Underwriter or group of Underwriters, and the fees and
disbursements of any counsel so retained by you shall be included in the
amount payable pursuant to this Section. In determining amounts payable
pursuant to this Section, any loss, claim, damage, liability or expense
incurred by any person controlling any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act which has been
incurred by reason of such control relationship shall be deemed to have been
incurred by such Underwriter. Any Underwriter may elect to retain at its own
expense its own counsel. You may settle or consent to the settlement of any
such claim, on advice of counsel retained by you, with the approval of a
majority in interest of the Underwriters. Whenever you receive notice of the
assertion of any claim to which the provisions of this Section would be
applicable, you will give prompt notice thereof to each Underwriter. You
will furnish each Underwriter with periodic reports, at such times as you
deem appropriate, as to the status of such claim and the action taken by you
in connection therewith. If any Underwriter or Underwriters default in their
obligation to make any payments under this Section, each nondefaulting
Underwriter shall be obligated to pay its proportionate share of all
defaulted payments, based upon such Underwriter's underwriting obligation as
related to the underwriting obligations of all nondefaulting Underwriters.
15. REPORTS AND BLUE SKY MATTERS. We authorize you to file with the
Securities and Exchange Commission and any other governmental agency any reports
required in connection with any transaction effected by you for our account
pursuant to this Agreement, and we will furnish any information needed for such
reports. You will not have any responsibility with respect to the right of any
Underwriter or other person to sell the Shares in any jurisdiction,
notwithstanding any information you may furnish in that connection.
16. MISCELLANEOUS. Any notice hereunder from you to us or from us to
you shall be deemed to have been duly given when sent by mail, telegram or
delivered in person, if to us, at the address stated in the Underwriters'
Questionnaire or telex constituting Questionnaire which we have furnished in
connection with this offering or, if to you, to R. J. Steichen & Company,
Midwest Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis, Minnesota 55402.
We understand that you are members in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
either (i) a member in good standing of the NASD or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possessions and not registered as a broker or dealer under the Exchange
Act who agrees not to make any sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents therein.
We hereby agree to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation with respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
and, if we are a foreign dealer and not a member of the NASD, to comply with
such Interpretation with respect to Free-Riding and Withholding and the
provisions of Sections 8, 24, 25 (as such Section applies to foreign nonmembers)
and 36 of Article III of such Rules of Fair Practice as though we were a member
of the NASD. In connection with the sales and offers to sell Shares made by us
outside the United States (a) we will either furnish to each person to whom any
such sale or offer is made a copy of the then current Preliminary Prospectus or
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), as the case may be, or
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<PAGE>
inform such person that such Preliminary Prospectus or Prospectus will be
available upon request and (b) we will furnish to each person to whom any
such sale or offer is made such Prospectus, advertisement or other offering
document containing information relating to the Shares or the Company as may
be required under the law of the jurisdiction in which such offer or sale is
made. Any prospectus, advertisement or other offering document furnished by
us to any such person in accordance with the preceding sentence and any such
additional offering material as we may furnish to any person (i) shall comply
in all respects with the law of the jurisdiction in which it is so furnished,
(ii) shall be prepared and so furnished at our sole risk and expense, and
(iii) shall not contain information relating to the Shares or the Company
which is inconsistent in any respect with the information contained in the
then current Preliminary Prospectus or in the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), as the case may be. We confirm that we will not make
sales of the Shares to discretionary accounts.
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective at such time as all the Underwriters
shall have signed such counterparts and you shall have confirmed all such
counterparts.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By: _________________________________________
Attorney-in-fact for the several
Underwriters listed in Schedule II to the
Underwriting Agreement
Confirmed as of the date first above written.
R. J. STEICHEN & COMPANY
As Representative
BY: ___________________________________
Managing Director
MPLS:80181-1
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<PAGE>
Incorporated Under The Laws Of The State of Minnesota
NUMBER SHARES
CUSIP 742580 10 3
SEE REVERSE
FOR CERTAIN DEFINITIONS
PRINTWARE, INC.
AUTHORIZED NUMBER OF SHARES 15,000,000
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF NO PAR VALUE COMMON STOCK OF
PRINTWARE, INC.
subject to the terms referred to on the reverse side of this Certificate,
transferable only on the books of the corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to
be sealed with the facsimile seal of the Company.
Dated:
SECRETARY PRESIDENT
PRINTWARE, INC.
CORPORATE
SEAL
MINNESOTA
COUNTERSIGNED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By _______________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE>
PRINTWARE, INC.
The Corporation will furnish to any shareholder upon request and without
charge a full statement of the designations, preferences, limitations and
relative rights of the shares of each class or series authorized to be
issued, so far as they have been determined, and the authority of the Board
of Directors to determine the relative rights and preference of subsequent
series.
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:
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)
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 ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________ attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated _____________________
______________________________________________________________
______________________________________________________________
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 WHATSOEVER.
Signature(s) Guaranteed:
_________________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 5.1
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402-2205
TELEPHONE (612) 371-3211
FAX: (612) 371-3207
June 18, 1996
Printware, Inc.
1270 Eagan Industrial Road
St. Paul, Minnesota 55121
RE: REGISTRATION STATEMENT ON FORM S-1
FILE NO. 333-03629
Ladies and Gentleman:
In connection with the Registration Statement on Form S-1 filed by
Printware, Inc. (the "Company") with the Securities and Exchange Commission on
May 13, 1996 (File No. 333-03629), as amended to the date hereof, relating to a
public offering of 1,200,000 shares of Common Stock, no par value per share (the
"Common Stock") being offered by the Company and 400,000 shares of Common Stock
being offered by certain Selling Shareholders (plus up to an additional 240,000
shares of Common Stock to be offered if the Underwriters exercise in full their
over-allotment option), please be advised that as counsel to the Company, upon
examination of such corporate documents and records as we have deemed necessary
or advisable for the purposes of this opinion, it is our opinion that:
1. The Company is a validly existing corporation in good standing under the
laws of the State of Minnesota.
2. The shares of Common Stock being offered by the Selling Shareholders
are, and the shares of Common Stock being offered by the Company will be
when issued and paid for as contemplated by the Registration Statement,
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
/s/ LINDQUIST & VENNUM P.L.L.P.
LINDQUIST & VENNUM P.L.L.P.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-3629 of Printware, Inc. (the Company) on Form S-1 of our report dated
February 2, 1996 (April 25, 1996 as to the first paragraph of Note 3), appearing
in the Prospectus, which is part of this Registration Statement. We also consent
to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of the Company, listed in
Item 16(b); this financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 17, 1996
