<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
APPLIED VOICE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1190085
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
11410 N.E. 122ND WAY
KIRKLAND, WASHINGTON 98034
(425) 820-6000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROGER A. FUKAI
CHIEF FINANCIAL OFFICER
11410 N.E. 122ND WAY
KIRKLAND, WASHINGTON 98034
(425) 820-6000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
LINDA A. SCHOEMAKER WILLIAM W. ERICSON
MICHAEL T. PRIOR CRAIG E. SHERMAN
PERKINS COIE VENTURE LAW GROUP
1201 THIRD AVENUE, 40TH FLOOR 4750 CARILLON POINT
SEATTLE, WASHINGTON 98101-3099 KIRKLAND, WASHINGTON 98033
(206) 583-8888 (425) 739-8700
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, 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
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<CAPTION>
==================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
BE REGISTERED REGISTERED(1) PER UNIT (2) (2) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 1,840,000
value per share........ shares $27.50 $50,600,000 $15,334
==================================================================================
</TABLE>
(1) Includes 240,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
PROSPECTUS
1,600,000 SHARES
LOGO
COMMON STOCK
Of the 1,600,000 shares of Common Stock offered hereby, 717,000 shares are
being sold by Applied Voice Technology, Inc. (the "Company") and 883,000 shares
are being sold by the Selling Shareholders. The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders" and "Underwriting."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol AVTC. On October 22, 1997, the last reported sale price of the Common
Stock was $28.50 per share. See "Price Range of Common Stock."
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
==============================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share... $ $ $ $
- ------------------------------------------------------------------------------
Total(3).... $ $ $ $
==============================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $300,000.
(3) The Company and one of the Selling Shareholders have granted the
Underwriters a 30-day option to purchase up to 183,750 and 56,250
additional shares of Common Stock, respectively, solely to cover over-
allotments, if any. If all such shares are purchased, 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 several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
COWEN & COMPANY
PIPER JAFFRAY INC.
, 1997
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by the Company are incorporated by reference into this
Prospectus: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996; (2) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997 and June 30, 1997; (3) the description of
the Company's capital stock contained in the Company's Registration Statement
on Form 8-A filed with the Commission on November 11, 1994; and (4) the
Company's Current Reports on Form 8-K dated January 3, 1997 and October 22,
1997.
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed incorporated by reference into this Prospectus and to be a part hereof
from the respective dates of filing such documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon such person's written or oral request, a
copy of any or all of the documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to Applied Voice Technology, Inc.,
11410 N.E. 122nd Way, Kirkland, Washington 98034, Attention: Investor
Relations, telephone number (425) 820-6000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed modified, superseded or
replaced for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies, supersedes or replaces
such statement. Any statement so modified, superseded or replaced shall not be
deemed, except as so modified, superseded or replaced, to constitute a part of
this Prospectus.
------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------
AVT, CallXpress, CallXpress3, Changing the Way the World Communicates,
PhoneXpress and RightFAX are U.S.-registered trademarks, and AgentXpress and
CommercePath are U.S. trademarks, of the Company or one of its subsidiaries.
This Prospectus also contains registered trademarks and trademarks of other
companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby
involves a high degree of risk. See "Risk Factors."
THE COMPANY
Applied Voice Technology, Inc. ("AVT" or the "Company") is a leading provider
of software-based computer-telephony solutions for medium-sized enterprises.
These solutions are designed to enhance individual and work group productivity,
improve customer service, reduce business operating costs and simplify
information access and dissemination. The Company's products provide enhanced
voice and data integration through applications such as unified voice and data
messaging, call center management, interactive voice response ("IVR") and
document distribution. The Company's key products are multi-application
computer-telephony platforms that run on off-the-shelf hardware, support
Windows NT and OS/2, and interface with a wide variety of telephony and
computer equipment. The Company also offers add-on modules and software
upgrades that provide increased capacity and functionality.
The Company's expertise with both computer and telephony architectures
enables it to bring to market innovative software-based solutions that unify
and exchange information on and between the telephone and computer. The
Company's telephony-oriented product lines serve the messaging and call center
markets and focus on voice and call processing, unified messaging, IVR,
personal and workgroup call management and call center productivity
applications. The Company's computer-oriented product lines target the fax
server and production fax markets and focus on high-performance fax processing
and unified messaging, as well as Internet, corporate intranet and phone-based
information access.
The Company sells its products primarily through an indirect channel of
resellers and distributors, as well as through direct sales and OEM and private
label agreements. Computer-telephony applications generally are purchased in
conjunction with, or as upgrades to, telephone systems or computer network
systems. Accordingly, while the Company's product lines all provide computer-
telephony functionality, the Company tailors its telephony-oriented and
computer-oriented products for the distinct distribution channels that market
these systems.
The Company was incorporated in the state of Washington in 1982. Its
headquarters are located at 11410 N.E. 122nd Way, Kirkland, Washington 98034,
and its telephone number is (425) 820-6000. References in this Prospectus to
the "Company" or "AVT" are to Applied Voice Technology, Inc. and its
consolidated subsidiaries.
THE OFFERING
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<S> <C>
Common Stock offered by the Company. 717,000 shares
Common Stock offered by the Selling
Shareholders....................... 883,000 shares
Common Stock to be outstanding after
this offering...................... 6,609,089 shares(1)
Use of proceeds..................... For working capital and general corporate
purposes, including potential acquisitions
Nasdaq National Market symbol....... AVTC
</TABLE>
- --------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. Excludes,
as of September 30, 1997, outstanding options to purchase 1,299,372 shares
of Common Stock (133,000 of which will be issued upon exercise of stock
options by certain Selling Shareholders at closing of this offering) at a
weighted average exercise price of $9.79 per share and an additional
335,416 shares that are available for future grant under the Company's
stock option plans. Also excludes options to purchase 120,000 shares of
Common Stock at an exercise price of $28.09 per share issued in connection
with the acquisition of CommercePath, Inc. ("CommercePath"), and 100,000
shares of Common Stock issuable upon exercise of outstanding warrants at an
exercise price of $13.36 per share. See Notes 3 and 10 to the Consolidated
Financial Statements.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ----------------
1992 1993 1994 1995 1996(1) 1996(1) 1997(2)
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............. $15,064 $21,253 $28,761 $31,284 $44,127 $31,457 $40,503
Gross profit.......... 7,833 11,630 16,370 17,920 27,232 19,373 25,480
Operating income...... 238 2,414 5,342 6,730 4,434 1,639 3,413
Income before income
tax expense.......... 103 2,482 5,636 7,846 5,353 2,289 4,196
Net income (loss)(3).. 103 2,482 4,238 5,334 1,934 (26) 2,686
Net income (loss) per
common share(3)(4)... $ 0.03 $ 0.68 $ 1.00 $ 0.94 $ 0.33 $ (--) $ 0.44
Weighted average
common and common
equivalent shares
outstanding(4)....... 3,486 3,625 4,242 5,697 5,837 6,064 6,160
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(5)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $35,675 $54,788
Total assets........................................... 51,494 70,607
Long-term debt, less current portion................... -- --
Total shareholders' equity............................. 43,723 62,836
</TABLE>
- --------------------
(1) Reflects a $4,140,000 nonrecurring charge for the write-off of purchased,
in-process research and development associated with the acquisition of
RightFAX, Inc. ("RightFAX") in January 1996.
(2) Reflects a $3,898,000 nonrecurring charge for the write-off of purchased,
in-process research and development associated with the acquisition of
Telcom Technologies Inc. ("Telcom Technologies") in January 1997.
(3) The Company utilized net operating loss carryforwards in each of the years
ended December 31, 1992 and 1993, and therefore recognized no income tax
expense in those periods. During 1993, the Company utilized all remaining
tax loss carryforwards.
(4) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.
(5) Adjusted to give effect to the sale by the Company of 717,000 shares of
Common Stock offered by the Company hereby at an assumed public offering
price of $28.50 per share, less the underwriting discount and estimated
offering expenses payable by the Company (assuming no exercise of the
Underwriters' over-allotment option). See "Use of Proceeds" and
"Capitalization."
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
Fluctuations in Quarterly Operating Results; Limited Backlog. The Company's
quarterly results of operations are subject to significant fluctuations due to
a variety of factors, including the timing of customer orders, changes in the
Company's mix of products and distribution channels, the announcement or
introduction of new products by the Company or its competitors, pricing
pressures and general economic conditions. For example, mix shifts between
fully integrated systems and software kits result in fluctuations in gross
margins because fully integrated systems generate higher revenue per unit but
have lower margins due to their hardware component. The Company's results of
operations also may fluctuate as a result of seasonal factors. Specifically,
due to year-end dealer sales patterns and typical end-user buying patterns,
sales in the Company's first quarter, without taking into account the effect
of acquisitions, have in the past declined from the fourth quarter of the
previous year. Because substantially all of the Company's revenues in each
quarter result from orders received in that quarter, the Company has
historically operated with little or no backlog. The Company establishes its
expenditure levels for product development and other operating expenses based
on its expected revenues, and expenses are relatively fixed in the short term.
As a result, variations in the timing of sales can cause significant
variations in quarterly results of operations. Accordingly, the Company's
results of operations for any period are not necessarily indicative of results
for any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Selected Quarterly Results of
Operations."
Dependence on Indirect Distribution. A substantial majority of the Company's
net sales depends on a network of independent telephone equipment dealers and
computer-oriented value-added resellers. There is intense competition for the
attention of these independent dealers and resellers from both the Company's
competitors and from providers of other products normally distributed through
these channels. In addition, many of these dealers and resellers do not have
the financial resources to withstand a downturn in their businesses. The lack
of active effort or interest on the part of these dealers and resellers in
selling the Company's products, the loss of a major dealer or reseller, or any
other event or condition negatively affecting the distribution network could
have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to maintain or expand its network of dealers and resellers in the
future or that such dealers and resellers will maintain or expand their
present level of efforts to sell the Company's products. See "Business--
Distribution."
Risks Associated With Recent and Future Acquisitions. Since January 1996,
the Company has made three strategic acquisitions, including the acquisition
of CommercePath in October 1997. While there are currently no commitments with
respect to any particular future acquisitions, the Company's management
frequently evaluates potential acquisitions of products, technologies and
businesses. Acquisitions by the Company may result in the diversion of
management's attention from the day-to-day operations of the Company's
business and may include numerous other risks, including difficulties in the
integration of operations, products and personnel. Efforts to integrate
CommercePath are only now being commenced as the acquisition was recently
completed. The failure of efforts to integrate CommercePath or future
acquisitions could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, acquisitions by
the Company have the potential to result in dilutive issuances of equity
securities, the incurrence of additional debt, write-offs of purchased, in-
process research and development and amortization expenses related to goodwill
and other intangible assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Rapidly Changing Technology and Customer Needs. The market for the Company's
products is subject to rapid technological change, changes in customer
requirements and frequent new product and feature introductions. Customer
needs and expectations will require the Company to continue to identify,
develop and market new products and features that satisfy those needs and keep
pace with technological developments,
5
<PAGE>
including evolving industry standards and competitive offerings. Such
activities will require the Company to make substantial expenditures on
product development. In addition, the Company has devoted significant
expenditures to technologies that it anticipates may become widely adopted,
such as Windows NT and the Internet. There can be no assurance that new
products or product enhancements developed by the Company will achieve market
acceptance or that the Company will successfully develop new products or
product enhancements on a timely basis. Any failure by the Company to
anticipate or respond adequately to technological developments, customer
requirements or evolving industry standards, or any significant delays in
product development or introduction, could have a material adverse effect on
AVT's business, results of operations and financial condition. See "Business--
Product Development."
Competition. The computer-telephony market is highly competitive and the
Company believes that the competitive pressures it faces are likely to
intensify, particularly as new offerings based on the Windows NT operating
system emerge. The Company's principal competitors in the telephony-oriented
market for messaging systems are independent suppliers, including Octel
Communications Corporation (which was recently acquired by Lucent
Technologies, Inc.), Centigram Communications Corporation, Active Voice
Corporation, Voysys Corporation and Callware Technologies, Inc. The Company's
principal competitors in the call center systems market are manufacturers such
as Aspect Telecommunications Corporation and Rockwell International
Corporation. In addition to these independent suppliers of computer-telephony
solutions, private branch exchange ("PBX") and key telephone systems
manufacturers such as Lucent Technologies, Inc., Northern Telecom Ltd.,
Siemens Business Communication Systems, Inc., Executone Information Systems,
Inc., Panasonic Communications and Systems Co., NEC America, Inc. and Toshiba
America Information Systems, Inc. also compete with the Company by offering
integrated voice messaging systems, unified messaging systems and automatic
call distribution ("ACD") systems of their own design or under various
original equipment manufacturer ("OEM") agreements.
In the market for LAN-based facsimile systems, the Company's principal
competitors are Omtool, Ltd., Optus Software, Inc., Alcom Corporation and
Computer Associates International, Inc. The Company's fax server products also
compete with a range of alternative facsimile solutions, including operating
systems containing facsimile and document transmission features, low-end fax
modem products, desktop fax software, single-platform facsimile software
products and customized proprietary software solutions. In the market for
production facsimile systems, the Company's principal competitors are Biscom,
Inc., Teubner & Associates and Topcall International AG.
The Company believes that further acceptance of open systems architectures
and the development of industry standards in the call processing market will
eliminate some of the technical barriers to entry, allowing additional
competitors to enter the market. Many of the Company's existing competitors
have substantially greater technical, financial and marketing resources, as
well as larger customer and installed bases and greater name recognition, than
the Company. Further, some of the Company's competitors are able to achieve
marketing advantages by bundling their call processing equipment or
competitive facsimile solutions as part of their broader product offerings.
The Company expects its competitors to continue to offer improved product
technologies and capabilities, the availability of which could cause a
significant decline in sales of the Company's existing products. There can be
no assurance that the Company will be able to compete successfully or that
such competition will not have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business--
Competition."
Declining Average Sales Prices. The Company has experienced declining
average sales prices in its basic voice messaging products as a result of
competitive pressures and in the future may experience declining prices in
some of its other product lines. Declining average sales prices of the
Company's more significant product lines could lead to a decline in the
Company's overall gross margins. To offset and forestall declining average
sales prices, the Company believes that it must continue to develop product
enhancements and new products with advanced features that are likely to
generate higher-margin incremental revenue. If the Company is unable to
develop new products and enhancements in a timely manner or if such products
do not achieve significant customer acceptance, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "--Competition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
6
<PAGE>
Limited Intellectual Property Protection; Potential Infringements. The
Company's success depends in part on its ability to protect its proprietary
technology. The Company has filed one patent application in the area of
unified messaging and has received notice that the patent claims have been
allowed, but there can be no assurance that any of the claims in the patent
will be upheld or not be circumvented by competitors, or that the patent will
provide competitive advantages for the Company's products. In addition, the
Company relies on a combination of copyright, trademark and trade secret laws,
nondisclosure and other agreements and technical measures to protect its
proprietary technology. There can be no assurance that the Company will be
able to obtain any meaningful patent protection for its technology in the
future, or that the measures taken by the Company will be adequate to prevent
or deter misappropriation of its technology or the development of technologies
having similar performance characteristics. The Company's use of open systems
architecture in the design of its products may make it easier for competitors
to misappropriate or replicate the Company's designs and developments. The
computer-telephony software industry has historically been characterized by
numerous allegations of patent infringement among competitors, and
considerable related litigation. The Company has received claims of patent
infringement from several parties and likely will receive additional claims in
the future. Although none of these claims has led to litigation to date, the
Company's investigation into some of these claims has been limited by, among
other things, lack of sufficient information regarding the claims. These
claims may yet result in the Company's incurring substantial legal expenses
and being required to obtain licenses, pay damages for infringement, or cease
offering products that infringe such patents. There can be no assurance that a
license under patents or other intellectual property that the Company is
allegedly infringing would be available to the Company on reasonable terms, if
at all. The inability of the Company to obtain necessary licenses or other
rights or to protect its proprietary technology could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Proprietary Rights."
Risks of International Markets. The Company's future growth depends in part
on continued expansion of its international sales, which accounted for
approximately 13%, 14%, 18% and 21% of net sales in the years ended December
31, 1994, 1995 and 1996, and the nine months ended September 30, 1997,
respectively. This expansion requires significant management attention and
financial resources, and has resulted in a significant portion of the
Company's revenues being subject to the risks associated with international
sales. Such risks include necessary product adaptations to local languages and
telephone system technology, changes in regulatory requirements, special
standards requirements, exposure to exchange rate fluctuations, tariffs and
other trade barriers, difficulties in staffing and managing international
operations, potentially adverse tax consequences, and uncertainties arising
from local business practices and cultural considerations. Although
substantially all of the Company's international sales currently are
denominated in U.S. dollars, as the Company continues to expand its
international operations, it expects its non-dollar-denominated sales and its
exposure to gains and losses on international currency transactions to
increase. The Company does not currently engage in transactions to hedge
against the risk of currency fluctuations. Because most sales are U.S.-dollar
denominated, exchange rate fluctuations may make the Company's products
noncompetitive in certain markets. Furthermore, continued growth in
international markets for the Company's products depends in part on the pace
at which various foreign countries are upgrading their telephone systems.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Distribution--International Distribution."
Dependence on Key Personnel; Management of Growth. The Company's success
depends on its ability to attract and retain key personnel involved in
engineering, research and development, marketing, sales, finance and
administration. In particular, the Company depends to a significant degree on
the efforts of its senior management team. The Company does not maintain
material key person life insurance. See "Management." The competition for
skilled personnel is intense and the loss of the services of key persons in
any functional area could have a material adverse effect on AVT's current
operations and on new product development efforts. There can be no assurance
that the Company will be able to hire or retain sufficient qualified staff to
meet its goals. The Company's success also depends on the ability of its
officers and key employees to manage growth successfully and to continue to
successfully develop product enhancements and new products. The growth in the
Company's business has placed, and is expected to continue to place,
significant demands on the Company's management and operations. To manage its
growth, the Company must continue to implement
7
<PAGE>
and improve its operational, financial and management information systems and
expand, train and manage its employees. The Company's failure to manage growth
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition.
Dependence on Suppliers. The Company uses standard computer hardware for its
products. While most components utilized by the Company are readily available,
voice processing circuit boards ("voice cards") and facsimile processing
circuit boards ("fax cards") are available in quantity only from three
domestic suppliers of voice cards and two domestic suppliers of fax cards. The
Company has historically relied almost exclusively on Dialogic Corporation
("Dialogic") for its voice cards, and on Dialogic and Brooktrout Technologies,
Inc. ("Brooktrout") for its fax cards, primarily because of volume price
discounts and the cost and effort required to develop software for an
alternate voice or fax card. If the Company were to experience significant
delays, interruptions or reductions in its supply of voice or fax cards, or
unfavorable changes to price and delivery terms, the Company's business,
results of operations and financial condition would be materially adversely
affected. See "Business--Manufacturing."
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has been, and is likely to continue to be, volatile. See "Price Range of
Common Stock." Factors such as new product announcements or changes in product
pricing policies by the Company or its competitors, quarterly fluctuations in
the Company's operating results, announcements of technical innovations,
announcements relating to strategic relationships or acquisitions, changes in
earnings estimates by securities analysts and general conditions in the
computer-telephony market, among other factors, may have a significant effect
on the market price of the Company's Common Stock. The market prices of
securities issued by many companies, particularly in high-technology
industries, experience volatility for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
Management's Discretion as to Use of Net Proceeds. The Company expects to
use the net proceeds for general corporate purposes, including working
capital. Consequently, the Board of Directors and management of the Company
will have broad discretion in allocating a significant portion of the net
proceeds of this offering. See "Use of Proceeds."
Certain Antitakeover Provisions. Certain provisions of Washington law and of
the Company's Restated Articles of Incorporation and Restated Bylaws could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit or depress the price certain investors
might be willing to pay in the future for shares of the Company's Common
Stock. The Company is also authorized to issue Preferred Stock with rights
senior to, and that may adversely affect, the Common Stock, without
shareholder approval and with such rights, preferences and privileges as the
Company's Board of Directors may determine. The Company has no present plans
to issue any shares of Preferred Stock.
----------------
This Prospectus, including the documents incorporated by reference herein,
includes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA provides a
"safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements
other than statements of historical fact made in this Prospectus or
incorporated by reference are forward-looking. In particular, the statements
under the headings "Prospectus Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business--Industry
Background" and "Business--Strategy" and those located elsewhere herein
regarding industry prospects, the Company's plans or objectives, the Company's
future results of operations or financial position and pro forma information
are forward-looking statements. Forward-looking statements represent
management's current expectations and are inherently uncertain. Investors are
warned that the Company's actual results may differ significantly from
management's expectations and, therefore, from the results discussed in such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the foregoing risk factors.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 717,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $28.50 per share, less the underwriting discount and estimated offering
expenses payable by the Company, are estimated to be approximately $19,113,000
(approximately $24,088,000 if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the proceeds from the
sale of shares of Common Stock by the Selling Shareholders, other than the
proceeds from the exercise of stock options by certain of the Selling
Shareholders at closing of this offering. See "Principal and Selling
Shareholders."
The Company expects to use the net proceeds primarily for working capital
and other general corporate purposes. As part of its business strategy, the
Company continually evaluates potential acquisitions of complementary
businesses, products and technologies and has completed several such
acquisitions in recent years, including the recent acquisition of
CommercePath. The Company currently has no understanding, commitment,
agreement or intention with respect to any such acquisitions and has not
determined what portion, if any, of the net proceeds will be used for such
purposes. Pending such uses, the Company intends to invest the net proceeds in
short-term, investment-grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company commenced trading publicly on the Nasdaq
National Market on December 8, 1994 and is traded under the symbol AVTC. The
following table sets forth, for the periods indicated, the high and low
closing prices for the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter.................................................. $23.00 $15.50
Second Quarter................................................. 20.38 13.75
Third Quarter.................................................. 16.50 12.50
Fourth Quarter................................................. 14.75 11.50
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................................. 14.50 8.38
Second Quarter................................................. 15.13 9.00
Third Quarter.................................................. 13.38 9.75
Fourth Quarter................................................. 15.13 10.50
YEAR ENDED DECEMBER 31, 1997
First Quarter.................................................. 19.25 11.88
Second Quarter................................................. 18.69 12.00
Third Quarter.................................................. 29.63 18.00
Fourth Quarter (through October 22, 1997)...................... 31.63 27.75
</TABLE>
On October 22, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $28.50 per share. As of September 30, 1997, there
were approximately 60 holders of record of the Common Stock.
DIVIDEND POLICY
To date, the Company has neither declared nor paid any cash dividends on the
Common Stock. The Company currently intends to retain all future earnings for
its business and does not anticipate paying cash dividends on the Common Stock
in the foreseeable future. The Company's bank line of credit agreement
prohibits the payment of cash dividends.
9
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of September
30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the sale of
the 717,000 shares of Common Stock offered by the Company hereby at an assumed
public offering price of $28.50 per share, after deducting the underwriting
discount and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................. $ -- $ --
Shareholders' equity:
Preferred Stock, par value $0.01 per share, 1,000,000
shares authorized; none outstanding..................... -- --
Common Stock, par value $0.01 per share, 30,000,000
shares authorized; 5,759,089 shares issued and
outstanding, actual; 6,476,089 shares issued and
outstanding, as adjusted(1)............................. 57 66
Additional paid-in capital............................... 30,418 49,522
Accumulated earnings..................................... 13,248 13,248
------- -------
Total shareholders' equity............................. 43,723 62,836
------- -------
Total capitalization.................................. $43,723 $62,836
======= =======
</TABLE>
- ---------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. Excludes,
as of September 30, 1997, outstanding options to purchase 1,299,372 shares
of Common Stock (133,000 of which will be issued upon exercise of stock
options by certain Selling Shareholders at closing of this offering) at a
weighted average exercise price of $9.79 per share and an additional
335,416 shares that are available for future grant under the Company's
stock option plans. Also excludes options to purchase 120,000 shares of
Common Stock at an exercise price of $28.09 per share issued in connection
with the CommercePath acquisition, and 100,000 shares of Common Stock
issuable upon exercise of outstanding warrants at an exercise price of
$13.36 per share. See Notes 3 and 10 to the Consolidated Financial
Statements.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The selected consolidated
financial data set forth below as of and for each of the five years in the
period ended December 31, 1996 have been derived from the consolidated
financial statements of the Company that have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated financial data
set forth below as of and for the nine-month periods ended September 30, 1996
and 1997 are derived from the unaudited consolidated financial statements of
the Company which, in the Company's opinion, include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position and results of operations of the Company for those
periods. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for any other
interim period or for the year ending December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............. $15,064 $21,253 $28,761 $31,284 $44,127 $31,457 $40,503
Cost of sales......... 7,231 9,623 12,391 13,364 16,895 12,084 15,023
------- ------- ------- ------- ------- ------- -------
Gross profit.......... 7,833 11,630 16,370 17,920 27,232 19,373 25,480
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development......... 2,464 2,421 2,671 2,732 4,149 3,029 4,747
Selling, general and
administrative...... 5,131 6,795 8,357 8,458 14,509 10,565 13,422
Write-off of
purchased, in-
process research and
development(1)...... -- -- -- -- 4,140 4,140 3,898
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 7,595 9,216 11,028 11,190 22,798 17,734 22,067
------- ------- ------- ------- ------- ------- -------
Operating income...... 238 2,414 5,342 6,730 4,434 1,639 3,413
Other income
(expense), net....... (135) 68 294 1,116 919 650 783
------- ------- ------- ------- ------- ------- -------
Income before income
tax expense.......... 103 2,482 5,636 7,846 5,353 2,289 4,196
Income tax expense.... -- -- 1,398 2,512 3,419 2,315 1,510
------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $ 103 $ 2,482 $ 4,238 $ 5,334 $ 1,934 $ (26) $ 2,686
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
common share(2)(3)... $ 0.03 $ 0.68 $ 1.00 $ 0.94 $ 0.33 $ (--) $ 0.44
Weighted average
common and common
equivalent shares
outstanding(3)....... 3,486 3,625 4,242 5,697 5,837 6,064 6,160
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------ ------ ------- ------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments............. $ 128 $1,817 $22,685 $24,446 $27,679 $28,516
Working capital.......... 1,450 3,948 24,294 29,670 30,870 35,675
Total assets............. 5,340 7,639 28,944 36,932 46,127 51,494
Long-term debt, less
current portion......... 80 -- -- 899 313 --
Total shareholders'
equity.................. 2,090 4,795 24,998 32,889 38,883 43,723
</TABLE>
- ---------------------
(1) Reflects nonrecurring charges of $4,140,000 and $3,898,000 for the write-
off of purchased, in-process research and development associated with the
acquisition of RightFAX in January 1996 and Telcom Technologies in January
1997, respectively.
(2) The Company utilized net operating loss carryforwards in each of the years
ended December 31, 1992 and 1993, and therefore recognized no income tax
expense in those periods. During 1993, the Company utilized all remaining
tax loss carryforwards.
(3) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This discussion contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The Company's actual results could differ
materially from those anticipated in these forward-looking statements. Factors
that could cause or contribute to such differences include those discussed in
"Risk Factors," as well as those discussed elsewhere herein.
OVERVIEW
The Company is a leading provider of software-based computer-telephony
solutions for medium-sized enterprises. These solutions are designed to
enhance individual and work group productivity, improve customer service,
reduce business operating costs and simplify access to data and dissemination
of information. The Company's products provide enhanced voice and data
integration through applications such as unified voice and data messaging,
call center management, IVR and document distribution. The Company's key
products are multi-application computer-telephony platforms that run on off-
the-shelf hardware, support Windows NT and OS/2, and interface with a wide
variety of telephony and computer equipment. The Company also offers add-on
modules and software upgrades that provide increased capacity and
functionality.
The Company sells its products primarily through an indirect channel of
resellers and distributors, as well as through direct sales and OEM and
private label agreements. The Company has significantly expanded its product
offerings in 1997 by releasing Windows NT-based products in each of its main
product categories. The Company's telephony-oriented products include:
CallXpress for Windows NT and CallXpress3, the Company's premier multi-
application, high-capacity computer-telephony product lines; PhoneXpress, a
full-featured voice messaging system for small to medium-sized enterprises;
AgentXpress for Windows NT, a high-performance Windows NT-based ACD system for
medium-sized call centers; and Enhanced Agent, a set of interfaces and
applications designed to extend the capabilities of AgentXpress. The Company's
computer-oriented products include RightFAX 5.0 and RightFAX Enterprise, the
Company's LAN-based fax server lines for Windows NT, and RightFAX 4.5, which
runs on the OS/2 operating system. With the completion of its acquisition of
CommercePath in October 1997, the Company added the CommercePath line of
production document delivery systems for Unix and Windows NT to its computer-
oriented product line.
The Company's products address the needs of four segments of the computer-
telephony market: advanced computer telephony integration ("CTI")
applications, CTI-ready systems, basic messaging systems, and installed base
add-ons and service. Advanced CTI application products include CallXpress for
Windows NT and CallXpress3 systems sold with at least one advanced CTI
application module (in addition to voice mail/automated attendant),
AgentXpress for Windows NT, the RightFAX line of fax servers and the
CommercePath line of production fax systems. CTI-ready systems are CallXpress
for Windows NT and CallXpress3 systems sold initially with voice
mail/automated attendant capabilities only, but which can be easily upgraded
to include advanced computer-telephony features. The basic messaging market is
addressed by the PhoneXpress product. Sales to the installed base of non-CTI
capability-enhancing add-ons, capacity-increasing upgrades, maintenance,
training and service parts represent the fourth market segment.
Since January 1996, the Company has made three strategic acquisitions, each
of which was accounted for as a purchase. The Company acquired RightFAX, a
developer of LAN-based fax server software, in January 1996. In January 1997,
the Company acquired selected assets and liabilities of Telcom Technologies, a
developer of NT-based open-architecture ACD systems. In connection with the
RightFAX and Telcom Technologies acquisitions, the Company recorded
nonrecurring charges of $4.1 million and $3.9 million, respectively, for the
write-off of purchased, in-process research and development, and recorded
additional
12
<PAGE>
amounts of goodwill that are being amortized over future years. See "--
Liquidity and Capital Resources." In October 1997, the Company acquired
CommercePath, a developer of high-volume production-oriented fax servers. For
the fiscal year ended January 31, 1997, CommercePath's net sales were
approximately $6 million. The Company expects to record a nonrecurring charge
of approximately $7.2 million for the write-off of purchased, in-process
research and development related to this acquisition and additional amounts of
goodwill that will be amortized in future years. See Notes 8 and 10 to the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain items in the Company's consolidated
statements of income.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 43.1 42.7 38.3 38.4 37.1
----- ----- ----- ----- -----
Gross profit............................... 56.9 57.3 61.7 61.6 62.9
Operating expenses:
Research and development................. 9.3 8.7 9.4 9.6 11.7
Selling, general and administrative...... 29.0 27.1 32.9 33.6 33.2
Write-off of purchased, in-process
research and development................ -- -- 9.4 13.2 9.6
----- ----- ----- ----- -----
Total operating expenses................. 38.3 35.8 51.7 56.4 54.5
Operating income........................... 18.6 21.5 10.0 5.2 8.4
Other income, net.......................... 1.0 3.6 2.1 2.1 1.9
----- ----- ----- ----- -----
Income before income tax expense........... 19.6 25.1 12.1 7.3 10.3
Income tax expense......................... 4.9 8.0 7.7 7.4 3.7
----- ----- ----- ----- -----
Net income (loss).......................... 14.7% 17.1% 4.4% (0.1)% 6.6%
===== ===== ===== ===== =====
</TABLE>
NET SALES
The Company derives net sales primarily from initial sales of software kits
and licenses and fully integrated systems, as well as follow-on sales of add-
on software modules and product upgrades. Sales to dealers and distributors
are recognized when the products are shipped. The sales mix among the
Company's four market segments and between software kits and fully integrated
systems affects both net sales and gross margin. Because of their hardware
components, fully integrated systems generate higher revenue per unit and
lower margins than comparable software kits. Advanced CTI application systems
generally are sold at a higher unit price and with a higher gross margin than
basic messaging systems due to the additional software modules purchased and
the higher mix of software kits and software licenses as compared to fully
integrated systems. Over the past two years, sales have shifted toward higher-
margin advanced CTI products and software kits, but there can be no assurance
that this trend will continue. See "Risk Factors--Fluctuations in Quarterly
Operating Results; Limited Backlog" and "--Declining Average Sales Prices."
Nine Months ended September 30, 1997 and 1996. Net sales increased 29% to
$40.5 million in the nine months ended September 30, 1997 from $31.5 million
in the nine months ended September 30, 1996. The increase resulted primarily
from sales of advanced CTI applications, which increased 57% over the
comparable period in 1996, and represented 58% of net sales, as compared with
47% of net sales in the 1996 period. Sales of CTI-ready systems represented
10% of net sales in the nine months ended September 30, 1997, as compared with
14% of net sales in the comparable 1996 period. The lower-margin basic
messaging
13
<PAGE>
market continued to be affected by price pressures from competitive offerings.
Basic messaging sales declined 18% in the first nine months of 1997 from the
first nine months of 1996, and represented 17% of net sales in the 1997 period
compared to 27% of net sales in the 1996 period. Sales to the installed base
increased 62% in the nine months ended September 30, 1997 from the nine months
ended September 30, 1996 due to accelerated marketing efforts of telephony-
oriented products and the inclusion of maintenance and spare parts sales
related to the January 1997 acquisition of selected assets of Telcom
Technologies. Sales to the installed base represented 15% of net sales for the
nine months ended September 30, 1997, an increase from 12% of net sales in the
comparable 1996 period. International sales for the first nine months of 1997
increased 55% from the comparable period in 1996, and represented 21% of net
sales.
Years ended December 31, 1996 and 1995. Net sales increased 41% to $44.1
million in 1996 from $31.3 million in 1995, due primarily to the growth in
sales of advanced CTI applications. Advanced CTI application product sales
increased 163% and represented 49% of 1996 net sales as compared to 26% of
1995 net sales. In addition to the inclusion of RightFAX sales for the first
time, the Company introduced major enhancements to both the CallXpress3 and
RightFAX product lines during 1996, which contributed to this significant
growth. In 1996 a higher percentage of CallXpress3 systems were sold with
advanced CTI application modules (as compared to voice mail/automated
attendant functions only) than in 1995, resulting in CTI-ready sales declining
to 13% of 1996 net sales from 22% of 1995 net sales. Sales of basic messaging
products were essentially unchanged and represented 26% of net sales in 1996,
down from 37% in 1995. This trend is consistent with the Company's strategic
emphasis on advanced CTI applications rather than on lower-margin basic
messaging sales. Add-on and service sales increased 11%, representing 12% of
1996 net sales. International sales increased 83% in 1996 over 1995 and
represented 18% of net sales, due primarily to growth in Europe. The Company
significantly increased its efforts in 1996 to develop distribution outside
the United States to gain a foothold in the emerging international CTI
marketplace.
Years ended December 31, 1995 and 1994. Net sales increased 9% to $31.3
million in 1995 from $28.8 million in 1994. The net sales dollar growth rate
was somewhat dampened by price erosion in the basic messaging market and a
change in the Company's product mix toward software kits, as opposed to fully
integrated systems that include a computer and related components.
International sales increased 15% in 1995 over 1994 and represented 14% of net
sales, due primarily to growth in Europe.
GROSS PROFIT
Nine Months ended September 30, 1997 and 1996. Gross profit as a percentage
of net sales improved to 62.9% in the nine months ended September 30, 1997 as
compared to 61.6% in the comparable prior-year period, due primarily to the
favorable sales mix of advanced CTI applications as compared to basic
messaging systems.
Years ended December 31, 1996 and 1995. Gross profit as a percentage of net
sales improved to 61.7% in 1996 from 57.3% in 1995 due to the continued
product mix shift toward software kits and software licenses, as opposed to
fully integrated systems, and the growth in advanced CTI application products.
Gross profit on basic messaging system sales in 1996 continued to be
negatively affected by price erosion and a higher ratio of fully integrated
systems as compared to advanced CTI application systems. While the Company
expects additional competition to enter the advanced CTI application
marketplace, the Company believes the favorable mix shift from basic messaging
to advanced CTI applications, which carry significantly higher margins, may
offset the effects of price erosion.
Years ended December 31, 1995 and 1994. Gross profit as a percentage of net
sales improved slightly to 57.3% in 1995 from 56.9% in 1994, due primarily to
the significant increase in software kit mix, as opposed to fully integrated
systems, and increased CallXpress3 advanced application sales. These favorable
trends were partially offset by two factors in the lower-end of the basic
messaging market--price erosion and the packaging requirements of a
distribution agreement that included basic messaging system software fully
integrated on a PC.
14
<PAGE>
RESEARCH AND DEVELOPMENT
Nine Months ended September 30, 1997 and 1996. Research and development
expenses increased 57% to $4.7 million in the nine months ended September 30,
1997 from $3.0 million in the comparable period in 1996, due primarily to
increased personnel costs relating to acceleration of certain development
projects and the inclusion of the recently formed call center development
group, which was acquired from Telcom Technologies. As a percentage of net
sales, research and development expenses represented 11.7% in the nine months
ended September 30, 1997 as compared to 9.6% in the nine months ended
September 30, 1996. In connection with the Telcom Technologies acquisition,
the Company recognized a nonrecurring charge of $3.9 million in the first
quarter of 1997 for the write-off of purchased, in-process research and
development.
Years ended December 31, 1996 and 1995. Research and development expenses
increased 52% to $4.1 million in 1996 from $2.7 million in 1995 due to the
addition of software development and quality assurance personnel associated
with the computer-oriented RightFAX product line and the accelerated
development of CallXpress3 version 4.0, several CallXpress3 advanced CTI
modules, and other advanced development projects. Accordingly, research and
development expenses as a percentage of net sales increased to 9.4% in 1996
from 8.7% in 1995. In addition, the Company recognized a nonrecurring charge
of $4.1 million in 1996 for the write-off of purchased, in-process research
and development associated with the acquisition of RightFAX in January 1996.
Years ended December 31, 1995 and 1994. Research and development expenses
increased 2% to $2.7 million in 1995, due primarily to the addition of
engineering and quality assurance personnel needed to support the advanced CTI
application modules and LAN integrations. Excluding expenses recognized in
1994 that represented the remainder of amortized purchased technology arising
from a 1989 acquisition, 1995 research and development expenses would have
increased 7% over 1994.
SELLING, GENERAL AND ADMINISTRATIVE
Nine Months ended September 30, 1997 and 1996. Selling, general and
administrative expenses increased 27% to $13.4 million in the nine months
ended September 30, 1997 from $10.6 million in the nine months ended September
30, 1996, due primarily to increased personnel-related costs of domestic and
international development of both the telephony-oriented and computer-oriented
distribution channels and the new product launches of CallXpress for Windows
NT and AgentXpress for Windows NT. Selling, general and administrative
expenses for the nine months ended September 30, 1997 included amortization of
$0.5 million of goodwill relating to acquisitions. Selling, general and
administrative expenses represented 33.2% of net sales for the nine months
ended September 30, 1997, as compared to 33.6% in the nine months ended
September 30, 1996.
Years ended December 31, 1996 and 1995. Selling, general and administrative
expenses increased 71% to $14.5 million in 1996 from $8.5 million in 1995, due
primarily to the Company's expanded distribution efforts in the computer-
oriented channel resulting from the RightFAX acquisition, as well as
significant increases in its telephony-oriented worldwide sales management
organization and expanded marketing programs. Selling, general and
administrative expenses accordingly increased to 32.9% of net sales in 1996
from 27.1% of net sales in 1995.
Years ended December 31, 1995 and 1994. Selling, general and administrative
expenses were essentially unchanged at $8.5 million in 1995 and $8.4 million
in 1994. Lower expenses in 1995 relating to employee incentives and bad debt
were offset by increased international distribution development efforts and
additional regulatory, reporting and administrative requirements associated
with being a public company. Selling, general and administrative expenses as a
percentage of net sales decreased to 27.1% in 1995 from 29.0% in 1994 as the
Company was able to utilize personnel additions and expenditures made in
previous years.
15
<PAGE>
OTHER INCOME, NET
For the nine months ended September 30, 1997, other income increased to $0.8
million from $0.7 million in the nine months ended September 30, 1996. Other
income decreased to $0.9 million in 1996 from $1.1 million in 1995 because
cash and investment balances declined in early 1996 as a result of payments
made related to the RightFAX acquisition. Other income increased significantly
to $1.1 million in 1995 from $0.3 million in 1994, due primarily to interest
earned on cash resulting from the Company's December 1994 initial public
offering.
INCOME TAX EXPENSE
Nine Months ended September 30, 1997 and 1996. The effective income tax rate
in the first three quarters of both 1997 and 1996 was 36%, excluding
acquisition-related charges. The acquisition of Telcom Technologies in 1997
was a taxable purchase of assets, and, therefore, the resulting excess of
purchase price over net tangible assets acquired is deductible for income tax
purposes. By contrast, the excess of the purchase price over net tangible
assets acquired associated with the acquisition of RightFAX in 1996 is not tax
deductible. Primarily as a result of the differing tax treatment of the two
acquisitions, the Company recognized an income tax expense of $1.5 million in
the first nine months of 1997, as compared to an income tax expense of $2.3
million in the comparable period in 1996.
Years ended December 31, 1996 and 1995. The Company's effective tax rate
increased to 36% in 1996 from 32% in 1995, excluding the effect of the
nondeductible, nonrecurring charge for the write-off of purchased, in-process
research and development discussed above. The increase was due primarily to
the effect of federal, state and foreign income and franchise taxes.
Years ended December 31, 1995 and 1994. The Company's effective tax rate
increased to 32% in 1995 from 25% in 1994. The remaining valuation allowance
associated with research and experimentation credit carryforwards was
recognized as a tax benefit in 1994. In addition, a portion of cash
investments was reallocated from taxable to tax-exempt instruments in 1995,
thereby reducing interest income and the effective tax rate.
NET INCOME (LOSS) AND EARNINGS PER SHARE
Nine Months ended September 30, 1997 and 1996. The Company recognized net
income for the nine months ended September 30, 1997 of $2.7 million as
compared to a net loss of $26,000 in the comparable 1996 period. Excluding the
nonrecurring charges related to the RightFAX and Telcom Technologies
transactions discussed above, net income for the nine months ended September
30, 1997 would have increased 27% to $5.2 million, from $4.1 million in the
comparable prior-year period. Earnings per share, excluding the nonrecurring
charges, increased to $0.84 per share from $0.68 per share.
Years ended December 31, 1996 and 1995. Net income excluding the
nonrecurring charge increased 14% to $6.1 million in 1996 from $5.3 million in
1995. Earnings per share excluding the nonrecurring charge increased to $1.04
in 1996 from $0.94 in 1995. Including the nonrecurring charge, net income in
1996 was $1.9 million and earnings per share was $0.33.
Years ended December 31, 1995 and 1994. Net income increased 26% to $5.3
million in 1995 from $4.2 million in 1994. Earnings per share declined to
$0.94 in 1995 from $1.00 in 1994 due to the higher average share count in
1995, a result of the Company's December 1994 initial public offering.
16
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data for
the seven quarters ended September 30, 1997. The information has been prepared
by the Company on a basis consistent with the Company's audited consolidated
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 30, JUNE 30, SEPT. 30, DEC. 31, MARCH 30, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 9,556 $10,680 $11,221 $12,670 $12,062 $13,660 $14,781
Cost of sales........... 3,777 4,105 4,202 4,811 4,590 4,958 5,475
------- ------- ------- ------- ------- ------- -------
Gross profit............ 5,779 6,575 7,019 7,859 7,472 8,702 9,306
Operating expenses:
Research and
development.......... 935 1,001 1,093 1,120 1,498 1,571 1,678
Selling, general and
administrative....... 3,308 3,538 3,719 3,944 4,183 4,640 4,599
Write-off of
purchased, in-process
research and
development.......... 4,140 -- -- -- 3,898 -- --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 8,383 4,539 4,812 5,064 9,579 6,211 6,277
------- ------- ------- ------- ------- ------- -------
Operating income (loss). (2,604) 2,036 2,207 2,795 (2,107) 2,491 3,029
Other income (expense),
net.................... 173 225 252 269 240 278 265
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense..... (2,431) 2,261 2,459 3,064 (1,867) 2,769 3,294
Income tax expense
(benefit).............. 608 821 886 1,104 (672) 997 1,185
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(3,039) $ 1,440 $ 1,573 $ 1,960 $(1,195) $ 1,772 $ 2,109
======= ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth certain unaudited income statement data as a
percentage of net sales for each of the Company's last seven quarters.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------
MARCH 30, JUNE 30, SEPT. 30, DEC. 31, MARCH 30, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 39.5 38.4 37.4 38.0 38.1 36.3 37.0
----- ----- ----- ----- ----- ----- -----
Gross profit............ 60.5 61.6 62.6 62.0 61.9 63.7 63.0
Operating expenses:
Research and
development.......... 9.8 9.4 9.7 8.9 12.4 11.5 11.4
Selling, general and
administrative....... 34.6 33.1 33.2 31.1 34.7 34.0 31.1
Write-off of
purchased, in-process
research and
development.......... 43.3 -- -- -- 32.3 -- --
----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 87.7 42.5 42.9 40.0 79.4 45.5 42.5
----- ----- ----- ----- ----- ----- -----
Operating income (loss). (27.2) 19.1 19.7 22.0 (17.5) 18.2 20.5
Other income (expense),
net.................... 1.8 2.1 2.2 2.2 2.0 2.1 1.8
----- ----- ----- ----- ----- ----- -----
Income (loss) before
income tax expense..... (25.4) 21.2 21.9 24.2 (15.5) 20.3 22.3
Income tax expense
(benefit).............. 6.4 7.7 7.9 8.7 (5.6) 7.3 8.0
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (31.8)% 13.5% 14.0% 15.5% (9.9)% 13.0% 14.3%
===== ===== ===== ===== ===== ===== =====
</TABLE>
17
<PAGE>
Net sales in the first quarter have typically declined from the fourth
quarter of the previous year due to year-end typical dealer sales patterns and
end-user buying patterns. Despite these patterns, net sales in the first
quarter of 1996 increased over the fourth quarter of 1995 due to the inclusion
of sales of RightFAX products for the first time. The Company anticipates that
in the future net sales in the first quarter will continue to be affected by
seasonality. First quarter results in 1996 and 1997 were also significantly
affected by the nonrecurring charges related to acquisitions, as discussed
above.
In addition to such seasonal factors and nonrecurring charges, the Company's
quarterly results of operations are subject to significant fluctuations due to
a variety of other factors, including the timing of customer orders, changes
in the Company's mix of products and distribution channels, the announcement
or introduction of new products by the Company or its competitors, pricing
pressures and general economic conditions. Any unfavorable change in these or
other factors could have a material adverse effect on the Company's results of
operations for a particular quarter. See "Risk Factors--Fluctuations in
Quarterly Operating Results; Limited Backlog."
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments increased to $28.5
million at September 30, 1997 from $27.7 million at December 31, 1990 and from
$24.4 million at December 31, 1995. Cash flow generated from operating
activities was $5.8 million, $8.2 million and $2.3 million in the nine months
ended September 30, 1997, and in the years ended December 31, 1996 and 1995,
respectively. The increases resulted primarily from profitable operations.
In February 1995, the Company prepaid the remaining balance due under a
royalty agreement associated with a 1989 business combination. See Note 6 to
the Consolidated Financial Statements. The cash disbursement, which amounted
to $1.8 million, was recorded as an intangible asset and has been amortized
over the remaining term of the original royalty agreement, approximately six
years. In addition, the Company amended a license agreement in September 1995,
prepaying its remaining royalty obligation by issuing a note in the amount of
$1.9 million payable in 12 equal quarterly installments of $161,417 each,
including imputed interest at 8.75% per annum. The Company amended an
additional license agreement in July 1996, prepaying its remaining royalty
obligation by issuing a non-interest-bearing note for $450,000 that was fully
paid prior to December 31, 1996. For each of these license agreement
amendments, the related intangible asset is being amortized on a straight-line
basis over the average remaining lives of the patents, which are approximately
12 years in the case of the license amended in September 1995 and
approximately seven years in the case of the license amended in July 1996.
In January 1996, the Company acquired RightFAX for $4.2 million in cash plus
163,000 shares of Common Stock. The business combination was accounted for as
a purchase. Approximately $4.1 million of the purchase price was recognized as
a nonrecurring charge in the first quarter of 1996, representing the value of
purchased, in-process research and development. The remaining intangible
assets are being amortized over seven years from the date of acquisition. In
addition, the Company paid $1.4 million in cash and issued 95,000 shares of
Common Stock in 1997 relating to the 1996 earn out and guaranteed value of the
Common Stock. As a result of the earn out, the Company recorded an additional
$2.0 million of goodwill at December 31, 1996. The former shareholders of
RightFAX are entitled to receive additional consideration of up to $1.8
million in a combination of cash and Common Stock if certain revenue and
profit margin goals are achieved by RightFAX during 1997 and 1998.
In January 1997, the Company acquired selected assets and liabilities of
Telcom Technologies. The purchase price for the acquisition was $3.5 million
in cash, plus warrants to purchase 100,000 shares of Common Stock exercisable
at $13.36 per share, which may be exercised any time prior to January 3, 2002.
The Company accounted for the business combination as a purchase and
recognized a nonrecurring charge of $3.9 million in the first quarter of 1997,
representing the value of the purchased, in-process research and development.
18
<PAGE>
In October 1997, the Company acquired all the outstanding capital stock of
CommercePath from Forest City Trading Group, Inc. for $10.7 million in cash.
In connection with the acquisition, the Company also granted options to
purchase 120,000 shares of Common Stock, at an exercise price of $28.09 per
share, to two of CommercePath's executive officers. The Company will account
for the acquisition as a purchase and expects to record a nonrecurring charge
of approximately $7.2 million for the write-off of purchased, in-process
research and development. In addition, the Company will record additional
amounts of goodwill that will be amortized over future years. See Note 10 to
the Consolidated Financial Statements.
At September 30, 1997, the Company had a $4.0 million unsecured revolving
line of credit, none of which was outstanding. The Company's line of credit
expires in May 1999 and contains certain financial covenants and restrictions
as to various matters. The Company is currently in compliance with all such
covenants and restrictions. Borrowings under the line of credit bear interest
at the bank's prime rate or its interbank offering rate plus 1.50%, at the
Company's option.
The Company invested $1.0 million, $0.9 million and $0.7 million in
equipment and leasehold improvements in the nine months ended September 30,
1997, and in the years ended December 31, 1996 and 1995, respectively.
Equipment purchases in such periods consisted primarily of computer hardware
and software.
The Company expects that the net proceeds from this offering, together with
its current cash, cash flow from operations, and available bank line of
credit, will provide sufficient working capital for operations for the
foreseeable future.
19
<PAGE>
BUSINESS
The Company is a leading provider of software-based computer-telephony
solutions for medium-sized enterprises. The Company provides flexible, cost-
effective products that address the voice messaging, call center, fax server
and production fax markets, and distributes these products primarily through
independent distributors and value-added resellers. The Company's products run
on off-the-shelf hardware, support Window NT and OS/2 and interface with a
wide variety of telephony and computer equipment.
INDUSTRY BACKGROUND
Businesses are increasingly using information technology to improve customer
service, increase employee productivity, decrease costs and more efficiently
disseminate information. As the amount of information exchanged between
organizations increases, and the diversity of the delivery formats and
combinations used by organizations to exchange this information becomes more
complex, there is a growing need for organizations to find new ways to manage
information in a more timely and cost-effective manner.
In response to the growth in voice communications, organizations are
increasingly using voice messaging, call centers with automated intelligent
routing and IVR systems that provide voice-prompted access to data. These
computer-telephony solutions allow employees to more effectively manage
communications, significantly improve call center efficiency, and allow easy
access by telephone to large amounts of information that resides on computer
databases.
The growth in data communications presents additional opportunities for
accessing and sending information. For example, organizations are deploying
LAN-based fax servers to store, forward and broadcast their growing volume of
facsimile traffic in an efficient manner. Electronic messaging over LANs, the
Internet and corporate intranets has emerged as another way to access data and
disseminate information. This rapid increase in multiple forms of voice and
data communication has further accentuated the need for organizations to
optimize their information management capabilities and integrate voice and
data communications.
Large corporations have been the first to implement systems that provide
enhanced voice and data integration. These large systems typically have been
based on proprietary hardware and software and are not cost-effective for
medium-sized organizations or smaller offices of large organizations. However,
to remain competitive these medium-sized entities require systems with the
same functionality to provide a comparable level of interaction with customers
and vendors and to reduce operating costs. These organizations do not
typically have the resources or the number of users required to purchase,
customize and maintain proprietary solutions. Rather, they require cost-
effective computer-telephony solutions that provide open standards-based
interfaces to a broad range of voice and data equipment, flexibility to add
new functionality and scaleable capacity to add new users, and that operate on
readily available hardware.
THE AVT SOLUTION
The Company is a leading provider of software-based computer-telephony
solutions for medium-sized enterprises. These solutions are designed to
enhance individual and work group productivity, improve customer service,
reduce business operating costs and simplify information access and
dissemination. The Company's products provide enhanced voice and data
integration through applications such as unified voice and data messaging,
call center management, IVR and document distribution. The Company's products
run on off-the-shelf server hardware, support Windows NT and OS/2 and
interface with a wide variety of telephony and computer equipment.
20
<PAGE>
STRATEGY
The Company's mission is to provide cost-effective, innovative computer-
telephony software products that operate on industry-standard computer
platforms, and market those products throughout the world. Key components of
the Company's strategy include:
Provide Complete Software-based Computer-telephony Solutions. The Company is
focused on providing a comprehensive and affordable set of software-based
computer-telephony solutions designed to enhance productivity, improve
customer service, reduce business operating costs and simplify access to data
and dissemination of information. The Company's products provide enhanced
voice and data integration through applications such as unified voice and data
messaging, call center management, IVR and document distribution.
Focus on Medium-sized Enterprise Market. The Company currently targets
enterprises with 100 to 2,000 employees, including similarly sized divisions
and subsidiaries of Fortune 1000 companies. The Company's strategy is to
continue to invest in new product development and marketing initiatives to
gain market share and further meet the computer-telephony needs of medium-
sized enterprises.
Leverage Telephony and Data Expertise. The Company has established a
knowledge base in the development of call processing, voice processing and
call switching applications, as well as LAN, Internet and corporate intranet
software applications. The Company believes that its expertise in these areas
enables it to efficiently bring to market innovative software products that
unify and exchange information on and between the telephone and computer.
While the Company's product lines all provide computer-telephony
functionality, the Company tailors its products to take advantage of the
distinct telephony-oriented and computer-oriented distribution channels. The
Company intends to leverage its expertise to continue to develop channel-
specific products and to introduce new products that further integrate its
telephony and computer capabilities.
Capitalize on Installed Base. The Company intends to capitalize on its
installed base by offering add-on modules, software upgrades and new products,
all of which provide increased capacity and functionality. Moreover, the
Company believes the migration of many of its customers to the Windows NT
operating system will present it with a significant opportunity to sell
Windows NT product upgrades.
Utilize Capabilities of Multiple Distribution Channels. The Company targets
medium-sized enterprises primarily through telephony-oriented distributors and
computer-oriented value-added resellers. The Company believes that some
enterprises will evaluate computer-telephony solutions from a telephony
perspective while others will focus on data-centric solutions. The use of
multiple distribution channels that target many of the same potential
customers increases the likelihood that the Company's products will be sold to
a particular customer. The Company intends to broaden its distribution
channels by expanding its direct sales efforts and by continuing to enter into
distribution agreements with private label OEMs and other strategic partners.
Grow Through Strategic Acquisitions. The Company believes that growth
through strategic acquisitions of complementary technologies, products and
distribution channels offers the potential for significant competitive
advantage. The Company's open-systems technology facilitates the rapid
integration of and linkage to other complementary open-systems technologies.
The Company believes it is therefore able to accelerate introduction of new
technologies to the market through acquisition, and to respond rapidly to
industry changes and opportunities.
Pursue International Opportunities. The Company believes that the markets
for CTI products outside the United States will experience accelerated growth
in the next few years. To pursue these opportunities, the Company intends to
continue to localize its products for specific markets and to actively recruit
new dealers, distributors and strategic partners internationally.
21
<PAGE>
PRODUCTS
The Company's product lines include both telephony-oriented and computer-
oriented products. The Company's telephony-oriented product lines serve the
messaging and call center markets and focus on voice and call processing,
unified messaging, IVR, personal and workgroup call management and call center
productivity applications. The Company's computer-oriented product lines
target the fax server and production fax markets and focus on high-performance
fax processing and unified messaging, in addition to Internet, corporate
intranet and phone-based information access. The following table provides an
overview of the Company's products in each of these markets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PRODUCT LINE DESCRIPTION
- ------------------------------------------------------------------------------------
<S> <C>
MESSAGING PRODUCTS:
CallXpress for Windows NT A multi-application platform for medium-sized to
(Introduced 1997) large enterprises that supports 4 to 64 ports and
runs on Windows NT.
CallXpress3 A multi-application platform that includes the same
(Introduced 1991) capabilities as CallXpress for Windows NT and runs
on the OS/2 operating system.
PhoneXpress A call answering, routing and voice messaging system
(Introduced 1993) for small to medium-sized enterprises that supports
4 to 16 ports.
- ------------------------------------------------------------------------------------
CALL CENTER PRODUCTS:
AgentXpress for Windows NT A high-performance ACD system for medium-sized call
(Introduced 1997) centers that runs on Windows NT and supports up to
144 inbound trunk lines and up to 96 agents.
Enhanced Agent Computer-telephony interfaces and applications that
(Introduced 1997) support integration of AgentXpress with CallXpress
and RightFAX servers.
- ------------------------------------------------------------------------------------
RIGHTFAX PRODUCTS:
RightFAX 5.0 A high-performance LAN-based fax server that runs on
(Introduced 1997) Windows NT and supports up to 32 fax channels.
RightFAX Enterprise An enhanced version of the RightFAX 5.0 software
(Introduced 1997) designed for complex, enterprise-wide fax server
environments.
RightFAX 4.5 A high-performance LAN-based fax server that runs on
(Introduced 1991) the OS/2 operating system, with the same
capabilities as RightFAX 5.0.
- ------------------------------------------------------------------------------------
COMMERCEPATH PRODUCTS:
CommercePath for Windows NT A high-volume, production-oriented server that
(Introduced 1997) enables fax and other forms of electronic
transmission for electronic commerce applications,
supports up to 48 ports and transmits or receives up
to 2,800 pages per hour.
HOST-FAX for Unix A high-volume, production-oriented line of fax
(Introduced 1991) servers based on the Unix operating system with many
of the same capabilities found in CommercePath for
Windows NT.
- ------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
MESSAGING PRODUCTS
CALLXPRESS LINE
The CallXpress family of products consists of CallXpress3 and CallXpress for
Windows NT. CallXpress3, introduced in early 1991, is a multi-application
computer-telephony platform that runs on the OS/2 operating system. Succeeding
CallXpress3 as the Company's premier telephony-oriented product offering,
CallXpress for Windows NT was introduced in early 1997. CallXpress for Windows
NT is designed to take advantage of the advanced capabilities of the Windows
NT operating system, and includes significant improvements to the system's
installation and administrative capabilities and increased fax functionality.
The CallXpress line is designed to support from 4 to 64 telephone ports and
can serve the needs of small to large enterprises.
The Company's CallXpress messaging products are either sold as software kits
to dealers who obtain their own hardware, or sold fully integrated on Company-
provided PC hardware platforms. Software kits consist of software,
documentation, a hardware security key, voice cards and fax cards. Fully
integrated systems include all the components supplied in the software kits,
plus fully integrated and tested PCs, disk drive storage devices of various
sizes and configurations, modems, monitors and keyboards. While CallXpress was
developed with a telephony orientation, it is designed to link with computer-
oriented solutions through its standard LAN-connection and software-modular
packaging.
CallXpress application modules consist of software programs that operate in
an integrated, multi-tasking environment and are not dependent on secondary
hardware processors. Modules may be purchased either at the time of initial
installation or as subsequent add-ons. CallXpress software modules are divided
into three application categories: call processing, unified messaging, and
call center productivity.
Call Processing Applications
Automated Attendant/Voice Mail. The Automated Attendant/Voice Mail module
answers calls on the first ring and invites the caller to enter an extension
number, wait on the line for a receptionist or leave a voice mail message. The
Audiotext feature of the Automated Attendant/Voice Mail module acts as a
"spoken bulletin board."
Networking. With the Networking module, a company with multiple locations
can link its offices together, thereby allowing subscribers at each location
to send and receive voice messages to and from any other office in the
network.
Unified Messaging Applications
Desktop Message Manager. Desktop Message Manager provides a visual interface
to the subscriber's unified mailbox, letting the subscriber know who sent a
message, the type of message sent, when it arrived, whether it is urgent and
its length. The module will play back voice mail messages on the subscriber's
telephone or voice-enabled PC, as well as display fax messages on the computer
screen. A related module provides the subscriber with a visual interface to
manage his or her CallXpress unified mailbox from Microsoft Outlook.
E-Mail Access. E-Mail Access provides a subscriber with the option to hear
electronic mail text messages through text-to-speech capabilities or convert
them into faxes through text-to-fax capability. E-Mail Access integrates with
Lotus cc:Mail, Lotus Notes, Microsoft Mail and Microsoft Exchange.
Fax Mail. The Fax Mail module provides store and forward capabilities for
fax documents identical to those provided for voice messages. The Company's
Fax Server supported under CallXpress for Windows NT extends the capabilities
of Fax Mail to include the full feature set, performance and capacity of the
RightFAX fax server.
23
<PAGE>
Call Center Productivity Applications
Automated Agent. Automated Agent is an interactive voice response module
that enables complete application solutions to be designed for specific
business functions such as catalog ordering and college registration.
Automated Agent can be connected to the corporate database through a variety
of host computer and LAN-based interfaces.
Fax Response. The Fax Response module provides documents such as order
acknowledgments or printouts of customer accounts requested by callers through
the Automated Agent module.
Desktop Call Manager. Desktop Call Manager provides intelligent, real-time
management of incoming calls, allowing the subscriber or member of a workgroup
to take the call, take a message, or redirect the call. Incoming calls are
identified by Caller ID, prompting the system to display the caller's identity
on the subscriber's PC. Desktop Call Manager can be a very cost-effective
application for smaller, informal call centers where an ACD system cannot be
cost-justified.
Faxtext. The Faxtext module provides callers 24-hour access to requested
information such as product literature, specification sheets, rate sheets,
technical bulletins or other types of information a company may want to
quickly and easily communicate via fax.
PHONEXPRESS
PhoneXpress is designed to meet the requirements of small- to medium-sized
enterprises that require full-featured automated attendant and voice mail
functions. PhoneXpress is based on the same core technology as CallXpress3,
but does not provide the application interfaces to support all the advanced
computer-telephony applications of unified messaging and call center
productivity. PhoneXpress is designed to support from 4 to 16 ports and can be
configured with faxtext and networking capability to provide a cost-effective
branch voice processing system for enterprise-wide networks. Similar to
CallXpress messaging products, PhoneXpress is available as a software kit or
as a completely integrated PhoneXpress system.
CALL CENTER PRODUCTS
AGENTXPRESS FOR WINDOWS NT
AgentXpress for Windows NT is the Company's first product resulting from the
acquisition of certain assets and liabilities of Telcom Technologies in early
1997. AgentXpress for Windows NT, launched in the second quarter of 1997,
brings a high-performance ACD offering to the Company's advanced computer-
telephony application product line targeted at the call center. AgentXpress is
an open systems-based platform, supporting up to 144 incoming trunk lines,
including analog, T1 or ISDN connections, and up to 96 agents utilizing either
analog or digital display phone sets. Designed for the medium-sized call
center, the system contains a variety of features and functions at a price
point below comparable proprietary systems. Up to 16 AgentXpress systems can
be networked together to form a distributed call center environment capable of
supporting up to 1,536 agents and 2,300 incoming calls at any one time.
AgentXpress is sold as a complete turnkey system with fully integrated and
tested PCs, disk drive storage devices of various sizes and configurations,
voice cards, trunk cards, modems, monitors, keyboards and digital display
phones.
ENHANCED AGENT
Enhanced Agent is a set of computer-telephony interfaces and applications
designed to extend the capabilities of AgentXpress to support integration with
CallXpress and RightFAX computer-telephony servers. Features provided by
Enhanced Agent include seamless transfers of callers to voice mail, the use of
IVR scripting for sophisticated caller interrogation, the ability for agents
to transmit fax-based information to callers
24
<PAGE>
while on the line, and the simultaneous delivery through screen pops of
computer-based caller information to the agent assigned the call.
RIGHTFAX PRODUCTS
The RightFAX high-performance, LAN-based fax servers are designed for
businesses with high fax traffic, with many fax users, or that require secure
and confidential fax management. The RightFAX products consist of server
software, fax cards and desktop clients. Desktop clients can fax documents
directly from any Windows application on their LAN-connected PC. All fax
processing is performed on the server, thereby eliminating the need for a fax
modem or telephone line connected directly to each user's PC. In addition,
because the fax processing is performed on the server, the user's application
sends the information to be faxed to the server, where all the conversions to
fax format and outbound calling and transmission are managed. RightFAX
products are sold in software kit form with or without fax cards.
Like the Company's telephony-oriented products, RightFAX provides a mailbox
to receive incoming faxes, which can be routed to the user's mailbox in a
variety of ways, including OCR (optical character recognition) of a cover
page. The fax is digitally stored and can be viewed on a PC connected to the
LAN or from any web browser on a PC connected to the Internet. Faxes can then
be printed on any printer connected to the LAN or the user's PC, forwarded to
other users on the RightFAX server, or re-faxed to any other fax machine in
the world. Since the fax has been stored digitally, there is no further
degradation due to multiple scannings through standalone fax machines.
RightFAX 4.5 runs on the OS/2 operating system and RightFAX 5.0 runs on the
Windows NT operating system. The newly announced RightFAX Enterprise product
offers more advanced features, including least-cost routing, Internet and
corporate intranet capabilities and load-sharing features for multiple server
environments. RightFAX servers can be configured from 1 to 32 simultaneous
inbound/outbound fax channels, supporting analog or digital T1 connectivity.
Capacity is added by installing voice/fax cards and by purchasing port
licenses. RightFAX servers are compatible with all major network operating
systems and are sold as either software licenses or software kits (including
fax cards).
COMMERCEPATH PRODUCTS
CommercePath offers a high-volume production-oriented line of servers that
attach to mainframe, midrange or network "host" computers and enable fax and
other forms of electronic transmission for applications on specific host
computers. Sold most often into high-volume business-to-business electronic
commerce environments, these servers are used to convert, transmit or receive
thousands of production documents such as purchase orders, order
acknowledgments, invoices or statements per hour.
CommercePath software is licensed for either Unix or Windows NT environments
starting with a base set of software known as the CommercePath environment.
Functions are purchased in individual module sets. These modules include
Hostfax, Responsefax, EDI-Interpoint, Internetlink and a set of desktop
applications know as Workstation. Capacity is added by installing voice/fax
cards and by purchasing port licenses.
CommercePath servers support up to 48 simultaneous inbound/outbound channels
per server, and analog or digital T1 connectivity, plus simultaneous
attachments to multiple hosts and printers. Each system is scaleable to
transmit/receive faxes at a rate of up to 2,800 pages per hour. CommercePath
servers are sold as complete turnkey systems with fully integrated and tested
PCs, disk drive storage devices of various sizes and configurations, voice and
fax cards, modems, monitors and keyboards.
DISTRIBUTION
The Company sells its products primarily through an indirect channel of
resellers and distributors, as well as through direct sales and OEM and
private label agreements. The Company believes that some enterprises
25
<PAGE>
will evaluate computer-telephony solutions from a telephony perspective while
others will be more data-focused. The use of multiple distribution channels
that access many of the same potential customers increases the likelihood that
the Company's products will be sold to a particular customer. The Company has
built large telephony-oriented and computer-oriented distribution channels in
the United States and is developing its international distribution channels.
No single customer represented 10% or more of the Company's net sales during
1996 or the first nine months of 1997. See "Risk Factors--Dependence on
Indirect Distribution."
Telephony-Oriented Distribution
The Company currently derives a substantial percentage of its U.S.
telephony-oriented sales revenues from over 400 wholesale dealers and
distributors comprised of customer premise telephone equipment dealers and
voice processing specialists. This channel consists primarily of national
telephone equipment dealers and regionally focused organizations and is
serviced by 18 employees. The Company continues to selectively recruit
additional dealers, focusing on those capable of marketing and servicing
advanced computer-telephony application products.
Dealers are required to attend Company-sponsored training sessions on system
usage, installation, maintenance and customer support. Advanced training is
also available from the Company on an ongoing basis. All dealers are subject
to agreements with the Company covering matters such as payment terms,
protection of proprietary rights and nonexclusivity of sales territories, but
these agreements generally do not restrict the dealer's ability to carry
competitive products.
Computer-Oriented Distribution
In the United States, the Company's 21-member computer-oriented sales force
sells most of the Company's computer-oriented products through an indirect
channel of value-added resellers, independent software vendors, and
professional services companies specializing in custom systems development.
These computer-oriented resellers are small- to medium-sized regionally-
focused organizations. In addition, the Company markets its computer-oriented
products directly to end-user customers through trade shows and journal
advertisements.
The Company's CommercePath products are marketed exclusively through its
CommercePath subsidiary using a direct, in-house sales force, currently
consisting of 16 persons.
OEM/Strategic Accounts
To broaden its access to certain markets, the Company has entered into
distribution and private label/OEM agreements with Dictaphone Corporation and
Fujitsu Business Communications Systems Inc. to sell private label versions of
the Company's CallXpress3 and PhoneXpress products, and has an arrangement
with Cardiff Software, Inc. to sell a private label version of its RightFAX
products. The Company expects to pursue additional OEM and private label
agreements in the future. The Company currently has four employees focused on
OEM and strategic accounts.
International Distribution
The international market for computer-telephony products is not as developed
as the market in the United States. The Company believes that over the next
few years the market for both telephony-oriented and computer-oriented
computer-telephony products will grow faster internationally than in the
United States. To address this opportunity, the Company is developing broad
coverage of international markets through a variety of dealer, distributor,
and strategic relationships. To date, the majority of the Company's
international sales have been in English-speaking countries: Canada,
Australia, the United Kingdom, South Africa and New Zealand. The Company
expects its accelerated distribution development and product
localization efforts of the past few years will result in a higher growth rate
in non-English-speaking countries
26
<PAGE>
than in English-speaking countries. The Company is actively recruiting new
dealers and distributors in international markets. The Company has sales
offices in Canada, the United Kingdom, Germany, Hong Kong and Dubai. Although
the Company's sales to date have generally been denominated in U.S. dollars,
the Company expects that in the future an increasing portion of its
international sales will be made in local currencies. See "Risk Factors--Risks
of International Markets" and Note 1 to the Consolidated Financial Statements.
PRODUCT SUPPORT
The Company's dealers and distributors are primarily responsible for
supporting end-users of the Company's products. The Company provides
telephone-based technical support to its dealers and distributors. Telephone
support service hours to dealers have been expanded to more effectively
service non-U.S. customers. The Company has also expanded its technical
training offerings of both telephony-oriented and computer-oriented products
to its dealers. The Company provides limited warranties on its RightFAX
products and certain hardware components distributed in conjunction with its
products.
The majority of product support is provided by the Company within three
months of product shipment, and the estimated cost of such support is
recognized as product revenues are recorded. The Company generally charges its
customers separately for post-sale updates and upgrades.
PRODUCT DEVELOPMENT
The Company has established a knowledge base in the development of call
processing, voice processing and call switching applications, as well as in
the development of LAN and Internet software applications. The Company
believes that its expertise in these areas enable it to efficiently bring to
market innovative software products that unify and exchange information on and
between the telephone and computer.
The Company maintains four product development centers: CallXpress and
PhoneXpress products are developed in Kirkland, Washington; AgentXpress
products in Montclair, California; RightFAX products in Tucson, Arizona; and
CommercePath products in Portland, Oregon. In total, the Company employs 88
engineers, technicians and quality assurance specialists in its development
centers. While development efforts in the past have been separate, the
convergence of technologies is allowing the Company to collaborate and
leverage development efforts among these groups. An example of such
collaborative efforts is the incorporation of the RightFAX fax server into the
CallXpress for Windows NT products. The Company expects these cross-
development efforts to increase in the future.
The Company internally develops its core technology, but believes that it is
more cost-effective to license from third parties certain components of its
products, such as database software, screen viewers, voice and fax cards and
network connectors. Whenever practical, the Company will license and integrate
such technology into its product offerings in order to decrease the cost of
development and shorten the time to market. In addition, the Company also
believes that the acquisition of new technology and new product offerings is
consistent with its strategic initiatives and will continue to pursue such
opportunities as they become available.
The Company believes that, for its product offerings to continue to achieve
acceptance, it will be necessary to continue to develop enhanced versions of
its computer-telephony applications. Over the past year the Company has
released major new versions of its products which operate in the Windows NT
environment. The Company expects to continue to expend significant research
and development efforts in developing new technology, but does not expect to
introduce as many new product lines in future years as in 1997. See "Risk
Factors--Rapidly Changing Technology and Customer Needs."
Additionally, with international markets expected to grow at a faster rate
than the North American market over the next several years, the Company
intends to continue to develop versions of its products that have been
localized for foreign markets. Localization includes converting client
screens, documentation, and voice-
27
<PAGE>
prompt sets into foreign languages. The Company anticipates expending
significant research and development resources to develop localized versions
of its products.
PROPRIETARY RIGHTS
AVT relies on a combination of patents, copyright, trademark and trade
secret laws, nondisclosure and other contractual agreements and technical
measures to protect its proprietary rights. The Company has filed one patent
application in the area of unified messaging and has received notice that the
patent claims have been allowed. There can be no assurance that the Company's
efforts to protect its proprietary rights will be successful. AVT has
periodically received letters from third parties asserting patent rights.
Following analysis, the Company generally has not believed it necessary to
license any of the patent rights referred to in such letters. In those cases
in which the Company has determined a license of patent rights was necessary,
it has entered into a license agreement. The Company believes that any
necessary licenses or other rights under patents to products or features could
be obtained on conditions that would not have a material adverse effect on its
financial condition, although there can be no assurance in this regard. See
"Risk Factors--Limited Intellectual Property Protection; Potential
Infringements."
The Company licenses certain portions of its technology from third parties
under written agreements, some of which contain provisions for ongoing royalty
payments. As of September 30, 1997, the Company had license agreements with
Octel Corporation, Syntellect Inc., Intelligent Environments, Inc. and
International Business Machines Corporation.
COMPETITION
The computer-telephony market is highly competitive and the Company believes
that the competitive pressures it faces are likely to intensify, particularly
as new offerings based on the Windows NT operating system emerge. System
features, product pricing, ease of use and installation, sales engineering and
marketing support, and product reliability are the primary bases of
competition. The Company believes that it competes favorably with respect to
these factors in its target markets. See "Risk Factors--Competition."
The Company's principal competitors in the telephony-oriented market for
voice messaging and unified messaging systems are independent suppliers,
including Octel Communications Corporation (recently acquired by Lucent
Technologies, Inc.), Centigram Communications Corporation, Active Voice
Corporation, Voysys Corporation and Callware Technologies, Inc. The Company's
principal competitors in the call center systems market are manufacturers such
as Aspect Telecommunications Corporation and Rockwell International
Corporation. PBX and key telephone systems manufacturers such as Lucent
Technologies, Inc., Northern Telecom Ltd., Siemens Business Communication
Systems, Inc., Executone Information Systems, Inc., Panasonic Communications
and Systems Co., NEC America, Inc. and Toshiba America Information Systems,
Inc. also compete with the Company by offering integrated voice messaging
systems, unified messaging systems and ACD systems of their own design or
through various OEM agreements.
In the market for LAN-based facsimile systems, the Company's principal
competitors include Omtool, Ltd., Optus Software, Inc., Alcom Corporation and
Computer Associates International, Inc. The Company's fax server products also
compete with vendors offering a range of alternative facsimile solutions,
including operating systems containing facsimile and document transmission
features, low-end fax modem products, desktop fax software, single-platform
facsimile software products and customized proprietary software solutions. In
the market for production facsimile systems, the Company's principal
competitors are Biscom, Inc., Teubner & Associates and Topcall International
AG.
MANUFACTURING
The Company's manufacturing operations consist primarily of diskette
duplication, documentation fulfillment, final assembly and quality control
testing of materials, subassemblies and systems. Some limited hardware
fabrication is performed by third parties for the Company on certain telephone
switch integration
28
<PAGE>
modules, for which the Company has designed a proprietary device to emulate a
particular manufacturer's telephone station set, and for certain internal
"switching" components and digital hand sets used in the Company's ACD
products. The Company is dependent on third-party manufacturers and vendors
for certain critical hardware components such as PC chassis, keyboards, disk
drives, monitors, memory modules and other miscellaneous components.
The Company's products incorporate a number of commercially available
application cards, fax cards, voice cards and circuit boards that enable
integration with certain telephone switches. The Company currently purchases
voice cards from Dialogic, Natural Microsystems Corp. and Mitel Corp. The
Company purchases fax cards from Brooktrout and Dialogic. See "Risk Factors--
Dependence on Suppliers."
EMPLOYEES
As of September 30, 1997, the Company had 224 full-time employees, including
34 in administration, 18 in manufacturing, 88 in engineering and product
development, and 84 in sales, marketing and technical support. The Company's
employees enter into agreements containing confidentiality restrictions. The
Company has never had a work stoppage and no employees are represented by a
labor organization. The Company considers its employee relations to be good.
PROPERTIES
The Company's headquarters and its telephony-oriented administrative,
engineering, manufacturing and marketing operations are located in
approximately 58,000 square feet of space in Kirkland, Washington under a
lease that expires in January 2003. The Company also conducts telephony-
oriented operations in approximately 10,000 square feet of leased space in
Montclair, California. The Company's computer-oriented operations are
primarily located in approximately 14,000 square feet of leased space in
Tucson, Arizona and approximately 8,570 square feet of leased space in
Portland, Oregon.
The Company believes that these facilities are adequate to meet its current
needs and that suitable additional or alternative space will be available, as
needed, in the future on commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
29
<PAGE>
MANAGEMENT
Executive officers and directors of the Company, and their ages, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard J. LaPorte........... 53 Chairman of the Board, President and Chief
Executive Officer
Greg R. Blanpied............. 50 Executive Vice President and Chief Technology
Officer
Roger A. Fukai............... 44 Executive Vice President of Finance and
Administration and Chief Financial Officer
Michael (Corey) Freebairn.... 34 Senior Vice President of International
Joseph A. Staples............ 37 Senior Vice President of Worldwide Marketing
Timothy A. Wudi.............. 47 Senior Vice President of North American Dealer
Sales
James S. Campbell(1)(2)...... 70 Director
Robert L. Lovely(1).......... 60 Director
William L. True(1)(2)........ 43 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Richard J. LaPorte. Mr. LaPorte joined AVT in 1990 as President, Chief
Executive Officer and a director. He became Chairman of the Company's Board in
1994, and also serves as a director and executive officer of certain AVT
wholly owned subsidiaries. He has over 30 years of experience managing high-
technology data processing, computer software and communications companies.
Mr. LaPorte was President and Chief Executive Officer of Accountants
Microsystems Inc., a computer software development company, from 1985 to 1990.
Prior to that, he served as President and Chief Executive Officer of Gill
Management Services, Inc., and held various senior management positions at
Xerox Computer Services, a division of Xerox Corporation.
Greg R. Blanpied. Mr. Blanpied serves as AVT's Executive Vice President and
Chief Technology Officer. Mr. Blanpied joined the Company in 1991, and served
as the Company's Senior Vice President of Engineering and Operations until his
appointment to his current position in 1997. Prior to joining AVT, Mr.
Blanpied was Vice President of Engineering at Votan Corporation, a division of
MOSCOM Corporation, a voice processing and voice recognition company, from
1989 to 1991. Prior to that, he was Vice President of Software Development and
Operations for Compufact, a division of Computer Sciences Corporation; the
Managing Partner of Trillium Software, Inc., a software engineering consulting
company; and Vice President of Technology Planning and Development and Vice
President of Systems Programming for Xerox Computer Services.
Roger A. Fukai. Mr. Fukai serves as AVT's Executive Vice President of
Finance and Administration and Chief Financial Officer. Mr. Fukai joined the
Company in 1988 as the Company's Director of Finance and served as Senior Vice
President of Finance and Administration and Chief Financial Officer from 1991
until his appointment to his current position in 1997. Mr. Fukai also serves
as a director and executive officer of certain AVT wholly owned subsidiaries.
Prior to joining AVT, Mr. Fukai was Controller at Advanced Technology
Laboratories, Inc., a manufacturer of diagnostic medical imaging equipment.
Mr. Fukai is a C.P.A and holds a B.A. degree in business administration from
Washington State University.
Michael (Corey) Freebairn. Mr. Freebairn serves as AVT's Senior Vice
President of International. Prior to joining AVT on March 1, 1996, Mr.
Freebairn was Director of Worldwide Sales for Canopy Technologies, Inc., a
software sales and marketing corporation. Mr. Freebairn was Regional Director
of International at WordPerfect Corporation, a division of Novell, Inc., from
1988 through 1994. Mr. Freebairn holds a B.A. degree in english from Brigham
Young University and an M.B.A. degree from the University of Phoenix.
Joseph A. Staples. Mr. Staples serves as AVT's Senior Vice President of
Worldwide Marketing. Prior to joining AVT on February 26, 1996, Mr. Staples
was Vice President of Marketing at Callware Technologies,
30
<PAGE>
Inc., a developer of Novell Network-based call processing applications, from
1994 to 1996. Prior to that, he was Senior Product Marketing Manager for
Novell, Inc. Mr. Staples holds a B.A. degree in business administration from
the University of Phoenix.
Timothy A. Wudi. Mr. Wudi serves as AVT's Senior Vice President of North
American Dealer Sales. Mr. Wudi joined the Company in 1991 as Business
Development Manager, and served as the Company's Vice President, U.S. Dealer
Sales from 1993 until his appointment to his current position in 1996. Mr.
Wudi was employed from 1990 to 1991 as National Accounts Manager at VMX Inc.,
a subsidiary of Octel Communications Corporation. Mr. Wudi is a C.P.A. and
holds a B.S. degree in business administration, accounting and marketing from
Central Michigan University.
James S. Campbell. Mr. Campbell has served as a director of the Company
since 1991. Since 1987, he has been Managing Director of Management Partners
International Corporation, a management consulting firm. Previously, Mr.
Campbell served as Chairman, President and Chief Executive Officer of Fortune
Systems Corporation (now Connectivity Technology, Inc.), President of Shugart
Corp., President of Xerox Computer Services and a Corporate Vice President of
Xerox Corporation. Mr. Campbell also serves as a director of Rational Software
Corp. He holds a B.A. degree in business administration from the University of
Wisconsin and attended the Graduate School of Business in Wisconsin.
Robert L. Lovely. Mr. Lovely has served as a director of the Company since
1983. He has been President of The Lovely Corporation, a travel agency system
and management consulting firm, since 1984. Mr. Lovely is also Executive Vice
President of Travel Automation Systems Corp., which develops and sells
application software to the travel industry. Mr. Lovely also serves as a
director of Westar Financial Services, Inc. Previously, he was President,
Chief Executive Officer and a director of Satellite Information Systems Co., a
publicly owned software development company; founder, manager and director of
Illuminet, Inc., a nationwide company servicing independent telephone
companies; and founder, manager, Chief Executive Officer and director of
Allied Data Inc., an information services company. Mr. Lovely holds a B.A.
degree in mathematics from Washington State University and an M.B.A. degree
from Pacific Lutheran University.
William L. True. Mr. True has served as a director of the Company since
1985, serving as Chairman of the Company's Board from 1990 to 1994. Mr. True
has also been Chairman of the Board of Gull Industries, Inc. ("Gull"), a
privately held full-line petroleum distributor in the Pacific Northwest and a
principal shareholder of the Company, since 1990. Prior to that, Mr. True
served as Executive Vice President and a Director of Gull from 1989 to 1990.
Mr. True also serves on the boards of the Seattle Art Museum and the Pike
Place Market Foundation, where he is President. Mr. True holds a B.A. degree
from Duke University.
31
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1997,
as adjusted to reflect the sale by the Company of 717,000 shares of Common
Stock and the sale by the Selling Shareholders of 883,000 shares of Common
Stock in this offering (in each case assuming no exercise of the Underwriters'
over-allotment option), for (i) each person known by the Company to
beneficially own more than 5% of the Common Stock, (ii) each director of the
Company, (iii) each of the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company for the year
ended December 31, 1996, (iv) all directors and executive officers of the
Company as a group, and (v) the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY NUMBER OF
OWNED PRIOR TO OWNED AFTER SHARES
OFFERING(1) SHARES OFFERING(1) UNDER
----------------- TO BE ----------------- UNVESTED
NAME AND ADDRESS NUMBER PERCENT SOLD NUMBER PERCENT OPTIONS(2)
- ---------------- --------- ------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gull Industries, Inc...... 1,254,726 21.8% 750,000 504,726 7.6% --
3404-4th Avenue South
Seattle, WA 98124
William L. True(3)........ 1,262,476 21.9% 750,000 512,476 7.7% 2,000
3404-4th Avenue South
Seattle, WA 98124
Richard J. LaPorte(4)..... 354,408 5.8% 70,000 284,408 4.1% 120,000
Greg R. Blanpied(5)....... 80,673 1.4% 30,000 50,673 * 25,000
Roger A. Fukai(6)......... 82,025 1.4% 20,000 62,025 * 85,000
Robert L. Lovely(7)....... 37,500 * 8,000 29,500 * 2,000
Timothy A. Wudi(8)........ 38,135 * -- 38,135 * 33,365
James S. Campbell(9)...... 6,000 * -- 6,000 * 2,000
Michael (Corey)
Freebairn(10)............ 19,520 * -- 19,520 * 20,680
Joseph A. Staples(11)..... 17,875 * 5,000 12,875 * 24,700
All directors and
executive officers as a
group (9 persons)(2)(12).. 1,898,612 29.8% 883,000 1,015,612 15.4% 314,745
</TABLE>
- -------
* Less than 1%
(1) Based on information furnished by the persons and entities named in the
table, and unless otherwise indicated, the Company believes that such
persons and entities have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws,
where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of September 30, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage
ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Shares issuable upon exercise of stock options that are not currently
exercisable or exercisable within 60 days.
(3) Includes 1,254,726 shares owned by Gull. Mr. True is Chairman of the
Board of Gull, and shares voting power and the ability to control the
disposition of such shares. Shares beneficially owned by Mr. True include
7,750 shares issuable upon exercise of stock options that are currently
exercisable or exercisable within 60 days.
(4) Includes 351,708 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(5) Represents shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(6) Includes 82,000 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(7) Includes 24,000 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(8) Includes 35,634 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(9) Includes 4,000 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(10) Includes 19,320 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(11) Includes 17,650 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
(12) Includes 622,735 shares issuable upon exercise of stock options that are
currently exercisable or exercisable within 60 days.
32
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist
LLC, Cowen & Company and Piper Jaffray inc. (collectively, the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholders the following respective numbers of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
Cowen & Company.................................................
Piper Jaffray inc...............................................
---------
Total......................................................... 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent accountants. The nature of the Underwriters' obligations is such
that they are committed to purchase all shares of Common Stock offered hereby
if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering of the shares, the offering price and other
selling terms may be changed by the Representatives.
The Company and one of the Selling Shareholders, Gull Industries, Inc., have
granted to the Underwriters an option, exercisable no later than 30 days after
the date of this Prospectus, to purchase up to 240,000 (183,750 from the
Company and 56,250 from such Selling Shareholder) additional shares of Common
Stock at the public offering price, less the underwriting discount, set forth
on the cover page of this Prospectus. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
number of shares of Common Stock offered hereby. The Company and such Selling
Shareholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the
right to reject any order for the purchase of shares in whole or in part.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Underwriters have advised the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
The Company and certain shareholders of the Company, including the Company's
executive officers and directors, who will own in the aggregate 1,015,612
shares of Common Stock after this offering (including shares of Common Stock
issuable upon the exercise of certain outstanding options), have agreed that
they will
33
<PAGE>
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell
or otherwise dispose of any shares of Common Stock or options to acquire
shares of Common Stock owned by them during the 90-day period following the
date of this Prospectus.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling-off" period
immediately preceding the commencement of sales in this offering. The
Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. The rules permit an
Underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with this offering and that its net purchase on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters, selling group members (if any) or their respective affiliates
intend to engage in passive market making in the Common Stock during the
"cooling-off" period.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids or effecting syndicate
covering transactions. A stabilizing bid means the placing of any bid or
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Common Stock. A syndicate covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with this
offering. Such transactions may be effected on the Nasdaq Stock Market, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Perkins Coie, Seattle, Washington. Certain legal matters relating
to this offering will be passed upon for the Underwriters by Venture Law
Group, Kirkland, Washington.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996, and for each of the three years in the period ended December 31,
1996, included elsewhere in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of such firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission in Washington, D.C. (450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549) and at the
Commission's Regional Offices in New York (7 World Trade Center, 13th Floor,
New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661). Copies of such materials also
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company is an electronic filer and the Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The Company's Common Stock is traded on the Nasdaq National
Market.
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") filed
with the Commission under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain portions of which have been omitted in
accordance with the Commission's rules and regulations. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto. The
statements in this Prospectus are qualified in their entirety by reference to
the contents of any agreement or other document incorporated herein by
reference, a copy of which is filed as an exhibit to either the Registration
Statement or other filings by the Company with the Commission.
34
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996 and
September 30, 1997 (unaudited)............................................ F-3
Consolidated Statements of Income for each of the three years ended Decem-
ber 31, 1996 and for the nine months ended September 30, 1996 and 1997
(unaudited)............................................................... F-4
Consolidated Statements of Shareholders' Equity for each of the three years
ended December 31, 1996 and for the nine months ended September 30, 1997
(unaudited)............................................................... F-5
Consolidated Statements of Cash Flows for each of the three years ended De-
cember 31, 1996 and for the nine months ended September 30, 1996 and 1997
(unaudited)............................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
of Applied Voice Technology, Inc.
We have audited the accompanying consolidated balance sheets of Applied
Voice Technology, Inc. (a Washington corporation) and its subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Applied Voice Technology,
Inc. and its subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
January 24, 1997
F-2
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- 1997
1995 1996 -------------
------- ------- (UNAUDITED)
ASSETS (IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $12,249 $12,195 $16,652
Short-term investments.................... 12,197 15,484 11,864
Accounts receivable, less allowance for
doubtful accounts of $483,000, $606,000,
and $674,000 (unaudited)................. 4,755 6,106 6,940
Inventories............................... 1,728 2,458 4,530
Deferred income taxes..................... 891 1,056 2,605
Prepaid expenses and other................ 994 502 855
------- ------- -------
Total current assets.................... 32,814 37,801 43,446
Equipment and leasehold improvements, net... 954 1,479 2,027
Intangibles, net............................ 3,164 6,847 6,021
------- ------- -------
$36,932 $46,127 $51,494
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 1,103 $ 2,033 $ 2,067
Other current liabilities................. 1,493 3,967 3,347
Note payable--current portion............. 537 586 464
Income taxes payable...................... 11 345 1,893
------- ------- -------
Total current liabilities............... 3,144 6,931 7,771
------- ------- -------
Note payable................................ 899 313 --
Commitments.................................
Shareholders' equity:
Preferred stock, par value $.01 per share,
1,000,000 shares authorized; none
outstanding.............................. -- -- --
Common stock, par value $.01 per share,
30,000,000 shares authorized; 5,144,040,
5,425,713, and 5,759,089 (unaudited)
shares outstanding....................... 51 54 57
Additional paid-in capital................ 24,222 28,267 30,418
Retained earnings......................... 8,650 10,562 13,248
Deferred compensation..................... (34) -- --
------- ------- -------
Total shareholders' equity.............. 32,889 38,883 43,723
------- ------- -------
$36,932 $46,127 $51,494
======= ======= =======
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-3
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................... $28,761 $31,284 $44,127 $ 31,457 $ 40,503
Cost of sales....................... 12,391 13,364 16,895 12,084 15,023
------- ------- ------- -------- --------
Gross profit...................... 16,370 17,920 27,232 19,373 25,480
------- ------- ------- -------- --------
Operating expenses:
Research and development.......... 2,671 2,732 4,149 3,029 4,747
Selling, general and
administrative................... 8,357 8,458 14,509 10,565 13,422
Write-off of purchased, in-process
research and development......... -- -- 4,140 4,140 3,898
------- ------- ------- -------- --------
Total operating expenses........ 11,028 11,190 22,798 17,734 22,067
------- ------- ------- -------- --------
Operating income.................... 5,342 6,730 4,434 1,639 3,413
------- ------- ------- -------- --------
Other income:
Interest income................... 199 1,063 909 618 634
Other............................. 95 53 10 32 149
------- ------- ------- -------- --------
Other income.................... 294 1,116 919 650 783
------- ------- ------- -------- --------
Income before income tax expense.... 5,636 7,846 5,353 2,289 4,196
Income tax expense.................. 1,398 2,512 3,419 2,315 1,510
------- ------- ------- -------- --------
Net income (loss)................... $ 4,238 $ 5,334 $ 1,934 $ (26) $ 2,686
======= ======= ======= ======== ========
Primary income (loss) per common
share.............................. $ 1.00 $ 0.94 $ 0.33 $ (--) $ 0.44
Weighted average common and common
equivalent shares outstanding...... 4,242 5,697 5,837 6,064 6,160
Fully diluted net income per common
share.............................. * * * * $ 0.42
Weighted average common and common
equivalent shares outstanding...... * * * * 6,391
</TABLE>
- ---------------------
* Primary and fully diluted net income per common share not materially
different.
See the accompanying notes to these consolidated financial statements.
F-4
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN DEFERRED RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
---------- ------ ---------- ------------ -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 3,543,191 $35 $ 5,931 $(227) $ (944) $ 4,795
Issuance of shares in
public offering, net of
underwriting discount
and $497,000 of
offering expenses...... 1,350,000 14 15,811 -- -- 15,825
Exercise of stock
options................ 10,401 -- 32 -- -- 32
Stock compensation ex-
pense.................. -- -- -- 108 -- 108
Net income.............. -- -- -- -- 4,238 4,238
---------- --- ------- ----- ------- -------
Balance at December 31,
1994................... 4,903,592 49 21,774 (119) 3,294 24,998
Unrealized gain on in-
vestments.............. -- -- -- -- 22 22
Exercise of
overallotment option
from initial public of-
fering................. 168,750 1 2,039 -- -- 2,040
Exercise of stock
options................ 71,698 1 409 -- -- 410
Stock compensation ex-
pense.................. -- -- -- 85 -- 85
Net income.............. -- -- -- -- 5,334 5,334
---------- --- ------- ----- ------- -------
Balance at December 31,
1995................... 5,144,040 51 24,222 (34) 8,650 32,889
Unrealized loss on
investments............ -- -- -- -- (22) (22)
Exercise of stock op-
tions.................. 118,374 1 617 -- -- 618
Stock compensation ex-
pense.................. -- -- -- 34 -- 34
Stock issued in
acquisition............ 163,299 2 3,428 -- -- 3,430
Net income.............. -- -- -- -- 1,934 1,934
---------- --- ------- ----- ------- -------
Balance at December 31,
1996................... 5,425,713 54 28,267 -- 10,562 38,883
Stock issued in
acquisition
(unaudited)............ 95,516 1 -- -- -- 1
Exercise of stock
options (unaudited).... 237,860 2 2,151 -- -- 2,153
Net income (unaudited).. -- -- -- -- 2,686 2,686
---------- --- ------- ----- ------- -------
Balance at September 30,
1997 (unaudited)....... 5,759,089 $57 $30,418 $ -- $13,248 $43,723
========== === ======= ===== ======= =======
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-5
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ 4,238 $ 5,334 $ 1,934 $ (26) $ 2,686
------- ------- ------- -------- --------
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 427 809 1,395 1,035 1,489
Write-off of purchased, in-
process research and
development................. -- -- 4,140 4,140 3,898
Stock compensation expense... 108 85 34 34 --
Changes in current assets and
liabilities:
Accounts receivable........ (19) (1,732) 5 895 (557)
Inventories................ 70 (332) (551) (518) (1,349)
Deferred income taxes...... (671) 2 (137) 4 (1,549)
Prepaid expenses and other
assets.................... 40 (539) (237) (12) (355)
Accounts payable........... 134 60 241 (69) (100)
Accrued compensation and
benefits.................. (342) (80) 514 729 (44)
Income taxes payable....... 870 (859) 546 (576) 1,548
Other accrued liabilities.. 440 (460) 271 (13) 185
------- ------- ------- -------- --------
Total adjustments.......... 1,057 (3,046) 6,221 5,649 3,166
------- ------- ------- -------- --------
Net cash provided by
operating activities...... 5,295 2,288 8,155 5,623 5,852
------- ------- ------- -------- --------
Cash flows from investing
activities:
Purchase of equipment and
leasehold improvements...... (432) (691) (930) (647) (954)
Cash paid in acquisition, net
of cash acquired............ -- -- (3,318) (3,318) (5,052)
Purchase of short-term
investments................. -- (12,175) (3,309) -- --
Net proceeds from the sale of
investments................. -- -- -- 4,037 3,620
Other intangibles and long-
term assets................. 148 (1,807) -- (397) (29)
------- ------- ------- -------- --------
Net cash used in investing
activities................ (284) (14,673) (7,557) (325) (2,415)
------- ------- ------- -------- --------
Cash flows from financing
activities:
Net proceeds from initial
public offering............. 15,825 -- -- -- --
Net proceeds from
overallotment exercise...... -- 2,040 -- -- --
Repayment of long-term debt.. -- (289) (983) (399) (435)
Proceeds from sale of common
stock....................... 32 198 331 302 1,455
------- ------- ------- -------- --------
Net cash provided by (used
in) financing activities.. 15,857 1,949 (652) (97) 1,020
------- ------- ------- -------- --------
Net increase (decrease) in
cash...................... 20,868 (10,436) (54) 5,201 4,457
Cash and cash equivalents at
beginning of period........... 1,817 22,685 12,249 12,249 12,195
------- ------- ------- -------- --------
Cash and cash equivalents at
end of period................. $22,685 $12,249 $12,195 $ 17,450 $ 16,652
======= ======= ======= ======== ========
Cash paid for interest......... $ -- $ 44 $ 129 $ 106 $ 47
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-6
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Applied Voice Technology, Inc. (the Company), a Washington corporation,
provides software-based computer-telephony products for medium-sized
enterprises. The Company's products address the voice messaging, call center,
fax server and production fax markets and are distributed primarily through
independent distributors and value-added resellers. The consolidated financial
statements include the accounts of all subsidiaries, all of which are wholly
owned. All intercompany accounts have been eliminated.
Interim Financial Information
The financial information for the nine months ended September 30, 1996 and
1997 is unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the financial position at such dates and the operating results
and cash flows for those periods. Operating results for the September 30, 1996
and 1997 periods are not necessarily indicative of the results that may be
expected for the entire year.
Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include all cash balances and highly liquid investments in a money
market fund. Investments are recorded at cost, which approximates market
prices.
Inventories
Inventories consist primarily of computer assemblies, components and related
equipment, and are stated at the lower of cost (first-in, first-out) or market
(net realizable value). Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and service parts................ $ 1,477 $ 2,193 $ 4,193
Finished goods................................. 251 265 337
------- ------- -------
$ 1,728 $ 2,458 $ 4,530
======= ======= =======
</TABLE>
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost and are depreciated
on the straight-line method over the estimated useful lives of the assets,
which range from three to five years. Equipment and leasehold improvements
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computers and other equipment................ $ 3,016 $ 4,015 $ 5,004
Leasehold improvements....................... 311 339 421
Furniture and fixtures....................... 256 372 382
------- ------- -------
3,583 4,726 5,807
Less accumulated depreciation................ (2,629) (3,247) (3,780)
------- ------- -------
Equipment and leasehold improvements, net.... $ 954 $ 1,479 $ 2,027
======= ======= =======
</TABLE>
F-7
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
Intangibles
Goodwill is being amortized using the straight-line method over its
estimated useful life of seven years. License agreements are amortized using
the straight-line method over the remaining lives of the related patents,
which range from approximately 6 to 12 years.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill on RightFAX acquisition.............. $ -- $ 4,070 $ 4,070
License agreements............................ 3,622 4,068 4,516
------ ------- -------
3,622 8,138 8,586
Less accumulated amortization................. (458) (1,291) (2,565)
------ ------- -------
Intangibles, net.............................. $3,164 $ 6,847 $ 6,021
====== ======= =======
</TABLE>
Other Current Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued compensation and benefits............... $ 644 $ 1,252 $ 1,208
Acquisition costs............................... -- 1,408 --
Deferred maintenance revenue.................... 362 519 1,062
Other........................................... 487 788 1,077
------ ------- -------
Other current liabilities....................... $1,493 $ 3,967 $ 3,347
====== ======= =======
</TABLE>
Use of Estimates
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenues from sales to dealers are recognized when the products are shipped.
When the Company has an installation obligation, revenues are recognized when
product installation is complete. Revenues from extended warranty agreements
are recognized over the lives of the related service contracts on the
straight-line method. The Company accrues estimated costs of technical support
to customers as related revenues are recognized.
Research and Development Costs
Research and development costs are expensed as incurred. The Company has not
capitalized any software development costs, as technological feasibility is
not generally established until substantially all development is complete.
F-8
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
Net Income Per Share
Net income per share is determined based on the adjusted net income, divided
by the weighted average number of shares of common stock and equivalents,
using the treasury stock method. Net income used in the calculation includes
the addition of hypothetical interest on additional proceeds remaining under
the treasury stock method using an average rate of return that the Company has
received on its investments. Common stock equivalents include common stock
options and warrants, as well as additional shares to be issued in connection
with the RightFAX earn out.
Concentration of Credit Risk; Export Sales
The Company achieves broad U.S. market coverage for its products primarily
through a nationwide network of telephony-oriented dealers and computer-
oriented value-added resellers. For the year ended December 31, 1996 and the
nine months ended September 30, 1997, no customer represented 10% or greater
of the Company's sales. The Company's largest customer represented 12.4% and
12.1% of net sales for the years ended December 31, 1994 and 1995,
respectively. No other customer represented more than 10% of net sales in any
year. The Company performs ongoing credit evaluations of its customers'
financial conditions and, generally, no collateral is required.
The Company's export sales were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Canada.................................... $2,135 $2,055 $2,660 $1,753 $2,325
Other..................................... 1,665 2,315 5,338 3,721 5,960
------ ------ ------ ------ ------
$3,800 $4,370 $7,998 $5,474 $8,285
====== ====== ====== ====== ======
</TABLE>
2. INCOME TAXES
Income taxes are provided for in the consolidated statements of income using
the asset and liability method. The difference between the provision for
income taxes and the statutory tax rate applied to income before income tax
expense is due to certain expenses not being deductible for tax purposes,
research and experimentation credits and the reduction of valuation allowances
as the Company realized the benefits of net operating loss carryforwards.
The following is a reconciliation from the U.S. statutory rate to the
effective tax rate:
<TABLE>
<CAPTION>
1997
1994 1995 1996 (ANNUALIZED)
------------- ------------ ------------ --------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ---- ------ ---- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at statutory rate... $1,916 34.0% $2,667 34.0% $1,820 34.0% $ 1,427 34.0%
Research and experimen-
tation credit.......... (306) (5.4) (45) (0.6) (69) (1.3) (105) (2.5)
Write-off of purchased,
in-process research and
development............ -- -- -- -- 1,408 26.3 -- --
Change in valuation al-
lowance................ (604) (10.7) -- -- -- -- -- --
Nontaxable interest in-
come................... -- -- (148) (1.9) (217) (4.0) (192) (4.6)
State taxes and other... 392 6.9 38 0.5 477 8.9 380 9.1
------ ----- ------ ---- ------ ---- ------- -----
Income tax expense...... $1,398 24.8% $2,512 32.0% $3,419 63.9% $ 1,510 36.0%
====== ===== ====== ==== ====== ==== ======= =====
</TABLE>
F-9
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
Deferred taxes result from temporary differences relating to bad debt and
obsolescence reserves, depreciation and amortization and other accruals that
are expensed for financial reporting, but are not currently deductible for
income tax purposes.
Income tax expense and cash paid for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED
--------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current................................. $2,069 $2,510 $3,556 $3,059
Deferred................................ (671) 2 (137) (1,549)
------ ------ ------ ------
Total income tax expense.............. $1,398 $2,512 $3,419 $1,510
====== ====== ====== ======
Cash paid for income taxes.............. $1,199 $3,677 $3,010 $1,511
====== ====== ====== ======
</TABLE>
Significant components of the Company's deferred tax asset as of September
30, 1997, December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
----------- SEPTEMBER 30,
1995 1996 1997
---- ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable allowances................... $172 $ 244 $ 242
Inventory........................................ 129 118 115
Depreciation and amortization.................... 205 195 422
Accrued compensation and benefits................ 83 137 145
Purchased research and development............... -- -- 1,310
Other............................................ 302 362 371
---- ------ ------
Net deferred tax assets............................ $891 $1,056 $2,605
==== ====== ======
</TABLE>
3. SHAREHOLDERS' EQUITY
The Company has stock option plans under which employees, directors,
officers and other agents may be granted options to purchase common stock. The
Company has reserved approximately 1,860,000 shares of common stock for
issuance pursuant to these plans upon exercise of outstanding options and upon
exercise of options to be granted in the future. Options generally vest over
three to four years and expire 10 years from the date of grant. The options
are exercisable at prices determined at the discretion of the Board of
Directors. The Company accounts for these plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which
no compensation cost has been recognized based on the difference between the
exercise price and fair market value at the date of grant, if any. Had
compensation cost for stock option grants made in 1995 and 1996 been
determined using the fair value method consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<C> <S> <C> <C> <C>
Net Income: As Reported.......... $5,334,000 $1,934,000 $2,686,000
Pro Forma............ 5,324,000 793,000 1,586,000
Primary EPS: As Reported.......... $ 0.94 $ 0.33 $ 0.44
Pro Forma............ 0.94 0.16 0.28
Fully diluted EPS: As Reported.......... n/a n/a $ 0.42
Pro Forma............ n/a n/a 0.26
</TABLE>
F-10
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the nine months ended September 30, 1997:
risk-free interest rates of 6.85%; expected lives of five years; expected
volatility of 49%; and $0 dividends. For 1996 and 1995 the following
assumptions were used: risk-free interest rates of 6.25%; expected lives of
five years; expected volatility of 45%; and $0 dividends.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
Stock Option Plans
A summary of the status of the Company's stock option plans at December 31,
1994, 1995 and 1996, and at September 30, 1997, and the changes during the
periods then ended, is presented in the table and narrative below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------------------ ------------------ -------------------- --------------------
WTD. AVG. WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
------- --------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of
period................. 821,729 $2.55 809,175 $ 2.74 738,284 $ 2.95 1,450,365 $ 8.87
Granted................. 30,625 8.43 16,487 15.56 891,900 13.26 116,600 14.76
Exercised............... (10,401) 3.00 (71,699) 2.76 (118,374) 2.82 (237,858) 6.11
Canceled................ (32,778) 3.33 (15,679) 5.86 (61,445) 13.02 (29,735) 14.05
------- ------- --------- ---------
Outstanding at end of
period................. 809,175 2.74 738,284 2.95 1,450,365 8.87 1,299,372 9.79
------- ------- --------- ---------
Exercisable at end of
period................. 616,177 2.61 657,619 2.61 598,236 2.76 706,934 6.72
Weighted average fair
value of options
granted................ -- $ 7.50 $ 5.77 $ 7.59
</TABLE>
Options outstanding have exercise prices ranging from $1.00 to $19.00 per
share, with weighted average remaining contractual lives of 7.2 and 6.9 years
at December 31, 1996 and September 30, 1997, respectively. At September 30,
1997, 335,416 shares of the Company's common stock were available for future
grant under the Company's stock option plans.
Warrants
At September 30, 1997, there were outstanding warrants to purchase 100,000
shares of the Company's common stock. The warrants were issued in connection
with the Telcom Technologies Inc. acquisition discussed in Note 8 below.
4. LINE OF CREDIT
At September 30, 1997, the Company had a $4.0 million unsecured revolving
line of credit, none of which was used during the years ended December 31,
1995 and 1996. The Company's line of credit expires in May 1999 and contains
certain financial covenants and restrictions as to various matters, including
the Company's ability to pay cash dividends without the bank's prior approval.
The Company is currently in compliance with such financial covenants and
restrictions. Borrowings under the line of credit bear interest at the bank's
prime rate or, at the Company's option, its interbank offering rate plus
1.50%. At September 30, 1997, the bank's prime rate was 8.5%, and its
interbank offering rate was 5.6%.
5. SHORT-TERM INVESTMENTS
The Company has classified its investments as "available-for-sale" and
recorded these investments at estimated fair value, with unrealized gains and
losses, when material, reported as a component of shareholders' equity.
F-11
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
Interest income is recorded using an effective interest rate, with the
associated premium or discount amortized to interest income over the term of
the investment. The cost of securities sold is based upon the specific
identification method. Available-for-sale securities as of December 31, 1996
consisted of municipal notes and bonds whose amortized cost approximates
estimated fair value. The average maturity for these investments is four
months.
6. COMMITMENTS
Leases
The Company leases its office space under noncancelable operating leases.
Rent expense under the noncancelable leases amounted to $618,000 in 1994,
$520,000 in 1995, $654,000 in 1996 and $439,000 and $661,000 for the nine-
month periods ended September 30, 1996 and 1997, respectively. Future minimum
lease payments under noncancelable operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1998................................................................ $1,087
1999................................................................ 1,054
2000................................................................ 752
2001................................................................ 782
2002................................................................ 786
------
$4,461
======
</TABLE>
Retirement Savings Plan
The Company offers a 401(k) profit-sharing plan to substantially all of its
employees. Company contributions are determined annually and are at the
discretion of the Board of Directors. Contributions made to the plan were
$43,000 in 1994, $40,000 in 1995, $54,000 in 1996 and $165,000 in the nine
months ended September 30, 1997.
License Agreements
In connection with the acquisition of a business in 1989, the Company agreed
to make royalty payments from future sales of the Company's products, up to a
maximum of $2,800,000 in total, payable up to $70,000 per quarter, before
adjustment for increases in the consumer price index. In February 1995, the
Company made a prepayment of $1,808,000 to satisfy this royalty commitment.
This intangible is being amortized over the remainder of the original
agreement's term (67 months). Amounts charged to expense under this agreement
were $331,000 in 1994, $324,000 in each of 1995 and 1996 and $243,000 in each
of the nine-month periods ended September 30, 1996 and 1997.
In addition to the agreement mentioned above, the Company has two
nonexclusive licenses to sell products using patented technology. In exchange
for the licenses, the Company has made quarterly payments equal to 6% of net
revenues from sales of components utilized in the Company's products that use
the licensed technology.
In September 1995, the Company renegotiated its royalty obligation for one
of these licenses by issuing a note in the amount of $1,937,000, payable in 12
equal quarterly installments of $161,417 each, with the first installment paid
upon the signing of the agreement. The Company accrues interest expense at an
imputed rate of 8.75% per annum. The Company recorded an intangible for this
prepayment in the amount of
F-12
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
$1,725,000. The intangible is being amortized on a straight-line basis over
the remaining average lives of the related patents (approximately 12 years).
In July 1996, the Company renegotiated its royalty obligation for the second
license by issuing a note in the amount of $450,000, payable over two
quarters, with the first installment paid upon the signing of the agreement.
The Company accrued interest expense at an imputed rate of 8.5% per annum.
This note was satisfied at December 31, 1996. The Company recorded an
intangible for this prepayment in the amount of $446,000. The intangible is
being amortized on a straight-line basis over the remaining average lives of
the related patents (approximately seven years). Amounts charged to expense
for the two nonexclusive licenses were $598,000 in 1994, $533,000 in 1995,
$212,000 in 1996 and $158,000 in each of the nine-month periods ended
September 30, 1996 and 1997.
7. SUPPLEMENTAL INFORMATION--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) OF PERIOD
----------- ---------- ---------- -------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
December 31, 1994..... $436 227 -- 168 $495
December 31, 1995..... $495 77 -- 89 $483
December 31, 1996..... $483 248 -- 125 $606
September 30, 1997.... $606 137 5 74 $674
</TABLE>
- --------
(1) Amounts include write-offs of accounts receivable deemed uncollectable.
8. BUSINESSES ACQUIRED
On January 2, 1996, the Company acquired RightFAX, Inc. (RightFAX), a
privately held developer of fax server software for local area networks,
through a merger of RightFAX into a wholly owned subsidiary of the Company.
The purchase price for the acquisition paid at the closing was $4.2 million in
cash plus 163,000 shares of the Company's common stock. In addition, the
Company paid consideration of $1.4 million in cash and issued 95,000 shares of
the Company's common stock in 1997 relating to the 1996 earn out and
guaranteed value of the Company's common stock. As a result of the earn out,
the Company recorded an additional $2.0 million of goodwill at December 31,
1996. The former shareholders of RightFAX are entitled to receive additional
consideration of up to $1.8 million in a combination of cash and the Company's
common stock over the next two years, if certain revenue and profit margin
goals are achieved by RightFAX.
The pro forma unaudited operating results of the Company in the above
transaction for the year ended December 31, 1995, assuming the acquisition had
been made as of January 1, 1995, are summarized below:
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL (UNAUDITED)
------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales.............................................. $31,284 $37,405
Net income............................................. $ 5,334 $ 5,866
Net income per common share............................ $ 0.94 $ 1.00
Weighted average common shares outstanding............. 5,697 5,888
</TABLE>
F-13
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
These pro forma results have been prepared for comparative purposes only and
include certain adjustments such as additional amortization resulting from
allocating a portion of the purchase price to goodwill. They do not purport to
be indicative of the results of operations which actually would have resulted
had the combination been in effect on January 1, 1995, or future results of
operations of the consolidated entity.
On January 3, 1997, the Company acquired selected assets and liabilities of
Telcom Technologies Inc., a developer of NT-based open-architecture automatic
call distribution systems. The purchase price for the acquisition was $3.5
million in cash, plus warrants to purchase 100,000 shares of the Company's
common stock at $13.36 per share, which may be exercised at any time prior to
January 3, 2002. The Company accounted for the business combination as a
purchase and recognized a nonrecurring charge of $3.9 million in the first
quarter of 1997, representing the value of the purchased, in-process research
and development.
9. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which is effective for periods beginning after December 15, 1997. SFAS 128
establishes new standards for computing and presenting earnings per share
(EPS). Companies will report basic EPS and diluted EPS compared to primary and
fully diluted EPS, which are currently reported. Under the new standard, the
Company's basic EPS for the nine months ended September 30, 1997, was net
income of $0.48 per share. The diluted EPS is equivalent to the reported
primary EPS.
10. SUBSEQUENT EVENTS (UNAUDITED)
On October 22, 1997, the Company acquired all the outstanding capital stock
of CommercePath, Inc. (CommercePath) from Forest City Trading Group, Inc. for
$10.7 million in cash. In connection with the acquisition, the Company also
granted options to purchase 120,000 shares of the Company's common stock, at
an exercise price of $28.09 per share, to two executive officers of
CommercePath. The Company will account for the business combination as a
purchase and expects to record a nonrecurring charge of approximately $7.2
million in the fourth quarter of 1997, representing the value of the
purchased, in-process research and development, and to record approximately
$1.9 million of goodwill that it will amortize over seven years.
In October 1997, the Company filed a registration statement with the
Securities and Exchange Commission for the registration of 1,840,000 shares of
common stock, of which 717,000 shares are being offered by the Company,
883,000 shares are being offered by selling shareholders and the remaining
240,000 shares may be offered by the Company and one of the selling
shareholders upon the exercise of the underwriters' over-allotment option.
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference......................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 9
Price Range of Common Stock............................................. 9
Dividend Policy......................................................... 9
Capitalization.......................................................... 10
Selected Consolidated Financial Data.................................... 11
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 12
Business................................................................ 20
Management.............................................................. 30
Principal and Selling Shareholders...................................... 32
Underwriting............................................................ 33
Legal Matters........................................................... 34
Experts................................................................. 34
Available Information................................................... 34
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,600,000 SHARES
LOGO
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
COWEN & COMPANY
PIPER JAFFRAY INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of the registrant in
connection with the issuance and distribution of the securities being
registered (all amounts are estimated except the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National
Market listing fee).
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 15,334
NASD filing fee................................................. 5,560
Nasdaq National Market listing fee.............................. 14,340
Printing and engraving expenses................................. 75,000
Blue sky filing fees and expenses............................... 2,000
Legal fees and expenses......................................... 75,000
Accountants' fees and expenses.................................. 75,000
Transfer agent fees............................................. 6,000
Miscellaneous fees and expenses................................. 31,766
--------
Total......................................................... $300,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors, officers, employees
and agents of the registrant and those serving at the registrant's request in
similar positions in any other corporation, partnership, joint venture, trust
or other enterprise in terms sufficiently broad to permit such indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Restated Bylaws provides for
indemnification of the registrant's directors and officers against all
expense, liability and loss (including counsel fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which the director or officer
is, was or becomes involved by reason of the fact that the director or officer
is or was a director or officer of the registrant, or that being or having
been such a director or officer or an employee of the registrant, such
director or officer is or was serving at the request of the registrant as a
director, officer, partner, trustee, employee or agent of another corporation
or of a partnership, joint venture, trust, employee benefit plan or other
enterprise, whether the basis of such proceeding is alleged action by the
director or officer in an official capacity as such a director, officer,
partner, trustee, employee or agent or in any other capacity while serving as
such a director, officer, partner, trustee, employee or agent. The director or
officer is not indemnified for any action, suit, claim or proceeding
instituted by or at the direction of the director or officer unless such
action, suit, claim or proceeding is or was authorized by the registrant's
Board of Directors or unless the action is to enforce the rights of
indemnification. No indemnity may be provided by the registrant for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the WBCA, for any transaction with
respect to which it was finally adjudged that such indemnitee personally
received a benefit in money, property or services to which the indemnitee was
not legally entitled or if the corporation is otherwise prohibited by
applicable law from paying such indemnification.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, self-dealing or illegal corporate loans or
distributions, or any transaction from which the director personally receives
a benefit in money, property or services to which the director is not legally
entitled. Article 11 of the registrant's Restated Articles of Incorporation
provide for limitation of director liability to the maximum extent permitted
by the WBCA.
II-1
<PAGE>
The registrant also maintains an insurance policy insuring its directors and
officers against liability for certain acts or omissions while acting in their
official capacity.
The above discussion of the WBCA and the registrant's Restated Bylaws and
Restated Articles of Incorporation is not intended to be exhaustive and is
qualified in its entirety by reference to such statute, the Restated Bylaws
and the Restated Articles of Incorporation.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Warrant, dated January 3, 1997, issued by Applied Voice
Technology, Inc. to shareholders of Telcom Technologies, Inc. (Exhibit
4.1)*
5.1 Opinion of Perkins Coie as to the legality of the securities being
registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Perkins Coie (included in the opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed with, and incorporated by reference to, designated exhibit
to the Company's Current Report on Form 8-K dated January 3, 1997.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the registrant's Restated Articles of Incorporation and
Restated Bylaws, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act), that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
For purposes of determining any liability under the Securities Act, 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.
For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Kirkland, State of Washington, on October 22, 1997.
APPLIED VOICE TECHNOLOGY, INC.
/s/ Richard J. LaPorte
By___________________________________
Richard J. LaPorte
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Richard
J. LaPorte and Roger A. Fukai as his attorneys-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to
this registration statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact,
or their substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on the 22nd
day of October, 1997 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Richard J. LaPorte President, Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
Richard J. LaPorte
/s/ Roger A. Fukai Executive Vice President of Finance and
____________________________________ Administration and Chief Financial
Roger A. Fukai Officer (Principal Financial and
Accounting Officer)
/s/ James S. Campbell Director
____________________________________
James S. Campbell
/s/ Robert L. Lovely Director
____________________________________
Robert L. Lovely
/s/ William L. True Director
____________________________________
William L. True
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement
4.1 Form of Warrant, dated January 3, 1997, issued by Applied
Voice Technology, Inc. to shareholders of Telcom
Technologies, Inc. (Exhibit 4.1)*
5.1 Opinion of Perkins Coie as to the legality of the
securities being registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Perkins Coie (included in the opinion filed as
Exhibit 5.1)
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed with, and incorporated by reference to, designated exhibit
to the Company's Current Report on Form 8-K dated January 3, 1997.
<PAGE>
Exhibit 1.1
APPLIED VOICE TECHNOLOGY, INC.
1,600,000 SHARES/1/
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
November ___, 1997
HAMBRECHT & QUIST LLC
COWEN & COMPANY
PIPER JAFFRAY INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Applied Voice Technology, Inc., a Washington corporation (herein called the
Company), proposes to issue and sell 717,000 shares of its authorized but
unissued Common Stock, $0.01 par value (herein called the Common Stock), and the
shareholders of the Company named in Schedule II hereto (herein collectively
called the Selling Securityholders) propose to sell an aggregate of 883,000
shares of Common Stock of the Company (said 1,600,000 shares of Common Stock
being herein called the Underwritten Stock). The Company and one of the Selling
Securityholders propose to grant to the Underwriters (as hereinafter defined) an
option to purchase up to 183,750 and 56,250 additional shares of Common Stock,
respectively (herein called the Option Stock and with the Underwritten Stock
herein collectively called the Stock) for the purpose of covering overallotments
in connection with the sale of the Underwritten Stock. The Common Stock is more
fully described in the Registration Statement and the Prospectus hereinafter
mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to paragraph (b) of Section 3 hereof).
You represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-3 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act), of the Stock. Copies of such registration statement and of
each amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the rules and regulations of the Commission
with respect to the Stock (herein called a Rule 462(b) registration statement),
and, in the event of any
_______________________________
/1/ Plus an option to purchase from the Company and one Selling Securityholder
up to an aggregate of 240,000 additional shares to cover over-allotments.
<PAGE>
amendment thereto after the effective date of such registration statement
(herein called the Effective Date), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any Rule 462(b) registration statement). The term Prospectus as used
in this Agreement shall mean the prospectus, including the documents
incorporated by reference therein, relating to the Stock first filed with the
Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) The Company hereby represents and warrants as follows:
(i) On the Effective Date, the Registration Statement complied, and on
the date of the Prospectus, the date any post-effective amendment to the
Registration Statement shall become effective, the date any supplement or
amendment to the Prospectus is filed with the Commission and each Closing
Date, the Registration Statement and the Prospectus (and any amendment
thereof or supplement thereto) will comply, in all material respects, with
the applicable provisions of the Securities Act and the Rules; the
Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and on the other dates referred to above neither
the Registration Statement nor the Prospectus, nor any amendment thereof or
supplement thereto, will contain any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. When any
related Preliminary Prospectus was first filed with the Commission (whether
filed as part of the Registration Statement or any amendment thereto or
pursuant to Rule 424(a) of the Rules) and when any amendment thereof or
supplement thereto was first filed with the Commission, such Preliminary
Prospectus as amended or supplemented complied in all material respects
with the applicable provisions of the Securities Act and the Rules and did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading. Notwithstanding the foregoing, none
of the representations and warranties in this subparagraph (i) shall apply
to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information herein
or otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus,
including, but not limited to, the information contained in the last
paragraph on the front cover of the Prospectus, the paragraph with respect
to stabilization on the inside front cover page of the Prospectus and the
statements contained under the caption "Underwriting" in the Prospectus.
(ii) The consolidated financial statements of the Company (including
all notes and schedules thereto) included in the Registration Statement and
Prospectus present fairly the financial position of the Company as of the
dates indicated and the results of its operations and cash flows for the
periods specified; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently
applied throughout the periods involved, and all adjustments necessary for
a fair presentation of the results for such periods have been made.
-2-
<PAGE>
(iii) To the knowledge of the Company, Arthur Andersen, LLP, whose
reports are filed with the Commission as a part of the Registration
Statement, are and, during the periods covered by their reports, were
independent public accountants within the meaning of Rule 2-01 of
Regulation S-X under the Securities Act.
(iv) Each of the Company and its subsidiaries (the "Subsidiaries") has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation. Each of
the Company and the Subsidiaries is duly qualified and in good standing as
a foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or the
nature of its business makes such qualification necessary except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on the properties, business, results of operations or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole. Each of the Company and the Subsidiaries has all
requisite corporate power and authority, and all necessary authorizations,
approvals, consents, orders, licenses, certificates and permits of and from
all governmental or regulatory bodies or any other person or entity, to
own, lease and license its assets and properties and conduct its businesses
as now being conducted and as described in the Registration Statement and
the Prospectus except for such authorizations, approvals, consents, orders,
material licenses, certificates and permits the failure to so obtain would
not have a material adverse effect on the properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole; no such authorization, approval,
consent, order, license, certificate or permit contains a materially
burdensome restriction other than as disclosed in the Registration
Statement and the Prospectus. The Company owns all of the outstanding
capital stock of the Subsidiaries free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest.
(v) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and, assuming due authorization, execution and delivery by the
Underwriters, is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws
and other applicable law and except as the enforcement hereof may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws relating to or
affecting creditors' rights generally, (ii) by general equitable
principles, including, without limitation, concepts of materiality,
reasonableness, unconscionability, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether considered in a proceeding in
equity or at law, or (iii) the effect of public policy; the performance of
this Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and provisions
of or constitute a default under (i) any material indenture, mortgage, deed
of trust, loan agreement, bond, debenture, note agreement or other evidence
of indebtedness, or any material lease, contract, or other agreement or
instrument to which the Company or the Subsidiaries is a party or by which
the property of the Company or any of the Subsidiaries is bound, (ii) the
charter or bylaws of the Company or the Subsidiaries, or (iii) any law,
order, rule, regulation, writ, injunction, judgment or decree of any court
or governmental agency or body having jurisdiction over the Company or the
Subsidiaries or over the properties of the Company or the Subsidiaries; and
no consent, approval, authorization or order of or qualification with any
court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or its Subsidiaries or over their
respective properties is required for the execution and delivery of this
Agreement and the consummation by the Company or its Subsidiaries 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.
(vi) Each of the Company and the Subsidiaries owns or possesses
adequate and enforceable rights to use all trademark, trademark
applications, trade names, service marks, copyrights, copyright
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applications, patents, licenses, know-how and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the
conduct of its business as described in the Registration Statement and the
Prospectus. Except as described in the Registration Statement and the
Prospectus, neither the Company nor the Subsidiaries has received any
notice of, and is not aware of, any infringement of or conflict with
asserted rights of others with respect to any Intangibles which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the properties, business,
results of operations, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole.
(vii) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or, to the Company's knowledge, threatened against, or involving
the assets, properties or business of, the Company or the Subsidiaries or
their respective officers which, if determined adversely to the Company,
(a) would materially adversely affect the value or the operation of any
such properties or the business, results of operations, prospects or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole or (b) would prevent consummation of the transactions
contemplated hereby or (c) is required to be disclosed in the Registration
Statement and is not so disclosed.
(viii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business; (ii) neither the Company nor any of the Subsidiaries has
sustained any material loss or interference with its assets, businesses or
properties (whether owned or leased) from fire, explosion, earthquake,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or any court or legislative or other governmental action,
order or decree; and (iii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor any of the Subsidiaries has (A)
issued any debt securities or incurred any liability or obligation, direct
or contingent, for borrowed money, except such liabilities or obligations
incurred in the ordinary course of business, (B) entered into any
transaction not in the ordinary course of business or (C) declared or paid
any dividend or made any distribution on any shares of its stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its stock.
(ix) There is no document or contract of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each agreement listed in the Exhibits to the Registration
Statement or in the Exhibits to any of the Company's filings under the
Exchange Act that are incorporated by reference into the Registration
Statement is in full force and effect and is valid and enforceable by and
against the Company in accordance with its terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto except as such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other laws
relating to or affecting creditors rights generally, (ii) by general
equitable principles, including, without limitation, concepts of
materiality, reasonableness, unconscionability, good faith and fair dealing
and the possible unavailability of specific performance, injunctive relief
or other equitable remedies, regardless of whether considered in a
proceeding in equity or at law, or (iii) the effect of public policy.
Neither the Company nor, to the Company's knowledge, any other party is in
default in the observance or performance of any material term or obligation
to be performed by it under any such agreement, and no event has occurred
which with notice or lapse of time or both would constitute such a default,
in any such case which default or event would have a material adverse
effect on the properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole. No default exists, and no event has occurred which will
notice or lapse of time or both would constitute a default, in the due
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performance and observance of any term, covenant or condition, by the
Company or any of the Subsidiaries of any other agreement or instrument to
which each of the Company and the Subsidiaries is a party or by which it or
their properties or business may be bound or affected which default or
event would have a material adverse effect on the properties, business,
results of operations, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole.
(x) None of the Company or the Subsidiaries is in violation of any
terms or provision of its respective charter or bylaws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation, or
of all the laws, rules and regulations of the jurisdictions in which it is
conducting business, where the consequences of such violation would have a
material adverse effect on the properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole.
(xi) The Company's authorized and outstanding capital stock is as set
forth under the caption "Capitalization" in the Prospectus. Such capital
stock conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus. All of the
outstanding shares of Common Stock (including the Selling Securityholders'
Shares) have been duly and validly issued and are fully paid and
nonassessable and none of them was issued in violation of any preemptive or
other similar right. The Shares to be purchased from the Company hereunder
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable; and 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
Company Shares or Option Shares or the issuance and sale thereof other than
those that have been expressly waived or complied with prior to the date
hereof. No further approval or authorization of any shareholder, the Board
of Directors or others is required for the issuance and sale or transfer of
the Shares except as may be required under the Securities Act, the Exchange
Act, the bylaws and rules of the NASD or under state or other securities or
Blue Sky laws. All issued and outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant or
other right calling for the issuance of, and there is no commitment, plan
or arrangement to issue, any shares of stock of the Company or any security
convertible into, or exercisable or exchangeable for, such stock.
(xii) Except as disclosed in the Prospectus, no holder of any security
of the Company has the right to have any security owned by such holder
included in the Registration Statement or to demand registration of any
security owned by such holder during the period ending 90 days after the
date of this Agreement (the "Lock-Up Period"). Each director, executive
officer and shareholder owning, to the knowledge of the Company, more than
5% of the shares of Common Stock of the Company has delivered to the
Representatives its written agreement, copies of which heretofore have been
furnished to the Representatives, restricting such shareholder's right to
sell or dispose of shares of Common Stock for a period of 90 days after the
date of this Agreement.
(xiii) Neither the Company nor any of the Subsidiaries is involved in
any labor dispute nor, to the knowledge of the Company, is any such dispute
threatened, which dispute would have a material adverse effect on the
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a
whole. The Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers,
distributors, subcontractors, value added resellers, original equipment
manufacturers, authorized dealers or international distributors that it
expects to result in any material adverse effect on the properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole. No
collective bargaining agreement exists with any of the Company's employees
and, to the Company's knowledge, no such agreement is imminent.
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(xiv) No transaction has occurred between or among the Company and
any of its officers or directors or, to the Company's knowledge, any
affiliate or affiliates of any such officer or director that is required to
be described in and is not described in the Registration Statement and the
Prospectus.
(xv) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of any of the Stock.
(xvi) The Company has filed all Federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has
received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material
and have become due. There is no tax deficiency that has been or, to the
Company's knowledge, might be asserted against the Company or any of the
Subsidiaries that would have a material adverse effect on the properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole.
(xvii) The Company and the Subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate for their respective
businesses and consistent with insurance coverage maintained by similar
companies in similar businesses, including but not limited to, insurance
covering real and personal property owned or leased by the Company or the
Subsidiaries against theft, damage destruction, act of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect.
(xviii) The Shares have been duly authorized for quotation on the
Nasdaq National Market upon official notification of issuance.
(xix) Neither the Company nor any of its affiliates does business
with the government of Cuba or any person located in Cuba within the
meaning of Florida Statutes Section 517.075.
(xx) The Company has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder.
(xxi) The Company has not distributed and will not distribute prior
to the Closing Date (as defined in paragraph (a) of Section 5 hereof) or
the date of closing of the option under paragraph (c) of Section 3 hereof,
as the case may be, any offering material in connection with the offering
and sale of the Shares other than the Prospectus, the Registration
Statement and the other materials permitted by the Securities Act.
(xxii) Neither the Company nor any of the Subsidiaries has at any time
during the last five years (a) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (b) made any payment to any federal or state
government officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the
laws of the United States or of any jurisdiction thereof.
(b) Each of the Selling Securityholders hereby represents and warrants as
follows:
(i) Such Selling Securityholder has good and marketable title to all
the shares of Stock to be sold by such Selling Securityholder hereunder,
free and clear of all liens, encumbrances, equities, security
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interests and claims whatsoever, with full right and authority to deliver
the same hereunder, subject, in the case of each Selling Securityholder, to
the rights of Chase Mellon Shareholder Services, as Custodian (herein
called the Custodian), and that upon the delivery of and payment for such
shares of the Stock hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock to be
sold by such Selling Securityholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
(iii) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that
on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein
not misleading; and, on the Effective Date the Prospectus contained and, on
the Closing Date (as defined in paragraph (a) of Section 5 hereof) and any
later date on which Option Stock is to be purchased, contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
717,000 shares of the Underwritten Stock to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Securityholder, and each of the Underwriters agrees to purchase
from the Company and the Selling Securityholders the respective aggregate number
of shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and the Selling Securityholders and purchased by the several Underwriters shall
be $___ per share. The obligation of each Underwriter to the Company and each
of the Selling Securityholders shall be to purchase from the Company and the
Selling Securityholders that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the Underwritten
Stock to be sold by each of the Company and the Selling Securityholders pursuant
to this Agreement as the number of shares of the Underwritten Stock set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of shares of the Underwritten Stock to be purchased by all
Underwriters pursuant to this Agreement, as adjusted by you in such manner as
you deem advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of shares of the Underwritten Stock
specified in Schedule I.
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<PAGE>
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-
defaulting Underwriters fail so to make such arrangements with respect to all
such shares and portion, the number of shares of the Stock which each non-
defaulting Underwriter is otherwise obligated to purchase under this Agreement
shall be automatically increased on a pro rata basis to absorb the remaining
shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers reasonably satisfactory to you for purchase of
such shares and portion on the terms herein set forth. In any such case, either
you or the Company and the Selling Securityholders shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company and the
Selling Securityholders shall make arrangements within the 24-hour periods
stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any non-
defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company or the Selling Securityholders. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 183,750 shares in the aggregate of the Option Stock, and Gull
Industries, Inc. ("Gull") grants an option to the several Underwriters to
purchase, severally and not jointly, up to 56,250 shares of the Option Stock at
the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said option may be exercised only to cover over-allotments in the sale
of the Underwritten Stock by the Underwriters and may be exercised in whole or
in part at any time (but not more than once) on or before the thirtieth day
after the date of this Agreement upon written or telegraphic notice by you to
the Company and Gull setting forth the aggregate number of shares of the Option
Stock as to which the several Underwriters are exercising the option from each
of the Company and Gull. Delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made as provided in Section 5 hereof. The
number of shares of the Option Stock to be purchased by each Underwriter shall
be the same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of the Stock to be
purchased by them shall be as set forth in the Prospectus. The Underwriters may
from time to time change the public offering price after the
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closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page, the paragraphs with respect to stabilization on the inside front cover
page of the Prospectus and under "Underwriting" in the Registration Statement,
any Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the Prospectus,
and you on behalf of the respective Underwriters represent and warrant to the
Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by paragraph (c) of Section 3 hereof
shall have been exercised not later than 7:00 a.m., Pacific standard time, on
the date two business days preceding the Closing Date), and payment therefor,
shall be made at the office of Perkins Coie, 1201 Third Avenue, Seattle,
Washington, at 7:00 a.m., Pacific standard time, on the fourth business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such fourth business day, as shall be agreed
upon in writing by the Company, the Selling Securityholders and you. The date
and hour of such delivery and payment (which may be postponed as provided in
paragraph (b) of Section 3 hereof) are herein called the Closing Date.
(b) If the option granted by paragraph (c) of Section 3 hereof shall be
exercised after 7:00 a.m., Pacific standard time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Perkins Coie, 1201
Third Avenue, Seattle, Washington, at 7:00 a.m., Pacific standard time, on the
third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
The Company covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a
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copy or to which you shall have reasonably objected in writing or which is
not in compliance with the Securities Act or the rules and regulations of
the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company will make
every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal
thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus so
that the Prospectus as so supplemented or amended will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the public offering of the Stock by
the Underwriters and during such period, the Underwriters shall propose to
vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the
Company or of counsel for the Underwriters such proposed variation requires
that the Prospectus be supplemented or amended, the Company will forthwith
prepare and file with the Commission a supplement to the Prospectus or an
amended prospectus setting forth such variation. The Company authorizes
the Underwriters and all dealers to whom any of the Stock may be sold by
the several Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the Stock in
accordance with the applicable provisions of the Securities Act and the
applicable rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
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(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to
shareholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) The Company and the Selling Securityholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident
to (i) the preparation, printing and filing with the Commission and the
National Association of Securities Dealers, Inc. ("NASD") of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to
be so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you and the Underwriters of
the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees; provided that the Underwriters will bear the
reasonable fees and expenses of the Company's independent accountants
incurred in connection with the audit of the Company's financial statements
for the nine months ended September 30, 1997. The Selling Securityholders
will pay any transfer taxes incident to the transfer to the Underwriters of
the shares of the Stock being sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for
blue sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by
or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the
offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to pay
and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will
not, for a period of 90 days following the commencement of the public
offering of the Stock by the Underwriters, directly or indirectly, (i)
sell, offer, contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to
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<PAGE>
purchase or acquire Common Stock or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Stock to be sold to the Underwriters
pursuant to this Agreement (B) the issuance by the Company of shares of
Common Stock upon the exercise of options or warrants outstanding as of the
date hereof, all as described in the Registration Statement, and (C)
options to purchase Common Stock granted under the Company's stock option
plans.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders severally and not jointly agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act or the
common law or otherwise, and the Company and the Selling Securityholders
severally and not jointly reimburse each such Underwriter and controlling person
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission 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 the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) no claim for indemnification by such person shall be made against Gull
under this paragraph (a) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such a claim for indemnification is first made
against the Company pursuant to this paragraph (a) and the Company shall have
failed to pay such claim within ninety (90) days after the date such claim is
made against the Company, (2) the indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) shall not apply to any
such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto and (3) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by reference) and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the Company
with paragraph (c) of Section 6 hereof. The indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholders
contained in Section 2 hereof shall remain operative
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and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission 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 the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be
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<PAGE>
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified 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 paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Securityholders on the one hand and the Underwriters on the other shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Stock received by the Company and the Selling
Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) 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 paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
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<PAGE>
(e) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under the indemnity and
reimbursement agreements contained in the provisions of this Section 7 and
Section 11 hereof shall be limited to an amount equal to the public offering
price of the stock sold by such Selling Securityholder to the Underwriters. The
Company and the Selling Securityholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company and the Selling
Securityholders if after the date of this Agreement trading in the Common Stock
shall have been suspended, or if there shall have occurred (i) the engagement in
hostilities or an escalation of major hostilities by the United States or the
declaration of war or a national emergency by the United States on or after the
date hereof, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, calamity, crisis or change in economic or political conditions
in the financial markets of the United States would, in the Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange or The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Venture Law Group, counsel for the
Underwriters.
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<PAGE>
(c) You shall have received from Perkins Coie, counsel for the Company
and certain of the Selling Securityholders, from Bogle & Gates P.L.L.C.,
counsel to Gull Industries, Inc., and from Miller Nash, patent counsel for
the Company, opinions, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annexes A, B and C hereto,
respectively, and if Option Stock is purchased at any date after the
Closing Date, additional opinions from each such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such
later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse upon the
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of the Subsidiaries has entered into any
material transaction not referred to in the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein, (iv) neither the Company nor any of the Subsidiaries has any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending or known
threatened legal proceedings to which the Company or any of the
Subsidiaries is a party or of which property of the Company or any of the
Subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions
from those reasonably foreseeable as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from Arthur Andersen LLP a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
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conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting
the business or properties of the Company or the Subsidiaries which, in
your sole judgment, makes it impractical or inadvisable to proceed with the
public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of more than 5% of the
outstanding Common Stock agreements, in form reasonably satisfactory to
Hambrecht & Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such person or entity
will not, for a period of 90 days following the commencement of the public
offering of the Stock by the Underwriters, directly or indirectly, sell,
offer, contract to sell, transfer the economic risk of ownership in, make
any short sale, pledge or otherwise dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for or
any other rights to purchase or acquire Common Stock.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Venture Law Group, counsel for the Underwriters, shall
be reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company
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and the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby severally and not jointly agree
to reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 11410 N.E. 122nd Way, Kirkland,
Washington 98034, Attention: Roger A. Fukai; Chief Financial Officer, and if to
the Selling Securityholders, shall be mailed, telegraphed or delivered to the
Selling Securityholders in care of Roger A. Fukai, 11410 N.E. 122nd Way,
Kirkland, Washington 98034. All notices given by telegraph shall be promptly
confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraph (l) of Section 6 hereof shall be of no further
force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
-18-
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
By ___________________________
Name ___________________________
Title ___________________________
SELLING SECURITYHOLDERS:
Gull Industries Inc.
Richard J. LaPorte
Greg R. Blanpied
Roger A. Fukai
Robert L. Lovely
Joseph A Staples
By __________________________
Attorney-in-Fact
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
COWEN & COMPANY
PIPER JAFFRAY INC.
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
-19-
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER
OF SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
<S> <C>
Hambrecht & Quist LLC...............................
Cowen & Company.....................................
Piper Jaffray Inc...................................
---------
Total.......................................... 1,600,000
=========
</TABLE>
-20-
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS SHARES TO
OF SELLING SECURITYHOLDERS BE SOLD
- -------------------------- ---------
<S> <C>
Gull Industries Inc................................. 750,000
3404 Fourth Avenue South
P.O. Box 24687
Seattle, WA 98124
Attn: William L. True
Richard J. LaPorte.................................. 70,000
Greg R. Blanpied.................................... 30,000
Roger A. Fukai...................................... 20,000
Robert L. Lovely.................................... 8,000
Joseph A Staples.................................... 5,000
-------
Total.................................. 883,000
=======
</TABLE>
-21-
<PAGE>
EXHIBIT 5.1
[PERKINS COIE LETTERHEAD]
October 22, 1997
Applied Voice Technology, Inc.
11410 N.E. 122nd Way
Kirkland, Washington 98034
Gentlemen and Ladies:
We have acted as counsel to you in connection with the proceedings for the
authorization and issuance by Applied Voice Technology, Inc., a Washington
corporation (the "Company"), of up to 717,000 shares (the "Company Shares") of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"), and
the authorization and sale by certain of the Company's shareholders (the
"Selling Shareholders") of up to 883,000 shares of the Common Stock (the
"Selling Shareholder Shares"), together with up to 183,750 additional shares of
the Common Stock if and to the extent the underwriters exercise an over-
allotment option granted by the Company (the "Company Over-allotment Shares"),
and up to 56,250 additional shares of the Common Stock if and to the extent the
underwriters exercise an over-allotment option granted by one of the Selling
Shareholders (the "Selling Shareholder Over-allotment Shares," and, together
with the Company Over-allotment Shares, the "Over-allotment Shares"), and the
preparation and filing of a registration statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), which you are filing with the Securities and Exchange
Commission with respect to the Company Shares, the Selling Shareholder Shares
and the Over-allotment Shares.
In the course of our representation, we have examined the Registration
Statement and such other documents and records of the Company and other
documents as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth. Based on the foregoing, we are of the opinion that upon
the happening of the following events:
(i) the filing of the Registration Statement and any amendments thereto
and the Registration Statement becoming effective, and
(ii) the due execution by the Company and registration by its registrar of
the Company Shares, the issuance and sale of the Company Shares
(including, if applicable, the Company Over-allotment Shares) and the
sale of the Selling Shareholder Shares (including, if applicable, the
Selling Shareholder Over-allotment Shares), as contemplated by the
Registration Statement and in accordance with the aforesaid
governmental authorization,
<PAGE>
Applied Voice Technology, Inc.
October 22, 1997
Page 2
the Company Shares, the Selling Shareholder Shares and the Over-allotment Shares
will be duly authorized for issuance, and will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and any amendment thereto, including any and all post-
effective amendments, and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm under the caption "Legal
Matters" in the Prospectus, which forms a part of the Registration Statement.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
Perkins Coie
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement of our report dated January 24, 1997 and to all
references to our Firm included in this registration statement.
Arthur Andersen L.L.P.
Seattle, Washington
October 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLIED
VOICE TECHNOLOGY, INC'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,652
<SECURITIES> 11,864
<RECEIVABLES> 7,614
<ALLOWANCES> 674
<INVENTORY> 4,530
<CURRENT-ASSETS> 43,446
<PP&E> 5,807
<DEPRECIATION> 3,780
<TOTAL-ASSETS> 51,494
<CURRENT-LIABILITIES> 7,771
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 43,666
<TOTAL-LIABILITY-AND-EQUITY> 51,494
<SALES> 40,503
<TOTAL-REVENUES> 40,503
<CGS> 15,023
<TOTAL-COSTS> 33,192
<OTHER-EXPENSES> 3,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,196
<INCOME-TAX> 1,510
<INCOME-CONTINUING> 2,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,686
<EPS-PRIMARY> 0
<EPS-DILUTED> .42
</TABLE>
