-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILvQXLZP9dmGYflok1o7yXA8fN9A41B/9NHMFht50V5rPxoIUlqbhEuL/VutnEXh GwQV4h67CHGGcGEHHm9bSg== 0000950116-96-001149.txt : 19961028 0000950116-96-001149.hdr.sgml : 19961028 ACCESSION NUMBER: 0000950116-96-001149 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19961025 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERIPHONICS CORP CENTRAL INDEX KEY: 0000937598 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112699509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14803 FILM NUMBER: 96647592 BUSINESS ADDRESS: STREET 1: 4000 VETERANS MEMORIAL HIGHWAY CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5164670500 MAIL ADDRESS: STREET 1: 4000 VETERANS MEMORIAL HIGHWAY CITY: BOHEMIA STATE: NY ZIP: 11716 S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 REGISTRATION NO. 333- ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------ PERIPHONICS CORPORATION (Exact name of Registrant as specified in its charter) Delaware 11-2699509 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4000 Veterans Memorial Highway Bohemia, New York 11716 (516) 468-9000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Peter J. Cohen Periphonics Corporation 4000 Veterans Memorial Highway Bohemia, New York 11716 (516) 468-9000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------ Copies to: Raymond S. Evans, Esq. William B. Asher, Jr., Esq. Norman M. Friedland, Esq. Testa, Hurwitz & Thibeault, LLP Ruskin, Moscou, Evans & Faltischek, P.C. 125 High Street 170 Old Country Road Boston, Massachusetts 02110 Mineola, New York 11501 (617) 248-7000 (516) 663-6620 (617) 248-7100 (facsimile) (516) 663-6641 (facsimile) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] CALCULATION OF REGISTRATION FEE
===================================================================================================================== Proposed Maximum Proposed Maximum Title of Each Class of Securities Number of Shares Offering Price Aggregate Amount of to be Registered to be Registered(2) per Share(1)(2) Offering Price(1) Registration Fee - ---------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 1,265,000 $17.19 $21,745,350 $6,589.50 ======================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee and based on the average bid and asked price as of a specified date within five business days prior to the date of filing this Registration Statement, pursuant to Rule 457(c). (2) The number of shares and the proposed maximum offering price per share reflect the 2-for-1 stock split in the form of a stock dividend, payable on October 31, 1996. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ============================================================================= Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996 PROSPECTUS 1,100,000 SHARES LOGO COMMON STOCK All of the shares of Common Stock offered hereby are being sold by certain stockholders (the "Selling Stockholders") of Periphonics Corporation (the "Company"). See "Principal and Selling Stockholders." The Company will not receive any proceeds from the sale of shares by the Selling Stockholders. The Company has declared a 2-for-1 stock split in the form of a stock dividend, to be paid on October 31, 1996 to holders of record on October 15, 1996. All share and per share information in this Prospectus has been adjusted to reflect this stock dividend. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "PERI." The last sale price for the Common Stock on October 24, 1996, as reported by the Nasdaq National Market, was $18.125 per share. See "Price Range of Common Stock." See "Risk Factors" on page 5 for a discussion of certain factors that should be considered by prospective purchasers of the Common Stock offered hereby. ------ 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. - ----------------------------------------------------------------------------- Proceeds to Underwriting Selling Price to Public Discount (1) Stockholders (2) - ----------------------------------------------------------------------------- Per Share ..... $ $ $ Total (3) .... $ $ $ - ----------------------------------------------------------------------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Selling Stockholders, estimated at $275,000. (3) The Selling Stockholders have granted the Underwriters a 30-day option to purchase up to 165,000 shares, solely to cover over-allotments, if any. See "Underwriting." If all such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Selling Stockholders will be $ , $ and $ , respectively. The Common Stock is offered by the several Underwriters when, as and if delivered to and accepted by them and subject to their right to reject orders in whole or in part. It is expected that delivery of the certificates for the Common Stock will be made on or about , 1996. WILLIAM BLAIR & COMPANY DAIN BOSWORTH Incorporated THE DATE OF THIS PROSPECTUS IS , 1996 DOCUMENTS INCORPORATED BY REFERENCE The following documents previously filed by the Company with the Securities and Exchange Commission (the "Commission") are hereby incorporated by reference in this Registration Statement: (1) The Company's Annual Report on Form 10-K for the year ended May 31, 1996; (2) The Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996; (3) The Company's Current Report on Form 8-K filed with the Commission on August 13, 1996; and (4) The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, as filed with the Commission on February 21, 1995. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which removes from registration all securities then remaining unsold, shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. The Company undertakes to provide without charge to each person to whom a Prospectus is delivered, upon oral or written request of such person, a copy of any document that has been incorporated in this Prospectus by reference. Requests for such documents should be directed to the Company at its offices located at 4000 Veterans Memorial Highway, Bohemia, New York 11716 (telephone number (516) 468-9000), Attention: Secretary. ------ IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto appearing elsewhere or incorporated by reference in this Prospectus. All information in this Prospectus has been adjusted to reflect a 2-for-1 split of the Common Stock in the form of a stock dividend to be paid on October 31, 1996 to holders of record on October 15, 1996. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. This Prospectus contains or incorporates by reference forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, the Company's expectations regarding its future financial condition and operating results, product development, business strategy, market conditions and competitive environment. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. THE COMPANY Periphonics develops, builds, markets and supports high performance, automated interactive transaction processing systems that facilitate interaction with computer databases using a touch-tone telephone, speech input and output, Web browsers and fax output. The Company's interactive voice response ("IVR") and transaction processing systems are based on industry-standard, open architecture computer hardware and operating system software which, in combination with its own proprietary technology, address the needs of mid-size and large scale customer installations. The Company is an established leader within the mid-size and large scale segments of the IVR industry, having installed systems with over 150,000 ports since 1988, and with over 25 years of experience serving the IVR market. The Company's systems enable callers to use a touch-tone telephone to access information in an organization's computer database for a variety of transactions including accessing bank, mutual fund, or brokerage account data; checking the status of insurance claims or tax filings; obtaining loan or credit card rates; registering for college courses; and retrieving descriptions of products or services. THE OFFERING
Shares Offered by the Selling Stockholders ........... 1,100,000 shares Shares Outstanding Immediately After the Offering ... 13,625,132 shares (1) Nasdaq National Market Symbol ....................... PERI Proceeds ............................................ The Company will not receive any proceeds of the offering.
- ------ (1) Excludes (i) 136,832 shares of Common Stock issuable upon the exercise of outstanding options granted by the Company under its 1986 Incentive Stock Option Plan (the "1986 Plan") at exercise prices between $0.75 and $1.67 per share; (ii) 1,200,000 shares of Common Stock reserved for issuance under the Company's 1995 Stock Option Plan, of which options to purchase 536,200 are outstanding at exercise prices between $7.00 and $18.00 per share; and (iii) 200,000 shares of Common Stock reserved for issuance under the Company's 1995 Non-Employee Director Stock Option Plan, of which options to purchase 50,000 shares are outstanding at exercise prices between $8.87 and $13.25 per share. See "Description of Capital Stock." 3 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Fiscal Year Ended May 31, August 31, ---------------------------------------------------------- ---------------------- 1992 1993 1994 1995(1) 1996 1995 1996 --------- --------- --------- --------- --------- --------- --------- Statement of Earnings Data: Total revenues .......... $33,703 $39,398 $51,485 $64,777 $88,803 $17,544 $23,259 Gross profit ............ 17,444 18,971 25,084 32,704 45,049 8,869 11,933 Earnings from operations . 2,820 1,503 4,874 6,874 14,529 2,392 3,348 Net earnings ............ 1,469 543 1,951 3,184 9,215 1,450 2,315 Net earnings per common and common equivalent share (2)(3) ............... $ 0.16 $ 0.05 $ 0.21 $ 0.33 $ 0.69 $ 0.12 $ 0.17 Weighted average common and common equivalent shares outstanding (2)(3) ... 9,330 7,864 9,228 9,778 13,260 12,558 13,982
August 31, 1996 --------------- Balance Sheet Data: Working capital ..................................... $50,088 Total assets ........................................ 78,555 Total debt .......................................... -- Common stockholders' equity.......................... 61,222 - ------ (1) On February 1, 1995, the Company accelerated the vesting of all outstanding stock options under its 1986 Incentive Stock Option Plan (the "1986 Plan"), thereby allowing all such options to be fully vested at such date. The Company also relinquished its right to repurchase shares obtained by employees under the 1986 Plan. As a result, the Company recorded a nonrecurring, non-cash compensation charge of approximately $1.25 million, or $0.13 per share. (2) On September 20, 1996, the Board of Directors approved a two-for-one stock split of the Company's Common Stock in the form of a stock dividend to be paid on October 31, 1996 to holders of record at the close of business on October 15, 1996. Earnings per common and common equivalent share and weighted average number of common and common equivalent shares outstanding have been adjusted to reflect the stock split. (3) Net earnings per common and common equivalent share has been computed by dividing net earnings, after reduction for preferred stock dividends, when applicable, by the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares included in the computation represent common shares and equivalent shares attributable to convertible preferred stock, when applicable, and dilutive common equivalent shares from stock options (using the treasury stock method). 4 RISK FACTORS In addition to the other information contained or incorporated by reference in this Prospectus, the following investment considerations should be considered carefully by prospective investors in evaluating the Company, its business and an investment in the shares of Common Stock offered by this Prospectus. This Prospectus contains or incorporates by reference forward-looking statements which involve risks and uncertainties. Such forward-looking statements include, but are not limited to, the Company's expectations regarding its future financial condition and operating results, product development, business strategy, market conditions and competitive environment. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Variability of Quarterly Results; Limited Backlog. The Company's quarterly operating results may fluctuate as a result of a variety of factors, including the length of the sales cycle, the timing of orders from and shipments to customers, delays in development and customer acceptance of custom software applications, product development expenses, new product introductions or announcements by the Company or its competitors, levels of market acceptance for new products and the hiring and training of additional staff as well as general economic conditions. Historically, the size and timing of the Company's sales transactions, including international sales, have varied substantially from quarter to quarter, and the Company expects such variations to continue in future periods. The Company is typically able to deliver an IVR system within 60 days of receipt of the order and therefore, does not customarily have a significant long-term backlog. Because a significant portion of the Company's overhead is fixed in the short-term, the Company's results of operations may be materially adversely affected if revenues fall below the Company's expectations. During the fiscal year ended May 31, 1996, 30.1% of the Company's system sales and 37.3% of the Company's net earnings occurred in the Company's fourth fiscal quarter. Generally, the Company's inventory of computer hardware is determined by the Company's forecasts of sales during future periods. If management's forecasts of product sales and product mix prove to be substantially inaccurate, the Company may not have the necessary inventory available to deliver systems in a timely manner which may have a material adverse effect on the Company's results of operations during such period. Highly Competitive Market Environment. The market for IVR and automated transaction processing systems is highly competitive. Certain of the Company's competitors have substantially greater financial, technical, marketing and sales resources than the Company. There can be no assurance that the Company's present or future competitors will not exert increased competitive pressures on the Company. In particular, the Company may in the future experience pricing pressures as the markets in which it competes mature, as new technologies are introduced or for other reasons, and such price competition could adversely affect the Company's market share and results of operations. In addition, many suppliers of voice mail systems and telecommunications systems have added IVR capabilities to some of their product offerings and offer IVR systems as a component or add-on of an overall sale of a voice mail system or a telecommunications switch. The Company also competes with providers of internet-based systems for transaction processing applications. Such internet-based systems may provide an alternative means of allowing customers to interact with computer-based information, thereby reducing the need for the Company's systems in certain markets. Although the Company believes it has certain marketing, technical and other advantages over many of its competitors, maintaining such advantages will require continued investment by the Company in product innovation and development, as well as in sales, marketing and customer support. There can be no assurance that the Company will be successful in such efforts. If the Company is unable to maintain such advantages, it may have a material adverse effect on the Company's results of operations. Risk of Rapid Technological Change and New Product Introduction. The market for IVR and automated transaction processing systems is characterized by rapid continual technological change and improvements in hardware and software technology and in the features and capabilities of these systems. The Company's future success depends upon its ability to introduce new products and to add new features and enhancements to its existing systems that keep pace with technological and market developments, and that address the increasingly sophisticated and demanding needs of its customers. In order to remain competitive, the Company expects to continue to expend significant resources for research and development. 5 There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, product modifications or enhancements or new products that respond to technological advances by others, or that such new or enhanced products or features will adequately and competitively address the needs of the marketplace. A portion of the Company's IVR systems sales depends, in part, upon customers' belief that the Company's UNIX and RISC-based systems offer more performance, features and benefits than PC-based systems offered by certain of the Company's competitors. As PC hardware and operating system software become more powerful, however, the capabilities of PC-based IVR systems are likely to increase and may become increasingly competitive alternatives to the Company's products in mid-size and large scale installations. The Company's software products, like software programs generally, may contain undetected errors or bugs when introduced, or as new versions are released. While the Company's current products have not experienced post-release software errors that have had a significant financial or operational impact on the Company, there can be no assurance that such problems will not occur in the future, particularly as the Company's systems continue to become more complex and sophisticated. Such defective software may result in loss of or delay in market acceptance of the Company's products, warranty liability or product recalls. Risk of International Sales. System sales to customers outside the U.S. accounted for approximately 34%, 35%, 36% and 26% of the Company's total system sales in the fiscal years ended May 31, 1994, 1995 and 1996 and the three months ended August 31, 1996, respectively. System sales to customers outside the United States, as a percentage of the Company's overall sales, fluctuate signficantly on a quarterly basis, and the percentage of such sales in a particular quarter may not be indicative of the percentage of international sales for the full fiscal year. The Company's international business is subject to a number of risks, including compliance with special national telecommunications standards and regulatory requirements, export regulations, currency exchange rates, tariffs and other barriers, difficulties in staffing and managing foreign subsidiary operations, potentially adverse tax consequences, longer payment cycles, greater difficulty in accounts receivable collections and specialized inventory requirements applicable to particular foreign countries. There can be no assurance that these factors will not have an adverse impact on the Company's future international sales or operating results. The Company does not currently engage in international currency hedging transactions. To the extent the Company is unable to match revenue received in foreign currencies with expenses paid in the same currency, it is exposed to possible losses on international currency transactions. Included in the Company's net earnings of $9.2 million for the fiscal year ended May 31, 1996 was a foreign exchange loss of approximately $0.3 million. Such foreign exchange loss consisted primarily of unrealized foreign exchange gains and losses resulting from the currency remeasurement of the financial statements (primarily inventories, accounts receivable and intercompany debt) of the Company's foreign subsidiaries into U.S. dollars. Risk of Industry Concentration. In fiscal 1996 and for the three months ending August 31, 1996, approximately 37% and 24% of the Company's worldwide system sales were to customers in the telecommunications industry and 36% and 33% of system sales were to U.S. customers within the financial services industry. Although the Company is broadening its vertical market focus to include additional industries such as government, higher education, healthcare services, transportation, electric and water utilities and distribution companies, it expects that it will continue to derive a substantial percentage of its system sales from telecommunications and financial services businesses. Accordingly, unfavorable economic conditions or factors that relate to these industries, particularly any such conditions that might result in reductions in capital expenditures by the Company's target customers, could have a material adverse affect on the Company's results of operations. The Company believes that in recent periods certain of its competitors have experienced results below their expectations particularly with respect to certain of their telecommunications customers. There can be no assurance that the Company will not experience similar difficulties with its telecommunications customers (or other vertical market customers) in future periods. During fiscal 1996 and the three months ended August 31, 1996, sales to governmental customers represented 13% and 25%, respectively, of system sales. The system sales to governmental customers in the three months ended August 31, 1996 reflect the delivery in that quarter of an unusually large system to one governmen- 6 tal customer. System sales to any particular vertical market fluctuate as a percentage of total sales from quarter to quarter. As such, the percentage of sales to any particular vertical market in any given quarter may not be indicative of the percentage of sales for the full fiscal year. Future reductions in the budgets of government entities could result in reductions in capital expenditures by these potential customers. In addition, the Company has experienced longer payment cycles with its government customers than it typically has with customers in other vertical markets. Limited Protection of Proprietary Technology. The Company's success is heavily dependent upon its proprietary software technology. The Company has no patents; consequently it relies on a combination of copyright, trademark and trade secret laws, employee and third-party non-disclosure agreements, and license agreements to protect its proprietary software technology. Nonetheless, there can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop functionally equivalent or superior software technology. The Company from time to time receives correspondence alleging that its products may infringe patents held by third parties. The Company believes that its products and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into license arrangements or result in protracted and costly litigation, regardless of the merits of such claims. There also can be no assurance that the Company will be able to obtain licenses to disputed third party technology or that such licenses, if available, would be available on commercially reasonable terms. The Company is aware that certain segments of the voice processing industry, particularly voice mail/voice messaging systems, are affected by active and costly litigation. There can be no assurance that as the Company's interactive transaction processing systems evolve and provide features which extend their uses and capabilities, possibly to include certain voice mail/voice messaging and/or additional internet-related features, the Company will not become involved in, or otherwise be affected by, litigation which may or may not be meritorious. Dependence on Suppliers. In certain instances, despite the availability of multiple supply sources, the Company elects to procure certain components or parts from a single source to maintain quality control or to develop a strategic relationship with a supplier. Although the Company has entered into long-term supply contracts with certain of its vendors, the Company has no assurance that components and parts will be available as required, or that prices of such components and parts will not increase. In certain instances the manufacture of components used by the Company in its products has been discontinued by suppliers and the Company has been required to seek functionally similar substitutes or substantially increase its inventories of these discontinued components for its future use. If the Company were to experience significant delays, interruptions, discontinuations or reductions in the supply of certain components and parts purchased from suppliers, the Company's results of operations could be materially adversely affected. Dependence on Key Personnel. The Company's success during the foreseeable future will depend largely upon the continued services of its executive officers, each of whom has entered into an employment agreement with the Company. Each employment agreement contains non-competition covenants that extend for a period of up to two years following termination of employment. The Company does not have key-man life insurance on its executive officers. The Company's success also depends in part on its ability to attract and retain qualified managerial, technical and sales and marketing personnel. The Company's results of operations could be materially adversely affected if the Company were unable to attract, hire, assimilate and train these personnel in a timely manner. Anti-Takeover Provisions and Rights Plan. Certain "anti-takeover" provisions of the Delaware General Corporation Law, among other matters, restrict the ability of certain stockholders to effect a merger or business combination or obtain control of the Company. In addition, the Company's By-Laws provide for a classified Board of Directors with staggered three-year terms. The Company has an authorized class of 1,000,000 shares of preferred stock, which may be issued by the Board of Directors on such terms and with such rights, preferences and designations as the Board of Directors may determine, without further stockholder action. Issuance of such preferred stock, depending upon the rights, preferences 7 and designations thereof, may have the effect of delaying, deferring or preventing a change in control of the Company. On July 15, 1996, the Board of Directors of the Company approved a Rights Plan designed to protect stockholders in the event of an unsolicited attempt to acquire the Company, including a gradual accumulation of shares in the open market, a partial or two-tier tender offer that does not treat all stockholders equally, and other takeover tactics which the Board of Directors believes may be abusive and not in the best interests of stockholders. The implementation of the Rights Plan increases the Board of Directors' power in the event of an unsolicited proposal by giving the Board of Directors more time and the opportunity to evaluate an offer and exercise its good faith business judgment to take appropriate steps to protect and advance stockholder interests by negotiating with the bidder, auctioning the Company, implementing a recapitalization or restructuring designed as an alternative to the offer, or taking other action. Potential Volatility of Stock Price. The market price of the shares of the Company's Common Stock may be highly volatile. Factors such as fluctuations in the Company's quarterly operating results, announcements of technological innovations or new commercial products by the Company or its competitors, and conditions in the markets in which the Company and its customers compete may have a significant effect on the market price and marketability of the Common Stock. Prices for many technology company stocks, including the Common Stock, may fluctuate widely as a result of the factors cited above or for reasons that are not directly related to the operating performance of such companies, including general fluctuations in stock prices and changes in earnings estimates or recommendations by securities analysts. See "Price Range of Common Stock." 8 THE COMPANY Periphonics develops, builds, markets and supports high performance, automated interactive transaction processing systems that facilitate interaction with computer databases using a touch-tone telephone, speech input and output, Web browsers and fax output. The Company's interactive voice response ("IVR") and transaction processing systems are based on industry-standard open architecture computer hardware and operating system software which, in combination with its own proprietary technology, address the needs of mid-size and large scale customer installations. The Company is an established leader within the mid-size and large scale segments of the IVR industry, having installed systems with over 150,000 ports since 1988, and with over 25 years of experience serving the IVR market. The Company's systems enable callers to use a touch-tone telephone to access information in an organization's computer database for a variety of transactions including accessing bank, mutual fund, or brokerage account data; checking the status of insurance claims or tax filings; obtaining loan or credit card rates; registering for college courses; and retrieving descriptions of particular products or services. Periphonics focuses its resources on the needs of specific vertical markets in North America including telecommunications, financial services, government and higher education and on selected international markets. This focus enables the Company to demonstrate its commitment to these markets and to identify and offer new features and services that meet the changing IVR and transaction processing needs of those market segments. Periphonics systems have been implemented by a wide variety of customers including many of the major telecommunications and financial services companies worldwide. The Company markets its products through direct sales, marketing and pre-sales technical support personnel deployed in 15 cities across the U.S., as well as in Canada, Mexico, Germany, the United Kingdom and Singapore. IVR and automated transaction processing systems represent an increasingly important element in the telecommunications and data processing infrastructure for many customer service-oriented organizations. These systems enable businesses and other organizations to offer their customers 24-hour access to information, to provide new revenue generating services, to better utilize the capabilities and capacities of their telephone and computer systems, to increase the productivity of their customer support staffs and to thereby offer better services to customers in less time and at a lower cost. Based on information available from Dataquest, the Company believes that sales of IVR systems in the United States have grown at a compound annual rate of 19% from approximately $475 million in 1991 to approximately $939 million in 1995. The Company believes that sales of mid-to-large scale IVR systems have grown at least as fast as the overall market during this period and that the growth in the sale of IVR systems has been due to several factors, including improvements in product features, public acceptance of IVR systems as a means for obtaining information or executing transactions, and competitive pressures on organizations to offer improved customer service while reducing costs. The Company's products consist of a family of scalable systems called the VPS Series, which can be configured for small (4-16 ports), mid-size (20 to 128 ports) and large scale installations (up to 960 ports) or as a network of multiple systems configured to handle thousands of telephone ports. Periphonics has developed its systems to run on industry-standard RISC-based hardware and the UNIX operating system in order to take advantage of the continual performance improvements and price reductions of industry-standard computer systems. This allows the Company to focus its product development efforts on expanding its systems' IVR and transaction processing features and interfaces to a broad array of telephone switches and mainframe and client/server computer and database systems. The highly scalable architecture of the Company's systems readily accommodates expansion and upgrades while preserving a customer's original investment and extending the useful life of installed systems. Most IVR installations require customized application software. Therefore, Periphonics maintains a skilled staff of programmers which utilizes proven project-management techniques to develop customer applications in a timely and economical manner. This is often an important factor in the Company's selection as the supplier of large scale, turnkey IVR systems. The Company also licenses its software tools to support customers that develop application programs with their own staff. Reflecting the mission-critical 9 nature of many of the applications based on the Company's IVR products, Periphonics offers direct maintenance and support services 24-hours per day. The Company believes that it has one of the largest technical support and field service organizations dedicated solely to IVR maintenance. The Company's principal facilities and executive offices are located at 4000 Veterans Memorial Highway, Bohemia, New York 11716, its telephone number is (516) 468-9000 and its web-site address is www.peri.com. Information contained in the Company's Web site shall not be deemed to be a part of this Prospectus. USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the Nasdaq National Market under the symbol "PERI." The following table sets forth, for the periods indicated, the range of high and low sale prices, by quarter, for the Common Stock as reported by the Nasdaq National Market. Price Range ------------------------ High Low -------- ------- Fiscal 1995 Fourth Quarter Ended May 31, 1995 .......... $ 8 5/8 $ 7 3/8 Fiscal 1996 First Quarter Ended August 31, 1995 ........ 12 1/4 7 3/8 Second Quarter Ended November 30, 1995 ..... 14 3/4 11 3/4 Third Quarter Ended February 29, 1996 ...... 13 7/8 10 1/2 Fourth Quarter Ended May 31, 1996 .......... 18 10 3/8 Fiscal 1997 First Quarter Ended August 31, 1996 ........ 20 1/8 12 7/8 Second Quarter (through October 24, 1996) .. 21 16 1/2 All sales prices have been adjusted to reflect the 2-for-1 stock split to be effected as a stock dividend payable on October 31, 1996 to shareholders of record on October 15, 1996. On October 24, 1996, the last reported sale price of the Company's Common Stock as reported on the Nasdaq National Market was 18.125, as adjusted to reflect the 2-for-1 stock dividend payable on October 31, 1996. DIVIDEND POLICY Since its initial public offering in 1995, the Company has not paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company currently intends to retain its earnings to finance future growth of its business. 10 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data as of and for each of the five fiscal years in the period ended May 31, 1996 has been derived from the audited consolidated financial statements of the Company. The report of Deloitte & Touche LLP, independent auditors, as of May 31, 1995 and 1996, and for each of the three years in the period ended May 31, 1996 is included in the Form 10-K for the year ended May 31, 1996, incorporated by reference herein. The selected consolidated financial data for the three month periods ended August 31, 1995 and 1996 are derived from the unaudited consolidated financial statements of the Company. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. Results for the three months ended August 31, 1996 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 1997. The selected consolidated financial data should be read in conjunction with and is qualified in its entirety by, the Company's consolidated financial statements, related notes and other financial information included in the Form 10-K for the year ended May 31, 1996, and the Form 10-Q for the quarter ended August 31, 1996 incorporated by reference herein.
Three Months Ended Fiscal Year Ended May 31, August 31, ---------------------------------------------------------- ---------------------- 1992 1993 1994 1995 1996 1995 1996 --------- --------- --------- --------- --------- --------- --------- (in thousands, except per share data) Statement of Earnings Data: System sales ........................ $24,787 $29,906 $41,192 $51,747 $71,800 $13,887 $17,755 Service revenues .................... 8,916 9,492 10,293 13,030 17,003 3,657 5,504 --------- --------- --------- --------- --------- --------- --------- Total revenues ..................... 33,703 39,398 51,485 64,777 88,803 17,544 23,259 --------- --------- --------- --------- --------- --------- --------- Cost of system sales ................ 10,055 13,677 18,653 23,686 32,798 6,408 8,022 Cost of service revenues ............ 6,204 6,750 7,748 8,387 10,956 2,267 3,304 --------- --------- --------- --------- --------- --------- --------- Total cost of revenues ............. 16,259 20,427 26,401 32,073 43,754 8,675 11,326 --------- --------- --------- --------- --------- --------- --------- Gross profit ........................ 17,444 18,971 25,084 32,704 45,049 8,869 11,933 --------- --------- --------- --------- --------- --------- --------- Selling, general and administrative . 11,309 13,062 15,249 18,749 22,587 4,865 6,165 Research and development ............ 3,315 4,406 4,961 5,831 7,933 1,612 2,420 Non-recurring, noncash compensation charge (1) ......................... -- -- -- 1,250 -- -- -- --------- --------- --------- --------- --------- --------- --------- Total operating expenses ........... 14,624 17,468 20,210 25,830 30,520 6,477 8,585 --------- --------- --------- --------- --------- --------- --------- Earnings from operations ............ 2,820 1,503 4,874 6,874 14,529 2,392 3,348 --------- --------- --------- --------- --------- --------- --------- Interest expense .................... (617) (673) (936) (992) -- -- -- Interest and other income ........... 242 117 159 170 885 191 329 Foreign exchange gain (loss) ........ 22 175 (464) 88 (345) (125) 118 --------- --------- --------- --------- --------- --------- --------- Total other (expenses) income ...... (353) (381) (1,241) (734) 540 66 447 --------- --------- --------- --------- --------- --------- --------- Earnings before provision for income taxes and cumulative effect of change in accounting principle ..... 2,467 1,122 3,633 6,140 15,069 2,458 3,795 Provision for income taxes .......... 998 579 1,599 2,956 5,854 1,008 1,480 --------- --------- --------- --------- --------- --------- --------- Earnings before cumulative effect of change in accounting principle ..... 1,469 543 2,034 3,184 9,215 1,450 2,315 Cumulative effect of change in accounting principle (2) ........... -- -- 83 -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net earnings ........................ $ 1,469 $ 543 $ 1,951 $ 3,184 $ 9,215 $ 1,450 $ 2,315 ========= ========= ========= ========= ========= ========= ========= Earnings per common and common equivalent share (3)(4): Earnings before cumulative effect of change in accounting principle ..... $ 0.16 $ 0.05 $ 0.22 $ 0.33 $ 0.69 $ 0.12 $ 0.17 Cumulative effect of change in accounting principle (2) ........... -- -- (0.01) -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Earnings per common share ........... $ 0.16 $ 0.05 $ 0.21 $ 0.33 $ 0.69 $ 0.12 $ 0.17 ========= ========= ========= ========= ========= ========= ========= Weighted average number of common and common equivalent shares (3)(4) .... 9,330 7,864 9,228 9,778 13,260 12,558 13,982 ========= ========= ========= ========= ========= ========= =========
11 SELECTED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
May 31, August 31, --------------------------------------------------------- ---------------------- 1992 1993 1994 1995 1996 1995 1996 -------- --------- --------- --------- --------- --------- --------- (in thousands, except per share data) Balance Sheet Data: Working capital .................... $ 9,228 $14,574 $13,837 $27,550 $48,476 $29,010 $50,088 Total assets ....................... 21,439 28,460 33,714 47,722 75,103 50,166 78,555 Total debt ......................... 5,439 11,285 10,032 -- -- -- -- Redeemable cumulative convertible preferred stock issued by subsidiary 1,215 1,215 1,215 1,215 -- 1,215 -- Redeemable cumulative convertible preferred stock ................... 4,500 4,500 4,500 -- -- -- -- Common stockholders' equity ........ 4,729 5,337 6,289 33,576 58,781 35,182 61,222
- ------ (1) On February 1, 1995, the Company accelerated the vesting of all outstanding stock options under its 1986 Incentive Stock Option Plan (the "1986 Plan"), thereby allowing all such options to be fully vested at such date. The Company also relinquished its right to repurchase shares obtained by employees under the 1986 Plan. As a result, the Company recorded a non-recurring, noncash compensation charge of approximately $1.25 million, or $0.13 per share. (2) During fiscal 1994, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. (3) On September 20, 1996, the Board of Directors approved a two-for-one stock split of the Company's Common Stock in the form of a stock dividend to be paid on October 31, 1996 to holders of record on October 15, 1996. Earnings per common and common equivalent share and weighted average number of common and common equivalent shares outstanding have been retroactively adjusted to reflect the stock split. (4) Earnings per common and common equivalent share has been computed by dividing net earnings, after reduction for preferred stock dividends, when applicable, by the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares included in the computation represent common equivalent shares from convertible preferred stock, when applicable, and dilutive common equivalent shares from stock options (using the treasury stock method). 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1995 AND 1996 Total Revenues. Total revenues increased by 32.6% to $23.3 million in the three months ended August 31, 1996 from $17.5 million in the three months ended August 31, 1995. System sales increased by 27.9% to $17.8 million in the three months ended August 31, 1996 from $13.9 million in the three months ended August 31, 1995. The increase in system sales was primarily due to an increase in unit sales volume. Service revenues increased by 50.5% to $5.5 million in the three months ended August 31, 1996 from $3.7 million in the three months ended August 31, 1995, primarily due to the addition of more units to the service base as well as an increase in installation revenues. Gross Profit. The Company's gross profit increased by $3.0 million, or 34.5%, to $11.9 million in the three months ended August 31, 1996 from $8.9 million in the three months ended August 31, 1995. Gross profit as a percentage of total revenues increased to 51.3% in the three months ended August 31, 1996 from 50.6% in the three months ended August 31, 1995. Gross profit on system sales increased by $2.3 million, or 30.1%, to $9.7 million in the three months ended August 31, 1996 from $7.5 million in the three months ended August 31, 1995. The gross margin on system sales increased to 54.8% in the three months ended August 31, 1996 from 53.9% in the three months ended August 31, 1995. The Company attributes this increase primarily to manufacturing and productivity efficiencies of scale resulting from increased sales volume during the period. Gross profit on service revenues increased by $0.8 million, or 58.3%, to $2.2 million in the three months ended August 31, 1996 from $1.4 million in the three months ended August 31, 1995. Gross margin on service revenues increased to 40.0% in the three months ended August 31, 1996 from 38.0% in the three months ended August 31, 1995. This increase was attributable to higher installation revenues and an increase in the service base. Selling, General and Administrative Expenses. Selling, General and Administrative ("SG&A") expenses were $6.2 million and $4.9 million for the three months ended August 31, 1996 and 1995, respectively, or 26.5% and 27.7% of total revenues, respectively. The increase in the dollar amount of SG&A expenses was primarily due to both the continued expansion of the Company's sales effort in domestic and international markets and to increases in SG&A expenses necessary to support the increased level of sales. SG&A expenses decreased as a percentage of total revenues due to the Company's ability to leverage certain fixed expenses over its growing revenue base. Research and Development Expenses. Research and Development ("R&D") expenses were $2.4 million and $1.6 million for the three months ended August 31, 1996 and 1995, respectively, or 10.4% and 9.2% of total revenues, respectively. The increase in the dollar amount of R&D expenses reflects the continued expansion of the Company's R&D staff which increased to 100 from 79 between August 31, 1995 and August 31, 1996. R&D expenses are charged to operations as incurred, and no software development costs have been capitalized. The Company expects the dollar amount of R&D expenditures to continue to increase, although such expenses as a percentage of total revenues will vary from period to period. Other Income (Expense). Other income was $0.4 and $0.1 million for the three months ended August 31, 1996 and 1995 respectively. Interest and other income increased to $0.3 million in the three months ended August 31, 1996 from $0.2 million in the three months ended August 31, 1995 primarily due to increased cash balances. The Company had a foreign exchange gain of $0.1 million for the three months ended August 31, 1996 compared to a foreign exchange loss of $0.1 million for the three months ended August 1995. To the extent the Company is unable to match revenue received in foreign currencies with expense paid in the same currency it is exposed to fluctuations on international currency transactions. Income Taxes. Variations in the customary relationship between the provision for income taxes and the statutory federal income tax rate primarily result from foreign subsidiaries' net operating losses which did not produce current tax benefits, the utilization of research and development tax credits and state and local income taxes. The Company's effective income tax rates were 39.0% and 41.0% for the three months ended August 31, 1996 and 1995, respectively. 13 Foreign Operations. The Company's European subsidiary operated at approximately a $0.4 million loss during the three months ended August 31, 1996 as compared to approximately break-even during the three months ended August 31, 1995. The increase in such losses was attributed to a decrease in the gross margin and increase in the dollar amount of SG&A expenses to support the expansion of the sales and marketing effort in the three months ended August 31, 1996. Transfers from the Company's North American operations to its European subsidiary are accounted for at cost, plus a reasonable profit. FISCAL YEARS ENDED MAY 31, 1995 AND 1996 Total Revenues. Total revenues increased by 37.1%, from $64.8 million in fiscal 1995 to $88.8 million in fiscal 1996. System sales increased by 38.8%, from $51.7 million in fiscal 1995 to $71.8 million in fiscal 1996. The increase in system sales was due to a 35.8% increase in domestic sales and a 44.5% increase in international sales and was in part related to the introduction of the VPS/is system, a new RISC and UNIX based product. The increase in system sales was primarily due to increases in unit sales volume. Service revenues increased by 30.5%, from $13.0 million in fiscal 1995 to $17.0 million in fiscal 1996, primarily due to the addition of units to the service base, as well as an increase in installation revenues. Gross Profit. The Company's gross profit increased by $12.3 million from $32.7 million in fiscal 1995 to $45.0 million in fiscal 1996. Gross profit as a percentage of total revenues increased from 50.5% in fiscal 1995 to 50.7% in fiscal 1996. Gross profit on system sales increased by $10.9 million, or 39.0%, from $28.1 million in fiscal 1995 to $39.0 million in fiscal 1996. Gross margin on system sales increased from 54.2% in fiscal 1995 to 54.3% in fiscal 1996. Gross profit on service revenues increased by $1.4 million, or 30.2%, from $4.6 million in fiscal 1995 to $6.0 million in fiscal 1996. Gross margin on service revenues was 35.6% in both fiscal 1995 and fiscal 1996. Selling, General and Administrative Expenses. SG&A expenses were $18.7 million and $22.6 million for fiscal 1995 and 1996, respectively, or 28.9% and 25.4% of total revenues, respectively. The increase in the dollar amount of the SG&A expenses was primarily due to expansion of the sales effort in both domestic and international markets, increased sales commissions due to the significant increase in revenues and increases in expenses to support the increased level of sales. SG&A expenses decreased as a percentage of total revenues due to the Company's ability to leverage certain fixed expenses over its growing revenue base. Research and Development Expenses. R&D expenses were $5.8 million and $7.9 million for fiscal 1995 and 1996, respectively, or 9.0% and 8.9% of total revenues, respectively. The increase in the dollar amount of research and development expense reflects the continued expansion of the Company's R&D staff which increased from 69 to 101 between May 31, 1995 and 1996. Non-recurring Noncash Stock Option Compensation Expense. On February 1, 1995, the Company accelerated the vesting on all outstanding stock options under its 1986 Incentive Stock Option Plan ("the 1986 Plan"), thereby allowing all such options to be fully vested at such date. The Company also relinquished its right to repurchase shares obtained by employees under the 1986 Plan. As a result, the Company recorded a non-recurring noncash compensation charge of approximately $1.25 million, equal to the difference between the formula price as of February 1, 1995 (which was calculated utilizing a formula based upon the book value of the Company's Common Stock) of all outstanding stock options issued subsequent to January 28, 1988 and their estimated value on February 1, 1995 (based upon the initial public offering price of the Company's Common Stock). Other Income (Expense). Other income was $0.5 million for fiscal 1996 as compared to other expense of $0.7 million in fiscal 1995. Interest expense decreased from $1.0 million in fiscal 1995 to $0.0 in fiscal 1996, due to the elimination of debt by the use of proceeds from the Company's initial public offering. Interest income was $0.2 million and $0.9 million in fiscal 1995 and fiscal 1996. Foreign exchange gain (loss) decreased from a gain of $0.1 million in fiscal 1995 to a loss of $0.4 million in fiscal 1996. Income Taxes. Variations in the customary relationship between the provision for income taxes and the statutory income tax rate primarily result from foreign subsidiaries' net operating losses which did not produce current tax benefits, the utilization of research and development tax credits and state and local 14 income taxes. The Company's effective income tax rates were 48.1% and 38.8% for fiscal 1995 and fiscal 1996, respectively. Excluding the effect of the non-recurring noncash compensation charge the effective income tax rate for fiscal 1995 would have been 40.0%. Foreign Operations. The Company's European subsidiary had an operating profit of $0.8 million during fiscal 1996 as compared to an operating loss of $0.2 million during fiscal 1995. The increase in profitability was primarily due to an increase in the gross margin on increased system sales. Transfers from the Company's North American operations to its European subsidiary are accounted for at cost, plus a reasonable profit. The cost of revenues for the Company's European subsidiary includes approximately $0.9 million and $0.6 million of intercompany gross profit earned by the Company's North American operations on system sales by the European subsidiary to third parties during fiscal 1995 and fiscal 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's principal cash requirement to date has been to fund working capital and capital expenditures in order to support the growth in revenues. Historically, the Company has primarily financed this requirement through cash flow from operations, bank borrowings and two public offerings of the Company's Common Stock in 1995, which resulted in an aggregate of $41,100,000 of net proceeds to the Company. Cash flow from operations was $2.4 million for the three months ended August 31, 1996 and $9.6 million for the year ended May 31, 1996. At August 31, 1996, the Company had working capital of $50.1 million, including $28.4 million of cash and cash equivalents and short-term investments. The average days sales outstanding (calculated by dividing the net accounts receivable at the balance sheet date for each period by the average sales per day during the quarter immediately preceding the balance sheet date) were approximately 93 days and 83 days at August 31, 1996 and May 31, 1996, respectively. The Company attributes the increase in days' sales outstanding primarily to increased sales to government agencies which generally have longer payment cycles. To the extent the Company's sales mix continues to shift towards government agencies, the average day's sales outstanding is expected to increase. The Company's inventory as of August 31, 1996 and May 31, 1996 was $13.1 million and $11.1 million respectively. The increase in inventory from May 31, 1996 to August 31, 1996 reflects an investment by the Company to support future sales growth. In January 1995, the Company increased its line of credit to $8.0 million with interest charged at the prime rate plus 0.25%. The line of credit expires on November 30, 1996. As of August 31, 1996, the Company had no borrowings under this line of credit. The Company is presently negotiating to increase, extend and restructure the line of credit to a revolving line of credit, with a term loan option. The Company made capital expenditures totaling $1.5 million and $0.7 million during the three months ended August 31, 1996 and 1995, respectively. The Company expects that its capital expenditures in the current fiscal year for facilities expansion, possible technology licenses and acquisitions, and additional computer equipment utilized for development and testing of the Company's products, will be substantially greater than its capital expenditures in the prior several years. The Company believes that its existing sources of working capital and borrowings available under its revolving line of credit will be sufficient to fund its operations and capital expenditures for at least 12 months. 15 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of the date of this Prospectus, as adjusted to reflect the 2-for-1 stock dividend to be paid on October 31, 1996, and the sale of the shares of Common Stock offered hereby, by (i) each person who is known to the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) each of the Company's Named Executives, (iii) each of the selling stockholders and (iv) all Executive Officers and Directors of the Company as a group.
Shares Beneficially Shares Beneficially Name and Address of Beneficial Owned Prior to Shares To Be Sold Owned After Owner (1) (2) Offering (2) In Offering (3) Offering (3) ----------------------------------------- ------------------------ ----------------- ------------------------ Number Percent Number Percent ----------- --------- ----------------- ----------- --------- Peter J. Cohen (4) ...................... 916,490 6.7% 296,962 619,528 4.5% George W. Cole .......................... 550,750 4.0% 178,454 372,296 2.7% Richard A. Daniels (4) .................. 780,228 5.7% 252,808 527,420 3.9% Terence Meehan .......................... 367,166 2.7% 118,968 248,198 1.8% Kevin J. O'Brien ........................ 367,166 2.7% 118,968 248,198 1.8% Jayandra Patel .......................... 413,060 3.0% 133,840 279,220 2.0% Edward Blum (5) ......................... 6,250 * -- 6,250 * Peter Breitstone (5) .................... 6,250 * -- 6,250 * GeoCapital Corporation (1) .............. 869,400 6.4% -- 869,400 6.4% OppenheimerFunds, Inc. (1) .............. 740,800 5.4% -- 740,800 5.4% All Executive Officers and Directors as a group (nine persons) (5)(6) .................. 3,535,360 25.9% 1,100,000 2,435,360 17.9%
- ------ * Less than 1% (1) Unless otherwise indicated, all addresses are care of Periphonics Corporation, 4000 Veterans Memorial Highway, Bohemia, New York 11716. GeoCapital Corporation's address is 767 Fifth Avenue, New York, New York 10153. OppenheimerFunds, Inc.'s address is Two World Trade Center, New York, New York 10048. Information with respect to GeoCapital Corporation and OppenheimerFunds, Inc. is based on the Schedule 13-G filing made by such companies as of June 30, 1996. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date of this Prospectus have been exercised. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (3) Assumes no exercise of the over-allotment option. The Selling Stockholders have granted the Underwriters a 30-day option to purchase up to 165,000 shares of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, Messrs. Cohen, Cole, Daniels, Meehan, O'Brien and Patel will sell an additional 44,542, 26,768, 37,922, 17,846, 17,846 and 20,076 shares of Common Stock, respectively, and their percentage of beneficial ownership after the offering will be 4.2%, 2.5%, 3.6%, 1.7%, 1.7% and 1.9%, respectively. (4) Of the shares beneficially owned by Mr. Cohen, 821,398 are held of record in a Grantor Retained Annuity Trust for the benefit of Mr. Cohen's children, of which Mr. Cohen is a co-trustee and retains voting and dispositive power with respect to the shares. All the shares being sold by Mr. Cohen are held of record in the Peter J. Cohen Grantor Trust. All 780,228 shares beneficially owned by Mr. Daniels are held of record in the Richard A. Daniels Grantor Retained Annuity Trust for the benefit of Mr. Daniels' children of which Mr. Daniels is the sole trustee. (5) Does not include options to purchase 37,500 shares of Common Stock not exercisable within 60 days. (6) Includes 120,500 shares subject to options exercisable within 60 days of this Prospectus. 16 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 15,000,000 shares of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01 per share. As of October 23, 1996, there were 13,625,132 shares of Common Stock (reflecting the 2-for-1 stock split in the form of a stock dividend payable on October 31, 1996) issued and outstanding held of record by 139 stockholders, and no shares of Preferred Stock are currently outstanding. As of October 23, 1996, there were outstanding options to purchase an additional 723,032 shares of the Company's Common Stock. At the Company's annual meeting on November 8, 1996 the shareholders will vote on a proposal to increase the authorized Common Stock to 30,000,000 shares. COMMON STOCK Holders of shares of Common Stock are entitled to one vote for each share held of record on matters to be voted on by the stockholders of the Company. Holders of shares of Common Stock will be entitled to receive dividends, subject to the superior rights of Preferred Stockholders, if any, when, as and if declared by the Board of Directors. The Company currently intends to retain all future earnings for use in the operation of its business and, therefore, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. Upon the dissolution, liquidation or sale of substantially all of the assets of the Company, after payment in full of all amounts required to be paid to creditors and subject to the rights, if any, of the holders of any Preferred Stock, the holders of the Common Stock are entitled to share ratably in the assets of the Company legally available for distribution to its stockholders. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. All of the issued and outstanding shares of Common Stock are, and all shares of Common Stock to be sold in this offering will be, duly authorized, validly issued, fully paid and non-assessable. PREFERRED STOCK The Company's Board of Directors may without further action by the Company's stockholders, from time to time, direct the issuance of shares of Preferred Stock in series and may, at the time of issuance, determine the rights, preferences and limitation of each series. The holders of Preferred Stock would normally be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of Common Stock. The ability of the Company's Board of Directors to issue Preferred Stock may delay or prevent a takeover or change in control of the Company. To the extent that this ability has this effect, removal of the Company's incumbent Board of Directors and management may be rendered more difficult. Further, this may have an adverse impact on the ability of stockholders of the Company to participate in a tender or exchange offer for the Common Stock and in so doing diminish the market value of the Common Stock. RIGHTS PLAN On July 15, 1996, the Board of Directors of the Company approved a Rights Plan designed to protect stockholders in the event of an unsolicited attempt to acquire the Company, including a gradual accumulation of shares in the open market, a partial or two-tier tender offer that does not treat all stockholders equally, and other takeover tactics which the Board of Directors believes may be abusive and not in the best interests of stockholders. The implementation of the Rights Plan increases the Board of Director's power in the event of an unsolicited proposal by giving the Board of Directors more time and the opportunity to evaluate an offer and exercise its good faith business judgment to take appropriate steps to protect and advance stockholder interests by negotiating with the bidder, auctioning the Company, implementing a recapitalization or restructuring designed as an alternative to the offer, or taking other action. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Amended and Restated Certificate of Incorporation (the "Certificate") provides that a director shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except: (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law; (iii) for liability under Section 174 of the Delaware General Corporation Law (relating to certain unlawful dividends, stock repurchases or stock redemptions); or (iv) for any transaction 17 from which the director derived any improper personal benefit. The effect of this provision in the Certificate is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in certain limited situations. This provision does not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. These provisions will not alter the liability of Directors under federal securities laws. The Company's By-Laws provide that the Company shall indemnify each Director and such of the Company's officers, employees and agents as the Board of Directors shall determine from time to time to the fullest extent provided by the laws of the State of Delaware. The Company carries insurance providing indemnification, under certain circumstances, to all of its directors and officers for claims against them by reason of, among other things, any act or failure to act in their capacities as directors or officers. No sums have been paid to any past or present director or officer under this or any prior indemnification insurance policy. The Company has also entered into Indemnity agreements with all of its directors and executive officers. The Indemnity Agreements provide for indemnification of the Company's directors and executive officers to the fullest extent permitted by the provisions of the General Corporation Law of the State of Delaware. The Indemnity Agreements also provide that the Company will pay any costs which an indemnitee actually and reasonably incurs because of any claims made against him by reason of the fact that he is or was a director or officer of the Company, except that the Company is not obligated to make any payment which the Company is prohibited by law from paying as indemnity, or where (a) a final determination is rendered on a claim based upon the indemnitee's obtaining a personal profit or advantage to which he was not legally entitled; (b) a final determination is rendered on the claim for an accounting of profits made in connection with a violation of Section 16(b) of the Securities Exchange Act of 1934, or similar state or common law provisions; (c) a claim where the indemnitee was adjudged to be deliberately dishonest; or (d) a final determination is rendered that indemnification is not lawful. Insofar as indemnification for liabilities arising under the Act may be permitted to Directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer and Trust Company. 18 UNDERWRITING The Company and the Selling Stockholders have entered into an Underwriting Agreement (the "Underwriting Agreement") with William Blair & Company, L.L.C. and Dain Bosworth Incorporated (the "Underwriters"). Subject to the terms and conditions set forth in the Underwriting Agreement, the Selling Stockholders have agreed to sell to each of the Underwriters, and each of the Underwriters has severally agreed to purchase from the Selling Stockholders, the number of shares of Common Stock set forth opposite each Underwriter's name in the table below: Number of Underwriters Shares ----------------------------------- ------------- William Blair & Company, L.L.C. ... Dain Bosworth Incorporated ........ ------------- Total ........................ 1,100,000 ============= In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Common Stock being sold pursuant to the Underwriting Agreement if any of the Common Stock being sold pursuant to the Underwriting Agreement (excluding shares covered by the over-allotment option granted therein) is purchased. In the event of a default by any Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-default Underwriters shall be increased or the Underwriting Agreement may be terminated. The Underwriters have advised the Selling Stockholders that they propose to offer the shares of Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of not more than $ per share. Additionally, the Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the shares are released for sale to the public, the public offering price and other selling terms may be changed by the Underwriters. The Selling Stockholders have granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to 165,000 shares of Common Stock at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The Underwriters may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the Common Stock offered hereby. The additional shares purchased pursuant to this option shall be allocated among each of the Selling Stockholders in proportion to their total commitments to provide shares for this option. The Company and the Selling Stockholders have agreed that they will not sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the written consent of the Underwriters, except for the Common Stock offered hereby. In general, the rules of the Commission will prohibit the Underwriters from making a market in the Company's Common Stock during the "cooling off" period immediately preceding the commencement of sales in this offering. The Commission has, however, adopted exemptions from these rules that permit passive market making under certain conditions. These rules permit an underwriter to continue to make a market subject to the conditions, among others, that its bid not exceed the highest bid by a market maker not connected with the offering and that its net purchases on any one trading day not exceed prescribed limits. Pursuant to these exemptions, certain Underwriters, selling group members (if any) or their respective affiliates intend to engage in passive market making in the Company's Common Stock during the cooling off period. The Company and the Selling Stockholders have agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. 19 LEGAL MATTERS The validity and issuance of the Common Stock offered hereby will be passed upon for the Company and the Selling Stockholders by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New York. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. As of the date of this Prospectus, certain members of Ruskin, Moscou, Evans & Faltischek, P.C., and members of their immediate family own, in the aggregate, approximately 15,200 shares of the Company's Common Stock. EXPERTS The financial statements and related financial statement schedules incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended May 31, 1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and has been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C. a Registration Statement on Form S-3 under the Act, with respect to the Common Stock offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and such exhibits and schedules. Statements in the Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement and the exhibits and schedules thereto may be inspected by anyone without charge at the principal office of the Commission at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and copies of all or any part of it may be obtained from the Commission upon payment of a prescribed fee. The Registration Statement, including the exhibits and schedules thereto, can also be accessed through the EDGAR terminals in the Commission's Public Interest Rooms in Washington, Chicago and New York or through the World Wide Web at http://www.sec.gov. The Company is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith, files reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 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 Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street NW, Washington, D.C. 20549. The Company's Common Stock is quoted on the NASDAQ Stock Market and reports and other information concerning the Company may also be inspected and copies at the office of the NASDAQ Stock Market, Inc., 8513 Key West Avenue, Rockville, Maryland 20850. The Company furnishes Annual Reports to the holders of its securities which contain financial information which has been examined and reported upon, with an opinion expressed by, its independent certified public accountants. 20 No dealer, sales representative or other person has been authorized to give any information or to make any representation in connection with this offering other than those contained in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company or any Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy Common Stock by anyone in any jurisdiction in which such an offer or solicitation is not authorized, or in which the persons making such an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstance, create any implication that the information contained herein is correct as of any date subsequent to its date. ------ TABLE OF CONTENTS Page -------- Documents Incorporated by Reference ....... 2 Prospectus Summary ........................ 3 Risk Factors .............................. 5 The Company ............................... 9 Use of Proceeds ........................... 10 Price Range of Common Stock ............... 10 Dividend Policy ........................... 10 Selected Consolidated Financial Data ...... 11 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................... 13 Principal and Selling Stockholders ........ 16 Description of Capital Stock .............. 17 Underwriting .............................. 19 Legal Matters ............................. 20 Experts ................................... 20 Additional Information .................... 20 1,100,000 SHARES LOGO COMMON STOCK ------ PROSPECTUS , 1996 ------ WILLIAM BLAIR & COMPANY DAIN BOSWORTH Incorporated PART II INFORMATION NOT REQUIRED IN PROSPECTUS OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses payable in connection with the sale and distribution of the securities being registered, all of which will be paid by the Selling Stockholders. Total ------------- SEC Registration Fee ..................... $ 6,589.50 NASD Filing Fee .......................... 2,674.54 Printing and Engraving Expenses .......... 50,000.00 Legal Fees and Expenses .................. 115,000.00 Accounting Fees and Expenses ............. 40,000.00 Miscellaneous ............................ 60,735.96 ----------- Total .................................. $275,000.00 =========== INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law empowers a corporation to indemnify its Directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as Directors and officers provided that this provision shall not eliminate or limit the liability of a Director (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. The Delaware General Corporation Law provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the Directors and officers may be entitled under the Company' By-Laws, any agreement, vote of shareholders or otherwise. The Company's Amended and Restated Certificate of Incorporation eliminates the personal liability of Directors and officers to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law. The effect of the foregoing is to require the Company to indemnify its officers and Directors for any claim arising against such persons in their official capacities if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. The Company carries insurance providing indemnification, under certain circumstances, to all of its directors and officers for claims against them by reason of, among other things, any act or failure to act in their capacities as directors or officers. No sums have been paid to any past or present director or officer of the Company under this or any prior indemnification insurance policy. The Company has also entered into Indemnity Agreements with all of its directors and executive officers. The Indemnity Agreements provide for indemnification of the Company's directors and executive officers to the fullest extent permitted by the provisions of the General Corporation Law of the State of Delaware. The Indemnity Agreements also provide that the Company will pay any costs which an indemnitee actually and reasonably incurs because of any claims made against him by reason of the fact that he is or was a director or officer of the Company, except that the Company is not obligated to make any pay- II-1 ment which the Company is prohibited by law from paying as indemnity, or where (a) a final determination is rendered on a claim based upon the indemnitee's obtaining a personal profit or advantage to which he was not legally entitled; (b) a final determination is rendered on a claim for an accounting of profits made in connection with a violation of Section 16(b) of the Securities Exchange Act of 1934, or similar state or common law provisions; (c) a claim where the indemnitee was adjudged to be deliberately dishonest; or (d) a final determination is rendered that indemnification is not lawful. Insofar as indemnification for liabilities arising under the Act may be permitted to Directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
1.1 Proposed Form of Underwriting Agreement 5.1* Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C. 23.1 Consent of Deloitte & Touche LLP, Independent Auditors 23.2* Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1) 25.1 Power of Attorney (included on signature page)
- ------ *To be filed by amendment. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the 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 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 Act and will be governed by the final adjudication of such issues. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and continued in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(b) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-2 (2) For the purpose of determining any liability under the Act each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in Bohemia, New York, on October 25, 1996 PERIPHONICS CORPORATION By: /s/ Peter J. Cohen ------------------------------- Peter J. Cohen, President Dated: October 25, 1996 Pursuant to the requirements of the Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes each of Peter J. Cohen and Kevin J. O'Brien with full power of substitution to execute in the name of such person and to file any amendment or post effective amendment to this Registration Statement (or any Registration Statement filed pursuant to Rule 462) making such changes in this Registration Statement as the Registrant deems appropriate and appoints each of Peter J. Cohen and Kevin J. O'Brien with full power of substitution, attorney-in-fact to sign and to file any amendment and post- effective amendment to this Registration Statement.
Signature Title Date ------------------------ ----------------------------------------- ------------------- /s/ Peter J. Cohen Chairman of the Board, President and October 25, 1996 ----------------------- Chief Executive Officer (Principal Peter J. Cohen Operating Officer) /s/Richard A. Daniels Senior Vice President-Sales, Treasurer October 25, 1996 ----------------------- and Director Richard A. Daniels /s/ Kevin J. O'Brien Chief Financial Officer, Vice ----------------------- President-Finance and Administration October 25, 1996 Kevin J. O'Brien (Principal Accounting Officer), Secretary and Director /s/ Jayandra Patel Senior Vice President-Product October 25, 1996 ----------------------- Development, Assistant Treasurer Jayandra Patel and Director /s/ Peter Breitstone Director October 25, 1996 ----------------------- Peter Breitstone /s/ Edward H. Blum Director October 25, 1996 ----------------------- Edward H. Blum
II-4 EXHIBIT INDEX
Exhibit No. Description Page ----------- -------------------------------------------------------------------------------- -------- 1.1 Proposed Form of Underwriting Agreement 5.1* Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C. 23.1 Consent of Deloitte & Touche LLP, Independent Auditors 23.2* Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1) 25.1 Power of Attorney (included on signature page)
- ------ *To be filed by amendment. EX-1 2 EXHIBIT 1.1 Draft 10/24/96 PERIPHONICS CORPORATION 1,100,000 Shares Common Stock1 UNDERWRITING AGREEMENT _________, 199_ William Blair & Company, L.L.C. Dain Bosworth Incorporated As Representatives of the Several Underwriters Named in Schedule A 222 West Adams Street Chicago, Illinois 60606 Ladies and Gentlemen: SECTION 1. Introductory. Periphonics Corporation ("Company"), a Delaware corporation, has an authorized capital stock consisting of 1,000,000 shares, $.01 par value, of Preferred Stock ("Preferred Stock"), none of which were outstanding as of______________, 1996, and 15,000,000 shares, $.01 par value, of Common Stock ("Common Stock"), of which ___________ shares were outstanding as of such date. Certain stockholders of the Company, acting severally and not jointly (collectively referred to as the "Selling Stockholders" and named in Schedule B) propose to sell 1,100,000 shares of the Company's issued and outstanding Common Stock hereinafter refereed to as the "Firm Shares" to the several underwriters named in Schedule A as it may be amended by the Pricing Agreement hereinafter defined ("Underwriters"), who are acting severally and not jointly. In addition, the Selling Stockholders propose to grant to the Underwriters an option to purchase up to 165,000 additional shares of Common Stock ("Option Shares") as provided in Section 5 hereof. The Firm Shares and, to the extent such option is exercised, the Option Shares are hereinafter collectively referred to as the "Shares." You have advised the Selling Stockholders that the Underwriters propose to make a public offering of their respective portions of the Shares as soon as you deem advisable after the registration statement hereinafter referred to becomes effective, if it has not yet become effective, and the Pricing Agreement hereinafter defined has been executed and delivered. - -------- 1 Plus an option to acquire up to 165,000 additional shares to cover overallotments. Prior to the purchase and public offering of the Shares by the several Underwriters, the Company, the Selling Stockholders and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company, the Selling Stockholders and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company and each of the Selling Stockholders hereby confirm their agreements with the Underwriters as follows: SECTION 2. Representations and Warranties of the Company. The Company represents and warrants to the several Underwriters that: (a) A registration statement on Form S-3 (File No. 333-______) and a related preliminary prospectus with respect to the Shares have been prepared and filed with the Securities and Exchange Commission ("Commission") by the Company in conformity with the requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "1933 Act;" all references herein to specific rules are rules promulgated under the 1933 Act); and the Company has so prepared and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof. If the Company has elected not to rely upon Rule 430A, the Company has prepared and will promptly file an amendment to the registration statement and an amended prospectus. If the Company has elected to rely upon Rule 430A, it will prepare and file either (i) a prospectus pursuant to Rule 424(b) that discloses the information previously omitted from the prospectus in reliance upon Rule 430A or (ii) a term sheet or abbreviated term sheet (the "Term Sheet") as described in and pursuant to Rules 434 and 424(b) that supplements the preliminary prospectus included in the Registration Statement at the time it becomes effective omitting information in reliance upon Rule 430A (the "Preliminary Prospectus"). There have been or will promptly be delivered to you three signed copies of such registration statement and amendments, together with three copies of all documents incorporated by reference therein, three copies of each exhibit filed therewith, and conformed copies of such registration statement and amendments (but without exhibits) and of the related preliminary prospectus or prospectuses and final forms of prospectus or the Term Sheet and Preliminary Prospectus for each of the Underwriters each to be, to the extent applicable, identical to the electronically transmitted copies filed with the Commission pursuant to the Commission's Electronic Data Gathering Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. The registration statement and prospectus as amended on file with the Commission at the time the registration statement became or becomes effective, including (i) the information deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A(b) and (ii) a registration statement, if any, filed pursuant to Rule 462(b) relating to the Shares, if applicable, are hereinafter called the "Registration Statement" and the "Prospectus," respectively, except that if the prospectus filed by the Company pursuant to Rule 424(b) differs from the prospectus on file at the time the Registration Statement became or becomes effective, the term "Prospectus" shall refer to the Rule 424(b) prospectus from and after the time it is filed with the Commission or transmitted to the Commission for filing. For purpose of this Agreement, all references to the Registration Statement and the Prospectus, or any amendment or supplement to the foregoing shall be deemed to include the respective copies filed with the Commission pursuant to EDGAR. Any reference herein to any preliminary prospectus or the Prospectus shall be deemed to include the documents incorporated by reference therein pursuant to Form S-3 under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder(hereinafter collectively referred to as the "Exchange Act.") ("Incorporated Document"), as of the date of such preliminary prospectus or Prospectus, as the case may be. Any document filed by the Company under the Exchange Act after the effective date of the Registration Statement or the date of the Prospectus and incorporated by reference in the Prospectus shall be deemed to be included in the Registration Statement and the Prospectus as of the date of such filing. The Incorporated Documents heretofore filed, when they were filed with the Commission, conformed in all material respects to the requirement of the Exchange Act and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act and none of such documents will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (b) The Commission has not issued any order preventing or suspending the use of any preliminary prospectus, and each preliminary prospectus has conformed in all material respects with the requirements of the 1933 Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and when the Registration Statement became or becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable, and the Prospectus and any amendments or supplements thereto, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from any preliminary prospectus, the Registration Statement, the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use in the preparation thereof. (c) The Company and its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective places of incorporation, with corporate power and authority to own their properties and conduct their business as described in the Prospectus; the Company and each of its subsidiaries are duly qualified to do business as foreign corporations under the corporation law of, and are in good standing as such in, each jurisdiction in which they own or lease substantial properties, have an office, or in which substantial business is conducted and such qualification is required except in any such case where the failure to so qualify or be in good standing would not have a material adverse effect upon the Company and its subsidiaries, taken as a whole; and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (d) Except as disclosed in the Registration Statement and with respect to director qualifying shares owned by third parties for the benefit of the Company, the Company owns directly or indirectly 100 percent of the issued and outstanding capital stock of each of its subsidiaries, free and clear of any claims, liens, encumbrances or security interests, and all of such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. (e) The issued and outstanding shares of capital stock of the Company as set forth in the Prospectus have been duly authorized and validly issued, are fully paid and nonassessable, and conform to the description thereof contained in the Prospectus. Since March 30, 1986, all offers and sales of the Company's capital stock were at all relevant times exempt from the registration requirements of, or registered under, the 1933 Act and were duly registered with or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws. (f) The making and performance by the Company of this Agreement and the Pricing Agreement have been duly authorized by all necessary corporate action and will not violate any provision of the Company's charter or bylaws and will not result in the breach, or be in contravention, of any provision of any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company or any subsidiary is a party or by which the Company, any subsidiary or the property of any of them may be bound or affected, or any order, rule or regulation applicable to the Company or any subsidiary of any court or regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any subsidiary or any of their respective properties, or any order of any court or governmental agency or authority entered in any proceeding to which the Company or any subsidiary was or is now a party or by which it is bound. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the Pricing Agreement or the consummation of the transactions contemplated herein or therein, except for compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and clearance of such offering with the National Association of Securities Dealers, Inc. ("NASD"). This Agreement has been duly executed and delivered by the Company. (g) The accountants who have expressed their opinions with respect to certain of the financial statements included or incorporated by reference in the Registration Statement are independent accountants within the meaning of the 1933 Act. (h) The consolidated financial statements of the Company included or incorporated by reference in the Registration Statement present fairly the consolidated financial position of the Company as of the respective dates of such financial statements, and the consolidated results of operations and cash flows of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed in the Prospectus. The financial information set forth in the Prospectus under "Selected Consolidated Financial Data" presents fairly on the basis stated in the Prospectus, the information set forth therein. (i) Neither the Company nor any subsidiary is in violation of its charter or in default under any consent decree, or in default with respect to any provision of any lease, loan agreement, franchise, license, permit or other contract obligation to which it is a party, in each case, except for defaults which singly or in the aggregate are not material to the Company and its subsidiaries taken as a whole; and there does not exist any state of facts which constitutes an event of default in such documents or which, with notice or lapse of time or both, would constitute such an event of default, in each case, except for defaults which neither singly nor in the aggregate are material to the Company and its subsidiaries taken as a whole. (j) There are no material legal or governmental proceedings pending, or to the Company's knowledge, threatened to which the Company or any subsidiary is or may be a party or of which material property owned or leased by the Company or any subsidiary is or may be the subject, or related to environmental or employment discrimination matters which are not disclosed in the Prospectus, or which question the validity of this Agreement or the Pricing Agreement or any action taken or to be taken pursuant hereto or thereto. (k) No preemptive rights of, or rights of first refusal in favor of, stockholders exist with respect to any of the Shares or the issue and sale thereof pursuant to applicable law, the charter or by-laws of the Company, or otherwise, which have not been waived or otherwise satisfied. No person or entity, other than the Selling Stockholders with respect to the Shares to be sold by them hereunder, holds a right to require or participate in the registration under the 1933 Act of shares of Common Stock of the Company, which right has not been waived by the holder thereof or expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement, as of the date hereof with respect to the registration of shares pursuant to the Registration Statement; and except as described in the Prospectus, no person holds a right to require registration under the 1933 Act of shares of Common Stock of the Company at any other time. No person or entity has a contractual preemptive right or right of participation or first refusal with respect to the sale of the Shares by, to the best of the Company's knowledge, the Selling Stockholders. (l) The Company and each of its subsidiaries have good and valid title to all the properties and assets reflected as owned in the financial statements hereinabove described (or elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such financial statements (or elsewhere in the Prospectus) or which are not material to the Company and its subsidiaries taken as a whole. The Company and each of its subsidiaries hold their respective leased properties which are material to the Company and its subsidiaries taken as a whole under valid and binding leases. (m) The Company has not taken and will not take, directly or indirectly, any action designed to constitute or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (n) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as contemplated by the Prospectus, the Company and its subsidiaries, taken as a whole, have not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in their condition (financial or otherwise) or results of operations nor any material change in their capital stock, short-term debt or long-term debt. (o) The Company agrees not to offer, sell, contract to sell, issue, grant, distribute or otherwise dispose of, directly or indirectly, any Common Stock, or any options, rights or warrants with respect to shares of Common Stock, or securities convertible into Common Stock (except Common Stock issued pursuant to the existing employee stock purchase plan, currently outstanding options, warrants or convertible securities or options granted to employees pursuant to the Company's stock option plans described in the Prospectus) for a period of 180 days after this Agreement becomes effective without the prior written consent of the Representatives. The Company has obtained similar agreements for a period of 180 days from each of its officers and directors and the Selling Stockholders. (p) There is no material document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (q) The Company together with its subsidiaries owns, or possesses adequate licenses or other rights to use, all patents, patent rights, inventions, trade secrets, know-how, proprietary techniques, including processes and substances, trademarks, service marks, trade names and copyrights ("Intellectual Property") necessary for the conduct of its business as currently conducted or as specifically contemplated by the Prospectus, including the Intellectual Property described or specifically contemplated by the Prospectus as being owned or used by it. Except as disclosed in the Prospectus, to the knowledge of the Company, none of the activities engaged in by the Company or any of its subsidiaries infringes or conflicts with the Intellectual Property rights of others. No officer, and to the knowledge of the Company, no employee, is obligated under any contract, or subject to any judgment, decree or order of any court or administrative agency that would interfere in any material respect with the use of such person's best efforts to promote the interests of the Company or any of its subsidiaries or which would conflict in any material respect with the Company's or such subsidiary's business as described in the Prospectus. To the knowledge of the Company, no prior employer of any employee of the Company or any subsidiary has any right to or interest in any ideas, inventions, works of authorship, improvements, and the like assigned by such employee to the Company or any subsidiary. Each present employee of and consultant or technical advisor to the Company, and to the knowledge of the Company each past employee of and consultant or technical advisor to the Company, has assigned to the Company, to the maximum extent permitted by law, all right, title and interest in and to any inventions, technology, techniques, software, processes and systems developed by such person while employed or engaged by the Company, except where the failure to assign the same would not have a material adverse affect on the business or financial condition of the Company and its subsidiaries taken as a whole. (r) The conduct of business of the Company and each of its subsidiaries is in compliance in all respects with applicable federal, state, local and foreign laws and regulations, except where the failure to be in compliance would not have a material adverse effect upon the condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole. (s) The Company and its subsidiaries have filed on a timely basis all necessary income, franchise and other tax returns (in the United States or otherwise) and have paid all taxes shown thereon as due, except for failures to so file or pay which would not materially and adversely affect the Company and its subsidiaries taken as a whole, and the Company has no knowledge of any tax deficiency that has been or might be asserted against the Company or any subsidiary which would materially and adversely affect the business or financial condition of the Company and its subsidiaries taken as a whole; and all tax liabilities are adequately provided for on the books of the Company. (t) The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on the National Market of the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ/NM"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NASDAQ/NM, nor has the Company received any notification that the Commission or the NASD is contemplating terminating such registration or listing. (u) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (v) The conditions for use of Form S-3, as set forth in the General Instructions thereto, have been satisfied. SECTION 3. Representations, Warranties and Covenants of the Selling Stockholders. (a) Each Selling Stockholder severally represents and warrants to, and agrees with, the Company and the Underwriters that: (i) Such Selling Stockholder has, and on the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, will have, good and valid title to the Shares proposed to be sold by such Selling Stockholder hereunder on such date and full right and power to enter into this Agreement, the Pricing Agreement, the Power of Attorney hereinafter defined and the Custody Agreement hereinafter defined and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights; and upon delivery of and payment for such Shares hereunder, the Underwriters will acquire good and valid title thereto, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights. (ii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which might be reasonably expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (iii) Such Selling Stockholder has executed and delivered a Power of Attorney ("Power of Attorney") among the Selling Stockholder and Peter J. Cohen, Kevin J. O'Brien, Richard A. Daniels and Jayandra Patel (the "Agents"), naming the Agents as such Selling Stockholder's attorneys-in-fact (and, by the execution by any Agent of this Agreement, such Agents hereby represents and warrants that he has been duly appointed as attorney-in-fact by the Selling Stockholders pursuant to the Power of Attorney) for the purpose of entering into and carrying out this Agreement and the Pricing Agreement, and the Power of Attorney has been duly executed by such Selling Stockholder and a copy thereof has been delivered to you. (iv) Such Selling Stockholder further represents, warrants and agrees that such Selling Stockholder has deposited in custody, under a Custody Agreement ("Custody Agreement") with Ruskin, Moscou, Evans & Faltischek, P.C. as custodian ("Custodian"), certificates in negotiable form, or convertible into or exchangeable, for the Shares to be sold hereunder by such Selling Stockholder, for the purpose of further delivery pursuant to this Agreement. Such Selling Stockholder agrees that the Shares to be sold by such Selling Stockholder on deposit with the Custodian are subject to the interests of the Company, the Underwriters and the other Selling Stockholder, that the arrangements made for such custody, and the appointment of the Agent pursuant to the Power of Attorney, are to that extent irrevocable and coupled with an interest, and that the obligations of such Selling Stockholder hereunder and under the Power of Attorney and the Custody Agreement shall not be terminated (except as provided in this Agreement, the Power of Attorney or the Custody Agreement) by any act of such Selling Stockholder, by operation of law, whether, in the case of an individual Selling Stockholder, by the death or incapacity of such Selling Stockholder or, in the case of a trust or estate, by the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or, in the case of a partnership or corporation, by the dissolution, winding-up or other event affecting the legal life of such entity, or by the occurrence of any other event. If any individual Selling Stockholder, trustee or executor should die or become incapacitated, or any such trust, estate, partnership or corporation should be terminated, or if any other event should occur before the delivery of the Shares hereunder, the documents evidencing Shares then on deposit with the Custodian shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity, termination or other event had not occurred, regardless of whether or not the Custodian shall have received notice thereof. Each Agent has been authorized (under the terms of the Power of Attorney) by such Selling Stockholder to execute and deliver this Agreement and the Pricing Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be sold by such Selling Stockholder against delivery thereof and otherwise act on behalf of such Selling Stockholder. The Custody Agreement has been duly executed by such Selling Stockholder and a copy thereof has been delivered to you. (v) Each preliminary prospectus, insofar as it contains information related to such Selling Stockholder and, to the knowledge of such Selling Stockholder in all other respects, as of its date, has conformed in all material respects with the requirements of the 1933 Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, (1) the Registration Statement and the Prospectus and any amendments or supplements thereto insofar as they contain information related to such Selling Stockholder, and to the knowledge of such Selling Stockholder in all other respects, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act, and (2) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as it relates to such Selling Stockholder, and, to the knowledge of such Selling Stockholder in all other respects, included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that neither clause (1) nor (2) shall have any effect if information has been given by such Selling Stockholder to the Company and the Representatives in writing for purpose of inclusion therein which would eliminate or remedy any such untrue statement or omission. (vi) Such Selling Stockholder agrees with the Company and the Underwriters not to offer, sell, contract to sell, transfer or otherwise dispose of, directly or indirectly, any Common Stock or any options, rights or warrants with respect to shares of Common Stock, or securities convertible into Common Stock for a period of 180 days after this Agreement becomes effective without the prior written consent of the Representative (other than bona fide gifts to persons who have agreed to be bound by the foregoing restriction). (vii) Such Selling Stockholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, the Underwriters that, the representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct. (c) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Internal Revenue Code of 1986, as amended, with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or on the First Closing Date, as hereinafter defined, 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). SECTION 4. Representations and Warranties of the Underwriters. The Representatives, on behalf of the several Underwriters, represent and warrant to the Company and the Selling Stockholders that the information set forth (a) on the cover page of the Prospectus with respect to price, underwriting discount and terms of the offering and (b) under "Underwriting" in the Prospectus was furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement and is correct and complete in all material respects. SECTION 5. Purchase, Sale and Delivery of Shares. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Selling Stockholders listed on Schedule B hereto, severally and not jointly, agree to sell to the Underwriters named in Schedule A hereto, and the Underwriters agree, severally and not jointly, to purchase from the Selling Stockholders the respective number of Firm Shares set forth opposite the names of the Selling Stockholders in Schedule B hereto at the price per share set forth in the Pricing Agreement. The obligation of each Underwriter to each Selling Stockholder shall be to purchase from such Selling Stockholder the number of full shares which (as nearly as practicable, as determined by you) bears to that number of Firm Shares set forth opposite the name of such Selling Stockholder in Schedule B hereto, the same proportion as the number of Shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Shares to be purchased by all Underwriters under this Agreement. The initial public offering price and the purchase price shall be set forth in the Pricing Agreement. At 9:00 a.m., Chicago Time, on the third full business day after the date of this Agreement, the Custodian will deliver to you at the offices of counsel for the Underwriters or through the facilities of The Depository Trust Company for the accounts of the several Underwriters, certificates representing the Firm Shares to be sold by them, respectively, against payment of the purchase price therefor by certified or bank cashier's checks in Chicago Clearing House funds (next-day funds) payable, as appropriate, to the order of the Selling Stockholders. Such time of delivery and payment is herein referred to as the "First Closing Date." The certificates for the Firm Shares so to be delivered will be in such denominations and registered in such names as you request by notice to the Company and the Custodian prior to 10:00 a.m., Chicago Time, on the second full business day preceding the First Closing Date, and will be made available at the Selling Stockholders' expense for checking and packaging by the Representatives at 10:00 a.m., Chicago Time, on the first full business day preceding the First Closing Date. Payment for the Firm Shares so to be delivered shall be made at the time and in the manner described above at the offices of counsel for the Underwriters. In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Selling Stockholders listed on Schedule B, severally and not jointly, hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 165,000 Option Shares, at the same purchase price per share to be paid for the Firm Shares, for use solely in covering any overallotments made by the Underwriters in the sale and distributions of the Firm Shares. The option granted hereunder may be exercised at any time (but not more than once) within 30 days after the date of the initial public offering upon notice by you to the Company and the Agent setting forth the aggregate number of Option Shares as to which the Underwriters are exercising the option, the names and denominations in which the certificates for such shares are to be registered and the time and place at which such certificates will be delivered. Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the "Second Closing Date," shall be determined by you, but if at any time other than the First Closing Date, shall not be earlier than three nor later than 10 full business days after delivery of such notice of exercise. The number of Option Shares to be purchased from each such Selling Stockholder is set forth in Schedule B hereto. If less than all of the Option Shares are to be purchased, the number of Option Shares which are to be purchased from each Selling Stockholder shall be the product of (A) the aggregate number of Option Shares to be purchased by the Underwriters multiplied by (B) the fraction, the numerator of which is the number of Option Shares such Selling Stockholder has agreed to sell and the denominator of which is the maximum number of Option Shares. The number of Option Shares to be purchased by each Underwriter shall be determined by multiplying the number of Option Shares to be sold by the Selling Stockholders pursuant to such notice of exercise by a fraction, the numerator of which is the number of Firm Shares to be purchased by such Underwriter as set forth opposite its name in Schedule A and the denominator of which is the total number of Firm Shares (subject to such adjustments to eliminate any fractional share purchases as you in your absolute discretion may make). Certificates for the Option Shares will be made available at the Selling Stockholders' expense for checking and packaging at 10:00 a.m., Chicago Time, on the first full business day preceding the Second Closing Date. The manner of payment for and delivery of the Option Shares shall be the same as for the Firm Shares as specified in the preceding paragraph. You have advised the Selling Stockholders that each Underwriter has authorized you to accept delivery of its Shares, to make payment and to receipt therefor. You, individually and not as the Representatives of the Underwriters, may make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by you by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any obligation hereunder. SECTION 6. Covenants of the Company. The Company covenants and agrees that: (a) The Company will advise you and the Selling Stockholders promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, or of any notification of the suspension of qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for that purpose, and will also advise you and the Selling Stockholders promptly of any request of the Commission for amendment or supplement of the Registration Statement, of any preliminary prospectus or of the Prospectus, or for additional information, and will not file any amendment or supplement to the Registration Statement, to any preliminary prospectus or to the Prospectus of which you and the Selling Stockholders have not been furnished with a copy prior to such filing or to which you reasonably object. (b) If at any time when a prospectus relating to the Shares is required to be delivered under the 1933 Act any event occurs as a result of which the Prospectus, including any amendments or supplements, would include an untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus, including any amendments or supplements thereto and including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file with the Commission at the time of effectiveness of the Registration Statement, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) to comply with the 1933 Act, the Company promptly will advise you thereof and will promptly prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance; and, in case any Underwriter is required to deliver a prospectus nine months or more after the effective date of the Registration Statement, the Company upon request, but at the expense of such Underwriter, will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the 1933 Act. (c) Neither the Company nor any of its subsidiaries will, prior to the earlier of the Second Closing Date or termination or expiration of the related option, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated by the Prospectus. (d) Neither the Company nor any of its subsidiaries will acquire any capital stock of the Company prior to the earlier of the Second Closing Date or termination or expiration of the related option nor will the Company declare or pay any dividend or make any other distribution upon the Common Stock payable to stockholders of record on a date prior to the earlier of the Second Closing Date or termination or expiration of the related option, except in either case as contemplated by or discussed in the Prospectus. (e) Not later than __________, 1997 the Company will make generally available to its security holders an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Registration Statement, which will satisfy the provisions of the last paragraph of Section 11(a) of the 1933 Act. (f) During such period as a prospectus is required by law to be delivered in connection with offers and sales of the Shares by an Underwriter or dealer, the Company will furnish to you at its expense, subject to the provisions of subsection (b) hereof, copies of the Registration Statement, the Prospectus, each preliminary prospectus and all amendments and supplements to any such documents in each case as soon as available and in such quantities as you may reasonably request, for the purposes contemplated by the 1933 Act. To the extent applicable, the copies of the Registration Statement and each amendment thereto (including all exhibits filed therewith) and the Prospectus (as amended or supplemented) furnished to the Representative and counsel to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (g) The [Company] will cooperate with the Underwriters in qualifying or registering the Shares for sale under the blue sky laws of such jurisdictions as you designate, and will continue such qualifications in effect so long as reasonably required for the distribution of the Shares. The Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not currently qualified or where it would be subject to taxation as a foreign corporation. (h) During the period of five years hereafter, the Company will furnish you, on behalf of yourself and each of the other Underwriters, with a sufficient number of copies (i) as soon as practicable after the filing thereof, of each report filed by the Company with the Commission, any securities exchange or the NASD; (ii) as soon as practicable after release thereof, of each material press release in respect of the Company; (iii) as soon as available, of each report of the Company mailed to stockholders; and (iv) any additional information of a public nature concerning the Company or its business that you may reasonably request. To the extent applicable, such reports or documents shall be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (i) If, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430A, then immediately following the execution and delivery of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b), copies of an amended prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended prospectus), containing all information so omitted. (j) The Company will comply with all registration filing and reporting requirements of the Exchange Act and the NASDAQ/NM. (k) The Company is familiar with the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, and has in the past conducted its affairs, and will for the next three years conduct its affairs, in such a manner so as to ensure that the Company was not and will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. SECTION 7. Payment of Expenses. Whether or not the transactions contemplated hereunder are consummated or this Agreement becomes effective as to all of its provisions or is terminated, the Selling Stockholders agree to pay (i) all costs, fees and expenses (other than legal fees and disbursements of counsel for the Underwriters and the expenses incurred by the Underwriters) incurred in connection with the performance of their and the Company's obligations hereunder, including without limiting the generality of the foregoing, all fees and expenses of legal counsel for the Company and of the Company's independent accountants, all costs and expenses incurred in connection with the preparation, printing, filing and distribution of the Registration Statement, each preliminary prospectus and the Prospectus (including all incorporated Documents, exhibits and financial statements) and all amendments and supplements provided for herein, this Agreement, the Pricing Agreement, the Power of Attorney and the Custody Agreement; (ii) all costs, fees and expenses (including legal fees and disbursements of counsel for the Underwriters not to exceed $15,000) incurred by the Underwriters in connection with qualifying or registering all or any part of the Shares for offer and sale under blue sky laws, including the preparation of a Blue Sky Memorandum relating to the Shares, and clearance of such offering with the NASD; and (iii) all fees and expenses of the Company's transfer agent, printing of the certificates for the Shares and all transfer taxes, if any, with respect to the sale and delivery of the Shares to the several Underwriters. The provisions of this Section shall not affect any agreement which the Company and the Selling Stockholders may make for the allocation or sharing of such expenses and costs. SECTION 8. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Shares on the First Closing Date and the Option Shares on the Second Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders herein set forth as of the date hereof and as of the First Closing Date or the Second Closing Date, as the case may be, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholders of their respective obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective either prior to the execution of this Agreement or not later than 8:30 a.m., Chicago Time, on the first full business day after the date of this Agreement, or such later time as shall have been consented to by you but in no event later than 1:00 p.m., Chicago Time, on the third full business day following the date hereof; and prior to the First Closing Date or the Second Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company, the Selling Stockholders or you, shall be contemplated by the Commission. If the Company has elected to rely upon Rule 430A, the information concerning the public offering price of the Shares and price-related information shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed period and the Company will provide evidence satisfactory to the Representatives of such timely filing (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rules 430A and 424(b)). (b) The Shares shall have been qualified for sale under the blue sky laws of such states as shall have been specified by the Representatives. (c) The legality and sufficiency of the authorization, issuance and sale or transfer and sale of the Shares hereunder, the validity and form of the certificates representing the Shares, the execution and delivery of this Agreement, the Pricing Agreement, the Power of Attorney and the Custody Agreement, and all corporate proceedings and other legal matters incident thereto, and the form of the Registration Statement and the Prospectus (except financial statements) shall have been approved by counsel for the Underwriters exercising reasonable judgment. (d) You shall not have advised the Company that the Registration Statement or the Prospectus or any amendment or supplement thereto, contains an untrue statement of fact, which, in the opinion of counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (e) Subsequent to the execution and delivery of this Agreement, there shall not have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries, whether or not arising in the ordinary course of business, which, in the reasonable judgment of the Representatives, makes it impractical or inadvisable to proceed with the public offering or purchase of the Shares as contemplated hereby. (f) There shall have been furnished to you, as Representatives of the Underwriters, on the First Closing Date or the Second Closing Date, as the case may be, except as otherwise expressly provided below: (i) An opinion of Ruskin, Moscou, Evans & Faltischek, P.C., counsel for the Company and the Selling Stockholders, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company has been duly qualified to do business as a foreign corporation under the corporation law of, and is in good standing as such in, every jurisdiction where the ownership or leasing of property, or the conduct of its business requires such qualification except where the failure so to qualify would not have a material adverse effect upon the condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole; (2) an opinion to the same general effect as clause (1) of this subparagraph (i) in respect of each direct and indirect subsidiary of the Company; (3) all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized, validly issued and is fully paid and nonassessable, and, except as disclosed in the Registration Statement and with respect to director qualifying shares owned by third parties for the benefit of the Company, the Company owns directly or indirectly 100 percent of the outstanding capital stock of each subsidiary, and to the knowledge of such counsel, such stock is owned free and clear of any claims, liens, encumbrances or security interests; and to the knowledge of such counsel, except for the subsidiaries listed in the Registration Statement, the Company does not own or control, directly or indirectly, any corporation, association or other entity; (4) the authorized capital stock of the Company, of which there is outstanding to the knowledge of such counsel the amount set forth in the Registration Statement and Prospectus (except for subsequent issuances, if any, pursuant to stock options or other rights referred to in the Prospectus), conforms as to legal matters in all material respects to the description thereof in the Registration Statement and Prospectus; (5) the issued and outstanding capital stock of the Company has been duly authorized and validly issued and is to the knowledge of such counsel fully paid and nonassessable; (6) the certificates for the Shares to be delivered hereunder are in due and proper form, and when duly countersigned by the Company's transfer agent and delivered to you or upon your order against payment of the agreed consideration therefor in accordance with the provisions of this Agreement and the Pricing Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable; (7) no preemptive rights of, or rights of first refusal in favor of, stockholders exist with respect to any of the Shares or the issue and sale thereof pursuant to applicable law or the charter or by-laws of the Company and, to the knowledge of such counsel, there are no contractual preemptive rights or rights of first refusal or other similar rights which exist with respect to any of the Shares or the issue and sale thereof; (8) to such counsel's knowledge, except as set forth in the Registration Statement and the Prospectus, no holders of shares of Common Stock or other securities of the Company have registration rights with respect to securities of the Company and, except as set forth in the Registration Statement and Prospectus, all holders of securities of the Company having registration rights with respect to shares of Common Stock or other securities have, with respect to the offering contemplated hereby, waived such rights or such rights have otherwise been waived or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement; (9) the Registration Statement has become effective under the 1933 Act, and, to the 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 contemplated under the 1933 Act, and the Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable), the Prospectus and each amendment or supplement thereto (except for the financial statements and other statistical or financial data included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the 1933 Act; nothing has come to counsel's attention that causes them to believe that either the Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable) or the Prospectus, or the Registration Statement or the Prospectus as amended or supplemented (except as aforesaid), as of their respective effective or issue dates, 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 that the Prospectus as amended or supplemented, if applicable, as of the First Closing Date or the Second Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made; and such counsel does not know of any legal or governmental proceedings pending or threatened required to be described in the Prospectus which are not described as required, nor of any contracts or documents of a character required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed, as required; (10) the statements in the Registration Statement and the Prospectus summarizing statutes, rules and regulations (excluding accounting and auditing rules) are accurate and fairly and correctly present the information required to be presented by the 1933 Act or the rules and regulations thereunder, in all material respects; and such counsel does not know of any statutes, rules and regulations required to be described in the Registration Statement or the Prospectus that are not described or referred to therein as required; (11) the statements under the caption "Description of Capital Stock" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present, in all material respects, the information called for with respect to such documents and matters; (12) this Agreement and the Pricing Agreement and the performance of the Company's obligations hereunder have been duly authorized by all necessary corporate action and this Agreement and the Pricing Agreement have been duly executed and delivered by and on behalf of the Company, and are legal, valid and binding agreements of the Company, except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except as to those provisions relating to indemnities for liabilities arising under the 1933 Act as to which no opinion need be expressed; and no approval, authorization or consent of any public board, agency or instrumentality of the United States or of any state or other jurisdiction is necessary in connection with the issue or sale of the Shares by the Company pursuant to this Agreement (other than under the 1933 Act, applicable blue sky laws and the rules of the NASD) or the consummation by the Company of any other transactions contemplated hereby; (13) the execution and performance of this Agreement, to such counsel's knowledge, will not contravene any of the provisions of, or result in a default under, any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument, of the Company or any of its subsidiaries or by which the property of any of them is bound and which contravention or default would be material to the Company and its subsidiaries taken as a whole; or violate any of the provisions of the charter or bylaws of the Company or any of its subsidiaries or, so far as is known to such counsel, violate any statute, order, rule or regulation of any regulatory or governmental body having jurisdiction over the Company or any of its subsidiaries; (14) to such counsel's knowledge, all offers and sales of the Company's capital stock since November 23, 1995 were at all relevant times exempt from the registration requirements of the 1933 Act and were duly registered or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws; (15) all documents incorporated by reference in the Prospectus, when they were filed with the Commission, compiled as to form in all material respects with the requirements of the Exchange Act; and such counsel have no reason to believe that any of such documents, when they were so filed, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; such counsel need express no opinion as to the financial statements or other financial or statistical date contained in any such document. (16) with respect to each Selling Stockholder, this Agreement and the Pricing Agreement have been duly authorized, executed and delivered by or on behalf of each such Selling Stockholder; the Agent and the Custodian for each such Selling Stockholder has been duly and validly authorized to carry out all transactions contemplated herein on behalf of each such Selling Stockholder; and the performance of this Agreement and the Pricing Agreement and the consummation of the transactions herein contemplated by such Selling Stockholders, to such counsel's knowledge, will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which any of such Selling Stockholders is a party or by which any are bound or to which any of the property of such Selling Stockholders is subject, or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any of such Selling Stockholders or any of their properties; and no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement in connection with the sale of Shares to be sold by such Selling Stockholders hereunder, except such as have been obtained under the 1933 Act and such as may be required under applicable blue sky laws in connection with the purchase and distribution of such Shares by the Underwriters and the clearance of such offering with the NASD; (17) each Selling Stockholder has full right and power to enter into this Agreement, the Pricing Agreement, the Power of Attorney and the Custody Agreement and to sell, transfer and deliver the Shares to be sold on the First Closing Date or the Second Closing Date, as the case may be, by such Selling Stockholder hereunder; each Selling Stockholder is the record owner of such Shares so sold and to such counsel's knowledge such shares are owned free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights whatsoever; (18) title to such Shares has been transferred to the Underwriters (who counsel may assume to be bona fide purchasers) who have purchased such Shares hereunder; and (19) this Agreement, the Pricing Agreement, the Power of Attorney and the Custody Agreement are legal, valid and binding agreements of each Selling Stockholder except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except with respect to those provisions relating to indemnities for liabilities arising under the 1933 Act, as to which no opinion need be expressed. In rendering such opinion, such counsel may state that they are relying upon the certificate of American Stock Transfer and Trust Company, the transfer agent for the Common Stock, as to the number of shares of Common Stock at any time or times outstanding, and that insofar as their opinion under clause (9) of this Section 8(f) above relates to the accuracy and completeness of the Prospectus and Registration Statement, it is based upon participation in conferences with representatives of the Underwriters, and with officers and other representatives of the Company and its independent public accountants, at which the contents of the Registration Statement and the Prospectus were discussed, without independent verification by such counsel of the accuracy or completeness of such information. Such counsel may also rely upon the opinions of other competent counsel and, as to factual matters, on certificates of the Selling Stockholders and of officers of the Company and of state officials, in which case their opinion is to state that they are so doing and copies of said opinions or certificates are to be attached to the opinion unless said opinions or certificates (or, in the case of certificates, the information therein) have been furnished to the Representatives in other form. (ii) Such opinion or opinions of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the incorporation of the Company, the validity of the Shares to be sold by the Company, the Registration Statement and the Prospectus and other related matters as you may reasonably require, and the Company shall have furnished to such counsel such documents and shall have exhibited to them such papers and records as they request for the purpose of enabling them to pass upon such matters. (iii) A certificate of the chief executive officer and the principal financial officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) the representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; and (2) the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the best knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act. The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Company as to the facts required in the immediately foregoing clauses (1) and (2) of this subparagraph to be set forth in said certificate. (iv) A certificate of each Selling Stockholder dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that the representations and warranties of such Selling Stockholder set forth in Section 3 of this Agreement are true and correct as of such date and the Selling Stockholder has complied with all the agreements and satisfied all the conditions on the part of such Selling Stockholder to be performed or satisfied at or prior to such date. (v) At the time the Pricing Agreement is executed and also on the First Closing Date or the Second Closing Date, as the case may be, there shall be delivered to you a letter addressed to you, as Representatives of the Underwriters, from Deloitte & Touche, LLP independent accountants, the first one to be dated the date of the Pricing Agreement, the second one to be dated the First Closing Date and the third one (in the event of a second closing) to be dated the Second Closing Date, to the effect set forth in Schedule C. There shall not have been any change or decrease specified in the letters referred to in this subparagraph which makes it impractical or inadvisable in the judgment of the Representatives to proceed with the public offering of purchase of the Shares as contemplated hereby. (vi) Such further certificates and documents as you may reasonably request. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to you and to Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, which approval shall not be unreasonably withheld. The Company shall furnish you with such manually signed or conformed copies of such opinions, certificates, letters and documents as you request. If any condition to the Underwriters' obligations hereunder to be satisfied prior to or at the First Closing Date is not so satisfied, this Agreement at your election will terminate upon notification to the Company and the Selling Stockholders without liability on the part of any Underwriter or the Company or any Selling Stockholder, except for the expenses to be paid or reimbursed by the Selling Stockholders pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof. SECTION 9. Reimbursement of Underwriters' Expenses. In addition to expenses required to be borne by the Selling Stockholders under Section 7 hereof, if the sale to the Underwriters of the Shares on the First Closing Date is not consummated because any condition of the Underwriters' obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company or the Selling Stockholders to perform any agreement herein or to comply with any provision hereof, unless such failure to satisfy such condition or to comply with any provision hereof is due to the default or omission of any Underwriter, the Selling Stockholders agree to reimburse you and the other Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been reasonably incurred by you and them in connection with the proposed purchase and sale of the Shares. Any such termination shall be without liability of any party to any other party except that the provisions of this Section 9, Section 7 and Section 11 shall at all times be effective and shall apply. SECTION 10. Effectiveness of Registration Statement. You, the Company and the Selling Stockholders will use your, its and their best efforts to cause the Registration Statement to become effective, if it has not yet become effective, and to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. SECTION 11. Indemnification. (a) The Company and each Selling Stockholder, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the 1933 Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company and/or such Selling Stockholders, as the case may be), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that neither the Company nor any Selling Stockholder will be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the 1933 Act. In addition to their other obligations under this Section 11(a), the Company and the Selling Stockholders agree that, as an interim measure during the pendency of any such claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(a), they will reimburse the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's and the Selling Stockholders' obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which the Company and the Selling Stockholders may otherwise have. Without limiting the full extent of the agreement of the Company and the Selling Stockholders to indemnify each Underwriter, as herein provided, each Selling Stockholder shall be liable under the indemnity agreements contained in this Section 11(a) only for an amount not exceeding, in the case of each such Selling Stockholder, the net proceeds (after deducting the Underwiters discount) received by such Selling Stockholders from the sale of Shares hereunder; provided however, that the payment obligation of the Selling Stockholders under this Section 11(a) shall be limited to the amount of losses, claims, damages or liabilities that are not paid by the Company under this Section 11(a) and such payment shall not be required from the Selling Stockholders unless the Underwriter or controlling person seeking indemnification shall have previously sought indemnification from the Company first, as follows: (i) by serving a written demand therefor upon the Company in accordance with the provisions of Section 16 hereof, with a copy of such demand furnished to each Selling Stockholder; and (ii) by commencing an action against the Company in a court of competent jurisdiction. Each Underwriter and controlling person further agrees that indemnification shall not be sought from any one or more of the Selling Stockholders until the earlier of (x) the time for the Company to respond to the complaint in the action to be commenced against the Company pursuant hereto has expired, or (y) 90 days from the date of the commencement of the action by the Underwriters or controlling person against the Company; provided, however, that the foregoing limitations shall not apply with respect to any Selling Stockholder (1) in the event and to the extent that any claim for indemnification arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder, acting in his individual capacity, specifically for use in the preparation thereof; or (2) with respect to which the failure of any Underwriter or controlling person to commence an action against such Selling Stockholder would result in such Underwriter or controlling person being barred from bringing such action or would otherwise abridge, nullify or eliminate the ability of such Underwriter or controlling person to bring an action, or in any manner to forfeit any claims, against such Selling Stockholder. (b) Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each Selling Stockholder and each person, if any, who controls the Company within the meaning of the 1933 Act or the Exchange Act, against any losses, claims, damages or liabilities to which the Company, or any such director, officer, Selling Stockholder or controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto in reliance upon and in conformity with Section 4 of this Agreement or any other written information furnished to the Company by such Underwriter through the Representatives specifically for use in the preparation thereof; and will reimburse any legal or other expenses reasonably incurred by the Company, or any such director, officer, Selling Stockholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. In addition to their other obligations under this Section 11(b), the Underwriters agree that, as an interim measure during the pendency of any such claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(b), they will reimburse the Company and the Selling Stockholders on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or the proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company and the Selling Stockholders for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party except to the extent that the indemnifying party was prejudiced by such failure to notify. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, or the indemnified and indemnifying parties may have conflicting interests which would make it inappropriate for the same counsel to represent both of them, the indemnified party or parties shall have the right to select separate counsel to assume such legal defense and otherwise to participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defense in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Representatives in the case of paragraph (a) representing all indemnified parties not having different or additional defenses or potential conflicting interest among themselves who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. No indemnifying or indemnified party shall, without the prior written consent of the indemnified or indemnifying party, as the case may be, effect any settlement of any pending or threatened proceeding in respect of which any indemnified or indemnifying party is or could have been a party and indemnity could have been sought hereunder by such indemnified or indemnifying party, unless such settlement includes an unconditional release of such indemnified or indemnifying party from all liability arising out of such proceeding. (d) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in paragraphs (a) and (b) hereof, including the amount of any requested reimbursement payments, 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 pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Any such arbitration will be limited to the operation of the interim reimbursement provisions contained in paragraphs 11(a) and (b) hereof and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for expenses that are created by the provisions of such paragraphs 11(a) and (b) hereof. (e) If the indemnification provided for in this Section is unavailable to an indemnified party under paragraphs (a) or (b) hereof in respect of any losses, claims, damages or liabilities referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Stockholders and the Underwriters from the offering of the Shares 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 the Company, the Selling Stockholders and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The respective relative benefits received by the Company, the Selling Stockholders and the Underwriters shall be deemed to be in the same proportion in the case of the Company and the Selling Stockholders, as the total price paid to the Company and the Selling Stockholders for the Shares by the Underwriters (net of underwriting discount but before deducting expenses), and in the case of the Underwriters as the underwriting discount received by them bears to the total of such amounts paid to the Company and the Selling Stockholders and received by the Underwriters as underwriting discount in each case as contemplated by the Prospectus. The relative fault of the Company and the Selling Stockholders and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact of the omission to state a material fact relates to information supplied by the Company or by the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section are several in proportion to their respective underwriting commitments and not joint. (f) The provisions of this Section shall survive any termination of this Agreement. Section 12. Default of Underwriters. It shall be a condition to the agreement and obligation of the Company and the Selling Stockholders to sell and deliver the Shares hereunder, and of each Underwriter to purchase the Shares hereunder, that, except as hereinafter in this paragraph provided, each of the Underwriters shall purchase and pay for all Shares agreed to be purchased by such Underwriter hereunder upon tender to the Representatives of all such shares in accordance with the terms hereof. If any Underwriter or Underwriters default in their obligations to purchase Shares hereunder on the First Closing Date and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10 percent of the total number of Shares which the Underwriters are obligated to purchase on the First Closing Date, the Representatives may make arrangements satisfactory to the Company and the Selling Stockholders for the purchase of such Shares by other persons, including any of the Underwriters, but if no such arrangements are made by such date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Shares which such defaulting Underwriters agreed but failed to purchase on such date. If any Underwriter or Underwriters so default and the aggregate number of Shares with respect to which such default or defaults occur is more than the above percentage and arrangements satisfactory to the Representatives and the Company and the Selling Stockholders for the purchase of such Shares by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any nondefaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be paid by the Company pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof. In the event that Shares to which a default relates are to be purchased by the nondefaulting Underwriters or by another party or parties, the Representatives or the Company shall have the right to postpone the First Closing Date for not more than seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. Section 13. Effective Date. This Agreement shall become effective immediately as to Sections 7, 9, 11 and 14 and as to all other provisions at 10:00 a.m., Chicago Time, on the day following the date upon which the Pricing Agreement is executed and delivered, unless such a day is a Saturday, Sunday or holiday (and in that event this Agreement shall become effective at such hour on the business day next succeeding such Saturday, Sunday or holiday); but this Agreement shall nevertheless become effective at such earlier time after the Pricing Agreement is executed and delivered as you may determine on and by notice to the Company and the Selling Stockholders or by release of any Shares for sale to the public. For the purposes of this Section, the Shares shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Shares or upon the release by you of telegrams (i) advising Underwriters that the Shares are released for public offering, or (ii) offering the Shares for sale to securities dealers, whichever may occur first. Section 14. Termination. Without limiting the right to terminate this Agreement pursuant to any other provision hereof: (a) This Agreement may be terminated by the Company by notice to you and the Selling Stockholders or by you by notice to the Company and the Selling Stockholders at any time prior to the time this Agreement shall become effective as to all its provisions, and any such termination shall be without liability on the part of the Company or the Selling Stockholders to any Underwriter (except for the expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof) or of any Underwriter to the Company or the Selling Stockholders. (b) This Agreement may also be terminated by you prior to the First Closing Date, and the option referred to in Section 5, if exercised, may be canceled at any time prior to the Second Closing Date, if (i) trading in securities on the New York Stock Exchange, the American Stock Exchange or the NASDAQ/NM shall have been suspended or maximum or minimum prices shall have been established on such exchange, or (ii) a banking moratorium shall have been declared by Illinois, New York, or United States authorities, (iii) there shall have been any change in financial markets or in political, economic or financial conditions which, in the reasonable opinion of the Representatives, either renders it impractical or inadvisable to proceed with the offering and sale of the Shares on the terms set forth in the Prospectus or materially and adversely affects the market for the Shares, (iv) there shall have been an outbreak of major armed hostilities between the United States and any foreign power which in the opinion of the Representatives makes it impractical or inadvisable to offer or sell the Shares, (v) if at or prior to the First Closing Date, or on or prior to any later date on which Option Shares are to be purchased, as the case may be, the Company shall have sustained a loss by strike, fire, flood, accident or other calamity of such character as to interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured, or (vi) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have occurred any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its subsidiaries, taken as a whole, or the earnings, business affairs, management, or business prospects of the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business. Any termination pursuant to this paragraph (b) shall be without liability on the part of any Underwriter to the Company or the Selling Stockholders or on the part of the Company to any Underwriter or the Selling Stockholders (except for expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof). Section 15. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Stockholders and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, or the Selling Stockholders as the case may be, and will survive delivery of and payment for the Shares sold hereunder. Section 16. Notices. All communications hereunder will be in writing and, if sent to the Underwriters will be mailed, delivered or telegraphed and confirmed to you c/o William Blair & Company, L.L.C. 222 West Adams Street, Chicago, Illinois 60606, with a copy to Testa, Hurwitz & Thibeault, LLP 125 High Street, Boston, Massachusetts 02110, Attention: William B. Asher, Jr., Esq.; if sent to the Company will be mailed, delivered or telegraphed and confirmed to the Company at its corporate headquarters with a copy to Ruskin, Moscou, Evans & Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501, Attention: Raymond S. Evans, Esq.; and if sent to the Selling Stockholders will be mailed, delivered or telegraphed and confirmed to the Agent and the Custodian at such address as they have previously furnished to the Company and the Representative, with a copy to Ruskin, Moscou, Evans & Faltischek, P.C., Attention: Raymond S. Evans, Esq. Section 17. Successors. This Agreement and the Pricing Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors, personal Representatives and assigns, and to the benefit of the officers and directors and controlling persons referred to in Section 11, and no other person will have any right or obligation hereunder. the term "successors" shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase. Section 18. Representation of Underwriters. You will act as Representatives for the several Underwriters in connection with this financing, and any action under or in respect of this Agreement taken by you will be binding upon all the Underwriters. Section 19. Partial Unenforceability. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph or provision hereof. Section 20. Applicable Law. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. Section 21. Release from Prior Lockup. That upon delivery by such Selling Stockholder of an agreement with the Representatives consistent with the description in Section 3(a)(vi) of this Agreement, each such Selling Stockholder is hereby released from the "lock-up" restrictions contained in Section 3(a)(vi) of that certain Underwriting Agreement between the Company, the Underwriters and the Selling Stockholders dated November 17, 1995 for purposes of selling the Firm Shares and, to the extent the Underwriters exercise their overallotment option pursuant to Section 5 hereof, the Option Shares, set forth opposite their names on Schedule B hereto. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholders and the several Underwriters including you, all in accordance with its terms. Very truly yours, PERIPHONICS CORPORATION By:________________________________ Chief Executive Officer SELLING STOCKHOLDERS Peter J. Cohen Grantor Trust George W. Cole Richard A. Daniels Grantor Retained Annuity Trust Terrence Meehan Kevin O'Brien Jayandra Patel By:_________________________________ Agent and Attorney-in-Fact The foregoing Agreement is hereby confirmed and accepted as of the date first above written. WILLIAM BLAIR & COMPANY, L.L.C. DAIN BOSWORTH INCORPORATED Acting as Representatives of the several Underwriters named in Schedule A. By: William Blair & Company, L.L.C. By:_______________________________ Principal EXHIBIT A PERIPHONICS CORPORATION 1,100,000 Shares Common Stock* PRICING AGREEMENT ____________, 1996 William Blair & Company, L.L.C. Dain Bosworth Incorporated As Representatives of the Several Underwriters 222 West Adams Street Chicago, IL 60606 Ladies and Gentlemen: Reference is made to the Underwriting Agreement dated ___________, 1996 (the "Underwriting Agreement") relating to the sale by the Company and the Selling Stockholders and the purchase by the several Underwriters, for whom William Blair & Company, L.L.C. and Dain Bosworth Incorporated are acting as representatives (the "Representatives"), of the above Shares. All terms herein shall have the definitions contained in the Underwriting Agreement except as otherwise defined herein. Pursuant to Section 5 of the Underwriting Agreement, the Company and each of the Selling Stockholders agree with the Representatives as follows: 1. The public offering price per share of the Shares shall be $_______. 2. The purchase price per share for the Shares to be paid by the several Underwriters shall be $______, being an amount equal to the public offering price set forth above less $_____ per share. - -------------------------- * Plus an option to acquire up to 165,000 additional shares to cover overallotments. Schedule A is amended as follows. If the foregoing is in accordance with your understanding to our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholders and the several Underwriters, including you, all in accordance with its terms. Very truly yours, PERIPHONICS CORPORATION By:_________________________________ Chief Executive Officer SELLING STOCKHOLDERS Peter J. Cohen Grantor Trust George W. Cole Richard A. Daniels Grantor Retained Annuity Trust Terrence Meehan Kevin O'Brien Jayandra Patel By:_________________________________ Agent and Attorney-in-Fact The foregoing Agreement is hereby confirmed and accepted as of the date first above written. WILLIAM BLAIR & COMPANY, L.L.C. DAIN BOSWORTH INCORPORATED Acting as Representatives of the several Underwriters By: William Blair & Company, L.L.C. By:_______________________________ Principal SCHEDULE A Number of Firm Shares to be Underwriters Purchased - ------------ -------------- William Blair & Company, L.L.C. Dain Bosworth Incorporated --------- Total: 1,100,000 SCHEDULE B Number of Firm Number of Option Shares to be Sold Shares to be Sold ----------------- ----------------- Selling Stockholders: Peter J. Cohen Grantor Trust 296,962 44,542 George W. Cole 178,454 26,768 Richard A. Daniels Grantor Retained Annuity Trust 252,808 37,922 Terrence Meehan 118,968 17,846 Kevin O'Brien 118,968 17,846 Jayandra Patel 133,840 20,076 ------- ------ Total: 1,100,000 165,000 ========= ======= SCHEDULE C Comfort Letter of Deloitte & Touche LLP (1) They are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act. (2) In their opinion the consolidated financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement and the consolidated financial statements of the Company from which the information presented under the caption "Selected Consolidated Financial Data" has been derived, which are stated therein to have been examined by them, comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Exchange Act. (3) On the basis of specified procedures (but not an audit in accordance with generally accepted auditing standards), including inquiries of certain officers of the Company and its subsidiaries responsible for financial and accounting matters as to transactions and events subsequent to __________, 199_, a reading of minutes of meetings of the stockholders and directors of the Company and its subsidiaries since _____________, 199_, a reading of the latest available interim unaudited consolidated financial statements of the Company and its subsidiaries (with an indication of the date thereof) and other procedures as specified in such letter, nothing came to their attention which caused them to believe that (i) the unaudited consolidated financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Exchange Act or that such unaudited financial statements are not fairly presented in accordance with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement, and (ii) at a specified date not more than five days prior to the date thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second letter, there was any change in the capital stock or long-term debt or short-term debt (other than normal payments) of the Company and its subsidiaries on a consolidated basis or any decrease in consolidated net current assets or consolidated stockholders' equity as compared with amounts shown on the latest unaudited balance sheet of the Company included in the Registration Statement or for the period from the date of such balance sheet to a date not more than five days prior to the date thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second letter, there were any decreases, as compared with the corresponding period of the prior year, in consolidated net sales, consolidated income before income taxes or in the total or per share amounts of consolidated net income except, in all instances, for changes or decreases which the Prospectus discloses have occurred or may occur or which are set forth in such letter. (4) They have carried out specified procedures, which have been agreed to by the Representative, with respect to certain information in the Prospectus specified by the Representative, and on the basis of such procedures, they have found such information to be in agreement with the general accounting records of the Company and its subsidiaries. EX-23 3 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Periphonics Corporation on Form S-3 of our report dated July 15, 1996, appearing in the Annual Report on Form 10-K of Periphonics Corporation for the year ended May 31, 1996 and to the reference to us under the headings "Selected Financial Data" and "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP - ------------------------------ DELOITTE & TOUCHE LLP Jericho, New York October 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----