<PAGE>
Filed pursuant to Rule 424(b)(1)
Registration No. 333-3094
3,750,000 Shares
[LOGO]
Common Stock
------------
Of the 3,750,000 shares of Common Stock offered hereby, 3,026,250 shares are
being sold by SS&C Technologies, Inc. ("SS&C" or the "Company") and 723,750
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. Prior to this offering, there has been no
public market for the Common Stock of the Company. See "Underwriting" for the
factors considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "SSNC."
------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $19.00 $1.33 $17.67 $17.67
- --------------------------------------------------------------------------------
Total(2).................... $71,250,000 $4,987,500 $53,473,838 $12,788,663
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Before deducting estimated expenses of $700,000, all of which will be
payable by the Company.
(2) Certain Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to 562,500 additional shares of Common Stock solely
to cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $81,937,500,
$5,735,625, $53,473,838 and $22,728,038, respectively. See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It
is expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
June 5, 1996.
Alex. Brown & Sons Hambrecht & Quist
INCORPORATED
THE DATE OF THIS PROSPECTUS IS MAY 31, 1996.
<PAGE>
SS&C
A suite of software solutions that
supports investment professionals in
managing critical business processes.
SS&C's family of software products provides a full range of mission-critical
information management and analysis, accounting, reporting and compliance tools
to help high-level investment professionals make informed, real-time decisions
and automate many operational functions in today's increasingly complex and
fast-moving financial markets.
[Pie chart in the center of the page depicting the Company's principal
products - CAMRA, PTS, FILMS, FOTOS and COPE 2000 (scheduled to be
released in 1996) - and related interfaces. Computer screens along the
left margin of the page highlighting the Company's software applications.]
---------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year.
PTS and Macro Pricing are registered trademarks, and SS&C, the Company logo,
CAMRA, FILMS, FOTOS, Performance Measurement, Allocator Plus, Finesse, SS&C GO
Trading and COPE are trademarks of SS&C Technologies, Inc. This Prospectus
also contains trademarks and registered trademarks of other companies.
---------------
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.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the financial statements and related
notes appearing elsewhere in this Prospectus.
THE COMPANY
SS&C Technologies, Inc. ("SS&C" or the "Company") is a leading provider of
client/server-based software solutions, and related consulting services,
designed to improve the efficiency and effectiveness of the investment
management function within a broad range of organizations in the financial
services industry. The Company has developed a family of software products that
provides a full range of mission-critical information management and analysis,
accounting, reporting and compliance tools to help high-level investment
professionals make informed, real-time decisions and automate many operational
functions in today's increasingly complex and fast-moving financial markets.
The Company's products are focused on improving the effectiveness of decision
making through open, fully integrated access to the quantitative analysis of
transactions-based data, allowing investment professionals to manage and
analyze large amounts of data both in the aggregate and in detail on a timely
basis.
The financial services industry, which comprises organizations such as asset
managers, insurance companies, banks, mutual funds, public and private pension
funds, hedge funds, corporate treasuries and government agencies, is
characterized by rapidly changing market conditions, increasing trading and
monetary transaction volumes, asset and securities products proliferating both
in number and complexity and regulation by a range of governmental and self-
regulatory organizations. These characteristics have created an increasing gap
between the amount and complexity of data that must be managed and analyzed by
investment professionals and the resources currently available to effectively
meet their requirements. The legacy computing applications maintained by many
financial service organizations require large MIS departments, are expensive to
implement, support and modify, and have limited interoperability with the
variety of information resources and systems in today's computing environment,
limiting and isolating their effectiveness to support critical information
management and analysis.
The Company's family of client/server-based software products includes CAMRA,
a comprehensive application for the integrated management of asset portfolios;
FILMS, which supports the integrated management of mortgage loan portfolios;
PTS, an asset/liability management and pricing product for use by insurance and
other financial service organizations; FOTOS, for the automation of order
processing; and quantitative analysis tools such as Allocator Plus, which
supports portfolio managers and custodians in the TBA (To Be Announced)
mortgage-backed securities markets. The Company provides products and services
to over 300 organizations worldwide, with aggregate assets under management in
excess of $685 billion, and its customers include Bankers Trust Company,
Commercial Union, Conning & Company, The Guardian, John Hancock Mutual Life,
Kemper Financial Services, Liberty Mutual, Merrill Lynch Insurance Group, The
St. Paul Companies, Walt Disney and the states of Florida, Kentucky, Michigan
and Texas.
The Company believes that its ability to offer a broad range of highly
functional software applications is a key competitive advantage, and it intends
to build upon this base by continuing to enhance the functionality and
interoperability of its existing products and broadening the adoption of its
products by additional organizations within various segments of the financial
services industry. The Company will continue to emphasize its comprehensive
consulting and support services to facilitate the timely installation and
implementation of its products, as well as its outsourcing of investment
analysis and management functions. The Company also intends to further leverage
its reputation and product base by
3
<PAGE>
expanding international operations and by pursuing strategic opportunities,
including acquisitions, alliances or other partnerships, in order to increase
the breadth of its product offerings, establish new sales and marketing
channels and exploit evolving market opportunities.
The Company believes that a direct sales organization is essential to the
implementation of its business strategy of becoming the leading worldwide
provider of client/server-based software solutions, and related consulting
services, that automate and simplify the management and analysis of the vast
amounts of information being delivered to, or produced by, financial service
organizations. The Company therefore maintains a sales and support staff of 31
persons in 12 offices worldwide, and intends to continue to expand this network
in 1996.
The Company, which was formerly known as Securities Software & Consulting,
Inc., was organized as a Connecticut corporation in March 1986 and
reincorporated in Delaware in April 1996. The Company's principal office is
located at Corporate Place, 705 Bloomfield Avenue, Bloomfield, Connecticut
06002, and its telephone number is (860) 242-7887.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... 3,026,250 shares
Common Stock offered by the Selling
Stockholders............................... 723,750 shares
Common Stock to be outstanding after the
offering................................... 12,120,420 shares(1)
Use of Proceeds............................. Working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............... SSNC
</TABLE>
- --------
(1) Based upon the number of shares outstanding as of April 30, 1996. Excludes
1,642,000 shares of Common Stock issuable upon the exercise of outstanding
options on that date, of which options to purchase 352,063 shares were then
exercisable, at exercise prices ranging from $.07 to $9.00 per share. See
"Management--Executive Compensation."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------
1991 1992 1993 1994 1995(2) 1995(2) 1996
------ ------- ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $3,926 $ 2,656 $5,226 $9,268 $18,802 $ 2,633 $ 6,880
Operating income
(loss)................. 253 (1,691) 869 1,556 (7,397) (7,898) 533
Net income (loss)....... $ 128 $(1,414) $ 551 $ 883 $(4,349) $ (4,631) $ 313
Pro forma net income
(loss) per common and
common equivalent
share(1)............... $ (.49) $ .03
Pro forma weighted
average number of
shares outstanding(1).. 8,911 10,126
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 1,948 $54,722
Total assets............................................. 21,102 73,876
Long-term debt........................................... 450 450
Total stockholders' equity............................... 9,807 62,581
</TABLE>
- --------
(1) See Note 2 of Notes to the Company's Consolidated Financial Statements.
(2) Reflects a write-off of approximately $7.9 million of in-process research
and development incurred in connection with the Company's acquisition of
substantially all of the assets and operations of Chalke Incorporated on
March 31, 1995. The write-off of in-process research and development, after
tax, increased 1995 net loss and net loss per common and common equivalent
share by $4.8 million and $.80, respectively. See "Certain Transactions"
and Notes 2 and 11 of Notes to the Company's Consolidated Financial
Statements.
(3) Adjusted to give effect to the sale by the Company of 3,026,250 shares of
Common Stock offered hereby (after deducting the underwriting discounts and
commissions and estimated offering expenses) and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
----------------
Except as otherwise indicated, all information contained in this Prospectus
(i) reflects the conversion of all outstanding shares of the Company's Series
A, B and C Convertible Preferred Stock (the "Convertible Preferred Stock") into
an aggregate of 3,326,600 shares of Common Stock at the closing of this
offering, (ii) reflects the reincorporation of the Company from Connecticut to
Delaware in April 1996 and the associated changes in the Company's charter and
by-laws in connection with the reincorporation and (iii) assumes no exercise of
the Underwriters' over-allotment option. As used in this Prospectus, the terms
"SS&C" and the "Company" refer to SS&C Technologies, Inc. and its wholly owned
subsidiaries, SS&C Pacific, Inc., SS&C Ventures, Inc., SS&C S.A.R.L. and
Securities Software & Consulting Limited, unless the context otherwise
requires.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered by this Prospectus.
Fluctuations in Quarterly Performance. The Company's revenues and operating
results have varied substantially from quarter to quarter. The Company's
quarterly operating results may continue to fluctuate due to a number of
factors, including the timing, size and nature of the Company's individual
license transactions; the timing of the introduction and the market acceptance
of new products or product enhancements by the Company or its competitors; the
relative proportions of revenues derived from license fees, maintenance,
consulting and other recurring revenues and professional services; changes in
the Company's operating expenses; personnel changes and fluctuations in
economic and financial market conditions.
The timing, size and nature of individual license transactions are important
factors in the Company's quarterly operating results. Many such license
transactions involve large dollar amounts, and the sales cycles for these
transactions are often lengthy and unpredictable. There can be no assurance
that the Company will be successful in closing large license transactions on a
timely basis or at all. The Company generally has realized higher revenues and
income from license fees in the fourth quarter of the year than in the
immediately subsequent quarter. The Company believes that this has been due
primarily to the concentration by some clients of larger capital purchases in
the fourth quarter of the calendar year due to year-end budgetary pressures on
the Company's clients and the tendency of certain of the Company's clients to
implement changes in computer software applications prior to the end of the
calendar year. In turn, the Company's revenues have historically been lower in
the first quarter due to the allocation of resources by potential clients to
the processing and reporting requirements for the prior fiscal year. In
addition, the Company typically has realized a disproportionate amount of its
revenues and income in the last month of each quarter and, as a result, the
magnitude of quarterly fluctuations may not become evident until late in, or
at the end of, a given quarter. Accordingly, delays in product delivery or in
the closing of sales near the end of a quarter could cause quarterly revenues
and, to a greater degree, net income to fall substantially short of
anticipated levels.
Due to all of the foregoing factors, the Company believes that period to
period comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future
performance. There can be no assurance that future revenues and operating
results will not vary substantially. It is also possible that in some future
quarter the Company's operating results will be below the expectations of
public market analysts and investors. In either case, the price of the
Company's Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Financial Services Industry. The Company currently derives
substantially all of its revenue from the licensing of its applications
software to the financial services industry and the provision of related
maintenance, consulting and training services in the areas of investment
accounting, asset/liability management and software development. The Company's
clients include a range of organizations in the financial services industry,
and the success of such clients is intrinsically linked to the health of the
financial markets. In addition, because of the capital expenditures required
in connection with an investment in the Company's products, the Company
believes that demand for its products could be disproportionately affected by
fluctuations, disruptions, instability or downturns in the financial markets,
which may cause clients and potential clients to exit the industry or delay,
cancel or reduce any planned expenditures for investment management systems
and software products. Any resulting decline in demand for the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations.
Product Concentration. To date, substantially all of the Company's revenues
have been attributable to the licensing of its CAMRA, PTS and FILMS software
and the provision of maintenance and consulting services in connection
therewith. The Company currently expects that the licensing of CAMRA, PTS and
FILMS software, and the provision of related services, will account for a
substantial portion of its revenues
6
<PAGE>
for the foreseeable future. As a result, factors adversely affecting the
pricing of or demand for such products and services, such as competition or
technological change, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
financial performance will depend, in significant part, on the continued
market acceptance of the Company's existing products and the successful
development, introduction and client acceptance of new and enhanced versions
of its software products and services. There can be no assurance that the
Company will continue to be successful in developing and marketing its CAMRA,
PTS and FILMS software. See "Business--Product Development."
Management of Growth. The Company is currently experiencing a period of
rapid growth that could place a significant strain on its management and other
resources. The Company's business has grown significantly in size and
complexity over the past three years. Total revenues increased from
$5.2 million in 1993 to $18.8 million in 1995. In addition, the number of
employees increased from 50 to 178 during the same period, and the Company
expects to hire additional personnel during 1996. The growth in the size and
complexity of the Company's business as well as its client base has placed and
is expected to continue to place a significant strain on the Company's
management and operations. Certain members of the Company's senior management
team have been with the Company for less than a year, and the Company's senior
management has had limited experience in managing publicly traded companies.
The Company anticipates that continued growth, if any, will require it to
recruit and hire a substantial number of new development, managerial, finance,
sales and marketing and support personnel. There can be no assurance that the
Company will be successful at hiring or retaining such personnel. The
Company's ability to compete effectively and to manage future growth, if any,
will depend on its ability to continue to implement and improve operational,
financial and management information systems on a timely basis and to expand,
train, motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's operations. In addition, one element of the Company's
business strategy is to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company. There can be no
assurance that the Company will be able to integrate fully any such acquired
businesses with the Company's existing operations, operate any such businesses
profitably or otherwise implement its growth strategy. If the Company's
management is unable to manage growth effectively, the quality of the
Company's products and its business, financial condition and results of
operations could be materially adversely affected.
Competition. The market for financial services software is competitive,
rapidly evolving and highly sensitive to new product introductions and
marketing efforts by industry participants. The market is also highly
fragmented and served by numerous firms, many of which serve only their
respective local markets or specific customer types, and much of the Company's
competition stems from information systems or timesharing services developed
and serviced internally by the MIS departments of client firms. The Company
currently faces direct competition in various segments of the financial
services industry from Princeton Financial Systems, Portia (a division of
Thomson Financial), SunGard Data Systems, Inc., DST Systems, Inc. and Advent
Software, Inc. Although the Company believes that none of these competitors
currently competes against the Company in all such industry segments, there
can be no assurance that such competitors will not compete against the Company
in the future in additional industry segments. Many of the Company's current
and potential future competitors have significantly greater financial,
technical and marketing resources, generate higher revenues and have greater
name recognition than does the Company. There can be no assurance that the
Company's current or potential competitors will not develop products
comparable or superior to those developed by the Company or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
client requirements. It is also possible that alliances among competitors may
emerge and rapidly acquire significant market share. The Company has licensed
certain rights to affiliated entities for use in their asset management and
outsourcing business, and such entities may in the future compete with the
Company in such areas. See "--Transactions with Related Parties." Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which would materially adversely affect the Company's
business,
7
<PAGE>
financial condition and results of operations. There can be no assurance that
the Company will be able to compete effectively against current and future
competitors.
Rapid Technological Change. The market for the Company's products and
services is characterized by rapidly changing technology, evolving industry
standards and new product introductions. The Company's future success will
depend in part upon its ability to enhance its existing products and services
and to develop and introduce new products and services to meet changing client
requirements. The process of developing software products such as those
offered by the Company is extremely complex and is expected to become
increasingly complex and expensive in the future with the introduction of new
platforms and technologies. There can be no assurance that the Company will
successfully complete the development of new products in a timely fashion or
that the Company's current or future products will satisfy the needs of the
financial markets. In addition, certain of the Company's clients request
customization of the Company's software products to address unique
characteristics of their businesses or computing environments. The Company's
commitment to customization could place a burden on the Company's client
support resources or delay the delivery or installation of products which, in
turn, could materially adversely affect the Company's relationship with
significant clients or otherwise adversely affect its business, financial
condition and results of operations.
The Company's ability to remain competitive and respond to technological
change is also dependent upon the products of other software vendors,
including certain system software vendors, such as Microsoft Corporation, and
development tool vendors. In the event that the products of such vendors have
design defects or flaws, or if such products are unexpectedly delayed in their
introduction, the Company's business, financial condition and operating
results could be materially adversely affected. There can also be no assurance
that products or services developed by others will not adversely affect the
Company's competitive position or render its products noncompetitive or
obsolete.
Dependence on Database Supplier. The relational database design in many of
the Company's software products incorporates PFXplus, a "C"-based database
management system licensed to the Company by POWERflex Corporation Proprietary
Limited, an Australian vendor ("Powerflex"). If Powerflex were to increase its
fees under the license agreement, the Company's results of operations could be
materially adversely affected. Moreover, if Powerflex were to terminate the
license agreement, the Company would have to seek an alternative relational
database for its software products. While the Company believes that it could
migrate its products to an alternative database, there can be no assurance
that the Company would be able to license in a timely fashion a database with
similar features and on terms acceptable to the Company. Data Access
Corporation, a Florida corporation ("Data Access"), sued Powerflex in the
Federal Court of Australia, Victoria District Registry, General Division, and
the Court ruled that Powerflex infringed certain copyrights of Data Access. It
is expected that Powerflex will appeal the decision. While the Company is not
a party to such litigation, and is already a licensee of Data Access, there
can be no assurance that, in the event of a final adverse judgment against
Powerflex, the availability, or terms upon which Powerflex technology might
thereafter be licensed, would not have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Product Development."
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company
relies on a combination of trade secret, copyright and trademark law,
nondisclosure agreements and technical measures to protect its proprietary
technology. The Company enters into confidentiality and/or license agreements
with all of its employees and distributors, as well as with its clients and
potential clients seeking proprietary information, and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of its technology. In addition, the laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the
United States.
8
<PAGE>
Although the Company believes that its products and technology do not infringe
on any existing proprietary rights of others, the use of patents to protect
software has increased, and there can be no assurance that third parties will
not assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in the Company's favor. Any
infringement claims resolved against the Company could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
One of the developers of certain software incorporated as a component in the
Company's COPE product, which is currently undergoing beta testing, has
asserted that the Company has violated certain provisions of his licensing
agreements with the Company relating to such software. The Company believes it
would have meritorious defenses to any such claim, and does not believe that
such claims would result in material contingent liability in view of the fact
that COPE has not yet been licensed to a significant number of customers.
However, any attempt to terminate the relevant license agreement or the
initiation of litigation by such individual could delay the Company's
introduction of the COPE product, require redevelopment of certain COPE
functionality or otherwise affect the Company's margin for the COPE products
and, in turn, adversely affect the Company's future results of operations. See
"Business--Proprietary Rights" and "Certain Transactions."
Transactions with Related Parties. From 1990 to 1996, the Company licensed
its CAMRA and FILMS application software to Conning & Company, an affiliate of
certain stockholders of the Company currently holding an aggregate of
approximately 17.8% of the Company's Common Stock, pursuant to license,
maintenance and professional services agreements from which the Company
derived revenues of $188,000, $452,000 and $263,000 in 1993, 1994 and 1995,
respectively. On January 27, 1996, the Company licensed its CAMRA and FILMS
application software and certain other programs to Conning Asset Management
Company, an affiliate of Conning & Company, General American Life Insurance
Company ("GALIC"), which indirectly controls Conning & Company, and GALIC's
subsidiaries (collectively, the "Conning Group") pursuant to a Software
License Agreement providing for the payment of license and update fees to the
Company of $1,110,000 in 1996 and $210,000 per year for a period of four years
thereafter. Under such License Agreement the Company licensed to the Conning
Group rights to use the Company's source and object code for use in its asset
management business and, in the case of Conning Asset Management Company, for
outsourcing to customers in the insurance industry. As the Conning Group is
not restricted under the terms of the License Agreement from competing with
the Company for business within the foregoing areas, there can be no assurance
that the Conning Group may not in the future compete with the Company in such
areas. See "Certain Transactions."
Product Defects and Product Liability. The Company's software products are
highly complex and sophisticated and could from time to time contain design
defects or software errors that could be difficult to detect and correct.
Errors, bugs or viruses may result in loss of or delay in market acceptance or
loss of client data. Although the Company has not experienced material adverse
effects resulting from any software defects or errors, there can be no
assurance that, despite testing by the Company and its clients, errors will
not be found in new products, which errors could result in a delay in or
inability to achieve market acceptance and thus could have a material adverse
impact upon the Company's business, financial condition and results of
operations.
Because the Company's products are generally used by its clients to perform
mission-critical functions, design defects, software errors, misuse of the
Company's products, incorrect data from external sources or other potential
problems within or out of the Company's control that may arise from the use of
the Company's products could result in financial or other damages to the
Company's clients. As is customary in the software industry, the Company does
not maintain product liability insurance. Although the Company's license
agreements with its clients typically contain provisions designed to limit the
Company's exposure to potential claims, such provisions may not effectively
protect the Company against such claims and the liability and costs associated
therewith. Accordingly, any such claim could have a material adverse effect
upon the Company's business, financial condition and results of operations.
9
<PAGE>
Dependence on Key Personnel. The Company's business involves the delivery of
professional services and is labor intensive. The Company's success will
depend in large part upon its ability to attract, retain and motivate highly
skilled employees. There is significant competition for employees with the
skills required to perform the services offered by the Company. Although the
Company expects to continue to attract and retain sufficient numbers of highly
skilled employees for the foreseeable future, there can be no assurance that
the Company will be able to do so. The loss of William C. Stone, the Company's
President, Chief Executive Officer and Chairman of the Board, Shane A. Chalke,
the Company's Executive Vice President and Chief Technology Officer, or some
or all of the Company's other key personnel could have a material adverse
effect on the Company's business, financial condition and results of
operations, including its ability to attract employees and secure and complete
engagements. The Company holds a key person insurance policy in the amount of
$1,000,000 on William C. Stone.
Risks Associated with International Operations. Although the Company's
international sales have been immaterial to date, the Company intends to
expand its international sales activity as part of its business strategy,
particularly as the transition by foreign financial institutions to
client/server technology accelerates. In order to expand international sales
in subsequent periods, the Company must establish additional foreign
operations and hire additional personnel. This will require significant
management attention and financial resources and could materially adversely
affect the Company's business, financial condition or results of operations.
In addition, there can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products.
The Company's international sales are primarily denominated in U.S. dollars.
An increase in the value of the U.S. dollar relative to foreign currencies
could make the Company's products more expensive and, therefore, potentially
less competitive in those markets. Currently, the Company does not employ
currency hedging strategies to reduce this risk. In addition, the Company's
international business may be subject to a variety of risks, including
difficulties in collecting international accounts receivable or obtaining U.S.
export licenses, potentially longer payment cycles, increased costs associated
with maintaining international marketing efforts, the introduction of non-
tariff barriers and higher duty rates and difficulties in enforcement of
contractual obligations and intellectual property rights. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition or results of operations.
Control by Directors and Officers. Upon completion of this offering, the
Company's officers and directors, and their affiliates, will beneficially own
approximately 68.5% of the Company's outstanding Common Stock. As a practical
matter, these stockholders, if acting together, would have the ability to
elect the Company's directors and may have the ability to determine the
outcome of corporate actions requiring stockholder approval, irrespective of
how other stockholders of the Company may vote. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. See "Management" and "Principal and Selling Stockholders."
No Public Market. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price has been determined by negotiations
among the Company, the Selling Stockholders and the Representatives of the
Underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. Investors should be aware that
market prices for securities of software companies such as the Company are
highly volatile.
Dividends. No dividends have been paid on the Common Stock to date and the
Company does not anticipate paying dividends in the foreseeable future. See
"Dividend Policy."
Dilution. Purchasers of shares of Common Stock in this offering will suffer
an immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price. See "Dilution."
10
<PAGE>
Discretionary Use of Net Proceeds. The Company has not yet identified
specific uses for the net proceeds to be received by it from this offering.
The Company's management will have discretion over the use and investment of
such net proceeds. See "Use of Proceeds."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. On the date of
this Prospectus, in addition to the 3,750,000 shares offered hereby,
approximately 70,670 shares of Common Stock, which are not subject to 180-day
lock-up agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market
pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act"). Approximately 50,000 additional shares of Common Stock,
which are not subject to the Lock-Up Agreements, will be eligible for sale in
the public market in accordance with Rule 144 or Rule 701 under the Securities
Act beginning 90 days after the date of this Prospectus. Upon expiration of
the Lock-Up Agreements 180 days after the date of this Prospectus,
approximately 6,398,430 additional shares of Common Stock will be available
for sale in the public market, subject to the provisions of Rule 144 under the
Securities Act. Promptly after the date of this Prospectus, the Company
intends to register approximately 3,536,500 shares of Common Stock issuable
under its stock option and employee stock purchase plans. Holders of
approximately 8,471,730 shares of Common Stock (including 221,980 shares of
Common Stock that may be acquired pursuant to the exercise of vested options
held by them as of 180 days from the date of this Prospectus) have agreed,
pursuant to the Lock-Up Agreements, not to sell, consent to sell or otherwise
dispose of such shares for 180 days after the date of the final Prospectus.
The Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing market price of the Common Stock.
The holders of approximately 3,765,070 shares of Common Stock are entitled to
certain piggyback and demand registration rights with respect to such shares.
By exercising their registration rights, such holders could cause a large
number of shares to be registered and sold in the public market. Sales
pursuant to Rule 144 or other exemptions from registration, or pursuant to
registration rights, may have an adverse effect on the market price for the
Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. See "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by any consent in writing, and requires reasonable advance
notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or, if none, the President
of the Company or by the Board of Directors. The Restated Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, shares of the Company's Preferred Stock may be
issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has
no present plans to issue any shares of Preferred Stock. These provisions, and
other provisions of the Restated Certificate of Incorporation, may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock--Delaware Law and Certain Charter
and By-Law Provisions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by the Company hereby are estimated to be $52,773,838, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company. The Company will not receive any of the net proceeds
from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders." The principal purposes of this offering are to increase
the Company's equity capital, to create a public market for the Common Stock
and to facilitate future access by the Company to public equity markets.
The Company expects to use the net proceeds from this offering for working
capital, including funding expansion of both domestic and international
operations, and other general corporate purposes, including possible
acquisitions, as described below. The Company has not as yet identified
specific uses for such proceeds and will have discretion over their use and
investment. See "Risk Factors--Discretionary Use of Net Proceeds." Pending use
of the net proceeds, the Company intends to invest the net proceeds from this
offering in short-term, investment grade, interest-bearing instruments.
The Company intends to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company, and a portion of
the net proceeds may also be used for such acquisitions. While the Company
engages from time to time in discussions with respect to potential
acquisitions, the Company has no plans, commitments or agreements with respect
to any such acquisitions as of the date of this Prospectus, and there can be
no assurances that any acquisitions will be made.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support
its growth strategy and does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 (i) on a historical basis after giving effect to the Company's
reincorporation from Connecticut to Delaware, (ii) on a pro forma basis giving
effect, upon the closing of this offering, to the conversion of all
outstanding shares of Convertible Preferred Stock into 3,326,600 shares of
Common Stock and the filing of an amendment to the Company's Certificate of
Incorporation to remove the Company's existing series of Convertible Preferred
Stock and to create a class of authorized but undesignated Preferred Stock and
(iii) as adjusted to reflect the issuance and sale by the Company of 3,026,250
shares of Common Stock offered hereby and receipt of the net proceeds
therefrom, after deducting the underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds." This table should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt(2).............................. $ 450 $ 450 $ 450
------- ------- -------
Series A redeemable convertible preferred
stock, $.20 par value (liquidation preference
of $750,000), 24,750 shares authorized, issued
and outstanding (actual); no shares
authorized, issued or outstanding (pro forma
and pro forma as adjusted).................... 750 -- --
------- ------- -------
Stockholders' equity:
Preferred stock, $.01 par value; no shares
authorized, issued or outstanding (actual);
1,000,000 shares authorized, no shares
issued or outstanding (pro forma and pro
forma as adjusted)..........................
Series B convertible preferred stock, $.20
par value (liquidation preference of
$7,000,000), 152,778 shares authorized,
issued and outstanding (actual); no shares
authorized, issued or outstanding (pro forma
and pro forma as adjusted).................. 31 -- --
Series C convertible preferred stock, $.20
par value (liquidation preference of
$7,368,770), 155,132 shares authorized,
issued and outstanding (actual); no shares
authorized, issued or outstanding (pro forma
and pro forma as adjusted).................. 31 -- --
Common stock, $.01 par value; 25,000,000
shares authorized; 7,118,500 shares issued
and 5,767,570 shares outstanding (actual);
10,445,100 shares issued and 9,094,170
shares outstanding (pro forma); 13,471,350
shares issued and 12,120,420 shares
outstanding (pro forma as adjusted)(3)...... 71 104 135
Additional paid-in-capital................... 15,216 15,995 68,738
Accumulated deficit.......................... (3,137) (3,137) (3,137)
------- ------- -------
12,212 12,962 65,736
Less treasury stock, 1,350,930 common shares,
at cost..................................... (2,405) (2,405) (2,405)
------- ------- -------
Total stockholders' equity................. 9,807 10,557 63,331
------- ------- -------
Total capitalization..................... $11,007 $11,007 $63,781
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the Company's reincorporation from Connecticut to Delaware
in April 1996 as though such reincorporation and the resulting changes in
the Company's capital structure were effected on or prior to March 31,
1996. See Note 13 of Notes to the Company's Consolidated Financial
Statements.
(2) See Note 4 of Notes to the Company's Consolidated Financial Statements.
(3) Excludes an aggregate of 1,642,000 shares of Common Stock reserved for
issuance upon the exercise of options outstanding as of March 31, 1996.
See Note 10 of Notes to the Company's Consolidated Financial Statements.
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
was approximately $4,729,000, or $.52 per share of Common Stock. Pro forma net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding, after giving effect to the mandatory conversion of the
Convertible Preferred Stock upon completion of this offering. After giving
effect to the sale by the Company of 3,026,250 shares of Common Stock offered
hereby and the receipt of the net proceeds therefrom, the pro forma net
tangible book value of the Company at March 31, 1996 would have been
approximately $57,503,000, or $4.74 per share. This represents an immediate
increase in pro forma net tangible book value of $4.22 per share to existing
stockholders and an immediate dilution of $14.26 per share to new investors
purchasing shares in this offering. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $19.00
Pro forma net tangible book value as of March 31, 1996....... $ .52
Increase attributable to new investors....................... 4.22
-----
Pro forma net tangible book value after offering(1)............ 4.74
------
Dilution to new investors...................................... $14.26
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing stockholders and by the new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 9,094,170 75% $13,694,000 19% $ 1.51
New investors(1)............... 3,026,250 25 57,498,750 81 $19.00
---------- --- ----------- ---
Total...................... 12,120,420 100% $71,192,750 100%
========== === =========== ===
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 8,370,420, or approximately 69%
of the total number of shares of Common Stock outstanding after this
offering (or 7,807,920 shares and approximately 64% if the Underwriters'
over-allotment option is exercised in full), and will increase the number
of shares held by new investors to 3,750,000, or approximately 31% of the
total number of shares of Common Stock outstanding after this offering (or
4,312,500 shares and approximately 36% if the Underwriters' over-allotment
option is exercised in full).
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information with respect to
the Company's consolidated statements of operations for the years ended
December 31, 1993, 1994 and 1995 and with respect to the Company's
consolidated balance sheets as of December 31, 1994 and 1995 have been derived
from the Company's Consolidated Financial Statements, which appear elsewhere
in this Prospectus and which have been audited by Coopers & Lybrand L.L.P.,
independent public accountants. The selected consolidated financial
information with respect to the Company's consolidated balance sheet as of
December 31, 1993 has been derived from the Company's audited consolidated
financial statements, which have been audited by Coopers & Lybrand L.L.P. The
selected consolidated financial information with respect to the Company's
consolidated statement of operations for the years ended December 31, 1991 and
1992 and with respect to the Company's consolidated balance sheet as of
December 31, 1991 and 1992 has been derived from the Company's audited
consolidated financial statements, which have been audited by KPMG Peat
Marwick LLP, independent public accountants. The selected consolidated
financial information with respect to the Company's consolidated statements of
operations for the three months ended March 31, 1995 and 1996, and with
respect to the Company's consolidated balance sheet as of March 31, 1996 has
been derived from the Company's unaudited consolidated financial statements
included elsewhere in this Prospectus and include all adjustments, consisting
only of normal recurring adjustments, which management considers necessary for
a fair presentation of the results of such periods. The results for the three
months ended March 31, 1996 are not necessarily indicative of results to be
expected for the full year. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------
1991 1992 1993 1994 1995(1) 1995(1) 1996
------- -------- ------- ------- --------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Software licenses...... $ 2,029 $ 651 $ 2,703 $ 5,146 $ 10,647 $ 1,532 $ 4,253
Maintenance............ 647 932 1,308 2,030 4,055 721 1,306
Professional services.. 1,250 1,073 1,215 2,092 4,100 380 1,321
------- -------- ------- ------- -------- ------- -------
Total revenues......... 3,926 2,656 5,226 9,268 18,802 2,633 6,880
------- -------- ------- ------- -------- ------- -------
Cost of revenues:
Software licenses...... 82 110 96 152 454 49 105
Maintenance............ 328 293 312 898 1,046 160 374
Professional services.. 489 772 310 1,182 3,800 418 980
------- -------- ------- ------- -------- ------- -------
Total cost of
revenues.............. 899 1,175 718 2,232 5,300 627 1,459
------- -------- ------- ------- -------- ------- -------
Gross profit............ 3,027 1,481 4,508 7,036 13,502 2,006 5,421
------- -------- ------- ------- -------- ------- -------
Operating expenses:
Selling and marketing.. 1,096 1,005 1,545 2,693 5,242 698 2,198
Research and
development........... 866 1,071 1,401 1,743 5,253 670 1,555
General and
administrative........ 812 1,096 693 1,044 2,515 647 1,135
Write-off of purchased
in-process research
and development....... -- -- -- -- 7,889 7,889 --
------- -------- ------- ------- -------- ------- -------
Total operating
expenses.............. 2,774 3,172 3,639 5,480 20,899 9,904 4,888
------- -------- ------- ------- -------- ------- -------
Operating income
(loss)................. 253 (1,691) 869 1,556 (7,397) (7,898) 533
Interest income
(expense), net......... (50) (191) (198) (12) 24 46 (12)
------- -------- ------- ------- -------- ------- -------
Income (loss) before
income taxes........... 203 (1,882) 671 1,544 (7,373) (7,852) 521
Provision (benefit) for
income taxes........... 75 (468) 120 661 (3,024) (3,221) 208
------- -------- ------- ------- -------- ------- -------
Net income (loss)....... $ 128 $ (1,414) $ 551 $ 883 $ (4,349) $(4,631) $ 313
======= ======== ======= ======= ======== ======= =======
Pro forma net income
(loss) per common and
common equivalent
share.................. $ (.49) $ .03
======== =======
Pro forma weighted
average number of
common and common
equivalent shares
outstanding............ 8,911 10,126
======== =======
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
------- -------- ------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 3,685 $ 2,416 $ 1,983 $ 3,084 $ 1,585 $ 2,012
Working capital......... 4,293 2,938 2,316 3,345 3,255 1,948
Total assets............ 6,939 5,484 5,871 10,940 21,807 21,102
Redeemable convertible
preferred stock........ 750 750 750 750 750 750
Stockholders' equity
(deficit).............. 890 (518) 33 5,121 9,493 9,807
</TABLE>
- -------
(1) On March 31, 1995, the Company purchased substantially all of the assets
and operations of Chalke Incorporated for a purchase price of $12.7
million. Such acquisition was accounted for as a purchase and the Company
incurred a charge to operations of $7.9 million associated with the write-
off of purchased in-process research and development. The write-off of
purchased in-process research and development, after tax, increased 1995
net loss and net loss per common and common equivalent share by $4.8
million and $.80, respectively. See Notes 2 and 11 of Notes to the
Company's Consolidated Financial Statements.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of client/server-based software solutions,
and related consulting services, designed to improve the efficiency and
effectiveness of the investment management function within a broad range of
organizations in the financial services industry. The Company was founded in
1986 to provide consulting services to support the investment management
functions of financial services organizations. In 1989, as the result of a
joint development arrangement with GALIC, the Company introduced its first
product, CAMRA (Complete Asset Management, Reporting and Accounting), a DOS-
based program designed to address the management of asset portfolios by mid-
to large-size financial institutions. In 1993, the Company released its first
Windows-based version of CAMRA and has continued to enhance the level of
CAMRA's functionality each year thereafter. A majority of the Company's
revenues has historically been derived from sales of the CAMRA system. In
1993, SS&C introduced its FILMS (Fully Integrated Loan Management System)
product, enabling mortgage professionals to process, analyze and report on a
comprehensive basis information regarding their loan portfolios. On March 31,
1995, the Company acquired substantially all of the assets and operations of
Chalke Incorporated ("Chalke"), a supplier of asset/liability management and
modeling software and consulting services to the financial services industry.
Chalke's primary software product, PTS (Profit Testing System), provides an
economic model of insurance liabilities and assets to facilitate capital,
financial and risk management.
The Company's revenues have increased significantly during the last three
years due to growing acceptance of the Company's software products and, during
the last nine months of 1995, revenues from the Company's PTS product. While
the Company has other products, including several in development, most of the
Company's revenues are expected to be derived from CAMRA, FILMS and PTS in the
foreseeable future. Although the Company's international revenues have not
represented a material portion of the Company's revenues to date, the Company
intends to expand its international sales activity as part of its business
strategy, particularly as foreign financial institutions accelerate their
transition from mainframe to client/server-based systems.
The Company enters into license, maintenance and professional services
contracts to provide software and services to its clients. License fees for
the Company's CAMRA and FILMS products are based on assets under management,
with underlying maintenance provided on an annually renewable basis for
approximately 20% of the underlying software license fee. License fees for PTS
software are determined on a per-CPU or per-site basis, and maintenance is
provided on an annually renewable basis for approximately 16% of the
underlying software license fee. License revenues are recognized upon the
later of delivery of the software to the client or the completion of any
significant vendor obligations remaining after delivery, provided that
collection of the resulting receivable is considered probable. Maintenance
revenues are recognized ratably over the life of the contract. Professional
services revenues are provided on a time and material basis and are recognized
as they are performed.
Research and development costs associated with the Company's software are
expensed as incurred. Capitalization of internally developed software costs
begins upon the establishment of technological feasibility. The Company has
not capitalized any costs for internally developed software as eligible
amounts were immaterial in all relevant periods. The Company currently
anticipates that such costs will be immaterial for the foreseeable future.
The Company's results of operations for 1995 reflect the acquisition of
substantially all of the assets and operations of Chalke for a purchase price
of $12.7 million (the "Chalke Acquisition"). In connection with the Chalke
Acquisition, which was accounted for under the purchase method, the Company
incurred
16
<PAGE>
a charge to operations of $7.9 million associated with the write-off of
purchased in-process research and development related to Chalke products that
were under development at the time of acquisition but had not yet reached
technological feasibility. The balance of the purchase price was allocated to
operating assets of $2.2 million, goodwill of $1.8 million and purchased
completed software of $795,000. The operating results of Chalke have been
included in the Company's operating results since the date of acquisition.
Deferred revenues of $1.5 million, including approximately $1.0 million of
annual maintenance revenues, for which Chalke had previously invoiced and
collected the cash, were not included in the Company's operating results. As
part of the allocation of the purchase price, the Company accrued the costs to
perform the obligations remaining under these maintenance contracts. The
Company will, however, recognize revenues and associated expenses in
accordance with normal accounting policies as the Chalke maintenance contracts
are renewed.
The Company was profitable in 1993 and 1994 and would have been profitable
in 1995 except for the write-off of the purchased in-process research and
development associated with the Chalke Acquisition. The Company's operating
margin was 17% of revenues in each of 1993 and 1994 and would have been 3% of
revenues in 1995 prior to giving effect to the write-off. During 1995, the
Company invested in several areas to improve the long-term results of the
Company, which expenses, in turn, had a negative impact on the Company's 1995
operating margin. During 1995, the Company invested in the development of
several new products, including an aggregate of $1.9 million in the
development of the Finesse, COPE and PTS 2000 products, all of which are
currently scheduled for release in 1996. See "Business--Quantitative Products
Under Development." The Company also invested an aggregate of $774,000 in 1995
in connection with establishing its international sales distribution channel
and the opening of sales offices in London and Paris. The Company also made
other infrastructure investments in 1995, including the addition of six
executive officers. The Company expects to continue to invest in the
development of new products and distribution channels.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of revenues for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and
1996:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
---------------- -----------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses........................ 52% 56% 57% 58% 62%
Maintenance.............................. 25 22 21 27 19
Professional services.................... 23 22 22 15 19
--- --- --- ---- ---
Total revenues......................... 100 100 100 100 100
--- --- --- ---- ---
Cost of revenues:
Software licenses........................ 2 1 2 2 2
Maintenance.............................. 6 10 6 6 5
Professional services.................... 6 13 20 16 14
--- --- --- ---- ---
Total cost of revenues................. 14 24 28 24 21
--- --- --- ---- ---
Gross profit............................... 86 76 72 76 79
Operating expenses:
Selling and marketing.................... 29 29 28 27 32
Research and development................. 27 19 28 25 23
General and administrative............... 13 11 13 24 16
Write-off of purchased in-process
research and development................ 0 0 42 300 0
--- --- --- ---- ---
Total operating expenses............... 69 59 111 376 71
--- --- --- ---- ---
Operating income (loss).................... 17 17 (39) (300) 8
Interest income (expense), net............. (4) 0 0 2 0
--- --- --- ---- ---
Income (loss) before income taxes.......... 13 17 (39) (298) 8
Provision (benefit) for income taxes....... 2 7 (16) (122) 3
--- --- --- ---- ---
Net income (loss).......................... 11% 10% (23)% (176)% 5%
=== === === ==== ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Revenues
The Company's revenues are derived from software licenses and related
maintenance and professional services. Total revenues increased 161% from $2.6
million in the three months ended March 31, 1995 to $6.9 million in the three
months ended March 31, 1996. Approximately $1.2 million, or 46% of the
increase in revenues for the first quarter of 1996, was the result of revenues
associated with the operations acquired from Chalke on March 31, 1995. The
results of these operations were not included in the Company's Consolidated
Financial Statements for the three months ended March 31, 1995, but are
included for the three months ended March 31, 1996. An additional component of
the increase was $1.5 million of revenues associated with the Company's
licensing of its CAMRA and FILMS source code to a related party. See "Certain
Transactions."
Software Licenses. Software license revenues increased 178% from $1.5
million in the three months ended March 31, 1995 to $4.3 million in the three
months ended March 31, 1996. This increase was primarily attributable to the
increased market acceptance of the Company's CAMRA and FILMS products,
including the licensing of source code for these products for $1.5 million to
a related party.
18
<PAGE>
Maintenance. Maintenance revenues increased 81% from $721,000 in the three
months ended March 31, 1995 to $1.3 million in the three months ended March
31, 1996. The majority of this increase was due to the addition of Chalke's
maintenance clients. In addition, the Company's installed base of clients with
maintenance contracts grew as the result of increased CAMRA and FILMS license
sales.
Professional Services. Professional services revenues increased 247% from
$380,000 in the three months ended March 31, 1995 to $1.3 million in the three
months ended March 31, 1996. Demand for the Company's implementation,
conversion and training services increased due to the increased number of
license sales. A significant portion of this increase resulted from the
inclusion of Chalke's actuarial consulting services in the Company's
professional services revenues. The Company's strategy of increasing rates and
consulting resource utilization also contributed to the increase.
Cost of Revenues
Cost of Software Licenses. Cost of software license revenues relates
primarily to royalties, as well as the costs of product media, packaging,
documentation and labor involved in the distribution of the Company's
software. The cost of software license revenues increased 115% from $49,000 in
the three months ended March 31, 1995 to $105,000 for the three months ended
March 31, 1996, representing 3% and 2%, respectively, of software license
revenues in those periods.
Cost of Maintenance. Cost of maintenance revenues primarily comprises
technical customer support and development costs associated with product and
regulatory updates. Cost of maintenance revenues increased 133% from $160,000
in the three months ended March 31, 1995 to $373,000 in the three months ended
March 31, 1996, representing 22% and 29%, respectively, of maintenance
revenues in those periods. The increase in the cost of maintenance revenues
reflected the continued development of a dedicated support infrastructure for
the Company's combined operations, including Chalke.
Cost of Professional Services. Cost of professional services revenues consist
primarily of the cost related to the personnel utilized to provide
implementation, conversion and training services to the Company's software
licensees, as well as custom programming, system integration and actuarial
consulting services. Cost of professional services increased 134% from
$418,000 in the three months ended March 31, 1995 to $980,000 in the three
months ended March 31, 1996, representing 110% and 74%, respectively, of
professional services revenues in those periods. As part of its business
strategy, the Company began in 1996 to focus on consulting services as a
stand-alone source of revenues and profits. The decrease in the cost of
professional services as a percentage of professional services revenues is the
result of the implementation of this strategy, which included increased
utilization, improved efficiencies and increased rates.
Operating Expenses
Selling and Marketing. Selling and marketing expenses consist primarily of
the cost of personnel associated with the selling and marketing of the
Company's products, including salaries, commissions and travel and
entertainment. Such expenses also include the cost of branch sales offices,
advertising, trade shows, marketing and promotional materials. Selling and
marketing expenses increased 215% from $698,000 in the three months ended
March 31, 1995 to $2.2 million in the three months ended March 31, 1996,
representing 27% and 32%, respectively, of total revenues in those periods.
The increase in selling and marketing expenses resulted primarily from the
hiring of additional personnel during the remainder of 1995 and the first
quarter of 1996. The Company intends to continue the expansion of its sales
staff during the remainder of 1996.
Research and Development. Research and development expenses consist
primarily of personnel costs attributable to the development of new software
products and the enhancement of existing products. The Company's research and
development expenses in the three months ended March 31, 1995
19
<PAGE>
do not include the charge to operations of $7.9 million associated with the
write-off of purchased in-process research and development related to Chalke
products that were under development at the time of the Chalke Acquisition but
had not yet reached technological feasibility. See "Write-off of Purchased In-
Process Research and Development" below. Research and development expenses
increased 132% from $670,000 in the three months ended March 31, 1995 to $1.6
million in the three months ended March 31, 1996, representing 25% and 23%,
respectively, of total revenues in those periods. The increase in research and
development expenses during the three months ended March 31, 1996 reflected
the ongoing development of three new products--Finesse, COPE and PTS 2000, all
currently scheduled for release during 1996. See "Business--Quantitative
Products Under Development." Although the Company continued to devote
substantial resources to research and development, these costs decreased as a
percentage of total revenue.
General and Administrative. General and administrative expenses primarily
comprise personnel costs related to management, accounting, human resources
and administration and associated overhead costs, as well as fees for
professional services. General and administrative expenses increased 75% from
$647,000 in the three months ended March 31, 1995 to $1.1 million in the three
months ended March 31, 1996, representing 24% and 16%, respectively, of total
revenues in those periods. The increase in general and administrative expenses
was generally attributable to additional personnel costs associated with the
Company's expanded operations.
Write-off of Purchased In-Process Research and Development. In the three
months ended March 31, 1995, the Company expensed $7.9 million, or 300% of
total revenues for the period, of purchased in-process research and
development associated with two products acquired in March 1995 as part of the
Chalke Acquisition. Because these products had not reached technological
feasibility at the time of the acquisition and, in the Company's judgement,
there was no alternative future use for the related research and development,
such in-process research and development was therefore charged to expense.
There were no comparable expenses in the three months ended March 31, 1996.
Provision (Benefit) for Income Taxes. The Company had effective tax rates of
approximately (41)% and 40% in the three months ended March 31, 1995 and 1996,
respectively. Primarily as a result of the write-off of in-process research
and development related to the Chalke Acquisition, the Company recognized a
tax benefit of $3.2 million in the three months ended March 31, 1995.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues
Total revenues increased 77% from $5.2 million in 1993 to $9.3 million in
1994 and increased 103% to $18.8 million in 1995. The increases were primarily
attributable to the growing market acceptance of the Company's CAMRA product,
as well as an increase in the size of sales of the Company's products,
reflecting their purchase by larger clients with more assets under management.
In addition, the increase in revenues from 1993 to 1994 was attributable, in
part, to the introduction of the Company's FILMS product, and the increase
from 1994 to 1995 was attributable, in part, to the addition of PTS to the
Company's product family as a result of the Chalke Acquisition. Inclusion of
the operating results of Chalke since the date of acquisition accounted for
approximately $4.2 million of the Company's total revenues during 1995.
Substantially all of the Company's revenues were generated domestically, with
no international sales in 1993 and 1994 and immaterial international sales
during 1995.
Software Licenses. Software license revenues increased 90% from $2.7 million
in 1993 to $5.1 million in 1994 and increased 107% to $10.6 million in 1995.
The increases were primarily attributable to the growing market acceptance of
the Company's CAMRA product, as well as an increase in the size of the sales
of the Company's products, reflecting their purchase by larger clients with
more assets under management. In addition, the increase in software license
revenues from 1993 to 1994 was attributable, in part, to the introduction of
the Company's FILMS product, and the increase from 1994 to 1995 was
attributable, in part, to the addition of PTS.
20
<PAGE>
Maintenance. Maintenance revenues increased 55% from $1.3 million in 1993 to
$2.0 million in 1994 and increased 100% to $4.1 million in 1995. The increases
in maintenance revenues during these periods were attributable to the growing
installed base of clients with maintenance contracts as a result of increased
license sales and, during the last nine months of 1995, to the addition of
Chalke's maintenance clients. As maintenance typically does not begin until
after installation of the product and expiration of a 90-day warranty period,
the growth of maintenance revenues tends to occur several quarters after any
related growth in license sales. Deferred maintenance revenues of
approximately $1.0 million were not included in the Company's operating
results in 1995. As part of the allocation of the purchase price of the Chalke
Acquisition, the Company accrued the costs to complete its obligations under
the Chalke maintenance contracts, the revenues and expenses associated with
which are recognized as the Company renews such contracts.
Professional Services. Professional services revenues increased 72% from
$1.2 million in 1993 to $2.1 million in 1994 and increased 96% to $4.1 million
in 1995. Demand for the Company's implementation, conversion and training
services has increased due to the Company's increasing number of license
sales. Such license sale increases were primarily attributable to sales of the
Company's CAMRA product, as well as, for 1993 to 1994, the introduction of the
Company's FILMS product, and, for 1994 to 1995, sales of Chalke's PTS product.
As a result of the Chalke Acquisition, the Company also includes actuarial
consulting services in its professional services revenues.
Cost of Revenues
Cost of Software Licenses. The cost of software license revenues increased
60% from $96,000 in 1993 to $152,000 in 1994 and increased 198% to $454,000 in
1995, representing 4%, 3% and 4%, respectively, of software license revenues
in those years.
Cost of Maintenance. Cost of maintenance revenues increased 188% from
$312,000 in 1993 to $898,000 in 1994 and increased 16% to $1.0 million in
1995, representing 24%, 44% and 26%, respectively, of maintenance revenues in
those years. The increase in cost of maintenance revenues from 1993 to 1994
resulted, in part, from the provision of support to certain clients with
mainframe systems that the Company was transitioning to client/server systems.
The increase in cost of maintenance revenues from 1994 to 1995 reflected the
continued development of a dedicated support infrastructure for the Company's
combined operations, including Chalke.
Cost of Professional Services. Cost of professional services revenues
increased 281% from $310,000 in 1993 to $1.2 million in 1994 and increased
222% to $3.8 million in 1995, representing 26%, 56% and 93%, respectively, of
professional services revenues in those years. The cost of professional
services revenues in absolute dollars and as a percentage of professional
services revenues increased during each of the last three years. The increase
in cost of professional services revenues during 1994 and 1995 resulted
principally from increased license sales as well as the provision of
professional services that were not fully covered by the Company's pricing
policies. As part of its business strategy, the Company intends to focus on
consulting services as a stand-alone source of revenues and profits and
believes that, beginning in 1996, increased utilization, improved efficiencies
and increased rates will reduce the cost of professional services revenues as
a percentage of such professional services revenues.
Operating Expenses
Selling and Marketing. Selling and marketing expenses increased 74% from
$1.5 million in 1993 to $2.7 million in 1994 and increased 95% to $5.2 million
in 1995, representing 29%, 29% and 28%, respectively, of total revenues in
those years. The increases in selling and marketing expenses were attributable
to the hiring of additional sales personnel and, in 1995, the opening of new
sales offices, including the Company's sales offices in London and Paris. The
Company expects selling and marketing expenses to continue to increase in
absolute dollars.
21
<PAGE>
Research and Development. Research and development expenses increased 24%
from $1.4 million in 1993 to $1.7 million in 1994 and increased 201% to $5.3
million in 1995, representing 27%, 19% and 28%, respectively, of total
revenues in those years. The Company's research and development expenses in
1995 do not include the charge to operations of $7.9 million associated with
the write-off of purchased in-process research and development related to
Chalke products that were under development at the time of the Chalke
Acquisition but had not yet reached technological feasibility. See "Write-off
of Purchased In-Process Research and Development" below. Research and
development expenses as a percentage of revenues were higher in 1993 than in
1994 primarily due to expenses incurred in 1993 in connection with the
development of the Company's FILMS product and the addition of Windows
functionality to the Company's CAMRA product. During 1995, the Company
significantly increased the dollar level of research and development expenses,
principally in the development of three new products--Finesse, COPE and PTS
2000, all currently scheduled for release during 1996. See "Business--
Quantitative Products Under Development." While the Company plans to continue
to devote substantial resources to research and development, it anticipates
that the increase in absolute dollars will be less in future years and that
the amount will decrease as a percentage of total revenues.
General and Administrative. General and administrative expenses increased
51% from $693,000 in 1993 to $1.0 million in 1994 and increased 141% to $2.5
million in 1995, representing 13%, 11% and 13%, respectively, of total
revenues in those years. The increases in general and administrative expenses
were generally attributable to additional personnel costs associated with the
Company's expanded operations. In addition, the Company's general and
administrative expenses during 1995 included expenses associated with the
recruitment of several of the Company's executive officers as well as the
leasing of additional space to accommodate the Company's expanded operations.
Write-off of Purchased In-Process Research and Development. In 1995, the
Company expensed $7.9 million, or 42% of total revenues, of purchased in-
process research and development associated with two products acquired in
March 1995 as part of the Chalke Acquisition. Because these products had not
reached technological feasibility at the time of the acquisition and, in the
Company's judgment, there was no alternative use for the related research and
development, such in-process research and development was therefore charged to
expense. There were no comparable expenses in 1993 or 1994.
Provision (Benefit) for Income Taxes. The Company had effective tax rates of
approximately 18%, 43% and (41)% in 1993, 1994 and 1995, respectively.
Primarily as a result of the write-off of in-process research and development
related to the Chalke Acquisition, the Company recognized a tax benefit of
$3.0 million in 1995. The effective tax rate in 1994 reflects the effects of
permanent items and adjustments which served to marginally increase the
Company's tax rate in that year. The utilization of net operating loss
carryforwards reduced the Company's effective income tax rate in 1993.
22
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly results of
operations of the Company for each of the four quarters of 1994 and 1995 and
the first quarter of 1996. The Company believes that this information has been
prepared on the same basis as the audited Consolidated Financial Statements
and that all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the selected quarterly information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. The quarterly operating results are not necessarily
indicative of future results of operations. See "Risk Factors--Fluctuations in
Quarterly Performance."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... $1,221 $1,299 $1,245 $1,381 $ 1,532 $2,547 $2,674 $3,894 $4,253
Maintenance............ 393 415 520 702 721 918 1,097 1,319 1,306
Professional services.. 229 532 396 935 380 1,456 1,147 1,117 1,321
------ ------ ------ ------ ------- ------ ------ ------ ------
Total revenues......... 1,843 2,246 2,161 3,018 2,633 4,921 4,918 6,330 6,880
------ ------ ------ ------ ------- ------ ------ ------ ------
Cost of revenues:
Software licenses...... 41 35 45 31 49 100 113 192 105
Maintenance............ 87 94 221 496 160 139 319 428 374
Professional services.. 190 238 334 420 418 1,108 1,209 1,065 980
------ ------ ------ ------ ------- ------ ------ ------ ------
Total cost of
revenues.............. 318 367 600 947 627 1,347 1,641 1,685 1,459
------ ------ ------ ------ ------- ------ ------ ------ ------
Gross profit............ 1,525 1,879 1,561 2,071 2,006 3,574 3,277 4,645 5,421
Operating expenses:
Selling and marketing.. 465 600 696 932 698 1,172 1,496 1,876 2,198
Research and
development........... 304 351 466 622 670 1,584 1,372 1,627 1,555
General and
administrative........ 253 299 285 207 647 400 644 824 1,135
Write-off of purchased
in-process research
and development....... -- -- -- -- 7,889 -- -- -- --
------ ------ ------ ------ ------- ------ ------ ------ ------
Total operating
expenses.............. 1,022 1,250 1,447 1,761 9,904 3,156 3,512 4,327 4,888
------ ------ ------ ------ ------- ------ ------ ------ ------
Operating income
(loss)................. 503 629 114 310 (7,898) 418 (235) 318 533
Interest income
(expense), net......... (24) 19 (34) 27 46 (1) (1) (20) (12)
------ ------ ------ ------ ------- ------ ------ ------ ------
Income (loss) before
income taxes........... 479 648 80 337 (7,852) 417 (236) 298 521
Provision (benefit) for
income taxes........... 205 277 34 145 (3,221) 171 (97) 123 208
------ ------ ------ ------ ------- ------ ------ ------ ------
Net income (loss)....... $ 274 $ 371 $ 46 $ 192 $(4,631) $ 246 $ (139) $ 175 $ 313
====== ====== ====== ====== ======= ====== ====== ====== ======
</TABLE>
23
<PAGE>
The following table sets forth certain consolidated financial data as a
percentage of revenue for each of the four quarters of 1994 and 1995 and the
first quarter of 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... 66% 58% 58% 46% 58% 52% 54% 62% 62%
Maintenance............ 21 18 24 23 27 19 22 21 19
Professional services.. 13 24 18 31 15 29 24 17 19
--- --- --- --- ---- --- --- --- ---
Total revenues......... 100 100 100 100 100 100 100 100 100
--- --- --- --- ---- --- --- --- ---
Cost of revenues:
Software licenses...... 2 2 2 1 2 2 2 3 2
Maintenance............ 5 4 11 16 6 3 6 7 5
Professional services.. 10 10 15 14 16 22 25 17 14
--- --- --- --- ---- --- --- --- ---
Total cost of
revenues.............. 17 16 28 31 24 27 33 27 21
--- --- --- --- ---- --- --- --- ---
Gross profit............ 83 84 72 69 76 73 67 73 79
Operating expenses:
Selling and marketing.. 25 27 32 31 27 24 31 30 32
Research and
development........... 17 16 22 21 25 32 28 26 23
General and
administrative........ 14 13 13 7 24 9 13 12 16
Write-off of purchased
in-process research
and development....... 0 0 0 0 300 0 0 0 0
--- --- --- --- ---- --- --- --- ---
Total operating
expenses.............. 56 56 67 59 376 65 72 68 71
--- --- --- --- ---- --- --- --- ---
Operating income (loss)
....................... 27 28 5 10 (300) 8 (5) 5 8
Interest income
(expense), net......... (1) 1 (1) 1 2 0 0 0 0
--- --- --- --- ---- --- --- --- ---
Income (loss) before
income taxes........... 26 29 4 11 (298) 8 (5) 5 8
Provision (benefit) for
income taxes........... 11 12 2 5 (122) 3 (2) 2 3
--- --- --- --- ---- --- --- --- ---
Net income (loss)....... 15% 17% 2% 6% (176)% 5% (3)% 3% 5%
=== === === === ==== === === === ===
</TABLE>
The Company's quarterly operating results have varied substantially from
period to period, and the Company anticipates that such fluctuations will
continue for the foreseeable future. Quarterly revenues and operating results
depend heavily on the timing and size of the Company's individual license
contracts with its clients. Revenues from quarter to quarter can vary
substantially due to the large size of a number of license contracts and the
length and complexity of the sales cycle. Additional factors that may cause
fluctuations in quarterly operating results include the timing of the
introduction and the market acceptance of new products or product enhancements
by the Company or its competitors; the relative proportions of revenues
derived from license fees, maintenance, consulting and other recurring
revenues and professional services; changes in the Company's operating
expenses; personnel changes and fluctuations in economic and financial market
conditions.
The Company's revenues have historically been higher in the fourth quarter
of the fiscal year primarily because of the concentration by some clients of
larger capital purchases in the fourth quarter due to year-end budgetary
pressures on the Company's clients and the tendency of certain clients to
implement changes in computer software applications prior to the end of the
calendar year. In turn, the Company's revenues have historically been lower in
the first quarter due to the allocation of resources by potential clients to
the processing and reporting requirements for the prior fiscal year. The
Company anticipates that these trends will continue.
24
<PAGE>
In addition, the Company typically has realized a disproportionate amount of
its revenues and income in the last month of each quarter and, as a result,
the magnitude of quarterly fluctuations may not become evident until late in,
or at the end of, a given quarter. Accordingly, delays in product delivery or
in the closing of sales near the end of a quarter could cause quarterly
revenues and, to a greater degree, net income to fall substantially short of
anticipated levels.
The Company generally ships its software products to its clients shortly
after receipt of the license agreement signed by the client and, to the extent
there are no significant outstanding obligations, recognizes revenues at that
time, provided that collection is probable. As a result, the software product
backlog at the beginning of any quarter typically represents only a small
portion of that quarter's expected revenues and is therefore immaterial. The
Company's expense levels, to a large extent, are based on expected revenues
and are somewhat fixed in the short term. Due to the high gross margin of the
Company's products and relatively fixed nature of these expenses, an
unanticipated decline in revenues in a quarter is likely to have a material
adverse effect on the Company's operating results.
As a result of all of the above factors, operating results for any future
quarter are not predictable with any degree of certainty and that period to
period comparisons of its operating results are not necessarily meaningful.
Such comparisons cannot be relied on as indicators of future financial
performance. There can be no assurance that the Company will remain profitable
in the future or that future operating results will not also vary
substantially. See "Risk Factors--Fluctuations in Quarterly Performance."
The Company purchased substantially all of the assets and operations of
Chalke on March 31, 1995. Since that date, the results of Chalke have been
included in the Company's quarterly operating results.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, 1994 and 1995 and the three months ended March 31, 1996, the
Company financed its operations primarily through cash flows generated from
operations and from private sales of securities. Cash provided by operations
was $951,000 and $1.1 million in 1993 and 1994, respectively, and cash used in
operations was $1.9 million in 1995. Cash provided by operations was $595,000
for the three months ended March 31, 1996. Accounts receivable increased
significantly during 1995 as a result of an increase in license sales and
related professional services as well as due to the Chalke Acquisition.
Unbilled accounts receivable also increased significantly during 1995 for the
foregoing reason as well as due to the disproportionately high level of
software licensing activity that occurred late in the fourth quarter of 1995.
All of the Company's accounts receivable, including unbilled accounts
receivable, as of December 31, 1995 are contractually due within twelve
months. During the three months ended March 31, 1996, accounts receivable
decreased $1.2 million, primarily as a result of the collection of accounts
related to year-end license sales and maintenance renewals. Because of the
nature of the Company's market and the complexity of its products, the Company
believes that its receivables are typically higher than companies that
generate substantial revenues from shrink-wrap licenses or lower-end
applications software.
The Company's general and administrative expenses included bad debt expenses
of $9,000, $325,000, $498,000 and $168,000 in 1993, 1994, 1995 and the three
months ended March 31, 1996, respectively. The increase in the provision for
bad debts was due to the increase in the allowance for doubtful accounts,
which was based on an evaluation of specific delinquent accounts and a general
reserve based on a percentage of revenues in 1995 and for the first quarter of
1996. The Company believes its determination of doubtful accounts is
appropriate in light of the large increase in revenues over the past two years
and intends to apply the same method for determination of its allowance for
doubtful accounts for the balance of 1996. Actual write-offs of accounts
receivable were $1,000, $309,000 and $34,000 for 1993, 1994 and 1995,
respectively, and there have been no write-offs in the three months ended
March 31, 1995 and 1996. There was one significant account written off in 1994
for approximately $292,000.
Investing activities, consisting primarily of the acquisition of property
and equipment, used cash of $371,000 and $694,000 in 1993 and 1994,
respectively. In 1995, the Company used cash of $8.3 million
25
<PAGE>
in investing activities, $7.4 million of which was used to finance the Chalke
Acquisition. The remaining $900,000 was used to acquire property and
equipment. For the three months ended March 31, 1996, cash used in investing
activities of $168,000 was used to acquire property and equipment. Net cash
used in financing activities in 1993 of $1.0 million represented the partial
repayment of notes payable to a related party. Net cash provided by financing
activities of $682,000 in 1994 resulted primarily from the issuance of
Convertible Preferred Stock of $6.0 million, less the repayment of the balance
of the notes payable and the mortgage on the Company's corporate offices
totaling $2.3 million, as well as the repurchase of stock by the Company in
the amount of $2.3 million. In addition, the Company transferred $505,000 to a
restricted cash account in connection with the purchase of certain assets from
an unrelated party. Net cash of $8.7 million provided by financing activities
in 1995 resulted from the issuance of Convertible Preferred Stock of $7.3
million and the issuance of Common Stock upon the exercise of warrants for
$1.4 million related to the financing of the Chalke Acquisition. There was no
cash provided by or used in financing activities during the first quarter of
1996.
As of March 31, 1996, the Company had $2.0 million in cash and cash
equivalents. In connection with the Chalke Acquisition, the Company issued to
Chalke a promissory note in the principal amount of $3.0 million, with an
imputed interest rate of 7.91% per annum. The note is due in two installments
of $1.5 million on each of March 31, 1996 and 1997. The March 31, 1996
installment has been paid in full by the Company. See "Certain Transactions."
The Company believes that net proceeds from this offering, its current cash
balances and net cash provided by operating activities will be sufficient to
meet its working capital and capital expenditure requirements for the next 12
months.
26
<PAGE>
BUSINESS
SS&C Technologies, Inc. ("SS&C" or the "Company") is a leading provider of
client/server-based software solutions, and related consulting services,
designed to improve the efficiency and effectiveness of the investment
management function within a broad range of organizations in the financial
services industry. The Company has developed a family of software products
that provides a full range of mission-critical information management and
analysis, accounting, reporting and compliance tools to help high-level
investment professionals make informed, real-time decisions and automate many
operational functions in today's increasingly complex and fast-moving
financial markets. The Company's products are focused on improving the
effectiveness of decision making through open, fully integrated access to the
quantitative analysis of transactions-based data, allowing investment
professionals to manage and analyze large amounts of data both in the
aggregate and in detail on a timely basis. The Company provides products and
services to over 300 organizations worldwide and its customers include asset
managers, insurance companies, banks, corporate treasuries and government
agencies.
INDUSTRY BACKGROUND
The financial services industry comprises a variety of enterprises and
organizations, including asset managers, insurance companies, banks, mutual
funds, public and private pension funds, hedge funds, corporate treasuries and
government agencies. Each of these industry segments operates in an
environment characterized by rapidly changing market conditions, increasing
trading and monetary transaction volumes, asset and security products
proliferating in both number and complexity, rapidly evolving regulatory
requirements and fierce competition. Professionals throughout the financial
services industry must be able to make timely and informed investment
decisions reflecting global market information about securities that are often
far more complex than those associated with traditional equity and debt
instruments.
These challenges have been compounded by the worldwide growth of the
financial services industry. Financial assets have grown substantially
throughout the 1990's. Annual mutual fund inflow increased from approximately
$60 billion in 1989 to $197 billion in 1995 while the total assets under
mutual fund management increased from $252 billion in 1986 to $2.5 trillion in
1995. Today, the largest 100 insurance companies have over $2.1 trillion under
management. The Company believes that banks, public and private pension funds
and corporate treasuries have experienced substantial growth in assets under
management, which has in turn led to significant growth in the number of
investment management organizations. For example, registered investment
advisors increased in number from approximately 6,200 in 1986 to over 23,800
in 1995.
Segments of the financial services industry are subject to extensive and
changing regulation by a variety of governmental and self-regulatory
organizations, such as the Association for Investment Management and Research
(AIMR), the National Association of Insurance Commissioners (NAIC) and the
Association of International Bond Dealers (AIBD). Each of these bodies has
promulgated its own performance metrics, reporting standards and calculation
of reserves--all of which must be reflected as appropriate in the analysis,
transactions and reports of financial service organizations.
These factors have created an increasing gap between the amount and
complexity of data that must be analyzed and controlled and the resources
currently available to effectively meet these requirements. Traditionally,
financial service organizations have relied on internally developed systems or
timesharing services to manage their information analysis requirements.
Typically, internally developed systems have been implemented on expensive
mainframes and minicomputers in highly centralized environments. These legacy
applications require large MIS departments, are expensive to implement,
support and modify and have limited interoperability with the variety of
information resources and systems that exist in today's computing environment.
Because MIS personnel have often lacked regulatory expertise and financial
27
<PAGE>
analysis backgrounds, legacy applications often cannot fully support
regulatory compliance and reporting and have historically lacked focused
analytical tools. User interfaces of these applications tend to be character-
based, and applications are not integrated with other information functions
and data services, limiting legacy systems' usefulness and restricting the
effectiveness of key decision makers within financial organizations, who need
immediately available information and responsive analytical tools. Timesharing
services, used by certain other financial service organizations, require
overnight batch processing, are inflexible and expensive, and isolate decision
makers from direct access to current data and essential decision-making tools.
The need to provide investment professionals across the financial services
industry with direct access to critical data, coupled with the improved
performance of desktop systems, has led in recent years to the adoption of
client/server solutions, which support the integration of a wide variety of
"client" (or end user) and "server" (host-based or back-end) systems and
databases. Client/server architecture offers end users a more flexible, easily
accessible computing environment while providing greater functionality and the
ability to solve complex problems on a timely and cost-effective basis. It
has, however, proven difficult for organizations within the financial services
industry to integrate client/server solutions with their existing legacy
databases and mainframe systems, limiting their ability to realize the full
potential of distributed computing environments and limiting the availability
of advanced analytical tools.
To operate efficiently in today's complex and constantly changing financial
markets, financial service organizations must automate and integrate their
mission-critical and labor-intensive functions, including (i) investment
decision support and performance measurement, (ii) asset/liability management,
(iii) portfolio accounting, report generation and compliance and (iv) order
management and trading. Legacy solutions typically lack the functionality and
flexibility required in today's environment, while isolating investment
decision makers from timely information provided by an increasingly broad
range of essential analytical tools and reports. To meet their requirements,
financial service organizations require distributed software applications that
overcome these problems and provide flexible, functional resources for
informed, real-time business decision making and regulatory compliance.
THE SS&C SOLUTION
The Company offers a family of highly functional, mission-critical
client/server software applications that help automate and simplify
information management and analysis, accounting, reporting and compliance for
investment professionals in a broad range of financial service segments. The
Company's solution is designed to improve the effectiveness of decision making
by executives, portfolio managers and other investment professionals by
providing open, fully integrated access to the quantitative analysis of
transactions-based data, allowing investment professionals to manage and
analyze large amounts of data both in the aggregate and in detail on a timely
basis. The Company's products are complemented by a comprehensive service
organization to facilitate successful product implementation and provide
ongoing training and support.
Each of the Company's software products features (i) intuitive graphical
interfaces to minimize learning time and maximize user flexibility; (ii) a
high degree of functionality, integrating trading, accounting, reporting and
analytical functions as part of a complete system for managing securities and
asset portfolios; (iii) advanced quantitative analytical tools tailored to the
requirements of particular industry segments and (iv) highly scalable and
flexible architecture, allowing the customizing of each product to a specific
client's requirements and priorities, regardless of size, organizational
structure and number of relevant portfolios, types of securities, accounting
bases, regulatory regimes or managers involved. Each of the Company's products
is designed to be interoperable with other Company products, third-party
applications and data sources (including legacy systems) and other desktop
applications. The Company's products feature client/server architecture to
support a distributed model of computing within a Windows or OS/2 environment
consistent with the requirement of the Company's principal users. The
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<PAGE>
high functionality, interoperability and ease-of-use of the Company's products
are intended to assure the efficient analysis and management of information on
a timely basis, increase productivity, reduce costs and enable users in a
variety of financial service organizations to devote more time to critical
business decisions rather than administrative, reporting and compliance
matters.
Investment Accountants
Settle and Account
Executive Managers for Transactions and
Traders Execute Analyze Portfolio, Perform Client
Operational Securities Market Management and
Implementation Transactions and Economic Data Regulatory Reporting
--------------------------------CAMRA----------------------------------
--------------------------------FILMS----------------------------------
-------FOTOS-------
----------PTS----------
----ALLOCATOR PLUS-----
Strategic ---------COPE*---------
Analysis
--------FINESSE*-------
- -----------
*Currently scheduled to be released in 1996
COMPANY STRATEGY
The Company's goal is to become a leading worldwide provider of
client/server-based software solutions, and related consulting services, that
automate and simplify the management and analysis of the vast amounts of
information being delivered to, or produced by, financial service
organizations. The key elements of the Company's strategy include:
. Provide a Full Line of Highly Functional, Client/Server Software
Applications. The Company believes that its ability to offer a broad
range of highly functional software applications is a key competitive
strength, and it intends to build upon this base by enhancing the
functionality and interoperability of its new and existing products. The
Company uses multidisciplinary teams of highly trained finance,
accounting, mathematical, actuarial, software and investment personnel to
ensure that the Company's products continue to include features that meet
the extensive and changing requirements of organizations across the
financial services industry. The Company also intends to continue to
develop software applications that are built around industry standards in
order to assure flexibility and ease of integration.
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<PAGE>
. Broaden Sales Across and Within Industry Segments. The various segments
of the financial services industry share a core of common critical
problems, while decision makers in different areas within an individual
investment organization also share common requirements for the timely and
effective management of information. The Company believes that it can
leverage its reputation within the industry to broaden the adoption of
its products by additional organizations in the same or other segments of
the financial services industry, as well as to increase penetration of
its products among its existing clients.
. Emphasize Service Offerings. The Company's consulting and service
offerings are a critical component of its client-driven solution, and the
Company intends to continue to emphasize its comprehensive consulting and
support services to facilitate the timely installation, implementation
and effective utilization, of the Company's products by its clients.
Furthermore, the Company believes that full outsourcing of investment
analysis and management functions can be a cost-effective solution for
many organizations, and intends to enhance its outsourcing services by
building on the strength and breadth of its software products. The
Company believes that such outsourcing activities permit it to meet the
requirements of a class of clients that might otherwise not elect to
purchase products of the Company and could provide a recurring source of
revenue to the Company.
. Expand International Operations. The Company's solutions are configured
to meet the needs of large financial service organizations throughout the
world, and currently include the capacity to process multi-currency
transactions and to measure and report international performance metric
standards. The Company intends to leverage these capabilities and its
strong relationships with financial institutions in North America to
increase its sales to financial institutions in international markets,
particularly in traditional money centers in Europe and the Pacific Rim.
During 1995, the Company opened sales offices in France and the United
Kingdom and hired six employees to support international operations.
During 1996, the Company hired a sales representative in Kuala Lumpur to
service the Asian market. The Company plans to expand its business
outside North America by hiring additional sales and support personnel
during 1996.
. Pursue Strategic Opportunities. The Company believes the market for
financial services software is highly fragmented and rapidly evolving,
with many new product introductions and many large and small industry
participants. These factors create both the need and the opportunity to
effect strategic transactions, including acquisitions, alliances or other
partnerships, in order to increase the breadth of its product offerings,
establish new sales and marketing channels and exploit evolving market
opportunities. While the Company presently has no commitments to effect
any such transaction, it intends to pursue such opportunities in order to
enhance further its competitive position as the marketplace evolves and
consolidates.
PRODUCTS AND SERVICES
The Company offers a family of application software products designed to
address the requirements of professionals in the financial services industry
for flexible, scalable and secure analysis and reporting tools to support
automation of the investment process. The Company's family of software
products supports trading, accounting, reporting and analysis requirements of
a broad range of users within financial organizations, including senior
executives, portfolio managers, analysts, portfolio accountants and traders.
30
<PAGE>
The following chart summarizes the Company's products, products under
development and typical users:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION TYPICAL USERS
------- ----------- -------------
<S> <C> <C>
CAMRA Complete asset management, Portfolio managers and
reporting and accounting operations personnel
system
FILMS Fully integrated loan Mortgage portfolio managers
management system and servicers
PTS Spread management/pricing Insurance company CEO's,
systems CFO's and product managers
FOTOS Front office trade Fixed-income and equity
operations system traders
Allocator Plus Structured finance forward Mortgage-backed securities
trading and allocation traders and operations
system personnel
COPE* Fixed-income portfolio Quantitative and financial
analysis program analysis research analysts and
managers
Finesse* Dynamic financial modeling CEO's, CFO's and risk
and analysis program managers of property and
casualty insurance companies
</TABLE>
- --------
* The Company currently expects to release versions of these products during
calendar 1996. See "Business--Product Development."
The Company's software applications are compatible with Intel x86 platforms
(IBM PC compatible or emulators) and a wide range of popular topologies,
protocols and network operating systems, including Ethernet, Token Ring,
IPX/SPX, TCP/IP, NET BEVI, Novell Netware, Windows Pathworks and UNIX. The
Company's CAMRA, FILMS and FOTOS products run on DOS, Windows (3.1, 3.11, 95)
and WindowsNT operating systems, and CAMRA and FILMS also run on OS/2 systems.
The Company's PTS product currently runs on DOS, and the Company expects to
introduce a Windows version of PTS during 1996.
The prices of the Company's software products vary depending upon the
product features included and, in the case of the Company's CAMRA and FILMS
products, on the assets under management by the client. The Company's PTS
software is available for purchase by site or CPU license.
CAMRA
The Company's complete asset management, reporting and accounting ("CAMRA")
applications software supports the integrated management of asset portfolios
by investment professionals. CAMRA is a multi-user, integrated solution
tailored to support complete portfolio management and includes features to
execute, account for and report all typical securities transactions. For
example, it allows investment professionals to allocate and reallocate
securities and to update account, portfolio, issuer, custodian and security-
type information through selected entries across the entire database. The
Company's CAMRA product is used by clients with assets under management
ranging from $50 million to $70 billion.
As part of its support of complete portfolio management, CAMRA provides the
following capabilities:
Portfolio Management and Market Analysis. CAMRA includes a comprehensive,
integrated securities database supporting on-line daily, monthly, quarterly
and on-demand calculation of a range
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<PAGE>
of information, including book and market value, yields, convexity, average
life and various user-selected scenarios. During the first quarter of 1996,
the Company and Bloomberg Financial Markets ("Bloomberg") announced the
introduction of SS&C GO Trading, a new service providing investment
professionals with an integrated platform for using Bloomberg trading,
securities and portfolio analysis in conjunction with CAMRA.
Comprehensive Accounting and Reporting Capabilities. CAMRA supports four
accounting bases--GAAP, statutory, management and tax--and has the
flexibility to provide for up to four alternative accrual methods, five
sales methods, average cost or tax lot accounting and four amortization
methods. CAMRA can generate reports on multiple reporting levels, exporting
data directly to spreadsheets, word processors and databases for ease of
delivery and presentation.
Support of Trading Transactions. CAMRA supports a wide variety of
investment and accounting transactions, ranging from buy and sell to short
and cover, swap, put, call, redemption, return of capital, settlement,
account transfer and portfolio transfer. All transactions are recorded on a
real-time basis, permitting immediate access to the most current portfolio
information.
Multi-Currency Processing. CAMRA automatically calculates transaction and
translation values in accordance with applicable accounting and insurance
industry rules, supports calculation of all local marketing, accounting and
foreign exchange gains and losses, and provides a full foreign exchange
trading capability with forward pricing, while taking into account such
critical parameters as global calendars (with weekends and holidays defined
by countries), multiple-based currencies and required rounding techniques.
Regulatory Compliance. CAMRA provides performance measurement
calculations in accordance with AIMR standard time-weighted calculations,
and can be run for any time period, entity, portfolio and security grouping
as well as bench marked against outside indices.
Available Interfaces. CAMRA supports comprehensive importing and
exporting of data, in ASCII format, using a number of automated interfaces,
including interfaces with custodian banks and pricing, external market and
general ledger services of popular financial/accounting applications.
Examples of the Company's current interfaces include:
CUSTODIAN BANKS PRICING
Bankers Trust Company Bridge
Bank of America CompuServe
Bank of New York IDC Services
Chase Manhattan Bank Merrill Lynch Pricing Services
Chemical Bank NAIC
Citibank
Continental Bancorp EXTERNAL MARKET SERVICES
First National Bank of Chicago Almont Analytical
Fleet Financial Group Bond Buyer
Goldman, Sachs & Co. HubData
Harris Bank International
Mellon Bank GENERAL LEDGER
Morgan Stanley Group Freedom
Northern Trust Company McCormack & Dodge
PNC Bank Corp. MSA
State Street Bank and Trust Co. PeopleSoft
Walker
FILMS
The Company's fully integrated loan management system ("FILMS") enables
mortgage professionals to process, analyze and report on a comprehensive basis
information regarding their loan portfolios. Like CAMRA, FILMS is a multi-
user, integrated solution operating on a client/server platform, which
eliminates the need for separate, independent systems within the mortgage loan
area. FILMS, which can be integrated with the Company's CAMRA and PTS
products, supports the following features:
Applications and Commitment Processing. FILMS supports the processing of
commercial and residential mortgage loans, providing on-line access to
critical evaluative information, including credit
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<PAGE>
history, appraisals, LTM ratio, broker information, duration, convexity,
average life and discounted cash flow valuation, permitting loan
recommendations to be generated quickly, consistently and easily.
Accounting and Servicing Support. FILMS supports accurate and consistent
account servicing of loans, including general ledger entries at the sub-
portfolio level, with a direct interface to the corporate general ledger.
FILMS also maintains appraisals, expenses and operating statements at the
proper level to support loan servicing on a fully automated basis.
Comprehensive Reports. FILMS generates and supports a wide range of
reports, allowing generation of segment analysis, scenarios including best
and worst case, reallocation of loan assets by performing portfolio swaps
and generation of cash flow projections.
PTS
The Company's profit testing system ("PTS") software is a client/server
system designed to provide asset/liability management and pricing services
primarily to insurance companies, as well as banks, fund managers and other
financial institutions. PTS provides an economic model of insurance
liabilities and assets, generating option-adjusted cash flows to reflect the
complex sets of options and covenants frequently encountered in insurance
contracts or comparable agreements.
PTS includes the following features:
Option Pricing. The PTS option pricing model provides option-adjusted
valuation of assets and liabilities under a consistent conceptual
framework. The PTS option pricing model explicitly considers interest-
sensitive embedded options, providing valid interest rate risk analysis
using price behavior curves that graphically depict asset/liability
performance over shifts in the interest rate term structure.
Large-Scale Corporate Simulation Models. The Company and certain
significant clients have implemented a number of complex models of whole-
company financial performance. Unlike simpler systems, PTS maintains an
internal architecture patterned after the structure of insurance companies
themselves, making full-scale corporate models practical. Such corporate
models are used to facilitate capital structure decisions, revealing and
measuring overall financial performance and guiding overall risk management
practice.
Macro Pricing. The Company's proprietary Macro Pricing algorithm
recognizes the complex relationships within contemporary financial
intermediaries and provides a matrix of possible product and production
quota options in conformity with the profit expectations of the client.
PTS also supports evolving regulatory initiatives in the insurance and
finance industries. Other recent innovations within the PTS asset module
include the introduction of auto calibration of residual spreads,
comprehensive support for Guaranteed Investment Contracts (GICs) and
alternative stage modeling of debt secured by commercial real estate.
FOTOS
The Company's front office trade operations system ("FOTOS") is designed to
fully automate trade operations for portfolio managers and traders. FOTOS is
integrated with the Company's CAMRA and other software products and provides
real-time trading information to enable traders to cost-effectively order,
block, work, execute and allocate trades. FOTOS allows clients to review,
monitor and access trading room activity from local and remote locations and
provides clients with reporting and audit trails as well as standard industry
trading, analytical, accounting and pricing information associated with each
security. FOTOS supports not only equity securities but also treasuries,
options, futures, corporate and municipal bonds, mortgage-backed securities
and a full range of investment strategies, including hedging and indexes.
33
<PAGE>
Allocator Plus
The Company's Allocator Plus system is designed to support portfolio
managers and custodians dealing in TBA mortgaged-backed securities markets.
Allocator Plus is a client/server system that permits mortgage-backed
securities forward trading while optimizing profit and loss to the allocation
of current inventory relative to market conditions. While assuring that users
achieve optimal financial results, Allocator Plus simultaneously checks
incoming announcements and deliveries for compliance with Public Securities
Association good delivery guidelines, monitors all pool- specific and special
instruction trades and effectively minimizes fail trades and identifies
potential fails of counterparties. Allocator Plus can be integrated with the
Company's CAMRA and other software products.
Quantitative Products Under Development
The Company is also developing the following quantitative analysis products,
which are currently scheduled to be released during calendar 1996:
COPE. Currently undergoing beta testing, the Company's Chalke Option Pricing
Engine ("COPE") is a proprietary two-factor model of interest rates with
applications in investment banking, insurance and fund management. COPE is
designed to support the pricing and investment management of fixed-income
portfolios, enabling asset managers quantitatively to measure arbitrage
opportunity and yield curve exposure.
Finesse. The Company's Finesse software, a dynamic financial analysis tool,
is designed to measure multiple future risk scenarios in order to provide a
more accurate picture of financial risk. See "Business--Product Development."
PTS 2000. During the second quarter of 1996, the Company plans to introduce
an enhanced version of PTS, PTS 2000, a 32-bit application designed to operate
on Microsoft's three graphical operating systems, Windows 3.1, WindowsNT and
Windows95.
Consulting and Outsourcing Services
Building upon the capability and flexibility of its software products, the
Company offers a range of professional services to assist clients in meeting
their portfolio management needs. To facilitate successful product
implementation, the Company's consultants assist clients with initial
installation of a system, conversion of the client's historical data and
ongoing training and support. The Company's team works closely with the client
to ensure smooth transition and operation of the Company's systems. The
Company believes that its commitment of dedicated professionals to facilitate
the transition process strengthens its relationship with the client, provides
the Company with valuable information regarding client requirements and offers
the opportunity for sales of additional products and services to the client.
The Company's consultants have a broad range of experience in the financial
services industry and include certified public accountants, chartered
financial analysts, mathematicians and professionals in the real estate,
investment, insurance and banking industries. In addition, with the
acquisition of Chalke, the Company also offers actuarial consulting services
to its insurance company clients. The Company believes that its commitment to
professional services facilitates the adoption of the Company's software
products.
For those clients wishing to outsource certain portfolio accounting,
reporting and analysis functions, the Company provides comprehensive
outsourcing services. The Company's consultants initially work with a client
to research and evaluate data sources, implement custodian and pricing
interfaces and determine reporting requirements and timing. The Company
provides its client with accurate, processed data on a timely basis, enabling
investment professionals to utilize their time analyzing data and making
investment decisions rather than operating and servicing the Company's
software products. The features of the Company's outsourcing solution include:
(i) customized access rights to provide on-line access for senior management;
(ii) regular holdings reports and complete regulatory support; (iii) disk
mirroring, daily back-up of the system and uninterruptable power supply to
ensure data protection, combined with a detailed disaster recovery plan; and
(iv) data storage and "hot site" capabilities in the event of a disaster.
34
<PAGE>
As of April 30, 1996, the Company had a staff of eight employees dedicated to
providing outsourcing services.
PRODUCT SUPPORT
The Company believes that a high level of service and support is critical to
its success, and an important competitive advantage. Furthermore, the Company
believes that a close and active service and support relationship is both
important to client satisfaction and also provides the Company with important
information regarding evolving client requirements. For example, the Company
provides each of its significant clients with a dedicated client support
representative whose primary responsibility is to resolve questions and
concerns and act as a liaison between the client and the Company. In addition,
the Company provides toll-free, unlimited telephone support from 8:30 a.m. to
7:00 p.m. Eastern Time weekdays and on weekends during peak regulatory
reporting periods, as well as use of electronic bulletin boards and other
forms of electronic distribution to provide clients with the latest
information regarding the Company's products. The Company also provides
regular maintenance releases to its clients, generally during the fourth
quarter, to enable them to meet industry reporting obligations and other
regulatory requirements as they evolve. The Company's revenues from
maintenance services are based on an annual percentage of the client's one-
time software license fee, ranging from approximately 16% of the license fee
for the Company's PTS software to approximately 20% of the license fee for the
Company's CAMRA and FILMS products. Substantially all of the Company's clients
have historically renewed maintenance contracts.
The Company's service and support activities are supplemented by a
comprehensive training program, including introductory training courses for
new users and dedicated seminars for investment professionals to familiarize
them with the capabilities of the Company's systems.
CLIENTS
The Company's clients include a wide range of financial institutions and
other organizations that require a full range of information management and
analysis, accounting, reporting and compliance software on a timely and
flexible basis, and include asset managers, insurance companies, banks, mutual
funds, corporate treasuries and government agencies. At April 30, 1996, the
Company had licensed its software applications products to more than 300
clients. The following is a representative list of the Company's clients at
April 30, 1996:
ASSET MANAGERS GOVERNMENT AGENCIES
Conning & Company Florida State Treasury
Kemper Financial Services State of Michigan
Prime Advisors, Inc. Texas Education Agency
Scudder, Stevens & Clark
LIFE/HEALTH INSURANCE
BANKS Conseco
Bank of Bermuda Crown Life Insurance Company
Bankers Trust Company General American Life Insurance
Canadian Imperial Bank of Commerce Company
Hong Kong and Shanghai Banking Corp. The Guardian
PNC Bank John Hancock Mutual Life
Roosevelt Bank Merrill Lynch Insurance Group
United Mizrahi Bank & Trust Company Teachers Insurance and Annuity
Association
CORPORATE TREASURIES
The Edison Group
Merck & Co., Inc. PROPERTY AND CASUALTY INSURANCE
The Walt Disney Company Commercial Union Insurance Company
United Power Liberty Mutual Insurance Group
Orion Capital Corporation
Royal Insurance
The St. Paul Companies
REINSURANCE
Centre Investment Services
Life Reassurance Corporation of
America
National Reinsurance
Reinsurance General of America
SwissRe Advisers
35
<PAGE>
SALES AND MARKETING
The Company believes that a direct sales organization is essential to the
successful implementation of its business strategy given the complexity and
importance of the operations and information the Company's products are
designed to manage and the extensive regulatory and reporting requirements of
its clients. The Company's dedicated direct sales and support staff, which is
supplemented by extensive ongoing product and sales training, is organized by
product area and situated in sales offices in 12 cities. All of the Company's
sales personnel have previous experience in the financial services industry.
During 1995, the Company's sales and support staff increased from 18 to 31
persons.
As of April 30, 1996, the Company's marketing organization consisted of
eight persons who were responsible for evaluating and developing market
opportunities and providing sales support. The Company's marketing activities
include generation of client leads, targeted direct mail campaigns, seminars,
advertising, trade shows, conferences and public relations efforts. The
marketing department also supports the sales force with appropriate
documentation or electronic materials for use during the sales process.
PRODUCT DEVELOPMENT
The Company believes that it must introduce new products and features into
the market on a regular basis to maintain its competitive advantage. To meet
these goals, the Company uses multidisciplinary teams of highly trained
finance, accounting, mathematical, actuarial, software and investment
personnel, and has invested heavily in developing a comprehensive product
analysis to meet rigorous requirements for product functionality and quality.
The Company's products currently under development include Finesse, COPE and
PTS 2000, all currently scheduled for release during 1996. See "Business--
Quantitative Products under Development."
The Company's research and development engineers work closely with the
Company's marketing and support personnel to assure that product evolution
reflects developments in the marketplace and trends in client requirements.
Generally, the Company has issued a functional release in the third quarter to
include enhancements to CAMRA's functionality, and a fourth quarter release to
reflect evolving regulatory changes in time to meet year-end reporting
requirements of clients. The Company is currently engaged in the development
of analytical tools designed to interface with PTS and support strategic
decision making at the executive level.
Although the Company has historically met the scheduled date for product
releases and enhancements, software development is characterized by
unanticipated delays, and there can be no assurance that the Company will be
able to maintain future scheduled release dates. Furthermore, there can be no
assurance that the Company's new product releases and product enhancements
will adequately address the needs of the marketplace or will not contain
"bugs" which could cause delays in product introduction or shipments or, if
discovered in the future, require modification of the Company's products. See
"Risk Factors--Rapid Technological Change" and "--Product Defects and Product
Liability."
As of April 30, 1996, the Company's research and development staff consisted
of 62 employees. The Company's total expenses for research and development,
excluding write-off of in-process research and development, for the years
ended December 31, 1993, 1994 and 1995 were $1.4 million, $1.7 million and
$5.3 million, respectively.
COMPETITION
The market for financial services software is competitive, rapidly evolving
and highly sensitive to new product introductions and marketing efforts by
industry participants. The market is also highly fragmented and served by
numerous firms, many of which serve only their respective local markets or
specific customer types, and much of the Company's competition stems from
information systems or timesharing services developed and serviced internally
by the MIS departments of financial services firms. The Company currently
faces direct competition in various segments of the financial services
industry from Princeton Financial Systems, Portia (a division of Thomson
Financial), SunGard Data Systems, Inc., DST
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<PAGE>
Systems, Inc. and Advent Software, Inc. The Company believes that none of
these competitors currently competes against it in all such industry segments,
although there can be no assurance that one or more may not compete against
the Company in the future in additional industry segments. Many of the
Company's current and potential future competitors have significantly greater
financial, technical and marketing resources, generate higher revenues and
have greater name recognition than does the Company. There can be no assurance
that the Company's current or potential competitors will not develop products
comparable or superior to those developed by the Company or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
client requirements. It is also possible that alliances among competitors may
emerge and rapidly acquire significant market share. Increased competition may
result in price reductions, reduced gross margins and loss of market share,
any of which would materially adversely affect the Company's business,
financial condition and results of operations.
The Company believes that the principal competitive factors in its industry
include product performance and functionality, ease of use, scalability,
ability to integrate external data sources, product and company reputation,
client service and support and price. Although the Company believes that it
currently competes effectively with respect to such factors, there can be no
assurance that the Company will be able to maintain its competitive position
against current and potential competitors. See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company primarily relies on a combination of copyright, trademark and
trade secret laws and license agreements to establish and protect proprietary
rights of its products. The source code for the Company's products is
protected as both a trade secret and an unpublished copyrighted work. In
addition, the Company generally enters into confidentiality and/or license
agreements with its employees, distributors, clients and potential clients and
limits access to, and distribution of, its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products or
technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade protection may be
unavailable or limited in certain foreign countries. In January 1996, the
Company licensed the use of certain of its source code to Conning Asset
Management Company, an affiliate of certain principal stockholders of the
Company. See "Certain Transactions" and "Risk Factors--Dependence on
Proprietary Technology."
Because the software development industry is characterized by rapid
technological change, the Company believes that factors such as technological
and creative skills of its personnel, new product developments, frequent
product enhancements, name recognition and reliable service and support are
more important to establishing and maintaining a leadership position than
legal protections of its technology. See "Risk Factors--Rapid Technological
Change."
EMPLOYEES
As of April 30, 1996, the Company had 195 full-time employees, consisting of
62 employees in research and development, 48 employees in consulting and
services, 45 employees in sales and marketing, 19 employees in client support,
15 employees in finance and administration and six employees in the Company's
international operations. The Company believes that the quality and background
of its employees is an important competitive advantage, and includes over 55
persons with advanced degrees and over 125 persons with prior experience in
the financial services marketplace. None of these employees is covered by any
collective bargaining agreements. The Company believes that its relationship
with its employees is good. The future success of the Company will depend upon
its ability to attract and retain qualified personnel. Competition for such
personnel is often intense, and there can be no assurance that the Company
will be able to attract and retain adequate numbers of qualified personnel in
the future. See "Risk Factors--Dependence on Key Personnel."
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<PAGE>
FACILITIES
The Company owns its corporate offices in Bloomfield, Connecticut, which
consist of approximately 14,800 square feet of office space. The Company also
leases an additional 11,000 square feet of office space in Bloomfield. In
support of its direct sales and service and support operations, the Company
leases facilities and offices in 11 locations in the United States and Canada
and has offices in London, England and Paris, France.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
April 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William C. Stone............... 41 President, Chief Executive Officer and
Chairman of the Board of Directors
Shane A. Chalke................ 38 Executive Vice President and Director
Patrick W. Kenny............... 53 Senior Vice President, Services
David A. Varsano............... 34 Senior Vice President, Development and
Client Services
Robert L. Winslow.............. 37 Senior Vice President, Sales
Marc W. Zimmerman.............. 40 Senior Vice President, Strategic Products
John S. Wieczorek.............. 35 Vice President, Chief Financial Officer and
Treasurer
Steven A. Flagg................ 37 Vice President, International
John H. Quinn.................. 35 Vice President, National Accounts
Peter L. Bloom................. 38 Director
David W. Clark, Jr.(1)......... 58 Director
John B. Clinton(2)............. 41 Director
Joseph H. Fisher(2)............ 52 Director
William E. Ford(1)............. 34 Director
William W. Wyman............... 58 Director
</TABLE>
- --------
(1)Member of Compensation Committee.
(2)Member of Audit Committee.
William C. Stone founded the Company in 1986 and has served as Chairman of
the Board of Directors, Chief Executive Officer and President since the
Company's inception. Prior to founding the Company, he directed the financial
services consulting practice of KPMG Peat Marwick LLP in Hartford, Connecticut
and was Vice President of Administration and Special Investment services at
Advest, Inc. Mr. Stone received his B.S. in Business Administration from
Marquette University.
Shane A. Chalke joined the Company in March 1995 as Executive Vice President
and Director upon the Company's acquisition of substantially all of the assets
and operations of Chalke Incorporated. Specializing in the financial analysis
of insurance companies, Mr. Chalke founded Chalke Incorporated in 1983 and
served as its Chairman, Chief Executive Officer and President until March
1995. He is a former Vice President of the Society of Actuaries and received
his B.S. in Actuarial Science from Worcester Polytechnic Institute.
Patrick W. Kenny is Senior Vice President, Services of the Company. Mr.
Kenny joined the Company in November 1995 after serving as Chief Financial
Officer of Aetna Life & Casualty from January 1988 to December 1994. He was
formerly a partner and director of insurance professional practices at KPMG
Peat Marwick LLP, both internationally and domestically. Mr. Kenny received
his B.A. in Business Administration from the University of Notre Dame and his
M.A. from the University of Missouri.
David A. Varsano is Senior Vice President, Development and Client Services
of the Company. Mr. Varsano joined the Company in September 1995 after serving
as Vice President at Dun & Bradstreet Software, where he was responsible for
the client/server platform and decision support business from March 1994 to
September 1995. He formerly served as Vice President at Litle & Company, where
he managed product and systems development from March 1990 to March 1994. Mr.
Varsano received his B.S. in Management Information Systems from Boston
University.
Robert L. Winslow is Senior Vice President, Sales of the Company. Mr.
Winslow joined the Company in March 1995 after serving as Director of
Marketing at Apprise Insurance Information Services
39
<PAGE>
Corporation, a division of Talegen Corporation, from March 1993 to November
1994. He formerly served in various sales, marketing and general management
positions at IBM, where he helped develop IBM's outsourcing and services
strategy for the banking, brokerage and insurance industries from July 1980 to
November 1992. Mr. Winslow received his B.S. in Finance from Santa Clara
University.
Marc W. Zimmerman is Senior Vice President, Strategic Products of the
Company. Mr. Zimmerman joined the Company in August 1995 from his position as
Vice President of Market Investment Solutions, Inc., a financial software and
consulting services provider, which he joined in 1993. From 1989 to 1993 he
served as Executive Vice President of Sales and Marketing of Princeton
Financial Systems, Inc., a provider of software and consulting services to the
financial services industry. Mr. Zimmerman received his B.A. in History from
Rutgers College and his J.D. from Case Western Reserve University School of
Law.
John S. Wieczorek is Vice President, Chief Financial Officer and Treasurer
of the Company. Mr. Wieczorek joined the Company in October 1994 after serving
in various management positions from 1983 to 1994 and ultimately as Chief
Financial Officer at Vantage Computer Systems, Inc., a provider of computer
software and services (prior to the merger of Vantage with The Continuum
Company, Inc.). He received his B.S. in Accounting from Bentley College.
Steven A. Flagg served as Vice President, International Sales of the Company
from April 1995 to May 1996, after serving as Vice President of Business
Development at Sterling Software, Inc., a software applications company, from
June 1994 to February 1995. He formerly served as Vice President of
International Sales at Knowledgeware Worldwide, Inc., a CASE tools company, in
Paris, France from 1992 to 1994. He served as National Account Manager,
Financial Services Industry at Oracle, Inc. from 1988 to 1989. Mr. Flagg
received his B.S. in Business and Sociology from Brockport University.
John H. Quinn is Vice President, National Accounts of the Company. Mr. Quinn
joined the Company in January 1995 and served as the Company's Vice President,
Sales until October 1995. He formerly served as Vice President, Sales at
SunGard Financial Systems, Inc., a provider of software and consulting
services to the financial services industry, from 1991 to 1995. Mr. Quinn
received his B.S. in Finance from Providence College.
Peter L. Bloom has served on the Board of Directors of the Company since
October 1995. He is currently a member of General Atlantic Partners, LLC, a
private investment firm and principal stockholder of the Company, and has been
with General Atlantic Partners, LLC since January 1996. Mr. Bloom was
previously employed by Salomon Brothers Inc from May 1982 to December 1995 in
various positions including Managing Director of Technology. Mr. Bloom
received his B.A. in Computer Studies and Economics from Northwestern
University.
David W. Clark, Jr. has served on the Board of Directors of the Company
since November 1992. He is currently the Managing Director of Pryor & Clark
Company, a corporation involved in private investments and venture capital,
where he has served since 1991. Mr. Clark has previously served as President,
Chief Operating Officer and Treasurer of Corcap, Inc., an elastomer and molded
rubber manufacturer, President and Chief Executive Officer of CompuDyne
Corporation, a defense services contractor, and President and Chief Operating
Officer of Lydall, Inc., a diversified manufacturer of industrial products. He
also serves as a member of the Boards of Directors of Acme United Corporation,
Checkpoint Systems Inc., CompuDyne Corporation and Corcap, Inc. Mr. Clark
received his B.S. from Yale University and his M.B.A from the Harvard Graduate
Business School.
John B. Clinton has served on the Board of Directors of the Company since
June 1994. He is currently Senior Vice President at Conning & Company, a
stockholder of the Company, where he has served since 1992. Mr. Clinton served
as Chief Financial Officer at KCP Holding Company from 1989 to 1991 and at
National American Insurance Company of California from 1987 to 1991. Mr.
Clinton currently serves on the Board of Directors of Investors Insurance
Holding Corp. Mr. Clinton received his B.A. from Amherst College and his
M.B.A. from the Stern School of Business at New York University.
40
<PAGE>
Joseph H. Fisher has served on the Board of Directors of the Company since
January 1992. Mr. Fisher was formerly employed by KPMG Peat Marwick LLP and
served as the Managing Partner of the Hartford, Connecticut office from 1983
to 1991. Since his retirement in 1991, Mr. Fisher served as interim Chief
Financial Officer of Big Y Foods Inc., a supermarket chain, from May 1992 to
September 1992 and as the Special Assistant to the President for Financial and
Administrative Affairs at the University of Hartford from October 1992 to
November 1993. During 1994 and 1995, he served as an independent consultant to
the University of Hartford. Mr. Fisher is a director of ConnectiCare, Inc. and
Vice Chairman of the Lyme Disease Foundation. Mr. Fisher received his B.S. in
Accounting from the University of Delaware.
William E. Ford has served on the Board of Directors of the Company since
September 1994. Mr. Ford is a managing member of General Atlantic Partners,
LLC and has been with General Atlantic Partners, LLC since July 1991. From
August 1987 to July 1991, Mr. Ford was an associate with Morgan Stanley & Co.
Incorporated in the mergers and acquisitions department. Mr. Ford is also a
director of Envoy Corporation, GT Interactive Software Corp. and Marcam
Corporation and several private software companies in which General Atlantic
Partners or one of its affiliates is an investor. Mr. Ford received his B.A.
in Economics from Amherst College and his M.B.A. from the Stanford Graduate
School of Business.
William W. Wyman has served on the Board of Directors of the Company since
February 1996. From 1984 to 1995, he served as Managing Partner of Oliver,
Wyman & Company, a consulting firm he founded which specializes in management
consulting to financial institutions in North America and Europe. From 1965 to
1984, Mr. Wyman was employed at Booz, Allen & Hamilton, an international
management consulting firm. Mr. Wyman received his B.A. from Colgate
University and his M.B.A. from the Harvard Graduate Business School.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of two Class I Directors (Messrs. Clinton and Wyman), three
Class II Directors (Messrs. Bloom, Chalke and Fisher) and three Class III
Directors (Messrs. Clark, Ford and Stone). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors or director of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors and Class III
Directors expire upon the election and qualification of successor directors at
the annual meeting of stockholders held during the calendar years 1997, 1998
and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee composed of Messrs.
Clark and Ford, which makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and administers
and grants stock options pursuant to the Company's stock option plans, and an
Audit Committee composed of Messrs. Clinton and Fisher, which reviews the
results and scope of the audit and other services provided by the Company's
independent public accountant.
BOARD COMPENSATION
All of the directors are reimbursed for expenses incurred in connection with
their attendance at Board and committee meetings. Each non-employee director
receives $500 for attendance at each meeting of the Board (other than
telephonic meetings). Other directors are not entitled to compensation in
their capacities as directors.
1996 Director Stock Option Plan
The 1996 Director Stock Option Plan (the "Director Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in April
1996. Under the terms of the Director Plan, directors of the Company who are
not employees of the Company or any subsidiary of the Company are eligible to
receive nonstatutory options to purchase shares of Common Stock. A total of
150,000 shares of Common Stock may be issued upon exercise of options granted
under the Director Plan.
41
<PAGE>
Each eligible director will receive annual options to purchase 5,000 shares
of Common Stock on the date of each annual meeting of stockholders, commencing
with the 1997 Annual Meeting of Stockholders. Options to purchase 5,000 shares
of Common Stock will also be granted to each eligible director elected after
this offering upon his or her initial election to the Board of Directors. All
options under the Director Plan will vest on the first anniversary of the date
of grant, and the exercise price of such options will equal the closing price
of the Common Stock on the date of grant on the Nasdaq National Market (or
such other nationally recognized exchange or trading system if the Common
Stock is no longer traded on the Nasdaq National Market).
Options granted under the Director Plan are not transferrable by the
optionee except by will or by the laws of descent and distribution. In the
event an optionee ceases to serve as a director, each option may be exercised
by the optionee for the portion then exercisable at any time within 60 days
after the optionee ceases to serve as a director; provided, however, that in
the event that the optionee ceases to serve as a director due to his death or
disability, then the optionee, or his or her administrator, executor or heirs
may exercise the exercisable portion of the option for up to 180 days
following the date the optionee ceased to serve as a director. No option is
exercisable after the expiration of ten years from the date of grant.
Federal Income Tax Consequences. Options granted under the Director Plan do
not qualify as incentive stock options under the Internal Revenue Code of
1986, as amended (the "Code"). See "Management--Executive Compensation--1993
and 1994 Option Plans" for a description of federal income tax consequences of
options granted under the Director Plan.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the year ended December
31, 1995 for the Company's Chief Executive Officer and its five most highly
compensated executive officers during fiscal 1995 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
William C. Stone......... $150,000 $30,000 -- -- $1,000(1)
President, Chief
Executive Officer and
Chairman of the Board
Shane A. Chalke.......... 262,500 -- -- 210,000 --
Executive Vice President
and Chief Technology
Officer
Robert L. Winslow........ 103,614 30,000 $20,000(2) 78,000 --
Senior Vice President
David A. Varsano......... 48,942 57,500 -- 78,000 --
Senior Vice President
(3)
Steven A. Flagg.......... 105,000 -- 15,000(2) 220,000 --
Vice President (4)
John H. Quinn............ 135,339 -- 33,761(2) 78,000 --
Vice President (5)
</TABLE>
- --------
(1)Represents the Company's contribution under its 401(k) savings plan.
(2)Represents a reimbursable moving expense paid by the Company.
(3)Mr. Varsano joined the Company as a Senior Vice President in September
1995.
(4)Mr. Flagg resigned as a Vice President of the Company on May 3, 1996.
(5)Mr. Quinn served as the Company's Vice President, Sales from January 1995
through October 1995 and is currently the Company's Vice President,
National Accounts.
42
<PAGE>
Employment Agreements
The Company is a party to an employment agreement with Mr. Chalke for the
period commencing March 31, 1995 and ending March 31, 2000. The agreement
provides that, in 1996, Mr. Chalke is entitled to receive a base salary of
$200,000 and is eligible to receive (i) a performance-based bonus of up to
$150,000 and (ii) an additional bonus at the discretion of the Company of up
to $100,000. Thereafter, Mr. Chalke is entitled to receive an annual base
salary of $350,000. The Company also granted Mr. Chalke an option to purchase
210,000 shares of Common Stock at an exercise price of $4.00 per share. If his
employment is terminated by the Company in 1996 without cause (as defined),
Mr. Chalke will be entitled to receive severance compensation in an amount
equal to $175,000, and thereafter in an amount equal to six months' base
salary. Throughout the term of this employment agreement, the Board agrees to
nominate Mr. Chalke, and the Company agrees to use its best efforts to cause
Mr. Chalke to be elected, to the Board of Directors of the Company.
In March 1996, the Company and Mr. Stone entered into an employment
agreement providing for the employment of Mr. Stone as the President and
Chairman of the Board of Directors of the Company. The employment agreement
provides for a three-year term ending on March 28, 1999, after which time it
renews automatically for additional one-year periods until terminated by the
Company or Mr. Stone. The agreement provides for an annual base salary of
$250,000 as well as annual incentive compensation in an amount determined by
the Board of Directors of the Company or an appropriate committee thereof in
its respective sole discretion. The agreement also contains a non-competition
covenant pursuant to which Mr. Stone is prohibited from competing with the
Company during his employment by the Company and for one year (if the
employment agreement is not renewed by the Company after expiration of its
initial three-year term) or two years (if Mr. Stone's employment is terminated
for cause by the Company or voluntarily by Mr. Stone) thereafter.
1993 and 1994 Stock Option Plans
The Company's 1993 Stock Option Plan (the "1993 Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company on March
24, 1993. The 1993 Plan authorized the issuance of up to 1,000,000 shares of
Common Stock, but no options have been granted to any employees or directors
of the Company under the 1993 Plan since December 31, 1994. As of April 30,
1996, options to purchase an aggregate of 186,500 shares of Common Stock at a
weighted average exercise price of $.08 per share were outstanding under the
1993 Plan.
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board of Directors on December 7, 1994 and approved by the stockholders of the
Company on January 31, 1995. An amendment to the 1994 Plan increasing the
number of shares authorized under the 1994 Plan was adopted by the Board of
Directors and approved by the stockholders of the Company in April 1996. The
1994 Plan provides for the grant of stock options to employees, officers and
directors of, and consultants or advisers to, the Company and its
subsidiaries. The 1993 Plan is identical to the 1994 Plan in all material
respects. Under the 1994 Plan, the Company may grant options that are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code ("incentive stock options"), or options not intended to qualify as
incentive stock options ("nonstatutory options"). Incentive stock options may
only be granted to employees of the Company. The 1994 Plan authorizes the
issuance of up to 3,000,000 shares of Common Stock. As of April 30, 1996,
options to purchase an aggregate of 1,455,500 shares of Common Stock at a
weighted average exercise price of $4.75 per share were outstanding under the
1994 Plan. Unless otherwise terminated, the 1994 Plan will terminate on
January 31, 2005.
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1994 Plan, the Compensation
Committee has the authority to select the employees to whom options are
granted and determine the terms of each option, including (i) the number of
shares of Common Stock subject to the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder owning in excess of 10% of the Company's
Common Stock) of the fair market value of the Common Stock as of the date of
grant and (iv) the duration of the
43
<PAGE>
option (which, in the case of incentive stock options, may not exceed ten
years, or five years in the case of incentive stock options granted to
stockholders owning in excess of 10% of the Company's Common Stock). The
Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1994 Plan, so long
as not inconsistent with the 1994 Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1994
Plan may be exercised.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee consistent with Section 422
of the Code and Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
As of April 30, 1996, the Company had 195 employees, all of whom were
eligible to participate in the 1994 Plan. The number of individuals receiving
stock options varies from year to year depending on various factors, such as
the number of promotions and the Company's hiring needs during the year, and
thus the Company cannot now determine the number of shares of Common Stock to
be awarded to any particular current executive officer, to all current
executive officers as a group or to non-executive employees as a group.
All options are nontransferable other than by will or the law of descent and
distribution. Incentive stock options are exercisable during the lifetime of
the option holder only while the option holder is in the employ of the
Company, or within three months after termination of employment. In the event
that termination is due to death or disability, or if death occurs within
three months after termination, the option is exercisable for a one-year
period thereafter.
To the extent not exercised, all options granted under the 1994 Plan shall
terminate immediately prior to a dissolution or liquidation of the Company. In
the event of a merger of the Company, or the sale of substantially all of the
assets of the Company, the Board of Directors shall have the discretion to
accelerate the vesting of the options granted under the 1994 Plan.
Federal Income Tax Consequences. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option (provided
that the difference between the option exercise price and the fair market
value of the stock on the date of exercise must be included in the optionee's
"alternative minimum taxable income"), and no corresponding expense deduction
will be available to the Company. Generally, if an optionee holds shares
acquired upon the exercise of incentive stock options until the later of (i)
two years from the grant of the option and (ii) one year from the date of
transfer of the purchased shares to him or her (the "Statutory Holding
Period"), any gain to the optionee upon a sale of such shares will be treated
as capital gain. The gain recognized upon the sale of the stock is the
difference between the option price and the sale price of the stock. The net
federal income tax effect on the holder of incentive stock options is to
defer, until the stock is sold, taxation of any increase in the stock's value
from the time of grant to the time of exercise, and to cause all such increase
to be treated as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period, he or she will realize taxable income at ordinary income tax
rates in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise less the option price or (ii) the amount
realized on the sale less the option price, and the Company will receive a
corresponding business expense deduction. Special rules may apply to optionees
required to file reports pursuant to Section 16(a) of the Exchange Act. Any
additional gain will be treated as long-term capital gain if the shares are
held for more than one year prior to the sale and as short-term capital gain
if the shares are held for a shorter period. If the optionee sells the stock
for less than the option price, he or she will recognize a capital loss equal
to the difference between the sale price and the option price. The loss will
be a long-term capital loss if the shares are held
44
<PAGE>
for more than one year prior to the sale and a short-term capital loss if the
shares are held for shorter period.
No taxable income is recognized by the optionee upon the grant of a
nonstatutory option. The optionee must recognize as ordinary income in the
year in which the option is exercised the amount by which the fair market
value of the purchased shares on the date of exercise exceeds the option price
(and the Company may be required to withhold an appropriate amount for tax
purposes). If the optionee is required to file reports pursuant to Section
16(a) of the Exchange Act, then upon the exercise of an option within six
months from the date of grant no income will be recognized by the optionee
until six months have expired from the date the option was granted, and the
income then recognized will include any appreciation in the value of the
shares during the period between the date of exercise and the date six months
after the date of grant (unless the optionee makes an election under Section
83(b) of the Code to have the difference between the exercise price and fair
market value on the date of exercise recognized as ordinary income as of the
time of exercise). The Company will be entitled to a business expense
deduction equal to the amount or ordinary income recognized by the optionee,
subject to the limitations of Section 162(m) of the Code. Any additional gain
or any loss recognized upon the subsequent disposition of the purchased shares
will be a capital gain or loss, and will be a long-term gain or loss if the
shares are held for more than one year.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in April 1996 and becomes effective upon the closing of this offering.
The Purchase Plan authorizes the issuance of up to a total of 200,000 shares
of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible
to participate. As of April 30, 1996, 180 of the Company's employees would
have been eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount (a whole percentage from 1%
to 10% of such employee's regular pay) to be deducted by the Company from such
pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option price is an amount equal to 85% of the fair market
value per share of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which is more than 15% of the
employee's annualized base pay divided by 85% of the market value of a share
of Common Stock on the commencement date of the Offering Period. The
Compensation Committee may, in its discretion, choose an Offering Period of 12
months or less for each of the Offering and choose a different Offering Period
for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
45
<PAGE>
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
Federal Income Tax Consequences. The Purchase Plan is intended to qualify as
an "employee stock purchase plan" as defined in Section 423 of the Code, which
provides that an employee will not realize any federal tax consequences when
such employee joins the Purchase Plan, or when an Offering ends and such
employee receives shares of the Company's Common Stock. An employee must,
however, recognize income or loss on the difference, if any, between the price
at which he or she sells the shares and the price he or she paid for them. If
any employee has owned shares purchased under the plan for more than one year,
disposes of them at least two years after the date an Offering commenced, and
the sale price of the shares is equal to or less than the purchase price, he
or she will recognize a long-term capital loss in the amount equal to the
price paid over the sale price. If an employee has owned shares for more than
one year, more than two years has elapsed from the date the Offering
commenced, and the sale price of the shares is higher than the purchase price,
the employee must recognize ordinary income in an amount equal to the lesser
of (i) the excess of the fair market value of the shares on the day the
Offering commenced over the purchase price or (ii) the excess of the sale
price over the purchase price. Any further gain would be treated as long-term
capital gain.
If an employee sells shares purchased under the Purchase Plan prior to
holding them for more than one year or prior to two years from the date the
Offering commenced, he or she must recognize ordinary income in the amount of
the difference between the price he or she paid and the market price of the
shares on the date of purchase and the Company will receive an expense
deduction for the same amount, subject to the limitations of Section 162(m) of
the Code. The employee will recognize a capital gain or loss on the difference
between the sale price and the market price on the date of purchase. The
Company will not be entitled to a tax deduction upon either the purchase or
sale of shares under the Purchase Plan if the holding period requirements set
forth above are met. The Purchase Plan is not qualified under Section 401(a)
of the Code.
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to the Named
Executive Officers during the year ended December 31, 1995. No stock
appreciation rights ("SARs") were granted during the year ended December 31,
1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE OR TERM(1)
OPTIONS IN FISCAL BASE PRICE PER EXPIRATION -------------------
NAME GRANTED YEAR SHARE(2) DATE 5% 10%
---- ---------- ---------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William C. Stone........ -- -- -- -- -- --
Shane A. Chalke......... 210,000 19.6% $4.00 3/31/05 $528,271 $1,338,744
Robert L. Winslow....... 78,000 7.3 4.00 3/13/05 196,215 497,247
David A. Varsano........ 78,000 7.3 5.00 9/5/05 245,268 621,560
Steven A. Flagg......... 220,000 20.5 4.00 4/3/05 553,427 1,402,493
John H. Quinn........... 78,000 7.3 4.00 1/31/05 196,215 497,247
</TABLE>
- --------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercise and the future performance of the Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
(2) All options were granted at fair market value as determined by the Board
of Directors of the Company on the date of the grant.
46
<PAGE>
Year-End Option Values
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
December 31, 1995. No stock options were exercised during 1995 and no SARs
were exercised during 1995 or outstanding at year end.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
------------------------- ----------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------------- ----------------------------
<S> <C> <C>
William C. Stone......... -- --
Shane A. Chalke.......... 0/210,000 $0/$840,000
Robert L. Winslow........ 0/78,000 0/312,000
David A. Varsano......... 0/78,000 0/234,000
Steven A. Flagg.......... 0/220,000 0/880,000
John H. Quinn............ 0/78,000 0/312,000
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities at fiscal year end, as determined by the Company's Board of
Directors, minus the per share exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
David W. Clark, Jr. and William E. Ford. No executive officer of the Company
has served as a director or member of the compensation committee (or other
committee serving an equivalent function) of any other entity, whose executive
officers served as a director of or member of the Compensation Committee of
the Company. See "Certain Transactions."
47
<PAGE>
CERTAIN TRANSACTIONS
On each of July 31, 1993, January 31, 1994 and April 29, 1994, the Company
repaid in full promissory notes in the aggregate amount of $1,500,000, dated
September 25, 1990, and held by Conning Insurance Capital Limited Partnership,
Conning Insurance Capital Limited Partnership II, Conning Insurance Capital
International Partners and Conning Insurance Capital International Partners II
(each, with Conning Insurance Capital Limited Partnership III and Conning
Insurance Capital International Partners III, L.P., a "Conning Fund" and
collectively, the "Conning Funds"). The promissory notes required semi-annual
payments of interest at 9% per year and matured in September 1997. Mr. John B.
Clinton, a director of the Company, is a Senior Vice President of Conning &
Company, an affiliate of the Conning Funds. Conning & Company is an indirectly
controlled affiliate of GALIC, a principal stockholder of the Company. See
"Principal and Selling Stockholders."
On each of December 6, 1993 and December 14, 1994, the Company repaid in
full promissory notes in the aggregate amount of $1,000,000, dated September
25, 1990, and held by GALIC. The promissory notes required semi-annual
payments of interest at 11% per year and matured in September 1997.
On September 20, 1994, the Company issued an aggregate of 152,778 shares of
Series B Convertible Preferred Stock to General Atlantic Partners 15, L.P. and
GAP Coinvestment Partners, L.P. (collectively, "General Atlantic") for an
aggregate consideration of $6,111,000. The Company entered into a Voting
Agreement (the "Voting Agreement") with William C. Stone, certain Conning
Funds, General Atlantic and GALIC providing, among other things, that one
representative of the Conning Funds, one representative of General Atlantic,
one representative of GALIC, one unaffiliated representative and three
representatives of William C. Stone would constitute the Board of Directors of
the Company. The Company also entered into a Shareholders' Agreement (the
"Shareholders' Agreement") with William C. Stone, certain Conning Funds, GALIC
and General Atlantic, granting, among other things, rights of first refusal
and participation in future sales of the Company's securities and certain
other rights to provide for continuity in ownership of the Company. The Voting
and Shareholders' Agreements will terminate upon the consummation of this
offering. Messrs. William E. Ford and Peter L. Bloom, directors of the
Company, are members of General Atlantic Partners, LLC, the general partner of
General Atlantic Partners 15, L.P. and an affiliate of GAP Coinvestment
Partners, L.P.
On September 20, 1994, the Company repurchased 500,000 shares of Common
Stock from certain Conning Funds for an aggregate consideration of $2,250,000,
and GALIC surrendered the rights to purchase 100,000 shares of Common Stock,
for consideration of $290,000, under an outstanding warrant granted by the
Company in favor of GALIC on September 25, 1990.
On March 30, 1995, the Company issued 600,000 and 300,000 shares of Common
Stock to certain Conning Funds and GALIC, respectively, for an aggregate
consideration of $1,401,000, pursuant to the exercise of outstanding warrants
granted by the Company in favor of certain Conning Funds and GALIC on
September 25, 1990.
On March 31, 1995, the Company issued an aggregate of 149,869 shares of
Series C Convertible Preferred Stock to General Atlantic, certain Conning
Funds, David W. Clark, Jr. and Joseph H. Fisher, respectively, for an
aggregate consideration of $7,119,000. The Company entered into an Amended and
Restated Voting Agreement (the "Amended Voting Agreement") with William C.
Stone, the Conning Funds, GALIC, General Atlantic, David W. Clark, Jr. and
Joseph H. Fisher providing, among other things, that the newly authorized
eighth member of the Board of Directors of the Company would be a
representative selected by William C. Stone. The Company also entered into an
Amended and Restated Shareholders' Agreement (the "Amended Shareholders'
Agreement") with William C. Stone, the Conning Funds, GALIC, General Atlantic,
David W. Clark, Jr. and Joseph H. Fisher granting, among other things, rights
under the Shareholders' Agreement to certain Conning Funds and Messrs. Clark
and Fisher. The Amended Voting and Amended Shareholders' Agreements will
terminate upon the consummation of this offering.
48
<PAGE>
On March 31, 1995, the Company entered into an Asset Purchase Agreement with
Chalke Incorporated and Shane A. Chalke, the Chairman, Chief Executive
Officer, President, sole director and sole shareholder of Chalke, for the
purchase by the Company of all the assets of Chalke for $7,400,000 in cash, a
$3,000,000 promissory note and the assumption of certain liabilities by the
Company, plus the costs of effecting the acquisition. The face value of the
promissory note includes principal and simple interest accruing annually at
7.91% and is payable in two installments of $1,500,000 on each of March 31,
1996 and 1997. The first installment was paid by the Company to Chalke on
April 2, 1996. Mr. Chalke and William C. Stone, the Company's President and
Chief Executive Officer, determined the purchase price of the Chalke assets in
an arm's-length negotiation. In arriving at a purchase price, the Company
compared comparable transactions within the industry and conducted its own
analysis of Chalke, including a review of the financial condition of Chalke
and the strategic value of Chalke to the Company. At the time of the Chalke
Acquisition, Mr. Chalke was unaffiliated with the Company. In connection with
the Asset Purchase Agreement, the Company entered into an employment agreement
with Mr. Chalke for a period of five years. See "Management--Executive
Compensation."
On April 13, 1995, the Company issued an aggregate of 5,263 shares of Series
C Convertible Preferred Stock to certain Conning Funds for an aggregate
purchase price of $250,000.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management--Executive Compensation."
For a description of stock grants to certain directors of the Company, see
"Management--Board Compensation." GALIC and all holders of Convertible
Preferred Stock obtained certain registration rights as part of the above-
described financings. See "Shares Eligible for Future Sale--Registration
Rights."
From 1990 to 1996, the Company licensed its CAMRA and FILMS application
software to Conning & Company pursuant to license, maintenance and
professional services agreements from which the Company derived revenues of
$188,000, $452,000 and $263,000 in 1993, 1994 and 1995, respectively. On
January 27, 1996, the Company licensed its CAMRA and FILMS application
software and certain other programs to Conning Asset Management Company, GALIC
and GALIC's subsidiaries (collectively, the "Conning Group") pursuant to a
Software License Agreement providing for the payment of license and update
fees to the Company of $1,110,000 in 1996 and $210,000 per year for a period
of four years thereafter. Such payments may increase during the term of the
license agreement due to the possibility of extraordinary licensing fees,
sublicensing fees or licensing fees for other products and modules. Under such
License Agreement the Company licensed to the Conning Group rights to use the
Company's source and object code for use in its asset management business and,
in the case of Conning Asset Management Company, for outsourcing to customers
in the insurance industry. As the Conning Group is not restricted under the
terms of the License Agreement from competing with the Company for business
within the foregoing areas, there can be no assurance that the Conning Group
may not in the future compete with the Company in such areas. See "Risk
Factors--Transactions with Related Parties."
Pursuant to a Software Development and License Agreement dated July 11,
1988, the Company paid royalty fees to GALIC of $48,495, $98,925 and $165,835
in 1993, 1994 and 1995, respectively. Such agreement was terminated on January
27, 1996 in connection with the execution of the Software License Agreement
with the Conning Group, and no further royalties will be paid to GALIC.
The Company licenses its CAMRA applications software to Xerox Life Insurance
Company ("Xerox") a subsidiary of GALIC, pursuant to License and Maintenance
Agreements from which the Company derived revenues of $102,500, $60,000 and
$62,600 in 1993, 1994 and 1995, respectively. Such License and Maintenance
Agreements were terminated on January 27, 1996 in connection with the
execution of the Software License Agreement with the Conning Group, and no
further royalties will be paid by Xerox under such License and Maintenance
Agreements.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, this policy will
require that any loans by the Company to its officers, directors or other
affiliates be for bona fide business purposes only.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group. Except as indicated below, none of these entities has a
relationship with the Company or, to the knowledge of the Company, any
Underwriters of this offering or their respective affiliates.
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OFFERING(1)(2)
NAME AND ADDRESS OF ----------------------- OF SHARES -----------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED(3) NUMBER PERCENT
- -------------------- ------------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
William C. Stone......... 4,484,680 49.3% -- 4,484,680 37.0%
c/o SS&C Technologies,
Inc.
705 Bloomfield Avenue
Bloomfield, CT 06002
General Atlantic Part-
ners, LLC(4)............ 2,802,640 30.8 -- 2,802,640 23.1
c/o General Atlantic
Service Corporation
Three Pickwick Plaza
Greenwich, CT 06830
William E. Ford(4)....... 2,802,640 30.8 -- 2,802,640 23.1
c/o General Atlantic
Service Corporation
Three Pickwick Plaza
Greenwich, CT 06830
General American Life In-
surance Company(5)...... 1,621,180 17.8 723,750 897,430 7.4
700 Market Street
St. Louis, MO 63101
The Conning Funds(5)..... 1,321,180 14.5 423,750 897,430 7.4
CityPlace II
185 Asylum Street
Hartford, CT 06103
John B. Clinton(5)....... 1,321,180 14.5 423,750 897,430 7.4
c/o Conning & Company
CityPlace II
185 Asylum Street
Hartford, CT 06103
OTHER DIRECTORS
Peter L. Bloom........... -- -- -- -- --
Shane A. Chalke(6)....... 61,250 * -- 61,250 *
David W. Clark, Jr. ..... 40,000 * -- 40,000 *
Joseph H. Fisher......... 25,000 * -- 25,000 *
William W. Wyman......... -- -- -- -- --
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OFFERING(1)(2)
-----------------------OF SHARES -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------- ------------ ------------------- --------- -------
<S> <C> <C> <C> <C> <C>
OTHER NAMED EXECUTIVE OFFI-
CERS
Robert L. Winslow(6)......... 22,750 * -- 22,750 *
David A. Varsano............. -- -- -- -- --
Steven A. Flagg(6)........... 59,583 * -- 59,583 *
John H. Quinn(6)............. 26,000 * -- 26,000 *
All executive officers and
directors, as a group
(15 Persons)(7)............. 9,158,916 98.7 723,750 8,435,166 68.5
</TABLE>
- --------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within 60 days after March 31, 1996 through the exercise of any stock
option or other right. The inclusion herein of such shares, however, does
not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment
power (or shares such power with his or her spouse) with respect to all
shares of capital stock listed as owned by such person or entity.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) In the event that the over-allotment option is exercised in full, William
C. Stone, General Atlantic Partners 15, L.P. ("GAP 15") and GAP
Coinvestment Partners, L.P. ("GAP Coinvestment") will offer to sell
281,250, 257,834 and 23,416 shares of Common Stock, respectively, to the
Underwriters. As a result of such exercise, Mr. Stone and General Atlantic
Partners, LLC (an affiliate of GAP 15 and GAP Coinvestment) will
beneficially own 4,203,430 and 2,521,390 shares of Common Stock, or 34.7%
and 20.8% of the outstanding shares, respectively, after this offering.
See Note 4 below.
(4) Includes 2,569,300 shares held by GAP 15 and 233,340 shares held by GAP
Coinvestment. The general partner of GAP 15 is General Atlantic Partners,
LLC, a Delaware limited liability company. The managing members of General
Atlantic Partners, LLC are Steven A. Denning, David C. Hodgson, Stephen P.
Reynolds, J. Michael Cline, William O. Grabe and William E. Ford. The same
individuals are the general partners of GAP Coinvestment. Messrs. Ford and
Bloom, directors of the Company, are members of General Atlantic Partners,
LLC. Messrs. Ford and Bloom disclaim beneficial ownership of shares owned
by GAP 15 and GAP Coinvestment, except to the extent of their pecuniary
interests therein.
(5) Includes 281,370 shares of Common Stock held by Conning Insurance Capital
Limited Partnership, all of which are offered hereby; 199,160 shares of
Common Stock held by Conning Insurance Capital Limited Partnership II;
389,090 shares of Common Stock held by Conning Insurance Capital Limited
Partnership III; 142,380 shares of Common Stock held by Conning Insurance
Capital International Partners, all of which are offered hereby; 224,590
shares of Common Stock held by Conning Insurance Capital International
Partners II; 84,590 shares of Common Stock held by Conning Insurance
Capital International Partners III, L.P. In addition, 300,000 shares of
Common Stock are held directly by GALIC, all of which are offered hereby.
Conning & Company is the direct or indirect general partner of each of the
Conning Funds and, as such, has voting and dispositive control with
respect to the securities held by each of the Conning Funds. GALIC, a
Missouri corporation, has indirect sole ownership of all of the voting
stock of Conning & Company. Mr. Clinton, a director of the Company, is a
Senior Vice President of Conning & Company. Mr. Clinton disclaims
beneficial ownership of the shares of Common Stock held by the Conning
Funds and GALIC, except to the extent of his proportionate pecuniary
interests therein. The Conning Funds disclaim beneficial ownership of the
shares of Common Stock held by GALIC, except to the extent of their
proportionate interests therein. GALIC disclaims beneficial ownership of
the shares of Common Stock held by the Conning Funds, except to the extent
of its proportionate pecuniary interests therein. See "Certain
Transactions."
(6) Represents shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following March 31, 1996.
(7) Includes an aggregate of 185,416 shares of Common Stock subject to
outstanding stock options which are exercisable within the 60-day period
following March 31, 1996.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the amendment and restatement of the Company's
Certificate of Incorporation (the "Restated Certificate of Incorporation") to
be effected upon the closing of this offering, the authorized capital stock of
the Company will consist of 25,000,000 shares of Common Stock, $.01 par value
per share, and 1,000,000 shares of Preferred Stock, $.01 par value per share.
As of April 30, 1996 (after giving effect to the conversion of all outstanding
shares of Convertible Preferred Stock into Common Stock), there were
outstanding (i) 9,094,170 shares of Common Stock held by 20 stockholders of
record and (ii) stock options for the purchase of a total of 1,642,000 shares
of Common Stock.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Restated Certificate of Incorporation and Amended and
Restated By-laws (the "Restated By-laws") is not intended to be complete and
is qualified by reference to the provisions of applicable law and to the
Company's Restated Certificate of Incorporation and Restated By-laws included
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. Certain holders of Common Stock
have the right to require the Company to effect the registration of their
shares of Common Stock in certain circumstances. See "Shares Eligible for
Future Sale."
PREFERRED STOCK
Under the terms of the Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination"
52
<PAGE>
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certificate of Incorporation also provides that, after the
closing of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Restated By-Laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written
consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Restated Certificate of
Incorporation and the Restated By-Laws require the affirmative vote of the
holders of at least 75% of the shares of capital stock of the Company issued
and outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at April 30, 1996, there will be 12,120,420 shares of Common Stock
of the Company outstanding (exclusive of 352,063 shares covered by vested
options outstanding at April 30, 1996). Of these shares, the 3,750,000 shares
sold in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares purchased by "affiliates" of the Company, as
that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 8,370,420 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately 70,670
shares of Common Stock, which are not subject to the 180-day lock-up
agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market
pursuant to Rule 144(k) under the Securities Act. Approximately 50,000
additional shares of Common Stock, which are not subject to Lock-Up
Agreements, will be eligible for sale in the public market in accordance with
Rule 144 or Rule 701 under the Securities Act beginning 90 days after the date
of this Prospectus. Upon expiration of the Lock-Up Agreements 180 days after
the date of this Prospectus, approximately 6,398,430 additional shares of
Common Stock will be available for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act.
The executive officers and directors of the Company, and certain
securityholders, which executive officers, directors and securityholders in
the aggregate hold approximately 8,471,730 shares of Common Stock on the date
of this Prospectus (including 221,980 shares of Common Stock that may be
acquired pursuant to the exercise of vested options held by them as of 180
days after the date of this Prospectus), have agreed that, for a period of 180
days after the date of this Prospectus, they will not sell, consent to sell or
otherwise dispose of any shares of Common Stock, any options to purchase
shares of Common Stock or any shares convertible into or exchangeable for
shares of Common Stock, owned directly by such persons or with respect to
which they have the power of disposition, without the prior written consent of
the Representatives of the Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
two years from the later of the date such securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately 121,200 shares immediately after this offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period for shares subject to Rule 144 to become
eligible for sale in the public market. If this proposal is adopted, an
additional 1,851,320 shares will become eligible for sale to the public 180
days after the date of this Prospectus.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the 1993 and 1994 Plans) are also restricted
54
<PAGE>
securities and, beginning 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, may be sold by stockholders
other than Affiliates of the Company subject only to the manner of sale
provisions of Rule 144 and by Affiliates under Rule 144 without compliance
with its two-year holding period requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register approximately 3,536,500 shares of Common Stock
issuable under the 1993 Plan, 1994 Plan, Director Plan and Purchase Plan. The
registration statements are expected to be filed shortly after the effective
date of the Registration Statement of which this Prospectus is a part and will
be effective upon filing. Shares issued upon the exercise of stock options
after the effective date of the Form S-8 registration statements will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to Affiliates and the Lock-up Agreements noted
above. See "Management--Board Compensation," "--Executive Compensation" and
Note 10 of Notes to the Company's Consolidated Financial Statements.
REGISTRATION RIGHTS
Certain persons and entities (the "Rightsholders"), including the Conning
Funds, GALIC, General Atlantic, David W. Clark, Jr. and Joseph H. Fisher, are
entitled to certain rights with respect to the registration under the
Securities Act of a total of approximately 3,765,070 shares of Common Stock
(the "Registrable Shares") pursuant to the terms of the 1990 Stock and Note
Purchase Agreement, the 1994 Series B Preferred Stock Purchase Agreement and
the 1995 Series C Preferred Stock Purchase Agreement (collectively, the
"Preferred Stock Agreements"). The Preferred Stock Agreements generally
provide that, in the event the Company proposes to register any of its
securities under the Securities Act, the Rightsholders shall be entitled to
include Registrable Shares in such registration, subject to the right of the
managing underwriter of any underwritten offering to limit for marketing
reasons the number of Registrable Shares included in such "piggyback"
registration.
The Conning Funds and GALIC have the right at any time and from time to time
to require the Company to prepare and file registration statements under the
Securities Act with respect to their Registrable Shares; provided, however,
that (i) such demand requests the registration of Registrable Shares
representing at least 30% of the aggregate outstanding Registrable Shares held
by the Conning Funds and GALIC, (ii) the Company need only effect two such
demand registrations, (iii) the Company shall have the right to delay any such
demand registration up to 120 days if the Board of Directors resolves in good
faith that a materially disadvantageous condition exists at that time and (iv)
the Company is not required to file a demand registration statement if the
previous registration with respect to a demand became effective less than 180
days prior to such request.
General Atlantic has the right at any time and from time to time to require
the Company to prepare and file registration statements under the Securities
Act with respect to their Registrable Shares; provided, however, that (i) such
demand requests the registration of Registrable Shares representing at least
75% of the aggregate outstanding Registrable Shares held by General Atlantic,
(ii) the Company need only effect two such demand registrations, (iii) the
Company shall have the right to delay any such demand registration up to 120
days if the Board of Directors resolves in good faith that a materially
disadvantageous condition exists at that time and (iv) the Company is not
required to file a demand registration statement if the previous registration
with respect to a demand became effective less than 180 days prior to such
request.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Hambrecht & Quist LLC, have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................... 1,255,000
Hambrecht & Quist LLC................................................. 1,255,000
Montgomery Securities ................................................ 120,000
Morgan Stanley & Co. Incorporated..................................... 120,000
PaineWebber Incorporated.............................................. 120,000
Robertson, Stephens & Company LLC..................................... 120,000
Smith Barney Inc. .................................................... 120,000
Advest, Inc. ......................................................... 80,000
Conning & Company..................................................... 80,000
Needham & Company, Inc. .............................................. 80,000
Parker/Hunter Incorporated............................................ 80,000
Pennsylvania Merchant Group Ltd. ..................................... 80,000
SoundView Financial Group, Inc. ...................................... 80,000
Unterberg Harris ..................................................... 80,000
Wessels, Arnold & Henderson, l.l.c. .................................. 80,000
---------
Total............................................................. 3,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any such shares are
purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $.78 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.10 per
share to certain other dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Representatives
of the Underwriters.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 562,500 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the above table bears to
3,750,000, and such Selling Stockholders will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 3,750,000
shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
56
<PAGE>
The Company, each of its officers and directors, and certain of its
stockholders, including all of the Selling Stockholders, have agreed, subject
to certain exceptions, not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the Representatives of the Underwriters.
The Representatives of the Underwriters may, in their sole discretion and at
any time without notice, release all or any portion of the securities subject
to Lock-Up Agreements. See "Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
Under provisions of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), when more than 10% of the proceeds
of an offering are intended to be paid to NASD members participating in the
distribution of the offering, the offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain
standards. Conning & Company, an underwriter in this offering, is an affiliate
of the Company for purposes of the NASD rules by virtue of its beneficial
ownership of approximately 10% of the Common Stock of the Company.
Accordingly, Alex. Brown & Sons Incorporated has acted as a qualified
independent underwriter and has assumed the responsibility thereof, conducted
due diligence and recommended a price in compliance with the requirements of
the NASD. See "Certain Transactions."
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock has been determined by negotiations among the Company, representatives
of the Selling Stockholders and the Representatives of the Underwriters. Among
the factors considered in such negotiations were the prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalizations and stages of development of other companies which the
Company, representatives of the Selling Stockholders and the Representatives
of the Underwriters believed to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "SSNC."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
CHANGE IN INDEPENDENT ACCOUNTANTS
The Company retained Coopers & Lybrand L.L.P. as its independent accountants
and replaced Arthur Andersen LLP in February 1995. Arthur Andersen LLP had
been retained to audit the Company's financial statements for the year ended
December 31, 1993. The report of Arthur Andersen LLP for the year ended
December 31, 1993 contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or application of
accounting principles. During the year ended December 31, 1993 and through the
date of replacement, there were no disagreements with Arthur Andersen LLP on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. In connection with this offering,
Coopers & Lybrand L.L.P. has reaudited the Company's consolidated financial
statements for the year ended December 31, 1993.
57
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31, 1995
and the financial statements of Chalke as of January 31, 1994 and December 31,
1994 and for the year ended January 31, 1994 and the eleven months ended
December 31, 1994 included in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as stated in their reports
appearing in this Prospectus, and have been so included in reliance upon the
reports 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") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by 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, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SS&C TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March
31, 1996 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995, and for the three months ended March 31, 1995 and
1996 (unaudited)....................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995, and for the three months ended
March 31, 1996 (unaudited)............................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995, and for the three months ended March 31, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
CHALKE INCORPORATED
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-22
</TABLE>
<TABLE>
<S> <C>
Financial Statements:
Balance Sheets as of January 31, 1994, December 31, 1994, and March 31,
1995 (unaudited)....................................................... F-23
Statements of Operations for the year ended January 31, 1994, the eleven
months ended December 31, 1994, and the three months ended March 31,
1995 (unaudited)....................................................... F-24
Statements of Changes in Shareholder's Deficit for the year ended
January 31, 1994, the eleven months ended December 31, 1994, and the
three months ended March 31, 1995 (unaudited).......................... F-25
Statements of Cash Flows for the year ended January 31, 1994, the eleven
months ended December 31, 1994, and the three months ended March 31,
1995 (unaudited)....................................................... F-26
Notes to Financial Statements........................................... F-27
</TABLE>
SS&C TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Condensed Consolidated Statement of Operations (unaudited)...... F-32
Notes to Pro Forma Condensed Consolidated Statement of Operations
(unaudited).............................................................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of SS&C Technologies, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of SS&C
Technologies, Inc. and Subsidiaries (the "Company") (formerly named Securities
Software & Consulting, Inc.) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of SS&C Technologies, Inc. and Subsidiaries as of December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 8, 1996
(except as to Notes 3 and 13,
for which the date is April 25, 1996)
F-2
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
MARCH 31, 1996
PRO FORMA
STOCKHOLDERS'
EQUITY
1994 1995 1996 (NOTE 2)
----------- ----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 3,084,312 $ 1,584,659 $ 2,011,623
Accounts receivable,
net of allowance for
doubtful
accounts of $23,533,
$486,764 and
$655,138,
respectively.......... 2,933,841 5,325,182 4,144,384
Unbilled accounts
receivable............ 1,844,361 5,201,390 5,129,096
Prepaid expenses....... 101,692 604,634 506,973
Deferred income
taxes................. -- 261,724 251,089
----------- ----------- -----------
Total current
assets.............. 7,964,206 12,977,589 12,043,165
----------- ----------- -----------
Property and equipment:
Land................... 105,840 105,840 105,840
Building and leasehold
improvements.......... 1,138,820 1,159,988 1,162,148
Equipment, furniture
and fixtures.......... 1,298,901 2,700,789 2,866,898
----------- ----------- -----------
2,543,561 3,966,617 4,134,886
Less accumulated
depreciation.......... (865,798) (1,398,578) (1,561,852)
----------- ----------- -----------
Net property and
equipment........... 1,677,763 2,568,039 2,573,034
----------- ----------- -----------
Unbilled accounts
receivable--related
party (Note 12)........ -- -- 403,776
Noncurrent deferred
income taxes........... -- 3,061,182 3,109,374
Restricted cash
equivalents............ 505,000 505,000 505,000
Goodwill, net of
accumulated
amortization of
$270,588 and $360,783,
respectively (Note
11).................... -- 1,533,329 1,443,134
Intangible and other
assets, net of
accumulated
amortization of
$97,970, $524,455 and
$661,549, respectively
(Note 11).............. 793,030 1,161,410 1,024,316
----------- ----------- -----------
Total assets......... $10,939,999 $21,806,549 $21,101,799
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt--
related party
(Note 4)................ $ -- $ 1,288,154 $ 2,678,201
Accounts payable....... 294,511 387,082 619,862
Accrued expenses....... 239,221 2,053,413 1,950,146
Deferred licensing and
professional services
revenues.............. 1,503,263 1,330,563 1,212,927
Deferred maintenance
revenues.............. 1,909,064 4,294,942 3,537,434
Accrued income taxes... 381,016 368,909 96,611
Deferred income
taxes................. 292,100 -- --
----------- ----------- -----------
Total current
liabilities......... 4,619,175 9,723,063 10,095,181
Long-term debt (Note 4):
Related party.......... -- 1,390,047 --
Other.................. 450,000 450,000 450,000
----------- ----------- -----------
Total liabilities.... 5,069,175 11,563,110 10,545,181
----------- ----------- -----------
Series A, redeemable
convertible preferred
stock, $.20 par value
(liquidation preference
of $750,000), 24,750
shares authorized,
issued and outstanding;
no shares authorized,
issued or outstanding
(pro forma) (Notes 4
and 5)................. 750,000 750,000 750,000
Commitments (Notes 7 and
8)..................... -- -- --
Stockholders' equity:
Preferred stock, $.01
par value; no shares
authorized, issued or
outstanding;
1,000,000 shares
authorized, no shares
issued or outstanding
(pro forma)........... -- -- -- --
Series B, convertible
preferred stock, $.20
par value
(liquidation
preference of
$7,000,000), 152,778
shares authorized,
issued and
outstanding; no
shares authorized,
issued or outstanding
(pro forma) (Note
5).................... 30,556 30,556 30,556 --
Series C, convertible
preferred stock, $.20
par value
(liquidation
preference of
$7,368,770), 155,132
shares authorized,
issued and
outstanding; no
shares authorized,
issued or outstanding
(pro forma) (Note
5).................... -- 31,026 31,026 --
Common stock, $.01 par
value; 25,000,000
shares authorized;
6,158,500, 7,118,500
and 7,118,500 shares
issued and 4,807,570,
5,767,570 and
5,767,570 shares
outstanding,
respectively;
10,445,100 shares
issued and 9,094,170
shares outstanding
(pro forma) (Notes 5
and 10)............... 61,585 71,185 71,185 $ 104,451
Additional paid-in
capital............... 6,534,857 15,215,544 15,215,544 15,993,860
Retained earnings
(accumulated
deficit).............. 898,898 (3,449,800) (3,136,621) (3,136,621)
----------- ----------- ----------- -----------
7,525,896 11,898,511 12,211,690 12,961,690
Less treasury stock,
1,350,930 common
shares, at cost....... (2,405,072) (2,405,072) (2,405,072) (2,405,072)
----------- ----------- ----------- -----------
Total stockholders'
equity.............. 5,120,824 9,493,439 9,806,618 $10,556,618
----------- ----------- ----------- ===========
Total liabilities and
stockholders'
equity.............. $10,939,999 $21,806,549 $21,101,799
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $2,703,142 $5,146,215 $10,646,908 $ 1,532,010 $ 4,253,353
Maintenance........... 1,308,297 2,030,144 4,054,939 720,763 1,305,636
Professional
services............. 1,214,358 2,091,704 4,100,209 380,252 1,320,867
---------- ---------- ----------- ----------- -----------
Total revenues...... 5,225,797 9,268,063 18,802,056 2,633,025 6,879,856
---------- ---------- ----------- ----------- -----------
Cost of revenues:
Software licenses..... 95,435 152,566 454,257 48,894 105,061
Maintenance........... 312,329 898,487 1,045,499 159,953 373,318
Professional
services............. 310,316 1,181,585 3,799,972 418,031 980,126
---------- ---------- ----------- ----------- -----------
Total cost of
revenues........... 718,080 2,232,638 5,299,728 626,878 1,458,505
---------- ---------- ----------- ----------- -----------
Gross profit............ 4,507,717 7,035,425 13,502,328 2,006,147 5,421,351
---------- ---------- ----------- ----------- -----------
Operating expenses:
Selling and
marketing............ 1,544,598 2,692,892 5,242,372 698,071 2,198,480
Research and
development.......... 1,401,231 1,742,956 5,253,748 670,205 1,554,757
General and
administrative....... 692,985 1,044,066 2,514,776 647,128 1,135,091
Write-off of purchased
in-process research
and development...... -- -- 7,888,886 7,888,886 --
---------- ---------- ----------- ----------- -----------
Total operating
expenses........... 3,638,814 5,479,914 20,899,782 9,904,290 4,888,328
---------- ---------- ----------- ----------- -----------
Operating income
(loss)................. 868,903 1,555,511 (7,397,454) (7,898,143) 533,023
Interest income
(expense), net......... (198,037) (11,755) 24,546 46,308 (12,240)
---------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes........... 670,866 1,543,756 (7,372,908) (7,851,835) 520,783
Provision (benefit) for
income taxes (Note 6).. 119,800 660,882 (3,024,210) (3,220,823) 207,604
---------- ---------- ----------- ----------- -----------
Net income (loss)....... $ 551,066 $ 882,874 $(4,348,698) $(4,631,012) $ 313,179
========== ========== =========== =========== ===========
Net income (loss) per
common and common
equivalent shares
outstanding--historical
basis (Note 2).........
Pro forma net income
(loss) per common and
common equivalent share
(Note 2)............... $ (.49) $ .03
=========== ===========
Pro forma weighted
average number of
common and common
equivalent shares
outstanding............ 8,911,248 10,125,914
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK TREASURY STOCK
--------------- --------------- ----------------- ---------------------
NUMBER NUMBER NUMBER ADDITIONAL RETAINED EARNINGS NUMBER
OF OF OF PAID-IN (ACCUMULATED OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) SHARES COST
------- ------- ------- ------- --------- ------- ----------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at
December 31,
1992............. -- $ -- -- $ -- 5,578,500 $55,785 $ 805,151 $ (535,042) 716,950 $ (104,128)
Treasury stock
acquired for no
consideration... -- -- -- -- -- -- -- -- 72,000 --
Net income...... -- -- -- -- -- -- -- 551,066 -- --
------- ------- ------- ------- --------- ------- ----------- ----------- --------- -----------
Balance, at
December 31,
1993............. -- -- -- -- 5,578,500 55,785 805,151 16,024 788,950 (104,128)
Purchase of
treasury stock.. -- -- -- -- -- -- -- -- 61,980 (50,944)
Issuance of
Series B
convertible
preferred stock
................ 152,778 30,556 -- -- -- -- 6,008,946 -- -- --
Purchase of
redeemable
common stock.... -- -- -- -- 500,000 5,000 5,000 -- 500,000 (2,250,000)
Issuance of
common stock.... -- -- -- -- 80,000 800 5,760 -- -- --
Purchase of
warrants........ -- -- -- -- -- -- (290,000) -- -- --
Net income...... -- -- -- -- -- -- -- 882,874 -- --
------- ------- ------- ------- --------- ------- ----------- ----------- --------- -----------
Balance, at
December 31,
1994............. 152,778 30,556 -- -- 6,158,500 61,585 6,534,857 898,898 1,350,930 (2,405,072)
Issuance of
Series C
convertible
preferred
stock........... -- -- 155,132 31,026 -- -- 7,284,687 -- -- --
Issuance of
common stock.... -- -- -- -- 960,000 9,600 1,396,000 -- -- --
Net loss........ -- -- -- -- -- -- -- (4,348,698) -- --
------- ------- ------- ------- --------- ------- ----------- ----------- --------- -----------
Balance, at
December 31,
1995............. 152,778 30,556 155,132 31,026 7,118,500 71,185 15,215,544 (3,449,800) 1,350,930 (2,405,072)
Net income...... -- -- -- -- -- -- -- 313,179 -- --
------- ------- ------- ------- --------- ------- ----------- ----------- --------- -----------
Balance, at March
31, 1996
(unaudited)...... 152,778 $30,556 155,132 $31,026 7,118,500 $71,185 $15,215,544 $(3,136,621) 1,350,930 $(2,405,072)
======= ======= ======= ======= ========= ======= =========== =========== ========= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, at
December 31,
1992............. $ 221,766
Treasury stock
acquired for no
consideration... --
Net income...... 551,066
-------------
Balance, at
December 31,
1993............. 772,832
Purchase of
treasury stock.. (50,944)
Issuance of
Series B
convertible
preferred stock
................ 6,039,502
Purchase of
redeemable
common stock.... (2,240,000)
Issuance of
common stock.... 6,560
Purchase of
warrants........ (290,000)
Net income...... 882,874
-------------
Balance, at
December 31,
1994............. 5,120,824
Issuance of
Series C
convertible
preferred
stock........... 7,315,713
Issuance of
common stock.... 1,405,600
Net loss........ (4,348,698)
-------------
Balance, at
December 31,
1995............. 9,493,439
Net income...... 313,179
-------------
Balance, at March
31, 1996
(unaudited)...... $ 9,806,618
=============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 551,066 $ 882,874 $(4,348,698) $(4,631,012) $ 313,179
----------- ----------- ----------- ----------- ----------
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation........... 200,827 274,232 532,780 80,812 163,274
Amortization........... -- 97,970 697,073 76,251 227,289
Deferred income
taxes................. 119,800 172,300 (3,615,006) (3,533,889) (37,557)
Loss on disposal of
equipment............. 4,196 -- -- -- --
Purchased in-process
research and
development........... -- -- 7,888,886 7,888,886 --
Non-cash license
revenues.............. -- (180,000) -- -- --
Provision for doubtful
accounts.............. 9,000 324,880 497,663 15,000 168,374
Changes in operating
assets and
liabilities,
excluding effects
from acquisitions:
Accounts receivable... (446,731) (1,707,880) (1,307,853) 467,144 1,012,424
Unbilled accounts
receivable........... (293,413) (1,066,483) (3,357,029) (786,789) (331,482)
Prepaid expenses...... -- (72,556) (372,531) (44,045) 97,661
Refundable income
taxes................ 73,878 59,622 -- -- --
Other assets.......... 3,731 1,940 -- -- --
Accounts payable...... 74,189 147,212 (98,154) 4,293 232,780
Accrued expenses...... (43,802) 156,244 (165,626) 262,435 (103,267)
Deferred licensing
and professional
services revenues.... 477,778 881,648 (172,700) 731,460 (117,636)
Deferred maintenance
revenues............. 220,937 760,283 1,889,381 (156,035) (757,508)
Accrued income
taxes................ -- 381,016 (12,107) (123,557) (272,298)
----------- ----------- ----------- ----------- ----------
Total adjustments.... 400,390 230,428 2,404,777 4,881,966 282,054
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities............ 951,456 1,113,302 (1,943,921) 250,954 595,233
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Additions to property
and equipment......... (377,450) (484,305) (850,919) (192,566) (168,269)
Proceeds from disposal
of property and
equipment............. 6,125 -- -- -- --
Acquisition of Chalke,
net of cash received
(Note 11)............. -- -- (7,426,126) (6,950,812) --
Purchase of intangible
assets................ -- (210,000) -- -- --
----------- ----------- ----------- ----------- ----------
Net cash used in
investing activities.. (371,325) (694,305) (8,277,045) (7,143,378) (168,269)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Repayment of debt...... (1,012,862) (2,267,852) -- -- --
Purchase of treasury
stock................. -- (2,300,944) -- -- --
Issuance of convertible
preferred stock....... -- 6,039,502 7,315,713 5,545,943 --
Issuance of common
stock................. -- 6,560 1,405,600 1,401,000 --
Purchase of warrants... -- (290,000) -- -- --
Transfer of cash to
restricted cash
equivalents........... -- (505,000) -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities............ (1,012,862) 682,266 8,721,313 6,946,943 --
----------- ----------- ----------- ----------- ----------
Net increase (decrease)
in cash and cash
equivalents............ (432,731) 1,101,263 (1,499,653) 54,519 426,964
Cash and cash
equivalents, at
beginning of year...... 2,415,780 1,983,049 3,084,312 3,084,312 1,584,659
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, at end of
year................... $ 1,983,049 $ 3,084,312 $ 1,584,659 $ 3,138,831 $2,011,623
=========== =========== =========== =========== ==========
Supplemental disclosure
of cash flow
information:
Cash paid for:
Interest............... $ 325,105 $ 176,658 $ -- $ -- $ --
Income taxes........... 76,800 82,763 616,128 405,830 517,460
Supplemental disclosure of non-cash investing activities:
As more fully disclosed in Note 11, effective March 31, 1995, the Company purchased all of
the assets of Chalke Incorporated for $12,702,964.
As more fully disclosed in Note 11, effective in August 1994, the Company acquired
packaged software and other assets in the amount of $840,000.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
SS&C Technologies, Inc. and Subsidiaries ("SS&C" or the "Company") (formerly
named Securities Software & Consulting, Inc.) is a leading provider of
client/server-based software solutions, and related consulting services,
designed to improve the efficiency and effectiveness of a broad range of
organizations in the financial services industry. The Company has developed a
family of software products that provides a full range of mission-critical
information management and analysis, accounting, reporting and compliance
tools to help high-level investment professionals make informed, real-time
decisions and automate many operational functions in today's increasingly
complex and fast-moving financial markets. The Company's products are focused
on improving the effectiveness of decision making through open, fully
integrated access to the quantitative analysis of transactions-based data,
allowing investment professionals to manage and analyze large amounts of data
in the aggregate and in detail on a timely basis.
The Company operates in one business segment and currently derives
substantially all of its revenue from the licensing of its CAMRA, PTS and
FILMS applications software to the financial services industry and the
provision of related maintenance, consulting and training services in the
areas of investments, investment accounting and software development. The
Company expects that the licensing of these products and the related services
will account for a substantial portion of its revenues in the future. The
Company's clients include a range of organizations that manage investment
portfolios, including asset managers, insurance companies, banks, mutual
funds, public and private pension funds, hedge funds, corporate treasuries and
government agencies. The success of many of the Company's clients is
intrinsically linked to the health of the financial markets. Demand for its
products could be affected by fluctuations or downturns in the financial
markets, which may cause clients and potential clients to exit the industry or
delay, cancel or reduce any planned expenditures for investment management
systems and software products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated financial statements of the Company as of March 31, 1996
and for the three months ended March 31, 1995 and 1996 and related footnote
information are unaudited. All adjustments, consisting only of normal
recurring adjustments, have been made which, in the opinion of management, are
necessary for a fair presentation of the interim financial information.
Results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for any future
period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, SS&C S.A.R.L., SS&C Ventures,
Inc., Securities Software & Consulting Limited and SS&C Pacific, Inc. All
intercompany activity has been eliminated in preparing the consolidated
financial statements.
F-7
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenues in accordance with the Statement of Position
on software revenue recognition issued by the American Institute of Certified
Public Accountants.
The Company licenses the right to use its software products to customers
under perpetual license agreements. The Company generally recognizes license
revenues on delivery of the software to the customer provided that collection
of the resulting receivable is considered probable unless the Company has
significant future obligations remaining under the license agreement or there
is significant uncertainty about customer acceptance. If there are significant
future obligations or uncertainty about customer acceptance, revenue is
recognized when such obligations are satisfied and any uncertainty about
acceptance becomes insignificant. Insignificant vendor obligations are
accounted for by deferring a pro rata portion of revenues and recognizing such
revenues ratably as the obligations are fulfilled.
The Company occasionally enters into license agreements requiring
significant customization of the Company's software. These agreements are
accounted for by the Company on a percentage of completion basis. This method
requires estimates to be made for costs to complete the agreement utilizing an
estimate of development man hours remaining. Due to uncertainties inherent in
the estimation process, it is at least reasonably possible that completion
costs may be revised. Such revisions are recognized in the period in which the
revisions are determined. Provisions for estimated losses on uncompleted
contracts are determined on a contract by contract basis, and are made in the
period in which such losses are first estimated or determined.
The Company's software license agreements include a short-term, generally
90-day, warranty period that the Company does not consider a cancellation
privilege.
The Company records accounts receivable and related deferred revenues upon
the execution of contracts for license agreements and upon billing for
maintenance and licensed lease agreements. Revenues from maintenance
agreements is recognized ratably over the term of the agreement. Unbilled
receivables principally reflect revenues recognized pursuant to license
agreements for which milestone amounts are not contractually billable.
Professional services revenues include consulting and training provided to
customers, generally on a time and materials basis. Professional services
revenues are recognized as the services are performed.
The Company records an allowance for doubtful accounts based on individual
customer analyses. Write-offs of accounts receivable were $1,019, $309,328 and
$34,432 for the years ended December 31, 1993, 1994 and 1995, respectively,
and there were no write-offs of accounts receivable for the three-month
periods ended March 31, 1995 and 1996.
Research and Development
Research and development costs associated with computer software are charged
to expense as incurred. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, capitalization of internally developed computer
software costs begins upon the establishment of technological feasibility
based upon a working model. The Company's policy is to expense these costs
upon a product's general release to the customer. The Company has not
capitalized any costs as eligible amounts were considered by management to be
immaterial.
The Company's policy is to amortize capitalized software costs by the
greater of (a) the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product including the period being reported on. It is reasonably possible that
those estimates of anticipated future
F-8
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gross revenues, the remaining estimated economic life of the product, or both
could be reduced significantly due to competitive pressures.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less at date of acquisition to be cash
equivalents. Cash equivalents consist primarily of bank deposits and
commercial paper.
Restricted Cash Equivalents
The Company has a letter of credit agreement with a U.S. bank for $505,000
in connection with the purchase of the mainframe based investment accounting
line of business of an unrelated entity. The purchase agreement requires the
Company to maintain an irrevocable letter of credit until the debt is paid in
full. In accordance with the terms of the letter of credit agreement, the
Company has a $505,000 certificate of deposit with the bank which is
restricted to serve as collateral for the letter of credit (see Note 4).
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using a combination of straight-line and accelerated
methods over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C>
Building.............................................. 31.5 years
Equipment............................................. 3-5 years
Furniture and fixtures................................ 7-10 years
Leasehold improvements................................ shorter of lease
term or estimated
useful life
</TABLE>
Maintenance and repairs are expensed as incurred. The costs of sold or
retired assets are removed from the related asset and accumulated depreciation
accounts and any gain or loss is included in operations.
Goodwill and Intangible Assets
Goodwill, which is entirely associated with the Company's Chalke acquisition
described in Note 11, is being amortized on a straight-line basis over its
estimated life of five years. The carrying amount of goodwill is evaluated for
future recoverability on a periodic basis, relying on a number of factors,
including the estimated life of the customer base under annual maintenance
agreements, the Chalke division's operating results, business plans, budgets
and economic projections and undiscounted cash flows. In addition, the
Company's evaluation considers non-financial data such as market trends,
product development cycles and changes in management's market emphasis.
Amortization expense associated with goodwill was $270,588 and $90,195 for the
year ended December 31, 1995 and the three-month period ended March 31, 1996,
respectively.
Other intangible assets, excluding purchased software, are being amortized
on a straight-line basis over their estimated lives of two to three years.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents
and trade receivables. The Company invests its cash in deposits with
F-9
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
commercial banks or in commercial paper with several financial institutions.
Concentrations of credit risk, with respect to trade receivables, are limited
due to the large number of customers comprising the Company's customer base
and their dispersion across many different geographies. As of December 31,
1995, the Company had no significant concentrations of credit risk.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 109, an asset and liability approach
is used to recognize deferred tax assets and liabilities for the future tax
consequences of items that have already been recognized in its financial
statements and tax returns. A valuation allowance is established against net
deferred tax assets if, based on the weight of available evidence, it is more
likely than not that some or all of the net deferred tax assets will not be
realized.
Net Income (Loss) per Common and Common Equivalent Share
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares outstanding after
certain adjustments described below. The computation of net income (loss) per
common and common equivalent share is based on net income (loss) divided by
the weighted average number of common and common equivalent shares outstanding
during the period after giving effect to the stock splits described in Note 3.
Common equivalent shares comprise stock options and warrants using the
treasury stock method. Common equivalent shares from stock options and
warrants are excluded from the computation if their effect is antidilutive.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares, issued at prices below the
anticipated public offering price during the 12 months immediately preceding
the initial filing date have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method and the
anticipated initial public offering price). In addition, all outstanding
shares of preferred stock to be converted into common stock upon the closing
of the initial public offering are treated as having been converted into
common stock at the date of original issuance.
Net income (loss) per common share on a historical basis is computed in the
same manner as pro forma net loss per common share except that all preferred
stock is considered to be a common stock equivalent based on its terms and
conditions except that in 1995 preferred stock is excluded as the effect of
inclusion would be antidilutive.
Net income (loss) per common share on a historical basis is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- --------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ 551,066 $ 882,874 $(4,348,698) $(4,631,012) $ 313,179
========= ========= =========== =========== ==========
Net income (loss) per
common share........... $ .09 $ .13 $ (.72) $ (.88) $ .03
========= ========= =========== =========== ==========
Weighted average number
of common and common
equivalent shares
outstanding............ 6,059,305 6,989,535 6,011,950 5,291,950 10,125,914
========= ========= =========== =========== ==========
</TABLE>
F-10
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fully diluted net income (loss) per share is not presented as it is the same
as the amounts disclosed in historical net income per share for the years
ended December 31, 1993 and 1994, for the three-month periods ended March 31,
1995 and 1996 and in the pro forma net loss per share for the year ended
December 31, 1995.
Accounting Standards
SFAS No. 123, "Accounting for Stock-Based Compensation," must be adopted in
1996. This standard encourages, but does not require, recognition of
compensation expense based on the fair value of equity instruments granted to
employees. The Company does not plan to record compensation for equity
instruments granted to employees and therefore the adoption of this standard
will have no impact on its financial position or results of operations. The
Company will adopt the disclosure provision of SFAS No. 123 in 1996.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," must be adopted in 1996. The standard
requires that impairment losses be recognized when the carrying value of an
asset exceeds its fair value. The Company regularly assesses all of its long-
lived assets for impairment and, therefore, does not believe the adoption of
the standard will have a material effect on its financial position or results
of operations.
Reclassifications
Certain components of the prior years consolidated statements of operations
have been reclassified for consistency with the current year's presentation,
with no effect on net income.
Pro Forma Presentation (Unaudited)
Upon the closing of a public offering, such as the one contemplated in the
registration statement, in which the accompanying financial statements have
been included, all of the outstanding series of convertible preferred stock
will automatically convert into an aggregate of 3,326,600 shares of common
stock, and the Company's existing series of convertible preferred stock will
be removed and a class of authorized but undesignated preferred stock will be
created. The unaudited pro forma presentation of the March 31, 1996
stockholders' equity has been prepared assuming such conversion.
3. STOCK SPLITS:
As more fully described in Note 13, in April 1996, the Company effected a
10-for-1 split of its common stock as part of its reincorporation in the State
of Delaware.
During 1993, the Company executed a 5-for-1 split of its $1.00 par value
common stock and redeemable common stock. The par value of both classes of
stock was changed from $1.00 per share to $0.20 per share.
All shares, warrants, options and par values have been restated in the
financial statements and footnotes to reflect the effects of these splits of
the Company's common stock.
F-11
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT AND REDEEMABLE PREFERRED STOCK, SERIES A:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1994 1995 1996
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7.91% note payable, due to a related party
in two equal annual installments of
principal and interest of $1,500,000 on
March 31, 1996 and 1997.................... $ -- $ 2,678,201 $ 2,678,201
6.81% note payable, due August 31, 1999..... 450,000 450,000 450,000
-------- ----------- -----------
Total long-term debt........................ 450,000 3,128,201 3,128,201
Less current portion-related party.......... -- (1,288,154) (2,678,201)
-------- ----------- -----------
Long-term debt.............................. $450,000 $ 1,840,047 $ 450,000
======== =========== ===========
</TABLE>
The future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
- -------------------------
<S> <C>
1996 (nine months).................................................. $1,288,154
1997................................................................ 1,390,047
1998................................................................ --
1999................................................................ 450,000
2000................................................................ --
----------
$3,128,201
==========
</TABLE>
The 7.91% note payable to a related party was issued in connection with the
Company's acquisition of the assets and operations of Chalke Incorporated
("Chalke") (see Note 11). The term of the promissory note dated March 31, 1995
is for repayment in two equal installments of $1,500,000 on March 31, 1996 and
March 31, 1997. The promissory note includes interest accruing annually from
March 31, 1995 at the applicable federal rate. The applicable rate at March
31, 1995 was 7.91%. The present value of the $3,000,000 two year loan at 7.91%
is $2,678,201. Interest expense for the year ended December 31, 1995 and for
the three-month period ended March 31, 1996 was $158,884 and $52,962,
respectively. Interest payable as of December 31, 1995 and March 31, 1996 was
$158,884 and $211,846, respectively. The March 31, 1996 installment has been
paid in full.
The 6.81% note payable was issued in connection with the Company's
acquisition of packaged software and related assets (see Note 11). The note
was issued at $505,000 and requires the Company to make periodic payments on
the debt based upon specified percentages of revenue collected by the Company
related to customers utilizing the acquired product. The payments are based
upon 10% of maintenance fees collected through December 31, 1996, 5% of
conversion fees collected through June 30, 1997 and 15% of all license fees
collected. In the event that a balance remains on the debt on the fifth
anniversary of the acquisition's closing, August 31, 1999, the outstanding
balance becomes due in full (see Note 1).
Notes payable to a related party in the aggregate of $1,000,000 at 9% were
repaid in full on January 31, 1994 and April 29, 1994. In connection with this
borrowing in 1990, the Company issued warrants, with no assigned value, to
purchase 600,000 shares of common stock at $2.00 per share. On March 31, 1995,
the warrantholder exercised all 600,000 warrants at a discounted price of
$1.67 per share. The discounted price was negotiated to induce the related
party to exercise its warrants prior to the
F-12
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
September 24, 1997 expiration date in order for the Company to obtain the
proceeds to assist in the financing of the Chalke Acquisition.
An 11% note payable to a related party of $500,000 was repaid in full on
December 14, 1994. In connection with this borrowing in 1990, the Company
issued warrants, with no assigned value, to purchase 400,000 shares of common
stock at $1.60 per share. In September 1994, the warrantholder surrendered the
right to purchase 100,000 shares of common stock for consideration of $2.90
per share. On March 31, 1995, the warrantholder exercised the remaining
300,000 warrants at a discounted price of $1.33 per share. The discounted
price was negotiated to induce the related party to exercise its warrants
prior to the September 24, 1997 expiration date in order for the Company to
obtain the proceeds to assist in the financing of the Chalke Acquisition.
In connection with the note agreements referred to above, the 9% noteholders
entered into a stock purchase agreement with the Company under which the
noteholders purchased 500,000 shares of redeemable common stock for $750,000
and 15,000 shares of Series A redeemable convertible preferred stock for
$750,000. The terms of the stock purchase agreement include put provisions in
which the remaining stock held by the 9% noteholders may be put to the Company
between September 1, 1997 and December 31, 1997. The repurchase price for each
share of the remaining stock shall be an amount equal to the average of (x)
fifteen (15) times the Company's consolidated net income for the fiscal year
immediately preceding any such repurchase and (y) two (2) times the Company's
consolidated gross revenues for the fiscal year immediately preceding any such
repurchase, divided by the number of shares of Common Stock outstanding on a
fully-diluted basis. The Series A redeemable convertible preferred stock will
convert into Common Stock upon the closing of the Company's initial public
offering.
In connection with the issuance of the convertible preferred stock, Series B
in September 1994, the following transactions were completed:
. The number of Series A redeemable convertible preferred stock shares
authorized and owned by the 9% noteholders was changed to 24,750 to
maintain the preferred stockholders' conversion rights and the par value
was changed to $.20 per share from $1.00 per share;
. The liquidation value per share was changed to maintain the preferred
stockholders' aggregate liquidation value;
. The conversion ratio of the Series A, redeemable convertible preferred
stock was changed to a rate of one share of preferred stock for one
share of common stock; and
. The Company purchased the 500,000 shares of redeemable common stock held
by the 9% noteholders at $4.50 per share.
5. PREFERRED STOCKHOLDERS' EQUITY:
Series B
During 1994, the Company authorized the issuance of 152,778 shares of a new
series of preferred stock, Series B convertible preferred stock (the "Series B
stock"). On September 20, 1994, the Company entered into a stock purchase
agreement in which it issued 152,778 shares of the Series B stock at $40.00
per share, before costs of the transaction.
In connection with the issuance of the Series B stock, the Company
repurchased 100,000 warrants to purchase common stock and redeemed 500,000
shares of redeemable common stock (as discussed in
F-13
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Note 4). The warrants were repurchased at $4.50 per warrant less their $1.60
exercise price and the redeemable common stock was redeemed at $4.50 per
share. Additionally, the Company repurchased 8,980 shares of common stock
owned by employees at $4.50 per share and repurchased options to purchase
28,000 shares of common stock from employees at $4.50 per share.
At the time of issuance of the Series B stock, the authorized shares of
common stock were increased from 8,850,000 to 10,224,720. At December 31,
1994, 1,775,280 shares of the authorized common stock were reserved for the
conversion of the Series A and Series B stock, 1,590,000 shares for the stock
option plan and 900,000 shares for the outstanding warrants.
Series C
During 1995, the Company authorized the issuance of 155,132 shares of a new
series of preferred stock, Series C convertible preferred stock (the "Series C
stock"). On March 31, 1995 and April 13, 1995, the Company entered into stock
purchase agreements in which it issued the 155,132 shares of the Series C
stock at $47.50 per share, before transaction costs.
In connection with the issuance of the Series C stock, holders of
outstanding warrants exercised their rights to purchase 900,000 shares of
common stock for $1,401,000.
At the time of issuance of the Series C stock, the authorized shares of
common stock was increased from 10,224,720 to 11,673,400. At December 31, 1995
and March 31, 1996, 3,326,600 shares of the authorized common stock were
reserved for the conversion of the Series A, Series B and Series C stock and
1,476,500 and 1,642,000 shares, respectively, for the stock option plans.
The preferred stock contains the following rights and preferences:
. Each share is convertible at the option of the holder and is
automatically converted in the event of a closing of a public offering
pursuant to a registration under the Securities Act of 1933 of a certain
minimum size and price. Each share of preferred stock will be converted
into ten shares of common stock (see Note 13). The conversion ratio has
antidilution protection which will cause it to change in the event of
certain transactions, as defined in the Company's Certificate of
Incorporation.
. Each holder of Series A and Series B preferred stock class is entitled
to the selection of one member of the Board of Directors. This
entitlement is automatically terminated in the event of a closing of a
public offering pursuant to a registration under the Securities Act of
1933 of a certain minimum size and price.
. As stated in the Certificate of Incorporation, the Company is prohibited
from entering into certain transactions without the approval of 66 2/3%
of the preferred stockholders.
. Each preferred stockholder can vote on all matters and is entitled to
one vote for each share of common stock which could be obtained through
conversion of all of the stockholder's preferred stock.
. In the event that dividends are declared for the common stockholders,
the preferred stockholders are entitled to receive the amount of
dividends they would have received had they converted all of their
preferred shares into common shares prior to the declaration of the
dividend.
F-14
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
. In the event that control of the Company is obtained by a party other
than the current president or preferred stockholders, the preferred
stockholders are entitled to redeem their stock at its liquidation
value.
. In the event of the voluntary or involuntary liquidation of the Company,
the Series A, Series B and Series C, preferred stockholders will be
entitled to receive a minimum of $750,000, $7,000,000 and $7,368,770,
respectively, in addition to any accrued dividends. The preferred
stockholders are entitled to receive a per share liquidation amount
equal to that of the common stockholders if that amount exceeds the
minimum value stated above.
6. INCOME TAXES:
The income tax provision (benefit) for the years ended December 31, 1993,
1994 and 1995 and the three-month periods ended March 31, 1995 and 1996
consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.................. $ -- $428,989 $ 434,005 $ 77,304 $184,512
State.................... -- 59,593 156,791 24,062 60,650
Deferred:
Federal.................. 87,400 135,200 (2,756,736) (2,549,390) 1,372
State.................... 32,400 37,100 (858,270) (772,799) (38,930)
-------- -------- ----------- ----------- --------
Total .................. $119,800 $660,882 $(3,024,210) $(3,220,823) $207,604
======== ======== =========== =========== ========
</TABLE>
The effective tax rates were 17.9%, 42.8% and (41.0)% for the years ended
December 31, 1993, 1994 and 1995, respectively, and (41.0)% and 39.9% for the
three-month periods ended March 31, 1995 and 1996, respectively, and are
reconciled from the expected tax expense (benefit) (the expected tax expense
(benefit) is computed by applying the U.S. Federal corporate income tax rate
of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- -------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit)...... $ 228,094 $524,877 $(2,506,789) $(2,669,624) $177,066
Increase (decrease) in
income taxes resulting
from:
Tax effect of net
operating loss
carryforwards........ (129,678) (1,562) -- --
State income taxes
(net of Federal
income tax benefit).. 21,384 63,817 (459,016) (494,166) 14,335
Other................. -- 73,750 (58,405) (57,033) 16,203
--------- -------- ----------- ----------- --------
Income tax expense
(benefit).............. $ 119,800 $660,882 $(3,024,210) $(3,220,823) $207,604
========= ======== =========== =========== ========
</TABLE>
F-15
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax asset (liability) at December 31,
1994 and 1995 and March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ----------
1994 1995 1996
--------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets..................... $ 52,100 $4,279,920 $4,259,733
Deferred tax liabilities................ (344,200) (957,014) (899,270)
--------- ---------- ----------
Net deferred tax asset (liability).... $(292,100) $3,322,906 $3,360,463
========= ========== ==========
</TABLE>
The components of deferred income taxes at December 31, 1994 and 1995 and
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 MARCH 31, 1996
-------------------------- -------------------------- --------------------------
DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED
TAX ASSETS TAX LIABILITIES TAX ASSETS TAX LIABILITIES TAX ASSETS TAX LIABILITIES
---------- --------------- ---------- --------------- ---------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Purchased in-process
research and
development............ $ -- $ -- $3,063,260 $ -- $3,056,424 $ --
Accounting method
change--cash to
accrual................ -- 344,200 -- 925,877 -- 854,695
Accounting method
change--advance
payments............... -- -- 641,385 -- 613,605 --
Deferred revenues....... -- -- 137,744 -- 104,035 --
Acquired technology..... 35,909 -- 133,202 31,137 158,266 44,575
Accrued expenses........ -- -- 149,049 -- 103,806 --
Accounts receivable..... -- -- 106,125 -- 223,597 --
Other................... 16,191 -- 49,155 -- -- --
------- -------- ---------- -------- ---------- --------
Total............... $52,100 $344,200 $4,279,920 $957,014 $4,259,733 $899,270
======= ======== ========== ======== ========== ========
</TABLE>
7. LEASES:
The Company is obligated under noncancelable operating leases for office
space and office equipment. Total related expense for the years ended December
31, 1993, 1994 and 1995 was $112,854, $172,130 and $464,560, respectively, and
for the three-month periods ended March 31, 1995 and 1996 was $54,800 and
$209,462, respectively. Future minimum lease payments under these operating
leases are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31,
--------------------------
<S> <C>
1996 (nine months)........................................... $ 432,928
1997......................................................... 464,318
1998......................................................... 409,261
1999......................................................... 388,793
2000......................................................... 355,889
2001 and thereafter.......................................... 331,392
----------
$2,382,581
==========
</TABLE>
F-16
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, the Company began leasing a portion of its building to a
related party under a noncancelable lease. The Company was no longer related
to this party as of December 31, 1995. The Company received rent under this
lease of $17,772 and $19,440 for the years ended December 31, 1994 and 1995,
respectively, and $4,860 for the three-month period ended March 31, 1996.
Future minimum lease receipts under this lease are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31,
--------------------------
<S> <C>
1996 (nine months).............................................. $15,100
1997............................................................ 19,440
1998............................................................ 19,440
1999............................................................ 6,480
-------
$60,460
=======
</TABLE>
8. LICENSE AND ROYALTY AGREEMENTS:
The Company is a party to two license and royalty agreements as a result of
the joint development of software products. One of these agreements is with a
related party. The related party development partner is paid a 3% royalty in
perpetuity based on a percentage of license fee revenues collected related to
the Company's CAMRA and FILMS products. The second agreement calls for royalty
payments of 3% on a certain module until $22,000 has been paid. The total
royalty expense included in cost of software licensing revenues under these
agreements of $51,754, $105,890 and $186,914 for the years ended December 31,
1993, 1994 and 1995, respectively, includes $48,495, $98,925 and $165,835,
respectively, to the related party. As more fully described in Note 12, on
January 27, 1996, the Company licensed its CAMRA and FILMS applications
software and certain other programs to the related party pursuant to a
software license agreement. Under the terms of this agreement, all outstanding
accounts receivable and accounts payable between the parties as of January 27,
1996 were forgiven, including amounts payable by the Company under certain
royalty agreements. The agreement also terminates the requirement for the
Company to pay royalties to the related party in the future. The second
agreement was paid in full during the three-month period ended March 31, 1996.
The Company has no future obligations under royalty agreements related to
CAMRA and FILMS products.
The Company also has non-exclusive rights, acquired by the Company in the
Chalke acquisition, to integrate software into certain Company products. Under
the terms of the agreement, the licensor of the software is paid minimum
monthly royalties and additional royalties based on a percentage of the
related license fee revenues collected. These payments range between 20% and
43% of sales of the related software products. The total royalty expense under
this agreement for 1995 and for the three-month period ended March 31, 1996
was $331,572 and $90,765, respectively.
9. DEFINED CONTRIBUTION PLANS:
On January 1, 1992, the Company established its 401(k) Profit Sharing Plan
and Trust (the "Plan"). The Plan covers substantially all employees. Each
employee may elect to contribute to the Plan, through payroll deductions, up
to 15% of his or her salary, subject to certain limitations. The Plan provides
for a Company match of employees' contributions in an amount equal to 50% of
an employee's contributions up to $1,000, in addition to discretionary
contributions as determined by the Board of Directors.
In connection with the acquisition of Chalke on March 31, 1995, the Company
assumed the pre-existing deferred compensation plan for Chalke employees,
which was established in January 1993. Under the plan, each eligible employee
may elect to contribute to the plan up to 20 percent of his or her salary,
subject to certain limitations.
F-17
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the years ended December 31, 1993, 1994 and 1995 and the three-month
periods ended March 31, 1995 and 1996, the Company incurred $18,105, $26,691,
$73,440, $24,486 and $49,020, respectively, of expense related to these plans.
10. STOCK OPTION PLANS:
During 1993, the Board of Directors approved an employee stock option plan
("1993 Plan") which was in place through December 1994 and reserved 1,000,000
shares of common stock for issuance under this plan. During 1994, the Board of
Directors approved a new plan ("1994 Plan"), effective January 1, 1995, for
which 1,000,000 shares of common stock have been reserved. The 1994 Plan was
amended in October 1995 and April 1996 to reserve additional shares of common
stock for issuance under the plan, bringing the total shares of common stock
reserved for issuance to 3,000,000. Options issued under the 1993 plan remain
under the terms of that plan. There were options to purchase 186,500 shares of
common stock outstanding under the 1993 plan at March 31, 1996. No new options
will be granted under this plan. There were options to purchase 1,455,500
shares of common stock outstanding under the 1994 plan at March 31, 1996,
leaving 1,544,500 available to be granted.
The purchase price of shares subject to each option granted will not be less
than 100% of the fair market value at the date of grant. Options granted prior
to the issuance of the Series B preferred stock are exercisable for five years
from the date of grant. Options issued subsequent to the Series B preferred
stock, have vesting periods of three to five years from the date of grant. As
of December 31, 1994, there were outstanding options to purchase 332,000
shares of common stock exercisable under the 1993 Plan. As of March 31, 1996,
options to purchase 186,500 and 165,563 shares of common stock were then
exercisable under the 1993 Plan and 1994 Plan, respectively.
The following table summarizes stock option transactions for the years ended
December 31, 1993, 1994 and 1995 and the three-month period ended March 31,
1996.
<TABLE>
<CAPTION>
STOCK OPTION
SHARES PRICES PER SHARE
--------- -----------------
<S> <C> <C> <C>
Outstanding at December 31, 1992............... -- -- --
Granted...................................... 410,000 $0.07 $0.10
Canceled..................................... -- -- --
Exercised.................................... -- -- --
--------- -------- --------
Outstanding at December 31, 1993............... 410,000 0.07 0.10
Granted...................................... 328,000 0.07 4.00
Canceled..................................... -- -- --
Exercised.................................... (80,000) 0.07 0.10
Redeemed..................................... (28,000) 0.07 0.07
--------- -------- --------
Outstanding at December 31, 1994............... 630,000 0.07 4.00
Granted...................................... 1,074,000 4.00 8.00
Canceled..................................... (167,500) 0.07 5.00
Exercised.................................... (60,000) 0.07 0.10
--------- -------- --------
Outstanding at December 31, 1995............... 1,476,500 0.07 8.00
Granted...................................... 166,500 8.00 9.00
Canceled..................................... (1,000) 8.00 8.00
Exercised.................................... -- -- --
--------- -------- --------
Outstanding at March 31, 1996 (unaudited)...... 1,642,000 $0.07 $9.00
========= ======== ========
</TABLE>
F-18
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The exercise price for each of the above grants was determined by the Board
of Directors of the Company to be equal to the fair market value of the common
stock on the date of grant. In reaching this determination at the time of each
such grant, the Board considered a broad range of factors, including the
illiquid nature of an investment in the Company's common stock, the Company's
historical financial performance, the preferences (including liquidation) of
the Company's outstanding convertible preferred stock and the Company's future
prospects.
11. ACQUISITIONS:
On March 31, 1995, the Company purchased substantially all of the assets and
operations of Chalke for $12,702,964. The purchase has been paid in the form
of cash of $7,426,126, net of cash received from Chalke and a line of credit
repayment, a promissory note with a present value of $2,678,201, the
assumption of liabilities of $2,598,637 and the costs of effecting the
transaction.
The Chalke acquisition was accounted for as a purchase and, accordingly, the
net assets and results of operations of Chalke have been included in the
consolidated financial statements from the acquisition date. The purchase
price was first allocated to tangible assets based on their net realizable
value or fair market value on the date of the acquisition. The remaining
portion of the purchase price is allocated to identified intangible assets and
goodwill.
The following summarizes the allocation of the purchase price.
<TABLE>
<S> <C>
Cash........................................................... $ 49,188
Accounts receivable............................................ 1,581,151
Property and equipment......................................... 572,137
Complete technology............................................ 794,865
Other assets................................................... 12,820
Incomplete technology.......................................... 7,888,886
Goodwill....................................................... 1,803,917
-----------
Total purchase price....................................... $12,702,964
===========
</TABLE>
The allocation to complete technology is based on future risk adjusted
discounted cash flows. Complete technology has been capitalized and included
in the caption "intangible and other assets" in the accompanying consolidated
balance sheet. It is being amortized over approximately six years.
Amortization expense associated with complete technology was $121,485 and
$60,844 for the year ended December 31, 1995 and the three-month period ended
March 31, 1996, respectively.
The allocation to incomplete technology is also based on future risk
adjusted discounted cash flows and has been expensed in 1995, in accordance
with generally accepted accounting principles. The incomplete technology had
not achieved technological feasibility and had no alternative future uses.
The values allocated to complete and incomplete technology were determined
after extensive evaluation of the status of the products as they existed at
the time of the acquisition, an assessment of their commercial viability and,
in the case of the two products considered to be incomplete technology, an
analysis of the additional costs necessary to reach technological feasibility.
The COPE product consists of several modules, all of which are necessary to
meet the needs of its target market--large financial institutions. As of the
acquisition date, development of none of the modules had been completed and
the validity of the relevant algorithims had not been validated. PTS 2000 was
F-19
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
also incomplete as the product existed only as an early stage prototype and
the core development was still in the tool set and object-oriented design
stage.
Neither product had any alternative future use (in other research and
development projects or otherwise) as they were not commercially viable at the
time of acquisition and could not be utilized with any of the Company's
existing products.
Future discounted cash flows require estimates of future revenues and
expenses, analysis of future market conditions and an estimate of the future
economic life of the product. Estimates were based on management's analysis of
the data available at the time. It is reasonably possible that the estimates
could change significantly in the near term as, in the case of incomplete
technology, the new products are introduced into the market and the existing
complete technology product faces new competitive pressures.
The Company assumed the current liabilities of Chalke as of March 31, 1995,
totaling $3,024,763, which included an outstanding line of credit, trade
accounts payable and various accrued expenses. The line of credit was repaid
by the Company in accordance with the purchase agreement.
The unaudited pro forma condensed consolidated results of operations
presented below for the years ended December 31, 1994 and 1995, assume the
Chalke acquisition occurred at the beginning of each period presented. The
unaudited pro forma condensed statement of operations for the year ended
December 31, 1995, excludes the $7,888,886 write-off of purchased in-process
research and development:
<TABLE>
<CAPTION>
(IN THOUSANDS
EXCEPT PER
SHARE DATA)
1994 1995
------- -------
<S> <C> <C>
Total revenues.................................................. $17,439 $21,164
Operating income................................................ 911 403
Net income...................................................... 406 235
Net income per common and common equivalent share............... .06 .02
</TABLE>
These pro forma results are not necessarily indicative of the results of
operations that would have actually occurred had the acquisition taken place
at the beginning of each period, or of future operations of the combined
companies.
In August 1994, the Company acquired packaged software and other assets from
an unrelated entity, for a purchase price of $840,000. Payment of the purchase
price consisted of cash of $160,000 at the closing; the Company's agreement,
under separately executed licensing and maintenance agreements, to provide the
seller with a CAMRA software license and five years of maintenance valued at
$75,000 and $100,000, respectively; and a note payable for the remaining
$505,000 which was subsequently reduced by $55,000 in a non-cash exchange for
a license agreement. The acquisition has been accounted for as a purchase and,
accordingly, the assets and results of operations are included in the
consolidated financial statements from the acquisition date. The assets
received in the acquisition, principally the packaged software and customer
lists, net of accumulated amortization of $93,333, $373,333 and $443,333 as of
December 31, 1994 and 1995 and March 31,1996, respectively, are included in
intangible and other assets. Amortization is being provided over a three-year
period. The results of operations from this acquisition are immaterial.
In April 1994, the Company entered into a joint venture agreement with Prime
Advisors, Inc. ("Prime") to create Outsource to CAMRA ("OTC"), a portfolio
accounting service bureau. In October
F-20
<PAGE>
SS&C TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994, the Company acquired Prime's remaining interest in OTC. The cost of the
buy-out of $50,000, net of accumulated amortization of $4,637, $29,637 and
$35,887 as of December 31, 1994, 1995 and March 31, 1996, respectively, is
included in intangible and other assets. Amortization is being provided over a
two-year period.
12. RELATED PARTY TRANSACTIONS:
The Company has entered into licensing and maintenance contracts with
several related parties that have ownership interests in the Company, as well
as representation on the Company's Board of Directors. Total licensing,
maintenance and professional services fee revenues under these agreements was
$187,885, $451,633 and $263,054 for the years ended December 31, 1993, 1994
and 1995, respectively. Amounts collected under these agreements totaled
$293,024, $457,547 and $294,806, respectively. At December 31, 1994 and 1995,
$99,360 and $228,163, respectively, remained payable from these parties to the
Company.
As described in Note 8, the Company licensed its CAMRA and FILMS
applications software and certain other programs to a related party for a
total purchase price of $2,054,786, including a five-year maintenance program.
The purchase price was allocated to license fees of $1,543,561, maintenance
fees over the five-year period of $375,000 and deferred interest resulting
from an extended payment plan of $136,225. Terms include a $900,000 payment
due upon execution of the agreement and quarterly installments of $52,500 for
five years. All outstanding receivables and payables between the parties as of
January 27, 1996 were forgiven, resulting in an additional $104,786 allocated
to the purchase price. Interest was imputed at 9% for payments on the license
fee. The amount collected from the related party during the quarter ended
March 31, 1996 was $953,250. There was no balance currently due and payable at
March 31, 1996.
The Company also licenses its CAMRA applications software to another related
party from which the Company derived revenues of $102,500, $60,000 and $62,600
in 1993, 1994 and 1995, respectively. This license was transferred under the
agreement dated January 27, 1996 such that all licenses and maintenance
agreements with these three related parties, which are affiliated with each
other, are governed by one agreement.
13. SUBSEQUENT EVENTS:
On April 25, 1996, the Company reincorporated in the State of Delaware and
exchanged each outstanding share of common stock for ten shares of common
stock, $.01 par value, and exchanged each outstanding share of preferred stock
Series A, Series B and Series C for one share of preferred stock Series A,
Series B and Series C, respectively. Each holder of outstanding stock options
is entitled, upon exercise, to purchase ten times the number of common stock
shares provided in each option, at an exercise price per share of one-tenth
the price per share provided in the option. The preferred stock is convertible
into ten shares of common stock for each share of preferred stock. The Company
authorized a total of 25,000,000 shares of common stock, $.01 par value, and a
total of 1,000,000 shares of preferred stock, $.01 par value.
In April 1996, the Company adopted the 1996 Employee Stock Purchase Plan
which permits employees of the Company to purchase shares of common stock
pursuant to payroll deductions at a price equal to 85% of the Company's fair
market value. The Company also adopted the 1996 Director Stock Option Plan
which provides for non-employee directors to receive options to purchase
common stock of the Company at an exercise price equal to the fair market
value of the common stock at the date of grant. The Company had reserved a
total of 350,000 shares of common stock for issuance under these plans.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Chalke Incorporated:
We have audited the accompanying balance sheets of Chalke Incorporated as of
January 31, 1994 and December 31, 1994, and the related statements of
operations, changes in shareholder's equity (deficit), and cash flows for the
year ended January 31, 1994 and the eleven months ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chalke Incorporated as of
January 31, 1994 and December 31, 1994, and the results of its operations and
its cash flows for the year ended January 31, 1994 and eleven months ended
December 31, 1994, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
December 21, 1995
Hartford, Connecticut
F-22
<PAGE>
CHALKE INCORPORATED
BALANCE SHEETS
JANUARY 31, 1994, DECEMBER 31, 1994 AND MARCH 31, 1995
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1994 1994 1995
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 109,407 $ 176,601 $ 49,188
Accounts receivable..................... 2,061,664 1,854,301 1,672,690
Other assets............................ 15,327 33,681 12,821
---------- ----------- ----------
Total current assets.................. 2,186,398 2,064,583 1,734,699
---------- ----------- ----------
Property and equipment, net............... 1,230,354 504,527 572,137
Accounts receivable, long-term............ 101,971 -- --
---------- ----------- ----------
Total assets.......................... $3,518,723 $ 2,569,110 $2,306,836
========== =========== ==========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable........................ $ 135,755 $ 42,376 $ 190,725
Deferred revenues....................... 1,643,648 2,328,247 2,268,815
Line of credit.......................... 566,714 895,084 475,314
Current portion of debt................. 159,875 22,712 4,614
Accrued compensation.................... 473,402 158,156 188,948
Accrued expenses........................ 44,297 89,950 92,620
---------- ----------- ----------
Total current liabilities............. 3,023,691 3,536,525 3,221,036
---------- ----------- ----------
Long-term debt............................ 730,223 -- --
Commitments -- -- --
Shareholder's deficit:
Common stock at no par value; 1,000
shares authorized; 500 shares and no
shares issued and outstanding,
respectively........................... 3,500 -- --
Common stock at $1.00 par value; 800,000
shares of Series 1 common stock and
200,000 shares of Series 2 common stock
authorized; no shares and 800,000
shares of Series 1 common stock issued
and outstanding, respectively, no
shares of Series 2 common stock issued
and outstanding........................ -- 800,000 800,000
Notes receivable from shareholder....... (600,000) (660,235) --
Retained earnings (accumulated
deficit)............................... 361,309 (1,107,180) (1,714,200)
---------- ----------- ----------
Total shareholder's deficit........... (235,191) (967,415) (914,200)
---------- ----------- ----------
Total liabilities and shareholder's
deficit.............................. $3,518,723 $ 2,569,110 $2,306,836
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
CHALKE INCORPORATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1994, ELEVEN MONTHS ENDED DECEMBER 31, 1994 AND
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1994 1994 1995
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Software licenses....................... $3,022,365 $1,682,349 $ 507,857
Maintenance............................. 1,762,871 2,023,652 731,599
Professional services................... 4,178,427 4,603,478 1,082,030
Client reimbursement of expenses........ 320,973 141,348 37,749
Miscellaneous........................... 57,990 26,492 981
---------- ---------- ----------
Total revenues........................ 9,342,626 8,477,319 2,360,216
Operating expenses........................ 8,674,955 8,898,266 2,290,810
---------- ---------- ----------
Income (loss) from operations............. 667,671 (420,947) 69,406
Other income (expense):
Gain on sale of equipment............... -- 30,012 --
Interest income......................... 8,005 62,813 1,517
Interest expense........................ (124,108) (93,867) (17,708)
---------- ---------- ----------
Net income (loss)......................... $ 551,568 $ (421,989) $ 53,215
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
CHALKE INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED JANUARY 31, 1994, ELEVEN MONTHS ENDED DECEMBER 31, 1994, AND
THE THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES 1
COMMON STOCK COMMON STOCK
---------------- ----------------- NOTES RETAINED TOTAL
NUMBER NUMBER RECEIVABLE EARNINGS SHAREHOLDER'S
OF NO OF $1.00 FROM (ACCUMULATED EQUITY
SHARES PAR VALUE SHARES PAR VALUE SHAREHOLDER DEFICIT) (DEFICIT)
------ --------- ------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1,
1993................... 500 $3,500 -- $ -- $(100,000) $ 182,741 $ 86,241
Net income.............. -- -- -- -- -- 551,568 551,568
Distribution to
shareholder............ -- -- -- -- -- (373,000) (373,000)
Notes from shareholder.. -- -- -- -- (500,000) -- (500,000)
---- ------ ------- -------- --------- ----------- ---------
Balance, January 31,
1994................... 500 3,500 -- -- (600,000) 361,309 (235,191)
Conversion of Common
Stock to Series 1
Common Stock........... (500) (3,500) 800,000 800,000 -- (796,500) --
Interest on notes
receivable from
shareholder............ -- -- -- -- (60,235) -- (60,235)
Net loss................ -- -- -- -- -- (421,989) (421,989)
Distribution to
shareholder............ -- -- -- -- -- (250,000) (250,000)
---- ------ ------- -------- --------- ----------- ---------
Balance, December 31,
1994................... -- -- 800,000 800,000 (660,235) (1,107,180) (967,415)
Net income.............. -- -- -- -- -- 53,215 53,215
Distribution to
shareholder............ -- -- -- -- 660,235 (660,235) --
---- ------ ------- -------- --------- ----------- ---------
Balance, March 31, 1995
(unaudited)............ -- $ -- 800,000 $800,000 $ -- $(1,714,200) $(914,200)
==== ====== ======= ======== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
CHALKE INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 1994, ELEVEN MONTHS ENDED DECEMBER 31, 1994, AND
THE THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1994 1994 1995
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 551,568 $ (421,989) $ 53,215
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.......... 283,546 195,031 47,285
Provision for doubtful accounts........ 55,504 63,248 --
Gain on sale of equipment.............. -- (30,012) --
Interest on note receivable from
shareholder........................... -- (60,235) --
Changes in operating assets and
liabilities:
Accounts receivable................... (525,427) 246,086 181,611
Other assets.......................... 33,553 (18,354) 20,860
Accounts payable...................... (77,342) (93,379) 148,349
Accrued compensation.................. (34,432) (315,246) 30,792
Accrued expenses...................... (165,201) 45,653 2,670
Deferred revenues..................... 706,235 684,599 (59,432)
---------- ---------- --------
Net cash provided by operating
activities............................. 828,004 295,402 425,350
---------- ---------- --------
Cash flows from investing activities:
Acquisition of property and equipment... (223,543) (199,192) (114,895)
Cash received from sale of equipment.... -- 760,000 --
---------- ---------- --------
Net cash (used in) provided by investing
activities............................. (223,543) 560,808 (114,895)
---------- ---------- --------
Cash flows from financing activities:
Payments made on long-term debt......... (93,759) (824,563) --
Payments made on capital lease
obligation............................. (47,123) (42,823) (18,098)
Advances from line of credit............ 1,694,372 2,775,370 --
Repayments of line of credit............ (1,268,339) (2,447,000) (419,770)
Distribution to shareholder............. (373,000) (250,000) --
Additions to notes receivable from
shareholder............................ (500,000) -- --
---------- ---------- --------
Net cash used in financing activities... (587,849) (789,016) (437,868)
---------- ---------- --------
Net increase (decrease) in cash........... 16,612 67,194 (127,413)
Cash, beginning of period................. 92,795 109,407 176,601
---------- ---------- --------
Cash, end of period....................... $ 109,407 $ 176,601 $ 49,188
========== ========== ========
Supplementary cash flow information:
Interest paid........................... $ 124,108 $ 93,867 $ 17,708
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
CHALKE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Chalke Incorporated (the "Company") was incorporated on December 10, 1984
under the laws of the Commonwealth of Virginia. The Company licenses software
products, including related maintenance agreements, and provides actuarial
consulting services to insurance companies and other financial intermediaries
throughout North America, Asia and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
During the eleven months ended December 31, 1994, the Company changed its
financial reporting year from a fiscal year ending January 31 to a fiscal year
ending December 31. The changes were made to coordinate the Company's fiscal
year with that of the shareholder's tax year.
Income Taxes
The Company elected to be treated as a small business corporation under
subchapter S of the Internal Revenue Code effective March 1, 1987. As a small
business corporation, taxable income or loss is reported by the shareholder on
his individual income tax return. Accordingly, no provision for federal income
taxes has been provided for in these financial statements.
Revenue Recognition
The Company recognizes revenues from product sales upon shipment of the
product, provided that no significant obligations remain and the collection of
the related receivable is considered probable. Revenues from professional
services are recognized as the services are performed.
The Company records accounts receivable and related deferred revenue upon
the execution of contracts for maintenance and software license lease
agreements. Revenue and the related expense is recognized ratably over the
term of the agreement.
Cash
Cash, as used in the accompanying financial statements, consists of demand
deposits with financial institutions.
Accounts Receivable
The Company's policy is to use the direct write-off method for accounts
deemed to be uncollectible. This method approximates the allowance method
required by generally accepted accounting principles. Write-offs of accounts
receivable were $55,504, $63,248 and $0 for the year ended January 31, 1994,
the eleven months ended December 31, 1994 and the three months ended March 31,
1995, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and accounts receivable.
The Company places its cash in federally chartered banks which
F-27
<PAGE>
CHALKE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are insured up to $100,000 by the Federal Deposit Insurance Corporation.
Concentration of credit risk with respect to accounts receivable is limited to
certain customers from whom the Company earns substantial revenues. The
Company does not require collateral from its customers. To reduce risk, the
Company routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable credit risk exposure
is limited. During the year ended January 31, 1994, the Company had revenues
from two customers which represented 14% and 8%, respectively, of total
revenues recognized during that period. During the eleven months ended
December 31, 1994, the Company had revenues related from two customers which
represented 19% and 12%, respectively, of total revenues recognized during
that period. During the three months ended March 31, 1995, the Company had
revenues from two customers which represented 10% and 16%, respectively, of
total revenues recognized during that period.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation by using the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Computer and office equipment...................... 3-5 years
Furniture and fixtures............................. 10 years
Aircraft........................................... 10 years
Leasehold improvements............................. Shorter of lease
term or estimated
useful life
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred. Upon
retirement or other disposition of assets, the cost and related accumulated
depreciation are eliminated from the accounts and the resulting gain or loss
is reflected in operations.
Research and Development
Research and development costs are charged to expense as incurred. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
capitalization of internally developed computer software costs begins upon the
establishment of technological feasibility based upon a working model. The
Company's policy is to expense these costs upon its general release to
customers. Amortization is computed on a straight-line basis over the economic
life of the product, generally three years. During the year ended January 31,
1994, the eleven months ended December 31, 1994 and the three months ended
March 31, 1995, the Company did not capitalize any costs as eligible amounts
were considered by management to be immaterial.
Use of Estimates within the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-28
<PAGE>
CHALKE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1994 1994 1995
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Aircraft............................. $1,045,000 $ -- $ --
Computer and office equipment........ 431,138 619,561 695,500
Furniture and fixtures............... 418,581 421,780 449,498
Leasehold improvements............... 66,907 69,093 80,331
---------- ---------- ---------
1,961,626 1,110,434 1,225,329
Less accumulated depreciation and
amortization........................ (731,272) (605,907) (653,192)
---------- ---------- ---------
$1,230,354 $ 504,527 $ 572,137
========== ========== =========
</TABLE>
4. COMMON STOCK:
During the eleven months ended December 31, 1994, the Company amended its
articles of incorporation to authorize an additional 1,000,000 shares of
common stock at a par value of $1.00 per share. Of the 1,000,000 shares
authorized, the Company can issue 800,000 shares of Series 1 common stock
(voting) and 200,000 shares of Series 2 common stock (non-voting). On the
effective date of this amendment, each share of common stock then outstanding
was converted into 1,600 shares of Series 1 common stock. Such conversion was
implemented to establish a capitalization more appropriate for an employee
option or equity plan, which was being considered at the time but ultimately
not adopted. To effect the stock conversion of previously outstanding common
stock into shares of Series 1 common stock, the Company recorded the transfer
of $796,500 from retained earnings to the Series 1 common stock account to
reflect the par value of the stock.
5. RELATED PARTY TRANSACTIONS:
The Company has various notes receivables from its sole shareholder totaling
$600,000, excluding interest, as of January 31, 1994 and December 31, 1994.
These notes bear interest at variable rates ranging from 6.0% to 6.5%.
Interest and principal were due in full on January 31, 1995. As of January
31, 1995, the notes receivable balance and related interest were authorized as
a distribution to the sole shareholder.
6. DEBT:
The Company has a line of credit with a commercial lending institution with
which substantially all of the Company's assets serve as collateral and is
personally guaranteed by the sole shareholder. As of January 31, 1994,
borrowings under this line of credit could not exceed the lesser of domestic
eligible accounts receivable outstanding less than 90 days old or $1,000,000.
During the eleven months ended December 31, 1994, this line of credit was
extended to the lesser of domestic eligible accounts receivable outstanding
less than 90 days old or $2,000,000. At January 31, 1994, December 31, 1994
and March 31, 1995, the Company had approximately $433,000, $700,000 and
$1,197,000, respectively, of unused availability under its line of credit
agreement. Borrowings under this line ($566,714, $895,084 and $475,314 at
January 31, 1994, December 31, 1994 and March 31,1995, respectively) bear
interest at the prime rate plus 1/4% (6.75%, 9.0% and 9.5% as of January 31,
1994 , December 31, 1994 and March 31, 1995, respectively). The Company is
required to pay an annual fee of $10,000 to maintain this line of credit which
expired on July 31, 1995.
In June 1991, the Company obtained a $990,000 loan from Cessna Finance
Corporation which was secured by the aircraft owned by the Company. The loan
was personally guaranteed by the Company's shareholder. The note called for
monthly payments of principal and interest (10.75%) in the amount of
F-29
<PAGE>
CHALKE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$13,494 and matured in June 2001. The balance at January 31, 1994 was
$811,681. During the eleven months ended December 31, 1994, the Company sold
the aircraft and paid in full the outstanding note.
During 1993, Central Fidelity Bank loaned the Company $30,400 and at January
31, 1994 the principal balance outstanding was $12,882. The loan was secured
by certain telephone equipment owned by the Company and personally guaranteed
by the shareholder. During the eleven months ended December 31, 1994, the
Company paid in full the outstanding note.
The Company has entered into a capital lease for office furniture. Furniture
under this capital lease is included as property and equipment with a
capitalized cost of $145,188 and accumulated depreciation of $78,086, $122,449
and $134,548 as of January 31, 1994, December 31, 1994 and March 31, 1995,
respectively. The capital lease obligation requires monthly payments of $4,650
and expired in May 1995. The remaining minimum lease payments are $4,650 which
include imputed interest of $36 at March 31, 1995.
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31
1994 1994 1995
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations............... $ 65,535 $ 22,712 $4,614
Notes payable........................... 824,563 -- --
--------- -------- ------
890,098 22,712 4,614
Less current portion of debt............ (159,875) (22,712) (4,614)
--------- -------- ------
Long-term debt.......................... $ 730,223 $ -- $ --
========= ======== ======
</TABLE>
7. COMMITMENTS:
Operating Lease
The Company leases commercial office space under an operating lease expiring
in November 2001 with an option available to cancel in 1999. The lease
contains an annual fixed rate adjustment and the Company has the right to
renew the lease for two three-year terms. Lease rent expense, including real
property taxes and common area costs, was approximately $328,000, $296,000 and
$63,000 for the year ended January 31, 1994, the eleven months ended December
31, 1994 and the three months ended March 31, 1995, respectively.
At March 31, 1995, future minimum lease payments (excluding real property
taxes and common area costs) under this lease were as follows:
<TABLE>
<S> <C>
April 1, 1995--December 31, 1995................................. $ 122,915
1996............................................................. 168,904
1997............................................................. 173,918
1998............................................................. 179,161
1999............................................................. 184,536
Thereafter....................................................... 353,288
----------
Total future minimum lease payments.............................. $1,182,722
==========
</TABLE>
Royalties
The Company has a royalty agreement whereby it receives rights to use and
sublicense a software product. Under the terms of this agreement, the Company
pays monthly minimum royalties. Additional royalty payments ranging between
20% and 43% are required based on sales of the related software products.
Royalty expense of approximately $234,000, $370,000 and $143,000 was incurred
for the year
F-30
<PAGE>
CHALKE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ended January 31, 1994, the eleven months ended December 31, 1994 and the
three months ended March 31, 1995, respectively.
8. DEFERRED COMPENSATION PLAN:
In January 1993, the Company adopted a deferred compensation plan for its
employees, which has been qualified under Section 401(k) of the Internal
Revenue Code. Under the plan, eligible employees may elect to defer up to 20
percent of their salaries, subject to Internal Revenue Code limitations. The
Company did not make any contributions to the plan during the year ended
January 31, 1994, the eleven months ended December 31, 1994 and the three
months ended March 31, 1995.
9. SUBSEQUENT EVENT:
On March 31, 1995, the Company sold substantially all of its assets and
operations to SS&C Technologies, Inc. Under the terms of the purchase
agreement, SS&C Technologies, Inc. also assumed certain current liabilities as
of March 31, 1995, including the outstanding line of credit, trade accounts
payable and various accrued expenses.
F-31
<PAGE>
SS&C TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
The following unaudited pro forma condensed consolidated statement of
operations gives effect to the March 31, 1995 acquisition of Chalke
Incorporated ("Chalke") by SS&C Technologies, Inc. ("SS&C") reflecting the
assumptions set forth in the accompanying notes as if the acquisition were
effective January 1, 1995. The pro forma data reflect the acquisition of the
assets of Chalke and the assumption of certain liabilities in accordance with
the terms of the Asset Purchase Agreement. The pro forma data do not reflect
the charge for purchased in-process research and development of $7,888,886
resulting from the acquisition and do not purport to be indicative of the
results that would actually have been reported if the acquisition had been
effected at January 1, 1995 or results which may be reported in the future.
This statement should be read in conjunction with the accompanying explanatory
notes and the respective historical financial statements and related notes of
SS&C and Chalke appearing elsewhere in this document.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SS&C CHALKE ADJUSTMENTS SS&C
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses....... $ 9,280,918 $1,873,846 $ -- $11,154,764
Maintenance............. 3,154,218 1,632,319 -- 4,786,537
Professional services... 2,190,979 3,031,505 -- 5,222,484
----------- ---------- ----------- -----------
Total revenues....... 14,626,115 6,537,670 -- 21,163,785
----------- ---------- ----------- -----------
Costs of revenues:
Software licenses....... 256,839 318,564 40,495 (a) 615,898
Maintenance............. 846,206 360,653 1,322 (a) 1,208,181
Professional services... 2,388,497 2,080,992 8,954 (a) 4,478,443
----------- ---------- ----------- -----------
Total cost of
revenues.............. 3,491,542 2,760,209 50,771 6,302,522
----------- ---------- ----------- -----------
Gross profit........... 11,134,573 3,777,461 (50,771) 14,861,263
----------- ---------- ----------- -----------
Operating expenses:
Selling and marketing... 4,476,233 1,006,718 5,349 (a) 5,488,300
Research and
development............ 3,024,439 2,941,603 9,796 (a) 5,975,838
General and
administrative......... 2,646,366 254,322 93,381 (a) 2,994,069
Write-off of purchased
in-process research and
development............ 7,888,886 -- (7,888,886)(b) --
----------- ---------- ----------- -----------
Total operating
expenses............ 18,035,924 4,202,643 (7,780,360) 14,458,207
----------- ---------- ----------- -----------
Operating income (loss).. (6,901,351) (425,182) 7,729,589 403,056
Interest income
(expense), net.......... 24,546 0 (35,253)(c) (10,707)
----------- ---------- ----------- -----------
Income (loss) before
income taxes............ (6,876,805) (425,182) 7,694,336 392,349
Provision (benefit) for
income taxes............ (3,024,210) -- 3,181,150 (d) 156,940
----------- ---------- ----------- -----------
Pro forma income (loss).. $(3,852,595) $ (425,182) $ 4,513,186 $ 235,409
=========== ========== =========== ===========
Pro forma income per
common and common
equivalent share........ $ .02
===========
Pro forma weighted
average number of common
and common equivalent
shares outstanding...... 10,274,890
===========
</TABLE>
F-32
<PAGE>
SS&C TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
The pro forma condensed statement of operations for the year ended December
31, 1995 reflect the consolidated results of operations of SS&C under the
assumptions set forth below. The pro forma statement of operations is not
necessarily indicative of SS&C's results of operations as they may be in the
future.
1.) The pro forma adjustments to the condensed statement of operations
reflect the acquisition of substantially all of the assets and operations of
Chalke by SS&C as if the acquisition had occurred at the beginning of the year
presented.
2.) The acquisition of Chalke has been accounted for as a purchase
transaction in accordance with generally accepted accounting principles.
Accordingly, the assets and liabilities of Chalke have been recorded at their
fair market value.
The following pro forma adjustments have been made to reflect the
acquisition:
a.) The amortization and depreciation expenses of complete technology,
goodwill, and property and equipment have been increased by approximately
$40,500, $90,000 and $29,000, respectively, to reflect twelve months of
activity.
b.) The write-off of purchased in-process research and development of
$7,888,886 is a nonrecurring charge directly attributable to the
acquisition which has been removed.
c.) Interest expense of approximately $53,000 on the debt incurred to
finance a portion of the acquisition has been reflected for the full year,
net of the interest expense of approximately $18,000 that was incurred on
preacquisition debt that was repaid as part of the transaction. See
"Certain Transactions" and Note 11 to Notes to the Company's Consolidated
Financial Statements.
d.) The tax benefit related to the write-off of purchased in-process
research and development of approximately $3,100,000 has been removed, net
of the Company's expected tax rate of 40%.
F-33
<PAGE>
SS & C Products
[Computer screens along the left margin highlighting the Company's
software applications.]
CAMRA(TM) for Windows(TM)
The Complete Asset Management, Reporting and Accounting system supports the
entire investment process, from portfolio analysis, management and trading, to
back-office accounting and operations. CAMRA supports the intricate securities
accounting functions for a full range of investment holdings.
FILMS(TM) for Windows(TM)
The Fully Integrated Loan Management System puts essential mortgage loan
information into the hands of mortgage portfolio asset managers, form the
application and commitment stage through accounting, servicing and loan workout
scenarios.
PTS(R)
A comprehensive financial and actuarial decision tool for life insurance
enterprise modeling that combines high-level actuarial scientific theory with
ready data access.
COPE 2000(TM)
(scheduled to be released in 1996)
A new software tool designed to deliver an advanced, two-factor process for
fixed-income and interest rate derivative modeling and valuation. COPE 2000's
two-factor term structure model generates more realistic yield curve scenarios
for more precise pricing, hedging, ALM and other financial analysis.
Windows is a trademark of Microsoft Corporation
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Information.............................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 27
Management............................................................... 39
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 57
Change in Independent Accountants........................................ 57
Experts.................................................................. 58
Additional Information................................................... 58
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL JUNE 25, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,750,000 Shares
[LOGO]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
Hambrecht & Quist
May 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
