<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
REGISTRATION NO. 333-22855
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MELITA INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
GEORGIA 3661 58-1378534
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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5051 PEACHTREE CORNERS CIRCLE
NORCROSS, GEORGIA 30092-2500
(770) 239-4000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
J. NEIL SMITH
PRESIDENT AND CHIEF OPERATING OFFICER
MELITA INTERNATIONAL CORPORATION
5051 PEACHTREE CORNERS CIRCLE
NORCROSS, GEORGIA 30092-2500
(770) 239-4000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPIES TO:
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JOHN FRANKLIN SMITH, ESQ. MARK G. BORDEN, ESQ.
LARRY W. SHACKELFORD, ESQ. BRENT B. SILER, ESQ.
MORRIS, MANNING & MARTIN, L.L.P. HALE AND DORR LLP
1600 ATLANTA FINANCIAL CENTER 1455 PENNSYLVANIA AVENUE, N.W.
3343 PEACHTREE ROAD, N.E. WASHINGTON, D.C. 20004
ATLANTA, GEORGIA 30326 (202) 942-8400
(404) 233-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value... 3,500,000 $9.50 $33,250,000 $10,075.76
========================================================================================================================
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(1) Includes 525,000 shares subject to the underwriters over-allotment option.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 28, 1997
3,500,000 SHARES
MELITA(R) INTERNATIONAL LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $9.00 and $10.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. Application has been made to have the Common
Stock approved for listing on the Nasdaq National Market under the symbol
"MELI."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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========================================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share............... $ $ $
Total(3)................ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $1,300,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
------------------------
MONTGOMERY SECURITIES ROBERTSON, STEPHENS & COMPANY
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
[ARTWORK/DIAGRAMS DEPICTED IN PROSPECTUS]
1. Inside front page is captioned:
"Melita's Command Post(TM) graphical desktop lets supervisors monitor
call center activity at a glance." Graphics portray a screen generated by
the Company's PhoneFrame(R) CS product. The screen is labeled "Production
Monitoring." Features of the screen are highlighted by the following text:
" - Call List Display Panel. Displays status of active calling
lists.
- The Tool Bar. Brings up different productivity views to
monitor and control the activity of a call center.
- Agent Status Legend. User defined legends to choose conditions
or calling states.
- ViewPort Display Area. Real time production monitoring of
agent status using customized floor plans.
- Trunk State Display Panel. Graphically depicts enabled and
disabled trunk states."
2. Inside front page gate-fold portrays the following:
Center: Photograph of a Call Center agent and customers speaking over the
telephone illustrating the Company's concept of "People To People
Communication." Arrows to the top, left, bottom and right of the photograph
point to additional diagrams.
Top: Arrow extending from central photograph points to the word
"Applications." Above and to the left of "Applications" is a list of the
CTI applications: MPACT, PowerPACT and ActionPACT. Above and to the right
of "Applications," the Company's Megellan application is listed.
Right: Arrow extending from central photograph points to the words "System
Management" which are superimposed over a picture of four overlapping
screens generated by PhoneFrame CS Command Post Desktop.
Bottom: Arrow extending from central photograph points to the text:
"Applications and solutions for customer communications:
- Comprehensive Call Center Solutions
- Build and Improve Customer Relationships
- Increase Agent Productivity
- Reduce Operating Costs"
Left: Arrow extending from central photograph points to the word
"Technology." To the immediate left of "Technology" is a diagram of the
Company's call center system.
3. Graphic on page 29 of the prospectus in the "Business" section is labeled
"PhoneFrame CS Architecture." The center portion of the graphic depicts a
bar labeled "Local Area Network." Below the Local Area Network bar are
drawings representing a customer's host computing center, the Company's
call processor, the Company's Universal Switch components, the customer's
PBX/ACD and a "cloud" labeled "PSTN" (public switch telephone network).
Each of these components are linked to the Local Area Network. The
Universal Switch, PBX/ACD and PSTN are linked together.
Above the Local Area Network bar are drawings representing the Company's
Universal Workstations and corresponding telephone sets, the Company's
Command Post Windows NT and the Company's Universal Server running on a
RISC/6000 system with Sybase. The telephone sets are connected to the
PBX/ACD with a dotted line. The Command Post and the Universal Server each
are connected to the Local Area Network.
4. Inside back page graphics portray a screen generated by the
Company's Magellan product. The screen is labeled "Magellan Application
Interpreter." The text appearing above the picture of the screen is as
follows:
"Provides agent with information, not just data....
Magellan(TM) navigates multiple corporate data sources and presents
needed information in a Single System Image View(TM). Solutions from basic
"screen pops" to sophisticated customer interaction applications can be created
and modified on-the-fly without programming. Magellan(TM) allows applications to
be developed and deployed quickly, making agents more efficient by presenting
them with the information needed to make timely and informed decisions."
The image of the "Magellan Application Interpreter" screen is enhanced by text
that highlights Magellan's features as follows:
- Employs script windows to bring together text and real-time
data from multiple resources.
- Customer data may be entered with the click of a mouse.
- Customizes on-line help functions.
- Displays talk time with the call gauge.
- Programmable action buttons for background applications.
- Buttons may be customized to display specific actions and
reactions.
- Imports visual elements in graphic boxes.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Combined Financial Statements and
Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Melita International Corporation ("Melita" or the "Company") is a leading
provider of customer contact and call management systems that enable businesses
to automate call center activities and enhance their telephony-based customer
interaction. The Company's principal product, PhoneFrame CS, is used by
organizations to increase agent productivity, reduce the costs of call center
operations and enhance revenue generation for a broad range of activities,
including debt collection, telemarketing and customer service. PhoneFrame CS is
an innovative, comprehensive call center solution based on client/server
software that integrates with industry standard computing and telephony
infrastructures. The Company's customers include leading organizations in
industries such as banking, financial services, retail, communications and
service bureaus, where businesses are engaged in frequent telephone contact with
customers or prospects.
In many industries, customer retention costs are significantly lower than
the costs of customer acquisition. Consequently, many businesses have come to
view long-term customer relationships as a key corporate asset and a source of
competitive advantage. To build customer loyalty, organizations are leveraging
available customer information by disseminating this information to employees
responsible for customer interaction in order to enhance the quality of each
customer contact. In addition, organizations recognize that telephony-based
interaction has become an increasingly effective means of customer contact as
telecommunications costs have decreased and enabling technologies such as
computer/telephony integration ("CTI") have emerged to automate the customer
interaction process.
According to industry sources, the CTI, outbound call management and
automatic call distribution market segments of the worldwide call center systems
market aggregated $2.8 billion in 1996 and are expected to grow at a compound
annual growth rate of 19.1% to $6.7 billion by 2001. The Company's primary
target markets, CTI and outbound call management, were approximately $1.3
billion worldwide in 1996 and are together expected to grow at a compound annual
growth rate of 27.6% to $4.4 billion by 2001.
The Company provides comprehensive solutions to the call center industry
based on a scaleable client/server software architecture capable of supporting
installations with more than 500 simultaneous users on a single server.
PhoneFrame CS provides comprehensive functionality and a user-friendly
application development environment designed to provide increased agent
productivity, lower telecommunication costs and low nuisance call rates. The
Company's software allows call center system managers to control and monitor
call center activity at a glance by providing call flow script creation and
editing, call campaign configuration, resource definition and management, and
system management and reporting capabilities. The Company's products also
provide enhanced interaction with customers through front-end applications which
utilize real-time access to information to guide call center agents through each
step of the customer interaction process. The Company's call management solution
leverages existing investments in call center, information and telephony
systems.
The Company currently has over 400 systems in operation worldwide. Selected
customers include AirTouch Communications, Inc., BancOne Services Corporation,
Barclays Bank PLC, Citicorp, Credicard SA Brazil, Dun & Bradstreet Corporation,
Grupo Financiero Bancomer, S.A. de C.V., J.C. Penney Company, Inc., National
Westminster Bank and Snyder Communications, Inc. The Company sells its products
through a direct sales force in the United States, Canada and the United
Kingdom. In 1996, the Company derived approximately 21.0% of its total revenues
from sales outside the United States. International distribution is largely
through direct sales and value-added resellers ("VARs").
---------------------
Melita International Corporation is a Georgia corporation organized in
1979. Unless the context otherwise requires, references in this Prospectus to
"Melita" or the "Company" refer to Melita International Corporation and its
combined affiliates, Melita Europe Limited and Inventions, Inc. The Company's
principal executive offices are located at 5051 Peachtree Corners Circle,
Norcross, Georgia 30092-2500, and its telephone number is (770) 239-4000.
3
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THE OFFERING
Common Stock offered by the Company.... 3,500,000 shares
Common Stock to be outstanding after
the offering........................... 14,643,395 shares(1)
Use of proceeds........................ For (i) repayment of notes payable
to the Company's principal
shareholder, (ii) payment of
undistributed S corporation earnings
and (iii) general corporate purposes
and working capital.
Proposed Nasdaq National Market
symbol................................. MELI
- ---------------
(1) Excludes an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the 1992 Stock Option Plan, the 1997 Stock Option Plan and
the Stock Purchase Plan (as defined herein), of which 1,106,097 shares were
subject to options outstanding as of the date of this Prospectus at a
weighted average exercise price of $3.42 per share. See
"Management -- Employee Benefit Plans" and Note 6 of the Notes to Combined
Financial Statements.
SUMMARY COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $24,703 $24,668 $27,156 $35,282 $47,540
Gross margin..................................... 16,059 16,563 17,592 21,270 29,183
Income from operations........................... 3,178 3,649 2,600 4,661 7,348
Pro forma net income (1)......................... $ 2,157 $ 2,356 $ 1,508 $ 2,955 $ 4,782
Pro forma net income per common and common
equivalent share............................... $ 0.42
Pro forma weighted average number of common and
common equivalent shares outstanding(2)........ 11,395
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DECEMBER 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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BALANCE SHEET DATA:
Working capital (deficit).................................. $ 8,124 $(5,415) $ 24,208
Total assets............................................... 27,069 18,281 40,728
Long-term debt, net of current portion..................... -- -- --
Shareholders' equity (deficit)............................. 10,872 (2,667) 26,956
</TABLE>
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(1) Upon the effective date of this offering, the Company will terminate its
status as an S corporation. Thereafter, the Company will be subject to
federal and state corporate income taxes. Pro forma net income is presented
as if the Company had been subject to corporate income taxes for all periods
presented. See "Termination of S Corporation Status and Related
Distributions" and Notes 1 and 3 of the Notes to Combined Financial
Statements.
(2) See Note 1 of the Notes to Combined Financial Statements.
(3) Pro forma to give effect to the following: (i) the issuance of 3,143,395
shares of Common Stock in connection with the combination (the
"Combination") of the Company, Melita Europe Limited ("Melita Europe") and
Inventions, Inc. ("Inventions"), which will occur concurrently with the
effective date of this offering, (ii) the distribution subsequent to
December 31, 1996 of undistributed S corporation earnings of $14.4 million
(the "Distribution"), which included a cash distribution of $1.5 million and
the issuance of notes payable (the "1997 Notes") of $12.9 million, together
with the related accrual of interest of $200,000 (the "Interest Accrual"),
(iii) the inclusion of current deferred tax assets of $1.1 million due to
the termination of the S corporation status (the "Deferred Tax Adjustment")
and (iv) the
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repayment at the closing of this offering of a note payable to the principal
shareholder (the "1992 Note") with a principal balance of $2.6 million and
the 1997 Notes (the "Note Repayment"). See "Termination of S Corporation
Status and Related Distributions," " Use of Proceeds," "Capitalization,"
"Certain Transactions" and Notes 2, 3 and 8 of the Notes to Combined
Financial Statements.
(4) Pro forma as adjusted to give effect to the sale by the Company of the
3,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.50 per share and the receipt of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. The Company faces many risks and
uncertainties, including those described in this Prospectus under the caption
"Risk Factors." Because of these many risks and uncertainties, the Company's
actual results may differ materially from any results presented in or implied by
the forward-looking statements included in this Prospectus.
---------------------
Except as otherwise noted, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) gives effect to the
recapitalization of the Company's Common Stock whereby each share of the
Company's outstanding Voting Common Stock and Non-Voting Common Stock (each
having no par value per share) will be converted into 1/100 of a share of voting
Common Stock, no par value per share ("Common Stock") and (iii) gives effect to
the Combination (as defined in footnote 3 above). The recapitalization and the
Combination will be effected contemporaneously with the effectiveness of this
offering. See "Certain Transactions," "Underwriting" and Note 9 of the Notes to
Combined Financial Statements.
Cancel Dial(R), Melita(R), PhoneFrame(R), Universal Access(R), Universal
Server(R) and Universal Switch(R) are registered trademarks or service marks of
the Company. ActionPACT(TM), Customer Care(SM), PhoneFrame Command Post(TM),
Magellan(TM), MPACT(TM), People to People Communication(TM), PowerPACT(TM),
Qflow(TM), Single System Image View(TM), Universal Workstation(TM) and UTP(TM)
are trademarks or service marks of the Company. This Prospectus also includes
trademarks, service marks and trade names of other companies.
5
<PAGE> 8
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating
the Company and its business before purchasing shares of Common Stock offered
hereby.
DEPENDENCE ON SINGLE PRODUCT LINE; RISKS ASSOCIATED WITH SERVICING THE MARKET
FOR CALL CENTER SOLUTIONS
The Company currently derives substantially all of its revenues from sales
of its PhoneFrame CS product and related services. PhoneFrame CS was introduced
in early 1995, and the Company expects that this product and related services
will continue to account for a substantial portion of the Company's revenues for
the foreseeable future. Although the Company intends to enhance these products
and develop related products, the Company expects to continue to focus on
providing call center systems as its primary line of business. As a result, any
factor adversely affecting the market for call center systems in general, or the
PhoneFrame CS product in particular, could adversely affect the Company's
business, financial condition and results of operations. The market for call
center systems is intensely competitive, highly fragmented and subject to rapid
change. The Company's future success will depend on continued growth in the
market for call center systems, and there can be no assurance that this market
will continue to grow. If this market fails to grow or grows more slowly than
the Company currently anticipates, the Company's business, financial condition
and results of operations would be materially adversely affected.
RELIANCE ON SIGNIFICANT CUSTOMERS
The Company has derived and believes that it will continue to derive a
significant portion of its revenues in any period from a limited number of large
corporate clients. During 1996, the Company's five largest customers accounted
for 24.5% of the Company's total revenues. In 1995, the Company's five largest
customers accounted for 24.8% of its total revenues. Although the specific
customers may change from period to period, the Company expects that large sales
to a limited number of customers will continue to account for a significant
percentage of its revenues in any particular period for the foreseeable future.
Therefore, the loss, deferral or cancellation of an order could have a
significant impact on the Company's operating results in a particular quarter.
There can be no assurance that its current customers will place additional
orders, or that the Company will obtain orders of similar magnitude from other
customers. The loss of any major customer or any reduction, delay in or
cancellation of orders by any such customer or the failure of the Company to
market successfully to new customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Customers."
POTENTIAL VARIABILITY OF QUARTERLY FINANCIAL RESULTS
The Company's revenues and operating results could vary substantially from
quarter to quarter. Among the factors that could cause these variations are
changes in the demand for the Company's products, the level of product and price
competition, the length of the Company's sales process, the size and timing of
individual transactions, the mix of products and services sold, software defects
and other product quality problems, any delay in or cancellation of customer
installations, the Company's success in expanding its direct sales force and
indirect distribution channels, the timing of new product introductions and
enhancements by the Company or its competitors, customer order deferrals in
anticipation of enhancements or new products offered by the Company or its
competitors, commercial strategies adopted by competitors, changes in foreign
currency exchange rates, customers' fiscal constraints, the Company's ability to
control costs and general economic conditions. In addition, a limited number of
relatively large customer orders has accounted for and is likely to continue to
account for a substantial portion of the Company's total revenues in any
particular quarter. Sales of the Company's software products generally involve a
significant commitment of management attention and resources by prospective
customers. Accordingly the Company's sales process is often lengthy and subject
to delays associated with the long approval process that accompanies significant
customer initiatives or capital expenditures. The Company's sales cycle, from
initial trial to complete installation, varies substantially from customer to
customer. Because the Company's staffing and operating expenses are based on
anticipated revenue levels and a high percentage of the Company's costs are
fixed in the short term, variations between
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anticipated order dates and actual order dates, as well as nonrecurring or
unanticipated large orders, can cause significant variations in the Company's
operating results from quarter to quarter. As a result of the foregoing factors,
the Company's operating results for a future quarter may be below the
expectations of securities analysts and investors. In such event, the market
price of the Company's Common Stock likely will be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
LIMITED PREDICTABILITY OF SALES DUE TO LENGTHY SALES PROCESS
The sale of the Company's products generally requires the Company to
provide a significant level of education to prospective customers regarding the
use and benefits of the Company's products. In addition, implementation of the
Company's products involves a significant commitment of resources by prospective
customers and is commonly associated with substantial integration efforts which
may be performed by the Company or the customer. For these and other reasons,
the length of time between the date of initial contact with the potential
customer and the installation and use of the Company's products is typically six
months or more, and may be subject to delays over which the Company has little
or no control. The Company's implementation cycle could be lengthened in the
future by increases in the size and complexity of its installations. Delay in or
cancellation of sales could have a material adverse effect on the Company's
business, financial condition and results of operations, and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
COMPETITION
The market for the Company's products is intensely competitive, fragmented
and subject to rapid change. Because the Company's principal products are call
management systems, which include both software applications and hardware, the
Company competes with a variety of companies which provide these components
independently or as an integrated system. The Company's primary competitors in
the field of integrated inbound/outbound call management systems are Davox
Corporation ("Davox"), EIS International, Inc. ("EIS") and Mosaix International,
Inc. ("Mosaix"). The Company competes primarily against Davox and Mosaix in the
collections segment of the outbound call management systems market, and against
EIS in the telemarketing and telesales segments of the inbound/outbound call
management systems market. The Company also competes in the CTI segment of the
market, where principal competitors include AnswerSoft, Inc., Genesys
Telecommunications Laboratories, Inc., Nabnasset Corporation and Brock
International, Inc., among others. The Company may face additional competition
from PBX/ACD vendors, other telecommunications equipment providers,
telecommunications service providers, computer hardware and software vendors and
others. The Company generally faces competition from one or more of its
principal competitors on major installations and believes that price is a major
factor considered by its prospective customers. Increased competition has
contributed significantly to price reductions and the Company expects these
price reductions to continue. In addition, increased competition may result in
reduced operating margins and loss of market share, either of which could
materially adversely affect the Company's business, financial condition and
results of operations. Many of the Company's current and potential competitors
have significantly greater financial, technical, marketing and other resources
than the Company. As a result, they may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
could the Company. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, financial condition and results of operations. See
"Business -- Competition."
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, Aleksander Szlam, the Company's Chairman
of the Board, Chief Executive Officer and principal shareholder, will
beneficially own approximately 76.1% of the outstanding shares of Common Stock
(73.5% if the Underwriters' over-allotment option is exercised in full).
Accordingly,
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Mr. Szlam will be in a position to control the Company through his ability to
control any election of members of the Board of Directors, as well as any
decision whether to merge or sell the assets of the Company, to adopt, amend or
repeal the Company's Amended and Restated Articles of Incorporation and Bylaws,
or to take other actions requiring the vote or consent of the Company's
shareholders. This concentration of ownership could also discourage bids for the
shares of Common Stock at a premium to, or create a depressive effect on, the
market price of the Common Stock. See "Principal Shareholders" and "Description
of Capital Stock."
COMPETITIVE MARKET FOR PERSONNEL
The future success of the Company's growth strategy will depend to a
significant extent on its ability to attract, train, motivate and retain highly
skilled professionals, particularly software developers, sales and marketing
personnel and other senior technical personnel. An inability to hire such
additional qualified personnel could impair the Company's ability to adequately
manage and complete its existing sales and to bid for, obtain and implement new
sales. Further, the Company must train and manage its growing employee base,
requiring an increase in the level of responsibility for both existing and new
management personnel. There can be no assurance that the management personnel
and systems currently in place will be adequate or that the Company will be able
to assimilate new employees successfully. Highly skilled employees with the
education and training required by the Company are in high demand. Accordingly,
there can be no assurance that the Company will be successful in attracting or
retaining current or future employees. See "Business -- Employees."
RISKS ASSOCIATED WITH TECHNOLOGICAL ADVANCES; NECESSITY OF DEVELOPING NEW
PRODUCTS
The market for call center systems is subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in this market could be eroded rapidly by
unforeseen changes in customer requirements for application features, functions
and technologies. The Company's growth and future operating results will depend
in part upon its ability to enhance existing applications and develop and
introduce new applications that meet or exceed technological advances in the
marketplace, that meet changing customer requirements, that respond to
competitive products and that achieve market acceptance. The Company's product
development and testing efforts are expected to require substantial investments
by the Company. There can be no assurance the Company will possess sufficient
resources to make these necessary investments. The Company has in the past
experienced delays both in developing new products and customizing existing
products, and there can be no assurance that the Company will not experience
difficulties that could cause such delays in the future. In addition, there can
be no assurance that such products will meet the requirements of the marketplace
and achieve market acceptance, or that the Company's current or future products
will conform to industry standards. If the Company is unable, for technological
or other reasons, to develop and introduce new and enhanced products in a timely
manner, the Company's business, financial condition and results of operations
could be materially adversely affected.
MANAGEMENT OF GROWTH
The Company has recently experienced significant growth in revenue,
operations and personnel. Continued growth will place significant demands on its
management and other resources. In particular, the Company will have to continue
to increase the number of its personnel, particularly skilled technical,
marketing and management personnel, and continue to develop and improve its
operational, financial, communications and other internal systems. The Company's
inability to manage its growth effectively could have a material adverse effect
on the quality of the Company's services and projects, its ability to attract
and retain key personnel, its business prospects and its results of operations
and financial condition. The Company is currently in the process of implementing
a new help-desk information system to upgrade its automated customer support
capability. No assurance can be given that the implementation of this system
will not result in disruptions to the Company's business. In addition, the
Company is in the process of implementing a plan to decentralize its sales and
support functions throughout existing and planned regional offices. There can be
no assurance that the Company will be successful in implementing this
decentralization plan or managing the
8
<PAGE> 11
transition without disruptions in the sales and support functions or that the
new decentralized sales and support organization will be effective. Any
disruptions resulting from the implementation of the help-desk information
system or the decentralization plan, or the failure to implement these changes
in a timely manner, could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Employees" and "Management -- Executive Officers and Directors."
INTERNATIONAL OPERATIONS
Revenue from sales outside the United States in 1994, 1995 and 1996
accounted for 20.9%, 22.5% and 21.0%, respectively, of the Company's total
revenues. International operations are subject to inherent risks, including the
impact of possible recessionary environments in economies outside the United
States, changes in legal and regulatory requirements including those relating to
telemarketing activities, changes in tariffs, seasonality of sales, costs of
localizing products for foreign markets, longer accounts receivable collection
periods and greater difficulty in accounts receivable collection, difficulties
and costs of staffing and managing foreign operations, reduced protection for
intellectual property rights in some countries, potentially adverse tax
consequences and political and economic instability. There can be no assurance
that the Company will be able to sustain or increase international revenue, or
that the factors listed above will not have a material adverse impact on the
Company's international operations. While the Company's expenses incurred in
foreign countries typically are denominated in the local currencies, revenues
generated by the Company's international sales typically are paid in U.S.
dollars or British pounds. Accordingly, while exposure to currency fluctuations
to date has been insignificant, there can be no assurance that fluctuations in
currency exchange rates in the future will not have a material adverse impact on
the Company's international operations. The Company currently does not engage in
currency hedging activities.
A significant element of the Company's business strategy is to continue
expansion of its operations in international markets. This expansion has
required and will continue to require significant management attention and
financial resources to develop international sales channels. Because of the
difficulty in penetrating new markets, there can be no assurance that the
Company will be able to maintain or increase international revenues. To the
extent that the Company is unable to do so, the Company's financial condition
and results of operations could be materially adversely affected. See
"Business -- Strategy."
RISK OF SOFTWARE DEFECTS; DEPENDENCE ON THIRD-PARTY SOFTWARE
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has, in the past, discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required to
correct these errors. In particular, the call center environment is
characterized by a wide variety of standard and non-standard configurations that
make pre-release testing for programming or compatibility errors very difficult
and time consuming. There can be no assurance that, despite extensive testing by
the Company and by current and potential customers, errors will not be found,
resulting in a loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased service
and warranty cost, any of which could have a material adverse affect on the
Company's business, financial condition and results of operations. Certain
software used in the Company's products is licensed by the Company from third
parties. There can be no assurance that the Company will continue to be able to
resell this software under its licenses or, if any licensor terminates its
agreement with the Company, that the Company will be able to develop or
otherwise procure replacement software from another supplier on a timely basis
or on commercially reasonable terms. In addition, such third-party software may
contain errors that would be difficult for the Company to detect and correct.
POTENTIAL LIABILITY TO CLIENTS
The Company's products may be critical to the operations of its clients'
businesses and provide benefits that may be difficult to quantify. Any failure
in a Company product or a client's system could result in a claim
9
<PAGE> 12
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to limit
contractually its liability for damages arising from product failures or
negligent acts or omissions, there can be no assurance the limitations of
liability set forth in its contracts will be enforceable in all instances or
would otherwise protect the Company from liability for damages. Although the
Company maintains general liability insurance coverage, including coverage for
product liability and errors or omissions, there can be no assurance that such
coverage will continue to be available on reasonable terms or will be available
in sufficient amounts to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim. The successful assertion of
one or more large claims against the Company that exceed available insurance
coverage or changes in the Company's insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
could adversely affect the Company's results of operations and financial
condition.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may in the future engage in selective acquisitions of
businesses that are complementary to those of the Company. While the Company has
from time to time in the past considered acquisition opportunities, it has never
acquired a significant business and has no existing agreements or commitments to
effect any acquisition. Accordingly, there can be no assurance that the Company
will be able to identify suitable acquisition candidates available for sale at
reasonable prices, consummate any acquisition or successfully integrate any
acquired business into the Company's operations. Further, acquisitions may
involve a number of additional risks, including diversion of management's
attention, failure to retain key acquired personnel, unanticipated events or
circumstances and legal liabilities, some or all of which could have a material
adverse effect on the Company's results of operations and financial condition.
Problems with an acquired business could have a material adverse impact on the
performance of the Company as a whole. The Company expects to finance any future
acquisitions with the proceeds of this offering as well as with possible debt
financing, the issuance of equity securities (common or preferred stock) or a
combination of the foregoing. There can be no assurance that the Company will be
able to arrange adequate financing on acceptable terms. If the Company were to
proceed with one or more significant future acquisitions in which the
consideration consisted of cash, a substantial portion of the Company's
available cash (possibly including a portion of the proceeds of this offering)
could be used to consummate the acquisitions. If the Company were to consummate
one or more significant acquisitions in which the consideration consisted of
stock, shareholders of the Company could suffer significant dilution of their
interests in the Company. Many business acquisitions must be accounted for as a
purchase. Most of the businesses that might become attractive acquisition
candidates for the Company are likely to have significant intangible assets and
acquisition of these businesses, if accounted for as a purchase, would typically
result in substantial goodwill amortization charges to the Company, reducing
future earnings. In addition, such acquisitions could involve non-recurring
acquisition-related charges, such as the write-off or write-down of software
development costs or other intangible items.
TERMINATION OF S CORPORATION STATUS AND SUBSTANTIAL DISTRIBUTION OF OFFERING
PROCEEDS TO CURRENT SHAREHOLDERS; OTHER BENEFITS TO PRINCIPAL SHAREHOLDER
Since September 1, 1988, the Company has been treated for federal income
tax purposes as an S corporation under the Internal Revenue Code of 1986, as
amended (the "Code"). Upon the effective date of this offering (the "Termination
Date"), the Company will terminate its status as an S corporation under the Code
and thereafter will be subject to federal and state income taxes.
The Company will use a substantial portion of the proceeds of this offering
to make the following payments to its principal shareholder: (i) repayment of
the 1992 Note and the 1997 Notes, aggregating approximately $15.4 million, and
(ii) a distribution of accumulated 1997 S corporation earnings. Purchasers of
Common Stock in this offering will not receive any portion of the S corporation
distribution. See "Termination of S Corporation Status and Related
Distributions," "Use of Proceeds," "Certain Transactions" and Note 3 of the
Notes to Combined Financial Statements.
10
<PAGE> 13
REGULATORY ENVIRONMENT
Certain uses of outbound call processing systems are regulated by federal,
state and foreign laws and regulations. While the Company's systems are
generally designed to operate in compliance with these laws and regulations
through the use of appropriate calling lists and calling campaign time
parameters, compliance with these laws and regulations may limit the usefulness
of the Company's products to its customers and potential customers, and these
laws and regulations could therefore adversely affect demand for the Company's
products. In addition, there can be no assurance that future legislation or
regulatory activity further restricting telephone practices, if enacted, would
not adversely affect the Company. See "Business -- Regulatory Environment."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patent, copyright, trade secret and
trademark laws, confidentiality procedures and contractual provisions to protect
its proprietary rights in its products and technology. There can be no
assurance, however, that these measures will be adequate to protect its trade
secrets and proprietary technology. Further, the Company may be subject to
additional risks as it enters into transactions in countries where intellectual
property laws are not well developed or are poorly enforced. Legal protections
of the Company's rights may be ineffective in such countries. Litigation to
defend and enforce the Company's intellectual property rights could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations,
regardless of the final outcome of such litigation. Despite the Company's
efforts to safeguard and maintain its proprietary rights both in the United
States and abroad, there can be no assurance that the Company will be successful
in doing so or that the steps taken by the Company in this regard will be
adequate to deter misappropriation or independent third-party development of the
Company's technology or to prevent an unauthorized third party from copying or
otherwise obtaining and using the Company's products or technology. There can be
no assurance that others will not independently develop similar technologies or
duplicate any technology developed by the Company. Any such events could have a
material adverse affect on the Company's business, financial condition and
results of operations.
The Company has entered into agreements with certain of its distributors
giving them a limited, non-exclusive right to use portions of the Company's
source code to create foreign language versions of the Company's products for
distribution in foreign markets. In addition, the Company has entered into
agreements with a small number of its customers requiring the Company to place
its source code in escrow. These escrow arrangements typically provide that
these customers have a limited, non-exclusive right to use such code in the
event that there is a bankruptcy proceeding by or against the Company, if the
Company ceases to do business or if the Company fails to meet its support
obligations. These arrangements may increase the likelihood of misappropriation
by third parties.
As the number of call management software applications in the industry
increases and the functionality of these products further overlaps, software
development companies like the Company may increasingly become subject to claims
of infringement or misappropriation of the intellectual property rights of
others. Although the Company believes that its software components and other
intellectual property do not infringe on the intellectual property rights of
others, including those of this competitor, there can be no assurance that such
a claim will not be asserted against the Company in the future, that assertion
of such claims will not result in litigation or that the Company would prevail
in such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in substantial
cost to the Company, divert management's attention from the Company's operations
and delay customer purchasing decisions. Any infringement claim or litigation
11
<PAGE> 14
against the Company could, therefore, have a material adverse effect on the
Company's results of operations and financial condition. See
"Business -- Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon the continued
availability of the services of Aleksander Szlam, the Company's Chairman and
Chief Executive Officer, and J. Neil Smith, the Company's President and Chief
Operating Officer. Although the Company has employment agreements with Mr. Szlam
and Mr. Smith, these agreements do not obligate either of them to continue his
employment with the Company. There can be no assurance that the Company will be
able to retain the services of Messrs. Szlam and Smith. The Company does not
maintain key man life insurance on Mr. Szlam or Mr. Smith. The loss of the
services of one or both of them would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
A substantial portion of the net proceeds to be received by the Company in
connection with this offering is allocated to working capital and general
corporate purposes. Accordingly, management will have broad discretion with
respect to the expenditure of such proceeds. Purchasers of shares of Common
Stock offered hereby will be entrusting their funds to the Company's management,
upon whose judgment they must depend, with limited information concerning the
specific working capital requirements and general corporate purposes to which
the funds will ultimately be applied. See "Use of Proceeds."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Board of Directors has authority to issue up to 20,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of the preferred stock without further vote or action
by the Company's shareholders. The rights of the holders of the Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of preferred stock that may be issued in the future. While the Company has no
present intention to issue shares of preferred stock, such issuance could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, the Company's
Amended and Restated Articles of Incorporation and Bylaws contain provisions
that may discourage proposals or bids to acquire the Company. These provisions
could have the effect of making it more difficult for a third party to acquire
control of the Company and adversely affect prevailing market prices for the
Common Stock. See "Description of Capital Stock -- Certain Articles of
Incorporation and Bylaw Provisions" and "Certain Provisions of Georgia Law."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have 14,643,395 shares
of Common Stock outstanding. The 3,500,000 shares of Common Stock sold in this
offering will be freely tradable without restriction or limitation under the
Securities Act of 1933, as amended (the "Securities Act"), except for shares
purchased by "affiliates" (as defined under the Securities Act). The remaining
11,143,395 shares of Common Stock will become eligible for sale beginning in
February 1998 subject to the volume and other limitations of Rule 144 under the
Securities Act. All of the officers, directors and existing shareholders of the
Company are subject to lock-up agreements under which they have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of Montgomery
Securities. Upon completion of this offering, the Company will have 1,600,000
shares of Common Stock reserved for issuance under its stock plans, of which
1,106,097 shares are subject to outstanding options. Promptly following the
completion of this offering, the Company intends to file one or more
registration statements on Form S-8 to register these shares. Sales of
substantial amounts of Common Stock in the public markets, pursuant to Rule 144
or otherwise, or the availability of such shares for sale could adversely affect
the prevailing market prices for the Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities in the
future should it desire to do so. See "Management -- Employee Benefit Plans" and
"Shares Eligible for Future Sale."
12
<PAGE> 15
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. Although the Company has made application for the quotation of the Common
Stock on the Nasdaq National Market, there can be no assurance that an active
trading market will develop or be sustained after the offering. The initial
public offering price of the Common Stock offered hereby will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the market price of the Common Stock after the
offering. The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time that have often been unrelated or
disproportionate to the operating performance of particular companies. Any
announcement with respect to any adverse variance in revenue or earnings from
levels generally expected by securities analysts or investors for a given period
would have an immediate and significant adverse effect on the trading price of
the Common Stock. In addition, factors such as announcements of technological
innovations or new products by the Company, its competitors or third parties,
rumors of such innovations or new products, changing market conditions in the
market for call center systems, changes in estimates by securities analysts,
announcements of extraordinary events, such as acquisitions or litigation, or
general economic conditions may have a significant adverse impact on the market
price of the Common Stock. In the past, following periods of volatility in the
market price of a particular company's securities, securities class action
litigation has often been brought against that company. There can be no
assurance that such litigation will not occur in the future with respect to the
Company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Underwriting."
DILUTION
The purchasers of the Common Stock offered hereby will experience immediate
and significant dilution in the pro forma net tangible book value of the Common
Stock from the initial public offering price. See "Dilution."
13
<PAGE> 16
TERMINATION OF S CORPORATION STATUS AND RELATED DISTRIBUTIONS
Since September 1, 1988, the Company has elected to operate under
Subchapter S of the Code and comparable provisions of certain state income tax
laws. An S corporation generally is not subject to income tax at the corporate
level (with certain exceptions under state income tax laws). Instead, the S
corporation's income generally passes through to shareholders and is taxed on
their personal income tax returns. As a result, the Company's earnings have been
taxed for federal and state income tax purposes, with certain exceptions,
directly to the existing shareholders of the Company.
Upon the effective date of this offering (the "Termination Date"), the
Company will terminate its status as an S corporation under the Code. All
undistributed S corporation earnings through the Termination Date will be
distributed to the Company's principal shareholder using a portion of the net
proceeds of this offering. At December 31, 1996, the undistributed S corporation
earnings of the Company were estimated to be $14.4 million. Subsequent to
December 31, 1996, the Company distributed these amounts to its principal
shareholder, including a distribution of $1.5 million in cash and the issuance
of the 1997 Notes having an aggregate principal amount of $12.9 million. The
1997 Notes bear interest at a rate equal to the applicable federal rate under
the Code (currently 5.7%) and will accrue interest of approximately $200,000
through the expected Termination Date. The 1997 Notes will be repaid in full
using a portion of the proceeds of this offering. The Company expects to
accumulate additional earnings from January 1, 1997 to the Termination Date. The
Company currently estimates that such additional earnings will be between $2.0
million and $3.0 million, although the actual amount of such earnings may vary
significantly. These accumulated earnings will be distributed to the principal
shareholder using a portion of the net proceeds of this offering. The actual
amount of this distribution will be reduced to the extent additional
distributions of 1997 accumulated earnings are made by the Company to the
principal shareholder prior to the Termination Date with other corporate funds.
The principal shareholder has agreed to indemnify the Company should its
status as an S Corporation during any portion of the period for which it claimed
such status in federal or state income tax filings ever be successfully
challenged. See "Risk Factors -- Termination of S Corporation Status and
Substantial Distribution of Offering Proceeds to Current Shareholders; Other
Benefits to Principal Shareholder," "Use of Proceeds" and "Certain
Transactions."
In connection with the termination of its S corporation status, the Company
will report an increase in earnings which will be recognized in the quarter
during which the Termination Date occurs with the addition of approximately $1.1
million in deferred tax assets.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby are estimated to be approximately $29.6 million
($34.3 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $9.50 per share and after deducting
estimated underwriting discounts and estimated expenses payable by the Company
in connection with the offering.
From the net proceeds of the offering, the Company will make the following
payments to its principal shareholder: (i) repayment of the $12.9 million
principal balance of the 1997 Notes, together with accrued interest thereon
which the Company estimates will then be $200,000, (ii) repayment of the 1992
Note, which the Company expects will then have a principal balance of $2.3
million, and (iii) a distribution of all accumulated S corporation earnings for
the period from January 1, 1997 through the effective date. The Company
currently estimates that such accumulated earnings will be between $2.0 million
and $3.0 million, although the actual amount of such earnings may vary
significantly. The actual amount of this distribution will be reduced to the
extent any prior distributions of 1997 accumulated earnings are made by the
Company to its principal shareholder. See "Termination of S Corporation Status
and Related Distributions" and "Certain Transactions."
The remainder of the net proceeds will be used for working capital and
other general corporate purposes. Such purposes may include possible
acquisitions of, or investments in, businesses and technologies that are
complementary to those of the Company. The Company has no specific agreements,
commitments or understandings with respect to any such acquisitions or
investments. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds in short-term, interest-bearing
securities. See "Risk Factors -- Broad Management Discretion as to Use of
Proceeds."
DIVIDEND POLICY
The Company historically has made substantial distributions to its
shareholders related to its S corporation status and the resulting tax payment
obligations imposed on its shareholders, including a total of $10.2 million
since January 1, 1995. Other than the distribution to be made to the Company's
principal shareholder described under "Termination of S Corporation Status and
Related Distributions," the Company does not intend to declare or pay cash
dividends in the foreseeable future. Management anticipates that all earnings
and other cash resources of the Company, if any, will be retained by the Company
for investment in its business.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the short-term indebtedness and
capitalization of the Company at December 31, 1996 on an actual, pro forma and
pro forma as adjusted basis. This table should be read in conjunction with the
Company's Combined Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long term debt........................... $ 2,644 $ 19 $ 19
======= ======= =======
Long-term debt, net of current portion...................... $ -- $ -- $ --
Shareholders' equity:
Preferred stock:
Melita International Corporation, no par value,
20,000,000 shares authorized(3), no shares issued or
outstanding.......................................... -- -- --
Common stock:
Melita International Corporation, no par value;
100,000,000 shares authorized(3); 8,000,000 shares
issued and outstanding, actual; 11,143,395 shares
issued and outstanding, pro forma; 14,643,395 shares
issued and outstanding, pro forma as adjusted(4)..... 2 69 29,692
Melita Europe Limited, L1 par value; 50,000 shares
authorized; 31,128 shares issued and outstanding
actual; no shares issued or outstanding pro forma or
pro forma as adjusted................................ 46 -- --
Inventions, Inc., $5 par value; 100 shares authorized;
100 shares issued and outstanding actual; no shares
issued or outstanding pro forma or pro forma as
adjusted............................................. 1 -- --
Additional paid-in capital................................ 20 -- --
Cumulative foreign currency translation adjustment........ 35 35 35
Retained earnings......................................... 10,768 (2,771) (2,771)
------- ------- -------
Total shareholders' equity........................ 10,872 (2,667) 26,956
------- ------- -------
Total capitalization......................... $10,872 $(2,667) $26,956
======= ======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to (i) the issuance of 3,143,395 shares of Common
Stock in connection with the Combination, (ii) the Distribution and
Interest Accrual, (iii) the Deferred Tax Adjustment and (iv) the Note
Repayment. See "Termination of S Corporation Status and Related
Distributions," "Use of Proceeds," "Certain Transactions" and Notes 2, 3
and 8 of the Notes to Combined Financial Statements included elsewhere in
this prospectus.
(2) Pro forma as adjusted to give effect to the sale by the Company of the
3,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $9.50 per share and the receipt of the estimated
net proceeds therefrom. See "Use of Proceeds."
(3) Gives effect to an amendment to the Company's Articles of Incorporation to
be filed after December 31, 1996 to increase its authorized capital stock.
(4) Actual, pro forma and pro forma as adjusted shares issued and outstanding
exclude an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the 1992 Stock Option Plan, the 1997 Stock Option Plan and
the Stock Purchase Plan, of which 1,106,097 shares were subject to options
outstanding as of the date of this Prospectus at a weighted average
exercise price of $3.42 per share. See "Management -- Employee Benefit
Plans" and Note 6 of the Notes to Combined Financial Statements.
16
<PAGE> 19
DILUTION
The net tangible book value of the Common Stock as of December 31, 1996 was
approximately $10.9 million or $1.35 per share. The pro forma net tangible book
deficit of the Common Stock as of December 31, 1996 was approximately $(2.7
million) or $(.24) per share. The pro forma net tangible book deficit per share
represents the excess of the Company's total liabilities over total tangible
assets, divided by the total number of shares of Common Stock outstanding, after
giving effect to the Combination, the Distribution and the Deferred Tax
Adjustment.
After giving effect to the sale by the Company of the 3,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9.50
per share, and the receipt of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company (total tangible assets less total
liabilities) as of December 31, 1996 would have been approximately $26.9
million, or $1.84 per share. This represents an immediate increase in pro forma
net tangible book value of $2.08 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $7.66 per share to
purchasers of Common Stock in this offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.50
-----
Net tangible book value per share as of December 31,
1996................................................... $1.35
Decrease per share attributable to pro forma
adjustments............................................ 1.59
-----
Pro forma net tangible book deficit per share as of
December 31, 1996...................................... (.24)
Increase per share attributable to new investors.......... 2.08
-----
Pro forma net tangible book value per share as of December 31, 1996
after the offering............................................... 1.84
-----
Dilution per share to new investors................................ $7.66
=====
</TABLE>
The following table sets forth, as of December 31, 1996, on a pro forma
basis after giving effect to the issuance of shares of Common Stock in
connection with the Combination, the number of shares of Common Stock issued by
the Company and the total consideration and the average price per share paid by
the existing shareholders and new investors, assuming the sale by the Company of
3,500,000 shares of Common Stock at an assumed initial public offering price of
$9.50 per share, and before deducting the estimated underwriting discount and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 11,143,395 76.1% $ 69,000 0.2% $0.01
New investors............ 3,500,000 23.9 33,250,000 99.8 $9.50
---------- ----- ----------- -----
Total.......... 14,643,395 100.0% $33,319,000 100.0%
========== ===== =========== =====
</TABLE>
Assuming full exercise of the Underwriters' over-allotment option, the
percentage of shares held by existing shareholders would be 73.5% of the total
number of shares of Common Stock to be outstanding after the offering, and the
number of shares held by new investors would be increased to 4,025,000 shares,
or 26.5% of the total number of shares of Common Stock to be outstanding after
the offering. See "Principal Shareholders."
Following the closing of this offering, the Company will have outstanding
options to acquire approximately 1,106,097 shares of Common Stock at exercise
prices ranging from $2.75 to $5.50 per share and a weighted average exercise
price of $3.42 per share. The exercise of these options would have the effect of
increasing the net tangible book value dilution to new investors in this
offering.
17
<PAGE> 20
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data of the Company set forth below should
be read in conjunction with the Combined Financial Statements of the Company,
including the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The combined statement of
operations data for the years ended December 31, 1994, 1995 and 1996 and the
combined balance sheet data as of December 31, 1995 and 1996 are derived from,
and are qualified by reference to, the combined financial statements audited by
Arthur Andersen LLP and included elsewhere in this Prospectus. The combined
statement of operations data for the years ended December 31, 1992 and 1993 and
the combined balance sheet data as of December 31, 1992, 1993 and 1994 are
derived from unaudited combined financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Product................................................... $19,047 $17,709 $18,186 $24,620 $32,077
Service................................................... 5,656 6,959 8,970 10,662 15,463
------- ------- ------- ------- -------
Total revenues...................................... 24,703 24,668 27,156 35,282 47,540
Cost of revenues:
Product................................................... 5,298 5,181 6,310 8,730 11,494
Service................................................... 3,346 2,924 3,254 5,282 6,863
------- ------- ------- ------- -------
Total cost of revenues.............................. 8,644 8,105 9,564 14,012 18,357
------- ------- ------- ------- -------
Gross margin................................................ 16,059 16,563 17,592 21,270 29,183
Operating expenses:
Research and development.................................. 3,952 3,386 3,660 4,050 5,070
Selling, general and administrative....................... 8,929 9,528 11,332 12,559 16,765
------- ------- ------- ------- -------
Total operating expenses............................ 12,881 12,914 14,992 16,609 21,835
------- ------- ------- ------- -------
Income from operations...................................... 3,178 3,649 2,600 4,661 7,348
Other income (expense), net................................. 216 186 46 88 261
------- ------- ------- ------- -------
Income before income taxes.................................. 3,394 3,835 2,646 4,749 7,609
Income tax provision (benefit).............................. (19) 25 (26) -- --
------- ------- ------- ------- -------
Net income before pro forma income tax provision............ 3,413 3,810 2,672 4,749 7,609
Pro forma income taxes(1)................................... 1,256 1,454 1,164 1,794 2,827
------- ------- ------- ------- -------
Pro forma net income(1)..................................... $ 2,157 $ 2,356 $ 1,508 $ 2,955 $ 4,782
======= ======= ======= ======= =======
Pro forma net income per common and common equivalent
share..................................................... $0.42
=======
Pro forma weighted average common and common equivalent
shares outstanding(2)..................................... 11,395
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(3)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ 7,831 $ 8,955 $ 8,594 $ 6,904 $ 8,124 $(5,403)
Total assets.............................................. 13,076 15,679 17,635 20,928 27,069 18,281
Long-term debt, net of current portion.................... 3,176 3,111 3,068 2,644 -- --
Total shareholders' equity (deficit)...................... 6,143 7,385 7,103 6,657 10,872 (2,655)
</TABLE>
- ---------------
(1) Upon the effective date of this offering, the Company will terminate its
status as an S corporation. Thereafter, the Company will be subject to
federal and state income taxes. Pro forma net income is presented as if the
Company had been subject to corporate income taxes for all periods
presented. See "Termination of S Corporation Status and Related
Distributions," and Notes 1 and 3 of the Notes to Combined Financial
Statements.
(2) See Note 1 of the Notes to Combined Financial Statements.
(3) Presented on a pro forma basis to give effect to (i) the issuance of
3,143,395 shares of Common Stock in connection with the Combination, (ii)
the Distribution and Interest Accrual, (iii) the Deferred Tax Adjustment
and (iv) the Note Repayment. See "Termination of S Corporation Status and
Related Distributions," "Use of Proceeds," "Capitalization," "Certain
Transactions" and Notes 2, 3 and 8 of the Notes to Combined Financial
Statements.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Melita is a leading provider of customer contact and call management
systems that enable customers to operate efficient call centers. The Company's
principal product, PhoneFrame CS, is an integrated system comprised of both
hardware and software based on open, client/server architecture. Melita offers
ongoing maintenance support of its products. The Company also offers fee-based
installation, training and consulting services. Historically, the Company has
internally generated the funds necessary for its growth through profits and cash
provided by operating activities.
In 1988, the Company introduced its first call management solution, which
was DOS-based, driving revenue growth from $10.8 million to $24.7 million during
the period from 1989 to 1992. The Company introduced Stacatto, a UNIX-based
client/server version of its call center software, in 1992. Due to the slow
market acceptance of client/server call center solutions, the Company's revenues
were relatively flat from 1992 to 1994. In 1994, the Company introduced
Interlude, a more open, scaleable and standards-based version of the product,
and in 1995 the Company made significant additions to its management team, sales
and marketing efforts and installation and support capabilities, which
contributed to growth of 29.9% in total revenues from 1994 to 1995.
The Company's revenues are derived primarily from two sources: (i) product
license fees for the use of the Company's software products and revenues from
sales of related computer and telephony hardware to utilize the software and
(ii) service fees for ongoing system support, maintenance, installation,
training and consulting services. The Company recognizes product revenue upon
shipment of the product and when the Company has no significant obligations yet
to be satisfied. Revenues from maintenance contracts are recognized ratably over
the term of the support period. Revenues from consulting, installation and
training services are recognized as the services are performed.
Cost of product revenues primarily includes cost of material and assembly
of components for products shipped, together with salaries and benefits of
production personnel. Cost of service revenues consists primarily of salaries
and benefits of customer support and field service personnel. Cost of service
revenues includes related operating costs such as training, computer support and
travel costs. The Company contracts with third parties to provide maintenance on
hardware provided as part of the Company's systems.
Research and development expenses primarily consist of salaries and
benefits of engineering personnel involved with software and voice processing
technology development. Also included are costs for subcontracted development
projects and expendable equipment purchases.
Selling, general and administrative expenses consist primarily of salaries,
commissions and benefits of sales, marketing, administrative, finance and human
resources personnel. Also included are marketing expenditures, travel, rent and
other costs.
Total revenues from sales outside the United States accounted for 20.9%,
22.5%, and 21.0% of the Company's total revenues for 1994, 1995 and 1996,
respectively. The Company relies on VARs to sell, install and support its
products in countries outside of the United States, Canada and the United
Kingdom. The Company's international revenues are primarily denominated in U.S.
dollars or British pounds. The Company's expenses incurred in foreign countries
are typically denominated in local currencies. The Company has recognized
foreign exchange gains (losses) of approximately $31,000, $(2,000) and $162,000
in 1994, 1995 and 1996, respectively. There can be no assurance that future
fluctuations in currency exchange rates will not have a material adverse impact
on the Company's future international operations.
19
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net revenues:
Product................................................... 67.0% 69.8% 67.5%
Service................................................... 33.0 30.2 32.5
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Product................................................... 23.2 24.7 24.2
Service................................................... 12.0 15.0 14.4
----- ----- -----
Total cost of revenues............................ 35.2 39.7 38.6
----- ----- -----
Gross margin................................................ 64.8 60.3 61.4
----- ----- -----
Operating expenses:
Research and development.................................. 13.5 11.5 10.7
Selling, general and administrative....................... 41.7 35.6 35.2
----- ----- -----
Total operating expenses.......................... 55.2 47.1 45.9
----- ----- -----
Income from operations...................................... 9.6 13.2 15.5
Other income (expense), net................................. 0.2 0.3 0.5
----- ----- -----
Income before income taxes.................................. 9.8 13.5 16.0
Income tax benefit.......................................... 0.1 -- --
----- ----- -----
Net income before pro forma income taxes.................... 9.9 13.5 16.0
----- ----- -----
Pro forma income taxes...................................... 4.3 5.1 6.0
----- ----- -----
Pro forma net income........................................ 5.6% 8.4% 10.0%
===== ===== =====
</TABLE>
The following table sets forth, for each component of net revenues, the
cost of such revenues as a percentage of such revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Cost of product revenues.................................... 34.7% 35.5% 35.8%
Cost of service revenues.................................... 36.3% 49.5% 44.4%
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 34.7% to $47.5 million in 1996 from
$35.3 million in 1995. Revenues from product sales increased 30.3% to $32.1
million in 1996, or 67.5% of total revenues, from $24.6 million in 1995, or
69.8% of total revenues. The increase in product revenues was due to strong
demand for the Company's PhoneFrame CS product introduced in the first half of
1995, increased sales and marketing efforts and the introduction of Magellan CS
in the fourth quarter of 1996. Service revenues increased 45.0% to $15.5 million
in 1996, or 32.5% of total revenues, from $10.7 million in 1995, or 30.2% of
total revenues. Service revenues increased primarily due to an increase in the
number of contractual maintenance agreements and, to a lesser degree, from
revenues generated by installation and training.
Cost of Revenues. Total cost of revenues was $18.4 million in 1996,
representing a 31.0% increase over total cost of revenues of $14.0 million in
1995. Total cost of revenues represented 38.6% and 39.7% of total revenues in
1996 and 1995, respectively. Cost of product revenues was $11.5 million in 1996,
or 35.8% of product revenues, increasing by 31.7% from $8.7 million in 1995, or
35.5% of product revenues. Cost of product revenues increased slightly as a
percentage of product revenues due to lower per unit sales prices, which were
partially offset by product cost reductions. Cost of service revenues was $6.9
million in 1996, or
20
<PAGE> 23
44.4% of service revenues, increasing by 29.9% from $5.3 million in 1995, or
49.5% of service revenues. The cost of service revenues increased as the Company
hired additional support and installation staff to support the increased sales
volume. Cost of service revenues, as a percentage of service revenues, decreased
5.1 percentage points due to operational efficiencies, reduced third-party
maintenance fees for field support of computer equipment resold by the Company
and improved features within the software to facilitate the installation
process.
Research and Development. The Company's research and development expenses
increased by 25.2% to $5.1 million in 1996, or 10.7% of total revenues, from
$4.1 million in 1995, or 11.5% of total revenues. The increase resulted
primarily from the addition of developers to support the Company's new product
development efforts, which resulted in the release of PhoneFrame CS 2.0 and
Magellan CS in 1996. Research and development expenses decreased as a percentage
of total revenues in 1996 due to the growth in total revenues in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $16.8 million in 1996, representing a 33.5% increase over selling,
general and administrative expenses of $12.6 million in 1995. The increase was
the result of an increase in sales commissions corresponding to an increase in
revenues and additional staff hired to support the higher sales levels in 1996.
Selling, general and administrative expenses were 35.3% and 35.6% of total
revenues in 1996 and 1995, respectively.
Income from Operations. As a result of the foregoing factors, income from
operations was $7.3 million in 1996, representing a 57.6% increase over income
from operations of $4.7 million in 1995. Operating income increased as a
percentage of total revenues from 13.2% in 1995 to 15.5% in 1996.
Other Income, Net. Other income, net increased to $261,000 in 1996 from
$88,000 in 1995. The increase was primarily attributable to foreign exchange
gains, as the British pound strengthened against the U.S. dollar.
Pro Forma Income Taxes. Pro forma income taxes were $2.8 million in 1996
as compared to $1.8 million in 1995, as a result of the Company's increased net
income before income taxes in 1996. The Company's pro forma effective tax rate
was 37.2% in 1996, compared to 37.8% in 1995.
Pro Forma Net Income. Pro forma net income was $4.8 million in 1996,
representing a 61.8% increase over pro forma net income of $3.0 million in 1995.
As a percentage of total revenues, pro forma net income increased from 8.4% in
1995 to 10.0% in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues increased 29.9% to $35.3 million in 1995 from
$27.2 million in 1994. Revenues from product sales increased 35.4% to $24.6
million in 1995, or 69.8% of total revenues, from $18.2 million in 1994, or
67.0% of total revenues. The increase in product revenues was due to increased
sales volume attributable primarily to demand for the Company's first release of
PhoneFrame CS introduced in 1995. Service revenues increased 18.9% to $10.7
million in 1995, or 30.2% of total revenues, from $9.0 million in 1994, or 33.0%
of total revenues. Service revenues increased primarily due to an increase in
the number of contractual maintenance agreements and, to a lesser degree, from
revenues generated by installation of systems and upgrading, but declined as a
percentage of total revenues due to the timing of product sales.
Cost of Revenues. Total cost of revenues was $14.0 million in 1995,
representing a 46.5% increase over total cost of revenues of $9.6 million in
1994. Total cost of revenues represented 39.7% and 35.2% of total revenues in
1995 and 1994, respectively. Cost of product revenues was $8.7 million in 1995,
or 35.5% of product revenues, increasing by 38.4% from $6.3 million in 1994, or
34.7% of product revenues. Cost of service revenues was $5.3 million in 1995, or
49.5% of service revenues, increasing by 62.3% from $3.3 million in 1994, or
36.3% of service revenues. The cost of service revenues increased as the Company
hired additional support and installation staff to support the increased sales
volume. Cost of service revenues, as a percentage of service revenues, increased
13.2 percentage points, as the Company increased its customer service and field
service support groups by over 31.0% to improve the Company's level of service
and, to a lesser degree, an increase in the cost of third-party maintenance for
field support of computer equipment resold by the Company.
21
<PAGE> 24
Research and Development. The Company's research and development expenses
increased by 10.7% to $4.1 million in 1995, or 11.5% of total revenues, from
$3.7 million in 1994, or 13.5% of total revenues. The increase in expenditures
resulted from the addition of developers to support the Company's new product
development efforts. Research and development expenses decreased as a percentage
of total revenues in 1995.
Selling, General and Administrative. Selling, general and administrative
expenses were $12.6 million in 1995, representing a 10.8% increase over selling,
general and administrative expenses of $11.3 million in 1994. The increase was
the result of the increase in sales commissions corresponding to an increase in
revenues and additional personnel hired to support the higher sales levels in
1995. Selling, general and administrative expenses were 35.6% and 41.7% of total
revenues in 1995 and 1994, respectively. Selling, general and administrative
expenses decreased as a percentage of total revenues primarily as a result of
cost containment initiatives in general and administrative expenses.
Income from Operations. As a result of the foregoing factors, income from
operations was $4.7 million in 1995, representing a 79.3% increase over income
from operations of $2.6 million in 1994. Operating income increased as a
percentage of total revenues from 9.6% in 1994 to 13.2% in 1995.
Other Income, Net. Other income, net increased to $88,000 in 1995 from
$46,000 in 1994. The increase was primarily attributable to increased interest
income due to the Company's higher average investment balances.
Pro Forma Income Taxes. Pro forma income taxes were $1.8 million in 1995
as compared to $1.2 million in 1994, as a result of the Company's increased net
income before income taxes in 1995. The Company's pro forma effective tax rate
was 37.8% in 1995, compared to 43.6% in 1994, due to non-deductible foreign
losses in 1994.
Pro Forma Net Income. Pro forma net income was $3.0 million in 1995,
representing a 96.0% increase over pro forma net income of $1.5 million in 1994.
As a percentage of total revenues, pro forma net income increased from 5.6% in
1994 to 8.4% for 1995.
22
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statement of
operations data for each of the last eight quarters. This information is derived
from unaudited combined financial statements and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of that information. The results of operations
for any quarter are not necessarily indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1995 1996
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product............................... $5,698 $5,198 $6,051 $ 7,673 $ 7,691 $ 8,108 $ 7,428 $ 8,850
Service............................... 2,191 2,467 2,729 3,275 3,330 3,778 4,161 4,194
------ ------ ------ ------- ------- ------- ------- -------
Total revenues................. 7,889 7,665 8,780 10,948 11,021 11,886 11,589 13,044
------ ------ ------ ------- ------- ------- ------- -------
Cost of revenues:
Product............................... 1,867 1,905 2,471 2,487 2,449 2,990 2,660 3,395
Service............................... 1,010 1,037 1,260 1,975 1,439 1,733 1,902 1,789
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenues......... 2,877 2,942 3,731 4,462 3,888 4,723 4,562 5,184
------ ------ ------ ------- ------- ------- ------- -------
Gross margin............................ 5,012 4,723 5,049 6,486 7,133 7,163 7,027 7,860
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and development.............. 1,024 885 901 1,240 945 1,151 1,409 1,565
Selling, general and administrative... 2,842 2,998 3,072 3,647 4,137 3,992 4,212 4,424
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses....... 3,866 3,883 3,973 4,887 5,082 5,143 5,621 5,989
------ ------ ------ ------- ------- ------- ------- -------
Income from operations.................. 1,146 840 1,076 1,599 2,051 2,020 1,406 1,871
Other income (expense), net............. (1) 34 41 14 (11) 54 20 198
------ ------ ------ ------- ------- ------- ------- -------
Income before pro forma income taxes.... 1,145 874 1,117 1,613 2,040 2,074 1,426 2,069
Income tax benefit...................... -- -- -- -- -- -- -- --
------ ------ ------ ------- ------- ------- ------- -------
Net income before income taxes.......... 1,145 874 1,117 1,613 2,040 2,074 1,426 2,069
Pro forma income taxes.................. 432 330 422 610 762 775 517 773
------ ------ ------ ------- ------- ------- ------- -------
Pro forma net income.................... $ 713 $ 544 $ 695 $ 1,003 $ 1,278 $ 1,299 $ 909 $ 1,296
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1995 1996
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(AS A PERCENTAGE OF TOTAL NET REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product............................... 72.2% 67.8% 68.9% 70.1% 69.8% 68.2% 64.1% 67.8%
Service............................... 27.8 32.2 31.1 29.9 30.2 31.8 35.9 32.2
------ ------ ------ ------- ------- ------- ------- -------
Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------- ------- ------- ------- -------
Cost of revenues:
Product............................... 23.7 24.9 28.1 22.7 22.2 25.2 23.0 26.0
Service............................... 12.8 13.5 14.4 18.0 13.1 14.6 16.4 13.7
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenues......... 36.5 38.4 42.5 40.7 35.3 39.8 39.4 39.7
------ ------ ------ ------- ------- ------- ------- -------
Gross margin............................ 63.5 61.6 57.5 59.3 64.7 60.2 60.6 60.3
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and development.............. 13.0 11.5 10.3 11.3 8.6 9.7 12.2 12.0
Selling, general and administrative... 36.0 39.1 35.0 33.3 37.5 33.6 36.3 33.9
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses....... 49.0 50.6 45.3 44.6 46.1 43.3 48.5 45.9
------ ------ ------ ------- ------- ------- ------- -------
Income from operations.................. 14.5 11.0 12.2 14.7 18.6 16.9 12.1 14.4
Other income (expense), net............. -- 0.4 0.5 0.1 (0.1) 0.5 0.2 1.5
------ ------ ------ ------- ------- ------- ------- -------
Income before pro forma income taxes.... 14.5 11.4 12.7 14.8 18.5 17.4 12.3 15.9
Income tax benefit...................... -- -- -- -- -- -- -- --
Net income before income taxes.......... 14.5 11.4 12.7 14.8 18.5 17.4 12.3 15.9
Pro forma income taxes.................. 5.5 4.3 4.8 5.6 6.9 6.5 4.5 5.9
------ ------ ------ ------- ------- ------- ------- -------
Pro forma net income.................... 9.0% 7.1% 7.9% 9.2% 11.6% 10.9% 7.8% 10.0%
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
23
<PAGE> 26
The Company's revenues and operating results could vary substantially from
quarter to quarter. Among the factors that could cause these variations are
changes in the demand for the Company's products, the level of product and price
competition, the length of the Company's sales process, the size and timing of
individual transactions, the mix of products and services sold, software defects
and other product quality problems, any delay in or cancellation of customer
installations, the Company's success in expanding its direct sales force and
indirect distribution channels, the timing of new product introductions and
enhancements by the Company or its competitors, customer order deferrals in
anticipation of enhancements or new products offered by the Company or its
competitors, commercial strategies adopted by competitors, changes in foreign
currency exchange rates, customers' fiscal constraints, the Company's ability to
control costs and general economic conditions. In addition, a limited number of
relatively large customer orders has accounted for and is likely to continue to
account for a substantial portion of the Company's total revenues in any
particular quarter. Sales of the Company's software products generally involve a
significant commitment of management attention and resources by prospective
customers. Accordingly the Company's sales process is often lengthy and subject
to delays associated with the long approval process that accompanies significant
customer initiatives or capital expenditures. The Company's sales cycle, from
initial trial to complete installation, varies substantially from customer to
customer. Because the Company's staffing and operating expenses are based on
anticipated revenue levels and a high percentage of the Company's costs are
fixed in the short term, variations between anticipated order dates and actual
order dates, as well as nonrecurring or unanticipated large orders, can cause
significant variations in the Company's operating results from quarter to
quarter. See "Risk Factors -- Variability of Quarterly Financial Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through internally
generated cash flow.
The Company's operating activities generated cash of $5.1 million in 1994,
$7.5 million in 1995 and $9.3 million in 1996. In 1996, the Company's cash was
generated by operating activities and an increase in customer deposits,
partially offset by an increase in accounts receivable. Both customer deposits
and accounts receivables increased due to the Company's increased business
volume.
The Company's investing activities used cash of $800,000 in 1994, $1.7
million in 1995 and $1.5 million in 1996. The Company's use of cash was
primarily for the purchase of capital equipment to support the Company's growth.
The Company's financing activities used cash of $3.0 million in 1994, $5.2
million in 1995 and $3.8 million in 1996. The primary use of cash was
distributions to the Company's shareholders.
As of December 31, 1996, the Company had working capital of $8.1 million.
Cash and cash equivalents were $9.8 million. The Company estimates that it will
incur capital expenditures of approximately $2.0 million in 1997, of which
$800,000 will be incurred to complete an upgrade of the internal Customer Care
Center. The Company anticipates that its existing cash balances and funds
anticipated to be generated from operations, combined with the net proceeds from
this offering and interest thereon, will be adequate to satisfy its working
capital requirements for its current and planned operations for at least the
next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In October of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of." The Company's
adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant
impact on the Company's combined financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 ("SFAS 123") which establishes a fair value based method for accounting
for stock-based compensation plans. With respect to stock options granted to
employees, SFAS 123 permits companies to continue using the accounting method
promulgated by the Accounting Principals Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees," to measure compensation or,
alternatively, to adopt the fair value based method prescribed by
24
<PAGE> 27
SFAS 123. If the APB 25 method is continued, pro forma footnote disclosures are
required as if SFAS 123 accounting provisions were followed. Management has
determined not to adopt the SFAS 123 accounting recognition provisions.
Accordingly, SFAS 123 will not have any impact on the Company's financial
statements, except for the addition of the required footnote disclosures. See
Note 6 of the Notes to Combined Financial Statements.
The American Institute of Certified Public Accountants has issued an
exposure draft to amend the provisions of Statement of Position 91-1, "Software
Revenue Recognition." The adoption of the standards in the current version of
the exposure draft would not be expected to have a significant impact on the
Company's combined financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 is designed to improve the
earnings per share information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements, and
increasing the comparability of earnings per share data on an international
basis. SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted. The Company will adopt SFAS 128 on December 31, 1997. Management has
not determined the effect that SFAS 128 will have on earnings per share.
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BUSINESS
OVERVIEW
Melita International Corporation is a leading provider of customer contact
and call management systems that enable businesses to automate call center
activities and enhance their telephony-based customer interaction. The Company's
principal product, PhoneFrame CS, is used by organizations to increase agent
productivity, reduce the costs of call center operations and enhance revenue
generation for a broad range of activities, including debt collection,
telemarketing and customer service. PhoneFrame CS is a comprehensive call center
solution based on client/server software that integrates with industry standard
computing and telephony infrastructures. The Company's customers include leading
organizations in industries such as banking, financial services, retail,
communications and service bureaus, where businesses are engaged in frequent
telephone contact with customers or prospects.
The Company currently has over 400 systems in operation worldwide. Selected
customers include AirTouch Communications, Inc., BancOne Services Corporation,
Barclays Bank PLC, Citicorp, Credicard SA Brazil, Dun & Bradstreet Corporation,
Grupo Financiero Bancomer, S.A de C.V., J.C. Penney Company, Inc., National
Westminster Bank and Snyder Communications, Inc. The Company sells its products
through a direct sales force in the United States, Canada and the United
Kingdom. In 1996, the Company derived approximately 21.0% of its total revenues
from sales outside the United States. International distribution is largely
through direct sales and VARs.
INDUSTRY BACKGROUND
Long-term customer relationships are critical to the success of businesses
operating in an increasingly competitive global marketplace. As customers become
more sophisticated and demanding in the level of service they require,
businesses are striving to develop and improve customer relationships as a means
to distinguish their products and services. This effort requires businesses to
use every opportunity to interact with customers, from marketing and sales
activities to post-sales service, support and collections. Effective customer
interaction can build customer loyalty, which in turn can lead to reduced
customer retention costs and increased revenue potential. As organizations seek
to improve the quality of their interaction with customers across the
enterprise, the use of information systems to facilitate this interaction has
become a core competency.
In recent years, telephony-based customer interaction has become a more
effective means of communication for organizations. Increased usage of
telephony-based customer interaction has been facilitated by decreasing
telecommunications costs, the proliferation of toll-free telephone numbers and
the introduction of new enabling technologies, such as computer/telephony
integration("CTI"). CTI automates the generation and management of
telephony-based customer contacts while providing real-time access to
computer-based information resources. This automation is provided within call
centers through the use of specialized software and hardware that integrate
telephony platforms and computer systems.
According to industry sources, the CTI, outbound call management and
automatic call distribution market segments of the worldwide call center systems
market aggregated $2.8 billion in 1996 and are expected to grow at a compound
annual growth rate of 19.1% to $6.7 billion by 2001. The Company's primary
target markets, CTI and outbound call management, were approximately $1.3
billion worldwide in 1996 and are together expected to grow at a compound annual
growth rate of 27.6% to $4.4 billion by 2001.
Call centers enable agents to process a steady flow of outbound or inbound
telephone contacts relating to products and services. Call centers generally
consist of supervisor and agent workstations linked to a central telephone
switch and computer system. Call centers historically have focused either on
conducting outbound calls, for functions such as collections and product sales,
or managing inbound calls, for functions such as product support, order
processing and customer service. Inbound call centers utilize an interactive
voice response ("IVR") unit and an automatic call distribution ("ACD") system
that together screen and route incoming calls through the call center. Outbound
call centers incorporate predictive dialing software to automate outbound
dialing. Increasingly, call center applications feature dynamic inbound/outbound
or
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"blended" functionality which permits agents to be automatically switched
between inbound and outbound calls as inbound call demand varies. Common
examples of outbound call center applications include debt collection for banks,
finance companies and large retailers, credit card marketing and customer
support activities such as customer surveys. According to industry sources,
collections and telemarketing software applications accounted for 80% of all
outbound call center software application revenues worldwide in 1996.
A key objective of organizations operating outbound call centers is
maximizing the time spent by agents on the telephone with customers or potential
customers while minimizing the "nuisance call" rate. A nuisance call is a live
contact which the call management system must either put on hold or disconnect
because no agent is available. High nuisance call rates caused by overdialing
result in high telecommunications costs and poor customer relations. Call center
systems which utilize sophisticated predictive dialing software can minimize the
nuisance call rate while maintaining high agent productivity. The Company
believes that this capability is essential to organizations operating call
centers.
Call center systems were originally developed as centralized,
mainframe-based information systems, which offered a platform to enable the
automation of many functions, including inbound call distribution, outbound
dialing, and limited database management. These systems were expensive, provided
limited functionality and productivity and were generally closed and
proprietary. With the advent of distributed computing environments, call center
systems have been developed which utilize CTI and the flexibility and openness
of client/server architectures. These developments have allowed companies to
incorporate leading hardware and software products from multiple vendors, have
significantly reduced the cost of implementation and have increased system
functionality and flexibility.
Call centers have evolved into a core competency for businesses engaged in
frequent telephone contacts with customers or prospects. In order to maximize
the return on their call center investment, businesses require call center
solutions that: (i) provide call center agents with the tools needed to
effectively manage interaction with their customers; (ii) provide agents
transparent access to information across the enterprise; (iii) guide agents
through a complex set of customer interaction scenarios; (iv) fully integrate
existing information and telephone systems; (v) are adaptable to the changing
needs of particular businesses and applications; (vi) are scaleable to support
large volumes of calls; and (vii) permit the gathering of valuable information
concerning customer needs, buying patterns and demographics. Customer-focused
organizations are seeking call center solutions which provide state-of-the-art
functionality while remaining adaptable to emerging technologies.
THE MELITA SOLUTION
Melita provides customer contact and call management systems that automate
outbound or blended call centers, enabling its customers to enhance
telephony-based customer interaction. The Company's principal product,
PhoneFrame CS, is a scaleable, integrated software and hardware solution based
on a distributed client/server architecture capable of supporting installations
with more than 500 simultaneous users on a single server. PhoneFrame CS provides
comprehensive functionality and a user-friendly application development
environment enabling organizations to conduct effective telephone calling
programs for a broad range of activities, including debt collection,
telemarketing and customer service. The Melita solution provides:
- High agent productivity, low nuisance call rates and low
telecommunications costs through patented predictive dialing and
inbound/outbound call blending functionality;
- Enhanced agent interaction with customers through front-end software
applications which utilize real-time access to information to guide agents
through each step of the customer interaction;
- Dynamic campaign development, deployment and modification through
powerful, easy-to-use script generation and application development
software.
- The ability to leverage existing investment in call center systems and
adapt to emerging technologies through an open, scaleable, distributed
client/server architecture.
The Company believes that a critical element of the comprehensive solutions
it provides is its underlying philosophy of Customer Care. The Company's
products represent a critical link between the business
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enterprise and its customers, providing the business with a solution that allows
it to provide the best customer care. The Company's Customer Care philosophy
focuses on enhancing the quality of people-to-people communication and is
reflected in all facets of the Company's operations. The Company has
incorporated features into its existing products which reflect this philosophy,
including its patented predictive dialing features, Cancel Dial and dynamic
inbound/outbound call blending functionality. As part of its commitment to
Customer Care, the Company intends to continue to develop and introduce new
products and features to improve the ability of a business to interact with its
customers.
STRATEGY
The Company's objective is to be a leading provider of customer contact and
call management systems. The Company's strategy to achieve this objective
includes the following key elements:
Leverage Installed Base of Customers: The Company currently targets
customers in the banking, financial services, retail, communications and
service bureau industries. In 1996, 54.2% of the Company's product revenues
were from sales to its existing customer base. The Company will continue to
focus sales and marketing efforts on its installed base of customers. The
Company also intends to continue to leverage its penetration of currently
targeted vertical markets by using its existing customers as a reference
base to gain new customers.
Maintain Technology Leadership: The Company believes it is a
technology leader in the field of call center software and CTI, having
pioneered many of the industry's fundamental call center technologies. The
Company owns 15 U.S. patents, with six additional U.S. patents pending,
covering various processes and technologies utilized in call management
systems. The Company has also been awarded 26 related foreign patents, of
which 19 are still active. The Company believes that in the future advanced
call management systems will consist primarily of innovative software
utilizing off-the-shelf hardware. As a result, the Company intends to focus
its development efforts on software, with an emphasis on customer
interaction and distributed applications.
Continue to Focus on Providing Comprehensive Call Center
Solutions: The Company provides system design, application configuration
and integration services in conjunction with the installation of its call
center solutions. The Company believes its ability to provide comprehensive
call center systems integration is an important factor in the purchasing
decisions of customers, and it intends to continue its emphasis on
providing these design and integration services.
Continue to Expand Sales and Marketing: The Company intends to pursue
an increased share of the market for call management systems by hiring
additional sales and marketing personnel. The Company plans to open
additional sales offices both domestically and internationally and is
implementing a program aimed at targeted vertical markets. In addition, the
Company is establishing a national account program which is intended to
focus sales and marketing efforts on large, multinational corporations.
Increase Penetration of International Markets: In 1996, the Company
generated 21.0% of its total revenues from sales outside the United States
and has 26 employees dedicated to its international operations. The Company
currently has relationships with VARs in Europe, Latin America and the
Pacific Rim. The Company intends to leverage these relationships in
selected international markets to enhance its revenue base. The Company
also intends to expand its international operations through hiring
additional personnel, opening new offices and forming additional
relationships with VARs in Latin America and the Pacific Rim.
Pursue Adjacent Markets: The Company has developed a leadership
position in the collections segment of the outbound call management systems
market. In 1996, approximately 80% of the Company's total revenues were
attributable to systems sold for collections applications, with the
remainder attributed primarily to telemarketing and telesales applications.
The Company recently introduced Magellan CS which leverages the existing
dynamic inbound/outbound functionality of PhoneFrame CS to target
applications in telemarketing and telesales. The Company seeks to leverage
its existing dynamic inbound/outbound functionality to gain market share in
the overall call management systems market. The Company believes the
distinction between inbound and outbound call management
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systems will diminish and that it is well positioned to provide both
inbound and outbound call management solutions.
PRODUCTS
The Company's principal product, PhoneFrame CS, is an integrated suite of
client/server software applications and hardware that provides outbound and
blended call management solutions. PhoneFrame CS software components are based
on open standards, allowing integration with varied and complex user
environments.
PhoneFrame CS is sold to organizations that operate outbound and blended
call centers. These call centers require solutions that integrate with existing
communication and information systems including mainframe-based information
systems, local area networks, agent workstations and PBX/ACDs. Utilizing
customer records residing in an organization's existing databases, PhoneFrame CS
automates customer contacts and guides agents through the customer interaction
process.
ARCHITECTURE OVERVIEW CHART
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The key components of PhoneFrame CS are the Universal Server, Command Post,
Universal Workstation and the Universal Switch.
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C>
PHONEFRAME CS
PRODUCT COMPONENT DESCRIPTION
<S> <C> <C>
Universal Server Server software that controls and coordinates system operation. Used to
manage calling list data, call attempt and contact history, agent profiles,
time zone and area code data, call processing, agent and supervisor
activity.
Platform: IBM RISC/6000, AIX operating system, Sybase database
Command Post Suite of software applications used by system managers to configure,
operate, monitor and report on system activities utilizing an interactive
GUI.
Platform: Pentium PC, Windows NT
Universal Workstation Client-based software which runs on the agent workstation and manages the
client session with the Universal Server for each call routed to the agent
workstation. The Universal Workstation utilizes one of the following
options:
Universal Access Software that controls screen presentation and data manipulation and allows
the agent to work within an enterprise information system.
MTAccess Software that runs in the background and interacts with screen presentation
and data manipulation applications provided by the existing enterprise
information systems.
Magellan CS Software that controls Windows GUI screen presentation on the agent
workstation. Provides read/write access to data in customer's existing
systems. Additionally, Magellan Builder, which resides on the Command Post
or a dedicated PC, facilitates development of customer interaction and call
flow applications featuring an interactive GUI.
Platform: PC, Windows 3.1, 95 and NT
Universal Switch Proprietary switching component of the system. Interfaces with existing
telephony equipment or directly with PSTN using digital or analog
interfaces.
Call Processor PC-based Switch and Voice Processor controller and client-based software
interface to Universal Server.
Voice Processor Software that performs call progress analysis and call characterization for
each call attempt (e.g., busy signal, ringback signal, fax machine, modem,
voicemail, answering machine, live contact). Also provides voice messaging
services for inbound and outbound applications.
Platform: PC, Dialogic voice processing cards
Switch High speed, real-time digital switching matrix.
Platform: Motorola 68030 CPU, VME-Bus, OS/9 operating system
MPACT Software option for the Universal Server that communicates with leading
PBX/ACDs through CTI links, using one or both of the following:
PowerPACT Software option that provides ability to use an existing PBX/ACD for
switching and/or call progress analysis in place of the Voice Processor and
Switch.
ActionPACT Software option that monitors service levels on a call center's ACD via its
CTI links and dynamically and automatically move agents from outbound
applications to inbound applications and vice versa.
</TABLE>
The Universal Server software is the heart of each PhoneFrame CS system,
providing centralized control for the operation and management of the system. It
integrates a Sybase database to provide calling list management, and to store
operational data for real-time and historical reporting. TCP/IP is used as the
transport protocol for communication with all client components of the system.
The Universal Server also
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includes software that facilitates integration with popular user platforms to
perform extended functions such as real-time calling list data acquisition,
dynamic call blending, Internet callback and enterprise reporting.
The Command Post is a suite of software applications used for call flow
script creation and editing, call campaign configuration, resource definition
and management, agent and production monitoring and system reporting. Command
Post runs on Windows NT and consists of software modules that automate the
operation and monitoring of the system. Builder is used to automate data
exchange with user databases and create calling campaigns. QFlow is used to
implement user-defined strategies for calling campaigns based on real-time
events such as time of day, hit rate and list penetration. Production Monitoring
provides an interactive graphical representation of the call center that allows
managers to access, monitor and control system resources such as agents and
trunks. The Report Scheduler automates the generation of system reports. Reports
can be written in any Windows SQL-based report writer.
The Company's Universal Workstation is client-based software which runs on
the agent workstation, and is available in three different software options:
Universal Access, MTAccess and Magellan CS. Each option supports Microsoft's
Dynamic Data Exchange ("DDE") and industry standard Enhanced High Level Language
Application Programming Interface ("EHLLAPI") for exchanging information with
external applications. Each Universal Workstation software option meets
different needs for agent workstation functionality.
Universal Access for Windows and Universal Access for OS/2 manage the
client session with the Universal Server for each call routed to an agent
workstation and provide basic information about the called party, including
customer identification or account number. Universal Access facilitates
automated access to other enterprise information systems and can be configured
to toggle between applications.
MTAccess interfaces with screen presentation and data manipulation
applications software provided by the customer. Similar to the Universal Access
options, MTAccess manages the client session with the Universal Server for each
call routed to the agent workstation. Initial contact information about the
called party is provided to the agent through the customer's application.
Magellan CS is the Company's recently introduced Universal Workstation
software. Magellan CS consists of two components, Magellan Interpreter and
Magellan Builder. Magellan Builder allows system managers to create and
dynamically modify call flow applications, complete with many features of a
Windows GUI, such as buttons and checklists, without any programming. Magellan
Interpreter provides agents with a composite view of enterprise-wide customer
information through a Windows GUI. Agent interaction with customers is guided by
Magellan CS applications, which provide agents with the customer information
necessary to make timely, informed customer interaction decisions. Magellan CS
supports EHLLAPI, DDE, object linking and embedding ("OLE"), open database
connectivity ("ODBC"), telephony application programming interface ("TAPI") and
telephony services application programming interface ("TSAPI") for accessing
customers' information and telephony systems. Additionally, through the use of
resource files, Magellan CS has been designed to facilitate localization for
international deployment.
The Universal Switch is the Company's proprietary switching platform that
interfaces with existing telephone equipment or directly with the Public
Switched Telephone Network ("PSTN") using digital and analog interfaces. All
inbound and outbound calls can be processed through the Universal Switch, which
performs two major functions: call processing and switching. The Call Processor
serves as the controller and client software interface to the Universal Server.
The Voice Processor performs all telephone call processing including call
progress analysis, which determines the type of call result that has been
achieved. Call progress analysis utilizes a digital signal processing algorithm
which detects various tone and voice patterns including busy signals, ringback
signals, fax machines, modems, voice mail and answering machines as well as live
contacts. The Voice Processor also provides voice messaging services for inbound
and outbound applications. The Switch performs high speed switching to connect
live contacts to the next available, appropriate agent in real time.
The Company's MPACT software option enables PhoneFrame CS to be integrated
with industry leading PBX/ACDs through the use of CTI links. PowerPACT allows
PhoneFrame CS to use a customer's existing
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PBX/ACD in place of the Switch and Voice Processor components. The Voice
Processor, in conjunction with PowerPACT software, can provide call progress
analysis for PBX/ACDs that do not provide this functionality. ActionPACT
provides the ability for PhoneFrame CS to monitor service levels on a call
center's PBX/ACD via its CTI link and dynamically and automatically move agents
from outbound applications to inbound applications and vice versa. PowerPACT and
ActionPACT allow users to leverage their investment in installed PBX/ACD
equipment.
SERVICES
A significant portion of the Company's revenues is derived from on-going
system support, maintenance, installation, training, customization and
consulting services. Upon purchase of a system, customers generally enter into a
maintenance agreement covering on-going system support and software upgrades.
These agreements can have a duration of up to five years. In addition, the
Company provides installation, training, customization and consulting services
during the implementation process. For additional fees, the Company will from
time to time provide additional training or consulting services at the
customer's request.
The Customer Care Group consists of the Customer Care Center ("CCC"), the
Technical Assistance Center ("TAC"), the Applications Integration Engineers and
the Training and Customer Education Division. The CCC provides 24 x 7 customer
support by telephone. The TAC provides high level technical support, coordinates
new product development and beta tests, and provides additional expert support
for the other groups within the service function. The Applications Integration
Engineers provide configuration, scripting, reconfiguration, custom application
development and other special customer services. The Training and Customer
Education Division develops documentation for installation and support of the
Company's products, provides on-site and off-site training to customers through
an array of classes, and offers consulting services. Introductory training
classes are provided as part of each initial system purchase and advanced
classes are provided for additional fees. As of January 31, 1997, the Customer
Care Group employed a total of 72 employees.
The Field Implementation Services Group has responsibility for systems
design, sales support, implementation and project management and serves as the
customer installation liaison. The Field Implementation Services Group is
divided into three regional divisions covering the United States and Canada, and
one international division. International support is also provided by technical
support personnel located in the United Kingdom and the Company's international
VARs. As of January 31, 1997, this group employed a total of 38 employees.
The Company contracts with IBM to provide local hardware support in the
United States and Canada, and can dispatch local personnel from IBM national
service centers to address hardware issues.
SALES AND MARKETING
The Company sells its products primarily through a direct sales channel and
through VARs. Sales in the United States, Canada and the United Kingdom are
conducted primarily through direct channels. Distribution in other countries is
conducted through a combination of direct sales and VARs. The Company has sales
offices located in Atlanta, Boston, Dallas, Los Angeles, Philadelphia, Salt Lake
City, White Plains, London and Toronto.
The Company's marketing activities include product management, product
marketing, direct marketing, public relations, press and analyst communications,
event support and management of the Company's Web site. The Company's Business
Development Group is responsible for developing joint marketing and co-
development relationships with call center industry suppliers. The Company is
also implementing a program aimed at specific vertical markets. In addition, the
Company is establishing a national account program which is intended to focus
sales and marketing efforts on large, multinational corporations.
As of January 1, 1997, the Company's sales personnel, including the Sales,
Marketing, Product Management and Business Development groups consisted of 54
employees worldwide.
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The Company's customers independently operate domestic and international
User Groups, which have approximately 300 and 35 members, respectively. The
domestic User Group was formed in 1990, and is managed by an independent board
of directors that coordinate User Group activity. The international User Group
was formed in 1991. Activities of both the domestic and international User
Groups include an annual User Group conference. Additionally, the domestic User
Group conducts regional User Group meetings typically focused on common
applications and call center opportunities. The 1996 annual domestic User Group
conference was attended by approximately 260 people. Although the Company is not
a sponsor of the User Group conferences, it generally sends Company employees
who conduct seminars, product demonstrations and training sessions.
CUSTOMERS
The Company's call management solutions are used by organizations in a
broad range of industries. Since the introduction of PhoneFrame CS in 1995, the
Company has licensed its software for use on over 5,000 agent workstations and
has shipped over 100 systems. The Company's top five customers accounted for
24.5% of the Company's total revenues in 1996. The Company's top five customers
accounted for 24.8% of the Company's total revenues in 1995. Although specific
customers may change from period to period, the Company expects that large sales
to a limited number of customers will continue to account for a significant
percentage of its revenues in any particular period for the foreseeable future.
The following table sets forth certain of the Company's customers who have
purchased $200,000 or more in products and services from the Company during the
two year period ended December 31, 1996:
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C>
CUSTOMERS APPLICATIONS
<S> <C> <C>
BANKING
BancOne Services Corporation Citicorp Collections
Banco Popular de Puerto Rico Credicard SA Brazil Telemarketing
Grupo Financiero Bancomer, S.A. de C.V. First USA Bank Customer Service
Barclays Bank PLC (UK) Marine Midland Bank Fraud Detection
Chemical Bank National Westminster Bank
Chevy Chase, FSB
FINANCIAL SERVICES
Americredit Financial Services, Inc. Guardian National Acceptance Collections
AmSouth Consumer Collections Corporation Telemarketing
Countrywide Funding Intuition, Inc. Customer Service
Dun & Bradstreet Corporation Strong Capital Management, Inc. Prospect Outreach
Green Tree Financial Corporation Marketing
Business Information Surveys
RETAIL
Circuit City Stores, Inc. J.C. Penney Company, Inc. Collections
Eagle Managed Care Mercantile Stores Company, Inc. Telemarketing
Financial Management Control The Foschini Group (PTY),
Hudson's Bay Company Limited
COMMUNICATIONS
AirTouch Communications, Inc.
Comcast Cellular Communications
Continental Cablevision of
Broward County, FL
IDT Corporation
Telemarketing
Collections
Customer Service
Customer Welcome
Campaigns
SERVICE BUREAU
The Call Centre Ltd. (UK)
Decisions Group Ltd. (UK)
National Action Financial Services, Inc.
Snyder Communications, Inc.
Collections
Telemarketing
Customer Service
Fundraising
Sales
Loan Servicing
Appointment Scheduling
</TABLE>
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TECHNOLOGY, RESEARCH AND PRODUCT DEVELOPMENT
The Company intends to continue investment in research and development to
maintain its position as a leader in call center technology. The Company has
developed a client/server software architecture that facilitates the deployment,
configuration and interoperability of its call center solutions. The design of
the system provides three core sets of services: (i) user interface presentation
and navigation, (ii) server-based system management services, and (iii)
telephone call processing services, including the Company's patented predictive
dialing and dynamic call blending features. The Company's products are based on
an open architecture and industry standards and provide seamless integration
with third-party systems or customers' existing technology infrastructure. The
Company will seek to develop future products that adhere to existing and
emerging standards.
The presentation and navigation components of the software have been
implemented using Windows GUI guidelines. Usability labs and focus groups are
used to define interface requirements and verify ease of use. TCP/IP is used as
the transport layer for all client/server communication. Adherence to Winsock
and other standards facilitates integration with third-party desktop
applications and protocol stacks. The Company is working to broaden the
incorporation of Simple Network Management Protocol ("SNMP") into its product
architecture to facilitate enterprise-wide network management for both computer
and telephony components.
The Company's telephony hardware and software have been designed using
industry standards and the Company intends to continue this approach. The
Company's systems use standard analog and digital connectivity to
telecommunications equipment and services. The Company's newest generation of
agent workstation software, Magellan CS, supports the evolving telephony
application program interfaces TAPI and TSAPI, and future products are expected
to support those interfaces as well. CTI links to various PBX/ACDs are often
proprietary and the Company therefore uses various interfaces such as CallPath,
CallBridge, ASAI, Meridian Link and the Application Bridge to facilitate
integration with various switching platforms.
Magellan CS, released in 1996, and Magellan SA, which the Company currently
plans to release in 1997, have been developed using object oriented methods and
technology. Magellan SA is a version of the Company's Magellan CS product that
will provide the functionality of Magellan CS to call center systems not
employing PhoneFrame CS. The Company expects Magellan SA will be used for a
variety of call center applications, including inbound applications, in which an
outbound call management system is not necessary or is already installed.
Magellan SA is intended to allow system managers to develop applications which
present a uniform Windows GUI independent of the application. Each application
can be developed by the system manager with scripting, data processing and
presentation and telephony services specific to the application while providing
agents with a consistent presentation. Like Magellan CS, Magellan SA will
support EHLLAPI, DDE, OLE, ODBC, TAPI and TSAPI for access to customers'
information and telephony systems.
The Company is currently developing the Universal Telephony Platform
("UTP"), a new subsystem which incorporates the functionality of a telephony
switch and voice processor. The UTP has been designed using the Common Object
Request Broker Architecture ("CORBA") to support distributed objects in an open
systems environment. UTP runs on Windows NT and uses off-the-shelf voice
processing components. Asynchronous Transfer Mode ("ATM") technology is used to
link multiple UTP components across standard ATM networks, providing seamless,
multi-site resource allocation, management and utilization. SNMP is used to
provide standards based network management.
As of January 31, 1997, the Company's research and development and quality
assurance staffs consisted of 42 employees. The Company's total expenses for
research and development for 1994, 1995 and 1996 were $3.7 million, $4.1
million, and $5.1 million, respectively. The Company anticipates that it will
continue to commit substantial resources to research and development in the
future. See "Risk Factors -- Risks Associated with Technological Advances;
Necessity of Developing New Products."
COMPETITION
The market for the Company's products is intensely competitive, fragmented
and subject to rapid change. Because the Company's principal products are call
center systems, which include both software applications
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and hardware, the Company competes with a variety of companies which provide
these components independently or as an integrated system. The Company's
principal competitors in the field of integrated inbound/outbound call
management systems are Davox, EIS and Mosaix. The Company competes primarily
against Davox and Mosaix in the collections segment of the call management
systems market, and against EIS in the telemarketing and telesales segments of
the call management systems market. The Company also competes in the CTI segment
of the market, where principal competitors include AnswerSoft, Inc., Genesys
Telecommunications Laboratories, Inc., Nabnasset Corporation and Brock
International, Inc., among others. The Company may face additional competition
from PBX/ACD vendors, other telecommunications equipment providers,
telecommunications service providers, computer hardware and software vendors and
others. The Company generally faces competition from one or more of its
principal competitors on major installations and believes that price is a major
factor considered by its prospective customers. Many of the Company's current
and potential competitors have significantly greater financial, technical,
marketing and other resources than the Company. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote more resources to the development, promotion and
sales of products than the Company. Competition from these or other sources
could result in price reductions and loss of market share which could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company believes that the primary competitive factors affecting its
markets include product features such as flexibility, scalability,
interoperability, functionality and ease of use, as well as reputation, quality,
performance, price and customer service and support. See "Risk
Factors -- Competition."
REGULATORY ENVIRONMENT
Certain uses of outbound call management systems are regulated by federal,
state and foreign law. The Federal Telephone Consumer Protection Act (the
"TCPA") prohibits the use of automatic dialing equipment to call emergency
telephone lines, health care and similar facility patient telephone lines, and
telephone lines where the called party is charged for incoming calls, such as
those used by pager and cellular phone services. The TCPA prohibits use of such
equipment to engage two or more lines of a multi-line business simultaneously,
and restricts the use of artificial or prerecorded voice messages in calls to
residential lines. Among other things, the TCPA required the Federal
Communications Commission ("FCC") to create regulations protecting residential
telephone subscribers from unwanted telephone solicitations. In addition, the
Telemarketing and Consumer Fraud and Abuse Prevention Act authorized the Federal
Trade Commission ("FTC") to prohibit a variety of deceptive and/or abusive
telemarketing practices, including, among other things, repetitive or harassing
calls and requests by telemarketers for payments before certain types of
services are provided. The Rules adopted by the FCC and FTC prohibit calls to
persons who have indicated that they do not wish to be contacted, and the FCC
specifically requires telemarketers to maintain a company-specific "do-not-call
list" which contains the names and numbers of residential subscribers who do not
want to receive calls. An entity which has an "established business
relationship" with a party it calls and tax-exempt nonprofit organizations are
exempt from do-not-call lists. The rules also require that telemarketers may
call consumers only after 8 a.m. and before 9 p.m., local time. Certain states
have enacted similar laws limiting access to telephone subscribers who object to
receiving solicitations. Fair Debt Collection Practices Act ("FDCPA") limits
communication by certain debt collectors with consumers only after 8:00 a.m. and
before 9:00 p.m., local time, and not at the consumer's place of business. Many
of the Company's customers are exempt from the FDCPA. Although compliance with
these laws may limit the potential use of the Company's products in some
respects, the Company's systems can be programmed to operate automatically in
full compliance with these laws through the use of appropriate calling lists and
calling campaign time parameters. There can be no assurance, however, that
future legislation further restricting telephone solicitation practices, if
enacted, would not adversely affect the Company. See "Risk Factors -- Regulatory
Environment."
PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trade secret and
trademark laws, confidentiality procedures and contractual provisions to protect
its proprietary rights in its products and technology. The Company holds 15 U.S.
patents, with six additional U.S. patents pending, covering various processes
and
35
<PAGE> 38
technologies utilized in call management systems. The Company has also been
awarded 26 related foreign patents, of which 19 are still active. The patents
cover the Company's proprietary implementations of features such as
inbound/outbound call blending, call progress analysis, screen pops of the
called person's account information and Cancel Dial. The Company also has a
number of pending patent applications on call technology innovations for which
patents have not issued. In many cases, the Company has also received or applied
for patents in other countries covering the innovations covered by existing
patents or patent applications. With certain exceptions, the Company
historically has not actively pursued infringements of these patents. There can
be no assurance that any future attempt by the Company to enforce its patents
would be successful or would result in royalties which exceed the cost of such
enforcement efforts, or that the Company will be able to detect all instances of
infringement. The Company generally enters into confidentiality agreements with
its employees, consultants, clients and potential clients and limits access to,
and distribution of, its proprietary information. The Company maintains
trademarks and service marks to identify its products, development tools and
service offerings and relies upon trademark and trade dress laws to protect its
proprietary rights in these marks.
The Company has entered into agreements with certain of its distributors
giving them a limited, non-exclusive right to use portions of the Company's
source code to create foreign language versions of the Company's products for
distribution in foreign markets. In addition, the Company has entered into
agreements with a small number of its customers requiring the Company to place
its source code in escrow. These escrow arrangements typically provide that
these customers have a limited, non-exclusive right to use such code in the
event that there is a bankruptcy proceeding by or against the Company, if the
Company ceases to do business or if the Company fails to meet its support
obligations. These arrangements may increase the likelihood of misappropriation
by third parties.
The Company may be subject to additional risks as it enters into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced. Legal protections of the Company's rights may
be ineffective in such countries. Litigation to defend and enforce the Company's
intellectual property rights could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations, regardless of the final outcome
of such litigation. Despite the Company's efforts to safeguard and maintain its
proprietary rights both in the United States and abroad, there can be no
assurance that the Company will be successful in doing so, or that the steps
taken by the Company in this regard will be adequate to deter misappropriation
or independent third-party development of the Company's technology or to prevent
an unauthorized third party from copying or otherwise obtaining and using the
Company's products or technology. Any such events could have a material adverse
effect on the Company's business, financial condition and results of operations.
As the number of call center software applications in the industry
increases and the functionality of these products further overlaps, software
development companies similar to the Company may increasingly become subject to
claims of infringement or misappropriation of the intellectual property rights
of others. Although the Company believes that its software components and other
intellectual property do not infringe on the intellectual property rights of
others, there can be no assurance that such a claim will not be asserted against
the Company in the future, that assertion of such claims will not result in
litigation or that the Company would prevail in such litigation or be able to
obtain a license for the use of any infringed intellectual property from a third
party on commercially reasonable terms. Furthermore, litigation, regardless of
its outcome, could result in substantial cost to the Company and divert
management's attention from the Company's operations. Any infringement claim or
litigation against the Company could, therefore, have a materially adverse
affect on the Company's results of operations and financial condition.
EMPLOYEES
As of January 31, 1997, the Company had 236 full-time employees, of which
215 were based in the United States and 21 were based in other countries. None
of the employees of the Company is covered by a collectively bargaining
agreement. The Company considers its relations with its employees to be good.
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<PAGE> 39
The Company believes its future success will depend in large part on its
ability to recruit and retain qualified employees, especially experienced
software engineering personnel. The competition for such personnel is intense,
and there can be no assurance that the Company will be successful in retaining
or recruiting key personnel. See "Risk Factors -- Competitive Market for
Personnel."
PROPERTIES
The Company's principal administrative, sales, marketing, support, and
research and development facility is located in 100,000 square feet of modern
office space in Norcross, Georgia. This facility is leased to the Company
through 2005, and approximately 75% of the space is presently actively utilized.
The facility is owned by a partnership controlled by the Company's Chairman of
the Board, Chief Executive Officer and principal shareholder. See "Certain
Transactions."
The Company also leases space for seven sales and support centers located
throughout the United States and in London and Toronto. Management believes its
current facilities are adequate to meet its needs through the next twelve months
and that, if required, suitable additional or alternative space will be
available to accommodate expansion of the Company's operations on commercially
reasonable terms.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Aleksander Szlam............... 45 Chairman of the Board and Chief Executive Officer
J. Neil Smith.................. 56 President, Chief Operating Officer and Director
Vice President, Finance and Chief Financial
Mark B. Adams.................. 45 Officer
William K. Dumont.............. 47 Vice President, Sales
Lee H. Davies.................. 53 Vice President, Operations
Dean A. Trumbull............... 36 Vice President, Advanced Technology
John A. Lamb................... 44 Vice President, New Business Development
A. Scott Anderson.............. 41 Vice President, International
John M. Goodeve-Docker......... 49 Managing Director of Melita Europe
Dan K. Lowring................. 37 Treasurer and Secretary
Donald L. House................ 55 Proposed Director
Don W. Hubble.................. 57 Proposed Director
</TABLE>
Aleksander Szlam founded the Company in 1979 and has served as Chairman of
the Board and Chief Executive Officer of the Company since its inception. Mr.
Szlam also has served as Chairman of the Board, President and Chief Executive
Officer of Inventions since 1987, and Chairman of the Board of Melita Europe
since 1991. Prior to founding Melita, Mr. Szlam worked as a design engineer and
scientist at Lockheed Corporation, NCR and Solid State Systems.
J. Neil Smith has served as President, Chief Operating Officer and a
director of the Company since January 1995. Prior to joining the Company, Mr.
Smith served as Chairman of the Board, President and Chief Executive Officer of
American Technical Services Group, Inc., a systems integration company, from
1987 to 1994.
Mark B. Adams has served as Vice President, Finance and Chief Financial
Officer of the Company since September 1996. During 1996 prior to joining the
Company, Mr. Adams served as President of INITIAL Contract Services, a building
services company. From 1993 to 1995, Mr. Adams served as Executive Vice
President, Finance and Chief Financial Officer of INITIAL Contract Services.
From 1989 to 1993, Mr. Adams served as Vice President, Finance for Suntory Water
Group, a consumer products company. Mr. Adams is a member of the American
Institute of Certified Public Accountants and is a Certified Public Accountant
in the State of Georgia.
William K. Dumont has served as Vice President, Sales of the Company since
December 1996. From 1994 to 1996, Mr. Dumont served as Regional Manager for
Octel Communications Corporation, and from 1990 to 1994 he served as Regional
Vice President of VMX, Inc., both of which are voice processing companies.
Lee H. Davies has served as Vice President, Operations of the Company since
September 1995. Prior to joining the Company, Mr. Davies served as Vice
President of Sales, Marketing and Customer Support for Aristacom International,
Inc., an inbound call center software company, from 1994 to 1995. From 1991 to
1994, Mr. Davies served as a marketing director for Digital Equipment
Corporation.
Dean A. Trumbull has served as Vice President, Advanced Technology of the
Company since October 1994. Prior to joining the Company, Mr. Trumbull served as
a software engineering project leader and call processing group manager for
Intecom, Inc., a telecommunications corporation, from 1983 to 1994, and, during
1994, as Software Development Manager for its multimedia software subsidiary,
Incitz Incorporated.
John A. Lamb has served as Vice President, New Business Development of the
Company since September 1996, and was Director of Special Projects of the
Company from February 1996 to September 1996. From January 1995 to November
1995, he was Vice President, Research and Development of
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<PAGE> 41
Microhelp, Inc., a software development company. From 1990 to 1995, he held
various positions in the sales and engineering departments of the Company.
A. Scott Anderson has served as Vice President, International of the
Company since February 1997. From 1995 to 1997, Mr. Anderson served as Senior
Vice President -- International Sales of S2 Systems, Inc., a software subsidiary
of Stratus Computer, Inc., a data communications software and development
services company. He served as Director of International Sales of S2 Systems
during 1995. Prior to that time, he was Director of International Operations of
BellSouth Systems Integration, a division of BellSouth Enterprises, from 1992
until its acquisition by S2 Systems in 1994.
John M. Goodeve-Docker has served as Managing Director of Melita Europe
since June 1995. He served as Deputy Managing Director for Melita Europe from
January 1994 to June 1995 and as Business Development Director from November
1992 to December 1993. Prior to joining the Company, Mr. Goodeve-Docker served
as General Manager of Trend Communications Ltd., an information technology data
communications manufacturer and distributor in the U.K., from 1991 to 1992.
Dan K. Lowring has served as Treasurer of the Company since January 1997
and as Secretary since March 1997. From July 1993 to December 1996 he served as
Director, Finance of the Company. From March 1993 to July 1993, he served as
Controller of the Company, and from October 1990 to March 1993 he served as
Manager, Finance of the Company.
The Company intends to add Donald L. House and Don W. Hubble as members of
its Board of Directors within 90 days after the date of this Prospectus. It will
be necessary for the Company to appoint these or two other independent directors
within the 90 day time period in order to maintain its Nasdaq National Market
listing. Failure to appoint two such directors could result in a delisting of
the Common Stock from the Nasdaq National Market.
Donald L. House has served as Chairman of the Board of Directors of SQL
Financials International, Inc., a client/server software company, since January
1993. From September 1991 until December 1992, Mr. House served as President of
Prentice Hall Professional Software, Inc., a subsidiary of Simon and Schuster,
Inc. Since 1988, he has been a business advisor, director and investor in a
number of emerging growth high technology companies. From 1968 through 1987, Mr.
House served in a number of positions with Management Science America, Inc., a
provider of application software. Mr. House presently serves as a director of
XcelleNet, Inc., a remote access software company, and as Chairman of its Audit
and Nominating Committees.
Don W. Hubble served with National Service Industries, Inc. ("NSI") from
1980 until October 1996, most recently serving as President and Chief Operating
Officer. During this period, Mr. Hubble also served in various capacities with a
number of divisions of NSI, including National Linen Service, Block Industries,
and Certified Leasing Company.
There are no family relationships between any of the directors or executive
officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors intends to establish an Executive
Committee, an Audit Committee and a Compensation Committee. The Executive
Committee will be empowered to exercise all authority of the Board of Directors
of the Company, except as limited by the Georgia Business Corporation Code
("GBCC"). Under Georgia law, the Executive Committee may not, among other
things, approve or propose to shareholders actions required to be approved by
shareholders, fill vacancies on the Board of Directors, amend the articles of
incorporation or bylaws or approve a plan of merger. The Company expects that
the Executive Committee will include Messrs. Szlam and Smith. The Audit
Committee will be responsible for recommending independent auditors, reviewing
with the independent auditors the scope and results of the audit engagement,
monitoring the Company's financial policies and control procedures, and
reviewing and monitoring the provisions of nonaudit services by the Company's
auditors. The Compensation Committee will be responsible for reviewing and
recommending salaries, bonuses and other compensation for the Company's
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<PAGE> 42
executive officers. The Compensation Committee also will be responsible for
administering the Company's stock option and stock purchase plans and for
establishing the terms and conditions of all stock options and purchase rights
granted under these plans. At least two of the new independent directors will be
appointed to each of the Audit and Compensation Committees at the time they are
elected to the Board of the Directors of the Company.
DIRECTOR COMPENSATION
Prior to this offering, no member of the Board of Directors of the Company
received compensation for service on the Board. Following the consummation of
the offering, the Company expects to pay the non-employee directors fees for
each board meeting attended and each committee meeting attended which is held
independently of a board meeting. In addition, the Company expects to grant to
each nonemployee director options covering 2,000 shares of the Common Stock each
year, with one-fourth of such options vesting for each quarterly board meeting
attended.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company in 1996 for its Chief Executive Officer and the four other most
highly compensated executive officers of the Company in 1996 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION
--------------------------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Aleksander Szlam...................... $300,001 $154,502 $86,040(2) -- --
Chairman of the Board and
Chief Executive Officer
J. Neil Smith......................... 220,399 82,500 --(3) -- --
President and Chief Operating
Officer
Lee H. Davies......................... 127,211 13,320 --(3) -- --
Vice President -- Operations
Dean A. Trumbull...................... 110,816 20,000 --(3) 40,000 --
Vice President -- Advanced
Technology
John M. Goodeve-Docker................ 85,333 32,000 18,576(4) -- $ 3,040(5)
Managing Director of Melita Europe
</TABLE>
- ---------------
(1) Bonuses awarded and paid in 1996 were based upon 1995 performance.
(2) Includes the value of the non-business use of two automobiles provided by
the Company and reimbursement of the associated income taxes in the
aggregate amount of $64,068, health and life insurance premiums and
reimbursement of the associated income taxes in the aggregate amount of
$13,623, auto insurance premiums and reimbursement of the associated income
taxes in the aggregate amount of $6,308, and ad valorem tax payments and
reimbursement of the associated income taxes in the aggregate amount of
$2,041.
(3) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted because such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total annual salary and bonus for the Named Executive Officer for such
year.
(4) Consists of the value of the non-business use of an automobile provided by
the Company.
(5) Consists of a retirement savings contribution of $3,040 paid by the Company.
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<PAGE> 43
The following table sets forth all individual grants of stock options
during the year ended December 31, 1996, to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aleksander Szlam.............. -- -- -- -- -- --
J. Neil Smith................. -- -- -- -- -- --
Lee H. Davies................. -- -- -- -- -- --
Dean A. Trumbull.............. 40,000(1) 29.9% $4.07 1/1/03 $66,276 $154,451
John M. Goodeve-Docker........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) This option was granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors. The option is a nonqualified stock option, vests over five
years and has a seven-year term.
(2) The potential realizable value is calculated based on the seven-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant ($4.07) appreciates at the indicated
annual rate, compounded annually for the entire term of the option. The
actual realizable value of the options based on the price to the public in
the offering will substantially exceed the potential realizable value shown
in the table.
The following table summarizes the value of the outstanding options held by
the Named Executive Officers at December 31, 1996. No options were exercised by
the Named Executive Officers during the year ended December 31, 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Aleksander Szlam........................... -- -- -- --
J. Neil Smith.............................. -- 450,000 -- $1,165,500
Lee H. Davies.............................. -- -- -- --
Dean A. Trumbull........................... -- 40,000 -- 57,200
John M. Goodeve-Docker..................... -- -- -- --
</TABLE>
- ---------------
(1) Based on the estimated fair market value of the Company's Common Stock as of
December 31, 1996, of $5.50 per share, less the exercise price payable upon
exercise of such options. Such estimated fair market value as of December
31, 1996, is substantially lower than the initial public offering price per
share in this offering.
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Stock Option Plan") became
effective on February 6, 1997. The aggregate number of shares reserved for
issuance under the 1997 Stock Option Plan is 1,350,000 shares, less the number
of shares issued pursuant to the Company's 1992 Discounted Stock Option Plan.
The purpose of the 1997 Stock Option Plan is to provide incentives for key
employees, officers, consultants and directors to promote the success of the
Company, and to enhance the Company's ability to attract and retain the services
of such persons. Options granted under the 1997 Stock Option Plan may be
41
<PAGE> 44
either options intended to qualify as "incentive stock options" under Section
422 of the Code or nonqualified stock options.
As of February 28, 1997, options to purchase 125,000 shares of Common Stock
were outstanding under the 1997 Stock Option Plan at a weighted average exercise
price of $5.50 per share and no shares of Common Stock have been issued upon
exercise of options granted under the 1997 Stock Option Plan.
1992 Discounted Stock Option Plan
The Company's 1992 Discounted Stock Option Plan (the "1992 Stock Option
Plan") became effective on June 4, 1992. The aggregate number of shares reserved
for issuance under the 1992 Stock Option Plan is 1,000,000 shares. The purpose
of the 1992 Stock Option Plan is to provide incentives for key employees to
promote the success of the Company, and to enhance the Company's ability to
attract and retain the services of such persons. Options granted under the 1992
Stock Option Plan are not intended to qualify as "incentive stock options" under
Section 422 of the Code. Options granted under the 1992 Stock Option Plan vest
over a period of time specified in the relevant option agreement, and will first
become exercisable as to the vested portion 14 months after the closing of this
offering.
As of February 28, 1997, options to purchase 981,097 shares of Common Stock
were outstanding under the 1992 Stock Option Plan at a weighted average exercise
price of $3.16 per share and no shares of Common Stock have been issued upon
exercise of options granted under the 1992 Stock Option Plan.
Employee Stock Purchase Plan
The Company adopted an Employee Stock Purchase Plan (the "Stock Purchase
Plan") on March 1, 1997, to become effective on the closing of this offering. A
total of 250,000 shares of the Company's Common Stock have been reserved for
issuance under the Stock Purchase Plan. The Stock Purchase Plan is intended to
qualify under sec. 423 of the Code. An employee electing to participate in the
Stock Purchase Plan must authorize on a semi-annual basis a stated dollar amount
or percentage of the employee's regular pay (not to exceed 10%) to be deducted
by the Company from the employee's pay. The price at which employees may
purchase Common Stock is 85% of the closing price of the Common Stock on the
Nasdaq National Market on the first day of the semi-annual period or the last
day of the semi-annual period, whichever is lower. An employee may not sell
shares of Common Stock purchased under the Stock Purchase Plan until the later
of: (i) 180 days after the closing of this offering; or (ii) the first day of
the second semi-annual period following the semi-annual period in which the
right to purchase such shares was granted. Employees of the Company who have
completed six full months of service with the Company and whose customary
employment is more than 20 hours per week for more than nine months per calendar
year are eligible to participate in the Stock Purchase Plan. An employee may not
be granted an option under the Stock Purchase Plan if after the granting of the
option such employee would be deemed to own 5% or more of the combined voting
power or value of all classes of stock of the Company. As of March 1, 1997,
approximately 240 employees are eligible to participate in the Stock Purchase
Plan. The Stock Purchase Plan will be administered by the Compensation Committee
of the Board of Directors.
401(k) Profit Sharing Plan
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan")
which is intended to be a tax-qualified defined contribution plan under Section
401(k) of the Code. In general, all U.S. employees of the Company who have
completed six months of service are eligible to participate. The 401(k) Plan
includes a salary deferral arrangement pursuant to which participants may
contribute, subject to certain Code limitations, a maximum of 15% of their
salary on a pre-tax basis, with a maximum deferral of $9,500. Subject to certain
Code limitations, the Company may make a matching contribution at the discretion
of the Board of Directors. In 1996, the Company's matching contribution was 40%
of each participant's contribution up to 6% of the participant's salary, for an
aggregate contribution of $119,000. A separate account is maintained for each
participant in the 401(k) Plan. The portion of a participant's account
attributable to his or her own contributions is 100% vested. The portion of the
account attributable to Company contributions (including matching contributions)
vests ratably over the next six years of service with the Company. Distributions
from
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<PAGE> 45
the 401(k) Plan may be made in the form of a lump-sum payment in cash or
property or in the form of an annuity.
AGREEMENTS WITH EMPLOYEES
Principal employees of the Company, including executive officers, are
required to sign an agreement with the Company restricting the ability of the
employee to compete with the Company during his or her employment and for a
period of one year thereafter, restricting solicitation of customers and
employees following employment with the Company, and providing for ownership and
assignment of intellectual property rights to the Company.
Mr. Szlam has entered into a two-year employment agreement with the Company
which commences on the effective date of this offering. Pursuant to the
agreement, Mr. Szlam is entitled to receive an annual base salary of $300,000,
and is entitled to annual bonuses of $160,000. Mr. Szlam's employment under the
agreement automatically renews for additional two-year terms unless the Company
or Mr. Szlam cancels such renewal by giving three months' prior written notice.
Under the terms of the agreement, Mr. Szlam has agreed to assign to the Company
all patents, copyrights and other intellectual property developed by him during
the course of his employment by the Company. In addition, Mr. Szlam has agreed
not to solicit the customers or employees of the Company or to compete with the
Company for two years following any termination of his employment.
Mr. Smith has entered into an employment agreement with the Company which
commences on the effective date of this offering and terminates on July 31,
1999. Pursuant to the agreement, Mr. Smith is entitled to receive an annual base
salary of $225,000, and is entitled to annual bonuses of up to $100,000 at the
discretion of the Board. Mr. Smith's employment under the agreement
automatically renews for additional two-year terms unless the Company or Mr.
Smith cancels such renewal by giving three months' prior written notice. If Mr.
Smith's employment is terminated by the Company other than for cause, death or
disability, he will be entitled to severance pay equal to one year's salary.
Following a material diminishment of Mr. Smith's duties or authority ("good
reason"), he will be entitled to terminate his employment and receive severance
pay equal to one year of salary. All options currently held by Mr. Smith will
vest upon completion of this offering, but will not be exercisable until
beginning 14 months after completion of this offering. Notwithstanding the
foregoing, (i) if Mr. Smith voluntarily resigns his positions with the Company
without good reason, his right to exercise his current options will be forfeited
with respect to one-fourth of his options for each full year which the
resignation occurs prior to July 1, 2000, and (ii) if Mr. Smith is terminated by
the Company other than for cause or if he voluntarily resigns for good reason,
his current options shall be immediately vested and exercisable. Under the terms
of the agreement, Mr. Smith has agreed to assign to the Company all patents,
copyrights and other intellectual property developed by him during the course of
his employment by the Company. In addition, Mr. Smith has agreed not to solicit
the customers or employees of the Company or to compete with the Company for two
years following any termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, compensation of executive officers of the Company was
determined by Mr. Szlam, Chairman of the Board and Chief Executive Officer of
the Company. See "Certain Transactions" for information concerning certain
transactions and relationships between the Company and Mr. Szlam. Simultaneously
with the expansion of the Board of Directors following the completion of this
offering, the Company will establish a Compensation Committee to review the
performance of executive officers, establish overall employee compensation
policies and recommend to the Board of Directors major compensation programs. No
voting member of the Compensation Committee will be an executive officer of the
Company. Messrs. Szlam and Smith will be ex officio members of the Compensation
Committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Upon the closing of this offering, the Company's Amended and Restated
Articles of Incorporation will provide that the liability of the directors for
monetary damages shall be limited to the fullest extent
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<PAGE> 46
permissible under Georgia law. Under Georgia law, liability of a director cannot
be limited for (i) any appropriation, in violation of his duties, of any
business opportunity of the Company, (ii) acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) any liability under
Section 14-2-832 of the GBCC, which relates to unlawful payments of dividends
and unlawful stock repurchases and redemptions, or (iv) any transaction from
which he derived an improper personal benefit. This limitation of liability will
not affect the availability of injunctive relief or other equitable remedies.
Upon the closing of this offering, the Company's Amended and Restated
Bylaws will provide that the Company shall indemnify each of its directors and
officers to the extent that he is or was a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that such person is or was a director or officer of the Company, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding; provided,
however, that no indemnification shall be made for (i) any appropriation, in
violation of his duties, of any business opportunity of the Company, (ii) acts
or omissions which involve intentional misconduct or a knowing violation of law,
(iii) any liability under Section 14-2-832 of the GBCC, which relates to
unlawful payments of dividends and unlawful stock repurchases and redemptions,
or (iv) any transaction from which he derived an improper personal benefit.
The Company intends to maintain directors and officers liability insurance
coverage following this offering.
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<PAGE> 47
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 28, 1997, and
as adjusted to reflect the sale by the Company of the shares offered hereby, by
(i) each director of the Company; (ii) each of the Named Executive Officers;
(iii) each shareholder known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock; and (iv) all executive officers and
directors as a group. Except as otherwise noted, the persons or entities named
in the table have sole voting and investment power with respect to all the
shares of Common Stock beneficially owned by them, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
NUMBER OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
--------------------------------------- ---------------- -------- --------
<S> <C> <C> <C>
Aleksander Szlam (2)...................................... 11,143,395 100.0% 76.1%
J. Neil Smith (3)......................................... -- -- --
Lee H. Davies (4)......................................... 5,000 * *
Dean A. Trumbull (5)...................................... -- -- --
John M. Goodeve-Docker (6)................................ 5,000 * *
All executive officers and directors as a group (10
persons)(7)............................................. 11,163,395 100.0% 76.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as set forth herein, the street address of the named beneficial owner
is c/o Melita International Corporation, 5051 Peachtree Corners Circle,
Norcross, Georgia 30092-2500.
(2) Consists of 11,143,395 shares held by a limited partnership controlled by
Mr. Szlam.
(3) Excludes 450,000 shares issuable pursuant to currently vested options
exercisable beginning 14 months after the closing of this offering, subject
to certain acceleration and defeasance provisions. See "Agreements with
Employees."
(4) Includes 5,000 shares issuable pursuant to currently exercisable options.
(5) Excludes 10,000 shares issuable pursuant to currently vested options
exercisable beginning 14 months after the closing of this offering.
(6) Includes 5,000 shares issuable pursuant to currently exercisable options.
(7) Includes 11,143,395 shares held by a limited partnership controlled by Mr.
Szlam and 20,000 shares issuable pursuant to currently exercisable options.
Excludes 460,000 shares issuable pursuant to currently vested options
exercisable beginning 14 months after the closing of this offering.
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<PAGE> 48
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
In August 1994, the Company entered into a lease agreement with an
unrelated party to lease its headquarters facility commencing April 1995. The
agreement provides for annual lease payments ranging from $542,000 to $636,000
per year over a ten-year term. In November 1995, Mr. Szlam, the Company's
Chairman of the Board, Chief Executive Officer and principal shareholder,
purchased the facility through a limited liability company controlled by Mr.
Szlam and his wife. The limited liability company now rents the facility to the
Company under the terms of the original lease. Rent expense paid to the limited
liability company was $60,000 and $543,000 in 1995 and 1996, respectively.
During 1994, the Company paid $325,000 in research and development fees to
an entity owned by Mr. Szlam's brother-in-law.
The Board of Directors of the Company has adopted a resolution whereby all
future transactions, including any loans from the Company to its officers,
directors, principal shareholders or affiliates, will be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors, if required by law, or a
majority of the disinterested shareholders, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
COMBINATION OF MELITA EUROPE AND INVENTIONS
Upon the effective date of this offering, the Company will acquire Melita
Europe and Inventions by share exchanges with their existing shareholders, which
are Mr. Szlam, a limited partnership controlled by Mr. Szlam and a trust
controlled by his spouse. The Company will issue a total of 3,143,395 shares of
its Common Stock to the shareholders of Melita Europe and Inventions in such
share exchanges. The exchange ratios and number of shares issued in the share
exchanges were based on relative valuations of the Company, Melita Europe and
Inventions determined by an independent appraisal firm.
S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS
Upon the Termination Date, the Company will terminate its status as an S
corporation under the Code. All undistributed S corporation earnings through the
Termination Date will be distributed to the Company's principal shareholder
using a portion of the net proceeds of this offering. See "Termination of S
Corporation Status and Related Distributions," "-- Repayment of Shareholder
Notes" below and Notes 1 and 3 of the Notes to Combined Financial Statements.
REPAYMENT OF SHAREHOLDER NOTES
In connection with a June 19, 1992 distribution of S corporation
accumulated earnings, Melita issued a note payable (the "1992 Note") to Mr.
Szlam in the principal amount of $3.0 million. The note bears interest at a rate
equal to the prime rate plus 1% per annum, and the outstanding principal balance
of this note as of March 1, 1997, was $2.4 million. Interest on the note is
payable monthly, and principal is payable in 16 equal quarterly installments
beginning July 1, 1996. The note contains an acceleration provision at the
option of the shareholder upon certain designated changes in ownership, which
was triggered by changes in the capital structure in February 1997. The largest
amount outstanding under this note during 1996 was $3.0 million.
In connection with a February 7, 1997 distribution of S corporation
earnings accumulated through December 31, 1996, Melita and Inventions issued
notes payable (the "1997 Notes") to Mr. Szlam. These two notes have an aggregate
principal amount of $12.9 million. Each of the notes bears interest at the
minimum rate required to avoid imputation of interest using the applicable
federal rate under the Code. The outstanding principal balance on these notes as
of March 1, 1997, was $12.9 million, and the largest aggregate amount
outstanding under these notes during the period from issuance to March 1, 1997
was $13.1 million. Payment of these notes is due in full upon demand.
The 1992 Note and 1997 Notes will be repaid in full with a portion of the
net proceeds of this offering.
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<PAGE> 49
TAX INDEMNIFICATION AGREEMENT
Melita and Inventions have entered into Tax Indemnification Agreements with
their existing shareholders prior to this offering providing for, among other
things, the indemnification of the Company by such shareholders for any federal
and state income taxes (including interest) incurred by the Company if for any
reason the Company is deemed to be treated as a C corporation during any period
for which it reported its earnings to the taxing authorities as an S
corporation. The Tax Indemnification Agreements further provide for the
cross-indemnification of the Company and of each existing shareholder for
certain additional taxes (including interest and, in the case of existing
shareholders, penalties) resulting from the Company's operations during the
period in which it was an S corporation.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
Upon the effectiveness of this offering, the Company's authorized capital
stock will consist of 100,000,000 shares of Common Stock, no par value per
share, and 20,000,000 shares of preferred stock, no par value per share. As of
March 1, 1997, after giving effect to the issuance of 3,143,395 shares of Common
Stock in connection with the Combination, the Company had issued and outstanding
11,143,395 shares of Common Stock held by three stockholders of record. The
following description of the capital stock of the Company is a summary and is
qualified in its entirety by the provisions of the Company's Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share for
the election of directors and on all matters to be submitted to a vote of the
Company's shareholders. The Common Stock does not have cumulative voting rights,
and, as a result, the 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 and the holders of the remaining shares will not be able
to elect any directors. Subject to the rights of any holders of preferred stock
which may be issued in the future, the holders of shares of Common Stock are
entitled to share ratably in such dividends as may be declared by the Board of
Directors and paid by the Company out of funds legally available therefor. In
the event of dissolution, liquidation or winding up of the Company, holders of
shares of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities and liquidation preferences, if any. Holders of
shares of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares of
Common Stock to be issued by the Company in connection with this offering will
be, duly authorized, validly issued, fully paid and nonassessable. The rights of
holders of Common Stock will be subject to, and may be adversely affected by,
the rights, privileges and preferences of the holders of any shares of preferred
stock that the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue from time to
time up to an aggregate of 20,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control of the Company. There are no outstanding shares of preferred
stock, and no series have been designated. The Company does not currently have
any intention to designate or issue any preferred stock.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Amended and Restated Bylaws provide that special meetings of
shareholders may be called only by (i) the Board of Directors, (ii) the Chairman
of the Board of Directors (if one is so appointed), (iii) the Chief Executive
Officer, (iv) the President of the Company or (v) holders of not less than 50%
of all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting.
The Company's Amended and Restated Bylaws establish an advance notice
procedure for the nomination of candidates for election as directors and other
shareholder proposals to be considered at shareholders meetings, other than by
or at the direction of the Board of Directors or other designated parties.
Notice of shareholder proposals and director nominations must be given timely in
writing to the Secretary of the Company before the meeting at which such matters
are to be acted upon or directors are to be elected. Such notice, to be timely,
must be received at the principal executive offices of the Company not less than
60 days before the date of the meeting at which the director(s) are to be
elected or the proposal is to be considered;
48
<PAGE> 51
however, if less than 70 days notice or prior public disclosure of the date of
the scheduled meeting is given or made, notice by the shareholder, to be timely,
must be delivered or received not later than the close of business on the tenth
day following the earlier of the day on which notice of the date of the meeting
is mailed to shareholders or public disclosure of the date of such meeting is
made.
Notice to the Company from a shareholder who intends to present a proposal
or to nominate a person for election as a director at a shareholders' meeting
must contain certain information about the shareholder giving such notice and,
in the case of director nominations, all information that would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee (including such person's written consent to serve as a director
if so elected). If the chairman of the meeting determines that a shareholder's
proposal or nomination is not made in accordance with the procedures set forth
in the Amended and Restated Bylaws, such proposal or nomination, at the
direction of such presiding officer, may be disregarded. The notice requirement
for shareholder proposals contained in the Amended and Restated Bylaws does not
restrict a shareholder's right to include proposals in the Company's annual
proxy materials pursuant to rules promulgated under the Securities Exchange Act
of 1934, as amended.
The Board of Directors shall have the power to increase or decrease the
authorized number of directors, with or without shareholder approval. Newly
created directorships resulting from any increase in the number of directors or
any vacancy on the Board of Directors may be filled by the affirmative vote of a
majority of the remaining directors then in office or, if not filled by the
directors, by the shareholders.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interest of the Company, the Board of
Directors, and individual directors, in addition to considering the effects of
any action on the Company or is shareholders, may, to the extent permitted by
applicable Georgia law, consider the interests of the employees, customers,
suppliers and creditors of the Company and its subsidiaries, the communities in
which offices or other establishments of the Company and its subsidiaries are
located, and all other factors such directors may consider pertinent; provided,
however, that this provision of the Company's Amended and Restated Articles of
Incorporation solely grants discretionary authority to the directors and no
constituency shall be deemed to have been given any right to consideration
thereby.
The preceding provisions of the Amended and Restated Articles of
Incorporation and Bylaws may be changed only upon the affirmative vote of
holders of at least a majority of the outstanding shares of Common Stock.
The provisions of the Amended and Restated Articles of Incorporation and
Bylaws summarized in the preceding paragraphs and the provisions of the GBCC
described under "Certain Provisions of Georgia Law," contain provisions that may
have the effect of delaying, deferring or preventing a non-negotiated merger or
other business combination involving the Company. These provisions are intended
to encourage any person interested in acquiring the Company to negotiate with
and obtain the approval of the Board of Directors in connection with the
transaction. Certain of these provisions may, however, discourage a future
acquisition of the Company not approved by the Board of Directors in which
shareholders might receive an attractive value for their shares or that a
substantial number or even a majority of the Company's shareholders might
believe to be in their best interest. As a result, shareholders who desire to
participate in such a transaction may not have the opportunity to do so. Such
provisions could also discourage bids for the Common Stock at a premium to the
prevailing market price, as well as create a depressive effect on the market
price of the Common Stock.
CERTAIN PROVISIONS OF GEORGIA LAW
Georgia Business Combination Statute. The Company has elected in its
Bylaws to be subject to provisions of the GBCC prohibiting various "business
combinations" involving "interested shareholders" for a period of five years
after the shareholder becomes an interested shareholder of the Company. Such
provisions prohibit any business combination with an interested shareholder
unless either (i) prior to such time, the Board of Directors approves either the
business combination or the transaction by which such shareholder became an
interested shareholder, (ii) in the transaction that resulted in the shareholder
becoming an interested shareholder, the interested shareholder became the
beneficial owner of at least 90% of the outstanding voting stock of the Company
which was not held by directors, officers, affiliates thereof,
49
<PAGE> 52
subsidiaries or certain employee stock option plans of the Company, or (iii)
subsequent to becoming an interested shareholder, such shareholder acquired
additional shares resulting in such shareholder owning at least 90% of the
outstanding voting stock of the Company and the business combination is approved
by a majority of the disinterested shareholders' shares not held by directors,
officers, affiliates thereof, subsidiaries or certain employee stock option
plans of the Company. Under the relevant provisions of the GBCC, a "business
combination" is defined to include, among other things, (i) any merger,
consolidation, share exchange or any sale, transfer or other disposition (or
series of related sales or transfers) of assets of the Company having an
aggregate book value of 10% or more of the Company's net assets (measured as of
the end of the most recent fiscal quarter), with an interested shareholder of
the Company or any other corporation which is or, after giving effect to such
business combination, becomes an affiliate of any such interested shareholder,
(ii) the liquidation or dissolution of the Company, (iii) the receipt by an
interested shareholder of any benefit from any loan, advance, guarantee, pledge,
tax credit or other financial benefit from the Company, other than in the
ordinary course of business and (iv) certain other transactions involving the
issuance or reclassification of securities of the Company which produce the
result that 5% or more of the total equity shares of the Company, or of any
class or series thereof, is owned by an interested shareholder. An "interested
shareholder" is defined by the GBCC to include any person or entity that,
together with its affiliates, beneficially owns or has the right to own 10% or
more of the outstanding voting shares of the Company, or any person that is an
affiliate of the Company and has, at any time within the preceding two-year
period, been the beneficial owner of 10% or more of the outstanding voting
shares of the Company. The restrictions on business combinations shall not apply
to any person who was an interested shareholder before the adoption of the Bylaw
which made the provisions applicable to the Company nor to any persons who
subsequently become interested shareholders inadvertently, subsequently divest
sufficient shares so that the shareholder ceases to be an interested shareholder
and would not, at any time within the five-year period immediately before a
business combination involving the shareholder, have been an interested
shareholder but for the inadvertent acquisition.
Georgia Fair Price Statute. The Company has elected in its Bylaws to be
subject to the "Fair Price" provisions of the GBCC. These provisions require
that a "business combination" with an "interested shareholder" be (a)
unanimously approved by "continuing directors" who must constitute at least
three members of the board of directors at the time of such approval, or (b)
recommended by at least two-thirds of the "continuing directors" and approved by
a majority of the shareholders excluding the "interested shareholder," unless
certain standards regarding the consideration paid to shareholders in the
transaction are met. Subject to certain exceptions, a "business combination"
includes (i) any merger or consolidation of the corporation or a subsidiary of
the Company; (ii) any share exchange; (iii) any sale, lease, transfer, or other
disposition of assets of the Company or its subsidiary occurring within a 12
month period and having an aggregate book value equal to 10% or more of the net
assets of the Company; (iv) any transaction that results in the issuance or
transfer by the Company of any stock of the Company or the subsidiary
representing 5% or more of the total market value of the outstanding stock of
the Company to any interested shareholder within a 12 month period, except
pursuant to a transaction that effects a pro rata distribution to all
shareholders of the Company; (v) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation in which anything other than cash
will be received by an interested shareholder; and (vi)any transaction occurring
within a 12 month period involving the Company or a subsidiary of the Company
that has the effect of increasing by 5% or more the proportionate share of the
stock of any class or series of the Company or the subsidiary that is directly
or beneficially owned by the interested shareholder. An "interested shareholder"
is defined the same as it is defined in the Georgia Business Combination
Statute. A "continuing director" includes any director who is not an affiliate
or associate of an interested shareholder or any board approved successor of
such a director who is not an affiliate or associate of an interested
shareholder.
The Fair Price provisions do not restrict a business combination if: (a)
the aggregate amount of the cash, and fair market value of any non-cash
property, measured five days before the consummation date, to be received per
share by the shareholders is at least equal to the highest of: (i) the highest
per share price, including brokerage commissions, transfer taxes, and soliciting
dealers' fees, paid by the interested shareholder for any shares of the same
class or series acquired by it within two years preceding the announcement date
or in the transaction in which it became an interested shareholder; (ii) the
higher of the fair market value per
50
<PAGE> 53
share as determined on the announcement date or the determination date; or (iii)
in the case of shares other than common shares, the highest amount per share to
which preferred shareholders are entitled in the event of liquidation,
dissolution, or winding up of the corporation, provided that subparagraph (iii)
shall only be applicable if the interested shareholder acquired the shares
within the two year period immediately preceding the announcement date; and (b)
shareholders receive cash or the form of consideration used in the past by the
interested shareholder to purchase the largest number of shares of such class or
series. Further, subject to exceptions, prior to the time the business
combination with the interested shareholder takes place, without the approval of
the board of directors, there must have been: (i) no failure to declare and pay
full dividends on the Company's outstanding preferred shares; (ii) no reduction
in the annual rate of dividends paid on common shares except as to reflect any
subdivision of the shares; (iii) an increase in the annual rate of dividends to
reflect any reclassification of shares; and (iv) not more than a 1% increase in
the interested shareholder's ownership of any of the Company's stock in any 12
month period. An interested shareholder may not receive a direct or indirect
benefit, except proportionately as a shareholder, of any loans, advances,
guarantees, pledges, or other financial assistance or any tax credits or other
tax advantages provided by the corporation or its subsidiaries, either in
anticipation of or in connection with such business combination or otherwise.
LISTING
Application has been made to include the Company's Common Stock on the
Nasdaq National Market under the trading symbol "MELI."
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Company's Common Stock is First Union National
Bank of North Carolina.
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company.
Upon completion of this offering, the Company will have outstanding
14,643,395 shares of Common Stock (assuming no exercise of the underwriters'
over-allotment option or options outstanding under the Company's stock option
plans). Of these shares, the 3,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless they are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (which sales would be subject to
certain limitations and restrictions described below). The remaining 11,143,395
shares of Common Stock may be sold in the public market beginning in February
1998, subject to the volume and other limitations of Rule 144 promulgated under
the Securities Act. The holders of all of these remaining shares have executed
180-day lock-up agreements with Montgomery Securities. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 146,500 shares
immediately after this offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Under Rule 701 under the
Securities Act, persons who purchase shares upon exercise of options granted
prior to this offering are entitled to sell such shares 90 days after this
offering in reliance on Rule 144, without having to comply with the holding
period requirements of Rule 144 and, in the case of non-affiliates, without
having to comply with the volume limitation or notice filing provisions of Rule
144.
After the completion of this offering, the Company intends to file one or
more Registration Statements on Form S-8 under the Securities Act to register an
aggregate of 1,600,000 shares of Common Stock reserved for issuance under the
1992 Stock Option Plan, the 1997 Stock Option Plan and the Stock Purchase Plan.
After the date of such filing, if not otherwise subject to a lock-up agreement,
shares purchased pursuant to these plans generally would be available for resale
in the public market. The Company has granted options under such plans to
purchase an aggregate of 1,106,097 shares of which options to purchase an
aggregate of 20,000 shares are currently exercisable. See "Management
- -- Employee Benefit Plans."
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<PAGE> 55
UNDERWRITING
The underwriters named below, represented by Montgomery Securities and
Robertson, Stephens & Company LLC (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities.......................................
Robertson, Stephens & Company LLC...........................
---------
Total............................................. 3,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
The Common Stock is offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
525,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial shares to be purchased by the
Underwriters. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this offering.
The holders of all of the Company's Common Stock, who immediately following
the offering (assuming no exercise of the over-allotment option) collectively
will beneficially own 11,143,395 shares of Common Stock, and each of the
Company's officers and directors, have agreed that for a period of 180 days
after the date of this Prospectus they will not, without the prior written
consent of Montgomery Securities, directly or indirectly, sell, offer, contract
or grant an option to sell, pledge, transfer, except with respect to certain
transfers to family members or trusts for the benefit of family members,
establish an open put equivalent position or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock, or publicly announce the intention to do any of the foregoing. In
addition, the Company has agreed that for a period of 180 days after the date of
this Prospectus it will not, without the consent of Montgomery Securities,
directly or indirectly, sell, offer, contract or grant an option to sell,
pledge, transfer or otherwise dispose of, or announce the offering of, or file
any registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock, or publicly announce the intention to do any of the foregoing, except for
shares of Common Stock offered hereby and shares issued pursuant to the 1992
Stock
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<PAGE> 56
Option Plan, the 1997 Stock Option Plan or the Stock Purchase Plan. See
"Management -- Employee Benefit Plans" and "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Certain persons participating in this offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may involve the purchase of Common Stock of the Company on
the Nasdaq National Market or otherwise. Such transactions may stabilize or
maintain the market price of the Common Stock at a level above that which might
otherwise prevail in the open market and, if commenced, may be discontinued at
any time.
The Representatives have advised the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of this offering.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of and prospects for the
Company and the industry in which the Company competes, an assessment of the
Company's management, the Company's past and present operations and financial
performance, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
offering and the market prices of publicly traded common stocks of comparable
companies in recent periods.
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Morris, Manning & Martin, L.L.P.,
Atlanta, Georgia. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The combined financial statements included in this prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their reports. In those reports,
that firm states that with respect to Melita Europe its opinion is based on the
reports of other independent public accountants, namely BDO Stoy Hayward. The
financial statements referred to above have been included herein in reliance
upon the authority of those firms as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") 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. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete, and in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and
54
<PAGE> 57
at the following regional offices of the Commission: Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commissions 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.
The Company intends to furnish to its shareholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information.
55
<PAGE> 58
MELITA INTERNATIONAL CORPORATION
MELITA EUROPE LIMITED AND INVENTIONS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED FINANCIAL STATEMENTS:
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-2
Report of the Auditors -- BDO Stoy Hayward.................. F-3
Combined Balance Sheets as of December 31, 1995 and 1996.... F-4
Combined Statements of Operations for the three years in the
period ended December 31, 1996............................ F-5
Combined Statements of Shareholders' Equity for the three
years in the period ended December 31, 1996............... F-6
Combined Statements of Cash Flows for the three years in the
period ended December 31, 1996............................ F-7
Notes to Combined Financial Statements...................... F-8
</TABLE>
F-1
<PAGE> 59
After the stock recapitalization transaction discussed in Note 9 to the
combined financial statements of Melita International Corporation, Melita Europe
Limited and Inventions, Inc. is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
February 28, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Melita International Corporation,
Melita Europe Limited and
Inventions, Inc.:
We have audited the accompanying combined balance sheets of MELITA
INTERNATIONAL CORPORATION (a Georgia corporation), MELITA EUROPE LIMITED (a
private limited company organized in the United Kingdom) and INVENTIONS, INC. (a
Georgia corporation) (collectively the "Company") as of December 31, 1995 and
1996 and the related combined statements of operations, shareholders' equity,
and cash flows for the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Melita Europe Limited,
which statements reflect total assets of 8% and 12% at December 31, 1995 and
1996, respectively, and total revenues of 5%, 9%, and 9% of the combined totals
for the three years in the period ended December 31, 1996, respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for the entity,
is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the combined financial position
of Melita International Corporation, Melita Europe Limited and Inventions, Inc.
as of December 31, 1995 and 1996 and the combined results of their operations
and their cash flows for the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
Atlanta, Georgia
F-2
<PAGE> 60
MELITA EUROPE LIMITED
REPORT OF THE AUDITORS
To the shareholders of Melita Europe Limited:
We have audited the financial statements of Melita Europe Limited for the
three years ended 31 December 1996.
Respective responsibilities of directors and auditors
The Company's directors are responsible for the preparation of the
financial statements. It is our responsibility to form an independent opinion,
based on our audits, on those statements and to report our opinion to you.
Basis of opinion
We conducted our audits in accordance with Auditing Standards issued by the
Auditing Practices Board. The results of the audits would not have been
materially different had the audits been conducted in accordance with Generally
Accepted Auditing Standards in the United States. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audits so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements and including those for the years
ended 31 December 1994 and 1995 as previously audited by us, give a true and
fair view of the state of the Company's affairs as at 31 December 1996 and of
its profit for the three years ended 31 December 1996 and have been properly
prepared in accordance with the Companies Act 1985.
BDO Stoy Hayward
Chartered Accountants
and Registered Auditors
Ewell, Epsom, Surrey
28 February 1997
F-3
<PAGE> 61
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
1995 1996 1996 (NOTE 8)
------- ------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,959 $ 9,849 $ 0
Accounts receivable, net of allowance for doubtful
accounts of $331 and $487 in 1995 and 1996,
respectively............................................ 9,203 11,860 11,860
Inventories............................................... 3,027 2,442 2,442
Deferred taxes............................................ 0 0 1,061
Prepaid expenses and other................................ 342 170 170
------- ------- -------
Total current assets............................... 18,531 24,321 15,533
------- ------- -------
Property and equipment, at cost:
Furniture and fixtures.................................... 1,341 1,361 1,361
Equipment................................................. 4,255 5,476 5,476
Leasehold improvements.................................... 166 343 343
------- ------- -------
Total property and equipment....................... 5,762 7,180 7,180
Less accumulated depreciation and amortization............ 3,423 4,456 4,456
------- ------- -------
Net property and equipment......................... 2,339 2,724 2,724
------- ------- -------
Other assets................................................ 58 24 24
------- ------- -------
$20,928 $27,069 $18,281
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................ $ 0 $ 0 $ 7,176
Accounts payable.......................................... 2,763 2,429 2,429
Accrued liabilities....................................... 3,416 4,210 4,398
Deferred revenue.......................................... 2,593 3,065 3,065
Customer deposits......................................... 2,432 3,849 3,849
Current maturities of note payable to shareholder (Note
2)...................................................... 375 2,625 0
Current maturities of capital lease obligations (Note
5)...................................................... 48 19 19
------- ------- -------
Total current liabilities.......................... 11,627 16,197 20,936
------- ------- -------
Note payable to shareholder, net of current maturities (Note
2)........................................................ 2,625 0 0
------- ------- -------
Capital lease obligations, net of current maturities (Note
5)........................................................ 19 0 0
------- ------- -------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock:
Melita International Corporation, no par value;
20,000,000 shares authorized, no shares issued and
outstanding in 1995, 1996 and 1996 pro forma.......... 0 0 0
Common stock:
Melita International Corporation, no par value;
100,000,000 shares authorized, 8,000,000 shares issued
and outstanding in 1995 and 1996, and 11,143,395
shares issued and outstanding 1996 pro forma.......... 2 2 69
Melita Europe Limited, L1 par value; 50,000 shares
authorized, 31,328 shares issued and outstanding in
1995 and 1996, no shares issued and outstanding pro
forma................................................. 46 46 0
Inventions, Inc., $5 par value; 100 shares authorized,
100 shares issued and outstanding in 1995 and 1996, no
shares issued and outstanding pro forma............... 1 1 0
Additional paid-in capital................................ 20 20 0
Cumulative foreign currency translation adjustment........ 5 35 35
Retained earnings (deficit)............................... 6,583 10,768 (2,759)
------- ------- -------
Total shareholders' equity (deficit)............... 6,657 10,872 (2,655)
------- ------- -------
$20,928 $27,069 $18,281
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-4
<PAGE> 62
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net revenues:
Product................................................... $18,186 $24,620 $32,077
Service................................................... 8,970 10,662 15,463
------- ------- -------
Total revenues.................................... 27,156 35,282 47,540
------- ------- -------
Cost of revenues:
Product................................................... 6,310 8,730 11,494
Service................................................... 3,254 5,282 6,863
------- ------- -------
Total cost of revenues............................ 9,564 14,012 18,357
------- ------- -------
Gross margin................................................ 17,592 21,270 29,183
------- ------- -------
Operating expenses:
Research and development.................................. 3,660 4,050 5,070
Selling, general, and administrative...................... 11,332 12,559 16,765
------- ------- -------
Total operating expenses.......................... 14,992 16,609 21,835
------- ------- -------
Income from operations...................................... 2,600 4,661 7,348
Other income (expense), net................................. 46 88 261
------- ------- -------
Income before income taxes.................................. 2,646 4,749 7,609
Income tax benefit.......................................... 26 0 0
------- ------- -------
Net income before pro forma income taxes.................... 2,672 4,749 7,609
Pro forma income taxes...................................... 1,164 1,794 2,827
------- ------- -------
Pro forma net income........................................ $ 1,508 $ 2,955 $ 4,782
======= ======= =======
Pro forma net income per common and common equivalent
share..................................................... $ 0.42
=======
Pro forma weighted average common and common equivalent
shares outstanding........................................ 11,395
=======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE> 63
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------
MELITA CUMULATIVE
INTERNATIONAL MELITA EUROPE FOREIGN
PREFERRED STOCK CORPORATION LIMITED INVENTIONS, INC. ADDITIONAL CURRENCY
--------------- ------------------ --------------- ----------------- PAID-IN TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT
------ ------ --------- ------ ------ ------ ------- ------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993.................. 0 $0 8,000,000 $2 31,328 $46 100 $1 $20 $ 8
Net income before pro
forma income
taxes............... 0 0 0 0 0 0 0 0 0 0
Distributions to
shareholders........ 0 0 0 0 0 0 0 0 0 0
Foreign currency
translation
adjustment.......... 0 0 0 0 0 0 0 0 0 (3)
-- -- --------- -- ------ --- --- -- --- ---
Balance, December 31,
1994.................. 0 0 8,000,000 2 31,328 46 100 1 20 5
Net income before pro
forma income
taxes............... 0 0 0 0 0 0 0 0 0 0
Distributions to
shareholders........ 0 0 0 0 0 0 0 0 0 0
Foreign currency
translation
adjustment.......... 0 0 0 0 0 0 0 0 0 0
-- -- --------- -- ------ --- --- -- --- ---
Balance, December 31,
1995.................. 0 0 8,000,000 2 31,328 46 100 1 20 5
Net income before pro
forma income
taxes............... 0 0 0 0 0 0 0 0 0 0
Distributions to
shareholders........ 0 0 0 0 0 0 0 0 0 0
Foreign currency
translation
adjustment.......... 0 0 0 0 0 0 0 0 0 30
-- -- --------- -- ------ --- --- -- --- ---
Balance, December 31,
1996.................. 0 $0 8,000,000 $2 31,328 $46 100 $1 $20 $35
== == ========= == ====== === === == === ===
<CAPTION>
RETAINED
EARNINGS TOTAL
--------- -------
<S> <C> <C>
Balance, December 31,
1993.................. $ 7,282 $ 7,359
Net income before pro
forma income
taxes............... 2,672 2,672
Distributions to
shareholders........ (2,924) (2,924)
Foreign currency
translation
adjustment.......... 0 (3)
------- -------
Balance, December 31,
1994.................. 7,030 7,104
Net income before pro
forma income
taxes............... 4,749 4,749
Distributions to
shareholders........ (5,196) (5,196)
Foreign currency
translation
adjustment.......... 0 0
------- -------
Balance, December 31,
1995.................. 6,583 6,657
Net income before pro
forma income
taxes............... 7,609 7,609
Distributions to
shareholders........ (3,424) (3,424)
Foreign currency
translation
adjustment.......... 0 30
------- -------
Balance, December 31,
1996.................. $10,768 $10,872
======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-6
<PAGE> 64
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Pro forma net income...................................... $ 1,508 $ 2,955 $ 4,782
------- ------- -------
Adjustments to reconcile pro forma net income to net cash
provided by operating activities:
Pro forma income taxes................................. 1,164 1,794 2,827
Depreciation and amortization.......................... 768 997 1,141
(Gain) loss on sale of property and equipment.......... 0 (51) 6
Changes in assets and liabilities:
Accounts receivable.................................. 130 (1,095) (2,657)
Inventories.......................................... (355) (990) 585
Prepaid expenses and other assets.................... (405) 165 172
Accounts payable..................................... 154 1,595 (334)
Accrued liabilities.................................. 178 161 794
Deferred revenue..................................... 996 607 472
Customer deposits.................................... 975 1,416 1,417
Other, net........................................... (51) (18) 63
------- ------- -------
Total adjustments................................. 3,554 4,581 4,486
------- ------- -------
Net cash provided by operating activities......... 5,062 7,536 9,268
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (783) (1,879) (1,531)
Proceeds from sale of property and equipment.............. 0 132 0
------- ------- -------
Net cash used in investing activities............. (783) (1,747) (1,531)
------- ------- -------
Cash flows from financing activities:
Repayment of capital lease obligations.................... (65) (40) (48)
Repayment of note payable to shareholder.................. 0 0 (375)
Distributions to shareholders............................. (2,924) (5,196) (3,424)
------- ------- -------
Net cash used in financing activities............. (2,989) (5,236) (3,847)
------- ------- -------
Net change in cash and cash equivalents..................... 1,290 553 3,890
Cash and cash equivalents, beginning of year................ 4,116 5,406 5,959
------- ------- -------
Cash and cash equivalents, end of year...................... $ 5,406 $ 5,959 $ 9,849
======= ======= =======
Cash paid for interest during the year...................... $ 265 $ 302 $ 279
======= ======= =======
Income taxes paid........................................... $ 0 $ 29 $ 0
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-7
<PAGE> 65
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Melita International Corporation ("Melita"), Melita Europe Limited ("Melita
Europe"), and Inventions, Inc. ("Inventions") (collectively, the "Company") are
effectively owned and controlled by related individuals. The Company is a
provider of customer contact and call management systems that enable customers
to operate efficient call centers. The Company's principal product, PhoneFrame
CS, is an integrated system comprised of both hardware and software. Melita
offers periodic ongoing maintenance support of its products. The Company also
offers fee-based installation, training and consulting services. The Company
markets its products worldwide through direct sales forces and through
distributors in Europe, Latin America and Asia (Note 7).
The Company is planning an initial public offering (the "Offering") of its
common stock. In connection with the planned Offering, the Company will convert
from an S corporation to a C corporation and Melita Europe and Inventions will
be combined into Melita (Note 8).
BASIS OF COMBINATION
The policy of the Company is to present combined financial statements
including the accounts of Melita, Melita Europe and Inventions, since all are
under common control. All significant intercompany accounts and transactions
have been eliminated in combination.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash or cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes raw materials, labor and overhead. Market is defined as
replacement cost for work in progress and purchased parts and net realizable
value for finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated primarily
using an accelerated depreciation method over the following estimated useful
lives:
<TABLE>
<S> <C>
Furniture and fixtures Five to seven years
Equipment Three to five years
Leasehold improvements Remaining life of lease
</TABLE>
INCOME TAXES
Melita and Inventions are organized as S corporations under the Internal
Revenue Code and, therefore, are not subject to federal income taxes. The income
or loss of Melita and Inventions is included in the shareholders' individual
federal and state tax returns, and as such, no provision for income taxes is
recorded in the accompanying combined statements of operations. The Company has
historically made distributions to cover the shareholders' anticipated tax
liability.
The accompanying combined financial statements reflect a provision for
income taxes on a pro forma basis as if the Company were liable for federal and
state income taxes as a taxable corporate entity throughout
F-8
<PAGE> 66
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the years presented. The pro forma income tax provision has been computed by
applying the Company's anticipated statutory tax rate to pretax income, adjusted
for permanent tax differences (Note 3).
FOREIGN CURRENCY TRANSLATION
The financial statements of Melita Europe are translated into U.S. dollars
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation." Net assets of Melita Europe are translated at
the current rates of exchange. Income and expense items are translated at the
average exchange rate for the year. The resulting translation adjustments are
recorded in shareholders' equity. The Company has recognized foreign exchange
gains (losses) of approximately $31,000, $(2,000) and $162,000 in 1994, 1995 and
1996, respectively.
REVENUE RECOGNITION
The Company generates product revenues primarily from its principal
product, PhoneFrame CS, an integrated system comprised of both hardware and
software. The Company's service revenues are generated from maintenance
contracts which include support, parts and labor and software update rights.
Service revenues also include fee-based installation, training and consulting
services.
The Company recognizes product revenues upon shipment of the product and
when the Company has no significant obligations yet to be satisfied. The
Company's sales contracts provide for certain payment terms normally based upon
signing the contract, customer receipt of the product, and commencement of
operation of the customer's system.
Revenues from maintenance contracts are recognized ratably over the term of
the contractual support period which ranges up to 5 years. If maintenance is
included in the original integrated product contract, such amounts are unbundled
from the license fee based on the value established by independent sale of such
maintenance to customers. Consulting revenues are primarily related to
implementation services performed under separate service arrangements related to
the installation of the Company's hardware and software products. Revenues from
consulting, installation and training services are recognized as the services
are performed.
Deferred revenues primarily relate to products that have not yet been
delivered and maintenance services which have been paid by the customers prior
to the performance of those services. Deferred revenue amounted to $2,593,000
and $3,065,000 at December 31, 1995 and 1996, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Research and development expenditures are charged to expense as incurred.
The system software delivers the functionality and controls the hardware
components. Computer software development costs of the system software products
are charged to research and development expense until technological feasibility
is established, after which remaining software production costs are capitalized
in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." The Company has defined technological
feasibility of its products as the point in time at which the Company has a
working model of the related product, which is when the product has achieved
"beta" status. Historically, the development costs incurred during the period
between the achievement of beta status by a product and the point at which the
product is available for general release to customers have not been material.
Accordingly, the Company has concluded that the amount of development costs
capitalizable under the provisions of SFAS No. 86 was not material to the
financial statements for the years ended December 31, 1994, 1995 and 1996.
Therefore, the Company has charged all software development costs to expense as
incurred for the years ended December 31, 1994, 1995 and 1996.
F-9
<PAGE> 67
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
The Company generally warranties its products for 90 days and provides for
estimated warranty costs upon shipment of such products. Warranty costs have not
been and are not anticipated to be significant.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the wide variety of customers and markets for which the Company's
services are provided as well as their dispersion across many different
geographic areas. As a result, as of December 31, 1995 and 1996, the Company did
not consider itself to have any significant concentrations of credit risk.
During 1996, the Company's five largest customers accounted for approximately
24.5% of the Company's total revenues. In 1995, the Company's five largest
customers accounted for approximately 24.8% of its total revenues. Although the
particular customers may change from period to period, the Company expects that
large sales to a limited number of customers will continue to account for a
significant percentage of its revenues in any particular period for the
foreseeable future.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, 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.
PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Pro forma net income per common and common equivalent share is computed
using the weighted average number of shares of common stock and dilutive common
stock equivalent shares ("CSEs") from stock options using the treasury stock
method. Additionally, the weighted average common and common equivalent shares
outstanding reflect the shares issued as a result of the combination of Melita,
Melita Europe and Inventions and the effects of the stock recapitalization
discussed in Note 8 as if the events occurred at the beginning of the period.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common stock and CSEs issued at prices below the expected public offering price
during the 12-month period prior to filing of the registration statement in
connection with the Company's planned Offering have been included in the
calculation as if they were outstanding for all periods presented prior to the
Offering, regardless of whether they are dilutive.
Historical net income per share has not been presented in view of the S
corporation status in prior periods and the anticipated change in capital
structure upon closing of the planned Offering.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of accounts receivable, accounts payable and other
financial instruments approximate their fair values principally because of the
short-term maturities of these instruments. The fair value of the Company's
long-term debt is estimated based on the current rates offered to the Company
for debt of similar terms and maturities. Under this method, the Company's fair
value of long-term debt was not significantly different than the stated value at
December 31, 1995 and 1996.
F-10
<PAGE> 68
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED LIABILITIES
Accrued liabilities include the following as of December 31, 1995 and 1996
(in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Accrued salaries and wages.................................. $1,666 $2,437
Other current liabilities................................... 1,193 807
Accrued royalties........................................... 293 689
Accrued rent................................................ 264 277
------ ------
Total accrued liabilities......................... $3,416 $4,210
====== ======
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company's adoption of SFAS No. 121 in the first
quarter of 1996 did not have a significant impact on the Company's combined
financial statements.
The American Institute of Certified Public Accountants has issued an
exposure draft to amend the provisions of Statement of Position 91-1, "Software
Revenue Recognition." The adoption of the standards in the current version of
the exposure draft would not be expected to have a significant impact on the
Company's combined financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
2. NOTE PAYABLE TO SHAREHOLDER
Note payable to shareholder is as follows as of December 31, 1995 and 1996
(in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Note payable to shareholder; due in equal quarterly
installments of $187,500 beginning July 1, 1996, interest
payable monthly at the prime rate plus 1% (9.25% at
December 31, 1996)........................................ $3,000 $2,625
Less current maturities..................................... 375 2,625
------ ------
Note payable to shareholder, net of current maturities...... $2,625 $ 0
====== ======
</TABLE>
Interest paid to shareholder was $251,000, $294,000 and $271,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
The note payable to shareholder contains an acceleration provision at the
option of the shareholder upon certain changes in capital structure, as defined.
As a result of the stock recapitalization discussed in Note 9, that right became
exercisable. The note has therefore been classified as current at December 31,
1996 as a result of the acceleration option.
3. INCOME TAXES
In connection with the planned Offering, the Company will convert from an S
corporation to a C corporation and, accordingly, will be subject to future
federal and state income taxes. Upon conversion to
F-11
<PAGE> 69
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
C corporation status, the Company will record deferred taxes for which it will
be responsible following termination of S corporation status. The assets below
will be reflected on the balance sheet of the Company with a corresponding
non-recurring income amount in the statement of operations at the completion of
the Offering. The components of the pro forma total deferred tax assets as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Deferred revenue.......................................... $ 321
Other accrued liabilities................................. 198
Allowance for doubtful accounts........................... 171
Accrued commissions....................................... 115
Accrued rent.............................................. 105
Depreciation.............................................. 95
Inventory................................................. 56
------
Total deferred tax assets......................... $1,061
======
</TABLE>
The following summarizes the components of the pro forma income tax
provision for the years ended December 31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current domestic taxes:
Federal................................................ $ 664 $1,572 $2,775
State.................................................. 78 185 326
Foreign taxes............................................ (9) 2 (75)
Deferred taxes........................................... 431 35 (199)
------ ------ ------
$1,164 $1,794 $2,827
====== ====== ======
</TABLE>
A reconciliation from the federal statutory rate to the pro forma tax
provision for the years ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................................. 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit............. 4.0 4.0 4.0
Foreign operations......................................... 4.0 (0.9) (1.3)
Other...................................................... 1.6 0.7 0.5
---- ---- ----
43.6% 37.8% 37.2%
==== ==== ====
</TABLE>
The Company's effective tax rate is affected by the income or loss at
Melita Europe. Melita Europe incurred a loss in fiscal 1994 and had income in
1995 and 1996. This effect is included above as foreign operations. The
Company's net operating loss carryforwards are immaterial at December 31, 1996.
4. BENEFIT PLAN
Melita has a profit-sharing plan (the "Plan") for substantially all Melita
employees meeting the eligibility requirements as defined in the plan agreement.
The Plan provides for annual contributions by Melita at the discretion of the
board of directors. The Plan also contains a 401(k) feature which allows
participants to contribute up to 15% of their eligible compensation, as defined,
and provides for discretionary employer matching contributions. Total
contributions by Melita to the Plan were $92,000, $90,000 and $119,000 for
fiscal 1994, 1995 and 1996, respectively.
F-12
<PAGE> 70
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
At December 31, 1996, the present value of future minimum capital lease
payments and future minimum operating lease payments (including leases with
related parties) under noncancelable operating leases were as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $19 $ 659
1998........................................................ 0 628
1999........................................................ 0 624
2000........................................................ 0 581
2001........................................................ 0 589
Thereafter.................................................. 0 2,369
--- ------
Total future minimum lease payments............... 19 $5,450
======
Less amounts representing interest.......................... 0
---
Present value of future minimum lease payments.............. $19
===
</TABLE>
The Company's capital and operating leases are primarily for equipment and
rental of facilities. Total rental expense for operating leases was $840,000,
$728,000 and $751,000 in fiscal 1994, 1995 and 1996, respectively.
In August 1994, the Company entered into a lease agreement with an
unrelated party to lease land and buildings commencing April 1995. The agreement
provides for annual rentals of approximately $542,000 to $636,000 per year over
a ten-year term. In November 1995, the Company's majority shareholder purchased
the land and buildings and now rents them to the Company under the terms of the
original lease. Rent expense paid to the shareholder was $60,000 and $543,000 in
fiscal 1995 and 1996, respectively.
LEGAL PROCEEDINGS
Many of the Company's installations involve products that are critical to
the operations of its clients' businesses. Any failure in a Company product
could result in a claim for substantial damages against the Company, regardless
of the Company's responsibility for such failure. Although the Company attempts
to limit contractually its liability for damages arising from product failures
or negligent acts or omissions, there can be no assurance the limitations of
liability set forth in its contracts will be enforceable in all instances.
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
F-13
<PAGE> 71
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED-PARTY TRANSACTIONS
During 1994, the Company incurred and paid $325,000 in research and
development fees to a related party (through family relationship). The Company
did not incur these fees in 1995 or 1996.
6. STOCK OPTION PLANS
During 1992, the Company approved a stock option plan for key employees for
which 640,000 shares of common stock were authorized for use in the plan. During
1995, the number of authorized shares was increased to 1,000,000 shares of
common stock. Options under the plan are granted at estimated fair market value
as determined by the board of directors and are exercisable 14 months after an
initial public offering or ratably over a three-year period beginning seven
years from the plan initiation date, but in no case can the exercise period
continue beyond 10 years. Options granted vest ratably over a four- or five-year
employment period. The Company reserves the right to purchase vested options at
the then-estimated fair market value, less the applicable exercise price prior
to the date of an initial public offering. During 1994, 1995 and 1996, the
Company purchased 22,311, 44,294 and 30,250, respectively, vested but
unexercisable options held by terminated employees for $3,570, $2,658 and
$39,774, respectively. Cash paid to repurchase options is expensed as incurred.
Activity for the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTION
OPTIONS PRICE
-------- -----------
<S> <C> <C>
Options outstanding at December 31, 1993.................... 303,848 $2.75-$2.96
Granted................................................... 36,375 2.91
Exercised................................................. 0
Forfeited/repurchased..................................... (58,098) 2.75- 2.96
--------
Outstanding at December 31, 1994............................ 282,125 2.75- 2.96
Granted................................................... 740,525 2.81- 3.00
Exercised................................................. 0
Forfeited/repurchased..................................... (161,200) 2.81
--------
Outstanding at December 31, 1995............................ 861,450 2.75- 3.00
Granted................................................... 133,785 4.07
Exercised................................................. 0
Forfeited/repurchased..................................... (57,463) 2.75- 4.07
--------
Outstanding at December 31, 1996............................ 937,772 2.75- 4.07
========
Exercisable at December 31, 1996............................ 0
========
</TABLE>
At December 31, 1996, options to purchase 62,228 shares were available for
future grant and no shares were exercisable due to the stock option plan
provision for the exercise date noted above. On February 6, 1997, the Company
granted options to purchase an aggregate of 43,325 shares of common stock at
$5.50 per share under the 1992 stock option plan.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which defines a fair value-based
method of accounting for an employee stock option plan or similar equity
instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities electing to remain with the accounting in APB
F-14
<PAGE> 72
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
No. 25 must make pro forma disclosures of net income and, if presented, earnings
per share, as if the fair value-based method of accounting defined in the
statement had been applied.
The Company has elected to account for its stock-based compensation plan
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during 1995 and 1996 using the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions used for grants in 1995 and 1996:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.4%-7.8%
Expected dividend yield..................................... 0
Expected lives.............................................. 4-5 years
Expected volatility......................................... 65%
</TABLE>
The total value of the options granted during the years ended December 31,
1995 and 1996 were computed as approximately $996,000 and $264,000,
respectively, which would be amortized over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's reported pro forma net income and pro forma net income per share
for the years ended December 31, 1995 and 1996 would have decreased to the
following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Pro forma net income:
As reported in the financial statements................... $2,955 $4,782
Pro forma in accordance with SFAS No. 123................. 2,867 4,581
Pro forma net income per common and common equivalent share
As reported in the financial statements................... -- .42
Pro forma in accordance with SFAS No. 123................. -- .40
</TABLE>
1997 STOCK OPTION PLAN
On February 6, 1997, the Company approved the 1997 Stock Option Plan (the
"1997 Plan") for which 1,350,000 shares of common stock were authorized for
issuance less any options issued under the 1992 stock option plan. Options under
the 1997 Plan are granted at the estimated fair market value and are exercisable
based on the specific terms of the stock option grant, but in no case can extend
beyond ten years past the date of grant. The options vest primarily over a
four-year period subject to acceleration upon the achievement of certain
performance measures. On February 6, 1997, the Company issued options to
purchase an aggregate of 125,000 shares of common stock at $5.50 per share under
the 1997 Plan. As of February 28, 1997, 20,000 options were exercisable under
the 1997 Plan.
7. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is a multinational corporation with operations in the United
States and the United Kingdom.
F-15
<PAGE> 73
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents total revenues, net income and total assets of the
following countries representing over 10% of the combined totals for the years
ended or as of December 31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
United States:
Total revenues............................................ $21,483 $27,356 $37,568
Net income................................................ 3,093 4,624 7,157
Total assets.............................................. 16,704 19,305 23,799
United Kingdom:
Total revenues............................................ $ 1,309 $ 3,252 $ 4,292
Net (loss) income......................................... (421) 125 452
Total assets.............................................. 931 1,623 3,270
Other:
Total revenues............................................ $ 4,364 $ 4,674 $ 5,680
</TABLE>
8. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In the second quarter of 1997, the Company is planning an initial public
offering of its common stock. There can be no assurance that the Offering will
be completed. Prior to the Offering, the Company will pay a cash distribution to
shareholders equal to the amount of undistributed S corporation earnings for
both Melita and Inventions from September 1, 1988 through the date of the
Offering.
COMBINATION
Concurrent with the Offering, the shareholders of Melita Europe and
Inventions will contribute their respective shares in exchange for 3,143,395
shares of Melita. The combination will be treated similar to a pooling of
interest and no step-up in basis will be recorded as the entities involved are
under common control.
UNAUDITED PRO FORMA INFORMATION
The accompanying unaudited pro forma combined balance sheet as of December
31, 1996 is based on the Company's historical balance sheet as of December 31,
1996, as adjusted to reflect (i) the combination of Melita, Melita Europe and
Inventions through the issuance of 3,143,395 shares of Melita's no par value
common stock (post recapitalization and reverse stock split), (ii) the effects
on historical retained earnings of a planned cash distribution to shareholders
of the undistributed S corporation earnings at December 31, 1996 and accrued
interest thereon discussed below, (iii) the payment of the note payable to
shareholder of $2,625,000 and (iv) the recording of current deferred tax assets
of approximately $1,061,000 as a result of the change in corporate filing status
upon the consummation of the offering discussed in Note 3. The pro forma
information does not give effect to the proceeds to the Company of the Offering.
Using a portion of the proceeds of the Offering and other funds, the
Company intends to distribute to the pre-offering shareholders all undistributed
S corporation earnings from September 1, 1988 to the effective date of the
Offering. At December 31, 1996, the undistributed S corporation earnings of the
Company were estimated to be approximately $14,400,000. Subsequent to year end,
the Company distributed these amounts to the principal shareholders in the form
of approximately $1,500,000 in cash and two notes having an aggregate principal
amount of approximately $12,900,000. The notes carry an interest rate equal to
the applicable federal rate under the Internal Revenue Code, (approximately 7%
at February 7, 1997). The principal amount of the notes, together with the
accrued interest on the notes through the effective date of the
F-16
<PAGE> 74
MELITA INTERNATIONAL CORPORATION,
MELITA EUROPE LIMITED AND INVENTIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Offering (estimated to be approximately $200,000), will be repaid using a
portion of the proceeds of the Offering. The Company expects to accumulate
additional earnings from January 1, 1997 to the effective date of the Offering
which will also be distributed to the pre-offering shareholders.
9. STOCK RECAPITALIZATION
On February 7, 1997, the Company and Inventions recapitalized their
authorized, issued, and outstanding common stock by declaring a stock dividend
of 99 shares of nonvoting common stock with respect to each outstanding share of
voting common stock. In connection with the stock dividend, the Company amended
its articles of incorporation to increase its authorized capital stock to
2,000,000,000 shares, consisting of 20,000,000 shares of voting common stock and
1,980,000,000 shares of nonvoting common stock and Inventions amended its
articles of incorporation to increase its authorized capital stock to 10,000
shares, consisting of 100 shares of voting common stock and 9,900 shares of
nonvoting common stock. Concurrently with the effective date of the Offering,
the Company will effect a 100 to 1 reverse stock split to return the number of
authorized, issued, and outstanding shares to the original number of shares.
Accordingly, the financial statements reflect the capitalization of the Company
as if the stock dividend and the reverse stock split occurred at the beginning
of each period presented.
Additionally, upon completion of this Offering, the Company's authorized
capital stock will consist of 100,000,000 shares of common stock, no par value
per share, and 20,000,000 shares of preferred stock, no par value per share.
F-17
<PAGE> 75
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction in which such an offer
or solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any time subsequent to the date
hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Termination of S Corporation Status
and Related Distributions........... 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Combined Financial Data...... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 26
Management............................ 38
Principal Shareholders................ 45
Certain Transactions.................. 46
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 52
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Index to Combined Financial
Statements.......................... F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
3,500,000 SHARES
MELITA(R) INTERNATIONAL LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
, 1997
======================================================
<PAGE> 76
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $10,606
National Association of Securities Dealers, Inc. fee........ 4,000
Nasdaq National Market listing fee.......................... *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
-------
Total Expenses.................................... *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify each of its directors and officers to the extent that he or she is or
was a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with such action, suit or proceeding; provided, however, that no indemnification
shall be made for (i) any appropriation, in violation of his duties, of any
business opportunity of the Company, (ii) acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) any liability under
Section 14-2-832 of the GBCC, which relates to unlawful payments of dividends
and unlawful stock repurchases and redemptions, or (iv) any transaction from
which he or she derived an improper personal benefit.
Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
Underwriters named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued the securities set
forth below which were not registered under the Securities Act.
In connection with the Company's acquisition of all of the outstanding
shares of Melita Europe and Inventions by share exchange, upon the effective
date of this offering the Company will issue a total of 3,143,395 shares of its
Common Stock to the former shareholders of Melita Europe and Inventions.
The Registrant has issued stock options for an aggregate of 1,659,485
shares of its Common Stock under the 1992 Stock Option Plan and the 1997 Stock
Option Plan. Options for an aggregate of 1,106,097 shares are currently
outstanding at a weighted average exercise price of $3.42 per share.
No underwriters were engaged in connection with any of the foregoing
issuances of securities. The sale and issuance of shares listed above were
exempt from registration under the Securities Act by virtue of Sections 3(a),
3(b) and 4(a) of the Securities Act and in reliance on Rule 701 and Regulation D
promulgated thereunder.
II-1
<PAGE> 77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement.
2.1* -- Share Exchange Agreement by and between the Registrant and
the shareholders of Melita Europe Limited.
2.2* -- Share Exchange Agreement by and between the Registrant and
the shareholders of Inventions, Inc.
3.1+ -- Restated Articles of Incorporation of the Registrant dated
June 4, 1992, as amended February 7, 1997.
3.2+ -- Bylaws of the Registrant.
3.3 -- Form of Amended and Restated Articles of Incorporation of
the Registrant, to be effective upon the effectiveness of
this offering.
3.4 -- Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the effectiveness of this offering.
4.1 -- See Exhibits 3.3 and 3.4 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of
Common Stock of the Registrant.
4.2+ -- Specimen Stock Certificate.
5.1* -- Opinion of Morris, Manning & Martin, L.L.P., Counsel to the
Registrant, as to the legality of the shares being
registered.
10.1+ -- Lease Agreement between the Registrant and 5051 Peachtree
Corners Circle, L.L.C.
10.2+ -- 1992 Stock Option Plan effective June 4, 1992, as amended
March 1, 1997.
10.3+ -- 1997 Stock Option Plan effective February 6, 1997.
10.4 -- Employee Stock Purchase Plan adopted March 1, 1997.
10.5+ -- 401(k) Profit Sharing Plan as amended effective January 1,
1993.
10.6 -- Employment Agreement between the Registrant and Aleksander
Szlam dated March 5, 1997.
10.7 -- Employment Agreement between the Registrant and J. Neil
Smith dated March 5, 1997.
10.8+ -- Form of Tax Indemnification Agreement between the Registrant
and certain shareholders of the Registrant.
10.9+ -- Form of Tax Indemnification Agreement between Inventions,
Inc. and certain shareholders of Inventions, Inc.
10.10+ -- $3,000,000 Note of the Registrant in favor of Aleksander
Szlam dated June 19, 1992.
11.1+ -- Statement re: Computation of Per Share Earnings.
21.1+ -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of BDO Stoy Hayward.
23.3* -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).
24.1+ -- Powers of Attorney (included on signature page).
27.1+ -- Financial Data Schedule. (For SEC use only)
99.1+ -- Report of Independent Public Accountants on Financial
Statement Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules: Schedule II -- Valuation and Qualifying
Accounts.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-2
<PAGE> 78
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 27th day of March, 1997.
Melita International Corporation
By: /s/ ALEKSANDER SZLAM
------------------------------------
Aleksander Szlam
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALEKSANDER SZLAM Chairman of the Board and Chief March 27, 1997
- ----------------------------------------------------- Executive Officer (Principal
Aleksander Szlam Executive Officer)
/s/ J. NEIL SMITH Director March 27, 1997
- -----------------------------------------------------
J. Neil Smith
/s/ MARK B. ADAMS Vice President, Finance and March 27, 1997
- ----------------------------------------------------- Chief Financial Officer
Mark B. Adams (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE> 80
SCHEDULE II
MELITA INTERNATIONAL CORPORATION
MELITA EUROPE LIMITED AND INVENTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS BALANCE
BEGINNING AND AT END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
-------------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts............. $200,000 $146,000 116,000 $230,000
Allowance for inventory obsolescence........ 40,000 40,000 64,000 16,000
1995
Allowance for doubtful accounts............. 230,000 117,000 16,000 331,000
Allowance for inventory obsolescence........ 16,000 130,000 -- 146,000
1996
Allowance for doubtful accounts............. 331,000 260,000 104,000 487,000
Allowance for inventory obsolescence........ 146,000 831,000 492,000 485,000
</TABLE>
- ---------------
(1) Represents amounts written off
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MELITA INTERNATIONAL CORPORATION
Pursuant to Sections 14-2-1001 and 14-2-1003 of the Georgia Business
Corporation Code, Melita International Corporation hereby amends and restates
its Articles of Incorporation in their entirety and substitutes the following
in lieu thereof:
ARTICLE ONE
NAME
The name of the corporation is Melita International Corporation.
ARTICLE TWO
CAPITALIZATION
The corporation shall have authority, exercisable by its Board of
Directors, to issue up to 100,000,000 shares of common stock, no par value per
share ("Common Stock"), and 20,000,000 shares of preferred stock, no par value
per share ("Preferred Stock"), any part or all of which shares of Preferred
Stock may be established and designated from time to time by the Board of
Directors, in such series and with such preferences, limitations, and relative
rights as may be determined by the Board of Directors.
<PAGE> 2
ARTICLE THREE
LIMITATION ON DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of the duty of
care or any other duty as a director, except that such liability shall not be
eliminated for:
(i) any appropriation, in violation of the director's duties, of
any business opportunity of the corporation;
(ii) acts or omissions that involve intentional misconduct or a
knowing violation of law;
(iii) liability under Section 14-2-832 (or any successor provision
or redesignation thereof) of the Georgia Business Corporation Code; and
(iv) any transaction from which the director received an improper
personal benefit.
If at any time the Georgia Business Corporation Code (the "Code") shall
have been amended to authorize the further elimination or limitation of the
liability of a director, then the liability of each director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Code, as
so amended, without further action by the shareholders, unless the provisions
of the Code, as amended, require further action by the shareholders.
Any repeal or modification of the foregoing provisions of this Article
Three shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of any director of the corporation for or with
respect to any alleged act or omission of the director occurring prior to such a
repeal or modification.
ARTICLE FOUR
SHAREHOLDER ACTION WITHOUT
MEETING BY LESS THAN UNANIMOUS CONSENT
The shareholders, without a meeting, may take any action required or
permitted to be taken at a meeting of the shareholders, if written consent
setting forth the action to be taken is signed by those persons who would be
entitled to vote at a meeting those shares having voting power to cast not less
than the minimum number (or numbers, in the case of voting by classes) of votes
that would be necessary to authorize or take the action at a meeting at which
all shares entitled to vote were present and voted. An action by less than
unanimous consent may not be taken with respect to any election of directors as
to which shareholders would be entitled to cumulative voting.
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ARTICLE FIVE
CONSIDERATION OF INTERESTS OF
NON-SHAREHOLDER CONSTITUENCIES
The Board of Directors, any committee of the Board of Directors and any
individual Director, in discharging the duties of their respective positions
and in determining what is believed to be in the best interest of the
Corporation, may in their sole discretion consider the interests of the
employees, customers, suppliers and creditors of the Corporation and its
subsidiaries, the communities in which offices or other establishments of the
Corporation and its subsidiaries are located, and all other factors such
Directors consider pertinent, in addition to considering the effects of any
action on the Corporation and its shareholders. Notwithstanding the foregoing,
this Article five shall not be deemed to provide any of the foregoing
constituencies any right to be considered in any such discharging of duties or
determination.
WITNESS WHEREOF, the undersigned executes these Amended and Restated
Articles of Incorporation on _______________, 1997.
____________________________
Aleksander Szlam
Chairman of the Board and Chief
Executive Officer
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<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
MELITA INTERNATIONAL CORPORATION
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
MELITA INTERNATIONAL CORPORATION
References in these Amended and Restated Bylaws (these "Bylaws") to
"Articles of Incorporation" are to the Articles of Incorporation of MELITA
INTERNATIONAL CORPORATION, a Georgia corporation (the "Corporation"), as
amended and restated from time to time.
All of these Bylaws are subject to contrary provisions, if any, of the
Articles of Incorporation (including provisions designating the preferences,
limitations, and relative rights of any class or series of shares), the Georgia
Business Corporation Code (the "Code"), and other applicable law, as in effect
on and after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office and shall have a registered agent whose business office is
the same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be at
the place designated in the Corporation's annual registration with the Georgia
Secretary of State.
1.3 OTHER OFFICES. In addition to its registered office and principal
office, the Corporation may have offices at other locations either in or
outside the State of Georgia.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders may be
held at any location inside or outside the State of Georgia designated by the
Board of Directors or any other person or persons who properly call the
meeting, or if the Board of Directors or such other person or persons do not
specify a location, at the Corporation's principal office.
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2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
shareholders, at a time determined by the Board of Directors, to elect
directors and to transact any business that properly may come before the
meeting. The annual meeting may be combined with any other meeting of
shareholders, whether annual or special.
2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or more
classes or series of the Corporation's shares may be called at any time by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President, and shall be called by the Corporation upon the written request
(in compliance with applicable requirements of the Code) of the holders of
shares representing not less than fifty percent (50%) or more of the votes
entitled to be cast on each issue proposed to be considered at the special
meeting. The business that may be transacted at any special meeting of
shareholders shall be limited to that proposed in the notice of the special
meeting given in accordance with Section 2.4 (including related or incidental
matters that may be necessary or appropriate to effectuate the proposed
business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject to
waiver by a shareholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time, and place of each annual and special
shareholders' meeting no fewer than 10 days nor more than 60 days before the
meeting date to each shareholder of record entitled to vote at the meeting.
The notice of an annual meeting need not state the purpose of the meeting
unless these Bylaws require otherwise. The notice of a special meeting shall
state the purpose for which the meeting is called. If an annual or special
shareholders' meeting is adjourned to a different date, time, or location, the
Corporation shall give shareholders notice of the new date, time, or location
of the adjourned meeting, unless a quorum of shareholders was present at the
meeting and information regarding the adjournment was announced before the
meeting was adjourned; provided, however, that if a new record date is or must
be fixed in accordance with Section 7.6, the Corporation must give notice of
the adjourned meeting to all shareholders of record as of the new record date
who are entitled to vote at the adjourned meeting.
2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by the
Code, the Articles of Incorporation, or these Bylaws, before or after the date
and time of the matter to which the notice relates, by delivering to the
Corporation a written waiver of notice signed by the shareholder entitled to
the notice. In addition, a shareholder's attendance at a meeting shall be (a)
a waiver of objection to lack of notice or defective notice of the meeting
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting, and (b) a waiver of objection
to consideration of a particular matter at the meeting that is not within the
purpose stated in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. Except as otherwise required by
the Code, neither the purpose of nor the business transacted at the meeting
need be specified in any waiver.
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless otherwise
required by the Code or the Articles of Incorporation, all classes or series of
the Corporation's shares entitled to vote generally on a matter shall for that
purpose be considered a single voting group (a "Voting Group"). If either the
Articles of Incorporation or the Code requires separate voting by two or more
Voting Groups on a matter, action on that matter is taken only when voted upon
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<PAGE> 4
each such Voting Group separately. At all meetings of shareholders, any Voting
Group entitled to vote on a matter may take action on the matter only if
a quorum of that Voting Group exists at the meeting, and if a quorum exists,
the Voting Group may take action on the matter notwithstanding the absence of a
quorum of any other Voting Group that may be entitled to vote separately on the
matter. Unless the Articles of Incorporation, these Bylaws, or the Code
provides otherwise, the presence (in person or by proxy) of shares representing
a majority of votes entitled to be cast on a matter by a Voting Group shall
constitute a quorum of that Voting Group with regard to that matter. Once a
share is present at any meeting other than solely to object to holding the
meeting or transacting business at the meeting, the share shall be deemed
present for quorum purposes for the remainder of the meeting and for any
adjournments of that meeting, unless a new record date for the adjourned
meeting is or must be set pursuant to Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.4, if a quorum exists, action on a
matter by a Voting Group is approved by that Voting Group if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation, a provision of these Bylaws that
has been adopted pursuant to Section 14-2-1021 of the Code (or any successor
provision), or the Code requires a greater number of affirmative votes.
2.7 VOTING OF SHARES. Unless otherwise required by the Code or the
Articles of Incorporation, each outstanding share of any class or series having
voting rights shall be entitled to one vote on each matter that is submitted to
a vote of shareholders.
2.8 PROXIES. A shareholder entitled to vote on a matter may vote in person
or by proxy pursuant to an appointment executed in writing by the shareholder
or by his or her attorney-in-fact. An appointment of a proxy shall be valid
for 11 months from the date of its execution, unless a longer or shorter period
is expressly stated in the proxy.
2.9 PRESIDING OFFICER. Except as otherwise provided in this Section 2.9,
the Chairman of the Board, and in his or her absence or disability the Chief
Executive Officer, and in his or her absence or disability the President, shall
preside at every shareholders' meeting (and any adjournment thereof) as its
chairman, if either of them is present and willing to serve. If neither the
Chairman of the Board, nor the Chief Executive Officer nor the President is
present and willing to serve as chairman of the meeting, and if the Chairman of
the Board has not designated another person who is present and willing to serve,
then a majority of the Corporation's directors present at the meeting shall be
entitled to designate a person to serve as chairman. If no director of the
Corporation is present at the meeting or if a majority of the directors who are
present cannot be established, then a chairman of the meeting shall be selected
by a majority vote of (a) the shares present at the meeting that would be
entitled to vote in an election of directors, or (b) if no such shares are
present at the meeting, then the shares present at the meeting comprising the
Voting Group with the largest number of shares present at the meeting and
entitled to vote on a matter properly proposed to be considered at the meeting.
The chairman of the meeting may designate other persons to assist with the
meeting.
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<PAGE> 5
2.10 ADJOURNMENTS. At any meeting of shareholders (including an adjourned
meeting), a majority of shares of any Voting Group present and entitled to vote
at the meeting (whether or not those shares constitute a quorum) may adjourn
the meeting, but only with respect to that Voting Group, to reconvene at a
specific time and place. If more than one Voting Group is present and entitled
to vote on a matter at the meeting, then the meeting may be continued with
respect to any such Voting Group that does not vote to adjourn as provided
above, and such Voting Group may proceed to vote on any matter to which it is
otherwise entitled to do so; provided, however, that if (a) more than one
Voting Group is required to take action on a matter at the meeting and (b) any
one of those Voting Groups votes to adjourn the meeting (in accordance with the
preceding sentence), then the action shall not be deemed to have been taken
until the requisite vote of any adjourned Voting Group is obtained at its
reconvened meeting. The only business that may be transacted at any reconvened
meeting is business that could have been transacted at the meeting that was
adjourned, unless further notice of the adjourned meeting has been given in
compliance with the requirements for a special meeting that specifies the
additional purpose or purposes for which the meeting is called. Nothing
contained in this Section 2.10 shall be deemed or otherwise construed to limit
any lawful authority of the chairman of a meeting to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the
chairman of the meeting shall be entitled to establish the rules of order
governing the conduct of business at the meeting.
2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if the action is taken by all shareholders entitled to vote on the
action or, if permitted by the Articles of Incorporation, by persons who would
be entitled to vote at a meeting shares having voting power to cast the
requisite number of votes (or numbers, in the case of voting by groups) that
would be necessary to authorize or take the action at a meeting at which all
shareholders entitled to vote were present and voted. The action must be
evidenced by one or more written consents describing the action taken, signed
by shareholders entitled to take action without a meeting, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
Where required by Section 14-2-704 or other applicable provision of the Code,
the Corporation shall provide shareholders with written notice of actions taken
without a meeting.
2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything to
the contrary in these Bylaws, the only business that may be conducted at an
annual meeting of shareholders shall be business brought before the meeting (a)
by or at the direction of the Board of Directors prior to the meeting, (b) by
or at the direction of the Chairman of the Board, the Chief Executive Officer
or the President, or (c) by a shareholder of the Corporation who is entitled to
vote with respect to the business and who complies with the notice procedures
set forth in this Section 2.13. For business to be brought properly before an
annual meeting by a shareholder, the shareholder must have given timely notice
of the business in writing to the Secretary of the Corporation. To be timely,
a shareholder's notice must be delivered or mailed to and received at the
principal offices of the Corporation, not less than 60 days before the date of
the meeting at which the director(s) are to be elected or the proposal is to be
considered;
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however, if less than 70 days notice or prior public disclosure of
the date of the scheduled meeting is given or made, notice by the shareholder,
to be timely, must be delivered or received not later than the close of
business on the tenth day following the earlier of the day on which notice of
the date of the meeting is mailed to shareholders or public disclosure of the
date of such meeting is made. A shareholder's notice to the Secretary shall
set forth a brief description of each matter of business the shareholder
proposes to bring before the meeting and the reasons for conducting that
business at the meeting; the name, as it appears on the Corporation's books,
and address of the shareholder proposing the business; the series or class and
number of shares of the Corporation's capital stock that are beneficially owned
by the shareholder; and any material interest of the shareholder in the
proposed business. The chairman of the meeting shall have the discretion to
declare to the meeting that any business proposed by a shareholder to be
considered at the meeting is out of order and that such business shall not be
transacted at the meeting if (i) the chairman concludes that the matter has
been proposed in a manner inconsistent with this Section 2.13 or (ii) the
chairman concludes that the subject matter of the proposed business is
inappropriate for consideration by the shareholders at the meeting.
ARTICLE THREE
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation, in bylaws approved by the shareholders, or in
agreements among all the shareholders that are otherwise lawful.
3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of the
Corporation shall be fixed by resolution of the Board of Directors or of the
shareholders from time to time and, until otherwise determined, shall be two
(2); provided, however, that no decrease in the number of directors shall have
the effect of shortening the term of an incumbent director. Except as provided
elsewhere in this Section 3.2 and in Section 3.4, the directors shall be elected
at each annual meeting of shareholders, or at a special meeting of shareholders
called for purposes that include the election of directors, by a plurality of
the votes cast by the shares entitled to vote and present at the meeting.
Despite the expiration of a director's term, he or she shall continue to serve
until his or her successor, if there is to be any, has been elected and has
qualified.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any individual
director may be removed, with or without cause, by the shareholders, provided
that Directors elected by a particular Voting Group may be taken only at a
shareholder's meeting for which notice of the removal action has been given.
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A removed director's successor, if any, may be elected at the same meeting to
serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may be
filled for the unexpired term, unless the shareholders have elected a
successor, by the affirmative vote of a majority of the remaining directors,
whether or not the remaining directors constitute a quorum; provided, however,
that if the vacant office was held by a director elected by a particular Voting
Group, only the holders of shares of that Voting Group or the remaining
directors elected by that Voting Group shall be entitled to fill the vacancy;
provided further, however, that if the vacant office was held by a director
elected by a particular Voting Group and there is no remaining director elected
by that Voting Group, the other remaining directors or director (elected by
another Voting Group or Groups) may fill the vacancy during an interim period
before the shareholders of the vacated director's Voting Group act to fill the
vacancy. A vacancy or vacancies in the Board of Directors may result from the
death, resignation, disqualification, or removal of any director, or from an
increase in the number of directors.
3.5 COMPENSATION. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities
other than that of director and receive compensation for services rendered in
those other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
serve at the pleasure of the Board of Directors. Subject to the limitations
imposed by the Code, each committee shall have the authority set forth in the
resolution establishing the committee or in any other resolution of the Board
of Directors specifying, enlarging, or limiting the authority of the committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a director
of the Corporation shall assume office and begin serving unless and until duly
qualified to serve, as determined by reference to the Code, the Articles of
Incorporation, and any further eligibility requirements established in these
Bylaws.
3.8 CERTAIN NOMINATION REQUIREMENTS. No person may be nominated for
election as a director at any annual or special meeting of shareholders unless
(a) the nomination has been or is being made pursuant to a recommendation or
approval of the Board of Directors of the Corporation or a properly constituted
committee of the Board of Directors previously delegated authority to recommend
or approve nominees for director; (b) the person is nominated by a shareholder
of the Corporation who is entitled to vote for the election of the nominee at
the subject meeting, and the nominating shareholder has furnished written
notice to the Secretary of the Corporation, at the Corporation's principal
office, not less than 60 days before the date of the meeting at which the
director(s) are to be elected or the proposal is to be considered; however, if
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less than 70 days notice or prior public disclosure of the date of the
scheduled meeting is given or made, notice by the shareholder, to be timely,
must be delivered or received not later than the close of business on the tenth
day following the earlier of the day on which notice of the date of the meeting
is mailed to shareholders or public disclosure of the date of such meeting is
made and the notice (i) sets forth with respect to the person to be nominated
his or her name, age, business and residence addresses, principal business or
occupation during the past five years, any affiliation with or material
interest in the Corporation or any transaction involving the Corporation, and
any affiliation with or material interest in any person or entity having an
interest materially adverse to the Corporation, and (ii) is accompanied by the
sworn or certified statement of the shareholder that the nominee has consented
to being nominated and that the shareholder believes the nominee will stand for
election and will serve if elected; or (c) (i) the person is nominated to
replace a person previously identified as a proposed nominee (in accordance
with the provisions of subpart (b) of this Section 3.8) who has since become
unable or unwilling to be nominated or to serve if elected, (ii) the
shareholder who furnished such previous identification makes the replacement
nomination and delivers to the Secretary of the Corporation (at the time of or
prior to making the replacement nomination) an affidavit or other sworn
statement affirming that the shareholder had no reason to believe the original
nominee would be so unable or unwilling, and (iii) such shareholder also
furnishes in writing to the Secretary of the Corporation (at the time of or
prior to making the replacement nomination) the same type of information about
the replacement nominee as required by subpart (b) of this Section 3.8 to have
been furnished about the original nominee. The chairman of any meeting of
shareholders at which one or more directors are to be elected, for good cause
shown and with proper regard for the orderly conduct of business at the
meeting, may waive in whole or in part the operation of this Section 3.8.
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held in conjunction with each annual meeting of shareholders. In addition,
the Board of Directors may, by prior resolution, hold regular meetings at other
times.
4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, or any director in office at that time.
4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place in
or outside the State of Georgia that the Board of Directors may establish from
time to time.
4.4 NOTICE OF MEETINGS. Directors need not be provided with notice of
any regular meeting of the Board of Directors. Unless waived in accordance
with Section 4.10, the Corporation shall give at least two days' notice to each
director of the date, time, and place of each special meeting. Notice of a
meeting shall be deemed to have been given to any director in
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attendance at any prior meeting at which the date, time, and place of the
subsequent meeting was announced.
4.5 QUORUM At meetings of the Board of Directors, the greater of (a) a
majority of the directors then in office, or (b) one-third of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business.
4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the Code, the Articles of Incorporation, or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he or
she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of dissent
or abstention is not available to a director who votes in favor of the action
taken.
4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.7 shall constitute presence in person at the
meeting.
4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterpart, and shall have the same force and effect as a unanimous vote of
the Board of Directors at a duly convened meeting.
4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or not a
quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give
notice to the directors of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting that was adjourned,
unless a quorum was not present at the meeting that was adjourned, in which
case notice shall be given to directors in the same manner as for a special
meeting. At any such reconvened meeting at which a quorum is present, any
business may be transacted that could have been transacted at the meeting that
was adjourned.
4.10 WAIVER OF NOTICE. A director may waive any notice required by the
Code, the Articles of Incorporation, or these Bylaws before or after the date
and time of the matter to which the notice relates, by a written waiver signed
by the director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. Attendance by a director at a
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meeting shall constitute waiver of notice of the meeting, except where a
director at the beginning of the meeting (or promptly upon his or her arrival)
objects to holding the meeting or to transacting business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICES. The officers of the Corporation shall consist of a President,
a Secretary, and a Treasurer, and may include a Chief Executive Officer separate
from the President, each of whom shall be elected or appointed by the Board of
Directors. The Board of Directors may also elect a Chairman of the Board from
among its members. The Board of Directors from time to time may, or may
authorize the Chief Executive Officer or the President to, create and establish
the duties of other offices and may, or may authorize the Chief Executive
Officer or the President to, elect or appoint, or authorize specific senior
officers to appoint, the persons who shall hold such other offices, including
one or more Vice Presidents (including Executive Vice Presidents, Senior Vice
Presidents, Assistant Vice Presidents, and the like), one or more Assistant
Secretaries, and one or more Assistant Treasurers. Whether or not so provided
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President may appoint one or more Assistant Secretaries, and one
or more Assistant Treasurers. Any two or more offices may be held by the same
person.
5.2 TERM. Each officer shall serve at the pleasure of the Board of
Directors (or, if appointed by the Chief Executive Officer, the President or a
senior officer pursuant to this Article Five, at the pleasure of the Board of
Directors, the Chief Executive Officer, the President or the senior officer
authorized to have appointed the officer) until his or her death, resignation,
or removal, or until his or her replacement is elected or appointed in
accordance with this Article Five.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board of Directors. Officers may serve without compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed) may be
removed, with or without cause, by the Board of Directors, and any officer
appointed by the Chief Executive Officer, the President or another senior
officer may also be removed, with or without cause, by the Chief Executive
Officer, the President or by any senior officer authorized to have appointed the
officer to be removed. Removal will be without prejudice to the contract
rights, if any, of the person removed, but shall be effective notwithstanding
any damage claim that may result from infringement of such contract rights.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one)
shall preside at and serve as chairman of meetings of the shareholders and of
the Board of Directors (unless another person is selected under Section 2.9 to
act as chairman). The Chairman of the
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Board shall perform other duties and have other authority as may from time to
time be delegated by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be charged
with the general and active management of the Corporation, shall see that all
orders and resolutions of the Board of Directors are carried into effect, shall
have the authority to select and appoint employees and agents of the
Corporation, and shall, in the absence or disability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
The Chief Executive Officer shall perform any other duties and have any other
authority as may be delegated from time to time by the Board of Directors, and
shall be subject to the limitations fixed from time to time by the Board of
Directors.
5.7 PRESIDENT. If there shall be no separate Chief Executive Officer of
the Corporation, then the President shall be the chief executive officer of the
Corporation and shall have all the duties and authority given under these
Bylaws to the Chief Executive Officer. The President shall otherwise be the
chief operating officer of the Corporation and shall, subject to the authority
of the Chief Executive Officer, have responsibility for the conduct and general
supervision of the business operations of the Corporation. The President shall
perform such other duties and have such other authority as may from time to
time be delegated by the Board of Directors or the Chief Executive Officer. In
the absence or disability of the Chief Executive Officer, the President shall
perform the duties and exercise the powers of the Chief Executive Officer.
5.8 VICE PRESIDENTS. The Vice President (if there be one) shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President, whether the duties and powers are specified in these
Bylaws or otherwise. If the Corporation has more than one Vice President, the
one designated by the Board of Directors or the Chief Executive Officer (in
that order of precedence) shall act in the event of the absence or disability
of the President. Vice Presidents shall perform any other duties and have any
other authority as from time to time may be delegated by the Board of
Directors, the Chief Executive Officer, or the President.
5.9 SECRETARY. The Secretary shall be responsible for preparing minutes
of the meetings of shareholders, directors, and committees of directors and for
authenticating records of the Corporation. The Secretary or any Assistant
Secretary shall have authority to give all notices required by law or these
Bylaws. The Secretary shall be responsible for the custody of the corporate
books, records, contracts, and other documents. The Secretary or any Assistant
Secretary may affix the corporate seal to any lawfully executed documents
requiring it, may attest to the signature of any officer of the Corporation,
and shall sign any instrument that requires the Secretary's signature. The
Secretary or any Assistant Secretary shall perform any other duties and have
any other authority as from time to time may be delegated by the Board of
Directors, the Chief Executive Officer, or the President.
5.10 TREASURER. Unless otherwise provided by the Board of Directors, the
Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and
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for the receipt, deposit, or disbursement of these funds and securities
under the direction of the Board of Directors. The Treasurer shall cause full
and true accounts of all receipts and disbursements to be maintained and shall
make reports of these receipts and disbursements to the Board of Directors, the
Chief Executive Officer and President upon request. The Treasurer or Assistant
Treasurer shall perform any other duties and have any other authority as from
time to time may be delegated by the Board of Directors, the Chief Executive
Officer, or the President.
ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provide otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions or share dividends in accordance with the Code.
ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The interest of each shareholder in the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation, which shall be in such form as the Board of
Directors from time to time may adopt in accordance with the Code. Share
certificates shall be in registered form and shall indicate the date of issue,
the name of the Corporation, that the Corporation is organized under the laws
of the State of Georgia, the name of the shareholder, and the number and class
of shares and designation of the series, if any, represented by the
certificate. Each certificate shall be signed by the President or a Vice
President (or in lieu thereof, by the Chairman of the Board or Chief Executive
Officer, if there be one) and may be signed by the Secretary or an Assistant
Secretary; provided, however, that where the certificate is signed (either
manually or by facsimile) by a transfer agent, or registered by a registrar,
the signatures of those officers may be facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to due
presentation for transfer of registration of its shares, the Corporation may
treat the registered owner of the shares (or the beneficial owner of the shares
to the extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the
Corporation in accordance with the Code) as the person exclusively entitled to
vote the shares, to receive any dividend or other distribution with respect to
the shares, and for all other purposes; and the Corporation shall not be bound
to recognize any equitable or other claim to or interest in the shares on the
part of any other person, whether or not it has express or other notice of such
a claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the
books of the Corporation kept by the Corporation or by the transfer agent
designated to transfer the shares,
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only upon direction of the person named in the certificate or by an attorney
lawfully constituted in writing. Before a new certificate is issued, the old
certificate shall be surrendered for cancellation or, in the case of a
certificate alleged to have been lost, stolen, or destroyed, the provisions of
Section 7.5 of these Bylaws shall have been complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of the
provisions of Section 7.3 of these Bylaws, the Corporation is under a duty to
register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is
given that each required endorsement is genuine and effective; (c) the
Corporation has no duty to inquire into adverse claims or has discharged any
such duty; (d) any applicable law relating to the collection of taxes has been
complied with; (e) the transfer is in fact rightful or is to a bona fide
purchaser; and (f) the transfer is in compliance with applicable provisions of
any transfer restrictions of which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a share
certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
7.6 FIXING OF RECORD DATE. For the purpose of determining shareholders
(a) entitled to notice of or to vote at any meeting of shareholders or, if
necessary, any adjournment thereof, (b) entitled to receive payment of any
distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may
not be more than 70 days (and, in the case of a notice to shareholders of a
shareholders' meeting, not less than 10 days) prior to the date on which the
particular action, requiring the determination of shareholders, is to be taken.
A separate record date may be established for each Voting Group entitled to
vote separately on a matter at a meeting. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall
apply to any adjournment of the meeting, unless the Board of Directors shall
fix a new record date for the reconvened meeting, which it must do if the
meeting is adjourned to a date more than 120 days after the date fixed for the
original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in
Section 7.6, then the record date for any determination of shareholders that
may be proper or required by law shall be, as appropriate, the date on which
notice of a shareholders' meeting is mailed, the date on which the Board of
Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of shareholders.
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ARTICLE EIGHT
INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and
hold harmless any director of the Corporation (an "Indemnified Person") who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, whether formal or informal, including any
action or suit by or in the right of the Corporation (for purposes of this
Article Eight, collectively, a "Proceeding") because he or she is or was a
director, officer, employee, or agent of the Corporation, against any judgment,
settlement, penalty, fine, or reasonable expenses (including, but not limited
to, attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Article Eight, a
"Liability"), provided, however, that no indemnification shall be made for:
(a) any appropriation by a director, in violation of the director's duties, of
any business opportunity of the corporation; (b) any acts or omissions of a
director that involve intentional misconduct or a knowing violation of law; (c)
the types of liability set forth in Code Section 14-2-832; or (d) any
transaction from which the director received an improper personal benefit.
8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the
power to cause the Corporation to provide to officers, employees, and agents of
the Corporation all or any part of the right to indemnification permitted for
such persons by appropriate provisions of the Code. Persons to be indemnified
may be identified by position or name, and the right of indemnification may be
different for each of the persons identified. Each officer, employee, or agent
of the Corporation so identified shall be an "Indemnified Person" for purposes
of the provisions of this Article Eight.
8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each director,
and the Board of Directors shall have the power to cause the Corporation to
provide to any officer, employee, or agent, of the Corporation who is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise all or any part of the right to
indemnification and other rights of the type provided under Sections 8.1, 8.2,
8.4, and 8.10 of this Article Eight (subject to the conditions, limitations,
and obligations specified in those Sections) permitted for such persons by
appropriate provisions of the Code. Persons to be indemnified may be
identified by position or name, and the right of indemnification may be
different for each of the persons identified. Each person so identified shall
be an "Indemnified Person" for purposes of the provisions of this Article
Eight.
8.4 ADVANCES. Expenses (including, but not limited to, attorneys' fees
and disbursements, court costs, and expert witness fees) incurred by an
Indemnified Person in defending any Proceeding of the kind described in
Sections 8.1 or 8.3, as to an Indemnified Person who is a director of the
Corporation, or in Sections 8.2 or 8.3, as to other Indemnified Persons, if the
Board of Directors has specified that advancement of expenses be made available
to any such Indemnified Person, shall be paid by the Corporation in advance of
the final disposition of such Proceeding as set forth herein. The Corporation
shall promptly pay the amount of such expenses to the Indemnified Person, but
in no event later than 10 days following the Indemnified Person's delivery to
the Corporation of a written request for an advance pursuant
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to this Section 8.4, together with a reasonable accounting of such expenses;
provided, however, that the Indemnified Person shall furnish the Corporation a
written affirmation of his or her good faith belief that he or she has met the
applicable standard of conduct and a written undertaking and agreement to
repay to the Corporation any advances made pursuant to this Section 8.4 if it
shall be determined that the Indemnified Person is not entitled to be
indemnified by the Corporation for such amounts. The Corporation may make the
advances contemplated by this Section 8.4 regardless of the Indemnified
Person's financial ability to make repayment. Any advances and undertakings to
repay pursuant to this Section 8.4 may be unsecured and interest-free.
8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by the
Code or the Articles of Incorporation, the indemnification and advancement of
expenses provided by or granted pursuant to this Article Eight shall not be
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any provision of the Articles of
Incorporation, or any Bylaw, resolution, or agreement specifically or in
general terms approved or ratified by the affirmative vote of holders of a
majority of the shares entitled to be voted thereon.
8.6 INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or who, while serving in such a
capacity, is also or was also serving at the request of the Corporation as a
director, officer, trustee, partner, employee, or agent of any corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any Liability that may be asserted against or incurred by him or her in
any such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article Eight.
8.7 NOTICE. If the Corporation indemnifies or advances expenses to a
director under any of Sections 14-2-851 through 14-2-854 of the Code in
connection with a Proceeding by or in the right of the Corporation, the
Corporation shall, to the extent required by Section 14-2-1621 or any other
applicable provision of the Code, report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting.
8.8 SECURITY. The Corporation may designate certain of its assets as
collateral, provide self-insurance, establish one or more indemnification
trusts, or otherwise secure or facilitate its ability to meet its obligations
under this Article Eight, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Eight, as the Board of Directors deems appropriate.
8.9 AMENDMENT. Any amendment to this Article Eight that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events, or
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<PAGE> 16
omissions (collectively, "Post Amendment Events") occurring after such
amendment and after delivery of notice of such amendment to the Indemnified
Person so affected. Any Indemnified Person shall, as to any Proceeding based
on actions, events, or omissions occurring prior to the date of receipt of such
notice, be entitled to the right of indemnification, advancement of expenses,
and other rights under this Article Eight to the same extent as if such
provisions had continued as part of the Bylaws of the Corporation without such
amendment. This Section 8.9 cannot be altered, amended, or repealed in a
manner effective as to any Indemnified Person (except as to Post Amendment
Events) without the prior written consent of such Indemnified Person.
8.10 AGREEMENTS. The provisions of this Article Eight shall be deemed to
constitute an agreement between the Corporation and each Indemnified Person
hereunder. In addition to the rights provided in this Article Eight, the
Corporation shall have the power, upon authorization by the Board of Directors,
to enter into an agreement or agreements providing to any Indemnified Person
indemnification rights substantially similar to those provided in this Article
Eight.
8.11 CONTINUING BENEFITS. The rights of indemnification and advancement
of expenses permitted or authorized by this Article Eight shall, unless
otherwise provided when such rights are granted or conferred, continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such
person.
8.12 SUCCESSORS. For purposes of this Article Eight, the term
"Corporation" shall include any corporation, joint venture, trust, partnership,
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation, or otherwise, and any such successor
shall be liable to the persons indemnified under this Article Eight on the same
terms and conditions and to the same extent as this Corporation.
8.13 SEVERABILITY. Each of the Sections of this Article Eight, and each
of the clauses set forth herein, shall be deemed separate and independent, and
should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Eight that is not
declared invalid or unenforceable.
8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each
of its directors and such of its officers as have been designated by the Board
of Directors to the full extent permitted by action of the Board of Directors
without shareholder approval under the Code or other laws of the State of
Georgia as in effect from time to time.
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ARTICLE NINE
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have
the power to determine which accounts, books, and records of the Corporation
shall be available for shareholders to inspect or copy, except for those books
and records required by the Code to be made available upon compliance by a
shareholder with applicable requirements, and shall have the power to fix
reasonable rules and regulations (including confidentiality restrictions and
procedures) not in conflict with applicable law for the inspection and copying
of accounts, books, and records that by law or by determination of the Board of
Directors are made available. Unless required by the Code or otherwise
provided by the Board of Directors, a shareholder of the Corporation holding
less than two percent of the total shares of the Corporation then outstanding
shall have no right to inspect the books and records of the Corporation.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal
year of the Corporation and to change the fiscal year from time to time as it
deems appropriate.
9.3 CORPORATE SEAL. The corporate seal will be in such form as the Board
of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
9.4 ANNUAL STATEMENTS. Not later than four months after the close of each
fiscal year, and in any case prior to the next annual meeting of shareholders,
the Corporation shall prepare (a) a balance sheet showing in reasonable detail
the financial condition of the Corporation as of the close of its fiscal year,
and (b) a profit and loss statement showing the results of its operations
during its fiscal year. Upon receipt of written request, the Corporation
promptly shall mail to any shareholder of record a copy of the most recent such
balance sheet and profit and loss statement, in such form and with such
information as the Code may require.
9.5 NOTICE. (a) Whenever these Bylaws require notice to be given to any
shareholder or to any director, the notice may be given by mail, in person, by
courier delivery, by telephone, or by telecopier, telegraph, or similar
electronic means. Whenever notice is given to a shareholder or director by
mail, the notice shall be sent by depositing the notice in a post office or
letter box in a postage-prepaid, sealed envelope addressed to the shareholder
or director at his or her address as it appears on the books of the
Corporation. Any such written notice given by mail shall be effective: (i) if
given to shareholders, at the time the same is deposited in the United States
mail; and (ii) in all other cases, at the earliest of (x) when received or when
delivered, properly addressed, to the addressee's last known principal place of
business or residence, (y) five days after its deposit in the mail, as
evidenced by the postmark, if mailed with first-class postage prepaid and
correctly addressed, or (z) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee. Whenever notice is given to a
shareholder or director by any means other than mail, the notice shall be
deemed given when received.
(b) In calculating time periods for notice, when a period of time measured
in days, weeks, months, years, or other measurement of time is prescribed for
the exercise of any
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privilege or the discharge of any duty, the first day shall not be counted but
the last day shall be counted.
9.6 ELECTION OF "FAIR PRICE" STATUTE. The provisions of Sections
14-2-1110 through 14-2-1113 of the Code, as they may be amended from time to
time, shall apply to the Corporation, to the extent permitted.
9.7 ELECTION OF "BUSINESS COMBINATION" STATUTE. The provisions of
Section 14-2-1131 through 14-2-1133 of the Code, as they may be amended from
time to time, shall apply to the Corporation, to the extent permitted.
ARTICLE TEN
AMENDMENTS
Except as otherwise provided below or under the Code, the Board of
Directors shall have the power to alter, amend, or repeal these Bylaws or adopt
new Bylaws. Notwithstanding any other provision of these Bylaws, the
Corporation's Articles of Incorporation or law, neither Section 2.3, 2.13, or
3.8, nor Article Eight hereof nor this Article Ten may be amended or repealed
except upon the affirmative vote of holders of at least a majority of the total
number of votes of the then outstanding shares of capital stock of the Company
that are entitled to vote generally in the election of directors, voting
together as a single class. Any Bylaws adopted by the Board of Directors may be
altered, amended, or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may prescribe in adopting any Bylaw or Bylaws that the Bylaw or
Bylaws so adopted shall not be altered, amended, or repealed by the Board of
Directors.
Dated: ______________ __, 1997.
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EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
MELITA INTERNATIONAL CORPORATION
TABLE OF CONTENTS
i
<PAGE> 20
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE OFFICE .......................................... 1
1.1 REGISTERED OFFICE AND AGENT ............................. 1
1.2 PRINCIPAL OFFICE ........................................ 1
1.3 OTHER OFFICES ........................................... 1
ARTICLE TWO SHAREHOLDERS' MEETINGS .......................... 1
2.1 PLACE OF MEETINGS ....................................... 1
2.2 ANNUAL MEETINGS ......................................... 2
2.3 SPECIAL MEETINGS ........................................ 2
2.4 NOTICE OF MEETINGS ...................................... 2
2.5 WAIVER OF NOTICE ........................................ 2
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT .............. 2
2.7 VOTING OF SHARES ........................................ 3
2.8 PROXIES ................................................. 3
2.9 PRESIDING OFFICER ....................................... 3
2.10 ADJOURNMENTS .......................................... 4
2.11 CONDUCT OF THE MEETING ................................ 4
2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING .............. 4
2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS ................. 4
ARTICLE THREE BOARD OF DIRECTORS ............................ 5
3.1 GENERAL POWERS .......................................... 5
3.2 NUMBER, ELECTION AND TERM OF OFFICE ..................... 5
3.3 REMOVAL OF DIRECTORS .................................... 5
3.4 VACANCIES ............................................... 6
3.5 COMPENSATION ............................................ 6
3.6 COMMITTEES OF THE BOARD OF DIRECTORS .................... 6
3.7 QUALIFICATION OF DIRECTORS .............................. 6
3.8 CERTAIN NOMINATION REQUIREMENTS ........................ 6
ARTICLE FOUR MEETINGS OF THE BOARD OF DIRECTORS ............. 7
4.1 REGULAR MEETINGS ........................................ 7
4.2 SPECIAL MEETINGS ........................................ 7
4.3 PLACE OF MEETINGS ....................................... 7
4.4 NOTICE OF MEETINGS ...................................... 7
4.5 QUORUM .................................................. 8
4.6 VOTE REQUIRED FOR ACTION ................................ 8
4.7 PARTICIPATION BY CONFERENCE TELEPHONE ................... 8
4.8 ACTION BY DIRECTORS WITHOUT A MEETING ................... 8
4.9 ADJOURNMENTS ............................................ 8
4.10 WAIVER OF NOTICE ...................................... 8
ARTICLE FIVE OFFICERS ....................................... 9
5.1 OFFICES ................................................. 9
5.2 TERM .................................................... 9
5.3 COMPENSATION ............................................ 9
5.4 REMOVAL ................................................. 9
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
5.5 CHAIRMAN OF THE BOARD ................................... 9
5.6 CHIEF EXECUTIVE OFFICER ................................. 10
5.7 PRESIDENT ............................................... 10
5.8 VICE PRESIDENTS ......................................... 10
5.9 SECRETARY ............................................... 10
5.10 TREASURER ............................................. 10
ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS ..................... 11
ARTICLE SEVEN SHARES ........................................ 11
7.1 SHARE CERTIFICATES ...................................... 11
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS . 11
7.3 TRANSFERS OF SHARES .................................... 11
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER ................ 12
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES ................. 12
7.6 FIXING OF RECORD DATE ................................... 12
7.7 RECORD DATE IF NONE FIXED ............................... 12
ARTICLE EIGHT INDEMNIFICATION ............................... 12
8.1 INDEMNIFICATION OF DIRECTORS ............................ 13
8.2 INDEMNIFICATION OF OTHERS ............................... 13
8.3 OTHER ORGANIZATIONS .................................... 13
8.4 ADVANCES ................................................ 13
8.5 NON-EXCLUSIVITY ......................................... 14
8.6 INSURANCE ............................................... 14
8.7 NOTICE .................................................. 14
8.8 SECURITY ................................................ 14
8.9 AMENDMENT .............................................. 14
8.10 AGREEMENTS ............................................ 15
8.11 CONTINUING BENEFITS ................................... 15
8.12 SUCCESSORS ............................................ 15
8.13 SEVERABILITY .......................................... 15
8.14 ADDITIONAL INDEMNIFICATION ............................ 15
ARTICLE NINE MISCELLANEOUS .................................. 15
9.1 INSPECTION OF BOOKS AND RECORDS ......................... 16
9.2 FISCAL YEAR ............................................. 16
9.3 CORPORATE SEAL .......................................... 16
9.4 ANNUAL STATEMENTS ....................................... 16
9.5 NOTICE .................................................. 16
9.6 ELECTION OF "FAIR PRICE" STATUTE ....................... 17
9.7 ELECTION OF "BUSINESS COMBINATION" STATUTE ............. 17
ARTICLE TEN AMENDMENTS ...................................... 17
</TABLE>
<PAGE> 1
EXHIBIT 10.4
MELITA INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The Melita International Corporation Employee Stock Purchase Plan (the
"Plan") is intended to encourage employee stock ownership by offering employees
of Melita International Corporation (the "Company") and its subsidiaries
Purchase Rights (as such term is defined in Section 2) to purchase shares of
Common Stock. The Plan is intended to operate as a bifurcated plan, providing
benefits as an "employee stock purchase plan" as defined in Section 423 of the
Internal Revenue Code of 1986, as amended ("Code"), to those employees eligible
to participate in and receive benefits under such a plan, and providing similar
benefits through an employee stock purchase plan not intended to satisfy Code
Section 423 to eligible employees who may not benefit under a plan satisfying
Code Section 423. The provisions of the Plan shall, accordingly, be construed
so as to comply with the requirements of Section 423 of the Code, whenever
possible.
2. DEFINITIONS.
"BASE PAY" means regular straight-time and overtime earnings received from
the Company, excluding payments for incentive compensation, bonuses and other
special payments.
"BOARD" mean the Board of Directors of the Company.
"COMMITTEE" means the Board or, if designated by the Board, the
Compensation Committee of the Board or any other committee which may be so
designated.
"COMMON STOCK" or "STOCK" means the Common Stock, no par value per
share, of the Company, and any other stock or securities (including
any other share or securities of an entity other than the Company)
for or into which the outstanding shares of such stock are hereinafter
exchanged or changed.
"COMPANY" means Melita International Corporation.
"CUSTODIAN" means Smith Barney, Inc., whose address is 388 Greenwich
Street, 28th Floor, New York, New York 10013, or such other person as the
Committee shall designate from time to time.
"EFFECTIVE DATE" means the date of effectiveness of the Company's
registration statement under the Securities Act of 1933 related to the
Company's initial public offering, or such other date set by the Board for the
Plan to become effective. The Effective Date shall be subject to shareholder
approval pursuant to Section 17.
<PAGE> 2
"EXERCISE DATE" means the last day of a Purchase Period (as such term is
defined in Section 4(b) hereof), on which date all Participants' outstanding
Purchase Rights will automatically be exercised.
"FAIR MARKET VALUE" of each share of Common Stock on any date means the
price determined below on the last business day immediately preceding the date
of valuation:
(a) The closing sales price per share of the Common Stock, regular
way, or in the absence thereof the mean of the last reported bid and asked
quotations, on such date on the exchange having the greatest volume of trading
in the Common Stock during the thirty-day period preceding such date (or if
such exchange was not open for trading on such date, the next preceding date on
which it was open); or
(b) If there is no price as specified in (a), the final reported
sales price per share of the Common Stock, or if not reported, the mean of the
closing high bid and low asked prices in the over-the-counter market for the
Common Stock as reported by the National Association of Securities Dealers
Automatic Quotation System, or if not so reported, then as reported by the
National Quotation Bureau Incorporated, or if such organization is not in
existence, by an organization providing similar services, on such date (or if
such date is not a date for which such system or organization generally
provides reports, then on the next preceding date for which it does so); or
(c) If there also is no price as specified in (b), the price per
share of the Common Stock determined by the Board by reference to bid-and-asked
quotations for the Common Stock provided by members of an association of
brokers and dealers registered pursuant to Subsection 15(b) of the Exchange
Act, which members make a market in the Common Stock, for such recent dates as
the Board shall determine to be appropriate for fairly determining current
market value; or
(d) If there also is no price as specified in (c), an amount per share of
the Common Stock determined in good faith by the Board, using any reasonable
valuation method, to be the price at which a share of the Common Stock might
change hands between a willing buyer and a willing seller, neither being under
any compulsion to buy or to sell and both having reasonable knowledge of the
relevant facts. The Fair Market Value may be based on the most recent valuation
of the Company performed by the Company's auditors or by other professionals
retained to value the Company.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"PARTICIPANT" means an employee of the Company or of a parent or
subsidiary of the Company who has enrolled in the Plan by completing a
Participation Form (as such term is defined in Section 5 hereof) with the Plan
Administrator. For purposes of the Plan, a parent means a company which owns a
majority interest in the Company and effectively controls the Company, and a
subsidiary means a company in which the Company owns a majority interest and
which the Company effectively controls. For purposes of employees participating
in the
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portion of the Plan satisfying Code Section 423, the terms parent and
subsidiary have the meanings set forth in Code Sections 424(e) and (f),
respectively.
"PLAN ADMINISTRATOR" means the Director of Human Resources of the Company,
or any such other person so designated by the Committee.
"PURCHASE PERIOD" means a semi-annual period as defined in Section 4(b)
hereof.
"PURCHASE RIGHT" means a Participant's option to purchase shares of Common
Stock that is deemed to be granted to a Participant during a Purchase Period
pursuant to Section 7.
"SECTION 16(B) INSIDER" means those persons subject to the requirements of
Section 16(b) of the Securities Exchange Act of 1934, as amended.
"TRADING DAY" refers to a day during which the NASDAQ National Market
System is available for trading shares of Common Stock.
3. ELIGIBILITY.
(a) Participation in the Plan is voluntary. All full-time employees of the
Company, including officers and directors who are full-time employees but who
are not members of the Committee, who have completed at least six (6) months of
continuous service with the Company are eligible to participate in the Plan.
The employee's entry date in the Plan shall be the first day of the Purchase
Period immediately following the date the employee has satisfied the
eligibility provisions. Full-time employees mean those employees who work at
least twenty (20) hours per week and for more than five (5) months in any
calendar year.
(b) Notwithstanding any provision of the Plan to the contrary, no employee
may participate in that part of the Plan which is intended to satisfy Code
Section 423 if prior to the grant of Purchase Rights or if following a grant of
Purchase Rights under the Plan, the employee would own, directly or by
attribution, stock, Purchase Rights or other stock options to purchase stock
representing five percent (5%) or more of the total combined voting power or
value of all classes of the Company's stock as defined in Code Section
423(b)(3).
(c) Subject to committee approval, any employees of a company or other
entity which is acquired directly or indirectly by the Company (whether by
merger, consolidation, stock purchase or otherwise) and becomes a subsidiary of
the Company (as such term is defined in Code Section 424(f)) may, for purposes
of determining eligibility to participate in the Plan, be granted past service
credit for employment with such company or entity.
4. SECURITIES SUBJECT TO THE PLAN AND PURCHASE PERIODS.
(a) The maximum number of shares which may be granted and purchased under
the Plan may not exceed Two Hundred and Fifty Thousand (250,000) shares of
Common Stock (subject to adjustment as provided in Section 15), which may be
authorized but unissued shares, re-acquired shares or shares bought on the open
market. If any Purchase Right granted shall
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expire or terminate for any reason without having been exercised in full, the
unpurchased shares of Common Stock shall again become available for purposes of
the Plan, unless the Plan has been terminated.
(b) Purchase Period means each six-month period, beginning on January 1
and July 1 of each year; provided, however, that the first such Purchase Period
shall begin concurrently with the Effective Date of the Plan and end of the
first December 31 or June 30 occurring more than six months after the Effective
Date.
5. PARTICIPATION.
Eligible employees become Participants in the Plan by authorizing payroll
deductions for the purpose through a "Participation Form" filed with the Plan
Administrator no later than fifteen (15) days prior to the start date of a
Purchase Period. Notwithstanding the above, and subject to committee approval,
the Plan Administrator may provide for a special election period for
participation in the Plan following the acquisition of a company or other
entity directly or indirectly by the Company (whether by merger, consolidation,
stock purchase or otherwise) which results in such company or entity becoming a
subsidiary of the Company (as such term is defined in Code Section 424(f)).
Subject to committee approval, all employees of the Company and its
subsidiaries shall be eligible to participate in such special election period.
6. PAYROLL DEDUCTIONS.
(a) In order to purchase Common Stock each Participant must elect and
indicate on the Participation Form the amount he/she wishes to authorize the
Company to deduct at regular payroll intervals during the Purchase period,
expressed either as (1) an integral percentage amount ranging from one percent
(1%) to ten percent (10%) of such Participant's Base Pay for the applicable
payroll period, with a minimum deduction of $10.00 per payday during the
Purchase Period, or (2) a dollar amount to be deducted pro rata at regular
payroll intervals during the Purchase Period, with a minimum deduction of $10
per payday and a maximum dollar amount per payday to be set by the Committee.
The Committee shall determine from time to time whether method (1) or (2), or
both, shall be utilized. The Participation Form will include authorization for
the Company to make payroll deductions from the Participant's Base Pay.
(b) A Participant may not be granted Purchase Rights under the Plan with
respect to more than $25,000.00 worth of Common Stock for any calendar year
such Purchase Rights to purchase Common Stock are outstanding pursuant to the
terms of the Plan. The $25,000.00 limit is determined according to the Fair
Market Value of the Common Stock on the first day (the grant date) of the
Purchase Period. Participants will be notified if these limitations become
applicable to them.
(c) The amounts deducted from the Participant's Base Pay shall be credited
to a bookkeeping account established in the Participant's name under the Plan,
but no actual separate account will be established by the Company to hold such
amounts. There shall be no interest paid on the balance credited to a
Participant's account. Amounts deducted from the participant's Base
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Pay may be commingled with the general assets of the Company and may be used
for its general corporate purposes prior to the purchase of Common Stock for a
Purchase Period.
(d) Payroll deductions shall begin on the first payday of each Purchase
Period, and shall end on the last payday of each Purchase Period. Eligible
employees may participate in the Plan and purchase shares only through payroll
deductions. Notwithstanding the above, a Participant on an approved leave of
absence may continue participating in the Plan by making cash payments to the
Company within a normal pay period equal to the amount of the normal payroll
deduction had a leave of absence not occurred. The right of a Participant on an
approved leave of absence to continue participating in the Plan shall terminate
upon the expiration of twelve (12) weeks of leave, unless the Participant's
right to re-employment by the Company after a longer leave is guaranteed by
statute or contract, in which case termination of the right to participate will
occur upon the expiration of such extended period.
(e) So long as a Participant remains an employee of the Company, payroll
deductions will continue in effect from Purchase Period to Purchase Period,
unless at least fifteen (15) calendar days prior to the first day of the next
succeeding Purchase Period the Participant:
(i) elects a different rate by filing a new Participation Form with
the Plan Administrator; or
(ii) withdraws from the Plan in accordance with Section 9 hereof.
(f) Unless a Participant files with the Plan Administrator a new
Participation Form electing to withdraw prior to fifteen (15) calendar days
before the beginning of the next Purchase Period as permitted under the Plan,
such Participant's payroll deductions will continue throughout the next
Purchase Period and his or her Purchase Right to purchase Common Stock will be
deemed to be fully and automatically exercised on the last day of such Purchase
Period with respect to payroll deductions made during that Purchase Period.
7. GRANT OF PURCHASE RIGHT.
(a) Subject to the effective date provisions of Section 17, at 5:01 p.m.
Eastern Standard Time, on the last day of each Purchase Period (the Exercise
Date), each Participant who has not withdrawn from the Plan pursuant to Section
9 shall be deemed to have been granted a Purchase Right as of the first day of
the Purchase Period to purchase as many full shares of Common Stock as can be
purchased with the balance credited to such Participant's account as of the
Exercise Date.
(b) The price at which each Purchase Right to purchase Common Stock shall
be exercised is the lower of:
(i) 85% of the Fair Market Value of the Common Stock on the NASDAQ
National Market System on the first Trading Day of a Purchase Period; or
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(ii) 85% of the Fair Market Value of the Common Stock on the NASDAQ
National Market System on the last Trading Day of such Purchase Period.
(c) The number of shares purchasable by each Participant per Purchase
Period will be the number of whole shares obtained by dividing
the amount credited to the Participant's Account as of the Exercise Date in the
Purchase Period by the purchase price in effect for the Purchase Period
and rounding the result down to the nearest whole number.
(d) A Participant may not purchase shares of Stock with a Fair Market
Value exceeding $12,500 for any particular Purchase Period. The Committee has
the power, exercisable at any time prior to the start of a Purchase Period, to
increase or decrease the dollar value maximum for that Purchase Period, subject
to the limitations in Section 6(b). The maximum, as thus adjusted, will
continue in effect from Purchase Period to Purchase Period until the Committee
once again exercises its power to adjust the maximum.
8. EXERCISE OF PURCHASE RIGHT
(a) Subject to the effective date provisions of Section 17, each
outstanding Purchase Right shall be deemed automatically exercised as of 5:01
p.m. of the Exercise Date (the last day of the Purchase Period). The exercise
of the Purchase Right is accomplished by applying the balance credited to each
Participant's account as of the Exercise Date to the purchase on the Exercise
Date of whole shares of Common Stock at the purchase price in
effect for the Purchase Period. Any amount not applied to the purchase of
Common Stock for that Purchase period will be held for the purchase
of Stock in the next Purchase Period.
(b) If a Participant purchases the maximum share amount set forth in
Section 7(d), any amount not applied to the purchase of Common Stock for that
Purchase Period will be held for the purchase of Stock in the next Purchase
Period.
(c) If the number of Shares for which Purchase Rights are exercised
exceeds the number of Shares available in any Purchase Period under the Plan,
the Shares available for exercise will be allocated by the Plan Administrator
pro rata among the Participants in such Purchase Period in proportion to the
relative amounts credited to their accounts. Any amounts not thereby applied to
the purchase of Common Stock under the Plan will be refunded to the
Participants after the end of the Purchase Period.
9. WITHDRAWAL AND TERMINATION OF PURCHASE RIGHTS.
(a) A Participant may withdraw from the Plan during a Purchase Period by
providing written notice to the Plan Administrator on or before 5:00 p.m. of
the last business day of such Purchase Period. Such withdrawal will become
effective upon receipt by the Plan Administrator of such notice, and payroll
deductions will cease as soon as is administratively feasible from the date of
such notice, and no additional payroll deductions will be made on behalf of
such Participant during the Purchase Period. Such notice shall be on a form
(the "Withdrawal Form") provided by the Plan Administrator for that purpose.
The Withdrawal Form will permit such a Participant to elect to receive all
accumulated payroll deductions as a refund without penalty or to exercise such
Participant's outstanding Purchase Rights to purchase Stock on the following
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Exercise Date in the amount of all payroll deductions withheld during the
Purchase Period prior to the Participant's withdrawal.
(b) Any Participant who withdraws from the Plan pursuant to Section 9(a)
will not be eligible to rejoin the Plan until the second (2nd) Purchase Period
following the Purchase Period of withdrawal. A Participant wishing to resume
participation may re-enroll in the Plan by completing and filing a new
Participation Form for a subsequent Purchase Period by following the applicable
enrollment procedures.
(c) To the extent, if any, required by Section 16(b) of the Securities
Exchange Act of 1934, as amended, and the rules, regulations, decisions and no
action positions thereunder, in the event a Participant who is a Section 16(b)
Insider ceases participation in the Plan, whether as a result of withdrawal
during a Purchase Period or of such Participant's decision to discontinue his
or her enrollment for subsequent Purchase Periods, such insider may not
re-enroll in the Plan until the Purchase Period beginning coincident with or
immediately following the expiration of a six (6) month period beginning upon
the effective date of such Section 16(b) Insider's withdrawal from the Plan.
(d) If a Participant ceases to be an employee of the Company for any
reason during a Purchase Period, his or her outstanding Purchase Right will
immediately terminate, and all sums previously collected from such Participant
or credited to his or her account during such Purchase Period under the
terminated Purchase Right will be refunded to the Participant.
10. RIGHTS AS SHAREHOLDER.
(a) A Participant is not a shareholder in shares to be purchased during a
Purchase Period until the Purchase Right is exercised on the Exercise Date.
Thus, a Participant will not have a right to any dividend or distribution made
prior to the Exercise Date on shares of Common Stock purchased during the
Purchase Period.
(b) Upon a written request made to the Custodian, the Participant will be
entitled to receive, as soon as practicable after the Exercise Date, a stock
certificate for the number of purchased shares. The Custodian may impose upon,
or pass through to, the Participant a reasonable fee for the transfer of shares
of Common Stock in the form of stock certificates from the Custodian to the
Participant. It is the responsibility of each Participant to keep his or her
address current with the Company through the Plan Administrator and with the
Custodian.
11. SALE OF COMMON STOCK ACQUIRED UNDER THE PLAN.
(a) Participants may sell the shares of Common Stock they acquire under
the Plan only in compliance with the restrictions set forth below.
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(i) Section 16(b) Insiders may be subject to certain restrictions in
connection with their transactions under the Plan and with respect to the sale
of shares of Stock obtained under the Plan, including, but not limited to, the
Company's Insider Trading Policy.
(ii) Sales of Stock obtained under the Plan by a Participant must
comply with the Company's Insider Trading Policy, as the same may exist from
time to time.
(iii) No Participant purchasing shares of Common Stock under the Plan
shall be entitled to sell such shares of Stock until the first day of the
second (2nd) Purchase Period immediately following the Purchase Period in which
the shares of Stock were obtained. For purposes of this restriction, the
Company may, at its option, include the following legend on any certificates
representing the Stock so purchased:
"The shares represented by this Certificate are subject to certain
restrictions on sale and disposition contained in the Melita
International Corporation Employee Stock Purchase Plan, a copy of which
is on file with the Corporation."
(b) The Participant understands and agrees that, in order to insure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) A Participant shall immediately inform the Plan Administrator in
writing if the Participant transfers any shares purchased through the Plan
within two (2) years from the date of grant of the related Purchase Right. Such
transfer shall include disposition by sale, gift or other manner. The
Participant may be requested to disclose the manner of the transfer, the date
of the transfer, the number of shares involved and the transfer price. By
executing the Participation Form, each Participant obligates himself or herself
to provide such information to the Plan Administrator.
(d) The Company is authorized to withhold from any payment to be made to a
Participant, including any payroll and other payments not related to the Plan,
amounts of withholding and other taxes due in connection with any transaction
under the Plan, and a Participant's enrollment in the Plan will be deemed to
constitute his or her consent to such withholding.
12. PLAN ADMINISTRATION.
(a) The Plan shall be administered by the Committee. No member of the
Board will be eligible to participate in the Plan during his or her period of
Committee service.
(b) The Committee shall have the plenary power, subject to and within the
limited of the express provisions of the Plan:
(i) to determine the commencement and termination date of the offering
of Common Stock under the Plan; and
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(ii) to interpret the terms of the Plan, established and revoke rules
for the administration of the Plan and correct or reconcile any defect or
inconsistency in the Plan.
(c) The Committee may delegate all or part of its authority to administer
the Plan to the Plan Administrator, who may in turn delegate the day-to-day
operations of the Plan to the Custodian. The Custodian will establish and
maintain, as agent for the Participants, accounts for the purpose of holding
shares of Common Stock and/or cash contributions as may be necessary or
desirable for the administration of the Plan.
(d) The Board may waive or modify any requirement that a notice or
election be made or filed under the Plan a specified period in advance in an
individual case or by adoption of a rule or regulation under the Plan, without
the necessity of an amendment to the Plan.
13. TRANSFERABILITY.
(a) Any account maintained by the Custodian for the benefit of a
Participant with respect to shares acquired pursuant to the Plan may only be in
the name of the Participant; provided, however, that the Participant may elect
to maintain such account with right of joint ownership with such Participant's
spouse. Such election may only be made on a form (the "Joint Account Form")
provided by the Company.
(b) Neither payroll deductions credited to a Participant's account nor any
Purchase Rights or other rights to acquire Common Stock under the Plan may be
assigned, transferred, pledged or otherwise disposed of by Participants other
than by will or the laws of descent and distribution and, during the lifetime
of a Participant, Purchase Rights may be exercised only by the Participant.
14. MERGER OR LIQUIDATION OF THE COMPANY.
In the event the Company merges with another corporation and the Company
is not the surviving entity, or in the event all or substantially all of the
stock or assets of the Company is acquired by another company, or in the event
of certain other similar transactions, the Committee may, in its sole
discretion and in connection with such transaction, cancel each outstanding
Purchase Right and refund all sums previously collected from Participants under
the canceled outstanding Purchase Rights, or, in its discretion, cause each
Participant with outstanding Purchase Rights to have his or her outstanding
Purchase Right exercised immediately prior to such transaction and thereby have
the balance of his or her account applied to the purchase of whole
shares of Common Stock (subject to the maximum dollar limitation of
Section 7(d)) at the purchase price in effect for the Purchase Period, which
would be treated as ending with the effective date of such transaction. The
balance of the account not so applied with be refunded to the Participant. In
the event of a merger in which the Company is the surviving entity, each
Participant is entitled to receive, for each share as to which such
Participant's Outstanding Purchase Rights are exercised as nearly as reasonably
may be determined by the Committee, in its sole discretion, the securities or
property that a holder of one share of Common Stock was entitled to receive
upon the merger.
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15. ADJUSTMENT FOR CHANGES IN CAPITALIZATION.
To prevent dilution or enlargement of the rights of Participants under the
Plan, appropriate adjustments may be made in the event any change is made to
the Company's outstanding Common Stock by reason of any stock dividend, stock
split, combination of shares, exchange of shares or other change in the Common
Stock effected without the Company's receipt of consideration. Adjustments may
be made to the maximum number and class of securities issuable under the Plan,
the maximum number and class of securities purchasable per outstanding Purchase
Right and the number and class of securities and price per share in effect
under each outstanding Purchase Right. Any such adjustments may be made
retroactively effective to the beginning of the Purchase Period in which the
change in capitalization occurs, and any such adjustment will be made by the
Committee in its sole discretion.
16. AMENDMENT AND TERMINATION.
The Committee may terminate or amend the Plan at any time; provided,
however, that no termination or amendment of the Plan shall change or affect
Purchase Rights previously granted under the Plan without the consent of the
affected Participant. If not sooner terminated by the Committee, the Plan shall
terminate at the time Purchase Rights have been exercised with respect to all
shares of Common Stock reserved for grant under the Plan.
17. SHAREHOLDER APPROVAL AND EFFECTIVE DATE.
The Plan is subject to the approval of shareholders of the Company holding
a majority of the shares of the Common Stock. Until the Plan is approved by the
shareholders, no Purchase Rights shall be deemed granted or exercised under
Sections 7 and 8. Upon approval of the Plan by the Company's shareholders,
Purchase Rights shall be deemed granted and exercised as of the appropriate
dates in the Plan as of the Effective Date, and shares of Stock purchased shall
be deemed purchased as of the applicable Exercise Date.
18. NO EMPLOYMENT RIGHTS.
Participation in the Plan will not impose any obligations upon the Company
to continue the employment of the Participant for any specific period and will
not affect the right of the Company to terminate such person's employment at
any time, with or without cause.
19. COSTS.
Except as set forth in Section 10(b), costs and expenses incurred in the
administration of the Plan and the maintenance of accounts with the Custodian
may be shared by the Participant and the Company, to the extent provided in
this Section 19. Any brokerage fees and commissions for the purchase of Common
Stock under the Plan (including shares of Common Stock purchased upon
reinvestment of dividends and distributions) will be shared equally by the
Participant and the Company, but any brokerage fees and commission for the sale
of shares of Common Stock under the Plan by a Participant will be borne by such
Participant.
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20. REPORTS.
After the close of each Purchase Period, each Participant in the Plan will
receive a report from the Custodian indicating the amount of the Participant's
contributions to the Plan during the Purchase Period, the amount of the
contributions applied to the purchase of Common Stock for the Purchase Period,
the purchase price per share in effect for the Purchase Period and the amount
of the contributions (if any) carried over to the next Purchase Period.
21. GOVERNING LAW.
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan will be determined in accordance with laws of
the State of Georgia, without giving effect to principles of conflicts of laws,
and applicable Federal law.
22. COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.
The Plan, the granting and exercising of Purchase Rights hereunder, and
the other obligations of the Company, the Plan Administrator and the Custodian
under the Plan will be subject to all applicable federal and state laws, rules,
and regulations, and to such approvals by any regulatory or governmental agency
as may be required. The Company may, in its discretion, postpone the issuance
or delivery of shares of Common Stock upon exercise of Purchase Rights until
completion of such registration or qualification of such shares of Common Stock
or other required action under any federal or state law, rule, or regulation,
listing or other require action with respect to any automated quotation system
or stock exchange upon which the shares of Common Stock or other Company
securities are designated or listed, or compliance with any other contractual
obligation of the Company, as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
deliver of shares of Common Stock in compliance with applicable laws, rules,
and regulations, designation or listing requirements, or other contractual
obligations.
23. EFFECT OF PLAN.
The provisions of the Plan shall, in accordance with its terms, be binding
upon and inure to the benefit of, all successors of each employee participating
in the Plan, including, without limitation, such employee's estate and the
executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
employee.
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EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the
5th day of March, 1997 between Alek Szlam, an individual resident of the State
of Georgia ("Executive"), and Melita International Corporation, a Georgia
corporation with its principal place of business located in Norcross, Georgia
("the Company").
WHEREAS, the Company desires to employ Executive as the Chief Executive
Officer of the Company, and Executive desires to accept said employment from
the Company; and
WHEREAS, the Company and Executive have agreed upon the terms and
conditions of Executive's employment with the Company and the parties desire to
express the terms and conditions in this employment agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereby
agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and
Executive hereby accepts such employment from the Company, under the terms of
this Agreement for a period beginning on the Effective Date and terminating on
the date two (2) years thereafter (the "Term").
2. DUTIES. During the Term of this Agreement, Executive shall be employed as
the Chief Executive Officer of the Company. Executive's responsibilities as
Chief Executive Officer shall be to plan for the future of the Company and to
involve himself in the management and operations of the Company in a manner as
he and the Board of Directors from time to time deem appropriate under the
circumstances. The Executive shall devote his full business time, attention,
skill, energies and efforts to the diligent performance of his duties hereunder,
except during periods of illness or periods of vacation and leaves of absence
consistent with the Company's policy. Executive shall establish his own work
schedule for the performance of his duties as described in this Section 2.
3. BASE SALARY. Executive's base salary commencing on the Effective Date and
during the Term of this Agreement shall be $300,000 per year (the "Base
Salary"), which amount may be increased annually at the discretion of the Board
of Directors. The Base Salary shall be paid to Executive by the Company
monthly in arrears or in accordance with the Company's regular payroll practice
as in effect from time to time.
4. ANNUAL BONUS.
Immediately following completion of each fiscal year of the Company and no
later than four (4) months after such date, Executive shall receive, in
addition to the Base Salary, an annual performance bonus in the amount of
$160,000.
<PAGE> 2
5. BENEFITS AND OTHER COMPENSATION.
Commencing on the Effective Date of this Agreement and during the Term of
this Agreement, the Company shall provide the benefits described below.
(a) Management Stock Incentive Program. The Executive shall participate in
the Company's stock option, stock purchase or other stock incentive plan
generally available to executive officers of the Company and shall be eligible
for the grant of stock options, restricted stock and other awards thereunder.
In addition the Company's Board of Directors shall annually consider the
Executive's performance, and determine if any additional bonus is appropriate.
(b) Vacation. Executive shall have the right to set his own reasonable
vacation schedule as an integral part of Executive's right to set his own work
schedule.
(c) Medical Insurance and Other Benefits. The Company shall provide
Executive with medical insurance coverage for Executive in accordance with the
terms of the Company's medical insurance plan, if any, as it exists from time
to time and shall provide Executive with coverage under all other employee
benefit plans, programs and policies which the Company maintains from time to
time for the benefit of its executive employees.
(d) Expenses. Executive shall be reimbursed monthly by the Company for
the ordinary and necessary business expenses incurred by him in the performance
of his duties for the Company; provided that Executive shall first document
said business expenses in the manner generally required by the Company under
its standard employee business expense reimbursement policies and procedures.
6. TERMINATION; TERM.
(a) The term of this Agreement (the "Term") shall commence on the
Effective Date and end two (2) years thereafter. The term shall be
automatically extended for successive two (2) year periods unless either party
hereto delivers to the other written notice three (3) months prior to the end
of the Term of its desire to terminate this Agreement.
(b) Notwithstanding the terms of Section 6 (a) hereof, this Agreement and
the Executive's employment hereunder may be terminated as follows:
(i) immediately, without any notice by or to either party hereto,
upon the death of the Executive;
(ii) immediately by the Company for the Disability of the Executive
upon delivery by the Company to the Executive of a Notice of Termination;
or
(iii) immediately by the Company for Cause upon delivery by the
Company to the Executive of a Notice of Termination.
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(c) If the Executive's employment with the Company shall be terminated
during the Term (i) by reason of the Executive's death, or (ii) by the Company
for Disability or Cause, the Company shall pay to the Executive (or in the case
of his death, the Executive's estate) within fifteen days after the Termination
Date a lump sum cash payment equal to the Executive's Accrued Compensation.
(d) The pay and benefits provided for in this Section 6 shall be in lieu
of any other severance pay to which the Executive may be entitled under any
Company severance plan, program, practice or arrangement. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefit plans and other applicable
programs, policies and practices then in effect.
(e) The Base Salary, and benefits paid or provided herein, but no other
additional compensation, shall be paid to Executive or his estate up to the
effective date of termination of this Agreement for whatever reason, including
the death of Executive, and not thereafter.
7. EXECUTIVE WORKS. Executive agrees that Executive will promptly disclose
to the Company all Executive Works (defined below). Executive hereby
irrevocably assigns to the Company all right, title and interest in and to any
and all Executive Works, created by Executive at any time prior to Effective
Date and Executive will execute, without requiring the Company to provide any
further consideration therefor, such confirmatory assignments, instruments and
documents as the Company deems necessary or desirable in order to effect such
assignment. Executive further agrees that all Executive Works created by him
during the course of his employment by the Company are the sole property of the
Company and hereby assigns such Executive Works to the Company, and Executive
will execute, without requiring the Company to provide any further
consideration therefor, such confirmatory assignments, instruments and
documents as the Company deems necessary or desirable in order to effect such
assignment. The term "Executive Works" as used in this Agreement means any and
all works of authorship, inventions, discoveries, improvements, designs,
techniques, and work product, whether or not patentable, and in whatever form,
which are created, made, developed or reduced to practice, or caused to be
created, made, developed or reduced to practice by Executive during the course
of his employment with the Company, including all worldwide copyrights, trade
secrets, patent rights, and all confidential, proprietary and property rights
therein, and that relate in any way to the current or future business of the
Company or that result from any work performed by Executive for the Company.
8. WORKS MADE FOR HIRE. The Company and Executive acknowledge that in the
course of Executive's employment by the Company, Executive may have created, or
may create, for the Company or its customers certain works of authorship. Such
works may consist of manuals, documentation, pamphlets, instructional
materials, videodisks, computer programs, user interfaces, tapes or other
copyrightable material, or portions thereof, and may be created within or
without the Company's facilities and before, during or after normal business
hours. All such works related to or useful in the business of the Company are
specifically intended to be works
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made for hire by Executive and owned by the Company or its customers, as
applicable, and Executive shall cooperate with the Company in the protection of
the Company or its customer's, as applicable, copyrights therein and, to the
extent deemed desirable by the Company or its customers, as applicable, the
registration of such copyrights.
9. PRODUCTS, NOTES, RECORDS AND SOFTWARE. All memoranda, notes, records and
other documents and computer software made or compiled by Executive during the
course of Executive's employment by the Company or made available to him during
the course of his employment by the Company, including, without limitation, all
customer data, billing information, service data, and other technical material,
confidential information and trade secrets of the Company and its affiliates,
shall be the Company's property and Executive shall deliver all such materials
(and all copies thereof) to the Company within three (3) days after any
termination of his employment with the Company.
10. NONDISCLOSURE. Executive acknowledges and agrees that during his
employment by the Company, he has had, or will have, access to trade secrets
and other confidential or proprietary information peculiar to the Company, the
disclosure or use of which would injure the Company. Therefore, Executive
agrees that he will not use, reveal, or divulge any such trade secrets if such
use, revelation, or divulgence would violate the Georgia Trade Secrets Act of
1990, as amended. In addition, Executive agrees that during his employment by
the Company and after any termination thereafter, he will not, directly or
indirectly, use, reveal, or divulge any such confidential information,
proprietary information or trade secrets. However, Executive shall not be
required to keep confidential any trade secrets or confidential or proprietary
information of the Company which is or becomes publicly available, is
independently developed by Executive outside of the scope of his employment
relationship with the Company, or is rightfully obtained from third parties.
11. NONCOMPETITION. During the course of his employment by the Company and
for a period of two (2) years after termination of his employment by the
Company, Executive agrees that he shall not engage in or render services to any
entity engaged in, the predictive dialing computer software business or any
other business in which the Company is engaged during the course of his
employment (the "Business") within the United States of America ("Territory"),
and two (2) years thereafter.
12. NONSOLICITATION.
(a) Customers. During his employment by the Company, Executive shall not,
directly or indirectly without the Company's prior written consent, contact any
customer of the Company, with whom Executive, in the ordinary course of his
employment by the Company, had a material contact ("Customer") for business
purposes unrelated to furthering the business of the Company. For a period of
two (2) years following his employment by the Company, Executive shall not,
directly or indirectly, (i) contact, solicit, divert or take away, any Customer
for purposes of, or with respect to, selling a product or service which
competes with the Business of the Company, or (ii) take any affirmative action
in regard to establishing or continuing a
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relationship with a Customer for purposes of making, or which directly or
indirectly results in, a sale of a product or service which competes with the
Business of the Company.
(b) Employees. During the employment of the Executive and for a period of
two (2) years following any termination of employment of Executive, Executive
shall not, directly or indirectly, recruit or hire, or attempt to recruit or
hire, any other employees of the Company who were employed by the Company
during the employment of the Executive and who are actively employed during the
employment of the Executive or such two (2) year period.
13. REMEDY FOR BREACH. Executive agrees that remedies at law of the Company
for any actual or threatened breach by Executive of any of the covenants
contained in Section 7 through 12 of this Agreement would be inadequate and
that the Company shall be entitled to specific performance by Executive of the
covenants in such paragraphs or injunctive relief against activities in
violation of such paragraphs, or both, by temporary or permanent injunction or
other appropriate judicial remedy, writ or order, in addition to any damages
and legal expenses (including attorney's fees) which the Company may be legally
entitled to recover. Executive acknowledges and agrees that the covenants
contained in Sections 7 through 12 of this Agreement shall be construed as
agreements independent of any other provision of this or any other contract
between the parties hereto, and that the existence of any claim or cause of
action by Executive against the Company, whether predicated upon this or any
other contract, shall not constitute a defense to the enforcement by the
Company of said covenants.
14. SURVIVAL. The provisions of Sections 7 through 13 shall survive
termination of this Agreement.
15. INVALIDITY OF ANY PROVISION. It is the intention of the parties hereto
that Sections 7 through 12 of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and enforceable.
16. APPLICABLE LAW. This Agreement is being executed in the State of Georgia
and shall be construed and enforced in accordance with the internal laws of the
State of Georgia, without giving effect to the conflicts laws of such state.
17. WAIVER OF BREACH. The waiver by the Company of a breach of any provision
of this Agreement by Executive shall not operate or be construed as a waiver
of any subsequent breach by Executive.
18. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its Successors and Assigns, and the Company shall require any
Successors and Assigns to
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expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties. This Agreement may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any waiver, changes,
modification, extension, or discharge is sought.
20. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Accrued Compensation" shall mean an amount, including all amounts
earned or accrued through the Termination Date but not paid as of the
Termination Date including, (i) base salary of the Executive, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive
on behalf of the Company as of the Termination Date, and (iii) bonuses and
incentive compensation owed to the Executive.
(c) The termination of the Executive's employment shall be for "Cause" if
it is a result of:
(i) any act that the Board of Directors reasonably determines (A)
constitutes, on the part of the Executive, fraud, dishonesty, gross
malfeasance of duty, or conduct grossly inappropriate to the Executive's
office, and (B) is demonstrably likely to lead to material injury to the
Company or resulted or was intended to result in a material benefit to
the Executive at the Company's expense; or
(ii) the conviction (from which no appeal may be or is timely taken)
of the Executive of a felony; provided, however, that in the case of
clause (i) above, such conduct shall not constitute Cause (x) unless (A)
there shall have been delivered to the Executive a written notice setting
forth with specificity the reasons that the Board believes the
Executive's conduct constitutes the criteria set forth in clause (i), (B)
the Executive shall have been provided the opportunity to be heard in
person by the Board (with the assistance of the Executive's counsel if
the Executive so desires), and (C) after such hearing, the termination
for Cause is approved by a resolution adopted in good faith by two-thirds
of the members of the Board (other than the Executive).
(d) "Disability" shall mean a physical or mental infirmity which
materially impairs the Executive's ability to substantially perform any of the
essential functions of his job with the
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Company for a period of 180 consecutive days, as determined by an independent
physician selected with the approval of both the Company and the Executive.
(e) "Effective Date" shall mean the day that the Company closes its
Initial Public Offering.
(f) "Initial Public Offering" shall mean the closing of the first public
offering of the Company's common stock registered under the Act in which the
aggregate proceeds to the Company, net of all underwriting discounts and
commissions and other expenses of issuance and distribution as stated in the
prospectus relating to such offering, are at least twenty-five million dollars
($25,000,000).
(g) "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(h) "Successors and Assigns" shall mean, for a corporation, a corporation
or other entity acquiring all or substantially all the assets and business of
the Company (including this Agreement), and for any individual as the
Executive, the estate, successors or heirs, and/or the legal representative of
the Executive, whether by operation of law or otherwise.
(i) "Termination Date" shall mean, in the case of the Executive's death,
his date of death, and in all other cases, the date specified in the Notice of
Termination.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EXECUTIVE: COMPANY:
MELITA INTERNATIONAL CORPORATION
/s/ Alek Szlam
- ----------------------------
Alek Szlam
By: /s/ J. Neil Smith
--------------------------------------
J. Neil Smith, President and Chief
Operating Officer
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<PAGE> 1
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the
5th day of March, 1997 between J. Neil Smith, an individual resident of the
State of Georgia ("Executive"), and Melita International Corporation, a Georgia
corporation with its principal place of business located in Norcross, Georgia
("the Company").
WHEREAS, the Company desires to employ Executive as the President and
Chief Operating Officer of the Company, and Executive desires to accept said
employment from the Company; and
WHEREAS, the Company and Executive have agreed upon the terms and
conditions of Executive's employment with the Company and the parties desire to
express the terms and conditions in this employment agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereby
agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and
Executive hereby accepts such employment from the Company, under the terms of
this Agreement for a period beginning on the Effective Date and terminating on
July 31, 1999 (the "Term").
2. DUTIES. During the Term of this Agreement, Executive shall be employed as
the President and the Chief Operating Officer of the Company. Executive's
responsibilities as the President and Chief Operating Officer of the Company
shall be to take such action to involve himself in the general overall and day
to day management and operations of the Company in a manner as he and the Board
of Directors of the Company (the "Board of Directors") from time to time deem
appropriate under the circumstances.
3. BASE SALARY. Executive's base salary commencing on the Effective Date and
during the Term of this Agreement shall be $225,000 per fiscal year (the "Base
Salary"), which amount may be increased annually at the discretion of the Board
of Directors. The Base Salary shall be paid to Executive by the Company
monthly in arrears or in accordance with the Company's regular payroll practice
as in effect from time to time.
4. ANNUAL BONUS.
Immediately following completion of each fiscal year of the Company and no
later than four (4) months after such date, Executive shall receive, in
addition to the Base Salary, an annual performance bonus as determined by the
Board of Directors of up to $100,000 ("Annual Bonus").
<PAGE> 2
5. BENEFITS AND OTHER COMPENSATION.
Commencing on the Effective Date of this Agreement and during the Term of
this Agreement, the Company shall provide the benefits described below.
(a) Management Stock Incentive Program. The Executive shall participate in
the Company's stock option, stock purchase, or other stock incentive plan
generally available to executive officers of the Company and shall be eligible
for the grant of stock options, restricted stock and other awards thereunder.
In addition, the Board of Directors shall annually consider the Executive's
performance and determine if any additional bonus is appropriate for the
Executive. Furthermore, the Company confirms that the Executive has received
450,000 stock options (the "IPO Options") under the Melita International
Corporation 1992 Discounted Stock Option Plan (the "Stock Option Plan") to
purchase, subject to the terms and conditions of the Plan, shares of the
Company's common stock and that, in accordance with such plan and grant, all
stock options granted by the Company to the Executive pursuant to the Stock
Option Plan shall vest upon the occurrence of the Initial Public Offering. In
accordance with the terms of the Stock Option Plan, no such IPO Options are
exercisable by the Executive prior to 14 months after the Initial Public
Offering.
(b) Vacation. Executive shall have the right to vacation time in
accordance with the vacation policy of the Company.
(c) Medical Insurance and Other Benefits. The Company shall provide
Executive with medical insurance coverage for Executive in accordance with the
terms of the Company's medical insurance plan, if any, as it exists from time
to time and shall provide Executive with coverage under all other employee
benefit plans, programs and policies which the Company maintains from time to
time for the benefit of its executive employees.
(d) Expenses. Executive shall be reimbursed monthly by the Company for
the ordinary and necessary business expenses incurred by him in the performance
of his duties for the Company; provided that Executive shall first document
said business expenses in the manner generally required by the Company under
its standard employee business expense reimbursement policies and procedures.
6. TERMINATION; TERM.
(a) The term of this Agreement (the "Term") shall commence on the
Effective Date and end on July 31, 1999. The term shall be automatically
extended for successive two (2) year periods unless either party hereto
delivers to the other party written notice at least three (3) months prior to
the end of the Term of its desire to terminate this Agreement.
(b) Notwithstanding the terms of Section 6 (a) hereof, this Agreement and
the Executive's employment hereunder may be terminated as follows:
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<PAGE> 3
(i) immediately, without any notice by or to either party hereto,
upon the death of the Executive;
(ii) immediately by the Company for the Disability of the Executive
upon delivery by the Company to the Executive of a Notice of Termination;
(iii) immediately by the Company for Cause upon delivery by the
Company to the Executive of a Notice of Termination; or
(iv) by the Executive for Good Reason upon delivery by the Executive
to the Company of a Notice of Termination.
(c) If the Executive's employment with the Company shall be terminated
during the Term (i) by reason of the Executive's death, or (ii) by the Company
for Disability or Cause, the Company shall pay to the Executive (or in the case
of his death, the Executive's estate) within fifteen days after the Termination
Date a lump sum cash payment equal to the Executive's Accrued Compensation. In
addition, except as otherwise provided above in the case of the Executive's
death or Disability, if the Company terminates the Executive's employment with
the Company other than for Cause, the Company shall pay to the Executive within
fifteen days after the Termination date a lump sum cash payment equal to the
Executive's Base Salary plus the stock rights provided in Section 6 (d) (ii)
hereof. In the event of termination of this Agreement by reason of the death or
Disability of the Executive, he, his estate or legal representatives shall also
be entitled to the stock rights set forth in Section 6 (d) (ii) hereof.
(d) If the Executive's employment with the Company shall be terminated by
Executive for Good Reason, in addition to other rights and remedies available
in law or equity, the Executive shall be entitled to the following:
(i) the Company shall pay the Executive a lump sum cash payment
within fifteen days of the Termination Date of an amount equal to
Executive's Base Salary;
(ii) the restrictions on any outstanding incentive awards
(including stock options) granted to the Executive under any of the
Company's stock option, stock purchase or under any other incentive
plan or arrangement shall lapse and all stock options and stock
appreciation rights granted to the Executive shall become 100%
vested and immediately exercisable.
(e) In the event the Executive resigns from his employment with the
Company, other than for Good Reason pursuant to Section 6(b)(iv) hereof, or is
terminated by the Company for Cause, then the Executive shall receive Accrued
Compensation and all of the IPO Options according to the following schedule if
such resignation, or termination for Cause, occurs:
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(i) before July 1, 1997, 25% of the IPO Options shall be
vested and exercisable and the Executive shall exercise only such
amount and the balance shall not and cannot ever be exercised;
(ii) as of July 1, 1997, 50% of the IPO Options shall be
vested and exercisable and the Executive shall exercise only such
amount and the balance shall not and cannot ever be exercised;
(iii) as July 1, 1998, 75% of the IPO Options shall be
vested and exercisable and the Executive shall exercise only such
amount and the balance shall not and cannot ever be exercised; and
(iv) as of July 1, 1999, 100% of the IPO Options shall be
vested and exercisable.
(f) Should a person or persons other than the Executive assume day to day
operations of the Company, or substantially diminish the Executive's
effectiveness as President, the Executive may terminate this Agreement and
receive within fifteen days of the Termination Date, an amount equal to the
Executive's Base Salary and the IPO Options according to the Schedule set out
in Section 6(e) above.
(g) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent
employment.
(h) The severance pay and benefits provided for in this Section 6 shall be
in lieu of any other severance pay to which the Executive may be entitled under
any Company severance plan, program, practice or arrangement. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefit plans and other applicable
programs, policies and practices then in effect.
(i) The benefits paid or provided herein shall be the only benefits paid
to the Executive or his estate.
7. EXECUTIVE WORKS. Executive agrees that Executive will promptly
disclose to the Company all Executive Works (defined below). Executive hereby
irrevocably assigns to the Company all right, title and interest in and to any
and all Executive Works, created by Executive at any time prior to Effective
Date and Executive will execute, without requiring the Company to provide any
further consideration therefor, such confirmatory assignments, instruments and
documents as the Company deems necessary or desirable in order to effect such
assignment. Executive further agrees that all Executive works created by him
during the course of his employment by the Company are the sole property of the
Company and hereby assigns such Executive Works to the Company, and Executive
will execute, without requiring the Company to provide any further
consideration therefor, such confirmatory assignments, instruments and
documents as the Company deems necessary or desirable in order to effect such
assignment. The term "Executive Works" as used in this Agreement means any and
all works of authorship, inventions, discoveries, improvements, designs,
techniques, and work product, whether or not patentable, and in whatever form,
which are created, made, developed or reduced to practice, or caused to be
created, made, developed or reduced to practice by Executive during the course
of
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the Executive's employment by the Company, including all worldwide copyrights,
trade secrets, patent rights, and all confidential, proprietary and property
rights therein, and that relate in any way to the current or future business of
the Company or that result from any work performed by Executive for the
Company.
8. WORKS MADE FOR HIRE. The Company and Executive acknowledge that in the
course of Executive's employment by the Company, Executive may have created, or
may create, for the Company or its customers certain works of authorship. Such
works may consist of manuals, documentation, pamphlets, instructional
materials, videodisks, computer programs, user interfaces, tapes or other
copyrightable material, or portions thereof, and may be created within or
without the Company's facilities and before, during or after normal business
hours. All such works related to or useful in the business of the Company are
specifically intended to be works made for hire by Executive and owned by the
Company or its customers, as applicable, and Executive shall cooperate with the
Company in the protection of the Company or its customer's, as applicable,
copyrights therein and, to the extent deemed desirable by the Company or its
customers, as applicable, the registration of such copyrights.
9. PRODUCTS, NOTES, RECORDS AND SOFTWARE. All memoranda, notes, records
and other documents and computer software made or compiled by Executive during
the course of Executive's employment by the Company or made available to him
during the course of his employment by the Company, including, without
limitation, all customer data, billing information, service data, and other
technical material, confidential information and trade secrets of the Company
and its affiliates, shall be the Company's property and Executive shall deliver
all such materials (and all copies thereof) to the Company within three (3)
days after any termination of his employment with the Company.
10. NONDISCLOSURE. Executive acknowledges and agrees that during his
employment by the Company, he has had, or will have, access to trade secrets
and other confidential or proprietary information peculiar to the Company, the
disclosure or use of which would injure the Company. Therefore, Executive
agrees that he will not use, reveal, or divulge any such trade secrets if such
use, revelation, or divulgence would violate the Georgia Trade Secrets Act of
1990, as amended. In addition, Executive agrees that during his employment by
the Company and after any termination thereafter, he will not, directly or
indirectly, use, reveal, or divulge any such confidential information,
proprietary information or trade secrets. However, Executive shall not be
required to keep confidential any trade secrets or confidential or proprietary
information of the Company which is or becomes publicly available, is
independently developed by Executive outside of the scope of his employment
relationship with the Company, or is rightfully obtained from third parties.
11. NONCOMPETITION. During the course of his employment by the Company
and for a period of two (2) years after termination of his employment by the
Company, Executive agrees that he shall not engage in or render services to any
entity engaged in, the predictive dialing computer software business or any
other business in which the Company is engaged during the course of his
employment (the "Business") within the United States of America ("Territory"),
and two (2) years thereafter.
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12. NONSOLICITATION.
(a) Customers. During his employment by the Company, Executive shall not,
directly or indirectly without the Company's prior written consent, contact any
customer of the Company, with whom Executive, in the ordinary course of his
employment by the Company, had a material contact ("Customer") for business
purposes unrelated to furthering the business of the Company. For a period of
two (2) years following his employment by the Company, Executive shall not,
directly or indirectly, (i) contact, solicit, divert or take away, any Customer
for purposes of, or with respect to, selling a product or service which
competes with the Business of the Company, or (ii) take any affirmative action
in regard to establishing or continuing a relationship with a Customer for
purposes of making, or which directly or indirectly results in, a sale of a
product or service which competes with the Business of the Company.
(b) Employees. During the employment of the Executive and for a period of
two (2) years following any termination of employment of Executive, Executive
shall not, directly or indirectly, recruit or hire, or attempt to recruit or
hire, any other employees of the Company who were employed by the Company
during the employment of the Executive and who are actively employed during the
employment of the Executive or such two (2) year period.
13. REMEDY FOR BREACH. Executive agrees that remedies at law of the
Company for any actual or threatened breach by Executive of any of the
covenants contained in Section 7 through 12 of this Agreement would be
inadequate and that the Company shall be entitled to specific performance by
Executive of the covenants in such paragraphs or injunctive relief against
activities in violation of such paragraphs, or both, by temporary or permanent
injunction or other appropriate judicial remedy, writ or order, in addition to
any damages and legal expenses (including attorney's fees) which the Company
may be legally entitled to recover. Executive acknowledges and agrees that the
covenants contained in Sections 7 through 12 of this Agreement shall be
construed as agreements independent of any other provision of this or any other
contract between the parties hereto, and that the existence of any claim or
cause of action by Executive against the Company, whether predicated upon this
or any other contract, shall not constitute a defense to the enforcement by the
Company of said covenants.
14. SURVIVAL. The provisions of Sections 7 through 13 shall survive
termination of this Agreement.
15. INVALIDITY OF ANY PROVISION. It is the intention of the parties
hereto that Sections 7 through 12 of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable
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provisions. The parties further agree to alter the balance of this Agreement
in order to render the same valid and enforceable.
16. APPLICABLE LAW. This Agreement is being executed in the State of
Georgia and shall be construed and enforced in accordance with the internal
laws of the State of Georgia, without giving effect to the conflicts laws of
such state.
17. WAIVER OF BREACH. The waiver by the Company of a breach of any
provision of this Agreement by Executive shall not operate or be construed as a
waiver of any subsequent breach by Executive.
18. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its Successors and Assigns, and the Company shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties. This Agreement may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any waiver, changes,
modification, extension, or discharge is sought.
20. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Accrued Compensation" shall mean an amount, including all amounts
earned or accrued through the Termination Date but not paid as of the
Termination Date including, (i) base salary of the Executive, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive
on behalf of the Company as of the Termination Date, and (iii) incentive
compensation owed to the Executive.
(c) "Base Amount" shall mean the greater of the Executive's annual Base
Salary (i) at the rate in effect on the Termination Date or (ii) the highest
rate in effect at any time during the 90 day period prior to a Change in
Control, and shall include all amount of base salary that are deferred under
qualified and non-qualified employee benefit plans of the Company.
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(d) The termination of the Executive's employment shall be for "Cause" if
it is a result of:
(i) any act that the Board of Directors reasonably determines (A)
constitutes, on the part of the Executive, fraud, dishonesty, gross
malfeasance of duty, or conduct grossly inappropriate to the Executive's
office, and (B) is demonstrably likely to lead to material injury to the
Company or resulted or was intended to result in a material benefit to
the Executive at the Company's expense; or
(ii) the conviction (from which no appeal may be or is timely taken)
of the Executive of a felony;
provided, however, that in the case of clause (i) above, such conduct
shall not constitute Cause (x) unless (A) there shall have been delivered
to the Executive a written notice setting forth with specificity the
reasons that the Board believes the Executive's conduct constitutes the
criteria set forth in clause (i), (B) the Executive shall have been
provided the opportunity to be heard in person by the Board (with the
assistance of the Executive's counsel if the Executive so desires), and
(C) after such hearing, the termination for Cause is approved by a
resolution adopted in good faith by two-thirds of the members of the
Board (other than the Executive).
(e) A "Change in Control" shall mean the occurrence during the Term of any
of the following events:
(i) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934 (the "1934 Act"))
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of a majority
or more of the combined voting power of the Company's then outstanding
Voting Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) or the acquisition of
voting securities by a Person who, immediately prior to such acquisition,
had Beneficial Ownership of 20% or more of the combined voting power of
the Company's then outstanding voting securities shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan
(or a trust forming a part thereof) maintained by (x) the Company or (y)
any corporation or other Person of which a majority of its voting power
or its equity securities or equity interest is owned directly or
indirectly by
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<PAGE> 9
the Company (a "Subsidiary"), (2) the Company or any Subsidiary, or (3)
any Person in connection with a "Non-Control Transaction" (as hereinafter
defined).
(ii) The individuals who, as of the date of this Agreement, are
members of the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that if
the election, or nomination for election by the Company's stockholders,
of any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either
an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(iii) Approval by a majority of the stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless
(1) the stockholders of the Company, immediately before
such merger, consolidation or reorganization, own, directly
or indirectly, immediately following such merger,
consolidation or reorganization, at least a majority of the
combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation
or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger,
consolidation or reorganization, and
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least majority of the members of the board of
directors of the Surviving Corporation.
(A transaction described in clauses (1) and (2)
shall herein be referred to as a "Non-Control
Transaction.")
(B) A complete liquidation or dissolution of the
Company; or
(C) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
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<PAGE> 10
(iv) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated at any time prior
to a Change in Control and the Executive reasonably demonstrates that
such termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to effect a
Change in Control (a "Third Party") or (B) otherwise occurred in
connection with, or in anticipation of, a Change in Control, then for all
purposes of this Agreement, the date of a Change in Control with respect
to the Executive shall mean the date immediately prior to the date of
such termination of the Executive's employment.
(f) "Disability" shall mean a physical or mental infirmity which
materially impairs the Executive's ability to substantially perform any of the
essential functions of his job with the Company for a period of 180 consecutive
days, as determined by an independent physician selected with the approval of
both the Company and the Executive.
(g) "Effective Date" shall mean the day that the Company closes its
Initial Public Offering.
(h) "Good Reason" shall mean the occurrence of any of the following
events or conditions:
(i) a change in the Executive's status, title, position or
responsibilities which, in the Executive's reasonable judgment, represents
an adverse change from his status, title, position or responsibilities
created by this Agreement, which is reasonably presented to the Board of
Directors and which is accepted by the Board of Directors after due
investigation and deliberation;
(ii) a reduction in the Executive's Base Salary or any failure to
pay the Executive any other compensation or benefits to which he is
entitled under this Agreement within five days of the date due;
(iii) the Company's requiring the Executive to be based at any place
outside a 30-mile radius from the Executive offices occupied by the
Executive immediately prior to a Change in Control, except for reasonably
required travel on the Company's business which is not materially greater
than such travel requirements prior to such Change in Control;
(iv) the failure by the Company to (A) continue in effect (without
reduction in benefit level and/or reward opportunities) any material
compensation or Executive benefit
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<PAGE> 11
plan in which the Employee was participating at any time within ninety
days preceding the date of a Change in Control or at any time thereafter,
unless such plan is replaced with a plan that provides substantially
equivalent compensation or benefits to the Executive or (B) provide the
Executive with compensation and benefits, in the aggregate, at least
equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other Executive benefit plan, program and
practice in which the Executive was participating at any time within
ninety days preceding the date of a Change in Control or at any time
thereafter;
(v) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which petition is
not dismissed within sixty days;
(vi) any material breach by the Company of any provision of this
Agreement;
(vii) any purported termination of the Executive's employment for
Cause by the Company which does not comply with the terms of this
Agreement; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any Successors and Assigns to assume
and agree to perform this Agreement, as contemplated in Section 6 hereof.
Any event or condition described in clause (i) through (viii) above which
occurs prior to a Change in Control but which the Executive reasonably
demonstrates (A) was at the request of a Third Party, or (B) otherwise arose in
connection with, or in anticipation of, a Change in Control (whether or not it
actually occurs), shall constitute Good Reason for purposes of this Agreement,
notwithstanding that it occurred prior to the intended Change in Control. The
Executive's right to terminate his employment for Good Reason shall not be
affected by his incapacity due to physical or mental illness.
(i) "Initial Public Offering" shall mean the closing of the first public
offering of the Company's common stock registered under the Act in which the
aggregate proceeds to the Company, net of all underwriting discounts and
commissions and other expenses of issuance and distribution as stated in the
prospectus relating to such offering, are at least twenty-five million dollars
($25,000,000).
(j) "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(k) "Successors and Assigns" shall mean, for a corporation, a corporation
or other entity acquiring all or substantially all the assets and business of
the Company (including this Agreement),and for any individual as the Executive,
the estate, successors or heirs, and/or the legal representative of the
Executive, whether by operation of law or otherwise.
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<PAGE> 12
(l) "Termination Date" shall mean, in the case of the Executive's death,
his date of death, and in all other cases, the date specified in the Notice of
Termination.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EXECUTIVE: COMPANY:
/s/ J. Neil Smith MELITA INTERNATIONAL CORPORATION
- --------------------------------
J. Neil Smith By: /s/ Alek Szlam
-----------------------------
Alek Szlam, Chairman and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 25, 1997
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF BDO STOY HAYWARD APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated February 28, 1997 on the
financial statements of Melita Europe Limited as of December 31, 1995 and
December 31, 1996 and for the three years in the period ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO STOY HAYWARD
Ewell, Epsom Surrey
March 25, 1997
