<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THRUSTMASTER, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OREGON 3670 93-1040330
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
7175 N.W. EVERGREEN PARKWAY, #400
HILLSBORO, OREGON 97124-5839
(503) 615-3200
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
STEPHEN A. AANDERUD, PRESIDENT
7175 N.W. EVERGREEN PARKWAY, #400
HILLSBORO, OREGON 97124-5839
(503) 615-3200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
PATRICK J. SIMPSON WILLIAM E. VAN VALKENBERG
DAVID S. MATHESON BRADLEY B. FURBER
Perkins Coie Van Valkenberg Furber Law Group
P.L.L.C.
1211 S.W. Fifth Avenue, Suite 1500 1325 Fourth Avenue, Suite 1200
Portland, Oregon 97204 Seattle, Washington 98101-2509
(503) 727-2000 (206) 464-0460
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value................. 1,725,000 $14.8125 $25,551,563 $7,743
</TABLE>
(1) Includes shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act on the
basis of the average of the high and low sales prices of the Common Stock on
the Nasdaq National Market on November 11, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1,500,000 Shares
[LOGO] THRUSTMASTER, INC.
Common Stock
----------------
Of the 1,500,000 shares of Common Stock offered hereby, 1,200,000 shares are
being offered by ThrustMaster, Inc. ("ThrustMaster" or the "Company") and
300,000 shares are being offered by a shareholder of the Company (the "Selling
Shareholder"). The Company will not receive any proceeds from the sale of the
shares being sold by the Selling Shareholder. See "Principal and Selling
Shareholders."
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "TMSR." On November 13, 1997, the last reported sale price of the Common
Stock as reported on the Nasdaq National Market was $15.875 per share. See
"Price Range of Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
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- -------------------------------------------------------------------------------------------
<CAPTION>
PROCEEDS
PRICE UNDERWRITING PROCEEDS TO TO SELLING
TO PUBLIC DISCOUNTS(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
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Per Share............... $ $ $ $
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Total(3)................ $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company, estimated at $250,000.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
225,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Van Kasper & Company, in San Francisco, California on or about
December , 1997.
------------------------
VAN KASPER & COMPANY
December , 1997
<PAGE>
[LOGO]
PRODUCT AND PACKAGING
DISPLAY PHOTOGRAPHS
Text:
Innovative Leader in Computer Game Controllers
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) 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."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
ThrustMaster designs, develops, manufactures and markets a diversified line
of innovative and technologically advanced game controllers for the home
personal computer ("PC") market. The Company has established ThrustMaster as a
brand name recognized for quality, value, durability and ease of use.
ThrustMaster products enhance the enjoyment of the PC entertainment experience
and appeal to a wide variety of users, from occasional game players to avid
enthusiasts. The Company's products include racing wheels, joysticks, gamepads
and flight simulation controllers. ThrustMaster products are available in over
5,000 retail outlets in North America and Europe, including Babbage's, Etc.;
Best Buy Co., Inc.; Circuit City Stores, Inc.; CompUSA; Computer City
Supercenter; The Electronic Boutique, Inc. and Sam's Club.
From 1992 to 1996, the Company's annual revenue increased from $2.1 million
to $30.8 million and annual net income increased from $0.4 million to $2.3
million. For the nine months ended September 30, 1997 compared to the nine
months ended September 30, 1996, revenues increased 52% to $23.9 million and net
income increased 74% to $1.5 million.
Over the last several years, significant technological advances in the home
PC, such as improvements in processor speeds and graphical capabilities, have
enabled software developers to create increasingly sophisticated entertainment
programs with real-time interaction that offer greater realism and excitement.
As a result, the PC has become a viable home entertainment platform. According
to IDC/LINK, an industry research firm, the installed base of home PCs in the
United States will reach 50 million units by the end of 1997, and will increase
to 70 million units by 2001. Shipments of new PCs are projected to increase from
10.4 million units in 1996 to 18.7 million units in 2001. Unit shipments of
software titles are projected to grow from 48 million in 1996 to over 126
million in 2001, representing a compound annual rate of approximately 21%. The
Company believes that sales of game controllers are directly correlated with
sales of both PCs and entertainment software titles.
Working with leading software publishers, such as Electronic Arts, Inc.,
Activision, Inc., Sierra On-Line, Inc., GT Interactive Software Corp. and Virgin
Interactive Entertainment, Inc., the Company often bundles its game controllers
with popular software titles. These bundling arrangements enable the Company to
deliver increased value to consumers, and to differentiate its products from
competing products. The Company offers a variety of bundled game controller
packages which allow for differentiation among retailers that carry the
Company's products. The Company also utilizes recognized brand names, such as
NASCAR-Registered Trademark-, TOP GUN-TM- and NASA, to enhance consumer appeal.
The Company's objective is to be a leading provider of controllers to the
interactive electronic entertainment industry. In order to achieve this
objective, the Company's business strategy is to: (i) market high quality
controllers that provide value and durability; (ii) leverage popular game titles
and brands to increase product demand; (iii) foster strategic relationships with
hardware manufacturers; (iv) develop and introduce innovative products; and (v)
pursue strategic acquisitions of complementary products or businesses.
The Company was incorporated in Oregon in 1990. The Company's principal
executive offices are located at 7175 NW vergreen Parkway, Suite 400, Hillsboro,
Oregon 97124-5839, and its telephone number is (503) 615-3200.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 1,200,000 shares
Common Stock offered by the Selling
Shareholder................................... 300,000 shares
Total Common Stock offered...................... 1,500,000 shares
Common Stock to be outstanding after this
offering...................................... 5,493,588 shares(1)
Use of proceeds................................. For the repayment of indebtedness and for
working capital and general corporate
purposes, which may include acquisitions
or joint ventures.
Nasdaq National Market Symbol................... TMSR
</TABLE>
- ------------------------
(1) Based on shares outstanding as of November 1, 1997. Excludes (i) 900,868
shares issuable upon exercise of outstanding stock options under the
Company's 1994 Stock Option Plan, 1990 Stock Option Plan and Director's
Nonqualified Stock Option Plan, with a weighted average exercise price of
$4.56 per share, (ii) 193,342 shares reserved for future grants under such
stock options plans, and (iii) 117,150 shares issuable upon the exercise of
outstanding warrants issued in connection with the Company's initial public
offering, with an exercise price of $7.57 per share. See "Management--
Incentive Compensation and Benefit Plans" and "Description of Capital
Stock--Warrants."
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) GIVES EFFECT TO A
3% STOCK DIVIDEND ON THE COMMON STOCK DECLARED ON JANUARY 21, 1997, AS IF SUCH
DIVIDEND HAD BEEN DECLARED AND MADE PRIOR TO THE PERIODS COVERED HEREBY. SEE
"UNDERWRITING." UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" OR "THRUSTMASTER" ARE TO THRUSTMASTER, INC., AND ITS
SUBSIDIARY. THE THRUSTMASTER LOGO AND THRUSTMASTER ARE AMONG THE COMPANY'S
TRADEMARKS. THIS PROSPECTUS INCLUDES OTHER TRADEMARKS AND TRADE NAMES OF THE
COMPANY AND OF OTHER COMPANIES.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 2,655 $ 8,214 $ 13,582 $ 19,415 $ 30,821 $ 15,745 $ 23,930
Cost of goods sold..................... 1,438 4,290 8,007 11,815 19,592 9,727 14,814
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,217 3,924 5,575 7,600 11,229 6,018 9,116
Operating expenses..................... 687 2,581 3,804 5,956 8,066 5,032 7,156
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 530 1,343 1,771 1,644 3,163 986 1,960
Interest income........................ -- -- -- 404 466 324 284
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............. 530 1,343 1,771 2,048 3,629 1,310 2,244
Provision for income taxes(1).......... 169 456 633 687 1,370 472 790
--------- --------- --------- --------- --------- --------- ---------
Net income(1).......................... $ 361 $ 887 $ 1,138 $ 1,361 $ 2,259 $ 838 $ 1,454
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share................... $ 0.25 $ 0.33 $ 0.38 $ 0.32 $ 0.49 $ 0.18 $ 0.30
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding.... 1,431 2,686 2,957 4,293 4,647 4,582 4,807
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 15,642 $ 32,132
Total assets........................................................................... 22,844 39,334
Total liabilities...................................................................... 5,319 5,319
Total shareholders' equity............................................................. 17,525 34,015
</TABLE>
- ------------------------
(1) The provision for income taxes, net income and net income per share includes
a pro forma income tax adjustment to reflect the Company as a C corporation,
rather than an S corporation, for federal and state income tax purposes for
the years ended December 31, 1992, 1993, 1994 and 1995. See Notes 2 and 12
to Consolidated Financial Statements.
(2) As adjusted to reflect the sale by the Company of 1,200,000 shares of Common
Stock in connection with this offering.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED BELOW.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The Company believes that its future growth will depend on its ability to
develop and introduce new products that keep pace with technological
developments, maintain and enhance its existing product line, respond to
evolving customer preferences, and achieve market acceptance. The Company
occasionally has experienced, and may in the future experience, delays in the
development and introduction of new products. The success of new products and
product enhancements depends on a variety of factors, including product
selection and specification, timely and efficient completion of product design,
cost-effective implementation of manufacturing and assembly processes, and
effective sales and marketing efforts through the Company's distribution
channels. Any failure by the Company to anticipate or respond adequately to
technological developments or customer preferences, or any significant delays in
product development or introduction, could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition in the future. The
Company's principal competitors include Microsoft Corporation, Advanced Gravis
Computer Technology, Ltd., CH Products, Logitech International S.A. and InterAct
Accessories, many of which have substantially greater financial, technical and
marketing resources than the Company. The Company believes that the principal
competitive factors in the market for PC game controllers include price,
quality, product features, ease of use, durability, reputation and compatibility
with PC games. The Company's competitors could hinder sales and market
acceptance of the Company's products by developing products that are more
appealing than the Company's products or that render the Company's technology
and products obsolete or noncompetitive. Moreover, increased competitive
pressure could lead to intensified price-based competition, which has in the
past created, and could in the future create, margin pressures and which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
OFFSHORE MANUFACTURING; DEPENDENCE ON MANUFACTURING CONTRACTORS
Virtually all of the Company's products are manufactured in China and Taiwan
by independent contractors. The Company's use of offshore manufacturing is
subject to the customary risks of doing business abroad, including fluctuations
in the value of currencies, tariffs, export duties, quotas, restrictions on the
transfer of funds, work stoppages and political instability.
For the nine months ended September 30, 1997, approximately 90% of the
Company's products were manufactured through a single vendor utilizing factories
located in Taiwan and the Guangdong province of China. Manufacturing by such
vendor at one factory accounted for more than half of the Company's production.
If any of the manufacturing facilities utilized by the Company become
unavailable, or if the manufacturing operations at these facilities are slowed,
interrupted or terminated, the Company's business, financial condition and
results of operation could be materially and adversely affected. The Company may
not be able to enter into alternative third-party manufacturing arrangements on
terms satisfactory to the Company, in a timely fashion, or at all, if
alternative arrangements are needed. In addition, although the
6
<PAGE>
Company seeks to control the quality of its products manufactured offshore,
quality problems have occasionally arisen, and may in the future arise, that are
beyond the Company's direct control. The use of independent manufacturing
contractors to manufacture and assemble products offshore also has required the
Company to increase production lead times and has reduced the Company's ability
to adjust production in response to short-term market conditions. As a result,
the failure of the Company to adequately forecast demand for products
manufactured offshore could materially and adversely affect its sales and
results of operations.
SEASONALITY; VARIABILITY IN PERIODIC OPERATING RESULTS
The Company's business is seasonal, reflecting traditional retail
seasonality patterns. Sales in the retail PC game entertainment industry are
significantly higher in the fourth calendar quarter of each year than in the
preceding three quarters. In 1996, nearly 50% of the Company's revenues were
earned in the fourth quarter. In addition to seasonality, the Company is likely
to experience significant fluctuations in future periodic operating results due
to a number of factors, including, among others, the size or timing of customer
orders, delays in product enhancements and new product introductions by the
Company, quality control difficulties, market acceptance of new products,
product returns, customer order deferrals in anticipation of new products or
enhancements, reduction in demand for existing products as a result of new
product introductions by the Company or others, and general economic conditions.
Any of these factors could cause quarterly or other periodic operating results
to vary significantly from prior periods. The Company's customers generally
order on an as-needed basis, and the Company typically does not have a
significant order backlog at the beginning of each quarter. Because quarterly
revenues are dependent largely on the volume and timing of orders received
during such quarter, which may be difficult to forecast, and the Company's
operating expenses are based in part on its estimate of future revenues, the
Company may be unable to adjust its spending in a timely manner to compensate
for a shortfall in revenues.
POTENTIAL INABILITY TO MANAGE FUTURE ACQUISITIONS
The Company intends to supplement its internal growth through the
acquisition of complementary product lines and businesses. The Company's
management has limited experience in identifying, completing, and integrating
acquisitions. The Company's ability to grow through acquisitions depends on,
among other things, the Company's ability (i) to identify complementary product
lines or businesses, (ii) to acquire them on terms that management considers
attractive, and (iii) to integrate acquired complementary product lines or
businesses into its organization. Any future acquisitions would be accompanied
by the risks commonly encountered in such transactions, including difficulties
associated with assimilating the personnel and operations of an acquired
business, the Company's potential inability to achieve expected financial
results or strategic goals for the acquired product line or business, the
potential disruption of the Company's ongoing business, and the diversion of
significant management and other Company resources. The Company may not be able
to identify future acquisition opportunities or to successfully overcome the
risks and challenges encountered in completing and integrating such
acquisitions. The Company's failure or inability to implement and manage its
acquisition strategy could have a material adverse effect on the Company's
business, financial condition and results of operations.
CUSTOMER CONCENTRATION
The Company anticipates that a significant portion of the Company's revenues
and accounts receivable will continue to be derived from a limited number of key
customers. For the nine months ended September 30, 1997, two customers accounted
for an aggregate of approximately 28% of the Company's revenues. The loss of one
or more of its key customers or any significant reduction in orders by such
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
7
<PAGE>
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends to a significant extent on the
continued service of its key research and development, management and marketing
and sales personnel. Competition for such employees is intense, and the Company
may be unable to attract, motivate and retain highly qualified employees. The
Company does not have employment or non-competition agreements with, or maintain
key man life insurance for, any of its employees. Any failure to attract,
motivate or retain key Company personnel could have a material adverse effect on
the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies on a combination of copyright and trademark laws, patents, trade secrets
and confidentiality procedures and agreements to protect its proprietary rights.
Despite the Company's efforts to safeguard its proprietary rights, it may not be
successful in doing so or the Company's competitors may independently develop or
patent technologies that are substantially equivalent or superior to or
otherwise circumvent the Company's proprietary rights. Confidentiality
agreements may not provide meaningful protection for the Company's trade secrets
or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such information by the Company's employees,
consultants or business partners. The Company believes that its products,
processes and trademarks do not infringe on the rights of third parties; however
third parties may assert infringement or other related claims against the
Company in the future. Any infringement claim or related litigation against the
Company, or any challenge to the validity of the Company's own intellectual
property rights, and the expense of defending the same, could materially and
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE UPON SOLE OR LIMITED SUPPLIERS
The Company is dependent on suppliers for components, and certain key
components used in the Company's products are obtained from a sole or limited
group of suppliers. The Company's reliance on these suppliers involves several
risks, including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components
and finished products. Any reduction or interruption of or delay in supply could
materially and adversely affect the Company. The Company has in the past
encountered, and may in the future encounter, shortages of supplies and delays
in deliveries of necessary components. Substantially all components used in the
Company's products are purchased from sources located outside the United States.
Trading policies adopted by the United States or foreign governments could
restrict the availability of components or increase the cost of obtaining them.
Any significant increase in component prices or decrease in component
availability could materially and adversely affect the Company's business,
financial condition and results of operations.
INTERNATIONAL SALES
The Company expects to focus an increasing amount of its sales efforts in
international markets. The Company expects that any international sales will be
subject to the normal risks of foreign sales, such as protective tariffs, export
and import controls, transportation delays and interruptions, and changes in
demand resulting from fluctuating exchange rates. Although most of the Company's
international revenues currently are earned in U.S. dollars, a growing portion
is earned in other currencies, primarily German marks and British pounds
sterling. To the extent revenues are earned in currencies other than U.S.
dollars, net income may fluctuate due to changes in the value of the U.S. dollar
relative to such other currencies. The Company has not entered into any forward
exchange contracts or other hedging activities in anticipation of foreign
currency fluctuations, but may do so in the future.
8
<PAGE>
BROAD DISCRETION OF MANAGEMENT REGARDING USE OF PROCEEDS
Of the net proceeds to the Company from the sale of the Common Stock in this
offering at an assumed public offering price of $15.00 per share, approximately
$12.5 million, or 75.8% (approximately $15.6 million, or 79.6%, if the
Underwriters' over-allotment option is exercised in full), is expected to be
allocated to working capital and general corporate purposes. Accordingly,
management will have broad discretion as to the application of such net
proceeds. Pending any specific application, the Company expects to invest the
net proceeds in short-term, interest-bearing, investment grade obligations. The
return on the Company's investment on any portion of the net proceeds that is
not immediately used may be less than that which would be realized were such
funds invested in the Company's business.
VOLATILITY OF STOCK PRICE
The Common Stock is traded on the Nasdaq National Market, which has
experienced, and is likely to experience in the future, significant price and
volume fluctuations that could adversely affect the market price of the Common
Stock without regard to the Company's operating performance. The Company
believes that factors such as operating results, announcements of technological
innovations or new product introductions by the Company or its competitors,
changes in or actual results varying from estimates by securities analysts, the
operating and stock price performance of other companies that investors may deem
comparable to the Company, announcements by software manufacturers and other
events or factors could contribute to the volatility of the price of the Common
Stock and cause it to fluctuate significantly. Market prices for high technology
companies in particular have experienced extreme volatility, often unrelated to
the operating performance of such companies. These factors, as well as general
economic conditions such as recessions or high interest rates, may adversely
affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market by
existing shareholders or further issuances of capital stock by the Company
following this offering (or the perception that such sales or issuances might
occur) could adversely affect the price of the Common Stock. All of the
approximately 5,493,588 shares of Common Stock that will be outstanding
immediately following completion of this offering (assuming no exercise of
options or warrants after November 1, 1997), will be freely tradable under
federal securities laws to the extent that they are not held by affiliates of
the Company. The Company and certain of its directors, officers and shareholders
have agreed with the Underwriters that, for a period of 80 days after the date
of this Prospectus, they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the 1,330,832 shares any of the
1,444,080 shares of Common Stock owned by them, without the prior written
consent of Van Kasper & Company, which will not be unreasonably withheld, other
than shares of Common Stock offered hereby, grants of options by the Company in
the ordinary course pursuant to its stock option plans, and sales of up to
40,000 shares of Common Stock 60 days after completion of this offering.
Additionally, as of November 1, 1997, 1,039,918 shares were issuable upon the
exercise of outstanding options and warrants, and 193,342 shares were reserved
for future grants under the Company's stock option plans. See "Description of
Capital Stock-- Warrants," "Shares Eligible for Future Sale,"
"Management--Incentive Compensation and Benefit Plans" and "Underwriting."
POTENTIAL ADVERSE IMPACT OF ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER EFFECT OF
OREGON LAW AND THE COMPANY'S AMENDED AND RESTATED BYLAWS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to fix the rights, preferences, privileges and
restrictions of such shares without any further vote or action by the Company's
shareholders. The potential issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the
9
<PAGE>
market price of, and the voting and other rights of the holders of, Common
Stock. Moreover, certain "business combination" provisions of Oregon law could
make it more difficult to consummate a merger or tender offer involving the
Company, even if such event could be beneficial, in the short term, to the
interests of the shareholders. Such provisions may discourage acquisition bids
for the Company or could limit the price that certain investors might be willing
to pay in the future for shares of the Company's Common Stock. In addition, the
Company's Amended and Restated Bylaws provide for a classified Board of
Directors serving staggered three-year terms. A classified Board may have the
effect of deferring or discouraging a change of control of the Company. See
"Description of Capital Stock."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock in this
offering at an assumed public offering price of $15.00 per share, after
deducting underwriting discounts and estimated offering expenses payable by the
Company, are estimated to be approximately $16.5 million (approximately $19.6
million if the Underwriters' over-allotment option is exercised in full). The
Company will not receive any proceeds from the Common Stock being sold by the
Selling Shareholder.
Of the estimated net proceeds, the Company expects to use (i) a portion,
anticipated to be approximately $4.0 million, to repay amounts to be borrowed by
the Company under a line of credit prior to completion of this offering in order
to meet peak working capital needs during the fourth quarter of 1997; and (ii)
the remaining balance for working capital and general corporate purposes, which
may include future joint ventures or acquisitions. The Company currently has no
agreements or understandings, and there currently are no active negotiations to
make any acquisitions or enter into any joint ventures. Borrowings under the
Company's line of credit bear interest at a fluctuating rate at all times equal
to the prime rate (8.5% at November 1, 1997) or a rate based on LIBOR. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Except for the expenditures identified above, the Company has not yet
identified other specific uses of proceeds and, pending such uses, the Company
expects to invest the net proceeds in short-term, interest-bearing, investment
grade obligations. See "Risk Factors--Broad Discretion of Management Regarding
Use of Proceeds."
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "TMSR." The Company's initial public offering was completed March 3,
1995, at a price to the public of $6.31 per share. The following table sets
forth the high and low closing sales prices for the Common Stock for each
quarter as reported on the Nasdaq National Market for the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First quarter................................... $ 9.95 $ 7.52
Second quarter.................................. 9.22 6.31
Third quarter................................... 8.98 6.80
Fourth quarter.................................. 8.25 5.70
1996
First quarter................................... $ 7.41 $ 3.52
Second quarter.................................. 6.92 4.00
Third quarter................................... 5.58 3.64
Fourth quarter.................................. 8.86 5.34
1997
First quarter................................... $ 8.98 $ 7.00
Second quarter.................................. 12.13 7.13
Third quarter................................... 18.00 11.00
Fourth quarter (through Nov. 13)................ 17.63 13.00
</TABLE>
The closing sale price per share of the Common Stock on November 13, 1997,
as reported on the Nasdaq National Market, was $15.875. As of November 1, 1997,
there were 4,293,588 shares of Common Stock outstanding held by 95 holders of
record.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock, other than for
the payment of its shareholders' income tax liabilities which arose under its S
Corporation status, which terminated December 31, 1994. On January 21, 1997, the
Company declared a 3% stock dividend on the Common Stock to holders of record as
of February 14, 1997. The Company currently intends to retain any future
earnings to finance the expansion and development of its business and does not
presently anticipate paying cash dividends to the holders of Common Stock. The
payment of future cash dividends will be at the sole discretion of the Company's
Board of Directors and will depend on, among other things, future earnings,
capital requirements, the financial condition of the Company and general
business conditions. No financing agreements to which the Company is a party or
by which it is bound currently restricts the payment of dividends on the Common
Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect the sale by the Company of
1,200,000 shares of Common Stock offered hereby and the receipt by the Company
of approximately $16.5 million of net proceeds therefrom, at an assumed public
offering price of $15.00 per share, after deducting the underwriting discounts
and estimated offering expenses payable by the Company. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company's
consolidated financial statements and related notes thereto and other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................ $ -- $ --
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 authorized; none issued or
outstanding....................................................... -- --
Common Stock, no par value; actual: 25,000,000 shares authorized,
4,293,588 shares issued and outstanding; as adjusted: 25,000,000
shares authorized, 5,493,588 shares issued and outstanding (1).... 13,474 29,964
Retained earnings................................................... 4,051 4,051
--------- -----------
Total shareholders' equity........................................ 17,525 34,015
--------- -----------
Total capitalization.................................................. $ 17,525 $ 34,015
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) As of November 1, 1997. Excludes (i) 900,868 shares issuable upon exercise
of outstanding stock options under the Company's 1994 Stock Option Plan,
1990 Stock Option Plan and Directors' Nonqualified Stock Option Plan, with a
weighted average exercise price of $4.56 per share, (ii) 193,342 shares
reserved for future grants under such stock option plans and (iii) 117,150
shares issuable upon the exercise of outstanding warrants issued in
connection with the Company's initial public offering, with an exercise
price of $7.57 per share. See "Management--Incentive Compensation and
Benefit Plans" and "Description of Capital Stock--Warrants."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data relating to the Company
should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the other financial
information included elsewhere in this Prospectus. The selected financial data
for each of the five years ended December 31, 1996 was derived from the
Company's consolidated financial statements, audited by Coopers & Lybrand
L.L.P., independent accountants. The selected financial data for the nine months
ended September 30, 1996 and 1997 was derived from unaudited interim financial
statements for those periods prepared on the same basis as the audited financial
statements and, in the opinion of management of the Company, include all
adjustments necessary (consisting only of normal recurring adjustments) for a
fair presentation of such financial data. The selected financial data for the
nine months ended September 30, 1997 is not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 2,655 $ 8,214 $ 13,582 $ 19,415 $ 30,821 $ 15,745 $ 23,930
Cost of goods sold..................... 1,438 4,290 8,007 11,815 19,592 9,727 14,814
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,217 3,924 5,575 7,600 11,229 6,018 9,116
Operating expenses:
Research and engineering............. 234 1,022 1,115 1,845 2,105 1,352 1,807
Selling, general and
administrative..................... 453 1,559 2,689 4,111 5,961 3,680 5,349
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses......... 687 2,581 3,804 5,956 8,066 5,032 7,156
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 530 1,343 1,771 1,644 3,163 986 1,960
Interest income........................ -- -- -- 404 466 324 284
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............. 530 1,343 1,771 2,048 3,629 1,310 2,244
Provision for income taxes(1).......... 169 456 633 687 1,370 472 790
--------- --------- --------- --------- --------- --------- ---------
Net income(1).......................... $ 361 $ 887 $ 1,138 $ 1,361 $ 2,259 $ 838 $ 1,454
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share(1)................ $ 0.25 $ 0.33 $ 0.38 $ 0.32 $ 0.49 $ 0.18 $ 0.30
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding.... 1,431 2,686 2,957 4,293 4,647 4,582 4,807
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 15,642 $ 32,132
Total assets........................................................................... 22,844 39,334
Total liabilities...................................................................... 5,319 5,319
Total shareholders' equity............................................................. 17,525 34,015
</TABLE>
- ------------------------
(1) The provision for income taxes, net income, and net income per share
includes a pro forma income tax adjustment to reflect the Company as a C
corporation, rather than an S corporation, for federal and state income tax
purposes for the years ended December 31, 1992, 1993, 1994 and 1995. See
Notes 2 and 12 to Consolidated Financial Statements.
(2) As adjusted to reflect the sale by the Company of 1,200,000 shares of Common
Stock in connection with this offering.
14
<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," THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO AND OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THE COMPANY BELIEVES THAT PERIOD-TO-PERIOD
COMPARISONS OF ITS FINANCIAL RESULTS SHOULD NOT BE RELIED ON AS AN ACCURATE
INDICATION OF FUTURE PERFORMANCE. THIS PROSPECTUS CONTAINS, IN ADDITION TO
HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT, THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED UNDER "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ThrustMaster designs, develops, manufactures and markets a diversified line
of innovative and technologically advanced game controllers for the home PC
market. The Company has established ThrustMaster as a brand name recognized for
quality, value, durability and ease of use. ThrustMaster products appeal to a
wide variety of PC users, from occasional game players to avid enthusiasts. The
Company's product offerings include racing wheels, joysticks, gamepads and
flight simulation controllers. All these products are designed to enhance the
user's enjoyment of the PC entertainment experience. The Company's revenues have
grown from $2.7 million in 1992 to $30.8 million in 1996, and net income has
grown from $0.4 million to $2.3 million during the same period. From 1992 to
1996 the Company's annual revenue increased from $2.1 million to $30.8 million
and annual net income increased from $0.4 million to $2.3 million. For the nine
months ended September 30, 1997, compared to the nine months ended September 30,
1996, revenues increased 52% to $23.9 million and net income increased 74% to
$1.5 million.
From its inception in 1990 through the third quarter of 1994, the Company
derived a majority of its revenues from sales of flight simulation products to
serious computer game enthusiasts. In the fourth quarter of 1994, the Company
expanded its product line to include racing wheels. While the Company continues
to offer a wide variety of game controllers, racing wheels now account for a
majority of the Company's revenues. The Company believes that it is the leading
producer of racing wheels for the PC entertainment market.
In mid-1996, the Company increased its foreign presence by contracting with
a distributor in the United Kingdom and with an independent sales representative
to market its products to major retailers in Germany. In 1997, the Company
opened its own distribution facility in the United Kingdom and has hired sales
and administrative staff to support its future growth in Europe. Sales outside
North America accounted for approximately 39% of the Company's revenues in 1996
and approximately 30% of revenues for the nine-month period ended September 30,
1997. The Company intends to continue to expand its presence in foreign markets,
primarily in Europe, by entering into relationships with additional distributors
and sales representatives. See Note 3 to Consolidated Financial Statements.
Over the past three years, ThrustMaster moved virtually all manufacturing
operations off-shore on a contract basis in an effort to obtain manufacturing
cost efficiencies. The Company has continued to gain experience and confidence
in off-shore manufacturing. For the nine months ended September 30, 1997,
approximately 90% of the Company's products were manufactured through a single
vendor utilizing factories in Taiwan and the Guangdong province of China.
Manufacturing by such vendor at one factory accounted for more than half of the
Company's production. See "Risk Factors--Offshore Manufacturing; Dependence on
Manufacturing Contractors."
The Company typically ships its products within 30 days of receipt of
customer orders. Substantially all of the Company's revenues in any quarter
result from orders received in that quarter. Accordingly, the
15
<PAGE>
Company generally does not have significant backlog and believes that its
backlog at any given time is not a reliable indicator of future revenues or
earnings.
The Company's business is seasonal, reflecting traditional retail
seasonality patterns. Sales in the retail PC game entertainment industry are
significantly higher in the fourth calendar quarter of each year than in the
preceding three quarters. In 1996, nearly 50% of the Company's revenues were
earned in the fourth quarter.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain items included in the Company's consolidated
statements of income included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................................... 59.0 60.9 63.6 61.8 61.9
--------- --------- --------- --------- ---------
Gross profit........................................................... 41.0 39.1 36.4 38.2 38.1
--------- --------- --------- --------- ---------
Operating expenses:....................................................
Research and engineering............................................. 8.2 9.5 6.8 8.6 7.5
Selling, general and administrative.................................. 19.8 21.1 19.3 23.3 22.4
--------- --------- --------- --------- ---------
Total operating expenses............................................... 28.0 30.6 26.1 31.9 29.9
--------- --------- --------- --------- ---------
Income from operations................................................. 13.0 8.5 10.3 6.3 8.1
Interest income........................................................ -- 2.0 1.5 2.0 1.3
--------- --------- --------- --------- ---------
Income before income taxes............................................. 13.0 10.5 11.8 8.3 9.4
Provision for income taxes(1).......................................... 4.6 3.5 4.5 3.0 3.3
--------- --------- --------- --------- ---------
Net income(1).......................................................... 8.4% 7.0% 7.3% 5.3% 6.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The provision for income taxes and net income includes a pro forma income
tax adjustment to reflect the Company as a C corporation, rather than an S
corporation, for federal and state income tax purposes for the years ended
December 31, 1994 and 1995. See Notes 2 and 12 to Consolidated Financial
Statements.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES. Revenues for the nine months ended September 30, 1997 were
$23,930,000, an increase of $8,185,000, or 52.0%, compared to $15,745,000 for
the nine months ended September 30, 1996. Revenues grew primarily due to
increased demand for the Company's core products and additional sales into the
warehouse-club distribution channel.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1997 was
$9,116,000, an increase of $3,098,000, or 51.5%, compared to $6,018,000 for the
nine months ended September 30, 1996. As a percentage of revenues, the gross
profit margin percentage was nearly identical for the nine months ended
September 30, 1997 and 1996.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$1,807,000 for the nine months ended September 30, 1997, an increase of
$455,000, or 33.7%, compared to $1,352,000 for the nine months ended September
30, 1996. The increase resulted primarily from additional expenses incurred in
development of the Company's new products. As a percentage of revenues, research
and engineering
16
<PAGE>
expenses were 7.5% for the nine months ended September 30, 1997, compared to
8.6% for the nine months ended September 30, 1996. The Company intends to hire
additional research and engineering personnel to the extent reasonably permitted
by any increased revenues.
SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and
administrative expenses were $5,349,000 for the nine months ended September 30,
1997, an increase of $1,669,000, or 45.4%, compared to $3,680,000 for the nine
months ended September 30, 1996. The increase was primarily due to higher
amounts of selling expenses associated with higher revenues, increases in other
merchandising and marketing expenses, and the funding of the Company's further
expansion into Europe. As a percentage of revenues, selling, general and
administrative expenses decreased to 22.4% for the nine months ended September
30, 1997, compared to 23.3% for the nine months ended September 30, 1996.
INTEREST INCOME. Interest income of $284,000 and $324,000 for the
nine-month periods ended September 30, 1997 and 1996, respectively, was derived
from the investment of the cash balances of the Company.
INCOME TAXES. The provision for income taxes for the nine-month period
ended September 30, 1997, reflects an effective tax rate of 35.2%. This compares
to a tax rate of 36.0% for the nine-month period ended September 30, 1996. The
effective tax rate was lower in the quarter ended September 30, 1997 as a result
of a one-time state tax credit in 1997.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues for 1996 were $30,821,000, an increase of $11,406,000,
or 58.7%, compared to $19,415,000 for 1995. Revenues increased primarily due to
significantly increased sales of the Company's existing products in Europe,
higher sales in the United States and the introduction of new products.
GROSS PROFIT. Gross profit for 1996 was $11,229,000, an increase of
$3,629,000, or 47.8%, compared to $7,600,000 for 1995. As a percentage of
revenues, the gross profit margin percentage was 36.4% for 1996, compared to
39.1% for 1995. The gross profit margin percentage declined primarily because
the Company's more recent product offerings generally have a lower gross margin
percentage than the Company's other products, and the Company incurred higher
than normal amounts of air freight in expediting delivery of certain products to
meet additional, unanticipated fourth quarter demand.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$2,105,000 for 1996, an increase of $260,000, or 14.1%, compared to $1,845,000
in 1995. The increase resulted primarily from additional expenses incurred in
development of the Company's new products. As a percentage of revenues, research
and engineering expenses decreased to 6.8% in 1996, compared to 9.5% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5,961,000 for 1996, an increase of $1,850,000, or
45.0%, compared to $4,111,000 for 1995. The increase resulted primarily from
higher sales and marketing expenses. Sales and marketing expenses increased due
to higher amounts of selling expenses associated with greater revenues, and
increases in other merchandising and marketing expenses. As a percentage of
revenues, selling, general and administrative expenses decreased to 19.3% of
revenues in 1996, compared to 21.1% in 1995.
INTEREST INCOME. Interest income of $466,000 for 1996 and $404,000 for 1995
was derived from the investment of the cash balances of the Company.
INCOME TAXES. The provision for income taxes for 1996 reflects an effective
tax rate of 37.8%. This compares to a pro forma tax rate of 33.5% for 1995. The
increase in the effective tax rate was due primarily to a higher effective state
tax rate for the Company in 1996 which resulted from a one-time state tax credit
in 1995. See Notes 2 and 12 of Notes to Consolidated Financial Statements.
17
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUES. Revenues for 1995 were $19,415,000, an increase of $5,833,000, or
42.9%, compared to $13,582,000 in 1994. Revenues increased primarily due to
greater retail sales of the Company's existing products and the introduction of
new products.
GROSS PROFIT. Gross profit for 1995 was $7,600,000, an increase of
$2,025,000, or 36.3%, compared to $5,575,000 in 1994. As a percentage of
revenues, gross profit was 39.1% in 1995, and 41.0% for 1994. The gross profit
margin percentage declined primarily because the Company's later product
offerings, which comprise an increasing percentage of total revenues, generally
had a lower gross margin percentage than the Company's earlier products.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses for
1995 were $1,845,000, an increase of $730,000, or 65.5%, compared to $1,115,000
in 1994. The increase resulted primarily from additional expenses incurred in
developing new products and enhancements to existing products as well as the
hiring of additional personnel. Research and engineering expenses were 9.5 % of
revenues in 1995, compared to 8.2 % in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1995 were $4,111,000, an increase of $1,422,000, or
52.9%, compared to $2,689,000 in 1994. As a percentage of revenues, selling,
general and administrative expenses were 21.1% in 1995, compared to 19.8% in
1995. For 1995, selling, general and administrative expenses increased primarily
due to additional advertising and merchandising programs with certain major
retail customers. The Company also increased its marketing and sales personnel,
in order to support the Company's growth, and its reliance on commission-based
independent sales representatives. Additionally, certain selling, general and
administrative expenses increased for 1995 as a result of becoming a public
company.
INTEREST INCOME. Interest income for 1995 was derived from the investment
of the remaining proceeds of the public offering which closed March 3, 1995.
INCOME TAXES. The pro forma provision for income taxes for 1995 reflects an
effective tax rate of 33.5%. This compares to a pro forma tax rate of 35.7% for
1994. The decrease resulted from a reduction in the state income tax rate
applicable to the Company due to a one-time state tax credit. See Notes 2 and 12
of Notes to Consolidated Financial Statements.
18
<PAGE>
QUARTERLY OPERATING RESULTS; SEASONALITY
The following table sets forth selected consolidated unaudited quarterly
financial data for the most recent seven quarters. The quarterly consolidated
financial data was derived from unaudited interim financial statements for those
periods prepared on the same basis as the audited financial statements and, in
the opinion of management of the Company, include all adjustments necessary
(consisting only of normal recurring adjustments) for a fair presentation of
such financial data. Results of any one or more quarters are not necessarily
indicative of results for an entire year or of results to be expected for any
future period. See "Risk Factors."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 4,564 $ 4,250 $ 6,931 $ 15,076 $ 6,272 $ 7,149 $ 10,509
Cost of goods sold...................... 2,970 2,615 4,142 9,865 3,786 4,480 6,548
----------- ----------- --------- --------- ----------- ----------- ---------
Gross profit.......................... 1,594 1,635 2,789 5,211 2,486 2,669 3,961
Operating expenses...................... 1,538 1,564 1,930 3,034 2,108 2,244 2,804
----------- ----------- --------- --------- ----------- ----------- ---------
Income from operations.................. 56 71 859 2,177 378 425 1,157
Interest income......................... 106 107 111 142 80 99 105
----------- ----------- --------- --------- ----------- ----------- ---------
Income before income taxes.............. 162 178 970 2,319 458 524 1,262
Provision for income taxes.............. 61 67 344 898 169 195 426
----------- ----------- --------- --------- ----------- ----------- ---------
Net income.............................. $ 101 $ 111 $ 626 $ 1,421 $ 289 $ 329 $ 836
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Net income per share.................... $ 0.02 $ 0.02 $ 0.14 $ 0.30 $ 0.06 $ 0.07 $ 0.17
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Weighted average shares outstanding..... 4,545 4,555 4,589 4,698 4,727 4,762 4,807
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
</TABLE>
AS A PERCENTAGE OF REVENUES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 65.1 61.5 59.8 65.4 60.4 62.7 62.3
--------- --------- --------- --------- --------- --------- ---------
Gross profit 34.9 38.5 40.2 34.6 39.6 37.3 37.7
Operating expenses 33.7 36.8 27.8 20.1 33.6 31.4 26.7
--------- --------- --------- --------- --------- --------- ---------
Income from operations 1.2 1.7 12.4 14.5 6.0 5.9 11.0
Interest income 2.3 2.5 1.6 0.9 1.3 1.4 1.0
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 3.5 4.2 14.0 15.4 7.3 7.3 12.0
Provision for income taxes 1.3 1.6 5.0 6.0 2.7 2.7 4.0
--------- --------- --------- --------- --------- --------- ---------
Net income 2.2% 2.6% 9.0% 9.4% 4.6% 4.6% 8.0%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
The Company may experience significant fluctuations in future operating
results as a result of a number of factors, including, among others, seasonality
in product sales, the size or timing of customer orders, delays in product
enhancements and new product introductions by the Company, quality control
difficulties, market acceptance of new products, product returns, customer order
deferrals in anticipation of new products or enhancements, reduction in demand
for existing products as a result of new product introductions by the Company or
others, and general economic conditions. Any of these factors could cause
quarterly or other periodic results to vary significantly from prior periods.
The Company's customers generally order on an as-needed basis, and the Company
typically does not have a significant order backlog
19
<PAGE>
at the beginning of each quarter. Because quarterly revenues are dependent
largely on the volume and timing of orders received during such quarter, which
may be difficult to forecast, and the Company's operating expenses are based in
part on its estimate of future revenues, the Company may be unable to adjust its
spending in a timely manner to compensate for a shortfall in revenues.
The Company's business is seasonal, reflecting traditional retail
seasonality patterns. Such seasonality may be difficult to discern during any
periods of rapid revenue growth; however, the Company believes that sales of its
products will, in general, track sales in the retail PC entertainment industry
in general, which are significantly higher in the fourth calendar quarter of
each year than in the preceding three quarters. Accordingly, management believes
that seasonality will likely contribute to fluctuations in the Company's
quarterly results from year to year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of cash
flow from operations, borrowed funds and proceeds from the sale of equity
securities.
The Company has a line of credit pursuant to which it may borrow up to the
lesser of $1.0 million or 75% of eligible receivables. Borrowings are payable on
demand and bear interest at a fluctuating rate equal to the prime rate (8.5% at
November 1, 1997) or a rate based on LIBOR. The Company's bank has increased the
line of credit to $5.0 million through January 31, 1998 to meet the Company's
seasonal working capital needs during the fourth quarter of 1997. The line of
credit is scheduled for review in July 1998 and is secured by substantially all
the Company's assets. The line of credit requires the Company to maintain
certain working capital and debt-to-equity ratios. At November 1, 1997 there
were no borrowings outstanding under the facility and the Company was in
compliance with all loan covenants. The Company expects to borrow approximately
$4.0 million under the line of credit by the end of 1997. Any outstanding
amounts will be repaid with the proceeds of this offering.
Net cash provided by operating activities was $106,000 for the nine months
ended September 30, 1997, resulting primarily from net income of $1,454,000, an
increase in inventories of $1,740,000, and depreciation of $403,000. Cash used
in operations was $941,000 in 1996. Cash provided from operations was $59,000 in
1995 and $1,235,000 in 1994. For the year ended December 31, 1996, increases in
accounts receivable of $6,923,000, inventories of $1,034,000, payables and
accruals of $3,857,000, and a decrease in prepaids and other assets of $286,000
were the primary components of changes in working capital. For the year ended
December 31, 1995, increases in accounts receivable of $784,000, inventories of
$1,572,000, payables and accruals of $325,000, and a decrease in prepaids and
other assets of $346,000 were the primary components of changes in working
capital. For the year ended December 31, 1994, increases in accounts receivable
of $507,000, inventories of $52,000, and prepaids and other assets of $66,000,
and a decrease in accounts payable and accruals of $109,000 were the primary
components of changes in working capital.
At September 30, 1997, the Company had cash and cash equivalents of
$5,376,000 and working capital of $15,642,000.
Capital expenditures for the nine months ended September 30, 1997 and for
the years ended December 31, 1996, 1995 and 1994 were $1,200,000, $789,000,
$753,000 and $493,000, respectively. Capital expenditures for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 were primarily
for new product tooling, manufacturing equipment and computer equipment.
The Company does not intend to pay cash dividends to the holders of Common
Stock and intends to retain future earnings to finance the expansion and
development of its business.
Although no current understandings or negotiations exist with respect
thereto, the Company may in the future enter into joint ventures or make
acquisitions in connection with the development and
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marketing of its products, and may require additional funds in connection
therewith, depending upon the circumstances.
The Company is reviewing its computer systems in order to evaluate necessary
modifications for the year 2000. The Company does not anticipate that it will
incur material expenditures to complete any such modifications.
The Company believes that available funds and expected cash flow to be
generated from operations, together with the proceeds from this offering and any
borrowings under its line of credit will be adequate to meet the Company's
anticipated cash needs through the end of 1998. If the cash flow from such
sources is insufficient, if the Company makes acquisitions or enters into joint
ventures, or if working capital requirements are greater than anticipated, the
Company could be required to raise additional funds. If the Company has
insufficient funds for its needs, the Company may not be able to raise
additional funds on favorable terms, if at all, or may not be able to do so on a
timely basis.
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BUSINESS
GENERAL
ThrustMaster designs, develops, manufactures and markets a diversified line
of innovative and technologically advanced game controllers for the home
personal computer market. The Company has established ThrustMaster as a brand
name recognized for quality, value, durability and ease of use. ThrustMaster
products appeal to a wide variety of PC users, from occasional game players to
avid enthusiasts. The Company's product offerings include racing wheels,
joysticks, gamepads and flight simulation controllers. All ThrustMaster products
are designed to enhance the user's enjoyment of the PC entertainment experience.
From 1992 to 1996, the Company's annual revenue increased from $2.1 million to
$30.8 million and annual net income increased from $0.4 million to $2.3 million.
For the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996, revenues increased 52% to $23.9 million and net income
increased 74% to $1.5 million.
The Company's products are principally sold through retail outlets that
purchase the products either directly from the Company or through third-party
distributors. ThrustMaster products are available in over 5,000 retail outlets
in North America and Europe, including Babbage's, Etc.; Best Buy Co., Inc.;
Circuit City Stores, Inc.; CompUSA; Computer City Supercenter; The Electronic
Boutique, Inc. and Sam's Club. ThrustMaster products are currently distributed
in over 50 countries through international distributors and through the
Company's own direct sales efforts in the United States, United Kingdom and
Germany.
The Company believes that its emphasis on innovation and product development
has allowed it to develop relationships with many leading publishers of
entertainment software titles. Through these relationships, the Company obtains
favorable pricing on popular entertainment software titles to be included in
special bundles sold into retail outlets. The Company has established "bundling"
and cooperative marketing relationships with leading entertainment software
publishers, including: Electronic Arts Inc., Activision, Inc., Sierra On-Line,
Inc., GT Interactive Software Corp. and Virgin Interactive Entertainment, Inc.
The Company also utilizes recognized brand names, such as NASCAR, TOP GUN and
NASA, to differentiate its products and enhance consumer appeal.
INDUSTRY BACKGROUND
Over the last several years significant technological advances in home PCs,
such as improvements in processor speeds and graphical capabilities, have
enabled software developers to create increasingly sophisticated entertainment
programs with real-time interaction that offer greater realism and excitement.
Today's PCs generally include hardware enhancements such as CD-ROM, 3-D graphics
accelerators and high-definition sound capabilities. As high-performance PCs
have become more affordable, the installed base of home PCs has steadily
increased, and as a result, the home PC has become a viable entertainment
platform. According to a study by COMPUTER RETAIL WEEK, 77% of home PCs are used
to play computer games. Industry analysts expect significant growth in sales of
both home PCs and entertainment software titles. The Company believes that sales
of game controllers are directly correlated with sales of home PCs
and home entertainment software titles.
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According to IDC/Link, an industry research firm, the installed base of home
PCs in the United States will reach 50 million units by the end of 1997, and
will further increase to 70 million units by 2001. Shipments of new home PCs are
projected to increase from 10.4 million units in 1996 to 18.7 million units in
2001, representing a five-year compound annual growth rate of approximately 12%,
as illustrated below.
[LOGO]
The home PC entertainment software industry is also expected to continue its
strong growth trends. Sales of entertainment software titles in the United
States are projected to increase to more than $2.0 billion in 1997, a 23.1%
increase from 1996, and will exceed $3.5 billion by 2001. Unit shipments of
software titles are projected to grow from 48 million in 1996 to over 126
million in 2001, at a compound annual growth rate of approximately 21%, as
illustrated below.
[LOGO]
BUSINESS STRATEGY
The Company's objective is to be a leading provider of controllers to the
interactive electronic entertainment industry. In order to achieve this
objective, the Company's business strategy is to:
- MARKET HIGH QUALITY CONTROLLERS THAT PROVIDE HIGH QUALITY, VALUE AND
DURABILITY. The Company offers products that enhance the PC entertainment
experience. These products are designed to be easy to install, intuitive
to use, ergonomically comfortable and aesthetically pleasing. ThrustMaster
products are competitively priced and built for intense and prolonged use.
- LEVERAGE POPULAR GAME TITLES AND BRANDS TO INCREASE PRODUCT DEMAND. The
Company establishes cooperative working relationships with leading
software publishers. These relationships create demand for the Company's
products through cross promotions and the bundling of value-added
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game software. The Company also utilizes recognized brand names such as
NASCAR, TOP GUN and NASA to differentiate its products in the retail
channel and enhance consumer appeal.
- FOSTER STRATEGIC RELATIONSHIPS WITH HARDWARE MANUFACTURERS. The Company
works closely with hardware manufacturers to gain early access to
technology to improve its products and competitive position. These
relationships also help the Company to create retail, VAR and OEM
opportunities.
- DEVELOP AND INTRODUCE INNOVATIVE PRODUCTS. In order to maintain its
position as an industry leader, the Company invests in an aggressive
product development program. The Company's research and engineering group
focuses on incorporating emerging technologies and reusable solutions into
its products.
- PURSUE STRATEGIC ACQUISITIONS OF COMPLEMENTARY PRODUCTS OR BUSINESSES. The
Company regularly assesses, and will continue to assess, strategic
acquisition opportunities that will (i) provide the Company with expertise
in new technologies; (ii) expand the Company's brands, products and
product lines; and (iii) leverage the Company's manufacturing operations
and distribution channels.
PRODUCTS
The Company's current product offerings include racing wheels, joysticks,
gamepads and flight simulation controllers. The Company closely monitors trends
and consumer preferences in the PC entertainment software market. The Company
has responded by providing a broad line of competitively priced products at
various price points. The Company has positioned ThrustMaster as a brand name
recognized for quality, value, durability and ease of use.
[PICTURES OF PRODUCTS]
RACING WHEELS.
The Company's introduction in 1994 of its Formula T1 driving control,
consisting of a racing wheel, console, and brake and accelerator pedals, helped
create the racing wheel PC entertainment market. The Company later introduced
the Formula T2 (suggested retail price of $99.95) and the Grand Prix 1 Racing
Wheel (suggested retail price of $59.95). The Company currently dominates the
racing wheel market. As software developers continue to introduce new software
titles devoted to racing, driving and touring, the Company continues to pursue
new opportunities in this market segment.
After signing a licensing agreement with NASCAR, the foremost sanctioning
body of stock car racing in North America, the Company introduced the NASCAR Pro
Racing Wheel (suggested retail price of $139.95) in mid-1997. NASCAR racing is
currently one of the fastest growing spectator sports in the United States,
attracting 10.5 million visitors and 150 million television viewers each year,
according to NASCAR. In Europe, a version of this product is marketed as the
Formula 1 Racing Wheel. The Company holds a license from Formula One
Administration Limited, a leader in European motor sports, to use the "Formula
1" name and logo for its racing wheels.
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[PICTURES OF PRODUCTS]
JOYSTICKS.
The Company offers a line of joysticks priced to appeal to different
consumers in the PC entertainment market. The Company's joysticks offer a rich
set of features that enhance the combat experience found in today's action and
adventure games. These products include the TOP GUN joystick (suggested retail
price of $39.95), the X-Fighter joystick (suggested retail price of $44.95),
which offers a larger size and a heavier base, and the Millennium 3D Inceptor
(suggested retail price of $69.95), introduced during the third quarter of 1997.
The Millennium 3D Inceptor is modeled after the hand controller found in the
NASA Space Shuttle. This unique product provides a complete 3D game control
system, with throttle, programmable buttons and three axes of movement.
[PICTURES OF PRODUCTS]
GAMEPADS.
In October 1997, the Company began shipping the RAGE 3D gamepad (suggested
retail price of $39.95) to address demand created by the popularity of action
and multi-player PC software titles. The RAGE 3D gamepad combines ergonomic
design, sophisticated technology and a variety of programmable buttons and
triggers to offer users maximum control in action, adventure and sports PC
games. The Company believes that the gamepad market presents significant growth
opportunities.
[PICTURES OF PRODUCTS]
FLIGHT SIMULATION CONTROLLERS.
The Company manufacturers a broad line of award-winning flight products
designed to simulate the equipment found in high-performance aircraft, including
flight sticks, throttle controls and rudder pedals. These products, the
Company's initial offerings, established the ThrustMaster name for realism and
quality and offer flight simulation enthusiasts a realistic PC interactive
flight control system. Although these products historically have been sold
separately in the high-end market, the Company is in the process of introducing
a complete, lower-priced flight system targeted to reach the mass market.
PRODUCT DEVELOPMENT
The Company currently employs 24 full-time engineers, and supplements its
product development capabilities by contracting with a leading industrial design
firm. The Company devotes significant resources to product enhancements and new
product development. During 1994, 1995, 1996 and the nine months ended September
30, 1997, the Company's research and engineering expenses were $1,115,000,
$1,845,000, $2,105,000 and $1,807,000, respectively.
In 1997, the Company began shipping products incorporating its proprietary
"DirectConnect" technology. This technology broadens communications bandwidth
and enables multi-player use without
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degradation of performance. In addition, the Company's Windows 95 software
interface simplifies the connection and configuration of controllers, creating a
more intuitive environment.
During 1997, PC manufacturers began shipping computers equipped with the
Universal Serial Bus ("USB") technology, a "plug-and-play" capability. USB
provides over 10 times the throughput of a standard serial port. The 1998 update
of Microsoft's Windows operating system is expected to provide general access to
the benefits of USB technology. ThrustMaster initially began shipping
USB-enabled controllers to hardware developers in 1996 and shipped a small
volume of such controllers to its OEM customers in 1997.
The Company is also exploring the use of wireless technologies for use with
its controllers. ThrustMaster, in joint development with Philips, has been
actively developing the protocol necessary to permit the simultaneous wireless
use of multiple devices with a PC.
ThrustMaster plans to incorporate force-feedback technology in its future
products. Force-feedback technology combines software and hardware elements to
create a greater sense of realism during game play. For example, a steering
wheel could become less reactive when a player's car drives over ice, or vibrate
when crossing rough terrain. The Company believes that this technology will
significantly enhance the PC gaming experience.
MANUFACTURING
Over the past three years, ThrustMaster has moved virtually all
manufacturing operations off-shore on a contract basis in an effort to obtain
manufacturing cost efficiencies and has continued to gain experience and
confidence in off-shore manufacturing. For the nine months ended September 30,
1997, approximately 90% of the Company's products were manufactured through a
single vendor utilizing factories located in Taiwan and the Guangdong province
of China. Manufacturing by such vendor at one factory accounted for more than
half of the Company's production. The Company plans to continue to manufacture
its products off-shore and plans to expand its relationships with other
manufacturers. The Company actively seeks to control the quality of its products
manufactured off-shore and has dedicated resources to manage off-shore traffic,
technology transfers and communications. The Company believes that the
manufacturing resources available to it are adequate to meet current and
foreseeable demand for its products. See "Risk Factors--Offshore Manufacturing;
Dependence on Manufacturing Contractors."
SALES, DISTRIBUTION AND MARKETING
The Company's products are principally sold directly through retail outlets
that purchase the products directly from the Company or through third-party
distributors. Thrustmaster products are available in over 5,000 retail outlets
in North America and Europe. Major customers in North America include:
<TABLE>
<CAPTION>
Babbage's Etc. Costco Wholesale
<S> <C>
Best Buy Co., Inc. Electronic Boutique, Inc.
Circuit City Stores, Inc. Future Shop, Inc.
CompUSA Sam's Club
Computer City Supercenter
</TABLE>
ThrustMaster products are distributed in over 50 countries through
international distributors of computer and consumer electronic products. The
Company maintains its European office in the United Kingdom. The European
operation is directed by a general manager who oversees marketing, customer
support, sales, warehousing and distribution.
In addition to retail outlets, the Company has recently begun to actively
pursue business through OEM arrangements. The Company has sold its products on
an OEM basis to Compaq Computer Corp., NEC, Micron Electronics, Inc. and Sierra
On-Line, Inc. Although OEM sales currently account for a
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relatively minor portion of the Company's revenues, management believes that
these sales will account for an increasing percentage of its revenues in the
future.
Working with leading software publishers, such as Electronic Arts, Inc.,
Activision, Inc., Sierra On-Line, Inc., GT Interactive Software Corp. and Virgin
Interactive Entertainment, Inc., the Company often bundles its game controllers
with popular software titles. These bundling arrangements enable the Company to
deliver increased value to consumers and to differentiate its products from
competing products. The Company offers a variety of bundled game controller
packages which allow for differentiation among retailers that carry the
Company's products. The Company also utilizes recognized brand names, such as
NASCAR, TOP GUN and NASA, to enhance consumer appeal.
The Company anticipates that a significant portion of its revenues will
continue to be derived from a limited number of key customers. For the nine
months ended September 1997, Sam's Club and Best Buy Co., Inc. accounted for an
aggregate of approximately 28% of the Company's revenue. See "Risk Factors--
Customer Concentration."
CUSTOMER SERVICE
Management believes that its commitment to provide high-quality customer
service is a key factor in its success and has increased the brand loyalty of
its customers. The Company provides free technical support to the end users of
its products by telephone, the Internet and through bulletin boards on many of
the major computer on-line network services. The Company uses customer feedback
as a source of ideas for product improvements and enhancements. ThrustMaster
products are covered by a one-year warranty against defects.
COMPETITION
The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition in the future. The
Company's principal competitors include Microsoft Corporation, Advanced Gravis
Computer Technology Ltd., CH Products, Logitech International S.A. and InterAct
Accessories, many of which have substantially greater financial, technical and
marketing resources than the Company.
The Company believes that the principal competitive factors in the market
for PC game controllers include price, quality, product features, ease of use,
durability, reputation and compatibility with computer games. Increased
competition has in the past created, and may in the future create, margin
pressures. The Company believes that its future growth will depend principally
on its ability to develop and introduce competitively priced new products with
features that are attractive to PC games users. See "Risk Factors-- Risks of
Competition."
INTELLECTUAL PROPERTY
The Company regards certain aspects of its products as proprietary and
relies on a combination of copyright and trademark laws, patents, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company holds utility patents and design patents and has filed
additional patent applications covering certain aspects of the Company's
proprietary technology. The issued patents, expire during the period from
October 2006 to September 2015. There can be no assurance that any patent
applications will result in issued patents, or that any patents now or hereafter
issued will not be challenged, invalidated or circumvented by others. There can
be no assurance that these patents will not be found to be invalid, or
non-infringed in judicial or administrative proceedings, should a dispute arise.
Although the Company believes that its products, processes and trademarks do not
infringe on the rights of others, third parties may assert infringement or other
related claims against the Company in the future. Any infringement claim or
related litigation against the Company, or any challenge to the validity of the
Company's own intellectual property rights, and the expense and effort of
defending the same, could
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<PAGE>
materially and adversely affect the Company's business, financial conditions and
results of operations. See "Risk Factors--Potential Inability to Protect
Intellectual Property Rights."
The Company believes that obtaining patent protection may provide some
benefits to the Company, but that product development and marketing capabilities
are of greater importance to the Company's business than patent protection. The
Company does not believe that its business is dependent on obtaining patent
protection or successfully defending any patents that may be obtained against
infringement by others.
The continuing development of the Company's technology is dependent, in
part, on the knowledge and skills of its employees. To protect its rights to its
proprietary information, the Company requires key employees, consultants and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to persons unaffiliated with the Company.
These agreements may not provide meaningful protection for the Company's
technology or other confidential information in the event of any unauthorized
use, misappropriation or disclosure.
The Company has obtained several trademark registrations, including
"ThrustMaster," "Thrustware," "X-Fighter," "FLCS" and "FORMULA T1." Trademark
applications are pending in the United States with respect to other trade names
used by the Company, however, such applications may not result in trademark
registrations.
GOVERNMENT REGULATION
The Federal Communications Commission (the "FCC") regulates the emission of
radio frequency energy by various devices, including computers and computer
peripherals, under Part 15 of its rules promulgated pursuant to the Federal
Communications Act of 1934, as amended. Certain of the Company's products emit
radio frequency energy and are subject to authorization and assignment of an
identifier by the FCC prior to the sale of the devices. Government agencies in
certain foreign countries have also established rules which regulate the
electronic emissions of the Company's products. The Company believes that it has
complied with the requirements of the FCC and foreign governmental regulations
in countries where its products are sold in respect of its current products and
has instituted procedures to monitor compliance with respect to future products.
EMPLOYEES
As of November 1, 1997, the Company had a total of 115 full-time employees.
At times the Company supplements its workforce with temporary contract workers.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
FACILITIES
The Company is headquartered in Hillsboro, Oregon, in approximately 60,000
square feet of leased space under two leases expiring in September 2003. The
Company's sales and distribution facility in Surrey, England, occupies
approximately 16,000 square feet of space under a lease expiring in September
2007. The Company believes that these facilities are adequate for its
immediately foreseeable needs and that suitable additional or alternative space
will be available on commercially reasonable terms if needed.
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not currently a
party to, nor is it aware of, any legal proceeding or claims that it believes
will have, individually or in the aggregate, a material adverse effect on the
Company or on its financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information with respect to the Company's executive officers and directors
is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
Stephen A. Aanderud(1)............................... 48 President, Chief Executive Officer and
Director
David K. Bergeson.................................... 38 Vice President, Sales
Frank M. Bouton...................................... 53 Vice President, New Technologies
G. Edward Brightman.................................. 40 Vice President, Operations
Kent E. Koski........................................ 53 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Robert D. Martin..................................... 59 Vice President, Development
Ronald J. Resnick.................................... 49 Vice President, Marketing
C. Norman Winningstad(1)............................. 72 Chairman of the Board
Robert L. Carter(2).................................. 55 Director
Graham E. Dorland(3)................................. 55 Director
General Merrill A. McPeak(1)......................... 61 Director
G. Gerald Pratt(2)................................... 69 Director
Milton R. Smith(2)................................... 62 Director
Frederick M. Stevens(3).............................. 61 Director
</TABLE>
- ------------------------
(1) Term on Board expires in 1999.
(2) Term on Board expires in 1998.
(3) Term on Board expires in 2000.
STEPHEN A. AANDERUD became a member of the Board of Directors in August
1994. He has been employed by the Company since January 1993, serving as
President and Chief Executive Officer since May 1994 and as Vice President of
Finance and Administration prior to that time. From October 1991 to December
1992, he was the Director of Finance of Cray Research Superservers, Inc., a
wholly-owned subsidiary of Cray Research. He is a Certified Public Accountant
and received a B.S. degree in business from Portland State University.
DAVID K. BERGESON has been employed by the Company since May of 1997 as Vice
President, Sales. Prior to joining the Company, he was National Sales Manager at
Creative Labs from August 1995 to April 1997. Mr. Bergeson has held senior sales
positions in the retail computer industry over the past 12 years. Mr. Bergeson
started in the computer industry with Epson America. He later joined NEC
Technologies as a Regional Director from October 1989 through October 1991. Mr.
Bergeson co-founded Personal Computer Solutions in 1991, where he served as Vice
President of Sales and Marketing until June 1994.
FRANK M. BOUTON joined the Company in June 1992, having previously consulted
with Robert L. Carter on the development of the Company's original products. He
has been Vice President, New Technologies, since January 1996. From October 1992
to January 1996, he was Vice President, Engineering. From
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January 1987 to June 1992, Mr. Bouton was the president and owner of THECO
Logic, Inc., a designer and manufacturer of hardware and software products for
the medical field.
G. EDWARD BRIGHTMAN has been employed by the Company since August 1992 and
became Vice President, Operations, in October 1992. He has 14 years of
experience in manufacturing and operation management. From October 1983 to
August 1992, Mr. Brightman worked for Toyota Motor Sales, Toyota Motor
Manufacturing and Vehicle Processors Inc. in management positions at several
assembly plants and import facilities.
KENT E. KOSKI has been employed by the Company since May 1995 as Vice
President, Finance and Administration, Chief Financial Officer, and Secretary.
For the five years prior to joining the Company, he was the Vice President of
Finance for Avia Group International, Inc., an athletic footwear and apparel
design and distribution company. Mr. Koski is a Certified Public Accountant and
received B.S. and M.B.A. degrees from the University of Utah.
ROBERT D. MARTIN has been employed by the Company since November 1994 and
became Vice President, Strategic Planning, in January 1996, and Vice President,
Development, in May 1997. Immediately prior to joining the Company he was a
private consultant and in that capacity assisted the Company with the
procurement of government contracts. Mr. Martin was a regional and line of
business manager for National System & Research Company from May 1990 until
December 1992. He has over 20 years of experience in senior management with
medical electronics, systems integration and software development companies.
RONALD J. RESNICK has been employed by the Company since May 1996 as Vice
President, Marketing. Prior to joining the Company, he was a marketing
consultant from August 1995 until April 1996. From April 1994 through July 1995,
Mr. Resnick was the Vice President and Publisher at Infotainment World, Inc., a
book and magazine publishing company. He was Vice President, Business
Development at Prima Publishing, a book publishing company, from March 1992
until March 1994, and Product Marketing Manager at Software Toolworks, Inc., an
entertainment software publishing company, from July 1990 to December 1991. Mr.
Resnick has a B.S. degree in electrical engineering from Rutgers University.
C. NORMAN WINNINGSTAD has served as Chairman of the Board since February
1994. He has served as a director of the Company since its inception. From 1970
to October 1991, Mr. Winningstad held at various times the positions of Chairman
of the Board, Vice-Chairman, President and Chief Executive Officer of Floating
Point Systems, Inc., a manufacturer of scientific computers. Mr. Winningstad has
a B.S. in Electrical Engineering from the University of California at Berkeley,
an M.B.A. degree from Portland State University, and an Honorary Doctorate of
Law degree from Pacific University.
ROBERT L. CARTER has been a director of the Company since 1990, and is a
former Chairman, President and Chief Executive Officer of the Company. Mr.
Carter was the Company's first full-time employee and played a key role in the
early design and development of certain ThrustMaster products. He has been the
President and Chief Executive Officer of Military Simulations, Inc., a publisher
of entertainment software, since December, 1993. He received a B.S.M.E. degree
from the University of Missouri.
GRAHAM E. DORLAND became a member of the Board of Directors in November
1993. Mr. Dorland is President of Dorland and Associates, a consulting group,
and President and Chief Executive Officer of Nautamatic Marine Systems, Inc., a
manufacturer of marine autopilots located in Newport, Oregon. From June 1993 to
January 1995, he was Managing Partner of Snobird Aircraft Partners, a developer
of experimental aircraft. From May 1982 to December 1992, Mr. Dorland was
Chairman and President of ABX Air Inc., the wholly-owned airline subsidiary of
Airborne Freight Corporation, doing business as Airborne Express.
GENERAL MERRILL A. MCPEAK became a member of the Board of Directors in March
1996. He has been the President of McPeak and Associates, an international
aerospace consulting firm, since January 1995. General McPeak spent 37 years in
the United States Air Force, rising to become Chief of Staff from
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October 1990 to October 1994, when he retired. He also is a member of the Boards
of Directors of Tektronix, Inc., Praegitzer Industries, Inc., TWA, Inc. and ECC
International Corp., where he serves as Chairman of the Board. He holds a B.A.
degree in economics from San Diego State University and an M.S. degree in
international relations from George Washington University.
G. GERALD PRATT has been a director of the Company since its inception.
Since 1980, Mr. Pratt has been a private venture capitalist. Mr. Pratt has been
a trustee of the Meyer Memorial Trust, a charitable trust, since 1978.
MILTON R. SMITH has been a director of the Company since its inception. Mr.
Smith served as the Company's President from October 1992 until May 1994 and as
the Company's Secretary from July 1990 until April 1993 and again from December
1994 until May 1995. Since April 1997, Mr. Smith has been a member of the Board
of Directors of Integrated Measurement Systems, Inc., a manufacturer of high
performance engineering test stations. Mr. Smith was the President and Chief
Executive Officer of Zeelan Technology, Inc., a software engineering company,
from October 1994 until April 1995. Since May 1995, Mr. Smith has been a private
venture capitalist. He recently completed terms as a member of the national
Board of Directors and as Chairman of the Oregon Council of the American
Electronics Association. He received a B.S. degree in physics from Portland
State University, an M.S.E.E. degree from Oregon State University, and a J.D.
degree from Lewis and Clark College.
FREDERICK M. STEVENS became a member of the Board of Directors in December
1993. From April 1988 until his retirement in January 1991, Mr. Stevens was the
Chairman of the Board and Chief Executive Officer of Fred Meyer, Inc., a
regional retailer in the Northwest.
There are no arrangements or understandings pursuant to which any person has
been elected as a director or appointed as an executive officer of the Company.
The Company has no employment contracts with any of its executive officers.
NUMBER, TERM AND ELECTION OF DIRECTORS
The Company's Amended and Restated Bylaws currently provide for a Board of
Directors consisting of eight directors. The Board is divided into three
classes. At each annual meeting of the Company's shareholders, directors are
elected to succeed the directors in the class whose terms are then expiring.
Directors hold office until the third annual shareholders meeting after their
election and until their successors are elected and qualified. Officers are
appointed by the Board of Directors and serve at its discretion.
BOARD COMMITTEES
The Board of Directors has two standing committees, an Audit Committee and a
Compensation Committee. The Audit Committee, which currently consists of Messrs.
Dorland, Pratt and Smith, meets with the Company's Chief Executive Officer,
Chief Financial Officer and the Company's independent public accountants to
review the scope and findings of the annual audit.
The Compensation Committee currently consists of Messrs. Carter, McPeak,
Stevens and Winningstad. The Compensation Committee considers and acts upon
management's recommendations to the Board of Directors regarding salaries,
bonuses, stock options and other forms of compensation for the Company's
executive officers. The Committee makes recommendations to the Board of
Directors. Executive officers who are also directors of the Company do not
participate in decisions affecting their own compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Carter, a member of the Compensation Committee, is a former Chairman,
President and Chief Executive Officer of the Company. From December 1993 until
February 1996, the Company made certain
31
<PAGE>
payments pursuant to a consulting agreement with BOCAR, Inc., a company of which
Mr. Carter is the President and its sole shareholder. See "Certain
Transactions."
DIRECTOR COMPENSATION
Each non-employee director receives an annual fee of $3,000 and $250 for
each Board meeting and committee meeting attended, unless the committee meeting
is held on the same day as the Board meeting. Non-employee directors are also
eligible to receive stock options under the Directors' Nonqualified Stock Option
Plan. Upon becoming a director, each non-employee director received options to
purchase 16,480 shares of Common Stock under such plan. In 1996 and 1997, each
non-employee director who had been a director for more than one year received
options to purchase 4,120 shares of Common Stock at a price equal to the fair
market value on the date of grant. No employee director receives additional
compensation for his service as a director. See "--Incentive Compensation and
Benefit Plans."
LIMITATION OF LIABILITY; INDEMNIFICATION
The Company's Articles of Incorporation, as amended, limit the liability of
the Company's directors to the Company and its shareholders for monetary damages
for certain conduct as directors. The Company's Amended and Restated Bylaws
provide that the Company shall indemnify its directors and officers, to the
fullest extent permissible under Oregon law, against any damages arising out of
their actions as directors or officers of the Company. Additionally, the Company
has obtained director and officer liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. At present, there is no pending litigation or proceeding
involving any director or officer where indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
32
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
last three fiscal years to the Company's Chief Executive Officer and the other
four most highly compensated executive officers of the Company for 1996
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
NAME AND ----------------------- SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) UNDERLYING OPTIONS COMPENSATION (2)
- ------------------------------------------- --------- ---------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Stephen A. Aanderud........................ 1996 $ 135,000 $ 65,299 25,750(3) $ 2,250
PRESIDENT AND CEO 1995 120,000 20,160 10,300 1,650
1994 81,747 19,130 16,480 --
Robert D. Martin (4)....................... 1996 90,000 38,591 48,925(3) 1,209
VICE PRESIDENT, 1995 55,208 2,650 3,605 448
DEVELOPMENT 1994 6,442 481 -- --
G. Edward Brightman........................ 1996 90,000 32,445 18,540(3) 988
VICE PRESIDENT, 1995 80,000 9,600 10,300 1,100
OPERATIONS 1994 66,000 15,444 --
Frank M. Bouton............................ 1996 85,000 36,770 16,480(3) 970
VICE PRESIDENT, 1995 80,000 11,520 6,180 1,100
NEW TECHNOLOGIES 1994 66,000 15,444 -- --
Kent E. Koski (5).......................... 1996 90,000 25,956 49,440(3) 1,424
VICE PRESIDENT, FINANCE 1995 51,846 4,977 41,200 --
AND ADMINISTRATION,
CFO, SECRETARY
</TABLE>
- ------------------------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contributions to the Company and the Company's overall
performance. Bonuses for a given year are paid in the first quarter of the
following year. See "--Incentive Compensation and Benefit Plans."
(2) Consists of the Company's matching contributions under its 401(k) plan. See
"--Incentive Compensation and Benefit Plans."
(3) Includes replacement options granted upon surrender of options granted in
1995. See "--Repricing of Options."
(4) Mr. Martin joined the Company in November 1994.
(5) Mr. Koski joined the Company in May 1995.
33
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the Named Executive Officers during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION FOR
SHARES TOTAL OPTIONS OPTION
UNDERLYING GRANTED TO EXERCISE TERM (3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED (1) YEAR SHARE (2) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Aanderud................... 10,300(4) 3.5% $ 4.733 2/13/06 $ 30,659 $ 77,695
15,450 5.2 5.340 5/21/06 51,884 131,484
Robert D. Martin...................... 3,605(4) 1.2 4.733 2/13/06 10,731 27,193
41,200 13.8 5.097 4/25/06 132,068 334,686
4,120 1.4 5.340 5/21/06 13,836 35,062
G. Edward Brightman................... 10,300(4) 3.5 4.733 2/13/06 30,659 77,695
8,240 2.8 5.340 5/21/06 27,671 70,125
Frank M. Bouton....................... 6,180(4) 2.1 4.733 2/13/06 18,395 46,617
10,300 3.5 5.340 5/21/06 34,589 87,656
Kent E. Koski......................... 41,200(4) 13.8 4.733 2/13/06 122,634 310,780
8,240 2.8 5.340 5/21/06 27,671 70,125
</TABLE>
- ------------------------
(1) Options may terminate before their expiration dates if the optionee's status
as an employee or director is terminated. One-fourth of the shares of Common
Stock covered by each option grant vests and becomes exercisable on each of
the first four anniversaries of the grant date.
(2) Based on the closing prices of the Common Stock as reported on the Nasdaq
National Market on the respective grant dates.
(3) This column shows the hypothetical gains or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
(4) Replacement options granted upon cancellation of options granted in 1995.
See "--Repricing of Options."
34
<PAGE>
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding the year-end
value of options held by the Named Executive Officers. No options were exercised
by the Named Executive Officers during 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED
TO UNEXERCISED OPTIONS AT IN-THE- MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen A. Aanderud....................................... 98,880 25,750 $ 661,500 $ 59,375
Robert D. Martin.......................................... -- 48,925 -- 113,125
G. Edward Brightman....................................... 57,680 18,540 404,250 44,500
Frank M. Bouton........................................... -- 16,480 -- 37,750
Kent E. Koski............................................. -- 49,440 -- 127,000
</TABLE>
- ------------------------
(1) Calculated based on the difference between the option exercise price and the
closing price of the Common Stock on December 31, 1996 ($7.625 per share).
The potential values have not been, and may never be, realized. The
underlying options have not been, and may never be, exercised. Actual gains,
if any, on exercise will depend on the value of the Common Stock on the date
of exercise.
REPRICING OF OPTIONS
On February 13, 1996, the Board of Directors canceled certain options issued
in 1995 and granted replacement options. The following table sets forth
information with respect to cancellations and replacement grants of stock
options to all executive officers since the Company's inception.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING AT
OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
- ----------------------------------------- --------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Aanderud...................... 2/13/96 10,300 $ 4.733 $ 8.616 $ 4.733 9 yrs., 3 mos.
Robert D. Martin......................... 2/13/96 3,605 4.733 8.495 4.733 9 yrs., 1 mo.
G. Edward Brightman...................... 2/13/96 10,300 4.733 8.616 4.733 9 yrs., 3 mos.
Frank M. Bouton.......................... 2/13/96 6,180 4.733 8.616 4.733 9 yrs., 3 mos.
Kent E. Koski............................ 2/13/96 41,200 4.733 8.616 4.733 9 yrs., 3 mos.
</TABLE>
35
<PAGE>
INCENTIVE COMPENSATION AND BENEFIT PLANS
STOCK OPTION PLANS
The Company's 1994 Stock Option Plan (the "1994 Plan") and the Directors'
Nonqualified Stock Option Plan (the "Directors' Plan") were originally adopted
by the Board of Directors and the Company's Shareholders in July 1994. Prior to
the adoption of the 1994 Plan and the Directors' Plan, the Company granted stock
options to certain employees and directors under the Company's 1990 Stock Option
Plan (the "1990 Plan"). Upon adoption of the 1994 Plan, shares reserved for
issuance of then ungranted options under the 1990 Plan were transferred to the
1994 Plan.
The 1994 Plan provides for the award of incentive stock options and of
nonqualified stock options to selected employees of the Company. Of the
aggregate 1,600,000 shares authorized to be issued under the 1994 Plan and the
1990 Plan, options to purchase 831,828 shares were outstanding as of November 1,
1997, 103,382 shares were reserved for issuance under the 1994 Plan pursuant to
future option grants, and the remaining shares had been issued upon exercise of
options. The exercise prices for outstanding options under the 1994 Plan and the
1990 Plan range from $0.24 to $15.75 per share. The 1994 Plan is currently
administered by the Board of Directors, which has the authority, subject to the
terms of the 1994 Plan, to determine the persons to whom options may be granted,
the exercise price and number of shares subject to each option, the character of
the grant, the time or times at which all or a portion of each option may be
exercised and certain other provisions. Options are exercisable over a period of
time in accordance with the terms of option agreements entered into on the date
of grant. Options granted under the 1994 Plan and the 1990 Plan are exercisable
for a period of 10 years from the date of grant, except that incentive stock
options granted under the 1994 Plan to persons who own more than 10% of the
Common Stock terminate after five years. Generally, options become exercisable
over a four-year period. Options granted under the 1994 Plan are generally
nontransferable by the optionee and, unless otherwise determined by the Board of
Directors, generally must be exercised by the optionee during the period of the
optionee's employment or service with the Company or within a specified period
following termination of employment or service.
The Directors' Plan provides for the award of nonqualified stock options to
non-employee directors of the Company. Upon becoming a director, each
non-employee director was granted options to purchase 16,480 shares of Common
Stock. In 1996 and 1997, each non-employee director who had been a director for
more than one year received options to purchase 4,120 shares of Common Stock. Of
the 159,000 shares that are authorized to be issued under the Directors Plan,
options to purchase 69,040 shares were outstanding as of November 1, 1997, and
the remaining 89,960 shares were reserved for issuance pursuant to future option
grants. The exercise prices for outstanding options range from $4.13 to $8.62
per share. The exercise price for options granted under the Directors' Plan is
the fair market value on the date of grant, and the exercise period is 10 years
from such date. Options terminate 90 days after a holder's termination as a
director of the Company for any reason other than death or disability, and one
year after termination by death or disability.
The weighted average exercise price of options outstanding as of November 1,
1997 under the 1994 Plan, the 1990 Plan and the Directors' Plan was $4.56.
BONUS PLAN
The Board has adopted a 1997 bonus program under which employees can receive
bonuses based upon the Company's attainment of certain revenue growth, pretax
profits and other performance goals. All employees are eligible to participate
in the program, but must remain employed at December 31, 1997 to receive a
bonus. If target revenue growth, pretax profits and other performance goals
established by the Board of Directors are met, the current seven executive
officers as a group would earn awards under the bonus plan in an aggregate
amount of $225,000, representing, individually, from 20 percent to 35 percent of
their respective 1997 annual base salaries. The maximum aggregate amount of
bonuses that may be paid
36
<PAGE>
under the plan to such executive officers is $393,000, representing,
individually, from 35 percent to 61 percent of their respective 1997 annual base
salaries.
401(K) PLAN
The Company has adopted a 401(k) plan pursuant to which eligible employees
are able to elect to defer, in the form of salary reduction contributions, a
percentage of the compensation that would otherwise be paid to the employee.
Under the 401(k) plan, the Company, in its discretion, may make matching
contributions (not to exceed 1.5% of the salary of the participating individual
employee) for the benefit of eligible employees. For 1996, the Company made an
aggregate of $35,000 in matching contributions under the plan. The Company pays
all costs of administering the 401(k) plan.
CERTAIN TRANSACTIONS
In December 1993, the Company entered into a consulting agreement with
BOCAR, Inc. ("BOCAR"), pursuant to which BOCAR provided consulting services to
the Company with respect to product concepts, mechanical design, mold and metal
working design and mechanical engineering. Robert L. Carter, a director,
principal shareholder and the former Chairman, President and Chief Executive
Officer of the Company, is the President and sole shareholder of BOCAR. Payments
by the Company to BOCAR under the consulting agreement were $188,334, $203,334
and $54,584, respectively, for the three successive years commencing December
10, 1993. The consulting agreement terminated in February 1996.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 1, 1997, and as adjusted
to reflect the sale of the shares of the Common Stock offered hereby, by (i)
each shareholder known by the Company to own beneficially 5% or more of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers, (iv) the Selling Shareholder and (v) all directors and
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares.
<TABLE>
<CAPTION>
SHARES TO
SHARES BENEFICIALLY BE SOLD IN PERCENT BENEFICIALLY
OWNED BEFORE THIS OWNED AFTER
OFFERING(2)(3) OFFERING OFFERING(2)(3)(4)
----------------------- ----------- -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
C. Norman Winningstad(5)................................ 482,910 11.2 300,000 182,910 3.2
G. Gerald Pratt(7)...................................... 443,168 10.3 -- 443,168 7.6
Milton R. Smith(6)...................................... 394,080 9.0 -- 394,080 6.7
Robert L. Carter(8)..................................... 367,030 8.5 -- 367,030 6.3
336,590 7.8 -- 336,590 5.5
Robert A. Simms, Sr. ..................................
55 Railroad Avenue
Greenwich, Connecticut 06830
Stephen A. Aanderud(9).................................. 94,180 2.1 -- 94,180 1.7
Frank M. Bouton(10)..................................... 56,892 1.3 -- 56,892 1.0
G. Edward Brightman(11)................................. 63,417 1.5 -- 63,417 1.1
Graham E. Dorland(12)................................... 35,020 * -- 35,020 *
Frederick M. Stevens(13)................................ 23,278 * -- 23,278 *
Kent E. Koski(14)....................................... 17,253 * -- 17,253 *
Robert D. Martin(15).................................... 12,663 * -- 12,663 *
General Merrill A. McPeak(16)........................... 5,150 * -- 5,150 *
All Executive Officers and Directors as a group (14
persons)(17)........................................... 2,006,939 43.2 1,706,939 27.8
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner identified
is ThrustMaster, Inc., 7175 NW Evergreen Parkway, Suite 400, Hillsboro,
Oregon 97124-5839.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of this table, a person is
deemed to be the beneficial owner of securities that (i) can be acquired by
such person within 60 days upon the exercise of options or warrants and
(ii) are held by such person's spouse or other immediate family member
sharing such person's household. Each beneficial owner's percentage
ownership set forth below is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable or convertible within 60 days after
November 1, 1997 have been exercised or converted.
(3) Percentages of outstanding Common Stock are based upon 4,293,588 shares of
Common Stock outstanding as of November 1, 1997 and 5,493,588 shares of
Common Stock deemed to be outstanding upon completion of this offering.
(4) Assumes no exercise of the Underwriters' over-allotment option.
(5) Includes 64,010 shares beneficially owned with spouse and 18,540 shares
subject to options exercisable within 60 days after November 1, 1997.
Excludes 6,180 shares subject to options exercisable more than 60 days
after November 1, 1997.
38
<PAGE>
(6) Includes 67,980 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 6,180 shares subject to options exercisable more
than 60 days after November 1, 1997.
(7) Includes 18,540 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 6,180 shares subject to options exercisable more
than 60 days after November 1, 1997.
(8) Includes 1,030 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 7,210 shares subject to options exercisable more
than 60 days after November 1, 1997.
(9) Includes 94,180 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 60,900 shares subject to options exercisable
more than 60 days after November 1, 1997.
(10) Includes 6,438 shares beneficially owned with spouse and 6,438 shares
subject to options exercisable within 60 days after November 1, 1997.
Excludes 19,312 shares subject to options exercisable more than 60 days
after November 1, 1997.
(11) Includes 59,633 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 20,857 shares subject to options exercisable
more than 60 days after November 1, 1997.
(12) Includes 16,480 shares beneficially owned with spouse and 18,540 shares
subject to options exercisable within 60 days after November 1, 1997.
Excludes 6,180 shares subject to options exercisable more than 60 days
after November 1, 1997.
(13) Includes 4,738 shares beneficially owned with spouse and 18,540 shares
subject to options exercisable within 60 days after November 1, 1997.
Excludes 6,180 shares subject to options exercisable more than 60 days
after November 1, 1997.
(14) Includes 2,575 shares beneficially owned with spouse and 14,678 shares
subject to options exercisable within 60 days after November 1, 1997.
Excludes 44,032 shares subject to options exercisable more than 60 days
after November 1, 1997.
(15) Includes 12,648 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 43,647 shares subject to options exercisable
more than 60 days after November 1, 1997.
(16) Includes 5,150 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 15,450 shares subject to options exercisable
more than 60 days after November 1, 1997.
(17) Includes 348,515 shares subject to options exercisable within 60 days after
November 1, 1997. Excludes 320,160 shares subject to options exercisable
more than 60 days after November 1, 1997.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value.
The following summary describes certain provisions of the Company's Articles
of Incorporation, as amended, and Amended and Restated Bylaws and of applicable
law relating to the Common Stock and Preferred Stock. The summary does not
purport to be complete and is subject, and qualified in its entirety by, the
complete provisions of the Company's Articles of Incorporation, as amended, and
Amended and Restated Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
As of November 1, 1997, there were 4,293,588 shares of Common Stock
outstanding held of record by 98 shareholders. The holders of Common Stock are
entitled to receive dividends as may from time to time be declared by the Board
of Directors out of funds legally available therefor and to one vote per share
on all matters on which the holders of Common Stock are entitled to vote. See
"Dividend Policy." Such holders do not have any cumulative voting rights or
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share equally and ratably in the Company's assets, if any,
remaining after the payment of all liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to those of any series of
Preferred Stock that the Company's Board of Directors may issue in the future,
as described below. The Common Stock is traded on the Nasdaq National Market
under the trading symbol "TMSR."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred Stock
in one or more series and to fix the number of shares constituting any such
series and the preferences, limitations and relative rights, including dividend
rights, dividend rate, voting rights, terms of redemption, redemption price or
prices, conversion rights, preemption rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
Company's shareholders. The issuance of Preferred Stock by the Board of
Directors could adversely affect the rights of holders of Common Stock. The
potential issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock. The Company has no present plan to issue Preferred
Stock. See "Risk Factors--Potential Adverse Impact of Issuance of Preferred
Stock; Antitakeover Effect of Oregon Law and the Company's Amended and Restated
Bylaws."
WARRANTS
Warrants to purchase 117,150 shares of Common Stock at a price of $7.57 per
share were outstanding as of November 1, 1997. The warrants expire March 3,
1999. Until such date subject to certain limitations, the warrantholders are
entitled to one demand registration right and unlimited piggyback registration
rights.
40
<PAGE>
ANTI-TAKEOVER EFFECTS OF OREGON LAW AND THE COMPANY'S AMENDED AND RESTATED
BYLAWS
OREGON CONTROL SHARE ACT
The Company is subject to certain provisions of the Oregon Business
Corporation Act (the "Act") that in certain circumstances restrict the ability
of significant shareholders from exercising voting rights (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
that results in the Acquiring Person's holding more than 20%, 33- 1/3% or 50% of
the total voting power of the corporation (a "Control Share Acquisition") cannot
vote the shares the Acquiring Person acquires in the Control Share Acquisition
("control shares") unless voting rights are accorded to the control shares by
(i) a majority of each voting group entitled to vote and (ii) the holders of a
majority of the outstanding voting shares, excluding the control shares held by
the Acquiring Person and shares held by the corporation's officers and inside
directors. The term "Acquiring Person" is broadly defined to include persons
acting as a group.
The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the control shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of the control shares'
voting rights will be considered at the next annual or special meeting of
shareholders. If the Acquiring Person's control shares are accorded voting
rights and represent a majority of all voting power, shareholders who do not
vote in favor of voting rights for the control shares will have the right to
receive the appraised "fair value" of their shares, which may not be less than
the highest price paid per share by the Acquiring Person for the control shares.
OREGON BUSINESS COMBINATION STATUTES
The Company is also subject to certain provisions of the Act that govern
business combinations between corporations and interested shareholders, which
generally provide that if a person or entity acquires 15% or more of the voting
stock of an Oregon corporation (an "Interested Shareholder"), the corporation
and the Interested Shareholder, or any affiliated entity of the Interested
Shareholder, may not engage in certain business combination transactions for
three years following the date the person or entity became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and by certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least 66- 2/3% of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
CLASSIFIED BOARD OF DIRECTORS
The Company's Amended and Restated Bylaws provide for the Company's Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. At each annual meeting of the Company's shareholders,
directors are elected to succeed the directors in the class whose terms are then
expiring. Classification of the Board of Directors is intended to decrease the
likelihood of precipitous changes in the composition of the Board of Directors
and its powers, and thereby to moderate changes in the Company's policies and
direction that the Board of Directors does not deem to be in the best interests
41
<PAGE>
of the shareholders. Classification may also have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the shareholders, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock, may adversely affect the
market price of the Common Stock and could have the effect of discouraging
certain attempts to acquire the Company or remove incumbent management,
including incumbent members of the Company's Board of Directors, even if some or
a majority of the Company's shareholders deemed such actions to be in their best
interests. See "Risk Factors--Potential Adverse Impact of Issuance of Preferred
Stock; Antitakeover Effect of Oregon Law and the Company's Amended and Restated
Bylaws."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,493,588 shares of
Common Stock outstanding (assuming no exercise of options or warrants after
November 1, 1997), all of which will be freely tradable without restriction
under the Securities Act, other than shares held by "affiliates" of the Company,
as defined in Rule 144 under the Securities Act, which shares will be subject to
certain resale limitations of Rule 144. Approximately 1,330,832 shares will be
subject to an 80-day lock-up period, as described below. The Company, the
Selling Shareholder and the Company's directors, executive officers and
shareholders owning in excess of one percent of the outstanding shares of Common
Stock prior to this offering have agreed that, until 80 days following the close
of this offering, they will not, without the prior written consent of Van Kasper
& Company, which will not be unreasonably withheld, offer, sell or otherwise
dispose of any of the 1,330,832 shares of Common Stock owned by them or any
securities convertible into or exercisable or exchangeable for any shares of
Common Stock, except that the Company, without such consent, may grant options
or issue stock upon exercise of options granted pursuant to the Company's stock
option plans and except that the Representative shall allow such persons to sell
an aggregate amount of up to 40,000 shares of Common Stock on or after 80 days
following the close of this offering.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year (and, with respect to nonaffiliates of the Company, a person who
has beneficially owned restricted securities less than two years), will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Such sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned restricted shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
At November 1, 1997, options to purchase an aggregate of 900,868 shares of
Common Stock were outstanding under the 1994 Stock Option Plan, the 1990 Stock
Option Plan and the Directors' Nonqualified Stock Option Plan, of which options
to purchase 448,329 shares were fully vested. All of the shares of Common Stock
issuable upon exercise of such options have been registered under the Securities
Act, and unless held by affiliates of the Company, would be free from the
restrictions of Rule 144. An additional 193,342 shares are reserved for future
grants under such stock option plans. As of November 1, 1997, warrants to
purchase up to 117,150 shares of Common Stock at the price of $7.57 per share
were
42
<PAGE>
outstanding and will become available for sale in the public market, if
exercised pursuant to cashless exercise provisions, or one year following the
date of exercise of the warrants if exercised for cash.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. See "Risk Factors--
Volatility of Stock Price."
43
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
Representative, Van Kasper & Company, have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the "Underwriting
Agreement") by and among the Company, the Selling Shareholder and the
Underwriters, to purchase from the Company and the Selling Shareholder the
number of shares of Common Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Van Kasper & Company.............................................................
----------
Total........................................................................ 1,500,000
----------
----------
</TABLE>
The shares of Common Stock are being offered by the Underwriters named
herein, subject to receipt and acceptance by them, subject to their right to
reject any order in whole or in part, and to certain other conditions. The
Underwriters are committed to purchase all of the above shares of Common Stock
if any are purchased.
The Representative has advised the Company and the Selling Shareholder that
the Underwriters propose to offer the shares of Common Stock to the public
initially at the price to public set forth on the cover page of this Prospectus
and to certain dealers at that price less a concession not in excess of $
per share. The Underwriters may allow, and these dealers may reallow, to certain
dealers, including any Underwriters, a discount not in excess of $ per share.
After the public offering of the shares of Common Stock, the offering price and
other selling terms may be changed by the Representative as a result of market
conditions or other factors.
The Company has granted to the Underwriters an option, exercisable no later
than 45 days after the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus, less the underwriting discount set forth on the cover
page of this Prospectus, solely to cover over-allotments. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table, and the
Company will be obligated, pursuant to the option, to sell such shares of Common
Stock to the Underwriters.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company and the Selling Shareholder against certain civil
liabilities, including liabilities under the Securities Act.
The Company, the Selling Shareholder and the Company's directors and
executive officers owning in excess of one percent of the outstanding shares of
Common Stock prior to this offering have agreed that, until 80 days following
the closing of this offering, they will not, without the prior written consent
of the Representative, which will not be unreasonably withheld, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for any shares of Common Stock, except that
the Company, without such consent, may grant options or issue stock upon
exercise of
44
<PAGE>
options granted pursuant to the Company's stock option plans and except that the
Representative shall allow such persons to sell an aggregate amount of up to
40,000 shares of Common Stock on or after 60 days following the closing of this
offering.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the offering, I.E., if they sell more shares
of Common Stock than are set forth on the cover page of this Prospectus the
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. The
Underwriters may also impose a penalty bid on certain Underwriters and selling
group members. This means that if the Underwriters purchase shares of Common
Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
discourages resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
The Underwriters have advised the Company that the Underwriters and dealers
may engage in passive market making transactions in the Common Stock in
accordance with rules promulgated by the Commission. In general, a passive
market maker may not bid for or purchase the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two-month prior period or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may have the effect of stabilizing or maintaining
the market price of the Common Stock at a level above that which might otherwise
prevail in the open market. Underwriters and dealers are not required to engage
in passive market making and may discontinue such activities at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and for the Selling Shareholder by Perkins
Coie, Portland, Oregon. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Van Valkenberg Furber Law Group
P.L.L.C., Seattle, Washington.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996, and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
31, 1996 included in this prospectus have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
45
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments thereto) under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission, in accordance with the Securities
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus concerning the
provisions of such documents are necessarily summaries of such documents and
each such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission as an exhibit to the Registration
Statement. The Registration Statement and the exhibits thereto may be inspected,
without charge, at the public reference facilities of the Commission at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any
part thereof may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York, and Chicago, Illinois, at prescribed rates. In
addition, the Registration Statement and such exhibits and schedules may be
accessed electronically at the Commission's web site on the Internet at
www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files periodic reports and other information with the Commission.
Such reports and other information (including proxy or information statements)
can be inspected and copied at the addresses, and may be accessed electronically
at the web site, set forth above. Such reports and other information (including
proxy or information statements) can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 (audited) and as of September 30, 1997
(unaudited).............................................................................................. F-3
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996 (audited) and for
the nine months ended September 30, 1996 and 1997 (unaudited)............................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 (audited) and
for the nine months ended September 30, 1996 and 1997 (unaudited)........................................ F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1995 and
1996 (audited) and for the nine months ended September 30, 1997 (unaudited).............................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts--For each of the three years in the period ended December
31, 1996............................................................................................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
ThrustMaster, Inc.
We have audited the accompany consolidated balance sheets of ThrustMaster,
Inc. and Subsidiary as of December 31, 1995 and 1996, and the related
consolidated statements of income, cash flow and changes in shareholders' equity
and financial statement schedule for each of the three years in the period ended
December 31, 1996. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ThrustMaster,
Inc. and Subsidiary as of December 31, 1995 and 1996 and the consolidated
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. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 24, 1997
F-2
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER
1995 1996 30, 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 8,090 $ 6,420 $ 5,376
Accounts receivable, net.................................... 2,897 9,820 9,635
Inventories................................................. 2,526 3,560 5,300
Prepaid expenses and other.................................. 402 109 355
Deferred income taxes....................................... 104 239 269
--------- --------- -----------
Total current assets...................................... 14,019 20,148 20,935
Plant and equipment, net...................................... 1,058 1,081 1,878
Other......................................................... 25 32 31
--------- --------- -----------
Total assets.............................................. $ 15,102 $ 21,261 $ 22,844
--------- --------- -----------
--------- --------- -----------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................................................... $ 1,203 $ 3,021 $ 4,143
Accrued liabilities........................................................ 529 2,311 1,149
Current portion--long-term debt............................................ 11 10 1
--------- --------- -------------
Total current liabilities................................................ 1,743 5,342 5,293
--------- --------- -------------
Long-term debt............................................................... 10 -- --
Deferred income taxes...................................................... 38 21 26
--------- --------- -------------
Total liabilities........................................................ 1,791 5,363 5,319
--------- --------- -------------
Commitments (Notes 9 and 11)
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized; none
issued or outstanding.................................................... -- -- --
Common stock, no par value, 25,000,000 shares authorized;
3,952,796, 4,240,403 and 4,280,777 shares issued and outstanding......... 11,877 13,301 13,474
Retained earnings.......................................................... 1,434 2,597 4,051
--------- --------- -------------
Total shareholders' equity............................................... 13,311 15,898 17,525
--------- --------- -------------
Total liabilities and shareholders' equity............................... $ 15,102 $ 21,261 $ 22,844
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 13,582 $ 19,415 $ 30,821 $ 15,745 $ 23,930
Cost of goods sold......................................... 8,007 11,815 19,592 9,727 14,814
--------- --------- --------- --------- ---------
Gross profit............................................... 5,575 7,600 11,229 6,018 9,116
--------- --------- --------- --------- ---------
Operating expenses:
Research and engineering................................. 1,115 1,845 2,105 1,352 1,807
Selling, general and administrative...................... 2,689 4,111 5,961 3,680 5,349
--------- --------- --------- --------- ---------
Total operating expenses............................... 3,804 5,956 8,066 5,032 7,156
--------- --------- --------- --------- ---------
Income from operations..................................... 1,771 1,644 3,163 986 1,960
Interest income............................................ -- 404 466 324 284
--------- --------- --------- --------- ---------
Income before income taxes................................. 1,771 2,048 3,629 1,310 2,244
Provision for income taxes................................. -- 614 1,370 472 790
--------- --------- --------- --------- ---------
Net income................................................. $ 1,771 $ 1,434 $ 2,259 $ 838 $ 1,454
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Pro forma data (Note 2):
Income before income taxes..................... $ 1,771 $ 2,048 $ 3,629 $ 1,310 $ 2,244
Provision for income taxes (pro forma through
1995)........................................ 633 687 1,370 472 790
--------- --------- --------- --------- ---------
Net income (pro forma through 1995)............ $ 1,138 $ 1,361 $ 2,259 $ 838 $ 1,454
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share (pro forma through 1995)
(Note 2)..................................... $ 0.38 $ 0.32 $ 0.49 $ 0.18 $ 0.30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding (Note 2)... 2,957 4,293 4,647 4,582 4,807
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operations:
Net income................................................. $ 1,771 $ 1,434 $ 2,259 $ 838 $ 1,454
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation............................................. 198 376 766 411 403
Deferred income taxes.................................... -- (66) (152) (24) (25)
Changes in assets and liabilities:
Accounts receivable...................................... (507) (784) (6,923) (1,741) 185
Inventories.............................................. (52) (1,572) (1,034) 529 (1,740)
Prepaid expenses and other assets........................ (66) 346 286 71 (245)
Payables and accrued liabilities......................... (109) 325 3,857 885 74
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities.... 1,235 59 (941) 969 106
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of plant and equipment........................... (493) (753) (789) (687) (1,200)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt................................. (20) (56) (11) (9) (9)
Proceeds from issuance of common stock..................... 510 8,851 71 70 59
Deferred offering costs.................................... (167) -- -- -- --
Cash dividends............................................. (521) (556) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.... (198) 8,239 60 61 50
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 544 7,545 (1,670) 343 (1,044)
Cash and cash equivalents, beginning of period............... 1 545 8,090 8,090 6,420
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period..................... $ 545 $ 8,090 $ 6,420 $ 8,433 $ 5,376
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Cash paid during the year for:
Interest..................................................... $ 39 $ 3 $ 1 $ 1 $ --
Income taxes................................................. -- 376 47 8 1,247
Cost of equipment acquired in exchange for notes............. 38 -- -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS
----------- --------- -----------
<S> <C> <C> <C>
Balance, January 1, 1994............................................................ 2,016 $ 365 $ 966
Proceeds from issuance of common stock............................................ 176 510 --
Dividends......................................................................... -- -- (922)
Net income........................................................................ -- -- 1,771
----- --------- -----------
Balance, December 31, 1994.......................................................... 2,192 875 1,815
Reclassification of S corporation earnings........................................ -- 1,660 (1,660)
Proceeds from issuance of common stock............................................ 1,761 8,851 --
Tax benefits from stock options exercised......................................... -- 491 --
Dividends......................................................................... -- -- (155)
Net income........................................................................ -- -- 1,434
----- --------- -----------
Balance, December 31, 1995.......................................................... 3,953 11,877 1,434
Proceeds from issuance of common stock............................................ 164 71 --
Tax benefits from stock options exercised......................................... -- 257 --
Stock dividend declared (Note 2).................................................. 123 1,096 (1,096)
Net income........................................................................ -- -- 2,259
----- --------- -----------
Balance, December 31, 1996.......................................................... 4,240 13,301 2,597
Stock options exercised (unaudited)............................................... 41 59 --
Tax benefits from stock options exercised (unaudited)............................. -- 114 --
Net Income (unaudited)............................................................ -- -- 1,454
----- --------- -----------
Balance, September 30, 1997 (unaudited)............................................. 4,281 $ 13,474 $ 4,051
----- --------- -----------
----- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--THE COMPANY
The consolidated financial statements include the accounts of ThrustMaster,
Inc., (the "Company"), an Oregon corporation, and its wholly-owned subsidiary,
ThrustMaster Foreign Sales Corporation. The Company was incorporated on July 31,
1990. The Company designs, develops, manufactures and markets a variety of game
controllers, primarily for personal computers, and related equipment.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. Revenue is recognized at the time of product shipment.
All products have a warranty for one year from date of sale covering product
defects. Certain sales agreements provide the right to return unsold
merchandise. The Company provides for estimated costs of warranty and returns
when products are shipped.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less. The
Company's cash equivalents are invested in high quality securities placed with
institutions with high credit ratings. This investment policy limits the
Company's exposure to concentrations of credit risk.
INVENTORIES. Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Finished goods are costed using standard cost, which
approximates the first-in, first-out method of accounting.
PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives
(three to seven years). Replacements and improvements which extend the useful
life are capitalized. Maintenance and repairs and routine replacements are
expensed as incurred. Upon disposal, costs and related accumulated depreciation
of the assets are removed from the accounts and resulting gains and losses are
reflected in operations.
INCOME TAXES. Prior to January 1, 1991, the Company was treated for federal
and state income tax purposes as a C corporation. From January 1, 1991 through
December 31, 1994, the Company was treated for federal income tax purposes as an
S corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended, and was treated as an S corporation for state income tax purposes under
comparable state tax laws. As a result, the Company's earnings from January 1,
1991 through December 31, 1994 have been, for federal and certain state income
tax purposes, taxed directly to the Company's shareholders, at their individual
federal and state income tax rates, rather than to the Company. Effective
January 1, 1995 (the "Termination Date"), the Company's S corporation status was
terminated. Subsequent to the Termination Date, the Company is no longer treated
as an S corporation and, accordingly, is subject to federal and state income
taxes on its earnings.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and tax
bases of assets and liabilities and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of change. Valuation allowances are established when necessary, to reduce
deferred tax assets to the amounts expected to be realized.
F-7
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs are
charged to operations as incurred.
PER SHARE DATA. Net income per share is computed using the weighted average
number of shares of common stock and common stock equivalents outstanding during
the periods presented. Common stock equivalents include common stock to be
issued upon the exercise of the common stock options and warrants discussed in
Note 10. On January 21, 1997, the Company's board of directors declared a 3%
stock dividend payable to shareholders of record on February 14, 1997. Share,
per share, common stock, stock option and warrant amounts have been restated to
reflect the effect of this stock dividend.
UNAUDITED PRO FORMA FINANCIAL INFORMATION AND INCOME TAXES. As previously
described, the Company was treated as a Small Business Corporation (S
corporation) for income tax purposes from January 1, 1991 through December 31,
1994. The unaudited pro forma financial information on the income statement for
1994 and 1995 reflects an estimate of the income taxes that would have been
reported had the Company been a C corporation in those periods.
RECLASSIFICATIONS. Certain operating expense categories for the years ended
December 31, 1994 and 1995 on the Consolidated Statements of Income have been
reclassified in order to conform to the 1996 presentation. These changes had no
impact on previously reported results of operations or shareholders' equity.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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.
INTERIM FINANCIAL DATA. The consolidated financial statements as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997 are
unaudited; however, these financial statements have been prepared on a basis
consistent with the audited financial statements and, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows in accordance with generally accepted accounting
principles. Results of the interim periods are not necessarily indicative of
results for the entire year.
NOTE 3--CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS, AND MAJOR CUSTOMER
INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company's accounts receivable are primarily from a small number of
computer wholesale distributors and software specialty stores located in the
United States, Canada, and western Europe. Management believes that any risk of
loss is significantly reduced by ongoing credit evaluations of its customer's
financial condition.
F-8
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS, AND MAJOR CUSTOMER
INFORMATION (CONTINUED)
In 1995 and for the nine months ended September 30, 1997, product sales to
two customers accounted for more than 10% of revenues. In 1994 and 1996, no
customer individually accounted for more than 10% of revenues.
The Company operates in a single industry segment comprising interactive
control devices for use with personal computer entertainment software. Certain
of the Company's products are manufactured and assembled in Taiwan and China by
an independent contractor. Products manufactured and assembled by this vendor
approximated 38%, 74%, and 88% of total production in 1995, 1996, and for the
nine months ended September 30, 1997, respectively.
Revenues by geographic region and as a percentage of total revenues for each
region outside the United States that constituted more than 10% of the Company's
total revenues is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues by geographic region:
Europe........................................................ $ 1,361 $ 2,489 $ 10,225 $ 4,156 $ 5,343
Asia.......................................................... 1,435 1,580 1,634 1,031 1,482
Revenues as a percentage of total revenues:
Europe........................................................ 10.0% 12.8% 33.2% 26.4% 22.7%
Asia.......................................................... 10.6 8.1 5.3 6.6 6.3
</TABLE>
NOTE 4--INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 1,493 $ 762 $ 1,260
Work-in-progress........................................... 244 90 87
Finished goods............................................. 789 2,708 3,953
--------- --------- ------
$ 2,526 $ 3,560 $ 5,300
--------- --------- ------
--------- --------- ------
</TABLE>
F-9
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Computers and other equipment............................. $ 752 $ 1,075 $ 1,540
Tooling................................................... 858 1,209 1,849
Furniture and fixtures.................................... 115 230 325
--------- --------- -------------
1,725 2,514 3,714
Accumulated depreciation.................................. (667) (1,433) (1,836)
--------- --------- -------------
$ 1,058 $ 1,081 $ 1,878
--------- --------- -------------
--------- --------- -------------
</TABLE>
NOTE 6--BANK LINE OF CREDIT
At December 31, 1996, the Company had a revolving line of credit with a bank
which provides for borrowings up to the lesser of one million dollars or 75% of
eligible receivables. The Company also may borrow up to two hundred thousand
dollars to finance up to 80% of the cost of certain equipment. Interest is at
the bank's prime lending rate which was 8.25% at December 31, 1996. Borrowings
under the agreement are collateralized by substantially all of the Company's
assets. Loan covenants under the agreement include maintaining a defined level
of working capital and maximum debt to tangible net worth ratio. At December 31,
1996, the Company had no borrowings outstanding.
NOTE 7--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and payroll liabilities...................... $ 103 $ 132 $ 142
Accrued bonuses.............................................. 129 460 66
Warranty reserve............................................. 192 365 269
Federal and state income taxes............................... -- 977 411
Other liabilities............................................ 105 377 261
--------- --------- ------
$ 529 $ 2,311 $ 1,149
--------- --------- ------
--------- --------- ------
</TABLE>
A portion of the compensation paid by the Company to certain officers is
determined based upon the Company's revenues and net income for the year. The
Company recorded expense of $99 in 1994, $118 in 1995, and $251 in 1996 related
to such amounts.
F-10
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT
Long-term debt is comprised of a note payable to an equipment manufacturer
payable in monthly installments of $1 with interest at 9%. The note is
collateralized by the related equipment and matures in November 1997.
NOTE 9--COMMITMENTS
The Company leases facilities under non-cancelable operating leases with
escalation clauses. The Company also leases equipment under operating leases.
The following is a schedule by years, through expiration of the lease, of future
minimum lease payments required under these leases as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997................................................................ $ 366
1998................................................................ 368
1999................................................................ 348
2000................................................................ 345
2001................................................................ 352
</TABLE>
Under the agreements for the lease of its office, production, and distribution
facilities, the Company is obligated to the lessor for its share of certain
expenses related to the use, operation, maintenance and insurance of the
property. These expenses, payable monthly in addition to the base rent, are not
included in the amounts shown above. Rental expense totaled $148, $239, and $236
for the years ended December 31, 1994, 1995, and 1996. For the nine months ended
September 30, 1996 and 1997, rental expense totaled $184 and $373, respectively.
NOTE 10--COMMON AND PREFERRED STOCK
INITIAL PUBLIC OFFERING. In March, 1995, the Company completed an initial
public offering of 1,552,500 shares of Common Stock which generated net proceeds
of $8,739.
STOCK DIVIDEND. In January, 1997, the Company declared a 3% stock dividend.
See Note 2.
STOCK OPTION PLANS. In July 1994, the Company adopted a new stock option
plan for employees (the "1994 Stock Option Plan") and a separate option plan for
directors (the "Directors' Stock Option Plan"). The Company reserved 400,000
shares for the 1994 Stock Option Plan and 160,000 shares for the Director's
Stock Option Plan. The 1994 Stock Option Plan provides for incentive stock
option and nonqualified options to be granted. The Company had previously made
grants under a nonqualified plan adopted in 1990 in which 1,200,000 shares had
been reserved. In July 1994, any ungranted options and any future forfeitures
under the 1990 option plan were transferred to the 1994 Stock Option Plan.
The stock option plans generally require the price of options to be at the
estimated fair market value of the stock at the date of grant. Options have a
maximum duration of ten years (five years under certain circumstances) and may
be exercised in varying amounts over the vesting periods.
F-11
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--COMMON AND PREFERRED STOCK (CONTINUED)
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------
AVAILABLE
UNDER OPTION FOR GRANT
------------- ------------
<S> <C> <C>
Balance, December 31, 1993....................................... 768,000 180,000
Authorization of additional shares............................... -- 560,000
Granted ($3.00 per share)........................................ 32,000 (32,000)
Exercised ($0.25 to $0.28 per share)............................. (896) --
Canceled......................................................... (31,904) 31,904
------------- ------------
Balance, December 31, 1994....................................... 767,200 739,904
Granted ($8.75 to $8.875)........................................ 126,500 (126,500)
Exercised ($0.25 to $2.50 per share)............................. (207,400) --
Canceled......................................................... (6,100) 6,100
------------- ------------
Balance, December 31, 1995....................................... 680,200 619,504
Granted ($4.125 to $7.625)....................................... 331,000 (331,000)
Exercised ($0.25 to $0.75 per share)............................. (164,100) --
Canceled......................................................... (134,500) 134,500
Effect of 3% stock dividend declared (See Note 2)................ 21,378 (21,378)
------------- ------------
Balance, December 31, 1996....................................... 733,978 401,626
Granted ($8.617 to $8.875) (unaudited) 203,470 (203,470)
Exercised ($0.243 to $5.340 per share) (unaudited)............... (40,394)
Canceled (unaudited)............................................. (35,186) 35,186
------------- ------------
Balance, September 30, 1997 (unaudited).......................... 861,868 233,342
------------- ------------
------------- ------------
</TABLE>
The exercise price of the outstanding options at December 31, 1996 ranged
between $0.24 and $8.62 per share. The weighted average exercise price of
outstanding options was $2.69 at December 31, 1996.
During 1995, warrants to purchase 139,050 shares were granted at a price of
$7.57 per share after giving effect to the stock dividend discussed in Note 2.
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for grants
of options under the stock option plans. Had compensation cost for the Company's
two stock option plans been determined based on the fair value at the grant date
for awards in
F-12
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--COMMON AND PREFERRED STOCK (CONTINUED)
1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net income-as reported..................................................... $ 1,361 $ 2,259
Net income-pro forma....................................................... 1,304 2,173
Net income per share-as reported........................................... 0.32 0.49
Net income per share-pro forma............................................. 0.30 0.47
</TABLE>
NOTE 11--CONSULTING AGREEMENT
In December 1993, the Company entered into a consulting agreement with a
company owned entirely by a shareholder and former chief executive officer. The
agreement terminated in February, 1996. Under the agreement, services included
providing product concepts and consulting and assistance on product design.
Payments of $189, $205, and $36 were made pursuant to the agreement in 1994,
1995, and 1996, respectively.
NOTE 12--INCOME TAXES
Effective January 1, 1995, the Company was required to provide for deferred
taxes, arising from the cumulative temporary differences between financial
reporting and tax reporting, by recording a benefit for income taxes for such
deferred taxes in its statement of income in the period in which the Termination
Date occurred. The amount of this benefit during the year ended December 31,
1995 was $73.
The Company's sales outside of the United States are primarily made through
ThrustMaster Foreign Sales Corporation ("FSC"). Sales through FSC are taxed in
the United States and are not subject to foreign income taxes.
F-13
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--INCOME TAXES (CONTINUED)
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED (UNAUDITED)
PRO FORMA
INFORMATION)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................................................ $ 533 $ 613 $ 1,256 $ 430 $ 722
State.................................................................. 121 67 266 96 89
--------- --------- --------- --------- ---------
Total current.......................................................... 654 680 1,522 526 811
--------- --------- --------- --------- ---------
Deferred:
Federal................................................................ (17) 6 (126) (45) (18)
State.................................................................. (4) 1 (26) (9) (3)
--------- --------- --------- --------- ---------
Total deferred......................................................... (21) 7 (152) (54) (21)
--------- --------- --------- --------- ---------
Total................................................................ $ 633 $ 687 $ 1,370 $ 472 $ 790
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
pro forma effective income tax rate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED (UNAUDITED)
PRO FORMA
INFORMATION)
<S> <C> <C> <C> <C> <C>
Federal statutory rate................................................. 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.................. 4.4 2.2 4.4 4.4 2.6
Effect of research and development tax credit and other................ (2.7) (2.7) (.6) (2.4) (1.4)
--------- --------- --------- --------- ---------
Effective income tax rate.............................................. 35.7% 33.5% 37.8% 36.0% 35.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The pro forma provision for income taxes for the year ended December 31,
1995 is presented to reflect the provision as if the deferred tax asset of $73
at January 1, 1995 had been recognized in prior periods.
F-14
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--INCOME TAXES (CONTINUED)
Deferred income taxes result from items of income or expense being reported
for income tax purposes in different periods than they are reported for
financial reporting purposes. The primary temporary differences that give rise
to significant portions of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996
--------- --------- NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax asset:
Warranty reserve, inventory reserve, and other accrued liabilities........... $ (274) $ (624) $ (797)
Deferred tax liability:
Excess tax over book depreciation and amortization........................... 100 28 30
</TABLE>
NOTE 13--401(K) PLAN
The Company has a 401(k) Plan (the "Plan") covering substantially all
employees meeting minimum service requirements. The Plan allows the Company to
make discretionary matching contributions beginning in 1995. The Company
provided discretionary contributions of $23 and $35 for the years ended December
31, 1995 and 1996, respectively.
F-15
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected unaudited and pro forma financial information for each of the
quarters is as follows. Pro forma net income per share and net income per share
data has been adjusted to reflect the stock dividend discussed in Note 2.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1994
Revenues.................................................... $ 2,570 $ 2,608 $ 3,327 $ 5,077
Cost of goods sold.......................................... 1,544 1,522 1,854 3,087
Operating expenses.......................................... 822 828 939 1,215
Net income.................................................. 204 258 534 775
Pro forma net income........................................ 129 163 335 511
Pro forma net income per share.............................. $ 0.05 $ 0.06 $ 0.12 $ 0.17
1995
Revenues.................................................... $ 3,701 $ 4,277 $ 5,033 $ 6,404
Cost of goods sold.......................................... 2,222 2,499 2,943 4,151
Operating expenses.......................................... 1,254 1,418 1,512 1,772
Pro forma net income........................................ 173 307 475 406
Pro forma net income per share.............................. $ 0.05 $ 0.07 $ 0.10 $ 0.09
1996
Revenues.................................................... $ 4,564 $ 4,250 $ 6,931 $ 15,076
Cost of goods sold.......................................... 2,970 2,615 4,142 9,865
Operating expenses.......................................... 1,538 1,564 1,930 3,034
Net income.................................................. 101 111 626 1,421
Net income per share........................................ $ 0.02 $ 0.02 $ 0.14 $ 0.30
1997
Revenues.................................................... $ 6,272 $ 7,149 $ 10,509
Cost of goods sold.......................................... 3,786 4,480 6,548
Operating expenses.......................................... 2,108 2,244 2,804
Net income.................................................. 289 329 836
Net income per share........................................ $ 0.06 $ 0.07 $ 0.17
</TABLE>
NOTE 15--SUBSEQUENT EVENT (UNAUDITED)
The Company's bank has increased its line of credit to $5.0 million through
January 31, 1998 to meet the Company's seasonal working capital needs during the
fourth quarter of 1997. The line of credit is scheduled for review in July 1998.
At September 30, 1997, there were no borrowings outstanding and the Company was
in compliance with all bank loan covenants.
F-16
<PAGE>
SCHEDULE II
THRUSTMASTER, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING CHARGES TO DEDUCTIONS ENDING
YEAR BALANCE EXPENSE WRITE-OFFS BALANCE
--------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1996 $ 7 $ 129 $ (122) $ 14
1995 -- 8 (1) 7
1994 -- 11 (11) --
Reserve for warranty expense and sales returns:
1996 $ 192 $ 173 $ -- $ 365
1995 229 -- (37) 192
1994 166 63 -- 229
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Price Range of Common Stock............................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.............................................................. 15
Business.................................................................. 22
Management................................................................ 29
Certain Transactions...................................................... 37
Principal and Selling Shareholder......................................... 38
Description of Capital Stock.............................................. 40
Shares Eligible for Future Sale........................................... 42
Underwriting.............................................................. 44
Legal Matters............................................................. 45
Experts................................................................... 45
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
1,500,000 SHARES
THRUSTMASTER,
INC.
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
VAN KASPER & COMPANY
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the offering described in this Registration Statement. All the expenses are
estimates, 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............... $ 7,743
NASD filing fee................................................... 3,056
Nasdaq National Market listing fee................................ 17,500
Printing and engraving expenses................................... 80,000
Legal fees and expenses........................................... 60,000
Accounting fees and expenses...................................... 25,000
Transfer Agent and Registrar fees................................. 3,500
Miscellaneous expenses............................................ 53,201
---------
Total......................................................... $ 250,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, the Registrant is subject to the Oregon Business
Corporation Act ("OBCA"). Article X of the Registrant's Articles of
Incorporation, as amended (the "Articles") (Exhibit 3.1 hereto) eliminates the
liability of the Registrant's directors to the Registrant or its shareholders,
except for any liability related to (i) any breach of the duty of loyalty to the
Registrant or its shareholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) any
distribution that is unlawful under the OBCA; or (iv) any transaction from which
the director derived an improper personal benefit.
Sections 60.391 and 60.407(2) of the OBCA allow corporations to indemnify
their directors and officers, respectively, against liability where the director
or officer has acted in good faith and with a reasonable belief that actions
taken were in the best interests of the corporation or at least not opposed to
the corporation's best interests and, if in a criminal proceeding, the
individual had no reasonable cause to believe the conduct in question was
unlawful. Under the OBCA, corporations may not indemnify against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. Sections 60.394 and 60.407(1) of the OBCA mandate
indemnification of directors and officers, respectively, for all reasonable
expenses incurred in the successful defense of any claim made or threatened,
whether or not such claim was by or in the right of the corporation. Finally,
pursuant to the Sections 60.401 and 60.407(1) of the OBCA, a court may order
indemnification in view of all the relevant circumstances, whether or not the
director or officer met the good-faith and reasonable belief standards of
conduct set out in Section 60.391 of the OBCA or was adjudged liable to the
corporation.
Section 60.414 of the OBCA also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.
The Registrant's Amended and Restated Bylaws require indemnification of
directors and officers of the Registrant to the fullest extent not prohibited by
law. The Underwriting Agreement (Exhibit 1 hereto) provides that the
Underwriters shall indemnify each director of the Registrant, each officer of
the
II-1
<PAGE>
Registrant who signed this Registration Statement and each person who controls
the Registrant for certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since November 14, 1994, the Registrant has sold securities without
registration under the Securities Act in the transactions described below:
1. On October 16, 1997, the Registrant issued to Black & Company 11,811
shares of the Registrant's common stock upon the exercise of warrants
having an exercise price of $7.57 per share. The sale of these shares was
exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
*3.1 Articles of Incorporation, as amended
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of Incorporation,
as amended (See Exhibit 3.1)
**4.2 Description of Rights of Security Holders contained in the Amended and
Restated Bylaws (See Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
*4.4 Form of Representatives' Warrant Agreement among the Company, Cruttenden
Roth and Black & Company, Inc.
5.1 Opinion of Perkins Coie as to the legality of the shares being registered.
*10.1 Consulting Agreement, dated December 1, 1993, between ThrustMaster, Inc.
and BOCAR, Inc.
*10.2 1994 Incentive Compensation Plan, dated December 21, 1993
*10.3 Directors' Nonqualified Stock Option Plan, dated July 19, 1994
*10.4 1994 Stock Option Plan, dated July 19, 1994
10.5 Letter agreement dated October 8, 1997 between United States National Bank
of Oregon and ThrustMaster, Inc., regarding a revolving line of credit
*10.6 Voicecom Development Agreement, dated November 4, 1994, between
ThrustMaster, Inc., and Advanced Protocol Systems, Inc.
***10.7 1990 Stock Option Plan
**10.8 Leases, dated March 13, 1996, between Pacific Realty Associates, L.P. and
ThrustMaster, Inc., as amended
**10.9 Summary of 1997 Bonus Program
11 Statement regarding computation of per share earnings
21 List of Subsidiaries
23.1 Consent of Independent Accountants (contained on page II-5)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
23.2 Consent of Perkins Coie (included in the legal opinion filed as Exhibit
5.1)
27 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
January 5, 1995, as amended on February 7, 1995, and February 24, 1995 (File
No. 33-88252-LA).
** Incorporated by reference to the same exhibit number from the Registrant's
Report on Form 10-K filed with the Securities and Exchange Commission on
March 25, 1997.
*** Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on June 5, 1995
(File No. 33-93087).
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts--For each of the three years
in the period ended December 31, 1996 (included as page F-16 of the Prospectus
included in this Registration Statement).
ITEM 17. UNDERTAKINGS
(1) 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 foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(2) The undersigned Registrant hereby undertakes that:
(a) 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.
(b) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hillsboro, State of
Oregon, on November 13, 1997.
<TABLE>
<S> <C> <C>
THRUSTMASTER, INC.
By: /s/ STEPHEN A. AANDERUD
-----------------------------------------
Stephen A. Aanderud
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints C. Norman
Winningstad, Stephen A. Aanderud and Kent E. Koski, any of whom may act without
the joinder of the other, as his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him, and in his name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) and supplements to this Registration
Statement and any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully 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 in the
capacities indicated on November 13, 1997.
/s/ C. NORMAN WINNINGSTAD
- ------------------------------ Chairman of the Board
C. Norman Winningstad
Director, President and
/s/ STEPHEN A. AANDERUD Chief Executive Officer
- ------------------------------ (principal executive
Stephen A. Aanderud officer)
Vice President, Finance
and Administration,
/s/ KENT E. KOSKI Chief Financial Officer
- ------------------------------ and Secretary (principal
Kent E. Koski financial and accounting
officer)
II-4
<PAGE>
<TABLE>
<C> <S> <C>
/s/ ROBERT L. CARTER
- ------------------------------ Director
Robert L. Carter
/s/ GRAHAM E. DORLAND
- ------------------------------ Director
Graham E. Dorland
/s/ MERRILL A. MCPEAK
- ------------------------------ Director
Merrill A. McPeak
/s/ G. GERALD PRATT
- ------------------------------ Director
G. Gerald Pratt
/s/ MILTON R. SMITH
- ------------------------------ Director
Milton R. Smith
- ------------------------------
Frederick M. Stevens Director
</TABLE>
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference under the captions "Selected Consolidated
Financial Data" and "Experts" and to the use of our report dated July 24, 1997
on the consolidated financial statements of ThrustMaster, Inc. in the
Registration Statement on Form S-1 and related Prospectus of ThrustMaster, Inc.
for the registration of its Common Stock.
/s/ COOPERS & LYBRAND L.L.P.
Portland, Oregon
November 14, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
<C> <S> <C>
1 Form of Underwriting Agreement
*3.1 Articles of Incorporation, as amended
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of Incorporation, as amended (See
Exhibit 3.1)
**4.2 Description of Rights of Security Holders contained in the Amended and Restated Bylaws (See
Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
*4.4 Form of Representatives' Warrant Agreement among the Company, Cruttenden Roth and Black &
Company, Inc.
5.1 Opinion of Perkins Coie, as to the legality of the shares being registered.
*10.1 Consulting Agreement, dated December 1, 1993, between ThrustMaster, Inc. and BOCAR, Inc.
*10.2 1994 Incentive Compensation Plan, dated December 21, 1993
*10.3 Directors' Nonqualified Stock Option Plan, dated July 19, 1994
*10.4 1994 Stock Option Plan, dated July 19, 1994
10.5 Letter agreement dated October 8, 1997 between United States National Bank of Oregon and
ThrustMaster, Inc., regarding a revolving line of credit
*10.6 Voicecom Development Agreement, dated November 4, 1994, between ThrustMaster, Inc., and
Advanced Protocol Systems, Inc.
***10.7 1990 Stock Option Plan
**10.8 Leases, dated March 13, 1996, between Pacific Realty Associates, L.P. and ThrustMaster,
Inc., as amended
**10.9 Summary of 1997 Bonus Program
11 Statement regarding computation of per share earnings
21 List of Subsidiaries
23.1 Consent of Independent Accountants (contained on page II-5)
23.2 Consent of Perkins Coie (included in the legal opinion filed as Exhibit 5.1)
27 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
January 5, 1995, as amended on February 7, 1995, and February 24, 1995 (File
No. 33-88252-LA).
** Incorporated by reference to the same exhibit number from the Registrant's
Report on Form 10-K filed with the Securities and Exchange Commission on
March 25, 1997.
*** Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on June 5, 1995
(File No. 33-93087).
II-7
<PAGE>
THRUSTMASTER, INC.
(an Oregon Corporation)
1,500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
December *__*, 1997
VAN KASPER & COMPANY
As Representative of the several
Underwriters named in Schedule I,
11661 San Vincente Boulevard, Suite 709
Los Angeles, California 90049
Ladies and Gentlemen:
ThrustMaster, Inc., an Oregon corporation (the "Company"), proposes to
issue and sell 1,200,000 shares of its Common Stock (the "Common Stock"), and
the shareholders named in Schedule II hereto (the "Selling Shareholders"),
acting severally and not jointly, propose to sell an aggregate of 300,000
shares of Common Stock (collectively, the "Firm Stock") to the several
Underwriters named in Schedule I hereto (the "Underwriters", which term shall
also include any underwriter purchasing Stock pursuant to Section 8 hereof).
The Company proposes to grant to the Underwriters an option to purchase up to
an additional 225,000 shares of the Common Stock on the terms and for the
purposes set forth in Section 2(b) (the "Option Stock"). The Firm Stock and
any Option Stock purchased pursuant to this Agreement are referred to below
as the "Stock." Van Kasper & Company is acting as representative of the
several Underwriters and in that capacity is referred to in this Agreement as
the "Representative."
The Company hereby confirms its agreement with respect to the purchase
of the Stock by the several Underwriters as set forth below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
(a) The Company hereby represents and warrants to, and agrees with,
each Underwriter as follows:
(i) A Registration Statement (Registration No. 333- *____* ) on
Form S-1 under the Securities Act of 1933, as amended (the "Securities Act"),
including such amendments to such registration statement as may have been
required to the date of this Agreement, relating to the Stock has been
prepared by the Company under and in conformity with the provisions of the
Securities Act and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission. After the execution of this Agreement, the
Company will file with the Commission either (A) if such registration
statement, as it may have been amended, has been declared by the Commission
to be effective under the Securities Act, either (I) if the Company relies on
Rule 434
<PAGE>
under the Securities Act, a Term Sheet (defined below) relating to the Stock,
that identifies the Preliminary Prospectus (defined below) that it
supplements and contains such information as is required or permitted by
Rules 434, 430A and 424(b) of the Rules and Regulations or (II) if the
Company does not rely on Rule 434 under the Securities Act, a prospectus in
the form most recently included in an amendment to such registration
statement (or, if no such amendment has been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A of
the Rules and Regulations or permitted by Rule 424(b) of the Rules and
Regulations, and in the case of either (i)(A) or (i)(B) of this sentence, as
has been provided to and approved by the Representative prior to the
execution of this Agreement, or (B) if such registration statement, as it may
have been amended, has not been declared by the Commission to be effective
under the Securities Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished
to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules, exhibits thereto and
all documents incorporated by reference therein and including any information
omitted therefrom pursuant to Rule 430A of the Rules and Regulations and
included in the Prospectus (defined below), as well as any additional
registration statement filed in connection with the offering of the Stock
pursuant to Rule 462(b) under the Securities Act; the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means:
(A) if the Company relies on Rule 434 under the Securities Act,
the Term Sheet relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Securities Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the
Securities Act, the prospectus first filed with the Commission pursuant to Rule
424(b) under the Securities Act; or
(C) if the Company does not rely on Rule 434 under the
Securities Act and if no prospectus is required to be filed pursuant to Rule
424(b) under the Securities Act, the prospectus included in the Registration
Statement;
provided that if any revised prospectus that is provided to the Underwriters by
the Company for "use in connection with the offering of the Stock" differs from
the prospectus on file with the Commission at the time the Registration
Statement became or becomes, as the case may be, effective, whether or not the
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations, the term "Prospectus" shall mean such
revised prospectus from and after the time it is first provided to the
Underwriters for such use. The term "Term Sheet" as used in this Agreement
means any term sheet that satisfies the
-2-
<PAGE>
requirements of Rule 434 under the Securities Act. Any reference in this
Agreement to the "date" of a prospectus that includes a Term Sheet means the
date of such Term Sheet.
(ii) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any Preliminary Prospectus or
the Prospectus has been issued and no proceedings for that purpose are pending
or, to the best knowledge of the Company, threatened or contemplated by the
Commission; no order suspending the sale of the Stock in any jurisdiction has
been issued and no proceedings for that purpose are pending or, to the best
knowledge of the Company, threatened or contemplated, and any request of the
Commission for additional information (to be included in the Registration
Statement, any Preliminary Prospectus or the Prospectus or otherwise) has been
complied with.
(iii) When any Preliminary Prospectus was filed with the Commission
it (A) contained all statements required to be contained therein and complied
in all respects with the requirements of the Securities Act, the Rules and
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder (the
"Exchange Act Rules and Regulations") and (B) did not include 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 under
which they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (A) contained or will
contain all statements required to be contained therein and complied or will
comply in all respects with the requirements of the Securities Act, the Rules
and Regulations, the Exchange Act and the Exchange Act Rules and Regulations
and (B) did not or will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein
not misleading. When the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or such amendment or supplement is not required to be so filed,
when the Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective) and
at all times subsequent thereto up to and including the Closing Date (defined
below) and any date on which Option Stock is to be purchased, the Prospectus,
as amended or supplemented at any such time, (A) contained or will contain
all statements required to be contained therein and complied or will comply
in all respects with the requirements of the Securities Act, the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and Regulations and
(B) did not or will not include 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 under which they were made, not
misleading. The foregoing provisions of this paragraph (iii) do not apply to
statements or omissions made in any Preliminary Prospectus, the Registration
Statement or any amendment thereto or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
(iv) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has full power (corporate
and other) and authority to own or lease its properties
-3-
<PAGE>
and conduct its business as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and as currently being conducted and proposed to be
conducted by it and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned or
leased or the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not have a
material effect on the business, properties, condition (financial or
otherwise), results of operations or prospects of the Company or its
subsidiaries). Each of the Company and each of its subsidiaries are in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from federal, state, local,
foreign and other governmental or regulatory authorities that are material to
the conduct of its business, all of which are valid and in full force and
effect. Except as may be disclosed in the Registration Statement, the
Company owns all of the outstanding capital stock of each of its
subsidiaries, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest of any type, kind or nature. None
of the subsidiaries of the Company is a "significant subsidiary" as such term
is defined in Rule 405 under the Securities Act. As used in this Agreement,
the word "subsidiary" means any corporation, partnership, limited liability
company or other entity of which the Company directly or indirectly owns 50%
or more of the equity or that the Company directly or indirectly controls.
The Company does not have any subsidiaries that are not corporations.
(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there has not been any
material loss or interference with the business of the Company or any of its
subsidiaries from fire, explosion, flood, volcano, tidal wave, earthquake or
other calamity, whether or not covered by insurance, or from any court or
governmental action, order or decree, or any changes in the capital stock or
long-term debt of the Company or any of its subsidiaries, or any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company, or any material change, or a development known to the Company that
might cause or result in a material change, in or affecting the business,
properties, condition (financial or otherwise), results of operation or
prospects of the Company and its subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, in each
case other than as may be set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and since such dates, except in the ordinary course
of business, neither the Company nor any of its subsidiaries has entered into
any material transaction not described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(vi) There is no agreement, contract, license, lease or other
document required to be described in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or to be filed as an exhibit to the Registration
Statement which is not described or filed as required. All contracts
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), if any, are in full force and effect on
the date hereof, and neither the Company nor any of its subsidiaries nor,
-4-
<PAGE>
to the best knowledge of the Company, any other party thereto is, or with the
giving of notice or the passage of time or both would be, in material breach
of or default under any such contract.
(vii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and the description of
the capital stock therein conforms with and accurately describes the rights
set forth in the instruments defining the same. The shares of the Stock have
been duly and validly authorized, is (or, in the case of shares of the Stock
to be sold by the Company, will be, when issued and delivered against payment
therefor as provided herein) duly and validly issued, fully paid and
non-assessable, and conforms to the description thereof in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus). The issuance of the shares of Stock by the Company is not
subject to any preemptive or similar rights. No further approval or
authority of the shareholders or the Board of Directors of the Company will
be required for the transfer and sale of the Stock to be sold by the Selling
Shareholders or the issuance and sale of the Stock contemplated herein.
(viii) All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
All of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned by the Company, free and clear of all liens or
encumbrances. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted or
exercised thereunder, set forth in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), accurately and
fairly present the information required to be shown with respect to such
plans, arrangements, options and rights. Other than this Agreement and the
options and warrants to purchase the Common Stock described in the
Prospectus, there are no options, warrants or other rights outstanding to
subscribe for or purchase any shares of the Company's capital stock. There
are no preemptive rights applicable to any shares of capital stock of the
Company.
(ix) The Company has full right, power and authority to enter into
this Agreement and to carry out all the terms and provisions hereof. This
Agreement has been duly authorized, executed and delivered by the Company,
and constitutes the valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable federal or state securities laws. The
filing of the Registration Statement does not give rise to any rights, other
than those which have been waived, for or relating to the registration of any
capital stock of the Company.
(x) Neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or in
default under, nor will the execution or delivery of this Agreement or the
completion of the transactions contemplated by this Agreement result in a
violation of or constitute a breach of or a default (including without
-5-
<PAGE>
limitation with the giving of notice, the passage of time or otherwise)
under, the certificate or articles of incorporation, bylaws or other
governing documents of the Company or any of its subsidiaries or any
obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, deed of trust, loan agreement, lease, license, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of its or their properties may be
bound or affected. Except as set forth in the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has not incurred any liability, direct or indirect, for any finders'
or similar fees payable on behalf of the Company or the Underwriters in
connection with the transactions contemplated by this Agreement. The
performance by the Company of its obligations under this Agreement will not
violate any law, ordinance, rule or regulation, or any order, writ,
injunction, judgment or decree of any governmental agency or body or of any
court having jurisdiction over the Company, its subsidiaries or any of their
respective properties, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company or any
of its subsidiaries. Except for permits and similar authorizations required
under the Securities Act, the Exchange Act or under other securities or Blue
Sky laws of certain jurisdictions and for such permits and authorizations
that have been obtained, no consent, approval, authorization or order of any
court, governmental agency or body, financial institution or any other person
is required in connection with the completion of the transactions
contemplated by this Agreement.
(xi) The Company and each of its subsidiaries owns, or has valid
rights to use, all items of real and personal property which are material to
the business of the Company and its subsidiaries taken as a whole and free
and clear of all liens, encumbrances and claims that might materially
interfere with the business, properties, condition (financial or otherwise),
results of operations or prospects of the Company and its subsidiaries taken
as a whole.
(xii) Each of the Company and each of its subsidiaries owns or
possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
and copyrights described or referred to in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) as owned by or used by any of them, or which are
necessary for the conduct of their business as described in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus); and, except as set forth in the
Prospectus (or if the Prospectus is not in existence, the most recent
Preliminary Prospectus), neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, tradenames or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company
and its subsidiaries taken as a whole.
(xiii) There is no litigation or governmental proceeding to which
the Company or any of its subsidiaries is a party or to which any property of
the Company or any of its
-6-
<PAGE>
subsidiaries is subject which is pending or, to the best knowledge of the
Company, is threatened or contemplated against the Company or any of its
subsidiaries that might have a material effect on the business, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its subsidiaries taken as a whole, that might prevent
consummation of the transactions contemplated by this Agreement or that are
required to be disclosed in the Registration Statement or Prospectus (or, if
the Prospectus is not in existence, in the most recent Preliminary
Prospectus) and are not so disclosed.
(xiv) Neither the Company nor any of its subsidiaries is in
violation of, and neither the Company nor any of its subsidiaries has
received any notice or claim from any governmental agency or third party that
any of them is in violation of, any law, order, ordinance, rule or
regulation, or any order, writ, injunction, judgment or decree of any agency
or body or of any court, to which it or its properties (whether owned or
leased) may be subject, which violation might have a material effect on the
business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole.
(xv) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result in,
under the Exchange Act, the Exchange Act Rules and Regulations or otherwise,
the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Stock. No bid or purchase by the
Company and, to the best knowledge of the Company, no bid or purchase that
could be attributed to the Company (as a result of bids or purchases by an
"affiliated purchaser" within the meaning of Rule 10b-6 under the Exchange
Act) for or of the Stock, the Common Stock, any securities of the same class
or series as the Common Stock or any securities convertible into or
exchangeable for or that represent any right to acquire the Common Stock is
now pending or in progress or will have commenced at any time prior to the
completion of the distribution of the Stock.
(xvi) Coopers & Lybrand LLP, whose reports appear in the
Registration Statement and the Prospectus, are, and during the periods
covered by their reports in the Registration Statement were, independent
accountants as required by the Securities Act and the Rules and Regulations.
The financial statements and schedules included in the Registration
Statement, each Preliminary Prospectus and the Prospectus present fairly (or,
if the Prospectus has not been filed with the Commission, as to the
Prospectus, will present fairly) the financial condition, results of
operations, cash flow and changes in stockholders' equity and the financial
statements and schedules included in the Registration Statement present
fairly the financial information required to be stated therein. Such
financial statements, schedules and information have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods presented. The selected and summary
financial and statistical data included in the Registration Statement and the
Prospectus present fairly (or, if the Prospectus has not been filed with the
Commission, as to the Prospectus, will present fairly) the financial
information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein. No other financial
information, statements or schedules are required to be included in the
Registration Statement.
-7-
<PAGE>
(xvii) The books, records and accounts of the Company and each of
its subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and each of its
subsidiaries. The systems of internal accounting controls maintained by the
Company and each of its subsidiaries are sufficient to provide reasonable
assurances that: (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are recorded
as necessary (x) to permit preparation of financial statements in conformity
with generally accepted accounting principles and (y) to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company will not, and the Company has delivered to the
Representative the written agreement of each of its officers and directors
and all persons who own more than 1% of the outstanding shares of Common
Stock (collectively, "Material Holders") to the effect that each of the
Material Holders will not, in each case for a period of 80 days following the
date of this Agreement, in each case without the prior written consent of the
Representative, offer, sell or contract to sell, or otherwise dispose of, or
announce the offer of, any Common Stock, without the prior written consent of
the Representative, except that: (A) the Company may grant options in the
ordinary course pursuant to its stock option plans and issue shares of Common
Stock upon exercise thereof; and (B) the Representative will allow sales of
up to 40,000 shares of Common Stock 60 days after the date of this Agreement.
(xix) No labor disturbance by the employees of the Company or any
of its subsidiaries exists, is imminent or, to the best knowledge of the
Company, is contemplated or threatened; and the Company is not aware of an
existing, imminent or threatened labor disturbance by the employees of any
principal suppliers, contract manufacturing organizations, manufacturers,
authorized dealers or distributors that might be expected to result in any
material change in the business, properties, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries taken as a whole. No collective bargaining agreement exists
with any of the Company's or any of the Company's subsidiaries' employees
and, to the best knowledge of the Company, no such agreement is imminent.
(xx) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or results
of operations of the Company and its subsidiaries, except as described in or
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contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(xxi) Each of the Company and each of its subsidiaries has filed
all federal, state, local and foreign tax returns that are required to be
filed or has requested extension thereof and has paid all taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges to the extent that the same have become due and payable. No tax
assessment or deficiency has been made or proposed against the Company or any
of its subsidiaries nor has the Company or any of its subsidiaries received
any notice of any proposed tax assessment or deficiency.
(xxii) Except as set forth in the Prospectus (or if the Prospectus
is not in existence, the most recent Preliminary Prospectus) there are no
outstanding loans, advances or guaranties of indebtedness by the Company to
or for the benefit of any of (A) its "affiliates," as such term is deemed in
the Rules and Regulations, (B) any of the officers or directors of any of its
subsidiaries or (C) any of the members of the families of any of them.
(xxiii) Neither the Company nor any of its subsidiaries has,
directly or indirectly, at any time: (A) made any contributions to any
candidate for political office in violation of law; (B) made any payment to
any local, state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties; or (C)
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended.
(xxiv) Except as may be disclosed in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) neither the Company nor any of its subsidiaries has
any liability, absolute or contingent, relating to: (A) public health or
safety; (B) worker health or safety; or (C) workers' compensation insurance
premiums.
(xxv) The Company has not distributed and will not distribute prior
to the Closing Date or on or prior to any date on which the Option Stock is
to be purchased, as the case may be, any prospectus or other offering
material in connection with the offering and sale of the Stock other than the
Prospectus, the Registration Statement and any other material which may be
permitted by the Securities Act and the Rules and Regulations.
(xxvi) Since March 3, 1995, the Company has filed in a timely
manner all reports and other documents required to be filed with the
Commission under the Exchange Act and with the National Association of
Securities Dealers, Inc. (the "NASD"), and each such report or other document
contained, at the time it was filed, such information as was required to be
included in such report or other document and all such information was
correct and complete in all material respects; to the Company's best
knowledge, except as disclosed in the Registration Statement, no event has
occurred or is likely to occur that required or would require an amendment to
any report or document referred to in this section that has not been filed or
distributed as required.
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(xxvii) The Stock has been approved for inclusion for listing on
the Nasdaq National Market, subject only to official notice of issuance.
(xxviii) The Company is not now, and intends to conduct its affairs
in the future in such a manner so that it will not become, an investment
company within the meaning of the Investment Company Act of 1940, as amended.
(xxix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) for which the Company would have any liability has occurred; the
Company has not incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(xxx) Except as may be disclosed in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) neither the Company nor any of its subsidiaries has
any liability, absolute or contingent, relating to pollution, damage to or
protection of the environment, including, without limitation, relating to
damage to natural resources, emissions, discharges, releases or threatened
releases of hazardous materials into the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or otherwise relating to the manufacture, processing, use,
treatment, storage, generation, disposal, transport or handling of any
hazardous materials. There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company or any of its subsidiaries (or, to the best knowledge of the Company,
any of their predecessors in interest) at, upon or from any of the property
now or previously owned or leased by the Company or its subsidiaries in
violation of any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit or which would require remedial action under any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the aggregate with
all such violations and remedial actions, a material effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; there has
been no material spill, discharge, leak, emission, injection, escape, dumping
or release of any kind onto such property or into the environment surrounding
such property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of its
subsidiaries or with respect to which the Company or any of its subsidiaries
have knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would not be
reasonably likely to have, singularly or in the
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aggregate with all such spills, discharges, leaks, emissions, injections,
escapes, dumpings and releases, a material effect on the general affairs,
management, financial position, stockholders' equity or results of operations
of the Company and its subsidiaries taken as a whole. As used herein,
"hazardous material" includes chemical substances, wastes, pollutants,
contaminants, hazardous or toxic substances, constituents, materials or
wastes, whether solid, gaseous or liquid in nature.; and the terms "hazardous
wastes," "toxic wastes," "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(b) Each Selling Shareholder severally and not jointly represents and
warrants to, and agrees with, each of the several Underwriters that:
(i) Such Selling Shareholder, if other than a natural person, has
been duly incorporated and is validly existing and in good standing under the
laws of the jurisdiction of its organization as the type of entity that it
purports to be; such Selling Shareholder has full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver to the
Underwriters the Stock to be sold by such Selling Shareholder hereunder in
accordance with the terms of this Agreement; and this Agreement has been duly
executed and delivered by such Selling Shareholder and constitutes the valid
and binding obligation of such Selling Shareholder, enforceable against it in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable federal or state securities laws.
(ii) Such Selling Shareholder has duly executed and delivered a power
of attorney and custody agreement (with respect to such Selling Shareholder,
the "Power-of-Attorney" and the "Custody Agreement", respectively), each in the
form heretofore delivered to the Selling Shareholders, appointing *[NAME]* and
*[NAME]* and each of them as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute, deliver and perform this
Agreement on behalf of such Selling Shareholder and appointing U.S. Stock
Transfer Corporation as custodian thereunder (the "Custodian"). Certificates
in negotiable form, endorsed in blank or accompanied by blank stock powers duly
executed, with signatures appropriately guaranteed, representing the Stock to
be sold by such Selling Shareholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. Such Selling Shareholder has full power to enter
into the Custody Agreement and the Power-of-Attorney and to perform its
obligations under the Custody Agreement. The Custody Agreement and the
Power-of-Attorney have been duly executed and delivered by such Selling
Shareholder and, assuming due authorization, execution and delivery by the
Custodian, are the legal, valid, binding and enforceable instruments of such
Selling Shareholder. Such Selling Shareholder agrees that each of the shares
of Stock represented by the certificates on deposit with the Custodian is
subject to the interests of the Underwriters hereunder, that the arrangements
made for such custody, the appointment of the Attorneys-in-Fact and the right,
power and authority of the Attorneys-in-Fact, and each of them acting alone, to
execute and deliver this Agreement, to agree on the price at which the Stock
(including such Selling Shareholder's Stock) is to be sold to the Underwriters,
and to carry out the terms of this Agreement, are to that extent irrevocable
and that the
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<PAGE>
obligations of such Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement or the Custody Agreement, by any act of
such Selling Shareholder, by operation of law or otherwise, whether by the
death or incapacity of such Selling Shareholder, or by the occurrence of any
other event. If any Selling Shareholder should die or become incapacitated,
or if any such other event should occur, before the delivery of the Stock of
such Selling Shareholder hereunder, the certificates for such Stock deposited
with the Custodian shall be delivered by the Custodian in accordance with the
respective terms and conditions of this Agreement as if such death or other
event had not occurred, regardless of whether or not the Custodian or the
Attorneys-in-Fact, or either of them, shall have received notice thereof.
(iii) Such Selling Shareholder is the lawful owner of the Stock to
be sold by such Selling Shareholder hereunder and upon sale and delivery of,
and payment for, such Stock, as provided herein, such Selling Shareholder
will convey good and marketable title to such Stock, free and clear of any
security interests, liens, encumbrances, equities, claims or other defects.
(iv) Such Selling Shareholder has not, directly or indirectly, (A)
taken any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Stock or (B) since the filing of the Registration Statement
(I) sold, bid for, purchased, or paid anyone any compensation for soliciting
purchases of, the Stock or (II) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company (except for the sale of Stock by the Selling Shareholders under this
Agreement).
(v) Such Selling Shareholder has reviewed the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding such Selling Shareholder,
if any, set forth therein under the caption "Selling Shareholders" is complete
and accurate.
(vi) The sale of the Stock to the Underwriters by such Selling
Shareholder pursuant to this Agreement, the compliance by such Selling
Shareholder with the other provisions of this Agreement, the Custody Agreement
and the consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as have been obtained, such as
may be required under state securities or blue sky laws and, if the
Registration Statement filed with respect to the Stock (as amended) is not
effective under the Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under the Act,
or (B) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which such Selling Shareholder
is a party or by which such Selling Shareholder or any of such Selling
Shareholder's properties are bound, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Shareholder.
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(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Code with respect to the
transactions herein contemplated, such Selling Shareholder shall deliver to the
Representative prior to or on the Closing Date, a properly completed and
executed United States Treasury Department Form W-8 or W-9 (or other applicable
form of statement specified by Treasury Department regulations in lieu
thereof).
2. PURCHASE, SALE AND DELIVERY OF THE STOCK.
(a) On the basis of the representations, warranties, covenants and
agreements herein, the Company agrees to issue and sell 1,200,000 shares of the
Stock to the several Underwriters, each Selling Shareholder agrees to sell to
the several Underwriters the number of shares of the Stock set forth in
Schedule II opposite the name of such Selling Shareholder, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company
and the Selling Shareholders, at a purchase price of $ *______* per share of
Stock (the "Purchase Price"), the respective number of shares of Firm Stock set
forth opposite the name of such Underwriter on Schedule I to this Agreement
(subject to adjustment as provided in Section 8 of this Agreement).
(b) On the basis of the several (and not joint) representations,
warranties, covenants and agreements of the Underwriters contained in this
Agreement and subject to the terms and conditions set forth in this Agreement,
the Company grants an option to the several Underwriters to purchase from the
Company, severally and not jointly, all or any portion of the Option Stock at
the Purchase Price. This option may be exercised only to cover over-allotments
in the sale of the Firm Stock by the Underwriters and may be exercised in whole
or in part at any time on or before the 45th day after the date of the
Prospectus upon written, telecopied or telegraphic notice by the Representative
to the Company setting forth the aggregate principal amount of Option Stock as
to which the several Underwriters are exercising the option and the settlement
date. The Option Stock shall be purchased severally, and not jointly, by each
Underwriter, if purchased at all, in the same proportion that the number of
shares of Firm Stock set forth opposite the name of the Underwriter in Schedule
I to this Agreement bears to the total number of shares of Firm Stock to be
purchased by the Underwriters under Section 2(a) above, subject to such
adjustments as the Representative in its absolute discretion shall make to
eliminate any fractional Stock. Delivery of Option Stock, and payment
therefor, shall be made as provided in Section 2(c) and Section 2(d) below.
(c) Delivery of the Firm Stock and the Option Stock (if the option
granted by the Company in Section 2(b) above has been exercised not later than
6:30 a.m., San Francisco time, on the date two business days preceding the
Closing Date), and payment therefor, shall be made at the office of Van Kasper
& Company, 600 California Street, San Francisco, California at 6:30 a.m.,
San Francisco time, on the third business day after the date of this Agreement,
or at such other location and/or at such time on such other day, not later than
seven full business days after such third business day, as shall be agreed upon
in writing by the Company and the Representative, or as provided in Section 8
of this Agreement. The date and hour of delivery and payment for the Firm
Stock are referred to in this Agreement as the "Closing Date." As used in
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this Agreement, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York, California and
Washington are open for business and not permitted by law or executive order
to be closed. Certificates for the Stock shall be in such denominations and
registered in such names as the Representative may request in writing at
least two business days before the Closing Date.
(d) If the option granted by the Company in Section 2(b) above is
exercised after 6:30 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of the Option Stock and payment therefor
shall be made at the office of Van Kasper & Company, 600 California Street, San
Francisco, California, or at such other location as is agreed upon by the
parties, at 6:30 a.m., San Francisco time, on the date specified by the
Representative (which shall be three or fewer business days after the exercise
of the option, but not in excess of the period specified in the Exchange Act
Rules and Regulations).
(e) Payment of the purchase price for the Stock purchased from the
Company shall be made by certified or official bank check or checks drawn in
next-day funds, payable to the order of the Company, and payment for the Stock
purchased from the Selling Shareholders shall be made payable to the Custodian,
for the account of the Selling Shareholders, by certified or official bank
check or checks drawn in next-day funds. Such payment shall be made upon
delivery of Stock to the Representative for the respective accounts of the
several Underwriters. The Stock to be delivered to the Representative shall be
registered in such name or names and shall be in such denominations as the
Representative may request at least two business days before the Closing Date,
in the case of Firm Stock, and at least one business prior to the purchase of
the Option Stock, in the case of the Option Stock. The Representative,
individually and not on behalf of the Underwriters, may (but shall not be
obligated to) make payment to the Company and the Selling Shareholders for
Stock to be purchased by any Underwriter whose check shall not have been
received by the Representative on the Closing Date or any later date on which
Option Stock is purchased for the account of such Underwriter. Any such
payment shall not relieve such Underwriter from any of its obligations
hereunder.
(f) The several Underwriters propose to offer the Stock for sale to the
public as soon as the Representative deems it advisable to do so. The Firm
Stock is to be initially offered to the public at the public offering price set
forth (or to be set forth) in the Prospectus. The Representative may from time
to time thereafter change the public offering price and other selling terms.
(g) The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), the legend
respecting stabilization set forth on the inside front cover page and the
statements set forth under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitute the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement.
3. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
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(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the time of execution
of this Agreement, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule 430A,
or filing of the Prospectus is otherwise required under Rule 424(b), the
Company will file the Prospectus, properly completed (and in form and substance
reasonably satisfactory to the Underwriters) pursuant to Rule 424(b) within the
time period prescribed and will provide evidence satisfactory to the
Representative of such timely filing. The Company will not file the
Prospectus, any amended Prospectus, any amendment (including post-effective
amendments) of the Registration Statement or any supplement to the Prospectus
without (A) advising the Representative of and, a reasonable time prior to the
proposed filing of such amendment or supplement, furnishing the Representative
with copies thereof and (B) obtaining the prior consent of the Representative
to such filing. The Company will prepare and file with the Commission,
promptly upon the request of the Representative, any amendment to the
Registration Statement or supplement to the Prospectus that may be necessary or
advisable in connection with the distribution of the Stock by the Underwriters.
The Company will make every reasonable effort to cause the Registration
Statement to become effective as promptly as possible.
(ii) The Company will promptly advise the Representative (A) when the
Registration Statement becomes effective, (B) when any post-effective amendment
thereof becomes effective, (C) of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for any additional information, (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (E) of the
receipt by the Company of any notification with respect to the suspension of
the registration, qualification or exemption from registration or qualification
of the Stock for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company will make every reasonable effort
to prevent the issuance of any such stop order or suspension and, if issued, to
obtain as soon as possible the withdrawal thereof.
(iii) The Company will (A) on or before the Closing Date, deliver
to the Representative and its counsel 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 the Representative) and will also deliver to the
Representative, for distribution to the several Underwriters, a sufficient
number of additional conformed copies of each of the foregoing (excluding
exhibits) so that one copy of each may be distributed to each Underwriter, (B)
as promptly as possible deliver to the Representative and send to the several
Underwriters, at such office or offices as the Representative may designate, as
many copies of the Prospectus as the Representative may reasonably request and
(C) thereafter from time to time during the period
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in which a prospectus is required by law to be delivered by an Underwriter or
a dealer, likewise to 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 the
Representative may reasonably request for the purposes contemplated by the
Securities Act.
(iv) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or a dealer any event shall
occur as a result of which it is necessary to supplement or amend the
Prospectus in order to make the Prospectus not misleading or so that the
Prospectus will not omit to state a material fact necessary to be stated
therein, in each case at the time the Prospectus is delivered to a purchaser of
the Stock, or if it shall be necessary to amend or to supplement the Prospectus
to comply with the Securities Act or the Rules and Regulations, 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 not
misleading and so that it then will otherwise comply with the Securities Act
and the Rules and Regulations. If, after the public offering of the Stock by
the Underwriters and during such period, the Underwriters propose to vary the
terms of offering thereof by reason of changes in general market conditions or
otherwise, the Representative will advise the Company in writing of the
proposed variation and if, in the opinion either of counsel for the Company or
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 setting forth such
variation. The Company authorizes the Underwriters and all dealers to whom any
of the Stock may be sold by the Underwriters to use the Prospectus, as from
time to time so amended or supplemented, in connection with the sale of the
Stock in accordance with the applicable provisions of the Securities Act and
the Rules and Regulations for such period.
(v) The Company will cooperate with the Representative and its
counsel in the qualification or registration of the Stock for offer and sale
under the securities or blue sky laws of such jurisdictions as the
Representative may designate and, if applicable, in connection with exemptions
from such qualification or registration and, during the period in which a
Prospectus is required by law to be delivered by an Underwriter or a dealer, in
keeping such qualifications, registrations and exemptions in effect; provided,
however, that the Company shall not be obligated to file any general consent to
service of process or to qualify to do business 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, registrations and exemptions
in effect for so long a period as the Representative may reasonably request for
the distribution of the Stock.
(vi) During a period of five years commencing with the date of this
Agreement, the Company will promptly furnish to the Representative and to each
Underwriter who may so request in writing copies of (A) all periodic and
special reports furnished by it to shareholders of the Company, (B) all
information, documents and reports filed by it with the
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Commission, any securities exchange on which any securities of the Company
are then listed, Nasdaq or its National Market System or the National
Association of Securities Dealers, Inc., (C) all press releases and material
news items or articles in respect of the Company or its affairs released or
prepared by the Company (other than promotional and marketing materials
disseminated solely to customers and potential customers of the Company in
the ordinary course of business) and (D) any additional information
concerning the Company or its business which the Representative may
reasonably request.
(vii) As soon as practicable, but not later than the 45th day
following the end of the fiscal quarter first ending after the first
anniversary of the Effective Date, the Company will make generally available to
its securities holders and furnish to the Representative an earnings statement
or statements in accordance with Section 11(a) of the Securities Act and Rule
158 of the Rules and Regulations.
(viii) The Company will apply the net proceeds from its sale of
the Stock in the offering in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(ix) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(x) The Company will, and at all times for a period of at least
five years after the date of this Agreement, cause the Common Stock
(including the Stock) to be listed on the Nasdaq National Market, and the
Company will comply with all registration, filing, reporting and other
requirements of the Exchange Act and the Nasdaq National Market which may
from time to time be applicable to the Company.
(xi) The Company will use its best efforts to maintain insurance of
the types and in the amounts which it deems adequate for its business
consistent with insurance coverage maintained by companies of similar size and
engaged in similar businesses, including, but not limited to, product liability
insurance and general liability insurance covering all real and personal
property owned or leased by the Company against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against.
(xii) The Company will issue no press release prior to the
Closing Date with respect to the offering without the Representative's prior
written consent.
(xiii) The Company shall supply to the Representative and its
counsel, at the Company's cost, an aggregate of six bound volumes each
containing materials documents relating to the offering of the Stock within a
reasonable time after the Closing Date, not to exceed 90 days.
(b) Each of the Selling Shareholders covenants and agrees with each of
the Underwriters that:
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(i) Such Selling Shareholder will use its best efforts to cause the
Company fully to comply with all of its covenants and agreements set forth in
this Agreement.
(ii) Such Selling Shareholder will not, directly or indirectly,
without the prior written consent of the Representatives, offer, sell, offer to
sell, contract to sell, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, grant of
any option to purchase or other sale or disposition) of any Common Stock
legally or beneficially owned by such Selling Shareholder or any securities
convertible into, or exchangeable or exercisable for, Common Stock for a period
of 80 days after the date hereof, except pursuant to this Agreement.
(iii) Such Selling Shareholder will not, directly or indirectly,
(A) take any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Stock or (B) (x) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Stock or (y) pay or agree to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company (except for the sale of Stock by the Selling
Shareholders under this Agreement).
4. FEES AND EXPENSES.
(a) The Company and the Selling Shareholders agree with each Underwriter
that:
(i) The Company will pay and bear all costs and expenses in
connection with: the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus, any drafts of each of them and any amendments
or supplements to any of them; the duplication of this Agreement, the Agreement
Among Underwriters, any Selected Dealer Agreements, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire
and the Power of Attorney and the duplication and, if applicable, printing
(including all drafts thereof) of any other underwriting documents and material
(including but not limited to marketing memoranda and other marketing material)
in connection with the offering, purchase, sale and delivery of the Stock; the
issuance and delivery of the Stock under this Agreement to the several
Underwriters, including all expenses, taxes, duties, fees and commissions on
the purchase and sale of the Stock and stock exchange brokerage and transaction
levies with respect to the purchase and, if applicable, the sale of the Stock
(A) incident to the sale and delivery of the Stock by the Company and the
Selling Shareholders to the Underwriters and (B) incident to the sale and
delivery of the Stock by the Underwriters to the initial purchasers thereof;
the cost of printing the certificates for the Stock; the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, the
agreements and other documents and instruments referred to above and any
amendments or supplements to any of the foregoing; the Transfer Agents' and
Registrars' fees; the fees and disbursements of counsel for the Company and, if
applicable, the Selling Shareholders; all fees and other charges of the
Company's independent public accountants and
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any other experts named in the Prospectus; the filing fees of the Commission
and the NASD; the cost of qualifying or registering the Stock (or obtaining
exemptions from qualification or registration) under the securities and Blue
Sky laws of such jurisdictions as the Representatives may designate
(including filing fees); fees and costs/disbursements of Underwriters'
counsel in connection with the NASD filings and state securities or Blue Sky
qualifications, registrations and exemptions and in preparing the preliminary
and any final Blue Sky Memorandum (which fees and costs/disbursements shall
be paid on or prior to the Closing Date); all fees and expenses in connection
with listing of the Stock on the Nasdaq National Market; any meetings with
prospective investors in the Stock (other than as shall have been approved in
writing by the Representatives to be paid for by the Underwriters);
advertising relating to the offering of the Stock (other than as shall have
been approved in writing by the Representatives to be paid for by the
Underwriters); and all other expenses incurred by the Company in connection
with the performance of its obligations hereunder. Any additional expenses
incurred as a result of the inclusion of the Stock to be sold by the Selling
Shareholders will be borne by the Company. If the sale of the Stock provided
for herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 5 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 9 hereof or because of any
failure, refusal or inability on the part of the Company or the Selling
Shareholders to perform all obligations and satisfy all conditions on their
part to be performed or satisfied hereunder 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 counsel fees
and disbursements) that shall have been incurred by them in connection with
the proposed purchase and sale of the Stock. The Company shall not in any
event be liable to any of the Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
(ii) In addition to its obligations under Section 7(a) of this
Agreement, the Company and each Selling Shareholder jointly and severally
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
loss, claim, damage or liability described in Section 7(a) of this Agreement,
it will reimburse or advance to, or for the benefit of, the Underwriters, and
each of them, on a monthly basis (or more often, if requested) all legal and
other expenses incurred by the Underwriters in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the joint and several obligations of the Company and the
Selling Shareholders to reimburse or advance to, or for the benefit of, the
Underwriters such expenses or the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the extent
that any portion, or all, of any such interim reimbursement payments or
advances are so held to have been improper, the Underwriters receiving the same
shall promptly return such amounts to the party or parties who have paid such
amounts together with interest, compounded daily, at the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America, NT&SA, San Francisco, California (the
"Prime Rate"), but not in excess of the maximum rate permitted by applicable
law. Any such interim reimbursement payments or advances that are not made to
or for the Underwriters within 30 days of a request for reimbursement or for an
advance
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shall bear interest at the Prime Rate, compounded daily, but not in excess of
the maximum rate permitted by applicable law, from the date of such request
until the date paid.
(b) In addition to their obligations under Section 7(b) of this
Agreement, the Underwriters severally and in proportion to their obligation to
purchase Firm Stock as set forth on Schedule I hereto, agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any loss, claim,
damage or liability described in Section 7(b) of this Agreement, they will
reimburse or advance to, or for the benefit of, the Company on a monthly basis
(or more often, if requested) all legal and other expenses incurred by the
Company in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety or enforceability of the
Underwriters' obligation to reimburse or advance to, or for the benefit of, the
Company such expenses and the possibility that such payments or advances might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any portion, or all, of any such interim reimbursement payments
or advances are so held to have been improper, the Company shall promptly
return such amounts to the Underwriters together with interest, compounded
daily, at the Prime Rate, but not in excess of the maximum rate permitted by
applicable law. Any such interim reimbursement payments or advances that are
not made to the Company within 30 days of a request for reimbursement or for an
advance shall bear interest at the Prime Rate, compounded daily, but not in
excess of the maximum rate permitted by applicable law, from the date of such
request until the date paid.
(c) Any controversy arising out of the operation of the interim
reimbursement arrangements set forth in Sections 4(a)(ii) and 4(b) above,
including the amounts of requested reimbursement payments or advances, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted under the provisions of the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. If the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to the demand or
notice is authorized to do so. Any such arbitration will be limited to the
interpretation and obligations of the parties under the interim reimbursement
and advance provisions contained in Sections 4(a)(ii) and 4(b) above and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for or contribute to expenses that is created by the provisions of
Section 7 of this Agreement.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Stock shall be subject, in the
sole discretion of the Representative, to the accuracy as of the date of
execution of this Agreement, the Closing Date and the date and time at which
the Option Stock is to be purchased, as the case may be, of the representations
and warranties of the Company and the Selling Shareholders set forth in this
Agreement, to the accuracy of the statements of the Company and its officers,
and the Selling
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Shareholders, made in any certificate delivered pursuant to this Agreement,
to the performance by the Company and the Selling Shareholders of all of
their obligations to be performed under this Agreement at or prior to the
Closing Date or any later date on which Option Stock is to be purchased, as
the case may be, to the satisfaction of all conditions to be satisfied or
performed by the Company and the Selling Shareholders at or prior to that
date and to the following additional conditions:
(a) The Registration Statement shall have become effective (or, if a
post-effective amendment is required to be filed pursuant to Rule 430A under
the Act, such post-effective amendment shall become effective and the Company
shall have provided evidence satisfactory to the Representative of such
filing and effectiveness) not later than 5:00 p.m., New York time, on the
date of this Agreement or at such later date and time as the Representative
may approve in writing and, at the Closing Date or, with respect to the
Option Stock, the date on which such Option Stock is to be purchased, no stop
order suspending the effectiveness of the Registration Statement or any
qualification, registration or exemption from qualification or registration
for the sale of the Stock in any jurisdiction shall have been issued and no
proceedings for that purpose shall have been instituted or threatened; and
any request for additional information on the part of the Commission shall
have been complied with to the reasonable satisfaction of the Representative
and its counsel.
(b) The Representative shall have received from Van Valkenberg Furber
Law Group P.L.L.C., counsel for the Underwriters, an opinion, on and dated as
of the Closing Date or, if applicable, the date on which Option Stock is to
be purchased, with respect to the issuance and sale of the Stock and such
other related matters as the Representative may reasonably require, and the
Company shall have furnished such counsel with all documents which they may
request for the purpose of enabling them to pass upon such matters.
(c) The Representative shall have received on the Closing Date or, if
applicable, the later date on which Option Stock is purchased, the opinion of
Perkins Coie, counsel for the Company and the Selling Shareholders, addressed
to the Underwriters and dated the Closing Date or such later date, with
reproduced copies or signed counterparts thereof for each of the
Underwriters, covering the matters set forth in Annex A to this Agreement and
in form and substance satisfactory to the Representative.
(d) The Representative shall be satisfied that there has not been any
material change in the market for securities in general or in political,
financial or economic conditions as to render it impracticable in the
Representative's 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) The Representative 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:
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(i) the representations and warranties of the Company set forth in
Section 1 of this Agreement are true and correct with the same force and
effect as if expressly made at and as of the Closing Date or such later date,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date or such later date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or are threatened under the Securities Act;
(iii) the Stock has been approved for listing on the Nasdaq
National Market, subject only to notice of issuance, and the outstanding
shares of the Common Stock of the Company are listed on the Nasdaq National
Market; and
(iv) (A) the respective signers of such certificate have carefully
examined the Registration Statement in the form in which it originally became
effective and the Prospectus and any supplements or amendments to any of them
and, as of the Effective Date, the statements made in the Registration
Statement and the Prospectus were true and correct in all material respects
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 not misleading, (B) since the effective date of the
Registration Statement, no event has occurred that should have been set forth
in an amendment to the Registration Statement or a supplement or amendment to
the Prospectus that has not been set forth in such an amendment or
supplement, (C) 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, there has not been any material change or any
development involving a prospective material change in or affecting the
business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole
and, since such dates, neither the Company nor any of its 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, (D) there are not any pending or known
threatened legal proceedings to which the Company or any of its subsidiaries
is a party or of which property of the Company or any of its subsidiaries is
the subject which are material and which are not disclosed in the
Registration Statement and the Prospectus and (E) there are not any license
agreements, contracts, leases or other documents that are required to be
filed as exhibits to the Registration Statement that have not been filed as
required.
(f) The Representative shall have received from Coopers & Lybrand, LLP
letters, addressed to the Underwriters and dated the date of the Preliminary
Prospectus, the Closing Date and any later date on which Option Stock is
purchased, confirming that they are independent accountants with respect to
the Company within the meaning of the Securities Act and the applicable Rules
and Regulations thereunder and, based upon the procedures described in their
letter delivered to the Representative concurrently with the execution of
this Agreement (the
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"Original Letter"), but carried out to a date not more than five business
days prior to the Closing Date or such later date on which Option 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 conclusions set forth in the
Original Letter that are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. Such letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business, properties or
condition (financial or otherwise), results of operations or prospects of the
Company or any of its subsidiaries which, in the Representative's 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. In addition, the Representative shall have received from
Coopers & Lybrand, LLP, on or prior to the Closing Date, a letter addressed
to the Company and made available to the Representative for the use of the
Underwriters stating that their review of the Company's system of internal
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's consolidated financial statements as of
December 31, 1996, or in delivering their Original Letter, did not disclose
any weaknesses in internal controls that they considered to be material
weaknesses.
(g) Prior to the Closing Date, the Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance and the outstanding shares of the Common Stock of the Company shall
be listed on the Nasdaq National Market.
(h) On or prior to the Closing Date, the Representative shall have
received from all Material Holders executed agreements covering the matters
described in Section 1(a) (xviii) of this Agreement.
(i) The Company shall have furnished to the Representative such further
certificates and documents as the Representative shall request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company set forth in this Agreement,
the performance by the Company of its obligations under this Agreement and
such other matters as the Representative may have then requested.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement will be in compliance with the provisions of
this Agreement only if they are satisfactory to the Representative. The
Company will furnish the Representative with such number of conformed copies
of such opinions, certificates, letters and documents as the Representative
shall reasonably request.
If any of the conditions specified in this Section 5 shall not have been
fulfilled in all material respects when and as provided in this Agreement,
time being of the essence, or if any of the opinions and certificates
mentioned above or elsewhere in this Agreement shall not be in all material
respects satisfactory in form and substance to the Representative and its
counsel, this Agreement and all obligations of the Underwriters hereunder may
be canceled by the
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Representative at, or at any time prior to, the Closing Date or, with respect
to the Option Stock, prior to the date which the Option Stock is to be
purchased, as the case may be. Notice of such cancellation shall be given to
the Company and the Selling Shareholders in writing or by telephone,
telecopy, facsimile transmission or telegraph confirmed in writing. Any such
termination shall be without liability of the Company or the Selling
Shareholders to the Underwriters (except as provided in Section 4 or Section
7 of this Agreement) and without liability of the Underwriters to the Company
or the Selling Shareholders (except as provided in Section 7 of this
Agreement).
6. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SHAREHOLDERS. The obligations of the Company and the Selling Shareholders to
sell and deliver the Stock required to be delivered as and when specified in
this Agreement shall be subject to the condition that, at the Closing Date
or, with respect to the Option Stock, the date and time at which the Option
Stock is to be purchased, no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings therefor shall
be pending or threatened by the Commission.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Shareholders agree to indemnify and
hold harmless each Underwriter and each person (including each partner or
officer thereto) 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 other
federal or state statute, law or regulation, at common law or otherwise,
specifically including but not limited to losses, claims, damages or
liabilities (or action in respect thereof) related to negligence on the part
of any Underwriter, and the Company and the Selling Shareholders agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise provided below, settlement expenses
and 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 that may be brought against, the respective indemnified
parties, in each case insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon, in whole or
in part, (i) any breach of any representation, warranty, covenant or
agreement of the Company in this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement in the form originally filed or in any amendment thereto (including
the Prospectus as part thereof) or any post-effective amendment thereto, or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
or (iii) any untrue statement or alleged untrue statement of 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 required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading or (iv) any untrue statement or
alleged untrue statement of a material fact contained in any
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application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify or
register the Stock under the securities or Blue Sky laws thereof or to obtain
an exception from such qualification or registration or filed with the
Commission, any securities association or the Nasdaq National Market, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that (A) the indemnity agreements of the Company and the Selling Shareholders
contained in this Section 7(a) shall not apply to such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through the Representative
specifically for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto and (B) the indemnity agreement contained in this Section 7(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 that is the subject thereof (or
to the benefit of any person controlling such Underwriter) if the Company or
the Selling Shareholders can demonstrate that 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) or, for this purpose, if applicable, a
copy of the then most recent Preliminary Prospectus was not sent or delivered
to such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus or, if applicable, prior Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) or, if applicable, the then most recent Preliminary Prospectus,
unless the failure is the result of noncompliance by the Company with Section
3 of this Agreement. The indemnity agreements of the Company and the Selling
Shareholders contained in this Section 7(a) and the representations and
warranties of the Company and the Selling Shareholders contained in Section 1
of this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or behalf of any indemnified party
and shall survive the delivery of and payment for the Stock. This indemnity
agreement shall be in addition to any liabilities which the Company and the
Selling Shareholders may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Selling Shareholders, the Company, each of its officers
who signs the Registration Statement, 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 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 other federal or state statute, law or regulation or at common law or
otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, settlement expenses and
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 that may be brought against, the respective indemnified
parties, in each case arising out of or based upon (i) any breach of any
covenant or
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agreement of the indemnifying Underwriter in this Agreement, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading or (iii) 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 required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, but in
each case under clauses (i), (ii) and (iii) above, as the case may be, only
if such statement or omission was made in reliance upon and in connection
with information furnished in writing to the Company by or on behalf of such
indemnifying Underwriter through the Representative specifically for use in
any Preliminary Prospectus, the Registration Statement or the Prospectus or
any such amendment thereof or supplement thereto. The Company and the
Selling Shareholders acknowledge and agree that the matters described in
Section 2(g) of this Agreement constitute the only information furnished in
writing by or on behalf of any of the several Underwriters for inclusion in
the Registration Statement or the Prospectus or in any Preliminary
Prospectus. The several indemnity agreement of each Underwriter contained in
this Section 7(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. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Each person or entity indemnified under the provisions of Sections
7(a) and 7(b) above 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 Sections, it will, if a claim in respect thereunder is to be made
against the indemnifying party or parties under this Section 7, promptly give
written notice (the "Notice") of such service or notification to the party
or parties from whom indemnification may be sought hereunder. No
indemnification provided for in Sections 7(a) or 7(b) above shall be
available to any person who fails to so 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, but only to the
extent such party was materially prejudiced by the failure to receive the
Notice, and the omission to so notify such indemnifying party or parties
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 Sections 7(a) and 7(b). 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 (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
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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 or rights available to such indemnified party or parties
different from or in addition to those available to the indemnifying party or
parties, then separate counsel for and selected by the indemnified party or
parties shall be entitled, at the expense of the indemnifying parties, to
conduct the defense of the indemnified parties to the extent determined by
counsel to the indemnified parties 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 entitled to have counsel selected 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, unless separate counsel is to be chosen
by the indemnified party or parties as provided above, 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 Sections 7(a) through 7(c) 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 and pay the legal and
other expenses incurred in connection with the conduct of the defense as
referred to in clause (i) of the "provided, however" clause in the preceding
sentence and (B) the indemnifying party or parties shall bear and pay 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) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section
7 but is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right to appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides
for indemnification in such case, each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in Section 7(a)
or 7(b) above (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, the Selling
Shareholders and the Underwriters shall be deemed to be in the same
respective proportion as the total proceeds from the offering of the Stock,
net of the underwriting discounts, received by the Company and the
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Selling Shareholders and the total underwriting discount retained by the
Underwriters 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
contribution pursuant to this Section 7(d) were to be determined by pro rata
allocation which does not take into account the equitable considerations
referred to in the first sentence of the first paragraph of this Section 7(d)
and to the considerations referred to in the third sentence of the first
paragraph of this Section 7(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 the first paragraph of this
Section 7(d) shall be deemed to include any legal or other expenses incurred
by such indemnified party in connection with investigating, preparing to
defend or defending against any action or claim which is the subject of this
Section 7(d). Notwithstanding the provisions of this Section 7(d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by that Underwriter.
For purposes of this Section 7(d), each person who controls an Underwriter
within the meaning of the Securities Act shall have the same rights to
contribution as such Underwriter, and each person who controls the Company
within the meaning of the Securities Act, each officer of the Company who
signed the Registration Statement, each director of the Company and each
Selling Shareholder shall have the same rights to contribution as the
Company; provided, however, in each case that 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 to contribute in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint.
Each party or other entity 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 Section 7(c) above).
(e) Neither the Company nor any Selling Shareholder shall, 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 or contribution 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 is a party
to such claim, action, suit or proceeding) unless such settlement, compromise
or consent includes an unconditional release of each such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
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(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including, without
limitation, the provisions of Sections 4(a)(ii), 4(b) and 4(c) and this
Section 7 of this Agreement and that they are fully informed regarding all
such provisions. They further acknowledge that the provisions of Sections
4(a)(ii), 4(b) and 4(c) and this Section 7 of this Agreement fairly allocate
the risks in light of the ability of the parties to investigate the Company
and its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Securities Act, the
Rules and Regulations, the Exchange Act and the Exchange Act Rules and
Regulations. The parties are advised that federal or state policy, as
interpreted by the courts in certain jurisdictions, may be contrary to
certain provisions of Sections 4(a)(ii), 4(b) and 4(c) and this Section 7 of
this Agreement and, to the extent permitted by law, the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under Sections 4(a)(ii), 4(b) or 4(c) or this
Section 7 of this Agreement and further agree not to attempt to assert any
such defense.
(g) The liability of each Selling Shareholder under Section 4 and this
Section 7 shall be limited to an amount equal to the initial public offering
price of the Stock sold by such Selling Shareholder to the Underwriters. The
Company and the Selling Shareholders 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.
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8. SUBSTITUTION OF UNDERWRITERS. If for any reason one or more of the
Underwriters fails or refuses (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 5
or Section 9 of this Agreement) to purchase and pay for the number of shares
of Firm Stock agreed to be purchased by such Underwriter or Underwriters, the
Company shall immediately give notice thereof to the Representative and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by the Representative of such notice to purchase, or procure one or
more other Underwriters to purchase, in such proportions as may be agreed
upon among the Representative and such purchasing Underwriter or Underwriters
and upon the terms set forth herein, all or any part of the Firm Stock that
such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail to make such arrangements with respect to
all such Stock, the number of shares of Firm Stock that 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 of
Stock that the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the Stock that the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate amount of such Stock exceeds
10% of the aggregate amount of Firm Stock that all Underwriters agreed to
purchase under this Agreement. If the total number of shares of Firm Stock
that the defaulting Underwriter or Underwriters agreed to purchase shall not
be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the first
24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for purchase of
such Stock on the terms set forth in this Agreement. In any such case,
either the Representative or the Company shall have the right to postpone the
Closing Date determined as provided in Section 2(c) of this Agreement for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to Section 2(c) 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 shall make
arrangements within the time periods set forth above for the purchase of all
the Firm Stock that 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 and the Selling
Shareholders to any non-defaulting Underwriter (except as provided in Section
4 or Section 7 of this Agreement) and without any liability on the part of
any non-defaulting Underwriters to the Company and the Selling Shareholders
(except to the extent provided in Section 7 of this Agreement). Nothing in
this Section 8, and no action taken hereunder, shall relieve any defaulting
Underwriter from liability, if any, to the Company and the Selling
Shareholders or any non-defaulting Underwriter for damages occasioned by its
default under this Agreement. The term "Underwriter" in this Agreement shall
include any persons substituted for an Underwriter under this Section 8.
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9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION.
(a) If the Registration Statement has not been declared effective prior
to the date of this Agreement, this Agreement shall become effective at such
time, after notification of the effectiveness of the Registration Statement
has been released by the Commission, as the Representative and the Company
shall agree upon the public offering price and other terms and the purchase
price of the Stock. If the public offering price and other terms and the
purchase price of the Stock shall not have been determined prior to 5:00
p.m., New York time, on the third full business day after the Registration
Statement has become effective, this Agreement shall thereupon terminate
without liability on the part of the Company and the Selling Shareholders to
the Underwriters (except as provided in Section 4 or Section 7 of this
Agreement). By giving notice before the time this Agreement becomes
effective, the Representative, as Representative of the several Underwriters,
may prevent this Agreement from becoming effective without liability of any
party to the other party, except that the Company shall remain obligated to
pay costs and expenses to the extent provided in Section 4 and Section 7 of
this Agreement. If the Registration Statement has been declared effective
prior to the date of this Agreement, this Agreement shall become effective
upon execution and delivery by the Representative, the Company and the
Selling Shareholders.
(b) This Agreement may be terminated by the Representative in its
absolute discretion by giving written notice to the Company and the Selling
Shareholders at any time on or prior to the Closing Date or, with respect to
the purchase of the Option Stock, on or prior to any later date on which the
Option Stock is to be purchased, as the case may be, if prior to such time
any of the following has occurred or, in the Representative's opinion, is
likely to occur: (i) after the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material change
or development involving a prospective adverse change in or affecting the
business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole,
which would, in the Representative's sole judgment, make the offering or the
delivery of the Stock impracticable or inadvisable; or (ii) if trading in
securities of the Company has been suspended by the Commission or if trading
generally on the New York Stock Exchange, American Stock Exchange or
over-the-counter market has been suspended or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have
been required, by either of such exchanges, by the NASD or by the Commission;
or (iii) if there shall have been 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, court, legislative
body, agency or other governmental authority which in the Representative's
sole judgment materially affects or may materially affect the business,
properties, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole; (iv) if there
shall have been the declaration of a banking moratorium by federal, New York,
California or Washington authorities; (v) existing international monetary
conditions shall have undergone a material change which, in the
Representative's sole judgment, makes the offering or delivery of the Stock
impracticable or inadvisable; or (vi) if there has occurred any material
change in the
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financial markets in the United States or internationally or any outbreak of
hostilities or escalation of existing hostilities or other crisis, the effect
of which in the Representative's sole judgment make the offering or delivery
of the Stock impracticable or inadvisable. If this Agreement shall be
terminated pursuant to this Section 9, there shall be no liability of the
Company or the Selling Shareholders to the Underwriters (except pursuant to
Section 4 and Section 7 of this Agreement) and no liability of the
Underwriters to the Company or the Selling Shareholders (except pursuant to
Section 7 of this Agreement).
10. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing sent by U.S. first class mail, by a nationally
recognized overnight courier service, by hand delivery, or by telephonically
confirmed facsimile transmission or electronic mail (i) to the Underwriters
at Van Kasper & Company, 11661 San Vincente Boulevard, Suite 709, Los
Angeles, California 90049, Attention: Bruce P. Emmeluth (facsimile: (310)
820-5032, email: [*____*] ); and (ii) to the Company at 7175 NW Evergreen
Parkway, Suite 400, Hillsboro, Oregon 97124-5839, Attention: Stephen A.
Aanderud; (facsimile: (503) 615-3300, email: [email protected]) and
(iii) to the Selling Shareholders at [*_________*] . All notices given by
facsimile or electronic mail shall be promptly confirmed by letter.
11. PERSONS ENTITLED TO THE BENEFIT OF THIS AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Shareholders and the
several Underwriters and, with respect to the provisions of Section 4 and
Section 7 of this Agreement, the several parties (in addition to the Company,
the Selling Shareholders and the several Underwriters) indemnified under the
provisions of Section 4 and Section 7 and, in addition as to Section 13, the
Representative, and their respect personal representatives, successors and
assigns (whether such succession or assignment is by sale, assignment,
merger, reverse merger, consolidation, operation of law or, without
limitation, otherwise). 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 contained herein. The term "successors and assigns" as herein used
shall not include any purchaser, as such, of any of the Stock from the
several Underwriters.
12. GENERAL. Notwithstanding any provision of this Agreement to the
contrary, the reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties, covenants
and agreements 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 the Selling Shareholders, any Underwriter or
controlling person thereof or by or on behalf of the Company 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, paragraphs (vi) through (xiii) of Section 3(a) of
this Agreement shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which together shall constitute one
and the same instrument.
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<PAGE>
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS, AND NOT THE LAWS PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF
THE STATE OF CALIFORNIA.
13. AUTHORITY OF THE REPRESENTATIVE. In connection with this
Agreement, the Representative will act for and on behalf of the several
Underwriters, and any action taken under this Agreement by the
Representative, as representative of the several Underwriters, will be
binding on all of the Underwriters.
If the foregoing correctly sets forth your understanding, please so
indicate by signing in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among the Company, the
Selling Shareholders and the several Underwriters.
Very truly yours,
THRUSTMASTER, INC.
__________________________________________
By: Stephen A. Aanderud
Its: President and Chief Executive Officer
SELLING SHAREHOLDERS:
[LIST NAMES]
By: [Name]
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
VAN KASPER & COMPANY
By: __________________________
Bruce P. Emmeluth
Managing Director
On its behalf and on behalf of
each of the several Underwriters
named in Schedule I hereto
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<PAGE>
SCHEDULE I
UNDERWRITERS
Shares of Firm Stock
Underwriters to be Purchased
- --------------------------------- ----------------------------------
Van Kasper & Company
_________
Total
-------
-------
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<PAGE>
ANNEX A
Matters to be Covered in the Opinion of
Perkins Coie
(i) Each of the Company and each of its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(ii) Each of the Company and each of its subsidiaries has the
corporate power to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) Each of the Company and each of its subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
all jurisdictions in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure
so to qualify would not have a material adverse effect on the business,
properties, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
as of the dates stated therein; the issued and outstanding shares of capital
stock of the Company and its subsidiaries have been duly and validly
authorized and issued, are fully paid and nonassessable and have not been
issued in violation of any preemptive right or other rights to subscribe for
or purchase securities or, except to the extent any such violations would not
be material to the Company and its subsidiaries taken as a whole (whether
because of the magnitude of the violation, because any claims thereof would
be barred by the statute of limitations or otherwise), in violation of any
applicable federal or state securities laws, provided that in rendering their
opinion as to non-violation of federal and state securities laws, such
counsel may assume, unless counsel has knowledge of facts that may render
such assumption unreasonable; that any purchasers had, to the extent relevant
and represented by such purchasers in writing, any required investment intent
and the Company directly or indirectly owns all of the issued and outstanding
equity securities of each of its subsidiaries and there are no outstanding
options, warrants or other rights to acquire any equity securities of any
such subsidiary;
(v) The Company has corporate power and authority to enter into the
Agreement and to issue, sell and deliver the Stock to the Underwriters;
(vi) The execution, delivery and performance of this Agreement and
the issuance and sale of the Stock do not (A) conflict with, violate, result
in a breach of or constitute a default (or an event that with notice or lapse
of time, or both, would constitute a default) under the Articles of
Incorporation or By-laws of the Company or any agreement (including, without
limitation, an
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<PAGE>
agreement with respect to registration rights) to which the Company is a
party or by which it or any of its properties or assets is bound and which is
known to such counsel or (B) result in violation of any material federal or
Oregon law, rule or regulation or, to the best knowledge of such counsel, any
writ, judgment, order, injunction or decree of any government, governmental
body, agency or court or any arbitration tribunal having jurisdiction over
the Company or any of its properties;
(vii) The Stock to be sold by the Company is duly authorized and,
when issued and delivered against payment in full therefor, will be validly
issued, fully paid, non-assessable, and free of preemptive rights;
(viii) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery of the Underwriting Agreement by the Representative
and the Selling Shareholders, is the valid and binding agreement of the
Company, except insofar as the indemnification and contribution provisions of
the Underwriting Agreement may be limited by public policy concerns and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles;
(ix) Except for the order of the Commission making the Registration
Statement effective and similar authorizations required under the securities
or "Blue Sky" laws of certain jurisdictions (as to which such counsel need
express no opinion), no consent, approval, authorization or other order of
any federal or Washington governmental body or, to the knowledge of such
counsel, other person is required in connection with the authorization,
issuance, sale and delivery of the Stock and the execution, delivery and
performance by the Company of the Underwriting Agreement;
(x) The Registration Statement has become effective under the
Securities Act and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements,
financial data and supporting schedules included therein, as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Securities Act and the applicable Rules and Regulations;
(xii) We have reviewed the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions; and the statements set forth under
the headings "Shares Eligible for Future Sale" and "Legal Proceedings" in the
Prospectus, insofar as such statements constitute a summary of the legal
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<PAGE>
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings in all material respects as required by the Securities Act and
the applicable Rules and Regulations;
(xiii) The Company is not an "investment company" and, after giving
effect to the Offering and the application of the proceeds therefrom, will
not be an "investment company", as such term is defined in the Investment
Company Act of 1940, as amended;
(xiv) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes and
contracts are accurate in all material respects and fairly present in an
material respects the information required to be presented by the Securities
Act and the Rules and Regulations;
(xv) To the best knowledge of such counsel, there are no agreements,
contracts, licenses, leases or documents of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement that are not described or
referred to therein and filed as required;
(xvi) To the best knowledge of such counsel, there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which the property of the Company or any of
its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described therein or
filed as required;
(xvii) To the best knowledge of such counsel, neither the Company nor
any of its subsidiaries is presently in breach of, or in default under, any
bond, debenture, note or other evidence of indebtedness or any contract,
indenture, mortgage, deed of trust, loan agreement, lease, license or,
without limitation, other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which any of their properties are bound
that, individually or in the aggregate, is material to the business,
properties, condition (financial or otherwise), prospects or results of
operations or prospects of the Company and its subsidiaries taken as a whole;
(xviii) To the best knowledge of such counsel, except as set forth in
the Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect to any
securities of the Company; and
(xix) With respect to each Selling Shareholder:
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(A) each Selling Shareholder has the full right, power and
authority to enter into the Underwriting Agreement and the Custody Agreement
and to carry out all the terms and provisions thereof;
(B) the Underwriting Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized, executed and delivered by each
Selling Shareholder and, assuming due authorization, execution and delivery
by the Representative, the Company and/or Custodian, as applicable, the
Underwriting Agreement, the Custody Agreement and the Power-of-Attorney are
the legal, valid, binding and enforceable agreements or instruments of such
Selling Shareholder, except insofar as the indemnification and contribution
provisions of the Underwriting Agreement may be limited by public policy
concerns and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles;
(C) assuming that (I) the Underwriters have no notice of any
adverse claims with respect to the Stock being sold hereunder by such Selling
Shareholder, and (II) the certificates representing the Stock being sold by
such Selling Shareholder are delivered to the Underwriters duly endorsed or
accompanied by a duly executed assignment separate from certificate in the
State of California, the delivery by such Selling Shareholder to the several
Underwriters of certificates for the Stock being sold hereunder by such
Selling Shareholder against payment therefor as provided herein, will convey
good and marketable title to such Stock to the several Underwriters, free and
clear of all "adverse claims" (as that term is defined in Section 8302 of the
Commercial Code of the State of California); and
(D) the sale of the Stock to the Underwriters by such Selling
Shareholder pursuant to the Underwriting Agreement, the compliance by such
Selling Shareholder with the other provisions of the Underwriting Agreement
and the Custody Agreement, and the consummation of the other transactions
therein contemplated do not (I) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except
such as have been obtained and such as may be required under state securities
or blue sky laws, or (II) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
statute or, to the knowledge of such counsel, any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or any of such
Selling Shareholder's properties are bound or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Shareholder.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, the independent public accountants of the Company, the
Representative and counsel to the Underwriters, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although they have not independently verified the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention
of such counsel that caused them to believe that, at the time the
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<PAGE>
Registration Statement became effective, the Registration Statement (except
as to financial statement, financial data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option
Stock is to be purchased, as the case may be, the Prospectus contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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<PAGE>
EXHIBIT 5.1
PERKINS COIE
A Law Partnership Including Professional Corporations
1211 Southwest Fifth Avenue, Suite 1500 Portland, Oregon 97204-3715
Telephone: 503 727-2000 Facsimile: 503 727-2222
November 14, 1997
Thrustmaster, Inc.
7175 NW Evergreen Pkwy., Suite 400
Hillsboro, OR 97124-5839
RE: REGISTRATION STATEMENT ON FORM S-1
Dear Sirs:
We have acted as counsel to Thrustmaster, Inc., an Oregon corporation
(the "Company") and a selling shareholder (the "Selling Shareholder"), in
connection with the Registration Statement on Form S-1 (the "Registration
Statement") filed by the Company under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder
(the "Rules") with the Securities and Exchange Commission in connection with
a proposed underwritten public offering of up to 1,725,000 shares of the
Company's common stock (the "Shares"). The Shares are to be sold by the
Company and the Selling Shareholder pursuant to an underwriting agreement
(the "Underwriting Agreement") among the Company, the Selling Shareholder and
Van Kasper & Company, as the representative of the several underwriters named
in the Underwriting Agreement.
We have examined such certificates, agreements, records and other
documents as we have deemed relevant as a basis for this opinion. We have
assumed, without independent investigation, (i) the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
photostatic or facsimile copies, and the authenticity of the originals of
such copies, (ii) the accuracy of the factual representations made to us by
officers and other representatives of the Company, whether evidenced by
certificates or
<PAGE>
November 14, 1997
Page 2
otherwise, and (iii) that all actions contemplated by the Registration
Statement have been and will be carried out only in the manner described
therein.
Based on the foregoing, we are of the opinion that (i) that the Shares
to be sold by the Selling Shareholder are validly issued, fully paid and non
assessable; and (ii) the Shares to be sold by the Company have been duly
authorized and, when such Shares have been issued and paid for in accordance
with the terms of the Underwriting Agreement, will be validly issued, fully
paid and nonassessable.
In giving the opinion expressed herein, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of Oregon and
federal laws of the United States.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm in the Prospectus
made part of the Registration Statement under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or
related Rules. This Consent may be incorporated by reference in any amendment
to the Registration Statement filed pursuant to Rule 462(b) of Regulation C
under the Securities Act.
Sincerely,
/s/ Perkins Coie
PERKINS COIE
<PAGE>
EXHIBIT 10.5
N.W. OREGON BUSINESS
BANKING CENTER
8625 S.W Cascade Avenue, Suite 400
Beaverton, OR 97008
October 8, 1997
Mr. Kent Koski
Vice President Finance & Administration
ThrustMaster, Inc.
7175 NW Evergreen Parkway #400
Portland, Oregon 97124
Dear Kent,
I am pleased to advise you that United States National Bank of Oregon has
approved your request for a short term increase in your revolving line of
credit subject to the following terms and conditions:
BORROWER: ThrustMaster, Inc.
OPERATING LINE OF CREDIT
MAXIMUM LOAN AMOUNT: Increase to $5,000,000 until 1/31/98.
PURPOSE: General corporate purposes and to
support letters of credit.
INTEREST RATE: OPTION 1
Fully floating variable interest rate
equal to U.S. Bank's prime rate.
OPTION 2
LIBOR plus 250 basis points. 1, 2, 3
or 6 month terms. Minimum advance
amount $250,000. Advances over
$250,000 shall be in increments of
$100,000. No prepayment is allow on
LIBOR indexed loans.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
RATES TIED TO PRIME: Prime tied rates
are floating rates, adjusted the same
day as any change in Bank's prime
rate.
LIBOR: The LIBOR rate is the rate
per annum established by Lender as
its LIBOR rate, based on a
determination of the rate of interest
at which U. S. dollar deposits would
be offered to U.S. Bank in the London
interbank market at approximately
11:00 a.m. London time two business
days prior to the effective date of
the rate (adjusted for reserves, if
any).
REQUIRED NOTICE: Two business-days'
notice is required on LIBOR advances.
For example, rates quoted today would
be effective for an advance made two
business days later.
TIME ALLOCATED FOR DECISION: LIBOR
interest rate quotes may be obtained
from Lender between 8:00 a.m. and
10:00 a.m. and must be accepted by
10:00 a.m. Rates quoted are for rates
which are to become effective two
business days later.
ELECTION/MATURITY: Borrower will
notify Bank in writing of its
election to advance funds under the
LIBOR option. Notification will
include the amount to be advanced,
the term of the advance, and must be
signed by an officer of the company.
Any amounts advanced under an LIBOR
option shall at maturity, roll into
the Prime Tied Option.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
All interest under both rate options
described above shall be computed on
the basis of a 360-day year and the
actual number of days elapsed.
MATURITY DATE: Payable on demand.
REPAYMENT: Principal and interest payable on demand.
Interest payable monthly in absence of
demand.
LOAN FEE: Non-refundable upfront loan fee of 1/8%
of $4,000,000, prorated 4 months
($1,667).
COLLATERAL: Perfected first priority security
interest in all of Borrower's now
owned and hereafter acquired accounts
receivable, inventory and equipment.
OPERATING REQUIREMENTS
1. 60% advance against eligible A/R to 30 days past due.
2. Definition of Ineligible A/R includes (but is not limited to) the
following:
- All invoices aged beyond 30 days past due.
- Inter or related company sales.
- Sales exceeding debtor credit limits established by Bank at its sole
discretion on concentration accounts which equal or exceed $1,000,000.
- Foreign accounts. Canadian accounts are eligible.
3. Borrower's certificates are to be provided to U.S. Bank on a monthly basis,
as of month end.
4. Summary account receivable agings and accounts payable aging to be provided
to U.S. Bank on monthly basis.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
5. Collateral exam may be required annually.
6. Account debtor address listing to be provided annually.
THE ABOVE OPERATING REQUIREMENTS WILL APPLY ONLY UNTIL JANUARY 31, 1998.
AFTER THAT DATE THE OPERATING REQUIREMENT IN THE LETTER OF UNDERSTANDING
DATED JUNE 19, 1997 WILL APPLY.
FINANCIAL REPORTING
1. Annual CPA audited financial statement within 120 days after the end of
each fiscal year.
2. Quarterly company prepared financial statements, within 30 days after the
end of each calendar quarter.
GENERAL TERMS AND CONDITIONS
1. PRIME RATE: U.S. Bank's prime rate is the rate of interest which U.S. Bank
from time to time establishes as its prime rate and is not, for example,
the lowest rate of interest which U.S. Bank collects from any borrower or
class of borrowers.
2. LOAN ADVANCES: Advances may be requested by Borrower from time to time in
accordance with the terms of the promissory note. All advances shall be
made at the sole option of U.S. Bank. U.S. Bank may decline to make any
advance and may terminate the availability of advances at any time.
3. INSURANCE: Borrower shall maintain insurance in such amounts and covering
such risks as U.S. Bank shall require.
4. FINANCIAL REPORTING: At any time requested by U.S. Bank, Borrower shall
furnish any additional information regarding Borrower's financial condition
and business operations that U.S. Bank requests. This information may
include, but is not limited to, financial statements, tax returns, lists of
assets and liabilities, agings of receivables and payables, inventory
schedules, budgets and forecasts.
5. LOAN DOCUMENTATION: Borrower shall deliver to U.S. Bank duly executed
promissory notes, deeds of trust, mortgages, security agreements, financing
statements, loan agreements, guaranties, borrower authorizations, attorney
<PAGE>
ThrustMaster, Inc.
October 8, 1997
opinion letters and other documents ("Loan Documents") as required by U.S.
Bank in form and substance satisfactory to U.S. Bank and its counsel.
6. NON-ASSIGNABLE: This credit accommodation may not be assigned by Borrower.
No guarantor or any third party is intended as a third-party beneficiary
or has any right to rely hereon.
7. ARBITRATION: Borrower and U.S. Bank hereby agree to be bound by the terms
of the Arbitration clause attached hereto as Exhibit A.
8. EXPENSES: Borrower shall reimburse U.S. Bank for all out-of-pocket
expenses incurred in connection with this credit accommodation upon demand,
whether or not this transaction closes or is funded. Such expenses shall
include, without limitation, attorney fees, title insurance fees, travel
costs, examination expenses, and filing fees.
9. EXPIRATION DATE: This offer will expire on October 31, 1997.
10. ACCESS LAWS: Without limiting the generality of any provision of this
agreement requiring Borrower to comply with applicable laws, rules, and
regulations, Borrower agrees that it will at all times comply with
applicable laws relating to disabled access including, but not limited to,
all applicable titles of the Americans with Disabilities Act of 1990.
This letter summarizes certain principal terms and conditions relating to the
loan and supersedes all prior oral or written negotiations, understandings,
representations and agreements with respect to the loan. However, the Loan
Documents will include additional terms, conditions, covenants,
representations, warranties and other provisions which U.S. Bank customarily
includes in similar transactions or which US Bank determines to be
appropriate to this transaction. Except to the extent modified by any other
agreement, all terms, condition, covenants and other provisions of this
letter shall remain in effect until the revolving line of credit (including
any renewals, extensions or modifications) is terminated and the loan balance
is paid in full, and by signing below, Borrower agrees to comply with all
such provisions.
In addition to the events of default in any Loan Document, any failure to
comply with any term, condition or obligation in this letter shall constitute
an event of default under each of the Loan Documents. The provisions of this
letter shall survive the closing of the loan and the execution and delivery
of the Loan Documents. In the event of a conflict between this letter and
the Loan Documents, the terms of the Loan Documents shall control.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED
BY THE LENDER TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
If the above terms and conditions are acceptable to you, please sign, date
and return the acknowledgment copy of this letter on or before the Expiration
Date.
Sincerely,
/s/ Debbie Sidley
Debbie Sidley
VP & Commercial Account Office;
526-6018
Borrower hereby accepts U.S. Bank's offer to extend credit on terms and
conditions stated above. Borrower hereby agrees to the Arbitration clause
set forth in Exhibit A attached hereto.
ThrustMaster, Inc.
By: /s/ Kent Koski
Title: VP - Finance
Date: 10/17/97
<PAGE>
EXHIBIT A
ARBITRATION. U.S. Bank and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this letter or the revolving line of credit or otherwise,
including without limitation contract and tort disputes, shall be arbitrated
pursuant to the Rules of the American Arbitration Association, upon request
of either party. No act to take or dispose of any collateral securing any
loan shall constitute a waiver of this arbitration agreement or be prohibited
by this arbitration agreement. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; foreclosing by notice and
sale under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code. Any
disputes, claims, or controversies concerning the lawfulness or
reasonableness or any act, or exercise of any right, concerning any
collateral securing any loan, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing any loan,
shall also be arbitrated, provided however that no arbitrator shall have the
right or other power to enjoin or restrain any act of any party. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing herein shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The stature of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
<PAGE>
EXHIBIT 11
THRUSTMASTER, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------- NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Net income .............................. $ 1,138 $ 1,361 $ 2,259 $ 1,454
Weighted average shares outstanding...... 2,957 4,293 4,647 4,807
Net income per share..................... $ 0.38 $ 0.32 $ 0.49 $ 0.30
Common stock equivalent arising from
stock options and warrants............ 713 646 465 553
Weighted average shares outstanding
(fully diluted)....................... 3,670 4,939 5,112 5,360
Net income per share (fully diluted)..... $ 0.31 $ 0.28 $ 0.44 $ 0.27
</TABLE>
<PAGE>
EXHIBIT 21
THRUSTMASTER, INC.
LIST OF SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
ThrustMaster Foreign Sales Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
ThrustMaster, Inc. Consolidated statements of Income for the period ended
September 30, 1997; and ThrustMaster Inc. Consolidated Balance Sheet at
September 30, 1997 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> 5,376
<SECURITIES> 0
<RECEIVABLES> 9,635
<ALLOWANCES> 0
<INVENTORY> 5,300
<CURRENT-ASSETS> 20,935
<PP&E> 3,714
<DEPRECIATION> 1,836
<TOTAL-ASSETS> 22,844
<CURRENT-LIABILITIES> 5,293
<BONDS> 0
0
0
<COMMON> 13,474
<OTHER-SE> 4,051
<TOTAL-LIABILITY-AND-EQUITY> 22,844
<SALES> 23,930
<TOTAL-REVENUES> 23,930
<CGS> 14,814
<TOTAL-COSTS> 14,814
<OTHER-EXPENSES> 7,156
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,244
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,454
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
