<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1999
FILE NO. 333-58351
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AREMISSOFT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 68-0413929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
60 BISHOPSGATE
LONDON EC2N 4AJ
ENGLAND
011-44-171-309-1555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. LYCOURGOS K. KYPRIANOU
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AREMISSOFT CORPORATION
60 BISHOPSGATE
LONDON EC2N 4AJ
ENGLAND
011-44-171-309-1555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES TO:
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SCOTT E. BARTEL MICHAEL J. HALLORAN DAVID L. FICKSMAN
ERIC J. STIFF MICHELLE ROWE HALLSTEN LOEB & LOEB LLP
BARTEL ENG LINN & SCHRODER PILLSBURY MADISON & SUTRO LLP 1000 WILSHIRE BOULEVARD
300 CAPITOL MALL, SUITE 1100 400 CAPITOL MALL, SUITE 1700 SUITE 1800
SACRAMENTO, CA 95814 SACRAMENTO, CA 95814 LOS ANGELES, CA 90017
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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 9, 1999
PROSPECTUS
3,800,000 SHARES
LOGO
COMMON STOCK
AremisSoft Corporation ("AremisSoft" or the "Company") hereby offers
3,800,000 shares of its common stock (the "Common Stock"). Prior to this
offering (the "Offering"), there has been no public trading market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $10.00 and $12.00. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
Application has been made to list the Common Stock on the Nasdaq National Market
under the symbol "AREM."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 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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Per Share................................. $ $ $
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Total(3).................................. $ $ $
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</TABLE>
(1) Excludes the value of warrants to purchase up to 190,000 shares of Common
Stock at an exercise price of 120% of the public offering price to be issued
to Cruttenden Roth Incorporated and FAC/Equities (the "Representatives").
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, including the nonaccountable expense allowance
payable to Cruttenden Roth Incorporated, payable by the Company estimated at
$ .
(3) The Company has granted the Underwriters a 45-day option to purchase up to
570,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. It is expected that delivery of share
certificates will be made against payment therefor at the offices of Cruttenden
Roth Incorporated in Newport Beach, California on or about , 1999.
LOGO
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 4
Organization of the Company........... 14
Use of Proceeds....................... 14
Dividend Policy....................... 15
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Management............................ 50
</TABLE>
<TABLE>
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PAGE
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Certain Transactions.................. 55
Principal Stockholders................ 56
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 59
Underwriting.......................... 61
Legal Matters......................... 62
Experts............................... 63
Change in Accountants................. 63
Additional Information................ 63
Glossary of Terms..................... 64
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION 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 THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK 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.
THE AREMISSOFT TRADENAME AND LOGO ARE TRADEMARKS OF THE COMPANY AND ARE THE
SUBJECT OF APPLICATIONS FOR FEDERAL REGISTRATION IN THE UNITED STATES PATENT AND
TRADEMARK OFFICE. THIS PROSPECTUS ALSO INCLUDES TRADE NAMES, TRADEMARKS AND
REGISTERED TRADEMARKS OF OTHER COMPANIES.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. These statements are based on management's beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include statements in which words such as "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "consider" or similar
expressions are used. Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties and assumptions, including the
risks discussed under "Risk Factors" and elsewhere in this Prospectus. The
Company's actual results and stockholder values may differ materially from those
anticipated and expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond the Company's
ability to control or predict. Investors are cautioned not to put undue reliance
on any forward-looking statements. The following summary is qualified in its
entirety by the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Except as
otherwise specifically noted herein, all of the information in this Prospectus
(i) gives effect to a 1.711772-for-one reverse stock split effected in March
1999 and (ii) assumes that the Underwriters' over-allotment option is not
exercised. Except as otherwise specifically noted herein, all references to
"AremisSoft" or the "Company" refer to AremisSoft Corporation, a Delaware
corporation, its consolidated subsidiaries and its predecessors.
THE COMPANY
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries (the "Targeted Markets").
The Company's software products help streamline and enhance an organization's
ability to manage and execute mission-critical functions such as accounting,
purchasing, manufacturing, customer service, and sales and marketing. In 1986,
the Company established a software development and support facility in New
Delhi, India, which currently has 186 employees. The Company believes that its
India facility provides significant organizational efficiencies and cost
advantages in software development and support. AremisSoft products are designed
to be the primary business software that organizations in the Targeted Markets
use to generate and disseminate information across the enterprise in order to
respond rapidly to changing market environments and customer needs. The Company
has licensed its software products to more than 5,000 customers.
The Company strategically focuses on customers in the Targeted Markets with
annual revenues of less than $200 million. Through its concentrated product
focus, AremisSoft believes that it has developed substantial industry expertise
in the Targeted Markets. In addition, the Company has developed a three-tiered,
object-oriented software architecture (the "Aremis Architecture"), which
achieves economies of scale and cost reductions in the software development
process by capitalizing on the common functional requirements of customers
across a variety of industries. The Company believes that the Aremis
Architecture enables it to produce high quality, scalable products with
substantially reduced software development, implementation and maintenance
costs.
In the past five years, the Company has experienced rapid growth, both
internally and through acquisitions, with revenues increasing from $6.4 million
in 1994 to $52.6 million in 1998. During this period, the Company successfully
acquired and integrated the operations of eleven businesses, which were
principally operating in the United Kingdom. In each acquisition, the Company
sought to reduce expenses, rejuvenate the existing products of the acquired
business and transition the customers to products that utilize the Aremis
Architecture. The Company's software development and support facility in India
provides the Company access to highly-skilled technical personnel who are
responsible for rejuvenating the acquired products and developing new products
in a cost-effective manner.
The Company markets its software products primarily through its own sales
force and provides product support worldwide through 14 offices in seven
countries. To date, the majority of the Company's revenues have been generated
from customers located in the United Kingdom. Such customers comprised
approximately 60% of total revenues for 1998. Customers using the Company's
software products include Southampton
1
<PAGE> 5
\Multifund (healthcare), Birmingham Multifund (healthcare), Telefon AB LM
Ericsson (manufacturing), Nabisco Biscuit Co. (manufacturing), Forte Limited
(hospitality) and London Electricity plc (construction).
The Company's objective is to be a leading provider of enterprise-wide
applications software in the Targeted Markets. The Company's strategy for
achieving this objective includes (i) targeting mid-sized organizations,
including divisions and business units of larger companies, (ii) focusing on
strategic markets, (iii) leveraging the Company's cost-efficient India
operations, (iv) capitalizing on the Company's investment in the Aremis
Architecture, (v) expanding the Company's marketing, sales, support and service
capabilities and (vi) acquiring related software businesses, products or
technologies.
The Company was incorporated in Delaware in June 1998 in connection with a
change of corporate domicile from Nevada to Delaware effective March 5, 1999.
The Company was founded in Cyprus in 1978 as LK Global Information Systems
(Cyprus) Limited. The Company established its New Delhi, India software
development and support facility in 1986 and its operations in the United
Kingdom in 1992. Prior to 1995, the Company operated primarily through LK Global
Information Systems (UK) plc, and several other operating entities, all of which
were wholly owned by the Company's Chairman and Chief Executive Officer, Dr.
Lycourgos K. Kyprianou. By the end of 1996, all entities were consolidated into
LK Global Information Systems, B.V., which was also owned and controlled by Dr.
Kyprianou. In 1997, the Company reorganized as a United States holding company,
changing its corporate domicile from the Netherlands to Nevada. Following the
Offering, Dr. Kyprianou will be a principal stockholder of the Company. See
"Organization of the Company." The Company's principal executive offices are
located at 60 Bishopsgate, London EC2N 4AJ, England, and its telephone number is
011-44-171-309-1555.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.......... 3,800,000 shares
Common Stock to be outstanding after
the Offering............................... 13,835,103 shares(1)
Use of proceeds.............................. To repay indebtedness, for working capital
and other general corporate purposes and to
fund potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... AREM
</TABLE>
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(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1998 Stock Option Plan, of which the Company intends to grant
options to purchase 840,000 shares in connection with the Offering at an
exercise price per share equal to the initial public offering price, (ii)
190,000 shares of Common Stock issuable upon exercise of the warrants to be
issued to the Representatives and (iii) 51,117 shares of Common Stock
issuable upon exercise of outstanding warrants at an exercise price of $8.56
per share. See "Management -- 1998 Stock Option Plan," "Description of
Capital Stock -- Warrants" and "Underwriting."
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data presented below should be read in
conjunction with the more detailed Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus and the information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994(1) 1995(2)(8) 1996(3)(8) 1997(4) 1998(5)
------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................................ $6,449 $ 21,422 $ 34,432 $42,374 $52,621
Profit (loss) from operations(6)...................... (2,814) (13,248) (13,448) 310 7,231
Net income (loss)..................................... (2,967) (14,569) (15,304) (1,620) 3,175
Diluted earnings (loss) per share..................... $(0.39) $ (1.94) $ (2.04) $ (0.21) $ 0.35
Weighted average number of shares
used in computing diluted earnings
(loss) per share(7)................................. 7,504 7,504 7,504 7,518 9,135
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
ACTUAL AS ADJUSTED(9)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 149 $21,309
Working capital (deficit)(10)............................... (10,516) 26,174
Total assets........................................ 27,952 49,112
Long-term debt.............................................. -- --
Total stockholders' equity (deficit)................ $(7,109) $29,581
</TABLE>
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(1) Includes the results of operations of businesses acquired in October 1994,
representing approximately $1.9 million in revenues.
(2) Includes a full year of operations of the businesses acquired in 1994 and
the results of operations of businesses acquired between March and October
1995, representing approximately $6.1 million in revenues.
(3) Includes a full year of operations of the businesses acquired in 1994 and
1995 and the results of operations of businesses acquired in March 1996,
representing approximately $750,000 in revenues.
(4) Includes a full year of operations of the businesses acquired in 1994, 1995
and 1996.
(5) Includes the Company's write-off of approximately $1.6 million in Offering
costs incurred in 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) Includes amortization and write-off of capitalized software, software
development costs and intangible assets of approximately $2.9 million, $5.6
million, $8.0 million, $167,000 and $339,000 in 1994, 1995, 1996, 1997 and
1998, respectively.
(7) The basis for the determination of shares used in computing diluted
earnings (loss) per share is described in Note 1 of Notes to Consolidated
Financial Statements.
(8) The 1995 and 1996 financial statements have been restated from previously
reported amounts. See Note 1 of Notes to Consolidated Financial Statements.
(9) Adjusted to give effect to the estimated net proceeds of the Offering to be
received by the Company based upon an assumed initial public offering price
of $11.00 per share.
(10) The Company intends to repay all of its long-term indebtedness from the
proceeds of the Offering. Accordingly, the Company reclassified
approximately $6.8 million of its debt as short-term debt as of December
31, 1998.
3
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors in addition to the other information set forth in this Prospectus
prior to making any investment in the Common Stock. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. These statements are based on management's beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include statements in which words such as "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "consider" or similar
expressions are used. Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties and assumptions, including those
discussed below as well as those discussed elsewhere in this Prospectus. The
Company's actual results and stockholder values may differ materially from those
anticipated and expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond the Company's
ability to control or predict. Investors are cautioned not to put undue reliance
on any forward-looking statements.
LOSS HISTORY; VOLATILITY AND SEASONALITY OF QUARTERLY OPERATING RESULTS
The Company incurred net losses through December 31, 1997, including $1.6
million and $15.3 million for the years ended December 31, 1997, and December
31, 1996, respectively. For the year ended December 31, 1998, the Company had
net income of $3.2 million and, as of December 31, 1998, had an accumulated
deficit of $32.2 million. Although the Company achieved profitability during
1998 and the third and fourth quarters of 1997, no assurances can be given that
the Company will sustain profitability on a quarterly or annual basis. See
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company's quarterly operating results have varied, sometimes
substantially, in the past, and are expected to vary in the future. These
fluctuations may be caused by a variety of factors, many of which are outside of
the Company's control, including the relatively long sales cycles for the
Company's products, the size and timing of individual licensing transactions,
the timing, proper operation and market acceptance of new products or product
enhancements by the Company or its competitors, the potential for delay or
deferral of customer implementations of the Company's products, changes in
customer budget cycles, seasonality of technology purchases, foreign currency
exchange rates and other general industry and economic conditions. In addition,
the timing of revenue recognition can be affected by many factors, including the
timing of contract execution and delivery, customer acceptance and post-delivery
obligations of the Company related to installation and implementation. As a
result, the time between contract execution and the satisfaction of criteria for
revenue recognition can be lengthy and unpredictable and, consequently, affect
revenues and the Company's operating results in any given quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
A significant portion of the Company's accounts receivable are derived from
licensing arrangements to customers with which the Company does not have a
payment history. In addition, the Company's customers may decide not to honor
contractual obligations for license fees for various reasons including, but not
limited to, changes in their business levels or plans or unanticipated
implementation problems associated with the Company's products. Although the
Company provides reserves and allowances for such circumstances, no assurances
can be given that such reserves and allowances will be adequate to cover any
receivables which are later determined to be uncollectible, particularly if such
receivables are large. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In the event one or more customers fails
to honor its contractual obligations and the Company's reserves and allowances
are inadequate, such failure could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company's business has experienced and is expected to continue to
experience seasonality due in large part to the buying cycles of its customers.
In recent years, the Company has generally had stronger demand for its products
during the second half of the calendar year. This seasonality is not uncommon in
the computer software industry and typically results in revenues for the first
half of the calendar year being lower
4
<PAGE> 8
than revenues in the second half of the immediately preceding calendar year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ASSIMILATION OF ACQUISITIONS
As part of its business strategy to increase its presence in certain
Targeted Markets and complement and expand its existing business and product
offerings, the Company expects to continue to pursue acquisitions of other
businesses, products and technologies that are complementary to those of the
Company. Although the Company currently has no agreement, understanding or
arrangement with respect to any future acquisitions, the Company evaluates
potential strategic business opportunities, some of which may be material in
size and scope on an ongoing basis. No assurances can be given that any
acquisition by the Company will occur or that any acquisition will not have a
material adverse effect on the Company's business, operating results and
financial condition.
Acquisitions, including those consummated by the Company to date, involve a
number of risks and difficulties, including technology acceptance, expansion
into new geographic markets and business areas, the diversion of management's
attention, the assimilation of the operations and personnel of acquired
businesses and the integration of acquired operations and financial reporting
systems with those of the Company. No assurances can be given that the Company
will successfully integrate the operations of acquired businesses, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Further, possible future acquisitions by the Company could
result in dilutive issuances of debt or equity securities, the incurrence of
additional debt and contingent liabilities, potential reductions in income due
to losses incurred by the acquired business, additional amortization expenses
related to goodwill and other intangible assets, and post-acquisition
restructuring charges, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. To finance
acquisitions, the Company has in the past and may in the future incur
significant indebtedness, with associated interest costs, repayment terms and
restrictive covenants. See "Business -- Acquisition Strategy."
MANAGEMENT OF GROWTH
The Company's business has grown rapidly in the last five years, with total
revenues increasing from $6.4 million in 1994 to $52.6 million in 1998. The
growth in the Company's business and expansion of the Company's customer base
has placed a significant strain on the Company's management, operations and
financial resources. The Company's recent expansion has resulted in substantial
growth in the number of its employees, the scope of its operating and financial
reporting systems and the geographic area of its operations, creating increased
responsibility for both existing and new management personnel. The Company's
ability to support the growth of its business will be substantially dependent
upon the ability to attract and retain highly skilled personnel. Accordingly,
the Company's future operating results will depend on the ability of its
officers and other key employees to continue to implement and improve its
operational and customer support systems and to expand, train and manage its
employee base. No assurances can be given that the Company will be able to
manage its recent or any future expansion successfully, and any inability to do
so would have a material adverse effect on the Company's business, operating
results and financial condition. See "-- Dependence on Key Personnel; Need for
Additional Qualified Personnel."
To manage its operations, the Company must continuously evaluate the
adequacy of its management structure and its existing procedures including,
among others, its financial and internal controls. No assurances can be given
that the Company's management will adequately anticipate all of the changing
demands that growth may impose on the Company's procedures and structure. Any
failure to adequately anticipate and respond to such changing demands could have
a material adverse effect on the Company's business, operating results and
financial condition.
RAPID TECHNOLOGICAL CHANGE; NEW VERSIONS AND PRODUCTS; RISK OF DEFECTIVE
PRODUCTS
The market for the Company's software products is characterized by rapid
technological changes, evolving industry standards in computer hardware and
software technology, changes in customer requirements
5
<PAGE> 9
and frequent new product introductions and enhancements. The Company's future
success will depend upon its ability to continue to enhance its current product
line and to develop and introduce new products that keep pace with technological
developments, satisfy increasingly sophisticated customer requirements and
achieve market acceptance. The Company's customers utilize a wide variety of
hardware, software, database and networking platforms and, as a result, the
Company must continue to support and maintain its products on a variety of such
platforms. In particular, the Company must continue to anticipate and respond
adequately to advances in other software and desktop computer operating systems
such as Microsoft Windows and its successors. The Company's future success will
depend upon its ability to address the increasingly sophisticated needs of its
customers by supporting existing and emerging hardware, software, database and
networking platforms and by developing and introducing enhancements to its
products and new products on a timely basis to keep pace with technological
developments, evolving industry standards and changing customer requirements. No
assurances can be given that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or that its new or enhanced products will achieve market acceptance.
The Company has, on occasion, experienced delays in the scheduled
introduction of new versions and new products. In addition, enterprise-wide
applications software products as complex as those offered by the Company may
contain undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. No assurances can be given
that the Company's most current releases or future releases of its products will
not contain significant software errors that could impair the market acceptance
of these products and have a material adverse effect on the Company's business,
operating results and financial condition. The Company currently maintains
errors and omissions and public/product liability insurance in the amount of
$6.0 million with respect to damages as a result of product defects or errors
and limits its liability for such damages in its agreements with customers.
Although the Company believes that its insurance coverage and the provisions in
its customer agreements limiting the Company's liability for, among other
things, negligence or other wrongful acts, provide the Company with adequate
protection against liability for product defects or errors, no assurances can be
given that the Company's insurance coverage will be sufficient to cover all
losses resulting from product defects or errors or that the provisions in its
customer agreements limiting the Company's liability would be enforceable in all
cases. In addition, the announcement and introduction of new products may
depress sales of existing products. Further, problems can be encountered by
customers in installing and implementing new releases or with the performance of
the Company's products. Delays in the introduction of new and enhanced products,
or significant problems with the implementation and installation of new releases
could have a material adverse effect on the Company's business, operating
results and financial condition.
EXPOSURE TO REGULATORY AND GENERAL ECONOMIC CONDITIONS IN INDIA
A significant element of the Company's business strategy is to continue to
develop its offshore software development and support facility in New Delhi,
India. As of March 5, 1999, the Company had approximately 36% of its workforce
in India. The Indian government, as a means of encouraging foreign investment,
provides significant tax incentives and exemptions to regulatory restrictions.
Certain of these benefits that directly affect the Company include, among
others, tax holidays (temporary exemptions from taxation on operating income)
and liberalized import and export duties. The current tax holiday to which the
Company is subject expires in 2001. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions such as continued
operation in a qualifying software technology park and export sales of at least
75% of inventory turnover. A failure to meet such conditions could result in
cancellation of the benefits or a requirement to pay damages in an amount to be
determined by the Indian Government and customs duty on plant, machinery,
equipment, raw materials, components and consumables. With respect to duties,
subject to certain conditions, goods, raw materials and components for
production imported by the Company's offices in India are exempt from the levy
of a customs duty. No assurances can be given that such tax benefits will be
continued in the future or at their current levels.
Although wage costs in India are significantly lower than in the United
States, United Kingdom and similar markets for comparably skilled software
engineering and other technical personnel, wages in India are
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increasing at a faster rate than in the United States and United Kingdom. In the
past, India has experienced significant inflation and shortages of foreign
exchange, and has been subject to civil unrest and acts of terrorism. Although
the inflation rate for the periods discussed in this Prospectus has been
insignificant, increases in inflation in the future could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, changes in interest rates, taxation or other social,
political, economic or diplomatic developments affecting India in the future
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- The AremisSoft Strategy."
On May 13, 1998, the United States imposed immediate economic sanctions
against India, as required under Section 102 of the Arms Export Control Act, in
response to the detonation by India of nuclear devices. Japan and certain other
nations also announced sanctions against India. Although most of the current
sanctions imposed by the United States restrict the United States from providing
assistance to India and do not directly limit the activities of United States
businesses, the precise ramifications of the sanctions are not expected to be
known for some time. Further, although the current sanctions do not directly
affect United States businesses, additional sanctions could be imposed which
could have a material adverse effect on United States businesses with
operations, sales or suppliers in India. In addition, one of the sanctions
prohibits the export to India of specific goods and technology, which includes
certain dual-use technologies and equipment such as computers and certain
software products originating from the United States and controlled for nuclear
or missile nonproliferation reasons. The United States Department of Commerce
may also grant licenses exempting certain goods and common use items from the
export prohibition on a case-by-case basis. Although the Company's operations
have not been substantially affected by the sanctions to date and it does not
believe its activities will be affected by the current sanctions, no assurances
can be given that the Company's technologies will not, in the future, be
included in the specific technologies subject to sanctions or affected by the
prohibition on items exported by third parties.
COMPETITION
The market for enterprise-wide applications software is intensely
competitive, fragmented, subject to rapid changes and significantly affected by
new product introductions and other market activities of industry participants.
The Company's products are primarily designed for and marketed to mid-sized
organizations in the Targeted Markets. A number of companies offer competitive
products to organizations in the Targeted Markets. In addition, the Company
faces indirect competition from suppliers of customized enterprise-wide
applications software primarily designed for proprietary mainframe and
minicomputer-based systems with highly customized software and the internal MIS
departments of large organizations who develop their own systems. Many of the
Company's present or potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company. As a result, they may be able to respond more quickly than the Company
to new or emerging technologies and to changes in customer requirements, or they
may be able to devote greater resources to the development, promotion and sale
of their products.
The Company's products are currently marketed and sold primarily in the
United Kingdom. The Company's principal competitors in the manufacturing
industry include QAD Inc., FOURTH SHIFT Corporation ("Fourth Shift"), Symix
Systems, Inc. ("Symix"), DataWorks Corporation ("DataWorks") and MDIS Group plc
("MDIS"). Principal competitors in the healthcare industry in the United Kingdom
include Egton Medical Information Services ("EMIS"), Reuters Group plc
("Reuters"), AAH Meditel, GPASS, HCSL, Exeter Systems, Medical Care Systems,
Microtest Europe Limited, PCTI Solutions Ltd. and Seetec Medical Systems. The
Company's principal competitor in the United Kingdom in the hospitality industry
is Innsite Hotel Services Ltd. and in Europe is MICROS-Fidelio International. In
the construction industry, the Company's principal competitors include FCG
Computer Systems/Red Sky Software Ltd., Misys plc, The Database Ltd.,
Engineering Technology Ltd. and Estimation Inc. The Company also believes that
large enterprise software vendors, such as Oracle Corporation ("Oracle"), SAP AG
("SAP"), Baan Company N.V. ("Baan") and PeopleSoft, Inc. ("PeopleSoft") are
increasing their marketing efforts to mid-sized organizations in the
manufacturing sector, one of the Targeted Markets in which the Company competes.
See
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"Business -- Targeted Markets." No assurances can be given that the Company will
be able to compete successfully against any of these competitors.
In addition, because the barriers to entry in the enterprise-wide
applications software market are relatively low, additional competitors may
emerge as the market continues to develop and expand. Because the
enterprise-wide applications software market is fragmented, the Company also
anticipates that acquisitions of competitors by large software companies or
strategic alliances will occur and that significant consolidation in the
Company's industry will occur over the next few years. Increased competition
from new entrants to the industry or through strategic acquisitions or alliances
could lead to price erosion, reduced margins or loss of market share, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. Further, the Company's growth strategy has been
and is expected to remain dependent to a significant extent on the Company's
ability to acquire complementary businesses, products or technologies in the
future. Increasing consolidation in the Company's industries will require the
Company to compete with other software companies and alliances for strategic
acquisition opportunities. No assurances can be given that the Company will be
able to successfully identify acquisition opportunities, that any acquisitions
will be successfully consummated and integrated into the Company's operations or
that the Company will be successful in competing for acquisition opportunities.
See "-- Assimilation of Acquisitions" and "Business -- Acquisition Strategy."
GOVERNMENT REGULATION OF HEALTHCARE PRODUCT SPECIFICATIONS
The Company's healthcare products sold in the United Kingdom are regulated
by the National Health Service (the "NHS"), a government agency, through a
product accreditation procedure. While the Company's healthcare products
currently meet NHS specifications for information systems, the requirements are
expected to be updated pursuant to the NHS' new Information Management and
Technology Strategy, which is expected to be published in April 1999. The new
mandatory specifications are expected to be introduced to conform all
information technology systems in the United Kingdom's healthcare marketplace.
See "Business -- Targeted Markets -- Healthcare." Although the Company is
currently modifying its healthcare industry products in anticipation of the
proposed product specifications, no assurances can be given that the Company
will be able to meet all such specifications or, if met, that the related costs
will not be substantial or make the cost of the Company's healthcare products
prohibitive for potential customers. In addition, the Company has experienced
and expects to continue to experience a decrease in the number of purchases of
its existing healthcare products as businesses in the healthcare industry in the
United Kingdom postpone purchases pending release of the final new regulations
and related product specifications. Such regulations and related product
specifications, as well as future changes to NHS specifications for information
systems, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Targeted
Markets -- Healthcare."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The Company's products are generally used for division-wide or
enterprise-wide purposes and involve significant capital outlays by customers
and relatively complex installations. Potential customers generally commit
significant resources to an evaluation of available enterprise-wide applications
software and require the Company to provide a significant level of education
about the use and benefits of the Company's products. Sales of the Company's
software products require an extensive marketing effort because decisions to
license such software generally involve the evaluation of the software by a
significant number of a potential customer's personnel in various functional and
geographic areas, many of which may have specific and conflicting requirements.
A variety of factors over which the Company has little or no control may cause
potential customers to favor a particular supplier or to delay or forego a
purchase. As a result of these or other factors, the sales cycles for the
Company's products can be lengthy and vary among customers and across the
Targeted Markets. See "Business -- Targeted Markets." The Company's typical
sales cycle (i.e., the period from the initial contact with a customer to
execution of a product license agreement) ranges from three to 12 months. As a
result of the length of the sales cycle for its products, the Company's ability
to forecast the timing and amount of specific sales is limited, and the delay or
failure to complete one or more large license transactions
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could have a material adverse effect on the Company's business, operating
results and financial condition and cause the Company's operating results to
vary significantly from quarter to quarter. See "-- Loss History; Volatility and
Seasonality of Quarterly Operating Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's products are designed to perform or directly affect
business-critical functions across many different functional and geographic
areas of a customer's organization. Consequently, implementation of the
Company's software is subject to delays over which the Company has little or no
control. Delays in the completion of implementation of any of the applications
of its products by the Company can result in delay in revenue recognition and
may result in customer dissatisfaction or damage to the Company's reputation and
could have a material adverse effect on the Company's business, operating
results and financial condition. See "-- Loss History; Volatility and
Seasonality of Quarterly Operating Results."
INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS
The Company currently has operations in the United Kingdom, United States,
Argentina, Mexico, India, Ireland and Cyprus and independent distributors in 14
additional countries. A significant portion of the Company's revenues are
received in currencies other than the United States dollar (the currency into
which the Company's historical financial statements have been translated),
primarily British pounds. In the past, the Company has not engaged in hedging
transactions designed to manage currency fluctuation risks but may implement
programs to mitigate foreign currency risk exposure in the future as the
Company's management deems appropriate. Foreign currency transaction gains and
losses arising from normal business operations are credited to, or charged
against, earnings in the period realized. As a result, fluctuations in the value
of the currencies in which the Company conducts its business relative to British
pounds have caused and will continue to cause foreign currency transaction gains
and losses. Because of the number of currencies involved, the constantly
changing currency exposures and the substantial volatility of currency exchange
rates, no assurances can be given that the Company will not experience currency
losses in the future, nor can there be any assurances that foreign exchange rate
fluctuations will not have a material adverse effect on the Company's business,
operating results and financial condition. Further, because the Company's
functional currency is the British pound and its financial statements are
reported in United States dollars, fluctuations of the British pound against the
United States dollar will impact the Company's reported financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's international operations are subject to other risks inherent
in international business activities, such as the imposition of governmental
controls, export license requirements, restrictions on the export of certain
technology, cultural and language difficulties associated with servicing
customers, the impact of a recessionary environment in economies outside the
United States, reduced protection for intellectual property rights in some
countries, the potential exchange and repatriation of foreign earnings,
political instability, sanctions imposed as a result of violations of
international law or other governmental action, trade restrictions, tariff
changes, localization and translation of products for foreign countries,
difficulties in staffing and managing international operations, difficulties in
collecting accounts receivable and longer collection periods and the impact of
local economic conditions and practices. See "-- Exposure to Regulatory and
General Economic Conditions in India." The Company's success in expanding its
international business will be dependent, in part, on its ability to anticipate
and effectively manage these and other risks. No assurances can be given that
these and other factors will not have a material adverse effect on the Company's
business, operating results and financial condition.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE UNITED STATES SECURITIES LAWS
A majority of the Company's directors, all of its executive officers and
certain of the experts named in this Prospectus are nonresidents of the United
States. A substantial portion of the assets of the Company and all or a
substantial portion of the assets of such persons are located outside the United
States. As a result, it may not be possible to effect service of process within
the United States upon such persons with respect to matters arising under the
United States securities laws or to enforce against the Company or such persons
in United
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States courts judgments of United States courts predicated upon civil liability
under such securities laws. Further, there is doubt as to the enforceability in
the United Kingdom, in original actions or in actions for enforcement of
judgment of United States courts, of civil liabilities predicated upon United
States securities laws.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends, to a significant extent, upon a limited
number of members of senior management of the Company and other key employees.
The loss of the services of the Company's Chairman of the Board and Chief
Executive Officer, Dr. Lycourgos K. Kyprianou, or other key personnel could have
a material adverse effect on the Company's business, operating results and
financial condition. The Company maintains and is the beneficiary under a key
man life insurance policy in the amount of $3.0 million on the life of Dr.
Kyprianou and maintains such insurance for certain other key personnel in
amounts ranging from $150,000 to $500,000.
The Company believes that its future operating results will also depend in
significant part on its ability to attract and retain highly skilled technical,
managerial, sales, marketing, service and support personnel. Competition for
such personnel within the software industry is intense. Although the Company has
increased the number of its technical, sales, services and support personnel in
recent years, the Company could experience difficulty in recruiting such
personnel in the future. The Company anticipates that it will need to continue
to increase the size of its direct sales, services and support personnel in
future periods. No assurances can be given that the Company will be successful
in attracting and recruiting qualified personnel. An inability to hire qualified
personnel on a timely basis could have a material adverse effect on the
Company's business, operating results and financial condition. See
"-- Management of Growth."
YEAR 2000
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, the computer systems or software used by the
Company and its customers and vendors may need to be upgraded to comply with
Year 2000 requirements. The Company has developed a program and appointed a
committee of senior executives to design and test its internal systems and
products, as well as verify internal systems and products of its significant
suppliers to ensure that such products are Year 2000 compliant. Although the
Company believes all of the Company's internal systems and the software products
currently marketed by the Company are Year 2000 compliant and the Company has
developed many upgrades for its products for purchase by customers to provide
Year 2000 compliance, no assurances can be given that the Company's internal
systems and software products contain all necessary date code or other
applicable modifications. Failure of the Company or its significant suppliers to
remedy Year 2000 problems could have a material adverse effect on the Company's
business and results of operations. As of December 31, 1998, the Company has
incurred approximately $732,000 in Year 2000 related costs in the aggregate and
expects to incur an additional $80,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of the Year
2000."
The purchasing patterns of customers and potential customers may be
affected by Year 2000 issues in a variety of ways. Many companies are expending
significant resources to correct or patch their current software systems for
Year 2000. Even though the Company believes that Year 2000 compliance could
create a marketing opportunity for the Company, the expenditures that potential
customers are making may result in reduced funds available to purchase software
products such as those offered by the Company. Many potential customers may also
choose to defer purchasing Year 2000 compliant products until they believe it is
absolutely necessary, thus resulting in potentially stalled sales within the
industry. Conversely, Year 2000 compliance may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products. Additionally,
Year 2000 compliance could cause a significant number of companies, including
current Company customers, to reevaluate their current enterprise software needs
and, as a result, consider switching to products offered by other software
vendors. Moreover, the Company believes that some customers may be purchasing
the Company's products as an
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interim solution for Year 2000 compliance until their current software vendors
reach compliance. No assurances can be given that such customers will purchase
support services from the Company or that they will upgrade beyond their current
version of the Company's software once their current software suppliers reach
compliance. Any of the foregoing could have a material adverse effect on the
Company's business, operating results and financial condition. For a discussion
of the effects of Year 2000 compliance on the Company's internal information
technology systems, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of the Year 2000."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on the protection provided by applicable copyright,
trademark and trade secret laws, confidentiality procedures and licensing
arrangements to establish and protect its proprietary rights. The Company holds
no patents or registered copyrights. Despite the Company's efforts, which afford
only limited protection, it may be possible for unauthorized third parties to
copy certain portions of the Company's products or to reverse engineer or obtain
and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's software is difficult and, while the Company
is unable to determine the extent to which piracy of its products exists,
software piracy can be expected to be a problem. In addition, the laws of
certain countries, such as India and the United Kingdom, do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, no assurances can be given that the Company will be able to
protect its proprietary rights against unauthorized third-party copying or use,
which could adversely affect the Company's business operating results and
financial condition. Further, litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company expects that enterprise-wide applications software products
will increasingly be subject to claims of infringement relating to software
codes as the number of products and competitors in the Company's industry
segment grows and the functionality of products overlaps. No assurances can be
given that legal actions claiming copyright or other intellectual property
infringement will not be commenced against the Company, or that the Company
would necessarily prevail in such litigation given the complex technical issues
and inherent uncertainties in intellectual property litigation. Any such claim,
with or without merit, could be time-consuming, result in costly litigation and
require the Company to enter into royalty and licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all. A successful claim against the Company and the failure
of the Company to develop or license a substitute technology could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Proprietary Rights and Licensing."
FIXED-PRICE SERVICE CONTRACTS
The Company offers a combination of enterprise-wide applications software,
implementation and support services to its customers. Certain customers have
asked for, and the Company has from time to time entered into, fixed-price
service contracts. These contracts require the Company to provide support
services for a fixed price regardless of actual costs incurred by the Company in
fulfilling its support service obligations. Revenues attributable to fixed-price
service contracts were approximately 7%, 11% and 11% of total revenues for 1996,
1997 and 1998, respectively. The Company may enter into additional fixed-price
service contracts in the future. No assurances can be given that the Company
will be able to successfully complete these contracts within budget and the
Company's inability to do so could have a material adverse effect on its
business, operating results and financial condition.
CONTROL BY EXISTING STOCKHOLDERS
Upon the completion of the Offering, Dr. Kyprianou and other members of
management will beneficially own approximately 38% of the outstanding Common
Stock (37% if the Underwriters' over-allotment option is exercised in full) and
will have the ability to influence the control of all matters submitted for a
stockholder
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vote, including the election of directors and the approval of significant
corporate transactions, such as mergers, consolidations, sales of all or
substantially all of the assets of the Company and other change in control
transactions. Management's significant equity interest in the Company also may
have the effect of making certain transactions more difficult without their
support and may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Principal Stockholders" and "Description of Capital
Stock."
BENEFITS OF THE OFFERING TO THE COMPANY'S PRINCIPAL STOCKHOLDERS
The Offering is expected to create a public market for the Common Stock
which may result in a substantial increase in the market value of the initial
investments of the Company's principal stockholder, Dr. Lycourgos K. Kyprianou.
Dr. Kyprianou beneficially owns 4,728,682 shares of Common Stock. Based upon an
assumed initial public offering price of $11.00 per share, the value of the
shares held by Dr. Kyprianou following the Offering will be approximately $52.0
million, representing an aggregate increase of approximately $40.7 million over
the amount of consideration paid by Dr. Kyprianou at various times since 1994.
See "-- Dilution; Dividends" and "Principal Stockholders."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation, Bylaws
and Delaware law could delay, defer or prevent a change in control of the
Company. The Board of Directors has the authority to issue up to 15,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions of those shares, including voting rights, without any further vote
or action by the stockholders. 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 the preferred stock that may be issued in the future. The Company's
Certificate of Incorporation also includes provisions limiting the right of
stockholders to take action by written consent. The Company's Bylaws contain
advance notice requirements for stockholder nominations for election to the
Board of Directors or for stockholder proposals of business to be considered at
stockholder meetings. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law ("DGCL"),
which will prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner under the DGCL. The
ability of the Board of Directors to issue shares of preferred stock without
further stockholder approval, as well as the aforementioned provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law, could
have the effect of delaying, deferring or preventing a change in control of the
Company. See "Description of Capital Stock."
ABSENCE OF ESTABLISHED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no established public market for the
Common Stock. Substantially all of the Company's Common Stock issued prior to
the Offering is subject to certain trading restrictions and the Company's
predecessor had only limited trades. No assurances can be given that an active
public market for the Common Stock will develop or be sustained after the
Offering. The initial public offering price will be determined by negotiations
between the Company and the representatives of the Underwriters based on several
factors and may not be indicative of the future market price of the Common
Stock. The market price of the Common Stock is likely to be highly volatile and
may be subject to significant fluctuations in response to actual or anticipated
variations in quarterly operating results and other factors, such as
announcements of technological innovations, new products or new contracts by the
Company or its competitors, conditions and trends in the software and other
technology industries, adoption of new accounting standards affecting the
software industry, changes in earning estimates or recommendations by securities
analysts, general market conditions or other events. In addition, equity markets
have experienced extreme volatility that has particularly affected the market
prices of equity securities of many high technology companies and that has been
unrelated or disproportionate to the operating performance of such companies.
Broad market fluctuations, as well as economic conditions generally and in the
software industry specifically, may result in material
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adverse effects on the market price of the Common Stock. No assurances can be
given that the market price of the Common Stock will not decline below the
initial public offering price. 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. No assurances can be
given that such litigation will not occur in the future with respect to the
Company. Such litigation could result in substantial costs and 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."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock. The shares of
Common Stock outstanding prior to the Offering will be eligible for sale in the
public market at various times in the future. Upon the completion of the
Offering, the Company will have issued and outstanding 13,835,103 shares of
Common Stock (14,405,103 shares if the Underwriters' over-allotment option is
exercised in full). The Company, all of the Company's executive officers and
directors, and certain other stockholders of the Company will agree that,
without the prior written consent of Cruttenden Roth Incorporated, on behalf of
the Underwriters, and subject to certain limited exceptions, they will not sell
any shares of Common Stock for a period of 180 days after the date of this
Prospectus. See "Underwriting." Substantially all of the shares to be
outstanding upon the completion of the Offering, other than the shares being
offered hereby, will be subject to the lock-up agreements described above or are
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), and are subject to certain
restrictions on resale or transfer under the Securities Act. Upon expiration of
the lock-up period described above, approximately 3,427,648 additional shares
will be eligible for sale in the public market without restriction and 6,607,455
shares will become eligible for sale, subject to certain restrictions under Rule
144. See "Shares Eligible for Future Sale." In addition, certain stockholders of
the Company have certain registration rights with respect to shares of Common
Stock beneficially owned by such stockholders. See "Shares Eligible for Future
Sale -- Registration Rights."
DISCRETION OVER USE OF PROCEEDS
The principal purposes of the Offering are to repay indebtedness and to
increase the Company's capital base and financial flexibility. After the
repayment of indebtedness under bank credit facilities, the Company expects to
use the remaining net proceeds from the Offering for general corporate purposes,
including working capital and to fund potential acquisitions. However, after the
repayment of indebtedness, the Company has no current specific plans for use of
the net proceeds of the Offering. As a result, the Company's management will
have broad discretion over the use of the net proceeds to the Company from the
Offering. An inability to effectively apply the net proceeds could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Use of Proceeds."
DILUTION; DIVIDENDS
The initial public offering price is expected to be greater than the net
tangible book value per outstanding share of Common Stock as of December 31,
1998. Accordingly, purchasers in the Offering will suffer immediate and
substantial dilution of $8.98 in the net tangible book value per share of the
Common Stock from the initial public offering price. Additional dilution will
occur upon exercise of outstanding warrants granted by the Company. See
"Dilution."
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."
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ORGANIZATION OF THE COMPANY
The Company was incorporated in Delaware on June 1, 1998, in connection
with a change of corporate domicile from Nevada to Delaware effective March 5,
1999. Immediately prior to its reincorporation in Delaware, the Company effected
a 1.711772-for-one reverse stock split. The Company, through predecessor
entities, established software development activities in New Delhi, India in
1986 and commenced operations in the United Kingdom in 1992. The Company's
predecessor, LK Global Information Systems, B.V., a Netherlands corporation, was
incorporated on November 30, 1995, as part of a Dutch holding company
reorganization and change in corporate domicile from the United Kingdom to the
Netherlands, which coincided with the Company's expansion into the
manufacturing, healthcare and construction markets. Prior to 1995, the Company
operated primarily through LK Global Information Systems (UK) plc, which was
incorporated in England and Wales on October 16, 1994, and several other
operating entities, all of which were wholly owned by the Company's Chairman and
Chief Executive Officer, Dr. Lycourgos K. Kyprianou. By December 31, 1996, all
operating entities under the common control of Dr. Kyprianou had been
consolidated into LK Global Information Systems, B.V. On October 30, 1997, the
Company reorganized as a United States holding company, changing its corporate
domicile from the Netherlands to the State of Nevada by acquiring Juno
Acquisitions, Inc., a Nevada corporation ("Juno"), which was incorporated on
November 16, 1992. As of October 30, 1997, Juno had not yet commenced material
business operations. The Company's change in corporate domicile from the
Netherlands to Nevada was structured as a share exchange and, in connection
therewith, the name of the Nevada corporation was changed to AremisSoft
Corporation. Although Juno issued new shares in the share exchange and became
the ultimate parent in the Company's corporate structure, the transaction was
accounted for as a "reverse acquisition" and, as a result, the historical
financial statements and descriptions of the Company's business and other
matters contained in this Prospectus relate to LK Global Information Systems,
B.V., and its subsidiaries, rather than the prior operations of Juno.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Common Stock offered hereby, based upon an assumed initial public offering
price of $11.00 per share, are estimated to be approximately $36.7 million
($42.5 million if the Underwriters' over-allotment option, granted to the
Underwriters by the Company is exercised in full), after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The principal purposes of the Offering are to provide increased visibility
of the Company in a marketplace where many of its competitors are publicly held
companies, to create a public market for the Common Stock, to increase the
Company's equity capital, to facilitate future access by the Company to the
public equity markets, to repay indebtedness and to fund potential acquisitions.
The Company currently intends to use the net proceeds of the Offering to
repay all borrowings outstanding under the Company's bank credit facilities,
which totaled approximately $15.5 million as of December 31, 1998, and for
working capital and other corporate purposes. The indebtedness to be repaid upon
the completion of the Offering is due on demand and the weighted average
interest rate of such indebtedness was 13% per annum for the year ended December
31, 1998. The Company may also apply a portion of the net proceeds of the
Offering to acquire or invest in businesses, products or technologies that are
complementary to those of the Company. Although the Company has not identified
any specific businesses, products or technologies that it may acquire, nor are
there any current agreements or negotiations with respect to any such
transactions, the Company from time to time evaluates such opportunities.
Pending such uses, the net proceeds will be invested in government securities
and other short-term, investment-grade, interest-bearing instruments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 18
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. Following the Offering, the Company does not intend to pay cash dividends
because it intends to retain all earnings to support its planned growth. Any
future dividends will be at the discretion of the Board of Directors, subject to
a number of factors, including the Company's results of operations, general
business conditions, capital requirements, general financial condition and other
factors deemed relevant by the Board of Directors. The Company expects that any
future credit facilities will restrict the payment of dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1998, on an actual basis and on an as adjusted basis
to give effect to the Offering at an assumed initial public offering price of
$11.00 per share and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1).......................................... $ 15,530 $ --
Stockholders' equity (deficit):
Preferred stock, par value $.001 per share; 15,000,000
shares authorized; no shares issued and outstanding.... -- --
Common stock, $.001 par value per share, 75,000,000 shares
authorized; 10,000,103 shares issued and outstanding,
actual; and 13,800,103 shares issued and outstanding,
as adjusted(2)......................................... 10 14
Additional paid-in capital................................ 27,107 63,793
Accumulated deficit....................................... (32,201) (32,201)
Accumulated other comprehensive income (loss)(3).......... (2,025) (2,025)
Total stockholders' equity (deficit).............. (7,109) 29,581
Total capitalization.............................. $ (7,109) $ 29,581
</TABLE>
- ---------------
(1) See Notes 5 and 6 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1998 Stock Option Plan, of which the Company intends to grant
options to purchase 840,000 shares in connection with the Offering at an
exercise price per share equal to the initial public offering price, (ii)
190,000 shares of Common Stock issuable upon exercise of the warrants to be
issued to the Representatives and (iii) 51,117 shares of Common Stock
issuable upon exercise of outstanding warrants at an exercise price of $8.56
per share. See "Management -- 1998 Stock Option Plan," "Description of
Capital Stock -- Warrants" and "Underwriting."
(3) See Note 1 of Notes to Consolidated Financial Statements.
15
<PAGE> 19
DILUTION
The net tangible book value (deficit) of the Company as of December 31,
1998, was $(8.7) million or $(0.87) per share. Net tangible book value (deficit)
per share represents the Company's total tangible assets less total liabilities,
divided by the number of shares of Common Stock outstanding. Dilution per share
represents the difference between the amount per share paid by investors in the
Offering and the net tangible book value per share immediately after the
completion of the Offering. After giving effect to the sale by the Company of
3,800,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 per share, and after deducting the estimated
underwriting discount and Offering expenses payable by the Company, the net
tangible book value (deficit) as of December 31, 1998, as adjusted, would have
been $28.0 million or $2.02 per share. This represents an immediate increase in
net tangible book value of $2.89 per share to existing stockholders and an
immediate dilution in net tangible book value of $8.98 per share to new
investors at the assumed initial public offering price. The following table
illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value (deficit) per share as of December
31, 1998............................................... $(0.87)
Increase in net tangible book value per share attributable
to new investors....................................... 2.89
------
Net tangible book value per share after the Offering(1)..... 2.02
------
Dilution per share to new investors......................... $ 8.98
======
</TABLE>
The following table summarizes the total consideration paid and the average
price per share paid by the existing stockholders and new investors, after
giving effect to the sale by the Company of 3,800,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......... 10,035,103 72.5% $27,117 39.3% $ 2.70
New investors.................... 3,800,000 27.5 41,800 60.7 11.00
---------- ----- ------- ------
Total.................. 13,835,103 100.0% $68,917 100.0%
========== ===== ======= ======
</TABLE>
- ---------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1998 Stock Option Plan, of which the Company intends to grant
options to purchase 840,000 shares in connection with the Offering at an
exercise price per share equal to the initial public offering price, (ii)
190,000 shares of Common Stock issuable upon exercise of warrants to be
issued to the Representatives and (iii) 51,117 shares of Common Stock
issuable upon exercise of outstanding warrants at an exercise price of $8.56
per share. See "Management -- 1998 Stock Option Plan," "Description of
Capital Stock -- Warrants" and "Underwriting."
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998, have been derived from the Company's Consolidated Financial Statements,
which have been audited by independent auditors whose report is included
elsewhere in this Prospectus. The selected consolidated financial data set forth
below as of December 31, 1996, 1995 and 1994 and for each of the two years in
the period ended December 31, 1995, have been derived from the Company's
historical financial statements not included in this Prospectus. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994(1) 1995(2)(8) 1996(3)(8) 1997(4) 1998(5)
------- ---------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.......................................... $2,039 $ 6,641 $ 12,052 $17,024 $26,416
Maintenance and services................................... 2,822 9,426 15,839 18,990 21,680
Hardware and other......................................... 1,588 5,355 6,541 6,360 4,525
------- -------- -------- ------- -------
Total revenues....................................... 6,449 21,422 34,432 42,374 52,621
------- -------- -------- ------- -------
Cost of revenues:
Software licenses.......................................... 281 875 1,555 2,079 2,654
Maintenance and services................................... 842 2,735 5,393 5,377 5,319
Hardware and other......................................... 1,323 4,829 5,760 5,147 2,817
Amortization of purchased software and capitalized software
development costs........................................ 331 1,986 2,327 70 265
Write-off of purchased software costs...................... -- 388 -- -- --
------- -------- -------- ------- -------
Total cost of revenues............................... 2,777 10,813 15,035 12,673 11,055
------- -------- -------- ------- -------
Gross profit................................................ 3,672 10,609 19,397 29,701 41,566
Operating expenses:
Sales and marketing........................................ 2,133 10,811 15,182 17,834 21,594
Research and development................................... 521 6,428 6,409 6,233 6,207
General and administrative................................. 1,282 3,442 5,605 5,227 4,868
Write-off of offering costs................................ -- -- -- -- 1,592
Amortization of intangible assets.......................... 2,550 3,176 5,144 97 74
Write-off of intangible assets............................. -- -- 505 -- --
------- -------- -------- ------- -------
Total operating expenses............................. 6,486 23,857 32,845 29,391 34,335
------- -------- -------- ------- -------
Profit (loss) from operations(6)............................ (2,814) (13,248) (13,448) 310 7,231
Interest expense, net....................................... (207) (1,284) (1,906) (1,895) (2,030)
------- -------- -------- ------- -------
Income (loss) before income taxes........................... (3,021) (14,532) (15,354) (1,585) 5,201
Income tax expense (benefit)................................ (54) 37 (50) 35 2,026
------- -------- -------- ------- -------
Net income (loss)........................................... $(2,967) $(14,569) $(15,304) $(1,620) $ 3,175
======= ======== ======== ======= =======
Basic earnings (loss) per share............................. $(0.39) $ (1.94) $ (2.04) $(0.21) $ 0.35
======= ======== ======== ======= =======
Diluted earnings (loss) per share........................... $(0.39) $ (1.94) $ (2.04) $(0.21) $ 0.35
======= ======== ======== ======= =======
Weighted average number of shares used in computing:
Basic earnings (loss) per share(7).......................... 7,504 7,504 7,504 7,518 9,120
======= ======== ======== ======= =======
Diluted earnings (loss) per share(7)........................ 7,504 7,504 7,504 7,518 9,135
======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
------- ---------- ---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 120 $ 255 $ 867 $ 239 $ 149
Working capital (deficit)(9)................................ 863 (8,244) (15,438) (12,971) (10,516)
Total assets......................................... 10,012 22,729 18,449 17,242 27,952
Long-term debt.............................................. 679 12,453 13,388 10,096 --
Total stockholders' equity (deficit)................. 2,219 (12,365) (25,103) (19,534) (7,109)
</TABLE>
- ---------------
(1) Includes the results of operations of businesses acquired in October 1994,
representing approximately $1.9 million in revenues.
(2) Includes a full year of operations of the businesses acquired in 1994 and
the results of operations of businesses acquired between March and October
1995, representing approximately $6.1 million in revenues.
(3) Includes a full year of operations of the businesses acquired in 1994 and
1995 and the results of operations of businesses acquired in March 1996,
representing approximately $750,000 in revenues.
(4) Includes a full year of operations of the businesses acquired in 1994, 1995
and 1996.
(5) Includes the Company's write-off of approximately $1.6 million in Offering
costs incurred in 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) Includes amortization and write-off of capitalized software, software
development costs and intangible assets of approximately $2.9 million, $5.6
million, $8.0 million, $167,000 and $339,000 in 1994, 1995, 1996, 1997 and
1998, respectively.
(7) The basis for the determination of shares used in computing basic earnings
(loss) per share is described in Note 1 of Notes to Consolidated Financial
Statements.
(8) The 1995 and 1996 financial statements have been restated from previously
reported amounts. See Note 1 of Notes to Consolidated Financial Statements.
(9) The Company intends to repay all of its debt from the proceeds of the
Offering. Accordingly, the Company reclassified approximately $6.8 million
of its debt as short-term debt as of December 31, 1998.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with information
contained in "Selected Consolidated Financial Data" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
All statements other than statements of historical fact included in the
following discussion regarding the Company's financial position, business
strategy and plans of management for future operations are forward-looking
statements. These statements are based on management's beliefs and assumptions,
and on information currently available to management. Forward-looking statements
include statements in which words such as "expect," "anticipate," "intend,"
"plan," "believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions, including the risks discussed
under "Risk Factors" and elsewhere in this Prospectus. The Company's actual
results and stockholder values may differ materially from those anticipated and
expressed in these forward-looking statements. Many of the factors that will
determine these results and values are beyond the Company's ability to control
or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements.
GENERAL
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted to mid-sized organizations in the Targeted
Markets. Its software products provide an array of functions that address the
mission-critical information requirements of customers in the Targeted Markets.
The Company was founded in Cyprus in 1978 as LK Global Information Systems
(Cyprus) Limited and originally focused on developing customized enterprise-wide
applications software for international organizations located in the Middle/Near
East. In 1986, the Company established its New Delhi, India software development
and support facility to access the skilled Indian labor force and capture cost
efficiencies. The Company established operations in the United Kingdom in 1992.
From 1993 to 1996, the Company successfully completed eleven acquisitions and
established operations in the United States, Mexico, Argentina and Ireland. By
the end of 1996, all operating entities were consolidated into LK Global
Information Systems, B.V. In 1997, the Company reorganized as a United States
holding company, changing its domicile from the Netherlands to Nevada. The
Company reincorporated to Delaware in 1999. As of March 5, 1999, the Company had
520 full time employees and operations in seven countries.
Revenues
The Company derives its revenues primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from the ongoing support of
installed software and training, consulting and implementation services.
Occasionally, the Company may discount its fees on relatively large service
contracts to remain competitive. Hardware sales revenues are primarily derived
from the sale of third-party hardware to customers requiring turnkey solutions.
For the year ended December 31, 1998, 32%, 30%, 26% and 8% of the Company's
revenues were derived from customers in the manufacturing, healthcare,
hospitality and construction markets, respectively. The remaining 4% of the
Company's revenues for the year ended December 31, 1998, was derived from sales
to approximately 1,000 relatively small customers in various industries. For the
year ended December 31, 1998, 60% of the Company's revenues were derived from
customers located in the United Kingdom, and 25% from customers located in the
rest of Europe. Customers located in the United States, Asia and the rest of the
world accounted for approximately 3%, 3% and 9% of revenues for the year ended
December 31, 1998, respectively.
The Company recognizes software license revenue upon execution of a
contract and delivery of software, provided that the license fees are fixed and
determinable, no significant obligations remain, collection of the resulting
receivable is deemed probable, and no substantial customization or modification
to core software is required. The Company recognizes software license and
service revenues on a percentage to completion basis
18
<PAGE> 22
when, among other things, customer contracts require substantial customization
or modification to the Company's core software in order to meet the customer's
specifications. Maintenance contract revenues are recognized ratably over the
life of the contract, service contract revenues are recognized in accordance
with the terms of the contract and add-on hardware sales revenues are recognized
when the hardware is shipped to the customer. The Company believes that its
accounting policies are consistent with the guidance provided by the American
Institute of Certified Public Accountants' Statement of Position (97-2),
Software Revenue Recognition.
The sales cycles for the Company's products can vary significantly among
customers and across the Targeted Markets. Historically, the Company's sales
cycles have ranged from three to 12 months. Similar to other enterprise-wide
applications software companies, the Company has experienced and expects to
continue to experience seasonal fluctuations in its operating results. See "Risk
Factors -- Loss History; Volatility and Seasonality of Quarterly Operating
Results." The Company has generally realized lower revenues in its first and
second fiscal quarters and higher revenues in its third and fourth fiscal
quarters. This is due, in part, to the March 31 fiscal year-end of many of the
Company's customers. During the Company's first fiscal quarter, many customers
have already expended their information technology budgets. As a result, the
Company's third and fourth fiscal quarters generally reflect greater revenue
recognition because of a higher concentration of software system installations.
Cost of Revenues
The cost of software license revenues consists primarily of personnel costs
as well as the costs of third-party software, media and freight. The cost of
maintenance and service contract revenues consists primarily of salary, travel
and other personnel costs. In addition, cost of service revenues may include the
cost of outsourcing services when relatively large service contracts require
resources in excess of the Company's resources. In general, the Company's costs
are higher when services are outsourced. Costs incurred as a result of
outsourcing were approximately $940,000, $320,000 and $1.8 million for the years
ended December 31, 1996, 1997 and 1998, respectively. The increase in
outsourcing in 1998 was primarily due to the Company's expansion in other
European regions, and the need to use the services of outside sales agents and
other personnel until the Company's operations in these regions are firmly
established. The cost of hardware revenues consists primarily of the cost of
hardware purchased from third parties.
Gross Profit
The Company generally experiences significant differences in profit margins
from software licenses, maintenance and services, and hardware. For example, for
1996, 1997 and 1998, gross profit margins for software licenses were 87%, 88%
and 90%, respectively; for maintenance and services 66%, 72% and 76%,
respectively; and for hardware 12%, 19% and 38%, respectively. The significant
increase in profit margins for hardware was the result of sales of higher margin
hardware products in 1998. The Company's overall gross profit margin is affected
by the relative mix of its products and services having different profit
margins.
Expenses
Sales and marketing expenses consist primarily of sales personnel costs,
advertising and other public relations expenses. Research and development
expenses consist primarily of personnel costs, facility overhead and other
expenses associated with the development of new and enhanced products and
technologies. General and administrative expenses include salaries and benefits
for administrative, executive, finance, legal, human resources, data center,
distribution and internal systems personnel and associated overhead costs, as
well as bad debt, accounting and legal expenses. General and administrative
expenses also include depreciation, which represents the write down of the cost
of tangible fixed assets over their expected useful lives. Amortization of
intangible assets consists of the amortization of customer lists and management
contracts of acquired businesses.
The Company continues to make substantial investments and operational cost
improvements in its sales and marketing, research and development and
administrative infrastructure. From 1996 through 1998 the Company increased its
sales, and marketing staff from 85 employees to 270 employees. During this same
period, the Company reduced its total research and development and
administrative staff from 331 employees
19
<PAGE> 23
to 250 employees. The major impetus behind this transition is the continuous
shift of the research and development and, to a lesser degree, administrative
functions from the United Kingdom to India, where the relative cost of
operations is lower. During this period, the Company's research and development
and administrative personnel in India increased from 115 to 186, while research
and development and administrative personnel in the United Kingdom and other
countries decreased from 216 to 64.
Research and Development; Purchased Software
The Company has several software products which are under development or
were recently released. The Company expects a number of customers currently
using rejuvenated or legacy products to transition to the Company's new
products, which would likely reduce the number of installed customers of the
rejuvenated or legacy products. The ViXEN Windows product is expected to be
released in the second quarter of 1999. In the fourth quarter of 1998, the
Company released the Aremis 4.0 PMS, GCS for Windows and MTMS Windows products.
The Company incurred development expenses of approximately $1.0 million,
$700,000, $595,000 and $460,000 and expects to incur additional expenses of
approximately $125,000, $295,000, $85,000 and $20,000 in connection with the
development of Aremis 4.0 PMS, ViXEN Windows, MTMS Windows and GCS for Windows
products, respectively.
The Company capitalizes the qualifying costs of developing its software
products. Capitalization of such costs requires that technological feasibility
has been established. The Company defines the establishment of technological
feasibility as the completion of all planning, designing, coding and testing
activities that are necessary to establish products that meet design
specifications, including functions, features and technical performance
requirements. Under the Company's definition, establishing technological
feasibility is considered complete only after the majority of customer testing
and customer feedback has been incorporated into product functionality.
Development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. When the software is fully documented and
available for unrestricted sale, capitalization of development costs ceases, and
amortization commences and is computed on a product-by-product basis, based on
either a straight-line basis over the economic life of the product or the ratio
of current gross revenues to the total of current and anticipated future gross
revenues, whichever is greater.
The Company capitalizes as purchased software the costs associated with
software products either purchased from other companies for resale or developed
by other companies under contract with the Company. The cost of the software is
amortized on the same basis as capitalized software development costs. The
amortization period is re-evaluated quarterly with respect to certain external
factors including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.
Currency Translation and Transactions
A significant portion of the Company's business is conducted in currencies
other than United States dollars (the currency into which the Company's
historical financial statements have been translated). Historically, the Company
has recorded a majority of its operating expenses in British pounds, and a
substantial portion of its research and development costs in Indian rupees. The
Company's consolidated balance sheets are translated into United States dollars
at the exchange rate prevailing at the balance sheet dates, and the statements
of operations and cash flows are translated into United States dollars at the
average exchange rates for the relevant periods. Gains and losses resulting from
translation are accumulated as a separate component of stockholders' equity.
Increases in the exchange rate from British pounds to United States dollars used
from one year to the next negatively impact stockholders' equity and decreases
in the exchange rate positively impact stockholders' equity. For example,
because the exchange rate used to translate the Company's balance sheet for the
year ended December 31, 1998, was 1.1% higher than the rate used for the year
ended December 31, 1997, the translation adjustment resulted in a decrease in
stockholders' equity of $91,000 for 1998.
Net gains and losses resulting from currency exchange transactions are
included in the Company's Statement of Operations. The Company did not incur
material net foreign exchange transaction losses in 1996, 1997 or 1998. Because
of the number of currencies involved, the constant currency exposures and the
substantial volatility of
20
<PAGE> 24
exchange rates, no assurances can be given that the Company will not experience
currency losses in the future. The Company cannot predict the effect of exchange
rate fluctuations on the Company's future operating results. The Company has not
previously undertaken hedging transactions to cover its currency exposure, but
may implement programs to mitigate foreign currency risk exposure in the future
as management deems appropriate. See "Risk Factors -- International Operations
and Currency Fluctuations."
Certain accounts related to the 1996 Consolidated Financial Statements were
restated as described in Note 1 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by each item in the Company's Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995(1) 1996(1) 1997 1998
---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses......................................... 32% 31% 35% 40% 50%
Maintenance and services.................................. 44 44 46 45 41
Hardware and other........................................ 24 25 19 15 9
--- --- --- --- ---
Total revenues..................................... 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses......................................... 4 4 5 5 5
Maintenance and services.................................. 13 13 16 13 10
Hardware and other........................................ 21 22 16 12 5
Amortization of purchased software and capitalized
software development costs.............................. 5 9 7 -- 1
Write-off of purchased software costs..................... -- 2 -- -- --
--- --- --- --- ---
Total cost of revenues............................. 43 50 44 30 21
--- --- --- --- ---
Gross profit.............................................. 57 50 56 70 79
--- --- --- --- ---
Operating expenses:
Sales and marketing....................................... 33 51 44 42 41
Research and development.................................. 8 30 19 15 12
General and administrative................................ 20 16 16 12 9
Write-off of offering costs............................... -- -- -- -- 3
Amortization of intangible assets......................... 40 15 15 -- --
Write-off of intangible assets............................ -- -- 1 -- --
--- --- --- --- ---
Total operating expenses........................... 101 112 95 69 65
--- --- --- --- ---
Profit (loss) from operations............................... (44) (62) (39) 1 14
Interest expense, net....................................... 3 6 6 5 4
--- --- --- --- ---
Income (loss) before income taxes........................... (47) (68) (45) (4) 10
Income tax (expense) benefit................................ 1 -- -- -- (4)
--- --- --- --- ---
Net income (loss)........................................... (46)% (68)% (45)% (4)% 6%
=== === === === ===
</TABLE>
- ---------------
(1) The 1995 and 1996 financial statements have been restated from previously
reported amounts. See Note 1 of Notes to Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Total revenues increased 24% to $52.6 million for 1998 from $42.4 million
for 1997. This increase was due primarily to higher software license revenues as
a result of an increase in the sale of higher margin licenses, and associated
maintenance and service contract revenues, principally generated by the
manufacturing and hospitality divisions, which were partially offset by a slight
decrease in revenues from the
21
<PAGE> 25
healthcare division. The Company believes the decrease in healthcare related
revenues is attributable to delayed purchasing decisions by existing and
potential customers pending release of new regulations in the United Kingdom
healthcare industry.
Software license revenues increased 55% to $26.4 million for 1998 from
$17.0 million for 1997. This increase is primarily due to the growth in the
number of installed customers, increased sales of licenses for the Company's
Aremis 4.0 products, and price increases. As a percentage of total revenues,
license revenues increased to 50% for 1998 from 40% for 1997, reflecting the
Company's strategy to increase its higher margin software license revenues as a
percentage of total revenues.
Maintenance and service contract revenues increased 14% to $21.7 million
for 1998 from $19 million for 1997, as a result of the increase in the number of
installed customers and the growth in software license revenues. As a percentage
of total revenues, maintenance and service contract revenues declined to 41% for
1998 from 45% for 1997, primarily as a result of the Company's increased sales
of higher margin software licenses.
Hardware and other revenues decreased 29% to $4.5 million for 1998 from
$6.4 million for 1997. As a percentage of total revenues, hardware and other
revenues decreased to 9% for 1998 from 15% for 1997, reflecting the Company's
strategy to reduce the sale and installation of lower margin third-party
hardware.
Cost of Revenues
Cost of revenues decreased 13% to $11.1 million for 1998 from $12.7 million
for 1997. As a percentage of total revenues, cost of revenues decreased to 21%
for 1998 from 30% for 1997. This decrease was primarily the result of an
increase in sales of higher margin products.
Sales and Marketing
The Company's sales and marketing expenses increased 21% to $21.6 million
for 1998 from $17.8 million for 1997, primarily due to the expansion of sales
and marketing activities principally in the United States and Europe. As a
percentage of total revenues, sales and marketing expenses decreased to 41% for
1998, from 42% for 1997, primarily due to increased efficiencies in the
Company's sales and marketing operations.
Research and Development
Research and development expenses were $6.2 million for both 1998 and 1997.
As a percentage of total revenues, research and development expenses decreased
to 12% for 1998 from 15% of revenues for 1997. The decrease was primarily due to
(i) cost savings resulting from the shifting of research and development
functions from the United Kingdom to India and (ii) a significant portion of the
planned expenditures relating to the Company's new generation of software
products having been incurred in prior accounting periods.
General and Administrative
General and administrative expenses decreased 6% to $4.9 million for 1998
from $5.2 million for 1997. As a percentage of total revenues, general and
administrative expenses decreased to 9% for 1998 from 12% for 1997. This
decrease reflects the effect of the Company's cost-cutting and cost control
measures, including the closure of the Company's office at Dukes Court, Central
Woking, England, during the fourth quarter of 1997. The decrease was partially
offset by a one time charge in 1998 reflecting severance payments to four
individuals in the aggregate amount of approximately $500,000.
Write-off of Offering Costs
In July 1998, the Company filed a registration statement in connection with
the Offering. Securities and Exchange Commission Staff Accounting Bulletin,
Topic 5:A (Expenses of Offering), deems that a postponement of the offering
process for greater than 90 days be treated as an aborted offering and that all
related costs be expensed. Accordingly, the Company wrote-off approximately $1.6
million in Offering costs in 1998.
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Net Interest Expense
Net interest expense reflects interest on the Company's credit facilities,
as reduced by interest income on cash balances. Net interest expense increased
5% to $2.0 million for 1998 from $1.9 million for 1997, primarily due to a
slight increase in amounts outstanding under the Company's credit facilities.
Income Taxes
There was a provision for income taxes recorded for 1998 of $2.0 million.
The Company recorded a provision for income taxes of $35,000 for 1997. The
increase in income taxes resulted from the increase in the Company's
profitability in 1998.
Recoverability of the deferred tax asset has been reviewed at December 31,
1998, and although certain subsidiaries generated taxable income in the year
ending December 31, 1998, no assurances can be given that the level of taxable
income will be sustained at an adequate level in the appropriate subsidiaries.
It must therefore be considered more likely than not that the deferred tax
benefit will not be recognized at this stage.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Total revenues increased 23% to $42.4 million for 1997 from $34.4 million
for 1996, primarily due to increased software license revenues and associated
maintenance contract revenues for 1997. This increase was partially offset by a
decrease in hardware and other and service contract revenues. Total revenues in
1996 included $750,000 attributable to acquisitions consummated in 1996, which
represented 2% of total revenues. See "Selected Consolidated Financial Data" and
"Business -- Acquisition Strategy."
Software license revenues increased 40% to $17.0 million for 1997 from
$12.1 million for 1996, primarily due to an increase in the number of software
licenses sold. This increase in software licenses sold consisted principally of
upgrades of the Company's MTMS, GCS and IGS products to existing customers and
an increase in the average price of individual software licenses. As a
percentage of total revenues, software license revenues increased to 40% for
1997 from 35% for 1996, reflecting the increase in the number of software
licenses sold and a decline in service contract and hardware and other revenues.
Maintenance and service contract revenues increased 20% to $19.0 million
for 1997 from $15.8 million for 1996. As a percentage of total revenues,
maintenance and service contract revenues declined to 45% for 1997 from 46% for
1996, primarily as a result of the completion of certain large contracts in
1996.
Hardware and other revenues decreased 2% to $6.4 million for 1997 from $6.5
million for 1996. As a percentage of total revenues, hardware and other revenues
decreased to 15% for 1997 from 19% for 1996, primarily as a result of the
Company's efforts to reduce the sale of lower margin third-party hardware.
Cost of Revenues
Cost of revenues decreased 15% to $12.7 million for 1997 from $15.0 million
for 1996. As a percentage of total revenues, cost of revenues decreased to 30%
for 1997 from 44% for 1996. This decrease was primarily due to (i) the reduction
of amortization charges relating to purchased and capitalized software, which
totaled $70,000 for 1997 compared with $2.3 million for 1996. The decrease in
amortization expense from 1996 to 1997 was attributable to a majority of the
purchased software costs acquired between 1993 and 1995 being fully amortized at
December 31, 1996, (ii) reduced costs for services as a result of the decreased
use of outside consultants, which totaled $1.3 million for 1997 and $2.4 million
for 1996, and (iii) lower hardware costs as a result of the Company's efforts to
reduce its sales of lower margin third-party hardware. The cost of hardware and
other revenues totaled $5.1 million, or 12% of total revenues, for 1997 and $5.8
million, or 16% of total revenues, for 1996.
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Sales and Marketing
Sales and marketing expenses increased 17% to $17.8 million for 1997 from
$15.2 million for 1996, primarily due to an increase in marketing activity as
well as costs associated with the Company's expansion in the United States,
Mexico and Argentina. As a percentage of total revenues, sales and marketing
expenses decreased to 42% for 1997 from 44% for 1996, primarily as a result of
the realization of operating efficiencies in the United Kingdom in connection
with the integration of acquired businesses.
Research and Development
Research and development expenses decreased 3% to $6.2 million for 1997
from $6.4 million for 1996. As a percentage of total revenues, research and
development expenses decreased to 15% for 1997 from 19% for 1996, primarily due
to the cost savings resulting from the shifting of research and development
functions from the United Kingdom to India. In addition, a significant portion
of the planned expenditures relating to the Company's new generation of software
products were incurred in prior accounting periods.
General and Administrative
General and administrative expenses decreased 7% to $5.2 million for 1997
from $5.6 million for 1996. As a percentage of total revenues, general and
administrative expenses decreased to 12% for 1997 from 16% for 1996. This
decrease reflects the effect of the Company's cost-cutting and cost control
measures in 1997, including the closure of the Company's office at Dukes Court,
Central Woking, England, during the fourth quarter of 1997.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $97,000 for 1997 from $5.1
million for 1996, primarily due to the accelerated expiration of amortization
periods as a result of the termination of certain management employment
agreements in 1996.
Net Interest Expense
The net interest expense was $1.9 million for each of 1997 and 1996.
Although the Company's outstanding indebtedness was higher in 1997, net interest
expense remained constant as a result of an overall decrease in the Company's
cost of borrowings.
Income Taxes
The Company recorded a provision for income taxes of $35,000 for 1997
compared to a benefit of $50,000 for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
borrowings under bank credit facilities, private placements of equity securities
and equity contributions by its principal stockholder. As of December 31, 1998,
the Company had $149,000 of cash and cash equivalents and $15.5 million in
short-term borrowings. The Company had a working capital deficit of $10.5
million as of December 31, 1998.
The Company believes that the net proceeds from the Offering, together with
existing cash and cash equivalents, will be sufficient to meet the Company's
working capital and currently planned expenditure requirements for the next 12
months. The Company may, from time to time, consider acquisitions of
complementary businesses, products or technologies, which may require additional
financing. In addition, continued growth in the Company's business may, from
time to time, require additional capital. No assurances can be given that
additional capital will be available to the Company at such time or times as
such capital may be required or, if available, that it will be on commercially
acceptable terms or would not result in additional dilution to the Company's
stockholders.
The Company had an operating cash flow deficit of $6.7 million for 1998.
This deficit was primarily due to increases in receivables, prepaid expenses and
other assets, and a reduction in accrued expenses. The Company had operating
cash flow deficits of $4.0 million and $1.3 million for 1997 and 1996,
respectively.
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Operating cash flow is affected by seasonality, among other factors, and is
often disproportionately higher in the Company's third and fourth quarters than
in the first two quarters of the year.
Accounts receivable increased to $16.2 million for 1998 from $9.5 million
for 1997. The increase in accounts receivable in 1998 was primarily the result
of a greater number of significant contracts in 1998. These more significant
contracts have, by their terms, a longer period for payment, which is customary
in the industry. As of December 31, 1998, the average days sales outstanding was
112 compared to 81 for 1997. Accounts receivable declined to $9.5 million as of
December 31, 1997, from $11.0 million as of December 31, 1996. During 1998, the
Company funded $2.5 million of prepaid expenses from cash flows from operating
activities.
Accrued payroll taxes decreased from $3.2 million for 1997 to approximately
$600,000 for 1998. The decrease was due to payments in 1998 of approximately
eight months of accrued and unpaid payroll taxes for 1997.
The Company utilized cash for investing activities of $2.6 million, $1.0
million and $4.1 million for 1998, 1997 and 1996, respectively. During these
periods, the Company experienced significant growth and invested in property and
equipment.
Cash provided by financing activities was $9.1 million, $4.5 million and
$6.5 million for 1998, 1997 and 1996, respectively. Financing activities for
1998 primarily consisted of a private placement in February 1998 of
approximately 1,294,500 shares of Common Stock, the net proceeds of which were
$9.3 million. The Company used $2.9 million of the proceeds for payment of
long-term borrowings. Financing activities for 1997 primarily consisted of a
private placement of equity securities in the aggregate amount of $6.4 million,
of which approximately $2.0 million was used to repay bank indebtedness. In
1996, financing activities primarily consisted of a stockholder contribution of
$5.3 million, long-term borrowings under the Company's bank credit facilities
with Barclays Bank plc ("Barclays") of $1.9 million and an increase of $1.3
million in the Company's short-term demand facility. The Company repaid
approximately $1.7 million of bank indebtedness in 1996.
During the third and fourth quarters of 1998, Roys Poyiadjis, the Company's
President and Chief Financial Officer, made loans to the Company in the
aggregate principal amount of approximately $1.7 million. The purpose of the
loans made by Mr. Poyiadjis was to provide the Company with additional working
capital. In May, 1998 the Company loaned $2.6 million to Dr. Kyprianou, its
Chief Executive Officer. The loan was made to provide temporary liquidity to Dr.
Kyprianou. See "Management -- Certain Transactions."
As of December 31, 1998, the Company had outstanding indebtedness under its
bank credit facilities of $15.5 million, all of which has been classified as a
current liability. Interest rates on these loans range from either Sterling
LIBOR plus 3% to Sterling LIBOR plus 4% or the lending bank's base rate plus the
applicable margin.
In certain prior periods, the Company was not able to comply with certain
financial covenants in the agreements relating to its long-term debt and was
required to obtain waivers from Barclays. The Company and Barclays have agreed
that the outstanding balance of the indebtedness will be paid in full from the
proceeds of the Offering. Accordingly, the Company has reclassified all of its
long-term debt to short-term debt as of December 31, 1998.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
or its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. The issue has grown in importance as the use of computers and microchips
has become more pervasive and interdependence between computer systems has
increased. The Company could be materially and adversely affected either
directly or indirectly by the Year 2000 issue. This could occur if any of its
critical computer systems or equipment containing embedded logic fails, if the
local infrastructure (electric power, phone systems, or water system) fails, or
if its significant suppliers or customers are adversely impacted. This could
result in system failures or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
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Failure of the Company to complete testing and renovation of its critical
systems on a timely basis could have a material adverse effect on the Company's
financial condition and operating results, as could Year 2000 compliance
problems experienced by others with whom the Company does business. Because of
the range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the Company's
remediation efforts or the efforts of those with whom it does business not be
successful.
The Company's internal information system is a client/server environment
and the Company believes its internal information system is Year 2000 compliant.
The Company initiated a program and established a committee comprised of senior
executive representatives from its subsidiaries in each of the Targeted Markets
to assess the Year 2000 readiness of its products and operations including its
noninformation technology systems. All of the products currently being marketed
by the Company have been assessed and the Company believes they are all Year
2000 compliant. The Company has also developed upgrades for its noncompliant
rejuvenated and legacy products which are no longer marketed by the Company. The
upgrades developed for such products are being sold to existing customers that
use those products. The Company's IGS Hotel (Version 2) and Hotel Master
products are not, and will not be Year 2000 compliant. The users of these
products have been informed that the products will not be Year 2000 compliant
and the Company does not expect that such noncompliance will have a material
adverse effect on its business or results of operations.
The Company has assessed all of its internal systems including hardware,
software, operating systems, development tools and languages as well as its
facilities and equipment including, among other things, its security devices and
telephone switchboards for Year 2000 compliance. The Company has not identified
any material Year 2000 compliance problems, but will continue to monitor its
information systems. However, no assurances can be given that Year 2000
compliance problems will not eventually occur with respect to the Company's
information systems which, depending on the nature and scope of the problem,
could have a material adverse effect on its business, operating results and
financial condition.
The Company has also begun formal communications with critical suppliers to
determine the extent to which their failure to remedy their own Year 2000
compliance problems would materially affect the Company. Based on
representations received from the Company's critical suppliers and testing
results as of December 31, 1998, the Company believes that its business will not
be materially adversely affected by any Year 2000 noncompliance of its critical
suppliers. The Company has also developed contingency arrangements, which
include identifying possible third party suppliers in the event any of its
suppliers, including critical suppliers, are unable to provide the necessary
products or services to the Company as a result of Year 2000 compliance problems
not detected or corrected prior to their occurrence. No assurances can be given
that alternative third-party suppliers will be successful in meeting the
Company's requirements or, if met, that the terms of the arrangement will be as
favorable as those of the Company's current suppliers, which could increase the
Company's expenses and have a material adverse effect on the Company's business,
operating results or financial condition.
The aggregate costs incurred by the Company as of December 31, 1998 in
connection with Year 2000 compliance were approximately $732,000, of which
approximately $123,000, $186,000 and $126,000 were incurred in 1996, 1997 and
1998 respectively. Year 2000 related costs have been funded from the continuing
operations of the Company and constituted approximately 15% of the Company's
information systems budget for 1998. The Company estimates that it will incur an
additional $80,000 in costs to complete its Year 2000 compliance efforts.
EURO CONVERSION
In January 1999, the Euro was introduced as the currency of a number of
participating nations in the European Union. Although the United Kingdom is not
currently a participating nation, the introduction of the Euro raises conversion
issues for business transacted with entities in participating nations. The
Company's products either include or have been upgraded to include the Euro and
the Company does not believe that the Euro conversion has had or will have a
material adverse effect on its business. Because the Company's critical internal
systems have been modified to accommodate a conversion to the Euro, the Company
believes it is adequately prepared in the event the United Kingdom converts to
the Euro in the future.
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BUSINESS
THE COMPANY
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries (the "Targeted Markets").
The Company's software products help streamline and enhance an organization's
ability to manage and execute mission-critical functions such as accounting,
purchasing, manufacturing, customer service, and sales and marketing. In 1986,
the Company established a software development and support facility in New
Delhi, India, which currently has 186 employees. The Company believes that its
India facility provides significant organizational efficiencies and cost
advantages in software development and support process. AremisSoft products are
designed to be the primary business software that organizations in the Targeted
Markets use to generate and disseminate information across the enterprise in
order to respond rapidly to changing market environments and customer needs. The
Company has licensed its software products to more than 5,000 customers.
The Company strategically focuses on customers in the Targeted Markets with
annual revenues of less than $200 million. Through its concentrated product
focus, AremisSoft believes that it has developed substantial industry expertise
in the Targeted Markets. In addition, the Company has developed a three-tiered,
object-oriented software architecture (the "Aremis Architecture"), which
achieves economies of scale and cost reductions in the software development
process by capitalizing on the common functional requirements of customers
across a variety of industries. The Company believes that the Aremis
Architecture enables it to produce high quality, scalable products with
substantially reduced software development, implementation and maintenance
costs.
In the past five years, the Company has experienced rapid growth, both
internally and through acquisitions, with revenues increasing from $6.4 million
in 1994 to $52.6 million in 1998. During this period, the Company successfully
acquired and integrated the operations of eleven businesses, which were
principally operating in the United Kingdom. In each acquisition, the Company
sought to reduce expenses, rejuvenate the existing products of the acquired
business and transition the customers to products that utilize the Aremis
Architecture. The Company's software development and support facility in India
provides the Company access to highly-skilled technical personnel who are
responsible for rejuvenating the acquired products and developing new products
in a cost-effective manner.
The Company markets its software products primarily through its own sales
force and provides product support worldwide through 14 offices in seven
countries. To date, the majority of the Company's revenues have been generated
from customers located in the United Kingdom. Such customers comprised
approximately 60% of total revenues for 1998. Customers using the Company's
software products include Southampton Multifund (healthcare), Birmingham
Multifund (healthcare), Telefon AB LM Ericsson (manufacturing), Nabisco Biscuit
Co. (manufacturing), Forte Limited (hospitality) and London Electricity plc
(construction).
The Company's objective is to be a leading provider of enterprise-wide
applications software in the Targeted Markets. The Company's strategy for
achieving this objective includes (i) targeting mid-sized organizations,
including divisions and business units of larger companies, (ii) focusing on
strategic markets, (iii) leveraging the Company's cost-efficient India
operations, (iv) capitalizing on the Company's investment in the Aremis
Architecture, (v) expanding the Company's marketing, sales, support and service
capabilities and (vi) acquiring related software businesses, products or
technologies.
INDUSTRY BACKGROUND
Enterprise-wide applications software is designed to help streamline and
enhance an organization's ability to manage and execute mission-critical
operations, such as accounting, payroll, purchasing, manufacturing, human
resources, customer service and sales and marketing. Enterprise-wide
applications software that is capable of generating and disseminating critical
information across a business organization and its extended enterprise provide a
strategic resource that enables an organization to respond rapidly to changing
market environments and customer needs.
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With the growth of computer networks across local and remote parts of an
enterprise and the sharing of information between departments, the demand for
flexible solutions that address continually changing business requirements is
rapidly increasing. In the past, host-centric systems operating on mainframes or
mid-range computers and offering high levels of performance, scalability and
data security achieved broad market acceptance. Although these systems served
the near-term needs of customers, they lacked the flexibility necessary to
operate in today's marketplace. As a result, open architecture, client/server
based computing systems were developed and offer the following advantages: (i)
easier access to corporate data, (ii) improved reporting and analysis, (iii)
flexibility in decision-making, (iv) quicker time to market and (v) a more
strategic computing model. Along with the growth in demand for these systems, an
increasing demand for a new generation of enterprise-wide applications software
has emerged to address various business requirements.
In addition, object-oriented technology is rapidly emerging as a desired
feature of enterprise-wide, client/server-based applications software.
Object-oriented technology consists of component objects that are essentially
building blocks of small, discrete pieces of functionality. These component
objects can be configured to create complete applications and enable software
developers to rapidly create and modify systems to provide the desired functions
for specific markets or individual customers. Object-oriented technology also
allows for the creation of systems that are scalable, flexible and capable of
accommodating variations in business requirements and technology infrastructure.
According to International Data Corporation, growth in the enterprise-wide
applications software market has been strong in recent years and is expected to
continue. This growth may be attributed to a variety of factors, including a
shift among organizations away from developing enterprise-wide applications
software in-house to purchasing enterprise-wide applications software from
outside sources. The Company believes this trend is principally fueled by the
growing complexity of new technology and the increasing failure rate of in-
house enterprise-wide applications software development projects. By outsourcing
their enterprise-wide applications software needs, organizations reduce the risk
of in-house development failures and ensure quicker time to market with new and
increased functionality, creating a competitive advantage.
The Company believes that a significant portion of the future growth in the
enterprise-wide applications software industry will be generated from purchases
by mid-sized organizations, including divisions and business units of larger
companies, with annual revenues less than $1 billion. Within this market,
organizations with annual revenues between $150 million and $1 billion are
generally referred to as "Tier II" organizations and organizations with annual
revenues less than $150 million are generally referred to as "Tier III"
organizations. "Tier I" organizations typically have annual revenues in excess
of $1 billion. The number of organizations in Tier II and Tier III is
substantially greater than that of Tier I. Tier III and certain Tier II
organizations have attractive characteristics for enterprise-wide applications
software providers. Enterprise software marketed to Tier II and Tier III
organizations is generally less expensive and has significantly shorter sales
and implementation cycles than software designed for Tier I organizations. In
addition, the Tier II and Tier III markets for enterprise-wide applications
software are not dominated by a small number of vendors as is generally the case
in Tier I markets.
The Company believes there is a substantial market opportunity for
enterprise-wide applications software that offers ease of integration, faster
implementation, reduced risks associated with business and technological
changes, lower overall cost of ownership and industry-specific and customized
functionality. At the same time, these applications should attempt to mask the
complexities of the underlying hardware, software or network technologies.
THE AREMIS ARCHITECTURE
The Company believes that the Aremis Architecture enables it to produce
high quality, scalable enterprise-wide applications software with substantially
reduced software development, implementation and
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maintenance costs. The Aremis Architecture incorporates a three-tiered,
object-oriented approach to its enterprise-wide applications software, which is
depicted below:
LOGO
The three tiers of the Aremis Architecture consist of presentation, logic
and database. The presentation tier relates to what the end user sees on the
screen when using the software. The logic tier consists of the actual
applications in the system and interacts with the database tier which stores
mission-critical enterprise-wide data. A primary advantage of this three-tier
structure is that it allows software programmers to make changes and
enhancements to one of the tiers without disrupting the logic of the other
tiers.
A central feature of the Aremis Architecture's logic tier is its object
orientation. The Company has devoted significant resources to developing an
extensive proprietary software library of well-defined, re-usable business
objects. These objects link business rules and policies to applications written
in C++ and Java languages. This object orientation enables customers or the
Company's developers to easily create additional modules or to rapidly adapt
existing software to changing business conditions or requirements. It also
facilitates the re-use of functional applications which are similar across
products and industries. The Aremis Architecture has 70% commonality of objects
across the Targeted Markets, which means that the same objects can be used in
applications across various industries without substantial modification. The
Company believes that the Aremis Architecture's object orientation provides it
with a significant competitive advantage.
The object orientation of the Aremis Architecture also helps to minimize
training costs since the Company's software developers who are already trained
in its development methods and language can be assigned to new markets with
little training. In a similar manner, customers with multiple AremisSoft
products can minimize their training and implementation costs as each of the
products operates in a similar manner. The Aremis Architecture utilizes
graphical user interface ("GUI"), which uses icons and other graphical methods
to guide a user through the software.
The Aremis Architecture encompasses industry standard database technologies
and is designed to be compatible with Oracle, Sybase, SQL Server, Informix and
other open database connectivity ("ODBC") compliant databases. This industry
standard database tier provides AremisSoft customers with the flexibility to
utilize high quality data warehouse and data-mining applications.
The Aremis Architecture is based on open, client/server computing
technology. This open environment provides compatibility with other software
applications, even among multiple revision levels of the same or different
products. Components of the Aremis Architecture have been implemented on
numerous hardware platforms and operating systems, including Windows NT, Windows
95, UNIX, Novell and multitasking DOS environments and some components have a
virtually seamless interface with Internet and intranet technologies.
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THE AREMISSOFT SOLUTION
The Company's enterprise-wide applications software products address the
mission-critical, business information requirements of organizations in the
Targeted Markets. AremisSoft's products are designed to provide the following
benefits:
Enhanced Functions. The Company's visual development environment allows
customers to focus on incorporating business logic into a solution. With the
Company's visual, object-oriented development environment, developers can
rapidly build applications that automate and integrate business processes such
as credit checking, order handling and inventory management. From its history of
working closely with its customers, the Company believes that it has gained a
high level of expertise in industry-specific, complex business processes. The
close mapping between a business process and the Aremis Architecture enables
developers to more easily design, maintain and re-use applications. This also
enables end users to be an integral part of the development of business
solutions and results in more successful implementations.
Ease of Integration. AremisSoft's software products operate in Windows NT,
Windows 95, UNIX, AS/400, Novell and multitasking DOS environments on numerous
hardware platforms and are compatible with Oracle, Sybase, SQL Server, Informix
and other ODBC compliant databases. Because of the flexible 32-bit open
architecture and open approach to development, the Company's products can also
be integrated with technologies such as Java, Visual Basic, Visual Basic for
Applications and C++. Ease of integration with existing technologies allows
customers to accommodate and modify their business practices without regard to
underlying hardware, software and network technologies.
Industry-Specific Applications. The Company offers enterprise-wide
applications software for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. Through its concentrated
product focus, the Company believes it has developed substantial industry
expertise in the Targeted Markets that has enabled the Company to develop
software applications that address customers' specific needs.
Rapid Implementation. The modular product design of AremisSoft's software
combined with the Company's focus and expertise in the Targeted Markets permits
rapid product implementation. Product applications are designed to address the
specific needs of customers in the Targeted Markets, limiting the need for
extensive customizing after installation of the product. In addition, customers
are able to purchase only those applications with the functions appropriate for
their needs, eliminating implementation and training time for unnecessary
features. The Company also provides all of the system implementation and
training services for its customers using AremisSoft field engineers. By
providing implementation services in-house, the Company believes that its
customers benefit from more efficient implementation by having only one vendor
accountable for system performance.
Protection of Investment in Legacy Systems. AremisSoft's open architecture,
client/server-computing technology allows customers to transition their existing
mission-critical business software to an open platform, thereby protecting their
legacy systems and reducing the costs and business interruptions associated with
system upgrades.
Global Service and Support. The Company provides a high level of global
service and support as a critical component of its enterprise-wide applications
software. The Company offers product service and support by highly trained and
dedicated personnel through its software development and support facility in
India in addition to local support. The Company believes its investment in
worldwide customer support services and user groups improves customer
communication and feedback, enhancing customer satisfaction and cultivating
long-term customer relationships.
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THE AREMISSOFT STRATEGY
The Company's primary business objective is to strengthen its position in
each of the Targeted Markets as a leading provider of enterprise-wide
applications software. The key elements of the Company's business strategy
include the following:
Target Tier II and Tier III Organizations. The number of organizations in
the Tier II and Tier III markets is significantly larger than Tier I, which
affords the Company opportunities to expand its customer base. In addition, the
Company's software products are suited to the needs of Tier II and Tier III
organizations because they are generally less expensive and have significantly
shorter sales cycles and implementation periods than products marketed to Tier I
organizations, which typically require implementation periods in excess of one
year. Moreover, unlike the Tier I market, the Tier II and Tier III markets are
not easily penetrated by large software vendors who face difficulty in tailoring
their applications to address the needs of Tier II and Tier III organizations.
The Tier II and Tier III markets are also not dominated by a small number of
vendors of enterprise-wide applications software, providing the Company with
significantly greater internal growth and acquisition opportunities.
Focus on Strategic Targeted Markets. The Company believes there are
significant opportunities to increase its presence and expand its customer base
within the manufacturing, healthcare, hospitality and construction industries.
The Company has targeted these markets because they (i) leverage the Company's
expertise in each market, (ii) provide international marketing opportunities
which increase the potential for global growth and (iii) have common software
application functional requirements which enable the Company to leverage the use
of the Aremis Architecture.
Shift Operations To Low Cost Environments Utilizing Communication
Technology. AremisSoft believes it has a significant competitive advantage in
its ability to use its software development and support facility in India for
product development, product rejuvenation and administrative functions. The
Company intends to increase the use of its India operations to achieve further
cost efficiencies without sacrificing quality. In 1997, the Company also
established a satellite wide area network ("WAN") link between the Company's
India operations and each of its other offices to increase operating efficiency
and enhance communications throughout the Company's operations.
Leverage the Company's Investment in the Aremis Architecture. As an
integral part of its business strategy, the Company intends to continue to
invest in the development of new technologies and products to address the
evolving needs of its customers. The Company believes that the Aremis
Architecture enables it to respond to and incorporate new technologies. In
addition, the Company's technology strategy is focused on transitioning its
legacy products to an object-oriented architecture to enable customers to
improve compatibility with existing software applications and to deploy and
integrate new software applications across their businesses.
Expand Marketing, Sales, Support and Service. The Company believes there
are significant opportunities to expand its market position in existing markets
by further developing its sales, marketing and support infrastructure. The
Company primarily sells its software products through an overall sales and
marketing force of 270 employees in the United Kingdom, United States, Ireland,
India, Cyprus, Mexico and Argentina, and indirectly in 12 additional countries.
The Company plans to continue to invest significantly in expanding its
marketing, sales, support and service in such geographic regions. The Company
also believes that prompt and effective service and technical support are
essential elements of enterprise-wide applications software. The Company has
established a customer support hotline for each operating division.
Acquire Related Software Products and Companies. A significant aspect of
the Company's growth strategy has been the acquisition of complementary
businesses in order to achieve market presence and increase its customer base
within the Targeted Markets. The Company's strategy is to rejuvenate the
products of acquired businesses utilizing the Aremis Architecture and gradually
transition the customers of acquired businesses to such products. The Company
expects that it will continue to rely on acquisitions as a significant part of
its growth strategy.
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<PAGE> 35
ACQUISITION STRATEGY
From January 1993 to March 1996, the Company acquired eleven businesses
with operations in the Targeted Markets. The aggregate net sales of the acquired
businesses totaled approximately $24.2 million (based on net sales for each
business during the last completed fiscal year immediately preceding the
acquisition translated to United States dollars based on the applicable exchange
rate in effect on the date the acquisition was consummated.)
The following table sets forth certain information concerning the
businesses that have been acquired by the Company since January 1993 exclusive
of an acquisition in 1996 of an entity wholly owned by the Company's principal
stockholder, Dr. Lycourgos K. Kyprianou:
<TABLE>
<CAPTION>
CONSIDERATION(1)
TARGETED MARKET NAME OF ACQUIRED BUSINESS PRINCIPAL LOCATION DATE ACQUIRED (IN MILLIONS)
--------------- ------------------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
MANUFACTURING BEC Group Limited United Kingdom March 1995 $3.10
Online Systems Inc. United States October 1996 0.60
HEALTHCARE Genisyst Limited United Kingdom October 1994 5.00
Timemaster Systems Limited United Kingdom September 1995 0.90
Advanced Medical Systems United Kingdom October 1995 1.90
HOSPITALITY HotelMaster Limited United Kingdom January 1993 0.30
IGS Leisure Technology Limited United Kingdom March 1993 1.00
Hotelier Limited United Kingdom June 1993 0.03
Sennen Computers Limited United Kingdom September 1993 0.40
Infoplan Computers Limited Cyprus June 1993 0.50
CONSTRUCTION Briter Computer Systems
Limited United Kingdom October 1995 3.10
</TABLE>
- ---------------
(1) For acquisitions of businesses outside of the United States, consideration
figures have been translated to United States dollars based on the
applicable exchange rate in effect on the date the acquisition was
consummated. In each case, all consideration was paid in cash.
Although the Company currently has no agreements, understandings or
arrangements with respect to any future acquisitions, the Company intends to
expand its activities in each Targeted Market on a global basis, including the
United States, and may do so through the acquisition of existing businesses,
products or technologies.
The Company's acquisition strategy focuses on the corporate, financial and
operational characteristics of both the Company and the acquired business. The
Company's acquisition strategy generally involves three phases: Phase I (the
pre-acquisition process), during which the Company identifies and analyzes
acquisition opportunities, Phase II (the post-acquisition assimilation process),
during which the acquired business is integrated into the Company's operations,
and Phase III (the post-acquisition product rejuvenation process), during which
the acquired business' products are rejuvenated and eventually transitioned to
the Aremis Architecture.
Phase I -- Pre-Acquisition
During Phase I, the Company identifies potential acquisition candidates and
analyzes and evaluates various factors to determine the appropriateness of the
acquisition. The Company extensively considers the candidate's products and
their applications, application environment and operating platform to assess the
potential for rejuvenation of the products utilizing the Aremis Architecture. At
the same time, the Company reviews the financial condition of the candidate's
business, its market share and competitors as well as its current customers and
customer support to evaluate various issues, including (i) whether the candidate
can be acquired at an attractive price, (ii) the desirability of the candidate's
customers and markets and (iii) the potential for utilizing the Company's
existing product development and support functions following the acquisition.
These and other factors are then considered by the Company in making its
decision whether to complete the acquisition process.
32
<PAGE> 36
Phase II -- Post-Acquisition Assimilation
During Phase II, the acquired business is integrated into the Company's
operations. The first step in Phase II of the acquisition process is to
establish a satellite WAN link between the Company's software development and
support facility in India and the acquired business. A team within the India
facility immediately assumes responsibility within the acquired business for
product development, finance and administration through the WAN link. As part of
this process, the Company reduces staff in development and administrative
functions previously performed by the acquired business. The team in India is
primarily responsible for research and development and shares responsibilities
for design and specification with technical personnel in the United Kingdom.
Phase III -- Post-Acquisition Product Rejuvenation
During Phase III, the Company begins the process of rejuvenating the
acquired businesses' products and transitioning them to the Aremis Architecture.
A customer of the acquired business may elect to (i) transition to an AremisSoft
product, (ii) upgrade to a rejuvenated legacy product or (iii) continue to
utilize its existing legacy product. The Company is sensitive to the acquired
business' investment in legacy systems and does not require customers of the
acquired business to transition to the rejuvenated products. The Company also
continues to support the acquired businesses' legacy products until all
customers are transitioned to a rejuvenated or new AremisSoft product. Because
the transition process is gradual and, to a large extent, is controlled by the
customer, disruption to the customer's operations is minimized.
The following table illustrates the product rejuvenation process:
LOGO
TARGETED MARKETS
The Company currently provides customized enterprise-wide applications
software for mid-sized organizations in the Targeted Markets. In the United
Kingdom, the Company is one of the leading suppliers of enterprise-wide
applications software to the healthcare and hospitality industries. As of
December 31, 1998, the Company had over 5,000 customers across the Targeted
Markets. The Company's customer base is comprised of approximately 450
manufacturing, 2,000 healthcare, 1,200 hospitality and 350 construction
customers. The Company also continues to service approximately 1,000 customers
across a variety of
33
<PAGE> 37
industries in other countries, primarily in Cyprus and India. For the years
ended December 31, 1996, 1997 and 1998, no customer accounted for more than 10%
of the Company's total revenues.
As a result of the acquisitions completed by the Company from January 1993
to March 1996, the Company's customer base in each Targeted Market is in various
stages of the transition process to products utilizing the Aremis Architecture.
Each of the Company's legacy products was originally acquired as part of an
acquisition and subsequently rejuvenated. In the rejuvenation process, a legacy
product is enhanced by incorporating the then current features of the Aremis
Architecture appropriate for that product. New customers in each of the Targeted
Markets have been sold rejuvenated products and updated versions of such
products, while existing customers of the acquired businesses have been
permitted to transition to the rejuvenated product line at their own pace. As a
result, the Company's product line in each of the Targeted Markets consists of
(i) legacy products of acquired businesses that have not been rejuvenated, (ii)
legacy products of acquired businesses that have been rejuvenated and
incorporate certain features of the Aremis Architecture and (iii) new products,
including those under development, that incorporate all or a substantial portion
of the features of the Aremis Architecture. In each of the Targeted Markets, the
Company markets rejuvenated and new products and also provides service and
support for new products and for legacy products that have not been rejuvenated.
The Company's new product offerings in each of the Targeted Markets consist
of products that incorporate all or substantially all of the benefits of the
Aremis Architecture, which include object-oriented technology, a virtually
seamless interface with Internet and intranet technologies, full Windows
compatibility, ODBC compliance, access from both character user interface
("CUI") and GUI terminals and Year 2000 and Euro compliance.
Within each of the Targeted Markets, the Company has adopted a tailored
sales and marketing strategy. This strategy includes advertisements in leading
trade publications, participation in trade shows and sponsorship of user groups.
In addition, the Company has developed corporate sales and marketing materials
as well as general financial and technical materials that are distributed to
each of the Company's subsidiaries for inclusion in their sales materials,
thereby promoting a consistent portrayal of the Company's image and products.
The Company markets its products primarily through a direct sales force in
each of the Targeted Markets. In the manufacturing and hospitality industries,
the Company also relies, to a limited extent, on distributors to sell the
Company's products. The amount of revenue attributable to sales by distributors
was approximately $2.8 million, $3.1 million and $500,000 for 1996, 1997 and
1998, respectively. The Company's senior management is typically involved in the
marketing process on contracts with a potential value of $500,000 or more. The
sales cycles for the Company's products vary across each Targeted Market
depending on many factors, including the size of the customer's organization,
the number of individuals within the organization who are involved in the
purchasing decision, whether the potential customer has retained a consultant to
assist in the purchasing decision, the status of the customer's implementation
of a hardware system and the degree of implementation, consulting and training
required. Contracts of $500,000 or more tend to have a longer sales cycle than
those under $500,000. The average sales cycle of contracts of $500,000 or
greater is approximately nine months.
The enterprise-wide applications software market, including the market for
client/server-based systems, is intensely competitive and rapidly changing. The
competition that the Company encounters varies across and within each market
depending upon, among other things, the customer's size and specific system
requirements. The principal competitive factors affecting the market for the
Company's software products include responsiveness to customer needs, product
architecture, functionality, speed of implementation, ease of integration,
performance, features, quality, reliability, breadth of distribution, vendor and
product reputation, quality of customer support and price. The Company believes
that it has competed effectively to date on the basis of these factors,
particularly on its reputation for high quality service and support and its
ability to provide its products and services at a lower cost.
34
<PAGE> 38
For each of the last three years, revenues in each of the Targeted Markets
as a percentage of the Company's total revenues were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Manufacturing............................................ 18% 22% 32%
Healthcare............................................... 47 45 30
Hospitality.............................................. 22 24 26
Construction............................................. 10 8 8
Other.................................................... 3 1 4
--- --- ---
Total.......................................... 100% 100% 100%
=== === ===
</TABLE>
MANUFACTURING
With the globalization of markets and increased competitive pressures for
lower production costs, improved product quality and performance, shortened
product development and delivery cycles, manufacturers around the world have
become increasingly dependent on enterprise resource planning ("ERP") systems.
ERP systems permit enterprise-wide management of material and human resources
and the integration of sales, forecasting, component procurement, inventory
management, manufacturing control, project management, distribution,
transportation, finance and other functions across a manufacturing organization.
These systems manage and store large amounts of diverse business information,
providing continuous and simultaneous availability of information to
geographically dispersed employees, customers and suppliers. The shortening of
product life and demand cycles creates significant risks to manufacturers who
need to make quick, accurate decisions with respect to demand, purchases and
production volumes in order to maximize production and minimize any materials or
product obsolescence. These challenges require highly efficient processes and
smooth integration of the enterprise from supply chain to sales and marketing
channels. As a result, many manufacturers have begun to restructure their
critical business processes and their organizational structures to be able to
accommodate rapid changes in the marketplace.
In recent years, ERP systems have been developed with client/server
architectures. These systems generally offer users easier access to information,
as well as multi-site processing capabilities. In addition, as compared to
host-centric systems, client/server environments are better able to accommodate
diverse hardware, software and network technology changes that can result from
rapid organizational growth, acquisitions and consolidations. However, such
systems are inherently complex and generally require lengthy and costly
implementation efforts, extensive user training and substantial ongoing support.
Accordingly, the Company believes there is a substantial market opportunity for
ERP applications that offer quick and measurable results, reduce risks
associated with implementation and modification and lower overall cost of
ownership. These solutions should consist of an integrated suite of ERP
applications and services that offer the reliable performance, ease of
implementation and ease of management available in host-centric systems as well
as the flexibility to support multi-site, multi-supplier, multi-platform
environments found in client/server systems. The Company's ERP applications
products are designed to meet the challenges faced by manufacturers in today's
marketplace by providing users with full ERP capability and broad functionality
across a variety of sectors in the manufacturing industry.
MANUFACTURING PRODUCTS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ------------------------------------------------------------------------------------------------------------
MTMS Windows(1) MTMS Enquiry MTMS
MTMS CoPilot MTMS Insight
- ------------------------------------------------------------------------------------------------------------
41 installed customers(2) 350 installed customers(2) 65 installed customers
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Released in the fourth quarter of 1998.
(2) Certain customers are licensed for more than one product and, as a result,
are represented more than once in the number of installed customers.
35
<PAGE> 39
MTMS Windows, the most recent version of the Company's manufacturing
products, is a Windows-based fully-integrated enterprise-wide management and
control system which provides full ERP capabilities and broad functionality.
MTMS Windows contains 13 main application modules and over 1,200 programs. It
incorporates all features of the Aremis Architecture, including a GUI client.
MTMS Windows was developed and released in phases resulting in the final full
release in the fourth quarter of 1998. There are currently six customers using
MTMS Windows.
MTMS consists of an integrated enterprise-wide management and control
system which provides full ERP capabilities and broad functionality and operates
in a UNIX environment. Its extensive functionality, which operates on powerful
UNIX platforms, makes it compatible with larger ERP systems. MTMS was acquired
in connection with the Company's 1995 acquisition of BEC Group Limited and
subsequently rejuvenated. MTMS contains the same application modules and
programs as MTMS Windows but does not incorporate all features of the Aremis
Architecture.
The following table describes the main application modules of MTMS Windows
and MTMS and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Manufacturing Data Management - Enables the creation and access of parts details, bills
of material, process routes and any other resources that
are fundamental to the control of the manufacturing
process
- - Production Planning - Assists in the control of production via daily targets
with actual inventory and labor entries
- - Resource Planning - Allows the preparation of corporate business plans and
undertaking of thorough planning using the key resource
planning module
- - Production - Facilitates ordering and controlling work in progress
throughout production
- - Inventory and Stores - Allows the user to define and control inventory
requirements, record unplanned inventory movements, track
inventory in all stages of the manufacturing process and
generate product forecasts, which in turn can be used in
creating the master schedule
- - Purchasing - Allows users to fully integrate purchase orders,
material requirements planning, quality control and
purchase invoice validation
- - Sales - Provides the user with optional methods of entering
purchase orders to accommodate the different requirements
across the manufacturing industry
- - Marketing - Assists the user in processing sales leads prior to
quotation and producing selective mailings to prospective
customers with active follow-up
- - Financial Management - Provides year-end and interim financial reporting for a
variety of accounts, including inventory, fixed assets and
contracts
- - System Software - Provides the framework upon which the MTMS customer
implementation is built and maintained; includes modules
to parameterize system functions, set defaults and
provide options for creating and maintaining basic
system data
- - Quality Control - Provides users with a set of comprehensive modules for
managing quality control of raw materials and finished
products
- - Environment - Contains the control mechanism to support a range of
database facilities
</TABLE>
MTMS CoPilot is a project management package currently offered by the
Company that integrates the MTMS and MTMS Windows products within the
enterprise. MTMS CoPilot reconfigures MTMS functions to fit a customer's
business model and customizes the appearance and behavior of the system in line
with the
36
<PAGE> 40
customer's business procedures. The Company believes that MTMS CoPilot, which
allows manufacturing customers to review and improve working practices in a
strategic area on a timely basis, is the primary driver of the Company's success
with its MTMS products.
MTMS Enquiry is a Windows-based report writer suite. MTMS Enquiry is
designed to interact with the Company's MTMS products, enabling users to create
sophisticated reports and make inquiries in a single, unified Windows-based
graphical environment.
MTMS Insight is a Windows-based information management system that provides
users with high speed, graphical navigation of multidimensional information.
MTMS Insight is designed to interact with the Company's MTMS products to provide
users with multidimensional reporting and analysis capability. With MTMS
Insight, a user can create numerous graphs, charts and reports based on MTMS
data.
MANUFACTURING SALES AND MARKETING
The Company distributes its products directly in the United Kingdom, United
States, Argentina and Mexico through a direct sales force of 12 employees in
five offices and utilizes independent distributors in 14 additional countries.
The Company does not grant exclusive distribution rights to any of its
distributors and carefully manages its sales territories to avoid conflicts
between distributors. Products sold through distributors are generally supported
by the Company through a maintenance agreement between the Company and the
distributor.
Sales cycles for the Company's manufacturing products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system and whether the customer has employed a
consultant to assist it in its purchasing decisions. The MTMS sales cycle is
generally three to nine months from the time an initial sales presentation is
made to a prospective customer to the time a license agreement is executed.
License fees for MTMS products range from approximately $50,000 to $500,000
depending upon the size of the customer and number of applications licensed. The
license fees for MTMS Enquiry and MTMS Insight are approximately $1,100 per
user. MTMS CoPilot is an MTMS implementation tool and is not licensed
separately. It is licensed with MTMS for an additional $15,000.
MANUFACTURING CUSTOMERS
The Company is becoming a significant supplier of ERP software to mid-sized
organizations in the United Kingdom and Europe and markets its manufacturing
products in 18 countries worldwide. Within the manufacturing industry, the
Company has a significant presence in a number of submarket sectors including
machinery, transportation, chemicals, food and beverage, fabricated metal
products and textiles. The Company has approximately 450 manufacturing customers
in 18 countries. The following is a list of representative customers as of March
5, 1999:
<TABLE>
<S> <C>
Nabisco Biscuit Co. Watts Industries Europe BV
Telefon AB LM Ericsson Fernz Corporation Ltd.
Alcan Aluminum Limited Spartan Electronics Florida Inc.
ABB Kent plc Joy Tomkins Group plc
Mining Machinery Kvaerner Energy Ltd.
Rotork Controls, Ltd. Rheem Manufacturing Company
</TABLE>
MANUFACTURING COMPETITION
The Company's principal competitors in the manufacturing industry include
QAD Inc., Fourth Shift, Symix, DataWorks, MDIS and a number of smaller
independent companies that have developed or are attempting to develop advanced
planning and scheduling software which complement or compete with
enterprise-wide applications software or manufacturing resource planning
applications. The Company also believes that large enterprise-wide applications
software vendors such as Oracle, SAP, Baan, and PeopleSoft are increasing their
marketing efforts to mid-sized manufacturing companies. The principal
competitive
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<PAGE> 41
factors affecting the market for the Company's products in the manufacturing
industry are Year 2000 and Euro compliance, product functions, ease of
implementation, customer service, training and price. The Company believes its
MTMS product allows the Company to compete effectively in the manufacturing
industry because of the product's ease of implementation provided through MTMS
CoPilot, its enhanced functions and ability to run on the NT platform and its
incorporation of the Aremis Architecture. In addition, the Company offers
extensive training and support for its manufacturing products. See
"Business -- The AremisSoft Solution." The Company believes that its ability to
compete in the manufacturing industry will be further enhanced by the ability of
MTMS Windows to offer Euro compliance.
HEALTHCARE
The healthcare industry in the United Kingdom, Europe and North America is
characterized by government regulation and rising healthcare costs. Rising costs
have resulted in pressures to reduce costs without sacrificing the quality of
care and have caused significant legislative and regulatory changes in the
healthcare industry. The pressure to reduce costs has encouraged physicians to
join group practices to share administrative costs and achieve economies of
scale. The Company believes that this movement toward group practices has
accelerated the trend toward automation, as group practices require more
efficient and productive management systems. Physician practice management
systems are now available that automate insurance processing and third party
claims, store clinical information and integrate the operations of physician
practices with larger healthcare organizations.
The healthcare industry in the United Kingdom is regulated by the National
Health Service ("NHS"), a government agency. Healthcare services are currently
provided primarily through health authorities and general practitioner ("GP")
fundholders. Health authorities ensure that the healthcare services provided
meet the needs of residents in their designated areas. GP fundholders are groups
of physicians who combine practices to manage a budget for staff, provide
hospital referrals, drug costs, community nursing services and management costs.
Groups of GP fundholders who work together and pool their budgets are known as
"Multifunds."
After April 1, 1999, the GP fundholding structure is expected to terminate
and be replaced by newly created primary care groups ("Primary Care Groups").
Each Primary Care Group is expected to be responsible for approximately 100,000
individuals within a certain territory, based on natural geographical
communities and will have a budget based upon its territory's population and
available resources.
The Company's healthcare products sold in the United Kingdom are regulated
by the NHS through an accreditation process. The NHS introduced Requirements for
Accreditation ("RFA") in April 1993 and the current version, RFA4, was reprinted
in April 1998. RFAs ensure that computer systems provide consistent core
functions and conform to NHS standards. It was recommended that existing systems
be upgraded and that health authorities and GP fundholders would only be
reimbursed for the cost of such systems if they were accredited to RFA4. The
Aremis Architecture is accredited to RFA4.
In April 1999, a new Information Management and Technology Strategy
("IMTS") is expected to be published by the NHS. The IMTS is expected to set the
information technology standards for the next seven years, including
specifications for Primary Care Groups. The purpose of the IMTS is to ensure
that all Primary Care Groups will have in place an auditable clinical system
with the ability to provide management information. In addition, the NHS
recently recommended that major investments in information technology systems to
support Primary Care Groups not be made before the IMTS is published. As a
result, the Company anticipates that it may experience a delay in customer
purchases of its healthcare products pending such publication. See "Risk
Factors -- Government Regulation of Healthcare Product Specifications."
The IMTS is expected to be the basis for drafting an updated RFA, which
will be referred to as "RFA5." The Company, among others, is actively involved
with the NHS in the development of the new specifications. The Company believes
it is well-positioned to respond to the new specifications and provide its
existing and potential customers in the healthcare industry with enterprise-wide
applications software that will meet their specific needs and comply with
applicable requirements. In the future, the NHS is expected to only reimburse
physicians groups for purchases of information technology systems that meet RFA5
accreditation criteria.
38
<PAGE> 42
The information technology group of the NHS is also working on a project
called PRODIGY, the purpose of which is to test the concept of computer-aided
support for physicians prescription decisions. PRODIGY's proposed computer
system would contain advice on therapeutic options and is intended to work in
tandem with existing physician clinical systems. The system provides decision
support to the physician immediately after an initial diagnosis has been made by
presenting a prescribing recommendation on the condition diagnosed. It is
anticipated that the NHS will specify system requirements for computer aided
decision support as part of RFA5. The Company is one of five organizations
involved in preparing the specifications.
HEALTHCARE PRODUCTS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ------------------------------------------------------------------------------------------------------------
GCS for Windows(1) GCS AMSyS-v4
AMSyS-v5 Genisyst Clinical System
Genisyst 2.8 GENI Links
Genisyst 4 (NT) GENI
CHARM
Fundman Windows 95
Fundman Windows 3.1
Fundholding
Infolog
- ------------------------------------------------------------------------------------------------------------
50 installed customers 1,939 installed customers(2) 560 installed customers(2)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Released in the fourth quarter of 1998.
(2) Certain customers of the Company have been licensed for more than one
product or version of a product and, as a result, are represented more than
once in the number of installed customers.
Global Clinical System for Windows ("GCS for Windows") was released in the
fourth quarter of 1998. GCS for Windows operates on a PC/NT platform and
provides healthcare providers with a navigation system for managing medical and
administrative tasks routinely encountered by physicians, physician groups and
community hospitals. GCS for Windows is a Windows-based integrated clinical
system compatible with both Windows 95 and Windows 3.1, facilitating integration
with other systems. It utilizes many features of the Aremis Architecture,
incorporating object-oriented and touch screen technologies. GCS for Windows
consists of nine fully-integrated application modules.
Global Clinical System ("GCS") operates in Windows 95 and contains the same
application modules as GCS for Windows. Because GCS does not incorporate
object-oriented technology, a key feature of the Aremis Architecture, it is
expected to be gradually phased out in connection with the release of GCS for
Windows.
39
<PAGE> 43
The following table describes the main application modules of GCS for
Windows and GCS and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Administration Manager - Contains all basic patient record information such as
name, age, sex and address
- - Consultation Manager - Delivers an electronic patient record to the clinician's
desktop, providing the user with the significant medical
history of the patient, consultation history, test results
and tests due
- - Prescription Manager - Provides access to the user's 40 most commonly prescribed
drugs, as well as information on generic types, preferred
drugs, packaging and costs
- - Appointment Manager - Creates an appointment calendar for multiple physicians
across various specialties, tracks patient visits, prints
details and produces statistical reports for physicians
- - Reporting - Generates reports specific to a practice or health
authority, based on a number of factors such as age, sex and
patient profile
- - Training - Provides state-of-the-art training techniques from the
user's screen
- - Communications - Enables a facility to link its system to the NHS intranet,
the local hospital and the health authority
- - Word Processing - Allows users to incorporate data from other modules into
letters and referrals
- - Dispensing - Facilitates the cost-effective issuance of drugs and
prescriptions
</TABLE>
AMSyS-v5 is a DOS-based clinical system released by the Company as a
product rejuvenation for AMSyS-v4 customers. AMSyS-v4 was acquired by the
Company in connection with the acquisition of Advanced Medical Systems Limited
in 1995 and subsequently rejuvenated. AMSyS-v5 does not incorporate all features
of the Aremis Architecture. AMSyS-v5 incorporates primarily the same application
modules as GCS but in a non-Windows format and operates alone or in a PC/LAN
environment.
Genisyst 2.8 and Genisyst 4(NT) are both rejuvenations of a product
acquired by the Company in connection with its 1994 acquisition of Genisyst
Limited. Neither Genisyst 2.8 nor Genisyst 4(NT) incorporate all features of the
Aremis Architecture. Both products incorporate functionality similar to GCS and
provide a nondisruptive transition for customers to new products until these
products are phased out.
CHARM is a UNIX-based system primarily developed for community hospitals
and is principally used by physicians to manage home healthcare visits conducted
by health and social workers. CHARM consists of a central database that allows
the user to collect and maintain patient data and treatment information. The
software is installed on palm tops, which allows users to collect data in the
field and later upload the information into the central database. The Aremis
Architecture version of CHARM is under development and is currently in the
planning stage. It is expected to be released in 2000.
Fundholding and Fundman are accounting applications software. Fundholding
is a multi-user accounting system designed to operate in accordance with the NHS
Fundholding business model. All accounting modules are integrated with various
software applications, reducing the administrative costs associated with
operating a group practice in the Fundholding system. Fundman is a Windows-based
consolidation system for multifund physician practices and contains a total
purchasing module, which is expected to be the prototype model for the new IMTS
specifications.
Infolog is a hand held terminal which is used for remote data capture by
physicians and home healthcare providers. Infolog is a support product used by
licensees of the Company's GCS, Fundman and Fundholding products and enables
electronic data capture, resource management and contract/logistics management
for physicians and home healthcare providers. As of December 31, 1998, the
Company has sold approximately 5,000 units, which are being used by
approximately 3,500 healthcare providers.
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<PAGE> 44
HEALTHCARE SALES AND MARKETING
The Company's healthcare products are marketed and distributed to
organizations in the healthcare industry through a direct sales force of 19
employees in three offices. The healthcare marketing team is managed by a sales
director who allocates geographic territories among sales executives. The
Company is also exploring marketing opportunities in the healthcare industry in
European countries with healthcare industry models similar to that in the United
Kingdom, such as Denmark and Belgium.
In the United Kingdom, demand for the Company's products is generated by
the Company through contacts with physicians, physician groups and regulatory
authorities. In addition, the NHS sponsors a number of strategic initiatives
which can result in significant sales once product specifications are
determined. The NHS also underwrites a percentage of major information
technology initiatives which effectively reduce operating costs for physicians
and Primary Care Groups.
Sales cycles for the Company's healthcare products vary depending upon,
among other things, the degree of integration, consulting and training required
and the status of the customer's implementation of a hardware system. The
typical sales cycle is one to three months from the time an initial sales
presentation is made to a prospective customer to the time a license agreement
is executed. License fees for GCS products range from approximately $20,000 for
single users to $150,000 for multiple user systems, depending upon the number of
applications licensed. License fees for other rejuvenated products vary
depending on the product but are generally lower than GCS license fees.
HEALTHCARE CUSTOMERS
The Company is recognized as one of the top four suppliers of
enterprise-wide applications software to physicians and physician groups in the
United Kingdom. The Company currently has approximately 2,000 healthcare
customers in the United Kingdom. The following is a list of representative
customers as of March 5, 1999:
<TABLE>
<S> <C>
Birmingham Multifund Kingston & Richmond Multifund
Southampton Multifund Potteries Healthcare
Blackburn National Health Trust Lambeth and Lewisham Multifund
Dudley Multifund BHB Hospital Trust
Durham Multifund South Wales GP Group (120 practices)
</TABLE>
HEALTHCARE COMPETITION
The Company's main competitors in the healthcare industry in the United
Kingdom include EMIS, Reuters, AAH Meditel, GPASS, HCSL, Exeter Systems, Medical
Care Systems, Microtest Europe Limited, PCTI Solutions Ltd. and Seetec Medical
Systems. The principal competitive factors affecting the market for the
Company's products in the healthcare industry in the United Kingdom are the
ability to produce products to market in relatively short periods of time and in
compliance with the requirements of physicians, physician groups, community
hospitals and applicable government regulations, including the specifications of
the NHS, access to reliable software support and system implementation and
maintenance costs. Because the Company's GCS and other clinical systems products
are designed to meet then applicable ITMS specifications and are accredited
under the applicable RFA, the Company believes that it is able to compete
effectively in the healthcare market in the United Kingdom. In addition, the
Company's healthcare products provide customers with enhanced functions, ease of
integration, industry-specific applications, rapid implementation, and can be
used with legacy systems and are supported by highly-trained personnel. See
"Business -- The AremisSoft Solution."
As with other markets, the United Kingdom healthcare market has moved
toward open systems and standardized platforms, which the Company believes could
draw new competitors into the market. This could favor competitors with overseas
operations who can achieve economies of scale. In view of the increased
complexity of NHS specification requirements, the number of enterprise-wide
applications software suppliers in the market may also be significantly reduced.
41
<PAGE> 45
HOSPITALITY
The Company's hospitality customers are primarily comprised of hotels,
motels and inns which seek property management systems that allow staff access
to reservation data, guest histories and demographics, simplify check-in and
check-out procedures, automate maintenance and housekeeping schedules and
provide information regarding guest preferences. Property management systems can
also consolidate data from restaurants, bars and other points of sale, which
helps to achieve greater accuracy and fewer delays for guests. One of the most
significant aspects of property management systems is their ability to trace the
source of existing business, identify potential sources of new business and
forecast how often a given guest, or type of guest, will use the establishment
in the future. The Company believes that its customers in the hospitality
industry require systems that are capable of managing guest requirements while,
at the same time, providing access to information which assists the customer in
its sales and marketing efforts.
HOSPITALITY PRODUCTS
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ----------------------------------------------------------------------------------------------
Aremis 4.0 PMS(1) IGS Hotel (Version 3) IGS Hotel
IGS Hotel (Version 2.5) AccountMaster
IGS Hotel (Version 1.xx) HotelMaster
AccountMaster
- ----------------------------------------------------------------------------------------------
4 installed customers 850 installed customers(2) 350 installed customers(2)
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Released in the fourth quarter of 1998.
(2) Certain customers are licensed for more than one product and, as a result,
are represented more than once in the number of installed customers.
Aremis 4.0 Property Management System ("Aremis 4.0 PMS") is an enhanced
version of IGS Hotel and was released in October 1998. Aremis 4.0 PMS is a
comprehensive hotel property management system that can be dynamically
configured to match the customer's business model. It offers a wide range of
functionality for both the front and back office operations in a hotel and
incorporates all features of the Aremis Architecture. Aremis 4.0 PMS can be
fully integrated with Microsoft Office. An attractive feature of Aremis 4.0 PMS
is that its scalability allows the Company to target customers that have in
excess of 500 rooms at a given site. Aremis 4.0 PMS consists of six main
application modules.
Aremis 4.0 PMS can also be used as a marketing tool for hotels, providing
its users with a comprehensive database of guest profiles and histories. From
the database, the system can be used to generate personalized letters and other
mailings to corporations and individuals in the database. The database also
enables the user to develop marketing strategies aimed at corporate guests and
other types of marketing campaigns. The information available through Aremis 4.0
PMS allows the hotel to offer a higher level of service through guest
recognition and to target preferred guests during particular periods through
directed marketing efforts.
IGS Hotel Property Management System (Version 3) ("IGS Hotel") is a
client/server based comprehensive hotel property management system that offers a
wide range of functionality for both the front and back office operations in a
hotel and operates in a DOS format. It is a rejuvenation of a product acquired
in connection with the Company's 1993 acquisition of IGS Leisure Technology
Limited. Similar to Aremis 4.0 PMS, IGS Hotel consists of six main application
modules and can be used as a marketing tool but, unlike Aremis 4.0 PMS, does not
incorporate all features of the Aremis Architecture.
42
<PAGE> 46
The following table describes the main application modules of Aremis 4.0
PMS and IGS Hotel and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Front Office - Assists hotels in managing its front office operations from the point
of reservations until check out
- - History & Marketing - Provides hotels with key profile information on guests and prospects
- - Conferencing & Banqueting - Assists hotels in organizing events and facilitates the complex
reservation process, consolidating billing statements and maintaining
detailed information on guests and events
- - Point of Sale (Restaurant & Bar) - Provides automatic and direct settlement of restaurant and bar charges
onto the appropriate account; advanced inventory module also controls
all aspects of the catering process
- - Interfaces - Allows hotels to interface with a wide range of high quality third-
party hardware and software systems such as room access control
systems, telephone systems, television systems, mini-bar systems and
in-room fax facilities
- - AccountMaster - Provides hotels with a comprehensive range of management accounting and
reporting software designed specifically for the hospitality industry
</TABLE>
AccountMaster is a rejuvenated product which was originally acquired by the
Company in connection with the 1993 acquisition of HotelMaster Limited. It
provides hotels with a basic accounting system tailored for the hospitality
industry and includes functions such as tracking profit and loss and inventory,
generating numerous reports, including a general ledger, sales ledger and audit
reports, and creating receipts. AccountMaster currently incorporates certain
features of the Aremis Architecture.
HOSPITALITY SALES AND MARKETING
The Company's hospitality products are marketed and distributed to
mid-sized organizations in the hospitality industry in the United Kingdom,
Ireland, Cyprus and India through a sales force of 12 employees in two offices.
Each sales team is managed by a sales director who allocates geographic
territories among sales executives. In the Channel Islands and Scotland, the
Company also utilizes distributors on a nonexclusive basis.
Sales cycles for the Company's hospitality products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system, the number of individuals involved in the
purchasing decision and whether the customer has retained a consultant to assist
in the purchasing decision. The sales cycle for IGS Hotel is typically three to
six months from the time an initial sales presentation is made to a prospective
customer to the time a purchase order is received by the Company. License fees
for the Company's property management system products range from approximately
$11,000 to $1.0 million, depending on the size of the customer and number of
applications licensed. The license fee for AccountMaster is approximately
$1,000.
43
<PAGE> 47
HOSPITALITY CUSTOMERS
The Company is a leading supplier of property management systems to hotels
in the United Kingdom. AremisSoft currently has approximately 1,200 hospitality
customers in the United Kingdom, Cyprus and India, including major hotel chains
with multiple sites. The Company's current customer base consists of inns and
hotels with 500 rooms or less. The following is a list of representative
customers as of March 5, 1999:
<TABLE>
<S> <C>
Forte Limited Jarvis Hotels plc
Whitbread plc (Travel Inn) Jurys Hotel Group plc
Bass plc (Toby Inns) Millennium & Copthorne Hotels plc
Regal Hotel Group plc Thistle Hotels plc
Friendly Hotels plc Cliveden plc
</TABLE>
HOSPITALITY COMPETITION
In the hospitality industry, the Company's principal competitor in the
United Kingdom is Innsite Hotel Services Ltd. With respect to the other markets
in Europe in which the Company sells its products, the principal competitor is
MICROS-Fidelio International. The principal competitive factors affecting the
market for the Company's products in the hospitality industry are product
functions, ease of implementation and use, return on the customers' investment,
customer service, training and price. The Company's hospitality products provide
customers with, among other things, enhanced functions, ease of integration,
industry-specific applications, rapid implementation, ability to operate with
legacy systems and highly-trained product support services. See "Business -- The
AremisSoft Solution."
CONSTRUCTION
Historically, the construction industry in the United Kingdom has been
characterized by fragmentation, lack of investment in technology, focus on cost
rather than quality and a lack of standardization with respect to contracts,
insurance and related matters. As a result, significant changes in the United
Kingdom construction industry have begun to occur and more are expected to occur
in the future. Many of these expected changes focus on improving efficiency and
incorporating information and communication technology into the decision-making
and control processes.
Businesses in the construction industry typically seek enterprise-wide
applications software that provides purchasing control, inventory, estimating,
job costing, project management, purchase orders, invoicing, accounting, service
and maintenance, payroll, inventory control and sales and marketing functions.
As a result, the Company believes that many organizations in the construction
industry are shifting away from in-house applications toward more sophisticated,
third-party enterprise-wide applications software. In addition, the Company
believes that a substantial number of organizations in the construction industry
are seeking solutions related to Year 2000 and Euro compliance and plan to
upgrade or replace their existing information technology systems.
CONSTRUCTION PRODUCTS
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- --------------------------------------------------------------------------------------------------------------
ViXEN Windows ViXEN Plus & ODBC ViXEN
- --------------------------------------------------------------------------------------------------------------
Expected release in second quarter of 60 installed customers(1) 300 installed customers(1)
1999
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain customers are licensed for more than one product and, as a result,
are represented more than once in the number of installed customers.
ViXEN Windows, the most recent version of the Company's ViXEN Contracting
System and currently under development, is a fully-integrated Windows-based
management and control system designed specifically for contracting companies
across a variety of industries. It incorporates many features of the Aremis
Architecture, including ODBC compliance and GUI. ViXEN Windows consists of 13
fully-integrated main
44
<PAGE> 48
application modules and over 600 programs. The Company is currently testing a
Beta version of the product and expects to release ViXEN Windows in the second
quarter of 1999.
ViXEN Plus & ODBC ("ViXEN Plus") is a UNIX-based management and control
system for contracting companies consisting of an integrated, modular system
which offers a broad range of functions. ViXEN Plus is a rejuvenation of the
ViXEN product acquired by the Company in connection with the Company's 1995
acquisition of Briter Computer Systems Limited. The product was rejuvenated to
operate in a multi-user environment and consists of the same principal
application modules as ViXEN Windows but does not incorporate a substantial
number of the Aremis Architecture features.
The following table describes the main application modules of ViXEN Windows
and ViXEN Plus and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Services and Maintenance - Controls various tasks related to servicing and
maintaining equipment and facilities, allowing users to
record and manage numerous customer address and plant
equipment parameters
- - Job Costing - Enables users to record and analyze costs of each job;
serves as the hub of the ViXEN contracting system and is
fully-integrated with each other application module
- - Purchase Orders - Allows users to produce printed orders, to calculate
prices and discounts automatically and to record the value
of outstanding orders as part of work in progress
- - Estimating - Enables users to create a quote based on the resources
required for the job and to perform sensitivity analyses
based on changes in labor rates, overhead, task factors,
wastage, allowances, increased cost percentages and
desired profit margin
- - Inventory Control - Allows users to maintain control of inventory changes by
providing detailed information on inventory levels, goods
ordered from suppliers and incoming and outgoing
transactions
- - Price File Database - Provides users with instant access to current prices on
frequently used products for a variety of purposes,
including estimating, material requisitions, purchase
orders, inventory control and small works invoicing
- - Client Reconciliation - Assists users in the complex tasks of recording,
reconciling and accounting for interim applications, client
certificates, deferred value-added taxes and discounts and
retentions on contracts
- - Subcontractor Reconciliation - Provides the same functionality for subcontractors as
Client Reconciliation provides for contractors
- - Sales Ledger - Allows users to automatically post invoices through the
Job Costing module and to perform sales analyses
- - Purchase Ledger - Allows users to log invoices, validate input data, specify
payment options, make automatic payments and produce
invoices and checks
- - Nominal Ledger - Provides users with extensive reporting modules in a
variety of formats based on a user-defined structure
- - Payroll - Processes the wage and salary payments of various types of
employees
- - System Management - Embraces a range of necessary features, integrating other
ViXEN modules in a UNIX environment
</TABLE>
CONSTRUCTION SALES AND MARKETING
The Company distributes its construction products through a direct sales
force of six employees in two offices. Similar to the Company's marketing
strategy in the healthcare and hospitality markets, the sales force is divided
into teams, each of which is managed by a sales director who allocates
geographic territories among sales executives.
45
<PAGE> 49
Sales cycles for the Company's construction products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system and whether the customer has retained a
consultant to assist in the purchasing decisions. The sales cycle for ViXEN
Windows is six to 12 months from the time an initial sales presentation is made
to a prospective customer to the time a purchase order is received by the
Company. License fees for a ViXEN contracting system range from approximately
$80,000 to $500,000 depending on the size of the customer and the number of
applications licensed.
CONSTRUCTION CUSTOMERS
The Company is a major supplier of enterprise-wide applications software to
the electrical/mechanical contracting sector of the construction industry in the
United Kingdom. Ten of the recently privatized electricity supply companies
(seven of which are now owned by United States companies) in the United Kingdom
are customers of the Company, together with most of the major electrical and
mechanical contracting companies representing a customer base of over 350
contractors. The following is a list of representative customers as of March 5,
1999:
<TABLE>
<S> <C>
London Electricity plc Midlands Electricity plc
Southern Electric plc Norweb Contracting
East Midlands Electricity South Western Electricity
Yorkshire Electricity N G Bailey & Co., Ltd
CWS Engineering Services Ltd. ROMEC
</TABLE>
CONSTRUCTION COMPETITION
In the construction market, larger competitors tend to operate across the
entire construction spectrum and offer enterprise-wide applications software to
suit every division, such as construction, contracting, security and service and
maintenance. The Company's principal competitors in the construction industry
are Misys plc, FCG Computer Systems/Red Sky Software Ltd., MicaBuild Products,
Estimation Inc., Database, and Engineering Technology. The principal competitive
factors affecting the market for the Company's products in the construction
industry are Year 2000 and Euro compliance, the ability to collect marketing
data, effective organization of pricing and buying information, accurate
invoicing and profit control. The Company's ViXEN product offers, among other
things, Year 2000 compliance, enhanced functions, ease of integration,
industry-specific applications and rapid implementation. See "Business -- The
AremisSoft Solution." ViXEN's application modules provide a comprehensive
package covering all basic customer requirements, significantly reducing the
customer's need to interface with third-party products. See
"Business -- Targeted Markets -- Construction -- Construction Products." The
Company believes that the range of functions and Year 2000 compliance of the
ViXEN product strengthens the Company's ability to compete effectively in the
construction industry in the United Kingdom.
PRODUCT DEVELOPMENT AND QUALITY ASSURANCES
Since its formation, the Company has made substantial investments in
research and development. New generations of software products are continually
being designed and developed to provide improved performance and enhanced
functions while utilizing the most recent proven technology. The Company's
research and development expenses were approximately $6.4 million for 1996 and
$6.2 million for each of 1997 and 1998.
The Company maintains research and development centers in both the United
Kingdom and India. The Company's operation in the United Kingdom concentrates
primarily on new product design and prototyping using the Aremis Architecture.
Coding, integration and testing are performed at the Company's software
development and support facility in India where employees are divided into teams
for each Targeted Market. The Company's teams in India also focus on
enhancements and error corrections to existing products.
Use of the software development and support facility in India provides
AremisSoft with access to highly skilled software engineers. In contrast, the
available pool of appropriately skilled software professionals in Europe and the
United States is decreasing as a result of Year 2000 and other projects
including, the
46
<PAGE> 50
conversion to the Euro. Further, the cost of recruiting and training software
developers in C++ and Java is substantially more expensive in Europe and North
America. The Company believes its facility in India provides it with a
significant advantage over its competitors in Western Europe and the United
States, even with the additional communications and management overhead
associated with remote development.
All of AremisSoft's employees in India are full-time employees. The Company
does not employ contractors or fixed term temporary personnel in India. In order
to retain key personnel the Company operates a number of incentive programs,
including subsidized housing, car allowances, and generous overseas allowances
and bonuses for employees working on special projects. Currently, the Company
utilizes a three-shift system at its facility in India, thereby allowing the
Company to ensure key projects are delivered on time and to specification and
facilitating customer access to software staff. The Company's software
engineering research division also evaluates and develops new technologies and
methodologies for the future benefit of the Company's broad range of products.
Currently, these include hand held, EDI, imaging, Internet/intranet, voice
activation, touchscreen and multimedia technology.
CUSTOMER SERVICE AND SUPPORT
The Company provides the following services to its customers in an effort
to promote rapid and efficient implementation, product consultation and
technical support:
Installations and Training. Installations are planned and overseen by
specialist project managers in accordance with customer requirements and
pre-installation consultation is provided when necessary. The Company offers a
fully-integrated training program to support customer implementation of the
Company's products to help ensure successful installations.
Customer Support. The Company provides a high level of customer support
through its software development and support facility in India in addition to
the local support provided on a daily basis. Support and product information are
also provided through the Company's Web page. In addition, the Company supports
user groups in the United Kingdom and North America to enhance the support and
development of the Company's products as well as its image.
Business Review Services. AremisSoft recently introduced a business review
service to ensure that its customer organizations recognize and respond to
market trends. These reviews assess the factors influencing the performance of a
business with respect to the management of required information services. As
part of the service, the Company produces a comprehensive report containing
recommendations for change and the related costs and benefits.
PROPRIETARY RIGHTS AND LICENSING
The Company's success is dependent upon its proprietary technology and
other intellectual property. The Company has submitted an application for
federal registration of the AremisSoft tradename, trademark and logo with the
United States Patent and Trademark Office. The Company has not registered any
copyrights nor received or applied for any patents for its products, technology
or other intellectual property. No assurances can be given that the Company's
trademarks will be registered as a result of pending or future applications or,
if registered, they will provide meaningful protection or other commercial
advantages to the Company. The Company relies primarily on a combination of the
protections provided by applicable copyright, trademark and trade secret laws,
as well as on confidentiality procedures and licensing arrangements, to
establish and protect its rights in its software. The Company also enters into
confidentiality agreements with certain employees, distributors and customers
and limits access to and distribution of the source codes for its products and
other proprietary technology. The Company believes that the foregoing measures
afford only limited protection. Despite the Company's efforts, it may be
possible for third parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information that the Company regards as
proprietary. In addition, the laws of certain countries, such as the United
Kingdom and India, do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly, no assurances can be
given that the Company will be able to protect its proprietary software against
unauthorized third-party
47
<PAGE> 51
copying or use, which could have a material adverse effect on the Company's
business, operating results and financial condition. Policing, enforcing and
protecting unauthorized use of the Company's products and intellectual property
is difficult, and while the Company is unable to determine the extent to which
piracy of its software products may exist, software piracy can be expected to be
a problem. In addition, no assurances can be given that the Company's
competitors will not independently develop technology similar to that of the
Company. Moreover, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors -- Intellectual Property
Rights."
The Company enters into license arrangements that provide for the
nonexclusive license of the Company's software. The Company's license agreements
generally allow the use of its software solely by the customer for internal
purposes without the right to sublicense or transfer the software to third
parties. Such licenses generally are perpetual, but subject to termination for
breach or on notice, and contain confidentiality and nondisclosure provisions, a
limited warranty covering the software, and indemnification for the customer
from any infringement action related to the software.
Although the Company is not aware that any of its products infringes upon
the proprietary rights of third parties, no assurances can be given that third
parties will not claim infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company. The Company may also initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Litigation to determine the
validity of any claims could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation were determined in favor of the
Company. See "Risk Factors -- Intellectual Property Rights."
The Company has in the past and may in the future resell certain software
that it licenses from third parties. In addition, the Company may in the future
jointly develop software in which the Company will have co-ownership or
cross-licensing rights. No assurances can be given that these third-party
software licenses will continue to be available to the Company on terms that
provide the Company with the third-party software it requires to provide
adequate functionality in its products, on terms that adequately protect the
Company's proprietary rights or on terms that are commercially favorable to the
Company. The loss of or inability to maintain to obtain any of these software
licenses, including a loss as a result of a third-party infringement claim,
could result in delays or reductions in product shipments until equivalent
software, if any, could be identified, licensed and integrated, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors -- Intellectual Property Rights."
EMPLOYEES
As of March 5, 1999, the Company had 520 full-time employees. Of these
employees, 274 are based in the Company's offices in the United Kingdom and 186
are based in the Company's software development and support facility in New
Delhi, India. The remaining 60 employees are in various facilities in other
locations. Of the Company's employees in the United Kingdom, 59 are in the
manufacturing division, 97 are in the healthcare division, 84 are in the
hospitality division and 34 are in the construction division. None of the
Company's employees is represented by any collective bargaining agreements and
the Company has never experienced a work stoppage. The Company considers its
relationship with its employees to be good and has not experienced any
interruptions of operations due to labor disagreements.
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<PAGE> 52
PROPERTIES
The Company leases various facilities in the United Kingdom, United States,
Ireland, India, Mexico, Argentina and Cyprus which house the Company's
administration, sales, marketing, support and research and development
functions. The Company does not own any of its facilities.
The following table sets forth certain information concerning the Company's
principal facilities as of December 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
LEASE SQUARE
LOCATION FUNCTION EXPIRATION FOOTAGE
-------- -------- ---------- -----------
<S> <C> <C> <C>
London, United Kingdom..... Principal Executive Offices 2002 1,725
New Delhi, India........... Research and Development, 1999 7,620
Customer Support
Blackburn, United Manufacturing Division 2010 12,000
Kingdom..................
Westmont, New Jersey....... Manufacturing Division 2000 4,200
Hitchin, United Kingdom.... Healthcare Division 2000 7,125
Woking, United Kingdom..... Hospitality Division 2012 7,430
Alton, United Kingdom...... Construction Division 2005 4,500
Nicosia, Cyprus............ Sales and Marketing 2004 4,000
</TABLE>
As a result of the Company's acquisitions from 1993 through 1996, the
Company has also been assigned relatively small leaseholdings elsewhere in the
United Kingdom and in the United States, Ireland, India, Mexico, Argentina and
Cyprus which expire on various dates from 1999 through 2013. The Company does
not currently own any of these facilities and does not intend to renew these
leases beyond the current expiration dates. The Company believes that its
current facilities will be sufficient to meet its needs for the next 12 months.
See Note 8 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its leases.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The Company's credit facilities expose earnings to changes in interest
rates as a result of fluctuations in Sterling LIBOR. Interest rates on the
Company's credit facilities range from either Sterling LIBOR plus 3% to Sterling
LIBOR plus 4% or the lending bank's base rate plus the applicable margin.
Increases in Sterling LIBOR result in increases in the Company's interest
expense, which could adversely affect the Company's operating results. However,
because Sterling LIBOR has not increased since December 31, 1998, and the
Company intends to repay all of its outstanding indebtedness from the proceeds
of the Offering, the Company does not believe that its interest rate risk is
material. See "Use of Proceeds."
Foreign Currency Exchange Rates
A significant portion of the Company's business is conducted in currencies
other than the United States dollar. As a result, the Company is subject to
exposure from movements in foreign currency exchange rates. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Currency Translation and Transactions." The Company
does not currently engage in hedging transactions designed to manage currency
fluctuation risks.
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<PAGE> 53
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Board of Directors of the Company consists of three directors, all of
whom are elected for one-year terms at each annual meeting of stockholders. The
number of directors of the Company is expected to be increased to seven upon
completion of the Offering. Holders of shares of Common Stock have no right to
cumulative voting in the election of directors. Consequently at each annual
meeting, a majority of the stockholders will be able to elect all of the
directors. The Company's executive officers are elected annually by the Board of
Directors, however, they may be removed at any time by the Board of Directors.
The following table sets forth certain information with respect to the
current directors, executive officers and key employees of the Company as of
March 5, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Dr. Lycourgos K. 44 Chairman of the Board and Chief Executive Officer
Kyprianou.................
Roys Poyiadjis.............. 33 President, Chief Financial Officer and Vice
Chairman of the Board
Noel R. Voice............... 56 Chief Operating Officer, General Manager of
Healthcare Systems, Secretary and Director
M.C. Mathews................ 35 General Manager of Group Software Development and
Director Nominee
Barry J. Crowe.............. 54 General Manager of Manufacturing Systems
Michael Gadbury............. 49 General Manager of Hospitality Systems
Brian Rogers................ 58 General Manager of Construction Systems
Dann V. Angeloff............ 63 Director Nominee
George H. Ellis............. 50 Director Nominee
H. Tate Holt................ 46 Director Nominee
</TABLE>
Dr. Lycourgos K. Kyprianou has served as the Company's Chairman of the
Board, Chief Executive Officer and Secretary since October 1997 and has served
as Chairman of the Board and Managing Director of the Company's subsidiaries and
predecessors since 1978. Dr. Kyprianou is the sole founder of the Company's
worldwide business, including the software development and support facility in
India. Dr. Kyprianou obtained a Doctorate in Philosophy (Computer Science) from
Cambridge University in 1979 and a bachelor of science with first class honors
in Computer Science from the University of London in 1977.
Roys Poyiadjis has served as the Company's President and Vice Chairman of
the Board since June 1998 and its Chief Financial Officer since October 1998.
From 1997 to 1998, Mr. Poyiadjis served as a partner of Alpha Capital Limited,
an investment banking firm primarily focused on investments in technology
companies. From 1995 to 1996, he served as a director of Lehman Brothers
International Ltd. and from 1993 to 1995 he served as an associate with Morgan
Stanley & Co. International Limited. Mr. Poyiadjis received a Masters in
Business Administration from the London Business School in 1993 and a bachelor
of science (Honors) in Communications Engineering from the University of Kent in
1989.
Noel R. Voice has served as a director of the Company since June 1998 and
as its Chief Operating Officer, General Manager of Healthcare Systems and
Secretary since October 1997. From 1992 to 1997, he served as the Senior Vice
President of Administration of the Company's United Kingdom operations. From
1987 to 1989, he was Managing Director of Cara Consulting Ltd., a United Kingdom
hotel systems company. From 1987 to 1992 he was founder and Managing Director of
Noble Marketing Ltd., a sales and marketing consulting firm. Prior to that, he
served in various senior sales and marketing positions with Motorola Information
Systems (United Kingdom) (1983-1985), Philips N.V. (1980-1983) and IBM (United
Kingdom) Ltd. (1970-1980).
M.C. Mathews is expected to be appointed as a director of the Company after
completion of the Offering and has served as the Company's General Manager of
Group Software Development since October 1997. Since 1995, he has served as the
Managing Director of Software Engineering of LK Global Software
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<PAGE> 54
Engineering (India) Private Limited ("LK Global (India)"), a subsidiary of the
Company, and from 1992 to 1995, he served as its Group Project Manager. Prior to
joining the Company in 1990, Mr. Mathews was employed as a programmer with
Alphabetics Ltd., an IBM distributor in India. Mr. Mathews has a bachelor of
science (honors) and master of science in physics from Kerala and Delhi
Universities, respectively.
Barry J. Crowe has served as the Company's General Manager of Manufacturing
Systems since October 1997. Since 1995, Mr. Crowe served as Project Manager,
Account Manager and Managing Director of LK Global Manufacturing Systems (UK)
Limited, a subsidiary of the Company. From 1992 to 1995, he was a Managing
Director of BEC Group Limited, a manufacturing computer systems company that was
acquired by the Company in 1995. From 1988 to 1991, he served as a consultant
for the BM Group, plc, a construction company. Prior to that, he was General
Manager and Construction Director of the Beazer Group, plc, a construction
company. Mr. Crowe is a Chartered Structural Engineer.
Michael Gadbury has served as the Company's General Manager of Hospitality
Systems since October 1997. From 1996 to 1998, he served as Director of
International Business Development of LK Global Hospitality Systems (UK)
Limited, a subsidiary of the Company, and from 1993 to 1996, he served as its
Managing Director. From 1984 to 1993, he was a Managing Director of IGS Leisure
Technology Limited, a hotel computer systems company. IGS Leisure Technology
Limited was acquired by the Company in 1993.
Brian Rogers has served as the Company's General Manager of Construction
Systems since October 1997. From 1995 to the present, he has served as Managing
Director of LK Global Construction Systems (UK) Limited, a subsidiary of the
Company. From 1978 to 1995, Mr. Rogers served as Managing Director for Briter
Computer Systems Limited, a manufacturing computer systems company that was
acquired by LK Global Construction Systems (UK) Limited in 1995.
Dann V. Angeloff is expected to be appointed as a director of the Company
after the completion of the Offering. Mr. Angeloff is the founder and President
of The Angeloff Company, a corporate financial advisory firm, a position he has
held since 1976. He also currently serves as a director of Public Storage, Inc.,
a New York Stock Exchange company, Nicholas/Applegate Growth Equity Fund,
Nicholas/Applegate Mutual Funds and various private companies. Mr. Angeloff is a
former Trustee of the University of Southern California and is a University
counselor. He received a bachelor of science degree in finance and a masters
degree in business administration from the University of Southern California.
George H. Ellis is expected to be appointed as a director of the Company
after the completion of the Offering. Mr. Ellis currently serves on the board of
directors of various private companies. Since 1996, he has provided consulting
services to various technology related companies. From 1986 to 1996, he was the
Chief Financial Officer of Sterling Software, Inc., a New York Stock Exchange
listed software company. Mr. Ellis is a certified public accountant and received
a bachelor of science in accounting from Texas Tech University.
H. Tate Holt is expected to be appointed as a director of the Company after
the completion of the Offering. Mr. Holt is currently President of Holt &
Associates, a growth management consulting firm, and has held that position
since July 1990. From 1987 to 1990, he served as Senior Vice President of
Automatic Data Processing ("ADP"). Mr. Holt has over 20 years of experience in
various senior sales, marketing and general management positions at IBM, Triad
Systems Corporation and ADP. Mr. Holt is also a director of DBS Industries, Inc.
and Onsite Energy Corporation. Mr. Holt has a bachelor of arts degree from
Indiana University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish an Audit Committee and a Compensation
Committee prior to the completion of the Offering. The functions of the Audit
Committee will include recommending to the Board of Directors the retention of
independent auditors, reviewing the scope of the annual audit undertaken by the
Company's independent auditors and the progress and results of their work, and
reviewing the Company's financial statements, internal accounting and auditing
procedures and corporate program to ensure compliance with applicable laws. The
functions of the Compensation Committee will include reviewing and approving
executive compensation policies and practices, reviewing salaries and bonuses
for certain officers of the
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<PAGE> 55
Company, administering the Company's 1998 Stock Option Plan (the "Stock Option
Plan") and other benefit plans, and considering such other matters as may from
time to time be referred to the committee by the Board of Directors.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors of the Company who are not also employees of the Company or one
of its subsidiaries will receive $20,000 per year plus $1,000 for each Board
meeting attended and $1,000 for each committee meeting attended. No other
director will receive cash compensation for services as a director. All
directors will, however, be reimbursed for their expenses incurred in attending
meetings. Each outside director also will receive, at the time of such
director's appointment or election to the board a one time grant of options to
purchase 30,000 shares of Common Stock and, for each year of service as a
director thereafter, options to purchase 20,000 shares of Common Stock. All
options will be granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant and will vest at the rate of 33 1/3% per
year commencing on the grant date.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to the
Company's Chairman of the Board and Chief Executive Officer for services
rendered in all capacities to the Company and its subsidiaries during the year
ended December 31, 1996, 1997 and 1998. No options to purchase Common Stock were
awarded to any executive officer or director of the Company during the year
ended December 31, 1998 and no options were outstanding as of that date. No
other executive officer's total annual compensation for services rendered in all
capacities to the Company and its subsidiaries during the years ended December
31, 1996, 1997 and 1998, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1)(2) SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou................. 1998 $250,000 $200,000 -- --
Chairman of the Board and Chief 1997 $250,000 $200,000 -- --
Executive Officer 1996 $200,000 $150,000 -- --
</TABLE>
- ---------------
(1) As translated into United States dollars based upon the average conversion
rate in effect during each fiscal year.
(2) Does not include payment of business related expenses of $350,000, $250,000
and $250,000 during 1996, 1997 and 1998, respectively.
1998 STOCK OPTION PLAN
In June 1998, the Company adopted the Stock Option Plan, which provides for
awards in the form of options, including incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). Directors, officers, employees and
consultants of the Company will be eligible for the grant of NSOs, while only
employees will be eligible for the grant of ISOs. Options will have a term of up
to ten years from the date of grant.
An aggregate of 1,500,000 shares of Common Stock are reserved for issuance
under the Stock Option Plan. In connection with the Offering, the Company
expects to issue options to purchase approximately 840,000 shares of Common
Stock to certain officers, directors and employees of the Company at an exercise
price per share equal to the initial public offering price.
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<PAGE> 56
The Stock Option Plan will be administered by the Compensation Committee.
The Board of Directors may amend the Stock Option Plan as desired without
further action by the Company's stockholders except as required by applicable
law. The Stock Option Plan will continue in effect, unless terminated by the
Board of Directors, for a term of ten years from its original adoption date.
The consideration for each award under the Stock Option Plan will be
established by the Compensation Committee, but in no event will the option
exercise price for ISOs be less than 100% of the fair market value of the Common
Stock on the date of grant. Awards for employees will have such terms and be
exercisable in such manner and at such time as the Compensation Committee may
determine. However, each ISO and NSO must expire no later than ten years from
the date of grant.
As of March 5, 1999, there were no outstanding options to purchase Common
Stock.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Kyprianou and
Messrs. Poyiadjis and Voice, which will become effective upon completion of the
Offering. The employment agreements for Dr. Kyprianou and Mr. Poyiadjis expire
on December 31, 2001. The employment agreement for Mr. Voice expires on December
31, 1999. Each of the employment agreements may be terminated by the Company or
the employee without cause (as defined in the employment agreements) upon 30
days notice, or for cause without notice. Under the employment agreements, Dr.
Kyprianou and Messrs. Poyiadjis and Voice are entitled to minimum annual
compensation of $250,000, $200,000, and $100,000, respectively. Under their
employment agreements, each of Dr. Kyprianou and Mr. Poyiadjis is entitled to
receive a severance benefit equal to one times his annual compensation if
terminated without cause and 2.99 times his annual compensation if terminated
without cause within 180 days after a "change in control" of the Company. For
purposes of Dr. Kyprianou's and Mr. Poyiadjis' employment agreements, "change in
control" is defined as an event involving one transaction or a series of related
transactions in which (i) the Company issues securities equal to more than 50%
of the issued and outstanding capital stock of the Company to any individual,
firm, partnership, or other entity, including a "group" within the meaning of
Section 13(d)(3) of the Exchange Act, (ii) the Company issues securities equal
to more than 50% of the issued and outstanding capital stock of the Company in
connection with a merger, consolidation or other business combination (other
than for purposes of a reincorporation), (iii) the Company is acquired in a
merger or other business combination transaction in which the Company is not the
surviving corporation (other than a reincorporation) or (iv) more than 50% of
the Company's consolidated assets or earning power are sold or transferred.
In January 1996, the Company's subsidiary, LK Global Information Systems,
B.V., entered into an employment agreement with Dr. Kyprianou, which provides
for an annual salary and expense allowance in the aggregate amount of
approximately $700,000. The agreement will terminate upon completion of the
Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon the completion of the Offering, the Compensation Committee of the
Board of Directors will consist of two directors. All matters concerning
executive compensation in 1998 were addressed by the full Board of Directors of
the Company, the members of which were Dr. Kyprianou, Roys Poyiadjis and Noel
Voice. Dr. Kyprianou was also the Chief Executive Officer of the Company in 1997
and Roys Poyiadjis and Noel Voice were the President and Chief Operating
Officer, respectively, of the Company in 1998.
In May 1998, the Company loaned $2.6 million to Dr. Kyprianou. The loan
matures on May 15, 2000, and is an unsecured personal obligation of Dr.
Kyprianou. The loan bears interest at the rate of LIBOR plus 2% per annum. The
Company believes that the terms of the loan are comparable to those that could
have been obtained in arms-length bargaining with an unrelated third party. As
of March 5, 1999, the unpaid principal balance of the loan was approximately
$1.9 million.
The Company has entered into employment agreements with Dr. Kyprianou and
Messrs. Poyiadjis and Voice, which become effective upon completion of the
Offering. The employment agreements for Dr. Kyprianou and Mr. Poyiadjis expire
on December 31, 2001. The employment agreement for Mr. Voice
53
<PAGE> 57
expires on December 31, 1999. Each of the employment agreements may be
terminated by the Company or the employee without cause (as defined in the
employment agreements) upon 30 days notice, or for cause without notice. Under
the employment agreements, Dr. Kyprianou and Messrs. Poyiadjis and Voice are
entitled to minimum annual compensation of $250,000, $200,000, and $100,000,
respectively. Under their employment agreements, each of Dr. Kyprianou and Mr.
Poyiadjis is entitled to receive a severance benefit equal to one times his
annual compensation if terminated without cause and 2.99 times his annual
compensation if terminated without cause within 180 days after a "change in
control" of the Company. For purposes of Dr. Kyprianou's and Mr. Poyiadjis'
employment agreements, "change in control" is defined as an event involving one
transaction or a series of related transactions in which (i) the Company issues
securities equal to more than 50% of the issued and outstanding capital stock of
the Company to any individual, firm, partnership, or other entity, including a
"group" within the meaning of Section 13(d)(3) of the Exchange Act, (ii) the
Company issues securities equal to more than 50% of the issued and outstanding
capital stock of the Company in connection with a merger, consolidation or other
business combination (other than for purposes of a reincorporation), (iii) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a
reincorporation) or (iv) more than 50% of the Company's consolidated assets or
earning power are sold or transferred.
Pursuant to their employment agreements, the Company has entered into
registration rights agreements with Dr. Kyprianou and Mr. Poyiadjis (the
"Existing Stockholders"), who beneficially owned 4,728,682 and 584,190 shares,
of Common Stock, respectively, as of December 31, 1998. Pursuant to their
registration rights agreements, the Existing Stockholders have the right to
require the Company to use its best efforts to register under the Securities Act
all or a portion of their shares, subject to certain terms and conditions
related to the right of underwriters, if any, to exclude shares in an offering.
The Existing Stockholders also have the right to participate in equity offerings
initiated by the Company, subject to certain terms and conditions. The Company
will pay all expenses relating to the performance of, or compliance with the
Company's obligations under such registration rights agreements. In either case,
however, the Existing Stockholders will be responsible for underwriters'
discounts and selling commissions with respect to the shares being sold pursuant
to such registration rights agreements and the fees and expenses of their
counsel in connection with such registration. The Existing Stockholders' rights
under their registration rights agreements are assignable to parties who agree
to be bound thereby.
In January 1996, the Company's subsidiary, LK Global Information Systems,
B.V. entered into an employment agreement with Dr. Kyprianou, which provides for
an annual salary and expense allowance in the aggregate amount of approximately
$700,000. The agreement will terminate upon completion of the Offering.
During the third and fourth quarters of 1998, Roys Poyiadjis, the Company's
President and Chief Financial Officer, made loans to the Company in the
aggregate principal amount of approximately $1.7 million. The loans are
reflected in a promissory note dated December 31, 1998, which matures on
December 31, 2001, bears interest at the rate of LIBOR plus 2% per annum and is
unsecured. All interest accrues to principal and is payable at maturity. As of
March 5, 1999, the aggregate unpaid balance of the loans, including accrued and
unpaid interest, was approximately $1.8 million.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the DGCL. The DGCL provides that directors of a company will not be
personally liable for monetary damages for breach of their fiduciary duty as
directors, except for liability (i) for any breach of their duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) that
arises under Section 174 of the DGCL for unlawful payment of dividends or
unlawful stock repurchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
The Company's Certificate of Incorporation and bylaws also provide for
indemnification of the Company's directors and officers to the fullest extent
permitted by the DGCL. The Company intends to enter
54
<PAGE> 58
into separate indemnification agreements with its directors and certain of its
officers that could require the Company, among other things, to indemnify such
persons against certain liabilities that may arise by reason of their status or
service as directors or officers and to advance their expenses as a result of
any proceeding against them as to which they could be indemnified. The Company
believes that the limitation of liability provision in its Certificate of
Incorporation and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors and officers.
The employment agreements with each of Dr. Kyprianou and Messrs. Poyiadjis
and Voice also provide that the Company will indemnify such individuals for any
losses, costs, damages or expenses incurred as a direct consequence of the
discharge of their duties or by reason of their status as agents of the Company.
CERTAIN TRANSACTIONS
During the third and fourth quarters of 1998, Roys Poyiadjis, the Company's
President and Chief Financial Officer, made loans to the Company in the
aggregate principal amount of approximately $1.7 million. The loans are
reflected in a promissory note dated December 31, 1998, which matures on
December 31, 2001, bears interest at the rate of LIBOR plus 2% per annum and is
unsecured. All interest accrues to principal and is payable at maturity. As of
March 5, 1999, the aggregate unpaid balance of the loans, including accrued and
unpaid interest, was approximately $1.8 million. The purpose of the loans made
by Mr. Poyiadjis was to provide the Company with additional working capital.
On May 15, 1998 the Company loaned $2.6 million to Dr. Kyprianou, which is
evidenced by a promissory note. The loan was made to Dr. Kyprianou in order to
provide temporary liquidity to Dr. Kyprianou. The loan matures on May 15, 2000,
and is an unsecured personal obligation of Dr. Kyprianou. The loan bears
interest at the rate of LIBOR plus 2% per annum. The Company believes that the
terms of the loan are comparable to those that could have been obtained in
arms-length bargaining with an unrelated third party. As of March 5, 1999, the
unpaid principal balance of the loan was approximately $1.9 million.
In 1996, Dr. Kyprianou transferred all of the capital stock of LK Global
Information Systems (Cyprus) to the Company, completing the consolidation of the
Company's operating entities into LK Global Information Systems, B.V., which was
also wholly owned by Dr. Kyprianou.
The Company is a party to employment agreements with Dr. Kyprianou and
Messrs. Poyiadjis and Voice. See "Management -- Employment Agreements."
The Company has entered into registration rights agreements with Dr.
Kyprianou and Mr. Poyiadjis. See "Shares Eligible for Future
Sale -- Registration Rights."
The Company intends to enter into indemnification agreements with each of
its directors and executive officers. See "Management -- Limitation of Liability
and Indemnification Matters."
55
<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 5, 1999, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, for
(i) each person or entity known by the Company to own beneficially more than
five percent of the then outstanding shares of Common Stock, (ii) each of the
Company's directors, (iii) the Company's Chief Executive Officer, (iv) director
nominees and (v) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE AFTER THE
OFFERING(2)(6) OFFERING(2)(3)(6)
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
--------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(4)...................... 4,728,682 47.1% 4,728,682 34.1%
Roys Poyiadjis(5).................................. 584,190 5.8% 584,190 4.2%
Noel R. Voice...................................... -- -- -- --
M. C. Mathews...................................... -- -- -- --
Dann V. Angeloff................................... -- -- -- --
George H. Ellis.................................... -- -- -- --
H. Tate Holt....................................... -- -- -- --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(TEN PERSONS).................................... 5,312,872 52.9% 5,312,872 38.3%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the address for each listed stockholder is 60
Bishopsgate, London EC2N 4AJ, England.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act").
Unless otherwise indicated in these footnotes and any applicable community
property laws, each stockholder has sole voting and investment power with
respect to the shares of Common Stock beneficially owned.
(3) Percentages are calculated assuming no exercise of the Underwriter's
over-allotment option.
(4) Represents shares held by LK Global (Holdings) N.V., for which Dr. Kyprianou
has sole voting and investment power.
(5) Represents shares held by Temco Ltd for which Mr. Poyiadjis has sole voting
and investment power.
(6) Does not include shares of Common Stock issuable upon exercise of options
the Company intends to issue to certain officers, directors and employees of
the Company in connection with the Offering. See "Management -- 1998 Stock
Option Plan."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation provides for authorized capital
stock of 100,000,000 shares, consisting of 85,000,000 shares of Common Stock,
$.001 par value per share ("Common Stock"), and 15,000,000 shares of Preferred
Stock, $.001 par value per share ("Preferred Stock"). As of March 5, 1999, there
were 10,035,103 shares of Common Stock issued and outstanding held by 112
stockholders of record and there were no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
preemptive rights. The Company's Certificate of Incorporation does not provide
for cumulative voting for the election of directors. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." All outstanding shares of Common Stock are, and the Common Stock to be
outstanding upon completion of the Offering will be, fully paid and
nonassessable. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of Common Stock will be entitled to share
ratably in the assets of the
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<PAGE> 60
Company remaining after the payment or provision for payment of all of the
Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock. See "-- Preferred Stock." Holders of
Common Stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking fund provisions applicable to the
Common Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 15,000,000 shares of
undesignated Preferred Stock, none of which is currently outstanding. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers and relative participating,
optional or other special rights and the qualifications or restrictions thereof.
The preferences, powers, rights and restrictions of different series of
Preferred Stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The issuance of Preferred Stock could reduce
the amount of earnings and assets available for distribution to holders of
Common Stock or affect adversely the rights and powers, including voting rights,
of the holders of Common Stock, and may have the effect of delaying, deferring
or preventing a change in control of the Company. The Company has no present
plan to issue any shares of Preferred Stock.
WARRANTS AND OPTIONS
The Company has issued warrants to purchase an aggregate of 51,117 shares
of the Company's Common Stock at an exercise price of $8.56 per share. The
Warrants are immediately exercisable, have a term of two and one-half years
expiring on April 10, 2000, and were issued in payment of finder's fees in
connection with a private placement by the Company of preferred stock in October
1997. The number of shares issuable upon exercise of the Warrants is subject to
adjustment in the event of certain dividends and other distributions, issuances
of convertible securities and stock splits, stock dividends and similar events.
The Warrants also contain registration rights. See "Shares Eligible for Future
Sale -- Registration Rights."
In connection with the Offering, the Company has agreed to issue to each of
Cruttenden Roth Incorporated and FAC/Equities, as representatives for the
Underwriters, warrants (the "Representatives' Warrants") to purchase up to 5% of
the number of shares of Common Stock sold in the Offering (excluding any shares
sold in the event the over-allotment option is exercised). The Representatives'
Warrants are exercisable for a period of four years, beginning one year from the
date of this Prospectus. The Representatives' Warrants are exercisable at a
price equal to 120% of the initial public offering price per share. The number
of shares covered by the Representative's Warrants and the exercise price are
subject to adjustment in certain circumstances to prevent dilution. The
Representatives' Warrants are nontransferable for a period of one year following
the date of this Prospectus, except to (i) members of the selling group for the
Offering or their respective officers and/or partners and (ii) officers and/or
partners of the Representatives. The holders of the Representatives' Warrants
will have, in that capacity, no voting, dividend or other shareholder rights.
As of March 5, 1999, the Company had 1,500,000 shares of Common Stock
reserved for future grants under the Stock Option Plan and no options were
outstanding. In connection with the Offering, the Company intends to grant
options to certain officers, directors and employees of the Company to purchase
approximately 840,000 shares of Common Stock in the aggregate at an exercise
price per share equal to the initial public offering price.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION
AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
summarized in the following paragraphs may be deemed to have anti-takeover
effects. These provisions may have the effect of discouraging a future takeover
attempt that is not approved by the Board of Directors but that individual
Company stockholders may deem to be in their best interests or by which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so. Such provisions will
also make the removal of the current Board of Directors or management of the
Company more difficult. The following is a description of certain of the
provisions of the Certificate of Incorporation and Bylaws of the Company.
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<PAGE> 61
Authorized Shares
The Certificate of Incorporation authorizes the issuance of 85,000,000
shares of Common Stock and 15,000,000 shares of Preferred Stock. Following the
completion of the Offering, the Board of Directors will have the authority to
authorize issuance of any authorized and unissued shares of Common Stock and
Preferred Stock. The Board of Directors has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power,
consistent with its fiduciary duty, to issue a series of Preferred Stock to
persons friendly to management in order to attempt to block a post-tender offer
merger or other transaction by which a third party seeks control, and thereby
assist management in retaining its position. The Company's Board of Directors
currently has no plans for the issuance of additional shares of Preferred Stock
or Common Stock.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors
The Bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board or a committee
thereof, of candidates for election as directors (the "Nomination Procedure")
and with regard to other matters to be brought by stockholders before an annual
meeting of stockholders of the Company (the "Business Procedure"). The
Nomination Procedure requires that a stockholder give 90 days advance written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of the
notice are specified in the Bylaws. If the Chairman of the Board of Directors
determines that a person was not nominated in accordance with the Nomination
Procedure, such person will not be eligible for election as a director. Under
the Business Procedure, a stockholder seeking to have any business conducted at
an annual meeting must give 90 days advance written notice, in proper form, to
the Secretary of the Company. The requirements as to the form and timing of the
notice is specified in the Bylaws. If the Chairman of the Board of Directors
determines that the other business was not properly brought before the meeting
in accordance with the Business Procedure, the business will not be conducted at
the meeting.
Although the Bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or of any
other business desired by stockholders to be conducted at an annual or any other
meeting, the Bylaws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed or (ii) may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its stockholders.
Delaware Law
The Company is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any interested stockholder, as defined
below, for a period of three years following the time that such stockholder
became an interested stockholder, unless (i) prior to such time, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) at or after such
time, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For purposes of Section
203 of the DGCL, an "interested stockholder" is defined as any person that is
(a) the owner of 15% or more of the outstanding voting stock of the corporation
or (b) an affiliate or associate of the corporation who was the owner of 15% or
more of the outstanding voting stock of the corporation at any time
58
<PAGE> 62
within the three-year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder. Section 203
of the DGCL may have the effect of delaying, deterring or preventing a change in
control of the Company without further action by the Company's stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Olde Monmouth
Stock Transfer Co., Inc., Atlantic Highlands, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there was no established public market for the
Common Stock and no prediction can be made as to the effect, if any, that future
sales of shares of Common Stock or the availability of shares for future sale
will have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock could adversely affect the prevailing market price of
the Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. See "Risk Factors -- Shares Eligible for
Future Sale; Registration Rights."
GENERAL
Upon the completion of the Offering, the Company will have issued and
outstanding 13,835,103 shares of Common Stock (14,405,103 if the Underwriters'
over-allotment option is exercised in full). The shares of Common Stock sold in
the Offering will be freely tradeable by persons other than affiliates of the
Company without restriction under the Securities Act. Substantially all of the
shares to be outstanding upon the completion of the Offering, other than the
3,800,000 shares being offered hereby, are subject to the lock-up agreements
described below or are "restricted securities" within the meaning of Rule 144
under the Securities Act. Upon the expiration of the lock-up period described
below, approximately 3,427,648 additional shares will be eligible for sale in
the public market, approximately 6,607,455 of which will be subject to certain
restrictions under Rule 144. The shares of Common Stock outstanding immediately
prior to the Offering which are restricted securities may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available. As described below under "-- Registration Rights,"
the Company has granted registration rights covering approximately 6,992,710 of
such shares.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted securities from the
Company or any affiliate of the Company, a person (or persons whose shares are
aggregated) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the number of then
outstanding shares of Common Stock (approximately 138,350 shares immediately
after the completion of the Offering) or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sales provisions, notice requirements and the
availability of current public information about the Company. If two years have
elapsed since the date of acquisition of restricted securities from the Company
or any affiliate of the Company, and the acquiror or subsequent holder thereof
is deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person (or persons whose shares are aggregated)
would be entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements and the availability of current public information requirements. An
"affiliate" of an entity is a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with such entity and may include officers and directors, principal stockholders
and certain stockholders with special relationships. The foregoing is a summary
of Rule 144 and is not intended to be a complete description of it.
The Company, all of the Company's executive officers and directors and
certain other stockholders of the Company will agree that, without the prior
written consent of Cruttenden Roth Incorporated, on behalf of the Underwriters,
they will not, during the period ending 180 days from the date of this
Prospectus, register for sale, sell, offer, contract to sell, grant an option
for sale or otherwise dispose of or transfer any capital stock of
59
<PAGE> 63
the Company or any securities convertible into or exchangeable for capital stock
of the Company. However, these restrictions do not apply to the grant of a
security interest or pledge of securities to a bank or financial institution,
any transfer to family members, equity owners or entities controlled by a
transferring stockholder so long as the intended transferee agrees to be bound
by the restrictions prior to transfer. See "Underwriting."
The Company intends to file one or more registration statements under the
Securities Act to register shares of Common Stock that will be reserved for
issuance upon exercise of options that may be granted under the Stock Option
Plan. Other than the shares and options to purchase shares subject to the
lock-up agreements, shares registered under the Securities Act will be freely
transferable upon issuance unless acquired by affiliates of the Company.
REGISTRATION RIGHTS
The following summary of certain material provisions of certain
registration rights agreements is qualified in its entirety by reference to each
such registration rights agreement, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information."
Upon the completion of the Offering, the holders of approximately 1,679,838
shares of Common Stock, or their permitted transferees, are entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of a registration statement covering such registrable shares. If
the Company proposes to register any of its securities under the Securities Act
either for its own account or the account of any holders of securities
exercising registration rights, holders of shares registrable pursuant to
registration rights are entitled to notice of such registration and are entitled
to include such registrable shares therein, subject to certain terms and
conditions, including the right of underwriters, if any, to exclude shares in an
offering.
Pursuant to their employment agreements, the Company has entered into
registration rights agreements with the Existing Stockholders, who beneficially
owned in the aggregate 5,312,872 shares of Common Stock as of December 31, 1998.
Pursuant to their registration rights agreements, the Existing Stockholders have
the right to require the Company to use its best efforts to register under the
Securities Act all or a portion of their shares, subject to the right of
underwriters, if any, to exclude shares in an offering. The Existing
Stockholders also have the right to participate in equity offerings initiated by
the Company, subject to certain terms and conditions. The Company will pay all
expenses relating to the performance of, or compliance with the Company's
obligations under such registration rights agreements. In either case, however,
the Existing Stockholders will be responsible for underwriters' discounts and
selling commissions with respect to the shares being sold pursuant to such
registration rights agreements and the fees and expenses of their counsel in
connection with such registration. The Existing Stockholders' rights under their
registration rights agreements are assignable to parties who agree to be bound
thereby.
In addition, the Company has granted certain registration rights in
connection with the issuance of warrants to purchase 51,117 shares of Common
Stock. See "Description of Capital Stock -- Warrants."
At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives Warrants have the right, subject
to certain limitations, to require the Company on one occasion to register under
the Securities Act at the Company's expense, the shares of Common Stock issuable
upon exercise of the Representatives' Warrants. Such holders also may request
that such shares be included in any public offering of Common Stock of the
Company at the Company's expense. In any underwritten offering of the Company's
capital stock, if the underwriters determine that marketing factors require a
limitation on the number of shares to be sold for the account of shareholders,
then the Company may limit or exclude from the registration such shares of
Common Stock.
60
<PAGE> 64
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated ("Cruttenden Roth") and FAC/Equities, a division of First Albany
Corporation, are acting as Representatives, have severally agreed to purchase
from the Company and the Company has agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Cruttenden Roth Incorporated................................
First Albany Corporation....................................
Total............................................. 3,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company's counsel
and independent public accountants. The nature of the Underwriters' obligation
is such that they are committed to purchase and pay for all the shares of Common
Stock if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers, a concession of not more than $ per share, and the
Underwriters may allow, and such selected dealers may reallow, a concession of
not more than $ per share to other dealers. After the initial public
offering of the shares, the public offering price and other selling terms may be
changed by the Representatives. No change in such terms shall change the amount
of proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 570,000 shares of Common Stock at the same price per share as the
initial shares to be purchased by the Underwriters to cover over-allotments, if
any. To the extent that the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportion as set
forth in the above table.
The Representatives have advised the Company that they do not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
The Company has agreed to issue to the Representatives at the closing of
the Offering warrants (the "Representatives' Warrants") to purchase up to 5% of
the number of shares of Common Stock sold in the Offering (excluding any shares
sold in the event the over-allotment option is exercised) at an exercise price
per share equal to 120% of the initial per share public offering price. The
Representatives' Warrants are exercisable for a period of four years beginning
one year from the date of this Prospectus and contain standard net-issuance
provisions. The holders of the Representatives' Warrants will have no voting,
dividend or other shareholder rights until the Representatives' Warrants are
exercised. The terms of the Representatives' Warrants were established as the
result of negotiations between the Company and the Representatives. If the
Representatives' Warrants are exercised, the Representatives may realize
additional compensation. By their terms, the Representatives' Warrants will be
restricted from sale, transfer, assignment or hypothecation, except to persons
that are officers of the Representatives. The number of shares covered by the
Representatives' Warrants and the exercise price thereof are subject to
adjustment in certain events to prevent dilution. In addition, the Company has
granted certain rights to the holders of the Representatives' Warrants to
register the Representatives' Warrants and the Common Stock underlying the
Representatives' Warrants under the Securities Act.
The Company has agreed to pay Cruttenden Roth a nonaccountable expense
allowance equal to 1.0% of the aggregate price of the shares of Common Stock
offered hereby (including with respect to shares of Common Stock underlying the
over-allotment option, if and to the extent it is exercised) set forth on the
front
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<PAGE> 65
cover of this Prospectus. The Representatives' expenses in excess of the
nonaccountable expense allowance, including their legal expenses, will be borne
by the Representatives.
The Company, its officers and directors who own shares of Common Stock and
warrant holders have entered into lock-up agreements with the Representatives
which provide that they will not offer, sell or otherwise dispose of any Common
Stock for a period of 180 days after the commencement of the Offering without
the prior written consent of Cruttenden Roth. Cruttenden Roth has no present
intention to release the locked-up shares prior to expiration of the 180-day
period although Cruttenden Roth may release the locked-up shares prior to
expiration of such period. The granting of any release would be conditioned, in
the judgment of Cruttenden Roth, on such sale not materially adversely impacting
the prevailing trading market for the Common Stock on the Nasdaq National
Market. Specifically, factors such as average trading volume, recent price
trends, and the need for additional public float in the market for the Common
Stock would be considered in evaluating such a request. See "Shares Eligible For
Future Sale."
Prior to the Offering, there has been no established trading market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock offered hereby has been determined by negotiations between the Company and
the Representatives. Among the factors considered in such negotiations were the
preliminary demand for the Common Stock, the prevailing market and economic
conditions, the Company's results of operations, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses, the current condition of the markets in which
the Company operates, and other factors deemed relevant. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial public offering price.
Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which otherwise might prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate-covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate-covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities under the
Securities Act or will contribute to payments the Underwriters and their
controlling persons may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and other legal
matters in connection with the Offering will be passed upon for the Company by
Bartel Eng Linn & Schroder, Sacramento, California. Certain legal matters in
connection with the Offering will be passed upon for the Company by Pillsbury
Madison & Sutro LLP, Sacramento, California. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Loeb & Loeb LLP,
Los Angeles, California.
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<PAGE> 66
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1998 and 1997, and for each of the three years in the period ended December 31,
1998, appearing in this Prospectus and in the Registration Statement, have been
audited by Pannell Kerr Forster, chartered accountants, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Pannell Kerr Forster acted as the Company's independent auditors until May
15, 1998, at which time Ernst & Young was engaged as the Company's auditors. In
connection with the audits of the previous two years and subsequent interim
periods, there were no disagreements with Pannell Kerr Forster on any matters of
accounting principles or practices, financial statement disclosure, or audit
scope or procedure which disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreements. In December 1998, Pannell Kerr Forster,
chartered accountants, was again engaged as the Company's independent auditors.
Accordingly, the engagement of Ernst & Young, chartered accountants, was
discontinued effective December 16, 1998. Both decisions to change independent
accountants were approved by the Company's Board of Directors. During their
engagement for the 1997 fiscal year and subsequent interim periods, Ernst &
Young issued no audit report which was qualified or modified as to uncertainty,
audit scope or accounting principles, or which contained adverse opinions or
disclaimers of opinion on any of the Company's financial statements and there
were no disagreements with Ernst & Young on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreements.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement," which term encompasses all amendments,
exhibits and schedules thereto) under the Securities Act with respect to the
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 have been omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified by such
reference. The Registration Statement, including exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material, when filed, may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (address http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
Upon the completion of the Offering, the Company will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Commission in accordance with
the Commission's rules. Such reports and other information concerning the
Company may be inspected and copied at the public reference facilities and
regional offices of the Commission referred to above.
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GLOSSARY OF TERMS
AS/400. A series of mini computers, often referred to as mid-range systems.
C++. An object-oriented extension of the C programming language. The core
of C++ programming is commonly extended on different operating system platforms
to support specific features.
Character User Interface ("CUI"). A methodology for presenting information
on computer screens in a text-based format to applications utilizing the
characters of a keyboard and without a graphical user interface.
Client/Server. A type of computer network communication. The communication
is analogous to a customer (client) who sends an order (request) on an order
form to a supplier (server) who dispatches the goods and an invoice (response).
The order form and invoice are, in this example, part of the "protocol" used to
communicate.
Distributed Object Computing. A software architecture in which the software
representing an object can transparently execute on either a local or remote
server. This allows transparent centralization of logic processing.
Enterprise Resource Planning ("ERP"). A planning system to permit
enterprise-wide management of material and human resources and the integration
of sales, forecasting, financing and other functions across a manufacturing
organization.
Graphical User Interface ("GUI"). A methodology for presenting information
on computer screens in a graphical format that is easier to understand than
text-based formats and that is consistent between applications based on the same
graphical user interface.
Java. A platform-independent programming language built as a method to
provide services over the Internet. Commonly, websites provide a Java
application (called an applet) which is downloaded by the client and executed on
the client machine. Java is specifically built so that an application can be run
on any kind of system, so separate versions are not needed. Java also has some
security features built in to make it more difficult for destructive applets to
be written.
Local Area Network ("LAN"). A group of one or more computers connected
together for the purpose of sharing data and networked resources such as
printers, modems and fax servers.
Object Orientated Programming. A rapidly emerging desired feature of
applications software. Object-oriented technology consists of component objects
that are essentially building blocks of small, discrete pieces of functionality.
These component objects can be configured to create complete applications and
enable software developers to rapidly create and modify systems to provide the
desired functionality for specific markets or individual customers.
Open Architecture. An architecture with expansion slots that are capable of
accommodating additional components and functionality.
Open Database Connectivity ("ODBC"). A standard for providing computer
access to a variety of database systems and other data applications.
Operating System. Software allowing the user and the installed application
programs to communicate with the computer hardware. The basic computer system is
generally an MS-DOS operating system. Other operating systems include Windows,
Windows NT, Windows 95, Novell Netware and UNIX.
OS/2. An operating system marketed by IBM that provides multitasking
features, allowing computers to perform several tasks at the same time.
UNIX. An operating system originally developed by AT&T and now available in
several versions from various vendors. UNIX is designed to run on a wide variety
of computer hardware.
Visual Basic. A programming language providing rapid and efficient
prototyping and executable code for distribution to end users.
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Visual Basic for Applications. A programming language based on Visual Basic
which can be used to script and automate Windows applications.
Wide Area Network ("WAN"). A group of computers linked together to cover a
large geographical area in order to share information and facilitate
communication among users.
Windows, Windows NT, Windows 95. Operating systems developed by Microsoft
Corporation which provide multitasking features and access to a variety of
Internet and intranet information.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AremisSoft Corporation
We have audited the accompanying consolidated balance sheets of AremisSoft
Corporation as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States for financial statements as of December 31, 1998
and 1997 and for the two years then ended and, in accordance with United Kingdom
auditing standards for financial statements for the year ended December 31, 1996
which do not differ materially from auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AremisSoft
Corporation at December 31, 1998 and 1997, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
As described in note 1 to the consolidated financial statements, the
Company has restated its previously issued 1996 consolidated financial
statements.
/s/ Pannell Kerr Forster
London, England
March 5, 1999
F-2
<PAGE> 71
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 239 $ 149
Accounts receivable, less allowances for doubtful accounts
of $971 and $639 at December 31, 1997, and 1998,
respectively............................................ 9,458 16,166
Other receivables......................................... 670 903
Inventory................................................. 1,070 787
Prepaid expenses and other assets......................... 2,169 4,666
-------- --------
Total current assets........................................ 13,606 22,671
Loan receivable-related party............................... -- 1,886
Property and equipment, net................................. 2,040 1,774
Purchased and developed software, net of accumulated
amortization of $5,729 and $6,075 at December 31, 1997,
and 1998, respectively.................................... 764 1,284
Intangible assets, net of accumulated amortization of
$12,766 and $13,036 at December 31, 1997 and 1998,
respectively.............................................. 832 337
-------- --------
Total assets................................................ $ 17,242 $ 27,952
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,244 $ 3,669
Accrued payroll taxes..................................... 3,236 586
Accrued value added taxes................................. 1,579 1,649
Accrued income taxes...................................... 72 2,059
Current portion of capital lease obligations.............. 40 55
Other accrued expenses.................................... 4,507 2,946
Bank loans and short-term demand facility................. 7,207 15,530
Deferred revenue.......................................... 5,692 6,693
-------- --------
Total current liabilities................................... 26,577 33,187
Long-term debt.............................................. 10,096 --
Loan and accrued interest payable-related party............. -- 1,781
Capital lease obligations, less current portion............. 103 93
-------- --------
Total Liabilities........................................... 36,776 35,061
Stockholders' equity (deficit):
Series A convertible preferred stock, par value $0.001;
authorized 2,100 shares; 1,137 and no shares issued and
outstanding at December 31, 1997 and 1998, respectively;
liquidating preference at par value..................... 1 --
Series B convertible preferred stock, par value $0.001;
authorized 3,500 shares; no shares issued and
outstanding, liquidating preference at par value........ -- --
Common stock, par value $0.001; authorized 75,000 shares;
7,569 and 10,000 shares issued and outstanding at
December 31, 1997 and 1998, respectively................ 8 10
Additional paid-in capital................................ 17,767 27,107
Accumulated deficit....................................... (35,376) (32,201)
Accumulated other comprehensive income (loss)............. (1,934) (2,025)
-------- --------
Total stockholders' equity (deficit)........................ (19,534) (7,109)
-------- --------
Total liabilities and stockholders' equity (deficit)........ $ 17,242 $ 27,952
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 72
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997 1998
--------------- -------------- ---------
(AS RESTATED --
SEE NOTE 1)
<S> <C> <C> <C>
Revenues:
Software licenses......................................... $ 12,052 $17,024 $26,416
Maintenance and services.................................. 15,839 18,990 21,680
Hardware and other........................................ 6,541 6,360 4,525
-------- ------- -------
Total revenues.......................................... 34,432 42,374 52,621
-------- ------- -------
Cost of revenues:
Software licenses......................................... 1,555 2,079 2,654
Maintenance and services.................................. 5,393 5,377 5,319
Hardware and other........................................ 5,760 5,147 2,817
Amortization of purchased software and capitalized
software
development costs....................................... 2,327 70 265
-------- ------- -------
Total cost of revenues.................................. 15,035 12,673 11,055
-------- ------- -------
Gross profit................................................ 19,397 29,701 41,566
Operating expenses:
Sales and marketing....................................... 15,182 17,834 21,594
Research and development.................................. 6,409 6,233 6,207
General and administrative................................ 5,605 5,227 4,868
Write-off of offering costs............................... -- -- 1,592
Amortization of intangible assets......................... 5,144 97 74
Write-off of intangible assets............................ 505 -- --
-------- ------- -------
Total operating expenses................................ 32,845 29,391 34,335
-------- ------- -------
Profit (loss) from operations............................... (13,448) 310 7,231
Other income (expense):
Interest expense, net..................................... (1,906) (1,895) (2,030)
-------- ------- -------
Income (loss) before income taxes........................... (15,354) (1,585) 5,201
Income tax expense (benefit)................................ (50) 35 2,026
-------- ------- -------
Net income (loss)........................................... $(15,304) $(1,620) $ 3,175
======== ======= =======
Basic and diluted earnings (loss) per share................. $ (2.04) $ (0.21) $ 0.35
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 73
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL COMPREHENSIVE STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED INCOME EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) (DEFICIT)
------ ------ ------ ------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 (AS
RESTATED -- SEE NOTE 1)........... -- $-- 7,504 $ 8 $ 6,059 $(18,452) $ 19 $(12,366)
Stockholder contribution............ -- -- -- -- 5,305 -- -- 5,305
Net loss............................ -- -- -- -- -- (15,304) -- (15,304)
Currency translation adjustment..... -- -- -- -- -- -- (2,738) (2,738)
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1996 (AS
RESTATED -- SEE NOTE 1)........... -- -- 7,504 8 11,364 (33,756) (2,719) (25,103)
Issuance of common stock in
connection with the acquisition of
the net assets of Juno (Note 1)... -- -- 65 -- -- -- -- --
Issuance of Series A preferred
stock, net of costs of $609....... 1,137 1 -- -- 6,403 -- -- 6,404
Net loss............................ -- -- -- -- -- (1,620) -- (1,620)
Currency translation adjustment..... -- -- -- -- -- -- 785 785
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1997....... 1,137 1 7,569 8 17,767 (35,376) (1,934) (19,534)
Issuance of common stock, net of
costs of $1,046................... -- -- 1,294 1 9,340 -- -- 9,341
Conversion of preferred stock into
common stock...................... (1,137) (1) 1,137 1 -- -- -- --
Net income.......................... -- -- -- -- -- 3,175 -- 3,175
Currency translation adjustment..... -- -- -- -- -- -- (91) (91)
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1998....... -- $-- 10,000 $10 $27,107 $(32,201) $(2,025) $ (7,109)
====== === ====== === ======= ======== ======= ========
<CAPTION>
COMPREHENSIVE
INCOME
(LOSS)
-------------
<S> <C>
BALANCES AT DECEMBER 31, 1995 (AS
RESTATED -- SEE NOTE 1)........... $
Stockholder contribution............ --
Net loss............................ (15,304)
Currency translation adjustment..... (2,738)
--------
BALANCES AT DECEMBER 31, 1996 (AS
RESTATED -- SEE NOTE 1)........... (18,042)
Issuance of common stock in
connection with the acquisition of
the net assets of Juno (Note 1)... --
Issuance of Series A preferred
stock, net of costs of $609....... --
Net loss............................ (1,620)
Currency translation adjustment..... 785
--------
BALANCES AT DECEMBER 31, 1997....... (835)
Issuance of common stock, net of
costs of $1,046................... --
Conversion of preferred stock into
common stock...................... --
Net income.......................... 3,175
Currency translation adjustment..... (91)
--------
BALANCES AT DECEMBER 31, 1998....... 3,084
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 74
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------------- ------- -------
(AS RESTATED --
SEE NOTE 1)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(15,304) $(1,620) $ 3,175
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Depreciation.............................................. 958 977 695
Amortization of capitalized software and intangible
assets.................................................. 7,471 167 339
Write-off capitalized software and intangible assets...... 505 -- --
Changes in assets and liabilities, net of acquisitions
Accounts receivable..................................... 1,106 2,933 (6,602)
Other receivables....................................... 832 (461) (226)
Inventory............................................... (477) 163 295
Prepaid expenses and other assets....................... 653 (2,595) (2,472)
Accounts payable........................................ 422 788 (622)
Deferred revenue........................................ (1,290) (5,726) 937
Accrued taxes payable................................... 1,679 1,242 (647)
Other accrued expenses.................................. 2,191 103 (1,611)
-------- ------- -------
Net cash (used in) operating activities................... (1,254) (4,029) (6,739)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (1,130) (684) (373)
Capitalized software development costs.................. (223) (515) (325)
Loan to related party (net)............................. -- -- (1,886)
Payment for acquisitions, net of cash acquired.......... (3,256) -- --
Proceeds from disposal of property and equipment........ 549 228 4
-------- ------- -------
Net cash (used in) investing activities................... (4,060) (971) (2,580)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock..................... -- 6,404 9,341
Stockholder contribution................................ 5,305 -- --
Long-term borrowings.................................... 1,936 33 511
Principal payments of long-term borrowings.............. (1,732) (2,040) (2,850)
Loan from related party................................. -- -- 1,781
Principal payments of capital lease obligations......... (353) (55) (30)
Short-term demand facility.............................. 1,301 186 372
-------- ------- -------
Net cash provided by financing activities................. 6,457 4,528 9,125
-------- ------- -------
Net increase (decrease) in cash and cash equivalents...... 1,143 (472) (194)
Effect of foreign currency exchange rates on cash and cash
equivalents............................................. (531) (156) 104
Cash and cash equivalents, at beginning of year........... 255 867 239
-------- ------- -------
Cash and cash equivalents, at end of year................. $ 867 $ 239 $ 149
======== ======= =======
Supplemental disclosure:
Interest paid........................................... $ 1,887 $ 1,900 $ 2,188
Assets acquired under capital leases.................... -- $ 138 $ 34
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AremisSoft Corporation develops, markets, implements and supports
enterprise-wide applications software targeted to mid-sized organizations in the
manufacturing, healthcare, hospitality and construction industries.
Organization and Basis of Presentation
In October 1997, AremisSoft Corporation, under its previous name of Juno
Acquisitions, Inc., a Nevada corporation, ("Juno"), entered into a Plan and
Agreement of Reorganization (the "Plan") with LK Global Information Systems,
B.V. ("LK Global"), a company incorporated in The Netherlands. Under the terms
of the Plan, Juno acquired all of the issued and outstanding common stock of LK
Global in exchange for 7,503,920 shares of its common stock (the "1997
Acquisition"). Prior to the 1997 Acquisition, Juno had no significant
operations.
LK Global is accounted for as the acquirer and as the surviving accounting
entity because the former stockholders of LK Global received approximately 99%
of the voting rights in the combined corporation. The shares issued by Juno have
been accounted for as if those shares comprised the historical share capital of
LK Global. The outstanding capital stock of Juno, at the date of the 1997
Acquisition, has been accounted for as shares issued by LK Global to acquire the
net assets of Juno.
Because LK Global is the accounting survivor, the financial statements
presented for all periods are those of LK Global and its subsidiaries
(collectively the "Company") with a change in name to AremisSoft Corporation
shortly after the 1997 reorganization. All intercompany accounts and
transactions are eliminated in consolidation.
Prior to its proposed public offering of common stock (see note 13), the
Company will reincorporate in Delaware. As a result of this reincorporation,
shareholders of the Nevada corporation will effectively become shareholders of
the newly formed Delaware corporation. As of December 31, 1998, the Delaware
corporation had no operations.
In connection with the formation of LK Global in March 1995, the
shareholders of LK Global Information Systems (UK) plc exchanged all of the
ordinary shares of the latter for 84,000 shares of LK Global common stock. This
exchange between LK Global and LK Global Information Systems (UK) plc was
accounted for at book value since the exchange of shares was between enterprises
under common control. At the time of the share exchange, LK Global was a
recently formed holding company with no separate operations, while LK Global
Information Systems (UK) plc was a holding company for all United Kingdom
subsidiaries.
Restatement
In connection with the preparation of the consolidated financial statements
of AremisSoft Corporation ("AremisSoft") related to AremisSoft's change in
corporate domicile from the Netherlands to the United States, management was
required to prepare its financial statements to conform with United States
generally accepted accounting principals ("GAAP") and to adopt accounting
policies commonly followed for publicly held United States software companies.
Subsequent to the issuance of the 1996 financial statements, the Company
determined that adjustments would be required to such financial statements
relative to the accounting for revenue recognition, software development costs,
amortization of intangible assets and recognition of expenses in the proper
period because (i) revenues had been recorded on the sale of certain products
and maintenance contracts at the end of 1996 before the earnings process was
completed, (ii) the establishment of technological feasibly and the related
capitalized software development costs were not being
F-7
<PAGE> 76
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accounted for, in some instances, in accordance with SFAS No. 86 "Accounting for
Costs of Computer Software to be Sold, Marketed or Leased," (iii) certain
intangible assets were being written off over a period in excess of their
estimated useful life, and (iv) certain general and administrative costs were
not accrued for at year's end.
Management has restated its 1996 financial statements as follows: (In
thousands, except per share amounts)
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
<S> <C> <C>
Revenues.................................................... $ 35,016 $ 34,432
Cost of revenues............................................ 13,077 15,035
Other operating expenses.................................... 24,375 27,196
Amortization and write-off of intangible assets............. 4,809 5,649
Net loss.................................................... (9,101) (15,304)
Basic and diluted loss per share............................ (1.21) (2.04)
Opening accumulated (deficit)............................... $(16,025) $(18,452)
</TABLE>
As a result of the restatement, the Company reassessed its internal
accounting procedures and its accounting department personnel and reporting
procedures. As part of this effort, a new Chief Financial Officer was named.
Currently, financial reports are generated monthly by the controller of each
division and reviewed by the Chief Financial Officer and Chief Executive
Officer.
Revenue Recognition
The Company derives its revenue primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are derived from ongoing support of installed
software, and training, consulting and implementation services. Hardware sales
revenues are primarily derived from the sale of third-party hardware to
customers requiring turnkey solutions.
Software license revenues consist of sales of software licenses which, for
periods subsequent to December 31, 1997, are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 97-2, "Software Revenue Recognition." Under SOP 97-2, software license
revenues are recognized upon execution of a contract and delivery of software,
provided that the license fee is fixed and determinable, no significant
production, modification or customization of the software is required and
collection is considered probable by management. When contracts do require
significant production, modification or customization of software, the Company
recognizes revenue under the percentage of completion method. For periods prior
to December 31, 1997, software license revenues were recognized in accordance
with SOP 91-1, "Software Revenue Recognition." Under SOP 91-1, software license
revenues were recognized upon execution of a contract and shipment of the
software, provided that no significant vendor obligations remained outstanding,
amounts were due within one year and collection was considered probable by
management. The application of SOP 97-2 did not have a material impact on the
Company's consolidated financial statements for the year ended December 31,
1998. In 1999, software license revenues will be recognized in accordance with
SOP 97-2, as modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition with respect to Certain Transactions." The Company believes it is
currently in compliance with SOP 97-2, as modified by SOP 98-9.
F-8
<PAGE> 77
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Product sales to distributors are not recognized until the products have
been shipped to the end-user. Maintenance contract revenues are recognized
ratably over the life of the contract, service contract revenues are recognized
in accordance with the terms of the contract and add-on hardware sales revenues
are recognized when the hardware is shipped to the customer. The Company does
not enter into sales contracts, either for direct sales or with distributors,
which include the provisions for rights of return. In addition, the Company does
not enter into price protection agreements or inventory balancing agreements
with distributors.
Fees earned during 1998 from contracts accounted for under the percentage
of completion method amounted to approximately $9.2 million, while billed and
unpaid receivables due under these contracts amounted to approximately $5.0
million at December 31, 1998. There were no amounts included in accounts
receivable relating to unbilled amounts or retainage. Prior to 1998, the Company
did not receive any revenues from agreements which required contract accounting.
Foreign Currency
The functional currency of the Company and its United Kingdom subsidiaries
is the British pound. The functional currencies of the other subsidiaries are
their local currencies.
For reporting purposes, the financial statements are presented in United
States dollars and in accordance with Statement of Financial Accounting Standard
No. 52, "Foreign Currency Translation". The consolidated balance sheets are
translated into United States dollars at the exchange rates prevailing at the
balance sheet dates and the statements of operations and cash flows at the
average rates for the relevant periods. Gains and losses resulting from
translation are included as a component of accumulated other comprehensive
income (loss).
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
International Operations
The Company currently has operations in the United Kingdom, United States,
Argentina, Mexico, India, Ireland and Cyprus and independent distributors in 14
additional countries. A significant portion of the Company's revenues are
received in currencies other than the United States dollar (the currency into
which the Company's historical financial statements have been translated),
primarily British pounds. As a result, a portion of the Company's sales are
subject to certain risks, including adverse developments in the foreign
political and economic environment, trade barriers, managing foreign operations
and potentially adverse tax consequences. There can be no assurance that any of
these factors will not have a material adverse effect on the Company's financial
condition or results of operations in the future.
Cash Equivalents
Cash equivalents consist of highly liquid investments with insignificant
interest rate risk and a maturity date of three months or less when purchased.
They are carried at cost which approximates fair value.
Inventory
Inventory is comprised of finished goods held for resale and maintenance
parts. Finished goods held for resale are stated at the lower of cost or net
realizable value. Cost is determined on a first-in first-out basis, and includes
all direct costs incurred and attributable production overheads. Net realizable
value is based on estimated selling price net of completion and disposal costs.
Maintenance parts are valued at cost and are depreciated over a three-year
period.
F-9
<PAGE> 78
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchased and Developed Software
The Company capitalizes the qualifying costs of developing its software
products. Capitalization of such costs requires that technological feasibility
has been established. The Company defines the establishment of technological
feasibility as the completion of all planning, designing, coding and testing
activities that are necessary to establish products that meet design
specifications, including functions, features and technical performance
requirements. Under the Company's definition, establishing technological
feasibility is considered complete only after the majority of customer testing
and customer feedback has been incorporated into product functionality.
Development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. When the software is fully documented and
available for unrestricted sale, capitalization of development costs ceases, and
amortization commences and is computed on a product-by-product basis, based on
either a straight-line basis over the economic life of the product or the ratio
of current gross revenues to the total of current and anticipated future gross
revenues, whichever is greater.
The Company capitalizes as purchased software the costs associated with
software products either purchased from other companies for resale or developed
by other companies under contract with the Company. The cost of the software is
amortized on the same basis as capitalized software development costs. The
amortization period is re-evaluated quarterly with respect to certain external
factors including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.
The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Company's ability to
market its software products in the future and generate cash flows sufficient to
support future operations.
Intangible Assets
Intangible assets consist of customer lists and management employment
agreements related to acquired businesses. Customer lists are amortized over
periods of up to three years, depending on the circumstances of the company
acquired, and management employment agreements are amortized over periods of
three to five years.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Leasehold improvements shorter of the lease term or economic life
Fixtures and equipment three to five years
Motor vehicles four years
</TABLE>
Impairment of Long-lived Assets
In the event that facts and circumstances indicate that the carrying value
of an asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated fair market value of the asset would
be compared to the asset's carrying value to determine if a write-down to the
lower of carrying value or market value is required.
During 1994, the Company acquired a healthcare business for $5.0 million.
The excess of purchase consideration over net assets acquired amounted to
approximately $4.0 million and was allocated between customer lists and an
acquired management team. The amount assigned to the management team was
F-10
<PAGE> 79
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated at 20 percent of the excess purchase consideration or $800,000. (The
remaining 80 percent was assigned to customer lists.) The value of the
management team was being amortized on a straight-line basis over three years.
During 1996, the Company determined that the management team was not performing
as expected and decided to replace a majority of senior management. Accordingly,
in 1996 the Company wrote-off $505,000, representing the remaining unamortized
balance at that time.
Offering Costs
In July 1998, the Company filed an S-1 Registration Statement in connection
with an initial public offering ("IPO") of its common stock (see note 13). As a
result of a delay in the registration process, the Company has written off
approximately $1.6 million in offering costs incurred in 1998. Offering costs
incurred in 1999 are being capitalized and will be offset against the proceeds
from the offering.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to net operating
loss carryforwards and differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recorded at their estimated realizable value.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain estimates used by management are particularly susceptible to
significant changes, such as the recoverability and amortization periods of
purchased and developed software and intangible assets. Management believes that
the estimates used are adequate based on the information currently available.
Net Income (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
pursuant to which the calculation of primary and fully diluted earnings per
share was replaced with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities, except as required by Staff
Accounting Bulletin No. 98 ("SAB 98"). Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
In February 1998, the staff of the Securities and Exchange Commission
("SEC") issued SAB 98 which changes the SEC staff's guidance on cheap stock in
initial public offering filings and the subsequent reporting of cheap stock.
Under the SEC's old guidance, Staff Accounting Bulletin No. 83, common stock
issued during a one-year period prior to an initial public offering at prices
below the initial public offering price, including any option or warrant, was
considered cheap and was treated as outstanding for all periods in a manner
similar to a stock split. Under SAB 98, common stock, options or warrants to
purchase common stock or other potentially dilutive instruments issued for
nominal consideration (collectively "nominal issuances") during any of the
periods covered by statements of operations that are included in initial public
offering filings, must be reflected in basic (for common stock) and diluted
earnings per share (for common stock or other
F-11
<PAGE> 80
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
potentially dilutive instruments) for all periods subsequent to their respective
issuances in a manner similar to a stock split, even if anti-dilutive.
All earnings (loss) per share amounts for all periods presented have been
stated to conform to the SFAS 128 and SAB 98 requirements.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Numerator used for both basic and diluted earnings (loss)
per share................................................. $(15,304) $(1,620) $ 3,175
Denominator for basic earnings per share:
Weighted average shares outstanding....................... 7,504 7,518 9,120
Denominator for diluted earnings per share:
Denominator for basic earnings per share.................. 7,504 7,518 9,120
Effect of dilutive securities:
Warrants............................................... -- -- 15
-------- ------- -------
7,504 7,518 9,135
======== ======= =======
Basic earnings (loss) per share............................. $ (2.04) $ (0.21) $ 0.35
======== ======= =======
Diluted earnings (loss) per share........................... $ (2.04) $ (0.21) $ 0.35
======== ======= =======
</TABLE>
Fair Value of Financial Instruments
The carrying amounts for the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and long-term debt approximate fair values.
Estimates are not necessarily indicative of the amounts which could be
realized or would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amount.
New Accounting Standards
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
adopted SFAS No. 130 during 1998. Included within accumulated other
comprehensive income are the cumulative amounts for foreign currency translation
adjustments. The accompanying consolidated financial statements have been
restated to conform to the SFAS No. 130 requirements.
Financial Accounting Standards Board Statement No. 131 (SFAS No. 131),
Disclosures about Segments of an Enterprise and Related Information, was adopted
by the Company in 1998. SFAS No. 131 supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise. The adoption of SFAS No. 131 did not
affect the Company's operating results. Note 12 contains specific information
and disclosures related to the Company's segments.
F-12
<PAGE> 81
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
------ ----
<S> <C> <C>
Finished goods held for resale.............................. $ 262 $287
Maintenance parts........................................... 808 500
------ ----
$1,070 $787
====== ====
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
------- ------------
<S> <C> <C>
Fixtures and equipment...................................... $ 5,160 $ 5,652
Motor vehicles.............................................. 459 360
Leasehold improvements...................................... 283 288
------- -------
5,902 6,300
Less accumulated depreciation............................... (3,862) (4,526)
------- -------
$ 2,040 $ 1,774
======= =======
</TABLE>
At December 31, 1997 and 1998, the Company held property and equipment with
a net book value of $90,000 and $98,000, respectively, under capital leases.
Depreciation expense was $958,000, $977,000 and $695,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
4. BUSINESS COMBINATIONS
The Company made various acquisitions during 1996, which have been
accounted for using the purchase method of accounting. In each case the Company
acquired all of the outstanding stock of the acquired company. All of the
companies were involved with the development of computer software and the supply
of software and services.
The aggregate estimated fair value of the assets and liabilities of the
acquired businesses and the aggregate consideration paid in 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
Current assets (including cash of $88)...................... $ 424
Property and equipment...................................... 346
Software development costs and intellectual property........ 331
Accounts payable and accrued expenses....................... (581)
Intangible assets........................................... 2,862
------
$3,382
======
Consideration paid:
Cash consideration.......................................... $3,302
Deferred consideration...................................... 38
Related acquisition costs................................... 42
------
$3,382
======
</TABLE>
F-13
<PAGE> 82
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma results of operations for the year ended
December 31, 1996 assume that each of the above acquisitions had occurred on
January 1, 1996. (In thousands, except per share amounts.)
<TABLE>
<S> <C>
Revenue..................................................... 36,054
Net (loss).................................................. (15,517)
Basic (loss) per share...................................... (2.07)
</TABLE>
The unaudited summary pro forma results are not necessarily indicative of
what actually would have occurred if the acquisitions had occurred on January 1,
1996, nor is it indicative of future operating results.
5. SHORT-TERM DEBT
Short-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
<S> <C> <C>
Current portion of long-term debt (Note 6).................. $2,803 $10,210
Short-term demand facility.................................. 4,404 5,320
------ -------
$7,207 $15,530
====== =======
</TABLE>
The short-term demand facility bears interest at the lending bank's base
rate plus the applicable margin.
6. LONG-TERM DEBT
Long-term debt, all of which is collateralized and fully guaranteed,
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
DESCRIPTION 1997 1998
----------- ------- --------
<S> <C> <C>
Loan payable to bank, interest payable quarterly at 3% over
bank base rate, principal due in monthly installments of
$10, maturing June 2000................................... $ 309 $ 187
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $146, maturing October
2000...................................................... 1,584 1,019
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $48, maturing September
1998...................................................... 144 --
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $82, maturing October 1998... 329 --
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $85, maturing May 2001....... 1,098 768
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR inclusive of associated costs, principal
due in quarterly installments of $119, maturing April
2000...................................................... 1,176 714
Loan payable to bank, interest payable monthly at 4% over
Sterling LIBOR plus variable associated funding costs,
averaging 1/32% in 1998, principal due in equal annual
installments of $1,872, maturing February 2002............ 8,226 7,487
Loan payable to bank, interest payable at 12% per annum,
maturing 2002............................................. 33 35
------- --------
12,899 10,210
Less current installments................................... (2,803) (10,210)
------- --------
$10,096 $ --
======= ========
</TABLE>
F-14
<PAGE> 83
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In certain prior periods, the Company was not able to comply with certain
financial covenants in the agreements relating to its long-term debt and was
required to obtain waivers from the lender. The Company and the lender agreed
that the indebtedness would be paid from the proceeds of the Company's IPO.
Accordingly, the Company has reclassified all of its long-term debt to
short-term debt as of December 31, 1998.
The agreements are subject to two cross guarantees by the Company and its
subsidiaries. One guarantees the liabilities of the parent and the other the
liabilities of the subsidiaries. Both guarantees place a fixed and floating
security interest over substantially all of the Company's assets. The lending
bank's priority interest is also the subject of an Intercreditor Deed.
The lending bank's base rate ranged between 6.25% and 7.5% and Sterling
LIBOR ranged between 6.6% and 7.9% during the year ended December 31, 1998.
7. CAPITAL LEASE OBLIGATIONS
The Company has entered into various noncancellable capital lease
agreements for items of property and equipment. Annual payments for the years
ending December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ 64
2000........................................................ 63
2001........................................................ 39
2002........................................................ 16
----
182
Less amount representing interest........................... 34
----
148
Less current portion........................................ 55
----
$ 93
====
</TABLE>
8. COMMITMENTS
Operating Leases
The Company leases office space, equipment and motor vehicles under
noncancellable operating leases which expire on various dates through 2012.
Required future minimum rentals to be paid as of December 31, 1998, are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ 1,276
2000........................................................ 851
2001........................................................ 616
2002........................................................ 465
2003........................................................ 396
Thereafter.................................................. 3,315
------
$6,919
======
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 amounted
to approximately $1.6 million, $1.9 million, and $2.0 million, respectively.
Employment Agreements
LK Global Information Systems BV entered into an employment agreement with
Dr. Kyprianou, effective as of January 1, 1996, to act as its Chief Executive
Officer (CEO) for an initial period which expires
F-15
<PAGE> 84
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on March 29, 2000. Under this agreement Dr. Kyprianou is entitled to a salary of
L420,000 (approximately US$700,000) per annum which is deemed to be fully
inclusive of all expenses incurred in carrying out his roles and duties on
behalf of the Company worldwide. This salary is subject to review by the Board
on January 1 in each year. No salary increases have been made since the
inception of the agreement. This agreement will be superseded if the Company's
proposed IPO becomes effective.
The Company has entered into employment agreements with Dr. Kyprianou, its
Chief Executive Officer (CEO), its President and Chief Financial Officer (CFO)
and its Chief Operating Officer (COO) all of which will become effective upon
the successful completion of the proposed IPO. The employment agreements for its
CEO and CFO expire on December 31, 2001. The employment agreement for its COO
expires on December 31, 1999. Each of the employment agreements may be
terminated by the Company or the employee without cause (as defined in the
employment agreements) upon 30 days notice, or for cause without notice. Under
the employment agreements, the CEO, the CFO and the COO are entitled to minimum
annual compensation of $250,000, $200,000 and $100,000, respectively. Under
their employment agreements, both the CEO and CFO are entitled to receive a
severance benefit equal to one times his annual compensation if terminated
without cause and 2.99 times his annual compensation if terminated without cause
within 180 days after a "change in control" of the Company. Change in control is
defined as the issuance of securities equal to more than 50% of the Company's
issued and outstanding shares or the sale of more than 50% of its assets or if
the Company is acquired by merger and does not survive.
Employee Benefit Plans
The Company has various defined contribution retirement plans for qualified
employees. Contributions made under the plans were $298,000, $328,000 and
$311,000 in 1996, 1997 and 1998, respectively.
9. INCOME TAX
The Company's principal subsidiaries are not resident in the United States
for tax purposes. Income from operations before income taxes included the
following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
US income $ (74) $ (103) $(1,917)
Foreign income (15,280) (1,482) 7,118
-------- ------- -------
$(15,354) $(1,585) $ 5,201
======== ======= =======
The provision for income taxes was estimated as
follows:
Income taxes estimated to be payable (refundable)
currently
US federal $ -- $ 23 $ 1,064
Foreign (46) 1 963
US state and local (4) 11 (1)
-------- ------- -------
$ (50) $ 35 $ 2,026
======== ======= =======
</TABLE>
A reconciliation of the provision for income taxes compared with the
amounts at the US federal statutory rate is as follows:
F-16
<PAGE> 85
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Tax at statutory rate................................ $(4,759) $ (539) $1,769
Differences in tax rates............................. -- 48 (9)
Non deductible expenses.............................. 2,600 733 499
Valuation allowance on operating loss................ 2,159 (207) 147
Prior years over accrued and other................... (50) -- (380)
------- ------- ------
Income tax expense (benefit)......................... $ (50) $ 35 $2,026
======= ======= ======
</TABLE>
The Company's deferred tax assets as of December 31, 1997 and 1998
primarily consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Loss carryforwards.......................................... $ 2,978 $ 3,083
Equipment................................................... 856 675
Other....................................................... 24 290
------- -------
3,858 4,048
Valuation allowance......................................... (3,858) (4,048)
------- -------
Total deferred tax assets......................... $ -- $ --
======= =======
</TABLE>
Estimated net operating loss carryforwards at December 31, 1998 and their
expiration dates are shown below:
<TABLE>
<CAPTION>
EXPIRATION NET OPERATING
COUNTRY OF JURISDICTION DATES LOSS
----------------------- ------------- -------------
<S> <C> <C>
United Kingdom No expiration 9,911
United States 2005-2018 255
------------- -------------
10,166
=============
</TABLE>
The Company has recorded a valuation allowance to offset the entire
deferred tax asset where it is more likely than not that the asset will not be
realized.
The Indian government, as a means of encouraging foreign investment,
provides significant tax incentives and exemptions to regulatory restrictions.
Certain of these benefits that directly affect the Company include, among
others, tax holidays (temporary exemptions from taxation on operating income)
and liberalized import and export duties. The current tax holiday to which the
Company is subject expires in 2001. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions such as continued
operation in a qualifying software technology park and export sales of at least
75% of inventory turnover. A failure to meet such conditions could result in the
cancellation of the benefits or a requirement to pay damages in an amount to be
determined by the Indian Government and customs duty on plant, machinery,
equipment, raw materials, components and consumables. With respect to duties,
subject to certain conditions, goods, raw materials and components for
production imported by the Company's offices in India are exempt from the levy
of a customs duty. No assurances can be given that such tax benefits will be
continued in the future or at their current levels.
10. STOCKHOLDERS' EQUITY
Stock Split
In 1999, the Board of Directors approved a 1.711772-for-1 reverse stock
split of issued and outstanding common shares. All shares, per share and warrant
information in the accompanying financial statements has been restated to
reflect the effect of the split.
F-17
<PAGE> 86
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common and Preferred Stock
The Company is authorized to issue 75,000,000 shares of common stock, par
value $0.001 per share, and 15,000,000 shares of preferred stock, par value
$0.001 per share, two series of which have been designated as follows: 2,100,000
shares of Series A convertible preferred stock and 3,500,000 shares of Series B
convertible preferred stock.
The Company's Series A and Series B convertible preferred stock rank pari
passu except with respect to the right to receive dividends. In respect of
dividends, Series A holders are entitled to a non-cumulative cash dividend of
$0.40 per share per annum and Series B holders are entitled to a non-cumulative
cash dividend of $0.50 per share per annum, each commencing on September 1,
1998. If, within 120 days of issuance of the Series A and Series B shares, the
Company fails to register the common stock into which such shares are
convertible, the holders of shares of Series A will be entitled to a cumulative
cash dividend of $0.40 per share per annum and the holders of shares of Series B
will be entitled to a cumulative cash dividend of $0.50 per share per annum,
increasing each month, until registration of the underlying common stock, by
$0.08 and $0.10 per share per annum, respectively, to a maximum of $1.80 and
$2.25 per share per annum, respectively. In a liquidation, the preferred stock
ranks in preference to the common stock as to repayment of par value, and
ratably with the common stock thereafter.
The preferred stock is convertible at the rate of one share of preferred
stock for one share of common stock at the option of the holder and
automatically on the effective date of a registration statement covering the
underlying common stock. The preferred stock is not redeemable. There are
provisions to protect the preferred holders from dilution in events such as
subdivision or combination of the common stock, the payment of stock dividends
or distributions of other securities or other reclassifications, exchanges or
substitutions. The preferred stock votes with the common stock on an
as-converted basis.
On October 10, 1997, in connection with the Plan and Agreement of
Reorganization referred to in note 1, the Company offered its Series A
convertible preferred stock in a private placement. As a result of the private
placement 1,137,000 shares of the Series A convertible preferred stock were
issued and the Company received proceeds of approximately $6.4 million (net of
costs of $609,000), including shares issued to various parties in lieu of
commissions and finders fees related to the private placement. In June 1998, all
of the outstanding Series A preferred stock was converted into common stock.
Upon conversion, all holders of the Company's Series A convertible preferred
stock waived their right to receive dividends as described above. At December
31, 1998 there were no preferred shares outstanding.
Warrants
In connection with the issuance of its Series A convertible preferred
stock, the Company issued warrants to purchase an aggregate of 51,117 shares of
common stock. The warrants were issued in payment of finders' fees in connection
with the offering. Such warrants have an exercise price of $8.56 per share, are
assignable and expire on April 10, 2000. At the time of issuance management
determined that the value of the warrants was not material to the financial
statements.
Stock Option Plan
In June 1998, the Company adopted a Stock Option Plan, which provides for
awards in the form of options, including incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). Employees, directors, consultants and
advisors of the Company will be eligible for the grant of NSOs, while only
employees will be eligible for the grant of ISOs. Options will have a term of up
to ten years from the date of grant. Upon the completion of the Company's
proposed public offering, 1,500,000 shares of Common Stock will be reserved for
issuance pursuant to the exercise of stock options granted under the Stock
Option Plan. As of December 31, 1998, there were no options to purchase Common
Stock outstanding.
F-18
<PAGE> 87
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Convertible Promissory Note
In December 1998, the Company executed a convertible promissory note (the
"Note") in the principal amount of $500,000, which bears interest at the rate of
8% per annum. The Note was issued, and the proceeds received, in January 1999.
The Note converts into shares of the Company's Common Stock, at the option of
the holder, at $10.27 per share or, if the Company completes an initial public
offering at an offering price of less than $15.41 per share, at $8.56 per share.
These securities were sold to one accredited investor and a fee of 10% of the
principal amount of the Note was paid as a finder's fee. Management has
evaluated the Note's beneficial conversion feature and determined that its value
will not be material to the basic financial statements.
11. RELATED PARTY TRANSACTIONS
During the second half of 1998, the Company's President and CFO made loans
to the Company in the aggregate principal amount of approximately $1.7 million.
These loans mature on December 31, 2001 and bear interest at LIBOR plus 2% per
annum. All interest accrues to principal and is payable at maturity. At December
31, 1998 principal and interest due on this loan amounted to approximately $1.8
million. The loans were made to provide funds to cover certain working capital
expenses.
In May 1998, the Company loaned $2.6 million to its CEO. The loan matures
in May 2000 and bears interest at LIBOR plus 2% per annum. During the course of
the year the CEO repaid $714,000 of this loan in the form of cash and offsets of
salary and other reimbursable expenses due to him. As a result, the balance due
as of December 31, 1998 was reduced to approximately $1.9 million. Interest
income on this loan amounted to approximately $100,000 for the year ended
December 31, 1998. The loan was made to provide temporary liquidity to the
Company's CEO.
12. SEGMENT REPORTING INFORMATION
The Company has adopted SFAS 131 "Disclosure about Segments of an
Enterprise and Related Information" during 1998 which changes the way the
Company reports certain information about its operating segments.
The Company develops, markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations mainly in the
manufacturing, healthcare, hospitality, and construction industries. Management
considers each industry to be a reportable segment, with each industry
representing a strategic business that offers products and services to various
customers. These industries are managed separately because each requires
different product and marketing strategies.
Within each industry, the Company has adopted a tailored sales and
marketing strategy. This strategy includes advertisements in leading trade
publications, participation in trade shows and sponsorship of user groups. In
addition, the Company has developed corporate sales and marketing materials as
well as general financial and technical materials that are distributed to each
of the Company's subsidiaries for inclusion in their sales materials, thereby
promoting a consistent portrayal of the Company's image and products. The
Company markets its products primarily through a direct sales force in each of
the industries. In the manufacturing and hospitality industries, the Company
also relies, to a limited extent, on distributors to sell the Company's
products.
The accounting policies adopted by each industry are the same as those
described in the summary of significant accounting policies. Management
evaluates performance based on profit/(loss) from operations before interest and
income taxes.
F-19
<PAGE> 88
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Segmental analysis for the year ended December 31, 1996
Revenues from external $ 6,430 $16,187 $ 7,527 $ 3,462 $ 826 $ 34,432
customers.....................
Depreciation and amortization... 2,850 2,330 153 1,596 1,500 8,429
Profit (loss) from operations... (2,677) (5,994) (80) (1,356) (3,341) (13,448)
Total segment assets............ $ 4,371 $ 4,585 $ 3,460 $ 1,677 $ 4,356 $ 18,449
======= ======= ======= ======= ======= ========
Segmental analysis for year ended December 31, 1997
Revenues from external 9,587 18,909 10,190 3,318 370 $ 42,374
customers.....................
Depreciation and amortization... 258 318 167 59 342 1,144
Profit (loss) from operations... 182 325 322 231 (750) 310
Total segment assets............ $ 4,105 $ 4,250 $ 4,129 $ 749 $ 4,009 $ 17,242
======= ======= ======= ======= ======= ========
Segmental analysis for year ended December 31, 1998
Revenues from external 16,635 15,990 13,799 4,421 1,776 $ 52,621
customers.....................
Depreciation and amortization... 189 216 207 43 379 1,034
Profit (loss) from operations... 3,993 1,461 1,914 429 (566) 7,231
Total segment assets............ $12,514 $ 6,682 $ 6,337 $ 1,301 $ 1,118 $ 27,952
======= ======= ======= ======= ======= ========
</TABLE>
The following table represents revenue by country based on country of
customer domicile and long-lived assets by country based on the location of the
assets:
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
--------------------------- ------------------------
1996 1997 1998 1996 1997 1998
------- ------- ------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United Kingdom.............................. $33,608 $39,057 $31,100 $1,491 $1,649 $2,008
Rest of Europe.............................. 489 1,002 13,069 1,340 1,109 577
United States............................... 335 1,840 1,517 103 107 111
Asia........................................ -- 475 1,800 811 752 687
Rest of World............................... -- -- 5,135 -- 20 12
------- ------- ------- ------ ------ ------
$34,432 $42,374 $52,621 $3,745 $3,637 $3,395
======= ======= ======= ====== ====== ======
</TABLE>
13. SUBSEQUENT EVENT
Proposed Public Offering
The Company has filed a Registration Statement with the SEC for the sale of
3,800,000 shares of Common Stock (excluding the underwriters' over-allotment
option).
F-20
<PAGE> 89
DESCRIPTION OF GRAPHICS
Inside Front Cover
The graphic reads "ENTERPRISE APPLICATION SOFTWARE SOLUTIONS" across the
top. Logo in center. In the top left corner are the words "AremisSoft
Healthcare" and the description, "AremisSoft is one of the UK's leading
suppliers of primary and community healthcare systems. The product range
includes clinical systems, fundholding, EDI, GP-FHSA links and community care
software. The resource AremisSoft has at its disposal and the flexible
architecture of the software enable fast reaction to the ever changing
legislation in the healthcare sector. "The graphic depicts a computer screen of
healthcare software. In the bottom left corner are the words "AremisSoft
Construction" and the description, "ViXEN plus is an integrated management and
control system, designed specifically for contracting companies across the
industrial spectrum. The modularity and integration offered by ViXEN plus makes
it possible to use individual routines as building blocks to construct a unique
management system tailored to meet a company's particular requirements,
including those that differ among divisions within a company." The graphic
depicts a computer screen of construction software. In the top right corner are
the words "AremisSoft Hospitality" and the description, "Aremis Hotel has been
designed to operate in hotels ranging from the largest international group to
the smallest privately owned concern. Using the latest technology available,
Aremis Hotel provides: open access database, graphical display of rooms, maps
and photographs, data replication between hotel and group head office for
reservations, guest history and accounting data, touch screen technologies and
direct links to the Internet." The graphic depicts a computer screen of
hospitality software. In the bottom right corner are the words "AremisSoft
Manufacturing" and the description, "MTMS is a client-server-based manufacturing
management system that brings ERP to the manufacturing environment. MTMS
combines high levels of functionality with an open architecture to provide a
choice of user interface, database technology and hardware platform." The
graphic depicts a computer screen of manufacturing software. At the bottom are
the words Advanced Real-time Enterprise-wide Mission-Critical Integrated
Software.
In the Center of the following page is a sphere with the logo and the
words, "Analyze Customer & Market Requirements," "Design Aremis Solutions,"
"Build Solution Using C++/Aremis," and "Deliver Solution." In the top left
corner is a graphic depicting healthcare customers. In the bottom left corner is
a graphic depicting construction customers. In the top right corner is a graphic
depicting hospitality customers. In the bottom right corner is a graphic
depicting a manufacturing device. In the bottom center is the words:
ADVANCED
o Exploitation of modern development methods and tools
o Object-oriented development approach
REAL-TIME
o Client-server architecture
o Graphical user interface (GUI)
o On-line and user-friendly
ENTERPRISE-WIDE
o Supports personnel, workgroup, departmental, divisional and
enterprise-wide customers
o Architecture supports multinational clients
MISSION-CRITICAL
o Supports core businesses 24 hours a day, 7 days a week
INTEGRATED SOFTWARE
o Platform independence
o Supports common relational database systems
o High component re-use across vertical markets
o Shared technologies
o Fully scalable architecture
<PAGE> 90
LOGO
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered hereunder. No expenses will be borne by the Selling Stockholders. All
of the amounts shown are estimates, except for the SEC and NASD registration
fees.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 19,175
NASD registration fee....................................... 82,000
Printing and engraving expenses............................. 250,000
Accounting fees and expenses................................ 700,000
Legal fees and expenses..................................... 700,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous............................................... 10,000
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains provisions eliminating
or limiting director liability to the Company and its stockholders for monetary
damages arising from acts or omissions in the director's capacity as a director.
The provisions do not, however, eliminate the personal liability of a director
(i) for any breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the Delaware
statutory provision making directors personally liable, under a negligence
standard, for unlawful dividends or stock repurchases or redemptions, or (iv)
for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
the Company protection against awards of monetary damages resulting from
breaches of their duty of care, except as indicated above. As a result of this
provision, the ability of the Company or a stockholder thereof to successfully
prosecute an action against a director for breach of his or her duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. Any amendment or repeal of these provisions requires the
approval of the holders of shares representing at least 66% of the shares of the
Company entitled to vote in the election of directors, voting as one class for
that purpose.
The Company's Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by applicable law, subject to limited exceptions against liabilities
arising by reason of their status or services as an officer or director.
The Company intends to enter into separate indemnification agreements with
its directors and certain of its officers that require the Company, among other
things, to advance their expenses as a result of any proceeding against them as
to which they could be indemnified. The Company believes that the limitation of
liability provision in its Certificate of Incorporation and the indemnification
agreements will facilitate the Company's ability to continue to attract and
retain qualified individuals to serve as directors and officers of the Company.
The Company may, from time to time, agree to provide similar indemnification to
certain employees and agents of the Company.
The employment agreements with Dr. Kyprianou and Messrs. Poyiadjis and
Voice also provide that the Company will indemnify such individuals for any
losses, costs, damages or expenses incurred as a direct consequence of the
discharge of their duties or by reason of their status as agents of the Company.
II-1
<PAGE> 92
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1998, the Company executed a convertible promissory note (the
"Note") in the principal amount of $500,000 which bears interest at the rate of
8% per annum. The Note converts into shares of the Company's Common Stock, at
the option of the holder, at $6.00 per share or, if the Company completes an
initial public offering at an offering price of less than $9.00 per share, at
$5.00 per share. These securities were sold to one accredited investor and a fee
of 10% of the principal amount of the Note was paid as a finder's fee. The
transaction was exempt from registration in reliance on Section 4(2) of the
Securities Act.
In June 1998, the Company approved the form of Merger Agreement ("Merger
Agreement") whereby the Company completed the acquisition of 100% of the issued
and outstanding shares of AremisSoft-Nevada in a share exchange. Pursuant to the
Merger Agreement, the Company is authorized to issue up to 17,117,720 shares of
its Common Stock for an equal number of shares of Common Stock of
AremisSoft-Nevada, representing all of its issued and outstanding capital stock.
In connection with the merger, the Board of Directors of AremisSoft-Nevada
previously declared a 1.711772-for-one reverse stock split. Pursuant to the
Merger Agreement, each outstanding share, option and warrant to purchase Common
Stock of AremisSoft-Nevada was automatically converted into one share, option
and warrant respectively, to purchase Common Stock of the Company and
AremisSoft-Nevada became a wholly-owned subsidiary of the Company. The
securities were exchanged pursuant to an exemption from registration under Rule
145(a)(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Unless otherwise noted, the following exhibits are filed with this
registration statement.
(a) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement between the Company and Cruttenden
Roth Incorporated and FAC/Equities
2.1 Form of Agreement of Merger between AremisSoft Corporation,
a Nevada corporation ("AremisSoft-Nevada") and the
Company(3)
2.2 Plan and Agreement of Reorganization between
AremisSoft-Nevada and LK Global Information Systems, B.V.
("LK Global") (the "Plan of Reorganization")(1)
2.3 Addendum to the Plan of Reorganization(1)
3.1 Certificate of Incorporation of the Company(3)
3.2 Bylaws of the Company(3)
4.1 Specimen Common Stock Certificate
4.2 Form of Warrant to purchase Common Stock(3)
5.1 Form of Opinion of Bartel Eng Linn & Schroder re legality
10.1 Form of Lock-up Agreement(2)
10.2 L1,750,000 Medium Term Loan between LK Global Healthcare
Systems (UK) Limited and Barclays Bank plc dated October 6,
1994, and all amendments thereto(2)
10.3 L5,000,000 Term Loan Facility between LK Global and Barclays
Bank plc dated March 31, 1995(2)
10.4 Overdraft Facility of up to L2,500,000 to LK Global and its
subsidiaries with Barclays Bank plc dated November 25,
1997(2)
10.5 1998 Stock Option Plan(3)
10.6 Form of Incentive Stock Option Agreement(3)
10.7 Form of Nonqualified Stock Option Agreement(3)
</TABLE>
II-2
<PAGE> 93
<TABLE>
<S> <C>
10.8 Employment Agreement between the Company and Dr. Lycourgos K. Kyprianou(3)
10.9 Employment Agreement between the Company and Roys Poyiadjis(3)
10.10 Employment Agreement between the Company and Noel R. Voice(3)
10.11 Indemnification Agreement between the Company and Dr. Lycourgos K. Kyprianou(3)
10.12 Indemnification Agreement between the Company and Roys Poyiadjis(3)
10.13 Promissory Note made by Dr. Lycourgos K. Kyprianou, in favor of the Company(3)
10.14 Promissory Note made by the Company in favor of Roys Poyiadjis
10.15 Convertible Promissory Note made by the Company in favor of Arthur Sterling and Marie Sterling(3)
10.16 Registration Rights Agreement between the Company and Dr. Lycourgos K. Kyprianou(3)
10.17 Registration Rights Agreement between the Company and Roys Poyiadjis(3)
10.18 Employment Agreement between LK Global Information Systems, B.V. and Dr. Lycourgos Kyprianou*
16.1 Letter of Pannell Kerr Forster, chartered accountants, regarding change in independent auditors(3)
16.2 Letter of Ernst & Young, chartered accountants, regarding change in independent auditors
21.1 Subsidiaries of the Company(3)
23.1 Consent of Bartel Eng Linn & Schroder is contained in Exhibit 5.1
23.2 Consent of Pannell Kerr Forster, chartered accountants
24.1 Power of Attorney(3)
27.1 Financial Data Schedule
99.1 Consent of Director Nominee Dann V. Angeloff
99.2 Consent of Director Nominee George H. Ellis
99.3 Consent of Director Nominee H. Tate Holt
99.4 Consent of Director Nominee M. C. Mathews
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Company's Form 8-K, filed on October 10,
1997
(2) Incorporated by reference to the Company's Form 10-K, filed on July 1, 1998
(3) Previously filed
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Pannell Kerr Forster, Independent Auditors, on
Schedule dated March 5, 1999.............................. S-1
Schedule II -- Valuation and Qualifying Accounts dated March
5, 1999................................................... S-2
</TABLE>
All other schedules have been omitted as not applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the 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
II-3
<PAGE> 94
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer, or controlling person of the Company 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 Company 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.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, that the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the small business issuer pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective;
and
(2) For 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-4
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in the City of Sacramento, State of
California on March 8, 1999.
AREMISSOFT CORPORATION,
a Delaware Corporation
/s/ ROYS POYIADJIS
--------------------------------------
Roys Poyiadjis
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES DATE
---------- ----
<S> <C>
/s/ DR. LYCOURGOS K. KYPRIANOU March 8, 1999
- ---------------------------------------------
Dr. Lycourgos K. Kyprianou,
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Executive Officer)
/s/ ROYS POYIADJIS March 8, 1999
- ---------------------------------------------
Roys Poyiadjis, President,
Chief Financial Officer
and Director
</TABLE>
II-5
<PAGE> 96
REPORT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS, ON SCHEDULE
We have audited the consolidated financial statements of AremisSoft
Corporation as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998 and have issued our report thereon dated
March 5, 1999 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Pannell Kerr Forster
London, England
March 5, 1999
S-1
<PAGE> 97
SCHEDULE II
AREMISSOFT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT COSTS EXCHANGE BALANCE AT
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES DIFFERENCES DEDUCTIONS END OF PERIOD
----------- ------------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts.... 55 441 47 59 484
Year ended December 31, 1997
Allowance for doubtful accounts.... 484 560 (16) 57 971
Year ended December 31, 1998
Allowance for doubtful accounts.... 971 110 10 452 639
</TABLE>
S-2
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement between the Company and Cruttenden
Roth Incorporated and FAC/Equities
2.1 Form of Agreement of Merger between AremisSoft Corporation,
a Nevada corporation ("AremisSoft-Nevada") and the
Company(3)
2.2 Plan and Agreement of Reorganization between
AremisSoft-Nevada and LK Global Information Systems, B.V.
("LK Global") (the "Plan of Reorganization")(1)
2.3 Addendum to the Plan of Reorganization(1)
3.1 Certificate of Incorporation of the Company(3)
3.2 Bylaws of the Company(3)
4.1 Specimen Common Stock Certificate
4.2 Form of Warrant to purchase Common Stock(3)
5.1 Form of Opinion of Bartel Eng Linn & Schroder re legality
10.1 Form of Lock-up Agreement(2)
10.2 L1,750,000 Medium Term Loan between LK Global Healthcare
Systems (UK) Limited and Barclays Bank plc dated October 6,
1994, and all amendments thereto(2)
10.3 L5,000,000 Term Loan Facility between LK Global and Barclays
Bank plc dated March 31, 1995(2)
10.4 Overdraft Facility of up to L2,500,000 to LK Global and its
subsidiaries with Barclays Bank plc dated November 25,
1997(2)
10.5 1998 Stock Option Plan(3)
10.6 Form of Incentive Stock Option Agreement(3)
10.7 Form of Nonqualified Stock Option Agreement(3)
10.8 Employment Agreement between the Company and Lycourgos K.
Kyprianou(3)
10.9 Employment Agreement between the Company and Roys
Poyiadjis(3)
10.10 Employment Agreement between the Company and Noel R.
Voice(3)
10.11 Indemnification Agreement between the Company and Dr.
Lycourgos K. Kyprianou(3)
10.12 Indemnification Agreement between the Company and Roys
Poyiadjis(3)
10.13 Promissory Note made by Dr. Lycourgos K. Kyprianou, in favor
of the Company(3)
10.14 Promissory Note made by the Company in favor of Roys
Poyiadjis
10.15 Convertible Promissory Note made by the Company in favor of
Arthur Sterling and Marie Sterling(3)
10.16 Registration Rights Agreement between the Company and Dr.
Lycourgos K. Kyprianou(3)
10.17 Registration Rights Agreement between the Company and Roys
Poyiadjis(3)
10.18 Employment Agreement between LK Global Information Systems,
B.V. and Dr. Lycourgos Kyprianou*
16.1 Letter of Pannell Kerr Forster, chartered accountants,
regarding change in independent auditors(3)
16.2 Letter of Ernst & Young, chartered accountants, regarding
change in independent auditors
21.1 Subsidiaries of the Company(3)
23.1 Consent of Bartel Eng Linn & Schroder is contained in
Exhibit 5.1
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.2 Consent of Pannell Kerr Forster, chartered accountants
24.1 Power of Attorney(3)
27.1 Financial Data Schedule
99.1 Consent of Director Nominee Dann V. Angeloff
99.2 Consent of Director Nominee George H. Ellis
99.3 Consent of Director Nominee H. Tate Holt
99.4 Consent of Director Nominee M. C. Mathews
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Company's Form 8-K, filed on October 10,
1997
(2) Incorporated by reference to the Company's Form 10-K, filed on July 1, 1998
(3) Previously filed
<PAGE> 1
EXHIBIT 1.1
3,500,000 SHARES(1)
AREMISSOFT CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
__________, 1999
CRUTTENDEN ROTH INCORPORATED
FIRST ALBANY CORPORATION
c/o CRUTTENDEN ROTH INCORPORATED
As Representatives of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92612
Ladies and Gentlemen:
AremisSoft Corporation, a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. Description of Shares. The Company proposes to issue and sell
3,500,000 shares of its authorized and unissued Common Stock, $.001 par value
per share (the "Firm Shares"), to the several Underwriters. In addition, the
Company proposes to grant to the Underwriters an option to purchase up to
525,000 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 5 hereof. The Company also proposes to sell to the
Representatives, warrants (the "Representatives' Warrants") to purchase up to
[175,000/201,250] shares of Common Stock of the Company (the "Representatives'
Warrant Stock"), which sale will be consummated in accordance with the terms and
conditions of the Representatives' Warrant Agreement (the "Representatives'
Warrant Agreement"), the form of which is filed as an exhibit to the
Registration Statement described below. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock of the Company to be outstanding after giving effect to the sales
contemplated hereby, including the sale of the Shares, are hereinafter referred
to as "Common Stock." Unless the context otherwise requires, references herein
to the "Company" include AremisSoft Corporation together with its predecessors
and subsidiaries described in the Prospectus (hereinafter defined).
(1) Plus an option to purchase up to an additional 525,000 shares from the
Company to cover over-allotments, if any.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each
Underwriter that, as of the date hereof and as of the Closing Date:
(a) A registration statement on Form S-1 (File No.
333-58351) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses as may hereafter be required. Copies of such
registration statement and amendments and of each related prospectus subject to
completion (the "Preliminary Prospectuses") have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information previously omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
2
<PAGE> 3
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 of the Registration Statement or other than
subsidiaries which may be omitted from Exhibit 21 pursuant to subparagraph
(b)(21)(ii) of Item 601 of Regulation S-K of the Rules and Regulations. All of
the issued and outstanding shares of capital stock of the Company's subsidiaries
have been duly and validly authorized and issued, are fully paid and
nonassessable, and except as set forth in Schedule 2(c), are owned by the
Company, free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature. There are no outstanding subscriptions, rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock of any of the Company's subsidiaries. The
Company and each of its subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
financial condition results of operations or business of the Company taken as a
whole; no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification; the Company and each of its subsidiaries is in
possession of and operating in compliance in all material respects with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal, foreign and other regulatory authorities that are material to the
conduct of its business, all of which are valid and in full force and effect;
neither
3
<PAGE> 4
the Company nor any of its subsidiaries is in violation of its charter or bylaws
or other organizational document or except as disclosed in the Registration
Statement or Prospectus, is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness, or in any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which it is a party or by which it or its properties or assets may
be bound except for any such defaults which, individually or in the aggregate,
would not have a material adverse effect on its business, and neither the
Company nor any of its subsidiaries is in violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over it or
its properties or assets except for any such violations which, individually or
in the aggregate, would not have a material adverse effect on its business; each
of the Company's predecessors possessed and operated in compliance in all
material respects with all authorizations, licenses, certificates, consents,
orders and permits from state, federal, foreign and other regulatory authorities
that were material to the conduct of its business.
(d) The Company has full legal right, power and authority
to enter into this Agreement and the Representatives' Warrant Agreement and to
perform the transactions contemplated hereby and thereby. Each of this Agreement
and the Representatives' Warrant Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representatives' Warrant Agreement
may be limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representatives'
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not violate any provisions of the charter, bylaws or other
organizational document of the Company and will not result in a breach or
violation of any of the terms and provisions of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties or assets may be bound, or any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties or assets. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
or assets is required for the execution and delivery of this Agreement or the
Representatives' Warrant Agreement and the consummation by the Company of the
transactions herein and therein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied.
(e) There is not pending or, to the knowledge of the
Company's senior management, threatened any action, suit, claim or proceeding
against the Company, or any of its officers or any of its properties, assets or
rights before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) individually, or together with any other action, claim or
4
<PAGE> 5
proceeding, could result in any material adverse change in the financial
condition, results of operations, or business of the Company or might materially
and adversely affect its properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company of a
character required to be described or referred to in the Registration Statement
or Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations or by the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules and regulations of the Commission thereunder that
have not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
(i) have been duly authorized and validly issued and are fully paid and
nonassessable, assuming the accuracy of the representations and warranties made
to the Company by purchasers of the Company's securities (which representations
and warranties the Company has no reason to believe are not accurate), (ii) have
been issued in compliance with all federal and state securities laws, and (iii)
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities. The authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms to the statements relating thereto contained in
the Registration Statement and the Prospectus under the caption "Description of
Capital Stock" and elsewhere therein (and such statements correctly state the
substance of the instruments defining the capitalization of the Company); the
Firm Shares and the Option Shares have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right except as set forth in the Prospectus, right
of first refusal or other similar right of shareholders exists with respect to
any of the Firm Shares or Option Shares or the issuance and sale thereof. No
further approval or authorization of any shareholder or the Board of Directors
of the Company or others is required for the issuance and sale or transfer of
the Shares except as may be required under the Act, the Rules and Regulations or
under state or other securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's 1998 Stock Option Plan and the options or other rights granted
or exercisable thereunder, set forth in the Prospectus under the caption
"Management - 1998 Stock Option Plan" accurately and fairly presents the
information required to be shown with respect to such plan, options and rights
under the Act and the Rules and Regulations and the Company does not have, and
has not had, any other stock option, stock bonus or other stock plan or
arrangement.
(g) Pannell Kerr Forster, which has expressed its opinion
with respect to the financial statements of the Company as of and for the three
years ended December 31, 1998 filed with the Commission as a part of the
Registration Statement, which are included in
5
<PAGE> 6
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations. The audited financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, included in the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. Such
financial statements of the Company, together with the related schedules and
notes, filed with the Commission as part of the Registration Statement, have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods as certified by Pannell Kerr
Forster. The selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included in the Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
specifically disclosed or contemplated therein, there has not been (i) any
material adverse change in the financial condition, results of operations or
business of the Company, (ii) any transaction that is material to the Company
and not in the ordinary course of business, (iii) any obligation, direct or
contingent, incurred by the Company that is material and adverse to the Company,
(iv) any material change in the capital stock or material and adverse change in
the outstanding indebtedness of the Company, (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company, or (vi) any
loss or damage (whether or not insured) to the property of the Company which has
a material adverse effect on the financial condition, results of operations or
business of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, (ii) the agreements to which the Company or any of its
subsidiaries is a party described in the Registration Statement are valid
agreements, enforceable by the Company or its subsidiary, as the case may be,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in breach or default under any of such agreements, and (iii) the
Company and each of its subsidiaries has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased by
it, except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. Except
as set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
and as described in the Registration Statement and the Prospectus.
(j) The Company has timely filed all federal, state, local
and foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or is reasonably
likely to be asserted against the Company, or all tax
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<PAGE> 7
liabilities are adequately provided for on the books of the Company and
reflected in the Company's financial statements.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business including, but not limited to, insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; the Company
has not been refused any insurance coverage sought or applied for; and the
Company does not have any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations or business of the Company.
(l) No labor disturbance by the employees of the Company
exists or is imminent. No collective bargaining agreement exists with any of the
Company's employees and no such agreement is imminent.
(m) Except as disclosed in or specifically contemplated by
the Prospectus, the Company owns or possesses, in each applicable jurisdiction,
adequate licenses or other rights to use all patents, patent rights, trade
secrets (including any unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), mask works, know-how,
inventions, trademarks, copyrights, licenses, service marks and trade names that
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patents, patent rights, trade secrets,
mask works, know-how, inventions, trademarks, copyrights, licenses, service
marks or trade names; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patents, patent rights, trade secrets, mask works, know-how,
inventions, trademarks, copyrights, licenses, service marks or trade names.
(n) On the effective date of the Registration Statement,
the Common Stock will be registered pursuant to Section 12(g) of the Exchange
Act and will be approved for quotation on the Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
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<PAGE> 8
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or the date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus and the Registration Statement.
(q) The Company has not at any time during the last five
(5) years (i) made any unlawful contribution to any candidate for foreign office
or failed to disclose fully any contribution in violation of law which is
required to be disclosed in the Registration Statement or the Prospectus, or
(ii) made any payment to any foreign, federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization in violation of law or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer, director and director-nominee of the
Company and each beneficial owner of 5% or greater of the Company's Common Stock
has agreed in writing that such person will not, without the prior written
consent of Cruttenden Roth Incorporated (which consent may be withheld in its
sole discretion), for a period of 180 days from the date that the Registration
Statement is declared effective by the Commission (the "Lock-up Period"),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation, any short sale), pledge, transfer, establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
the Exchange Act) by such person (collectively, "Securities") or publicly
announce the undersigned's intention to do any of the foregoing. Furthermore,
such person has also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction. The
Company has provided to counsel for the Underwriters a complete and accurate
list of all shareholders of the Company and the number and type of securities
held by each shareholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors, director-nominees and shareholders
have agreed to such restrictions (the "Lock-up Agreements"). The Company hereby
represents and warrants that it will not release any of its officers, directors
or director-nominees or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Cruttenden
Roth Incorporated, except for pledges and gifts where the donee agrees in
writing to be bound by the terms hereof.
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<PAGE> 9
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance in all material respects with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") that are applicable to its business, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws and (iii) the Company has no reason to believe that it will
be required to make future capital expenditures to comply with Environmental
Laws.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, including without limitation cash receipts,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers, directors or director-nominees of the Company or any of the members of
the families of any of them of a character and amount required to be disclosed
in the Registration Statement which are not disclosed in the Registration
Statement and Prospectus, nor has any other material transaction occurred
between or among the Company or any of such persons of a character and amount
required to be disclosed in the Registration Statement which are not disclosed
in the Registration Statement and Prospectus.
(w) The Representatives' Warrants have been duly and
validly authorized by the Company and upon delivery to you in accordance with
the Representatives' Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(x) The Representatives' Warrant Stock has been duly
authorized and reserved for issuance upon the exercise of the Representatives'
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
(y) The Agreement of Merger dated June __, 1998 (the
"Agreement of Merger") between AremisSoft Corporation, a Nevada corporation
("AremisSoft") and the Company (AremisSoft and the Company are collectively
referred to as the "Constituent Corporations"), has been duly authorized by all
necessary board of director and stockholder action on the part of the
Constituent Corporations and has been duly executed and delivered by each of the
parties thereto. The execution and delivery of the Agreement of Merger and the
consummation of the merger contemplated thereby does not contravene any
provision of applicable federal law, Nevada or Delaware corporate law or the
certificate of incorporation or bylaws of either of the Constituent Corporations
or any agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any judgement or decree of any governmental body, agency or court
having jurisdiction over either of the Constituent Corporations, except for any
such contravention that
9
<PAGE> 10
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole. No consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Constituent Corporations of their obligations under the
Agreement of Merger except such as have been obtained and except such consent,
approval, authorization, order or qualification that, if not obtained, would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole. The merger contemplated by the Agreement of Merger is effective under the
laws of the State of Nevada and the State of Delaware.
(z) The Company has not incurred any liability for a fee,
commission, or other compensation on (A) account of the employment of a broker
or finder in connection with the transactions contemplated by this Agreement or
(B) except as set forth in a letter from the Company to be delivered to you
concurrently herewith, to any underwriter on account of any offering or
agreement to offer any securities of the Company, whether or not such offering
was consummated, other than as contemplated hereby.
(aa) The Company does not currently sponsor or participate
in, and has never sponsored or participated in, any employee benefit plan,
including but not limited to a pension or welfare plan, which plan is or was
ever subject to the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder ("ERISA").
3. [Intentionally Deleted]
4. Representation, Warranties and Agreements of the Underwriters.
The information set forth in the last paragraph on the outside front cover page
(insofar as such information relates to the Underwriters), in the second
paragraph on the inside front cover page, concerning stabilization and
over-allotment by the Underwriters, under the caption "Underwriting" in any
Preliminary Prospectus and in the final form of Prospectus filed pursuant to
Rule 424(b) constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company that the statements made therein do not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
5. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 11).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 5 shall be made against
payment of the purchase price
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<PAGE> 11
therefor by the several Underwriters by wire transfer of immediately available
funds to an account designated by the Company, at the offices of Cruttenden Roth
Incorporated or such other place as may be agreed upon among the Representatives
and the Company, at 7:00 A.M., California time, on the third (3rd) full business
day following the first day that Shares are traded (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 11
hereof), such time and date of payment and delivery being herein called the
"Closing Date." The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
unless required under Section 11 to) make payment of the purchase price on
behalf of any Underwriter or Underwriters whose wire transfer of funds shall not
have been received by you prior to the Closing Date for the Firm Shares to be
purchased by such Underwriter or Underwriters. Any such payment by you shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 525,000 Option
Shares at the purchase price per share for the Firm Shares set forth in this
Section 5. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one occasion in whole or in part during the forty-five
(45) day period after the date on which the Firm Shares are initially offered to
the public, by giving written notice to the Company. The number of Option Shares
to be purchased by each Underwriter upon the exercise of such option shall be
the same proportion of the total number of Option Shares to be purchased as the
number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representatives
in such manner selected by them as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 5 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of immediately available
funds to an account designated by the Company. Such delivery and payment shall
take place at the offices of Cruttenden Roth Incorporated, or at such other
place as may be agreed upon by the Representatives, the Company and the Agent
(i) on the Closing Date, if written notice of the exercise of such option is
received by the Agent at least three (3) full business days prior to the Closing
Date, or (ii) on a date which shall be during the 45 day period after the date
on which the Firm Shares are initially offered to the public and which shall not
be later than the fifth (5th) full business day following the date the Agent
receives written notice of the exercise of such option, if such notice is
received by the Agent less than three (3) full business days prior to the
Closing Date.
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<PAGE> 12
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for inspection at least two (2) full business days prior to
the date of payment and delivery and will be in such names and denominations as
you may request, such request to be made at least three (3) full business days
prior to such date of payment and delivery. If the Representatives so elect,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
unless required under Section 11 to) make payment of the purchase price on
behalf of any Underwriter or Underwriters whose wire transfer of immediately
available funds shall not have been received by you prior to the date of payment
and delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
Upon exercise of any option provided for in this Section 5, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained in each
case in all material respects.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 13 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
6. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period
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<PAGE> 13
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, the
Company will provide evidence satisfactory to you that the Prospectus contains
such information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, the Company will prepare and
file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel for the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, the Company
will prepare promptly upon request, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing, subject, however, to compliance with the Act and the Rules
and Regulations and the rules and regulations of the Commission thereunder and
the provisions of this Agreement.
(b) The Company will advise you promptly after it shall
have received notice or obtained knowledge of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions,
domestic or foreign, as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be reasonably required by the laws of such
jurisdiction.
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<PAGE> 14
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act (three of which will
include all exhibits) all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof and for so long as the Company is subject to Section 13 or 15 of the
Exchange Act, the Company will furnish to its shareholders as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, (i) concurrently with furnishing such reports to its shareholders,
statements of operations of the Company for each of the first three (3) quarters
in the form furnished to the Company's shareholders, (ii) concurrently with
furnishing to its shareholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of shareholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders, (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was generally released to shareholders or prepared by the Company,
and (vi) any additional information of a public nature concerning the Company or
its business which you may reasonably request. During such five (5) year period,
if the Company shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary that is not so
consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and a
registrar (which may be the same entity) for its Common Stock.
(i) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common
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<PAGE> 15
Stock has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, if reasonably requested by you, forthwith
prepare, and, if permitted by law, disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(j) During the Lock-up Period, the Company will not,
without the prior written consent of the Representatives, effect the Disposition
of, directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder, (ii) the Company's issuance of options
or Common Stock under the Company's presently authorized stock option plans or
restricted stock plans (collectively, the "Option Plans") and (iii) the
Company's issuance of Common Stock pursuant to the exercise or conversion of any
warrant, debenture or other security described in the Registration Statement and
Prospectus which is exercisable or convertible into share of Common Stock.
7. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto during the nine month period after the effective date of the
Registration Statement; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel and
accountants for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of delivery to, or pursuant
to the instructions of, the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and the
Prospectus, and any amendments or supplements to any of the foregoing during the
nine month period after the effective date of the Registration Statement; NASD
filing fees; the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of counsel for the Underwriters related to such qualification);
the cost of listing the Shares on the Nasdaq National Market; the Company's road
show costs and expenses; the cost of any tombstone advertisement or press
release; the cost of preparing bound volumes of the documents relating to the
public offering of Common Stock contemplated hereby; all costs and expenses
associated with retaining a qualified independent underwriter if required by
NASD rules; and all other expenses directly incurred by the Company in
connection with the performance of its obligations hereunder.
(ii) In addition to its other obligations under
Section 7(a)(i) hereof, if the Shares are sold pursuant to this Agreement, the
Company will pay to the Representatives a nonaccountable expense allowance equal
to 1.0% of the aggregate sales price of the Shares to the public. This
nonaccountable expense allowance with respect to the Firm
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<PAGE> 16
Shares shall be paid to you on the Closing Date and the nonaccountable expense
allowance with respect to the Option Shares shall be paid to you on the closing
of the sale to you of such Option Shares.
(iii) In addition to its other obligations under
Section 9 hereof, the Company agrees that, during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 9(a)
hereof, it will reimburse the Underwriters for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding . To the extent that any such
reimbursement payment is held by a court of competent jurisdiction to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's five (5) largest banks (the "Prime Rate"). Any such reimbursement
payments which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request.
(b) In addition to their other obligations under Section
9(b) hereof, the Underwriters severally, and not jointly, agree that, during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 9(b) hereof, they will reimburse the Company for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding. To
the extent that any such reimbursement payment is held by a court of competent
jurisdiction to have been improper, the Company shall promptly return such
payment to the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such reimbursement payments which are not
made to the Company within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request
(c) It is agreed that any controversy arising out of the
operation of the reimbursement arrangements set forth in Sections 7(a)(iii) and
7(b) hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD in Orange
County, California (or as close geographically to Orange County, California as
is reasonably practical). Any such arbitration must be commenced by service of a
written demand for arbitration or a written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the reimbursement provisions contained in Sections 7(a)(iii) and 7(b) hereof and
will not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 9(a) and
9(b) hereof or the obligation to contribute to expenses which is created by the
provisions of Section 9(d) hereof.
8. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the
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<PAGE> 17
accuracy, as of the date hereof and the Closing Date and any later date on which
Option Shares are to be purchased, as the case may be, of the representations
and warranties of the Company and the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 2:00 P.M., California time, on the date of this Agreement, or
such later date as shall be consented to in writing by you; and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such documents and information
as they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) You shall be satisfied that since the respective dates
as of which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the Company
other than pursuant to the exercise of outstanding options, warrants or other
convertible securities disclosed in the Registration Statement and Prospectus or
any material adverse change in the indebtedness of the Company, (ii) except as
set forth or contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have been
entered into by the Company, which is not in the ordinary course of business and
which would have a material adverse effect on the Company's business, financial
condition and operating results, (iii) no loss or damage (whether or not
insured) to the property of the Company shall have been sustained which
materially and adversely affects the financial condition, business or results of
operations of the Company, (iv) no legal or governmental action, suit or
proceeding affecting the Company which is material to the Company or which
affects or may affect the transactions contemplated by this Agreement shall have
been instituted or threatened and (v) there shall not have been any material
change in the financial condition, business, or results of operations of the
Company which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with public offering or purchase the Shares as
contemplated hereby.
(d) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, an opinion
from each of Bartel Eng Linn & Schroder, general counsel to the Company, and
Pillsbury Madison & Sutro LLP, special counsel for the Company, (which opinion
of special counsel need not include subparagraphs (ii), (iii) or (iv) below or
subparagraph (xx) below with respect to more than the last fiscal year) dated
the Closing Date or such later date on which Option Shares are purchased,
addressed to the Underwriters (and stating that it may be relied upon by
Underwriters' Counsel in rendering its opinion pursuant to Section 8(j) of this
Agreement) and with reproduced copies or signed counterparts thereof for each of
the Underwriters, to the effect that:
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<PAGE> 18
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has full corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement;
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each United
States jurisdiction, if any, in which the ownership or leasing of
its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the
financial condition results of operations or business of the
Company taken as a whole. To such counsel's knowledge, Company
has no subsidiaries or other than as listed in Exhibit 21 to the
Registration Statement;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization"; all outstanding shares of
capital stock of the Company have been duly and validly issued
and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of
first refusal or other similar right; without limiting the
foregoing, to such counsel's knowledge, there are no preemptive
or other rights to subscribe for or purchase any of the Shares;
(v) The certificates evidencing the Shares to be
delivered hereunder are in due and proper form under Delaware law
and when duly countersigned by the Company's transfer agent and
registrar and delivered to the Underwriters against payment of
the agreed compensation in accordance with this Agreement, the
Firm Shares and the Option Shares, represented thereby will be
duly and validly issued and fully paid and nonassessable, and
will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders and will
conform in all respects to the description thereof in the
Registration Statement;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by
it hereunder;
(vii) The Company has the corporate power and
authority to enter into the Representatives' Warrant Agreement
and to issue, sell and deliver to the Representatives the
Representatives' Warrants to be issued and sold by it thereunder;
(viii) Each of this Agreement, the
Representatives' Warrant Agreement and the Representatives'
Warrants has been duly authorized by all
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<PAGE> 19
necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the
financial statements and notes thereto, the financial statement
schedules and other financial or statistical data included
therein as to which such counsel need express no opinion), as of
the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xi) The statements in the Registration Statement
and Prospectus under the captions "Management--1998 Stock Option
Plan," "Management--Employment Agreements,"
"Management--Compensation Committee Interlocks and Insider
Participation" and "Management--Limitation of Liability and
Indemnification Matters" including but not limited to the
statements with respect to employment agreements of management,
"Certain Transactions," "Description of Capital Stock" and
"Shares Eligible For Future Sale," and in the Registration
Statement in Items 14 and 15 are accurate and complete in all
material respects and fairly present the information contained
herein;
(xii) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the
Company and of statutes are accurate and fairly present the
information required to be presented by the Act and the
applicable Rules and Regulations and the Company is not in
violation of its charter or bylaws, or other organizational
documents;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or
referred to therein or filed as required;
(xiv) The execution and delivery of this Agreement
and the Representatives' Warrant Agreement and the performance by
the Company of its obligations hereunder and thereunder will not
(a) result in any violation of the
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<PAGE> 20
Company's charter, bylaws or other organizational documents, or
(b) result in a material breach or violation of any of the terms
and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to
which the Company is a party or by which its properties are
bound, of which such counsel has knowledge except for any breach,
violation or default which would not, singly or in the aggregate,
have a material adverse effect on the business of the Company and
its subsidiaries taken as a whole or any applicable United States
federal, state or local statute, rule or regulation or, to such
counsel's knowledge, any order, writ or decree of any United
States federal, state or local court, government or governmental
agency or body having jurisdiction over the Company or over any
of its properties or operations;
(xv) No consent, approval, authorization or order
of or qualification with any United States federal, state or
local court, government or governmental agency or body having
jurisdiction over the Company or over any of its properties or
operations is necessary in connection with the consummation by
the Company of the transactions contemplated in this Agreement
and the Representatives' Warrant Agreement, except such as have
been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
the Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules
and Regulations or by the Exchange Act or the applicable rules
and regulations of the Commission thereunder, other than those
described therein;
(xvii) The Representatives' Warrants have been
duly and validly authorized by the Company and upon delivery to
the Representatives in accordance with the Representatives'
Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company;
(xviii) The Representatives' Warrant Stock to be
issued by the Company pursuant to the terms of the
Representatives' Warrant has been duly authorized and reserved,
and, upon issuance and delivery against payment therefor in
accordance with the terms of the Representatives' Warrant
Agreement, will be duly and validly issued and fully paid and
nonassessable, and to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or
other similar right of shareholders;
(xix) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other
20
<PAGE> 21
securities of the Company have registration rights with respect
to securities of the Company that have not been waived;
(xx) The offer and sale of all securities of the
Company made within the last three years as set forth in Item 15
of the Registration Statement were exempt from the registration
requirements of the Securities Act, pursuant to the provisions
set forth in such Item, and from the registration or
qualification requirements of all relevant state securities laws;
(xxi) The Company has satisfied the conditions for
use of Form S-1 as set forth in the General Instructions thereto;
(xxii) No transfer taxes are required to be paid
in connection with the sale and delivery of the Shares to the
Underwriters;
(xxiii) The Agreement of Merger between AremisSoft
and the Company has been duly authorized by all necessary board
of director and stockholder action on the part of the Constituent
Corporations and has been duly executed and delivered by each of
the parties thereto. The execution and delivery of the Agreement
of Merger and the consummation of the merger contemplated thereby
does not contravene any provision of applicable federal law,
Nevada or Delaware corporate law or the certificate of
incorporation or bylaws of either of the Constituent Corporations
or, to such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a
whole, or to such counsel's knowledge, any judgement or decree of
any governmental body, agency or court having jurisdiction over
either of the Constituent Corporations, except for any such
contravention that would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole. No consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by
the Constituent Corporations of their obligations under the
Agreement of Merger except such as have been obtained and except
such consent, approval, authorization, order or qualification
that, if not obtained, would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole. The merger
contemplated by the Agreement of Merger is effective under the
laws of the State of Nevada and the State of Delaware; and
(xxiv) Neither the Company nor any of its
subsidiaries is an "investment company" or a person "controlled
by" an "investment company" within the meaning of the 1940 Act.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of
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<PAGE> 22
such counsel that leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are purchased, the
Registration Statement and any amendment or supplement thereto, when such
documents became effective or were filed with the Commission (other than the
financial statements and notes thereto, the financial statement schedules and
other financial or statistical data and supporting schedules included in the
Registration Statement as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that at the Closing Date or the date on which the Option
Shares are purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto (other than the financial
statements and notes thereto, the financial statement schedules or other
financial or statistical data included therein as to which such counsel need
express no comment) contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Each of such co-counsel shall also provide an opinion, addressed
and as of the dates set forth in the first paragraph of this Section 8(d), to
the same general effect as clauses (i), (ii), (iii) and (iv) of this Section
8(d) in respect of each direct and indirect United States subsidiary of the
Company that is a significant subsidiary as defined by the Commission.
Counsel rendering the foregoing opinions may rely as to questions
of law not involving the laws of the United States upon opinions of local
counsel, and as to questions of fact upon representations or certificates of
officers of the Company, and of government officials, in which case its opinion
is to state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters.
(e) You shall have received from Bhasin & Co., counsel for
LK Global Software Engineering (India) Private Limited ("LK Global (India)"), a
favorable opinion dated the Closing Date and such later date on which Option
Shares are purchased, addressed to the Underwriters (and stating that it may be
relied upon by Underwriters' Counsel in rendering its opinion pursuant to
Section 8(j) of this Agreement) and with reproduced copies or signed
counterparts thereof for each of the Underwriters, and satisfactory to the
Representatives and the Underwriters' Counsel substantially to the effect that:
(i) LK Global (India) has been duly organized and is (A)
validly existing as a private company limited by shares in good
standing under the laws of India and (B) able to transact
business as described in the Prospectus in India;
(ii) LK Global (India) has __________ shares of capital
stock authorized, __________ of which are issued and outstanding;
all necessary and proper corporate proceedings have been taken in
order to authorize validly such authorized capital stock; all
outstanding shares of such capital stock have been duly and
validly issued, are fully paid and nonassessable, have been
issued in
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<PAGE> 23
compliance with Indian law and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase any securities;
(iii) All of the outstanding shares of capital stock of,
or other ownership interests in, LK Global (India) are owned by
LK Global Information Systems BV ("LK Global BV")[, except one
share held by __________, one of the directors of LK Global
(India), as nominee shareholder of LK Global BV], free and clear
of any security interest, claim, lien, encumbrance or adverse
interest of any nature, except for the security interest existing
in favor of Barclays Bank plc and Barclays De Zoete Wedd Limited;
(iv) There are no outstanding options for the purchase
of, or any agreements providing for the issuance (contingent or
otherwise) of, or any commitments or claims of any character
relating to, any of LK Global (India)'s capital stock or any
shares of stock or securities that are convertible or
exchangeable or exercisable for such capital stock; and
(v) The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated
hereby will not result in a breach of, or constitute a default
under, any material indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise,
license or other material agreement or instrument to which LK
Global (India) is a party or by which any of its properties may
be bound, or violate any statute, judgment, decree, order, rule
or regulation known to such counsel of any court or governmental
body having jurisdiction over LK Global (India) or any of its
properties and to such counsel's knowledge, no approval,
authorization, order or consent of any court, regulatory body,
administrative agency or other governmental body is required for
the execution and delivery of this Agreement or the consummation
by the Company of the transactions contemplated herein, except as
have been made or obtained.
In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of the officers of LK Global (India) and of governmental
officials, in which case their opinion shall state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates shall be attached to the opinion.
(f) You shall have received from Quibell & Co, counsel for
LK Global Information Systems (UK) Plc, LK Global Healthcare Systems (UK) Ltd,
LK Global Hospitality Systems (UK) Ltd, LK Global Field Engineering Systems (UK)
Ltd, LK Global Manufacturing Systems (UK) Ltd, LK Global Construction Systems
(UK) Ltd, Briter Computer Systems Limited, LK Global Financial Systems (UK)
Limited, LK Global Software Engineering (UK) Limited and LK Global Human
Resources (UK) Limited (collectively, the "UK Subsidiaries"), a favorable
opinion dated the Closing Date and such later date on which Option Shares are
purchased, addressed to the Underwriters (and stating that it may be relied upon
by Underwriters' Counsel in rendering its opinion pursuant to Section 8(j) of
this Agreement) and
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<PAGE> 24
with reproduced copies or signed counterparts thereof for each of the
Underwriters, and satisfactory to the Representatives and the Underwriters'
Counsel substantially to the effect that:
(i) Each of the UK Subsidiaries is a company (A) duly
incorporated and registered under the laws of England and (B)
able to transact business as described in the Prospectus in
England and Wales;
(ii) Each of the UK Subsidiaries has the corporate power
and authority necessary to own freehold and leasehold properties
and to conduct the businesses described in the Registration
Statement and the Prospectus;
(iii) Based on an examination of the Register of Members
of each of the UK Subsidiaries all of the issued shares of the UK
Subsidiaries are legally owned by the companies and persons
listed in the Schedule to such opinion and such shares are not
subject to any third party adverse claims or rights, except for
the security interest existing in favor of Barclays Bank plc and
Barclays De Zoete Wedd Limited;
(iv) There are no outstanding options for the purchase
of, or any agreements providing for the issuance (contingent or
otherwise) of, or any commitments or claims of any character
relating to, any of the issued or authorized share capital of
each of the UK Subsidiaries or any shares, stock or securities
that are convertible into or exchangeable for such share capital;
and
(v) The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated
hereby, the offering for sale, sale and issuance by the Company
of the Shares to be sold by the Company pursuant to this
Agreement do not require any authorization, consent, approval or
notice by any of the UK Subsidiaries or the Company to any court
or administrative or governmental body administering the laws of
England applicable therein and do not (A) conflict with or result
in a breach of the terms of, (B) constitute a default under or
(C) result in a violation of, the Memorandum and Articles of
Association of any of the UK Subsidiaries, any material
indenture, mortgage, loan agreement, lease or other material
agreement or instrument by which any of the UK Subsidiaries is
bound or the laws of England, any regulations enacted thereunder
and any policies of any administrative or governmental body
administering same in each case binding on the UK Subsidiaries.
In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of the officers of the UK Subsidiaries and of governmental
officials, in which case their opinion shall state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates shall be attached to the opinion.
(g) You shall have received from __________, counsel for
LK Global BV, a favorable opinion dated the Closing Date and such later date on
which Option Shares are
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<PAGE> 25
purchased, addressed to the Underwriters (and stating that it may be relied upon
by Underwriters' Counsel in rendering its opinion pursuant to Section 8(j) of
this Agreement) and with reproduced copies or signed counterparts thereof for
each of the Underwriters, and satisfactory to the Representatives and the
Underwriters' Counsel substantially to the effect that:
(i) LK Global BV is (A) duly incorporated, validly
existing and in good standing under the laws of The Netherlands
and (B) able to transact business as described in the Prospectus
in The Netherlands;
(ii) LK Global BV has a share capital of __________; all
necessary and proper corporate proceedings have been taken in
order to validly authorize such capital stock; all outstanding
shares of such capital stock have been duly and validly issued,
are fully paid and nonassessable, have been issued in compliance
with Dutch law, and were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or
purchase any securities;
(iii) All of the outstanding shares of capital stock of,
or other ownership interests in, LK Global BV are owned by [the
Company] free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature, except for the
security interest existing in favor of Barclays Bank plc and
Barclays De Zoete Wedd Limited;
(iv) There are no outstanding options for the purchase
of, or any agreements providing for the issuance (contingent or
otherwise) of, or any commitments or claims of any character
relating to, any of LK Global BV's capital stock or any shares of
stock or securities that are convertible or exchangeable or
exercisable for such capital stock, except for that certain
Warrant Agreement between LK Global BV and Barclays De Zoete Wedd
Limited; and
(v) The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated
hereby will not (A) conflict with or result in breach of terms
of, (B) constitute a default under, (C) result in the creation of
any lien, mortgage or security interest upon LK Global BV's
capital stock or assets pursuant to, (D) result in a violation
of, or (E) require any authorization, consent, approval or
exemption by or notice to any court or administrative or
governmental body pursuant to, the charter, by-laws or other
organizational document of LK Global BV, any applicable law,
statute, rule or regulation to which LK Global BV is subject, or
any agreement, indenture, instrument, order, judgment or decree
by which LK Global BV is bound.
In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of the officers of LK Global BV and of governmental
officials, in which case their opinion shall state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates shall be attached to the opinion.
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<PAGE> 26
(h) You shall have received from __________, counsel for
AremisSoft (Cyprus) Limited, a favorable opinion dated the Closing Date and such
later date on which Option Shares are purchased, addressed to the Underwriters
(and stating that it may be relied upon by Underwriters' Counsel in rendering
its opinion pursuant to Section 8(j) of this Agreement) and with reproduced
copies or signed counterparts thereof for each of the Underwriters and
satisfactory to the Representatives and the Underwriters' Counsel substantially
to the effect that:
(i) AremisSoft (Cyprus) Limited is (A) a corporation
duly incorporated, validly existing and in good standing under
the laws of Cyprus and (B) able to transact business as described
in the Prospectus in Cyprus;
(ii) AremisSoft (Cyprus) Limited has __________ shares
of capital stock authorized, __________ of which are issued and
outstanding; all necessary and proper corporate proceedings have
been taken in order to authorize validly such authorized capital
stock; all outstanding shares of such capital stock have been
duly and validly issued, are fully paid and nonassessable, have
been issued in compliance with Cyprus law, were not issued in
violation of or subject to any preemptive rights or other rights
to subscribe for or purchase any securities;
(iii) All of the outstanding shares of capital stock of,
or other ownership interests in, AremisSoft (Cyprus) Limited are
owned by LK Global BV, free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature,
except for the security interest existing in favor of Barclays
Bank plc and Barclays De Zoete Wedd Limited; and
(iv) There are no outstanding options for the purchase
of, or any agreements providing for the issuance (contingent or
otherwise) of, or any commitments or claims of any character
relating to, any of AremisSoft (Cyprus) Limited capital stock or
any shares of stock or securities that are convertible or
exchangeable or exercisable for such capital stock; and
(v) The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated
hereby will not (A) conflict with or result in a breach of terms
of, (B) constitute a default under, (C) result in the creation of
any lien, mortgage or security interest upon AremisSoft (Cyprus)
Limited's capital stock or assets pursuant to, (D) result in a
violation of, or (E) require any authorization, consent, approval
or exemption by or notice to any court or administrative or
governmental body pursuant to, the charter, by-laws or other
organizational document of AremisSoft (Cyprus) Limited, any
applicable law, statute, rule or regulation to which AremisSoft
(Cyprus) Limited is subject, or any agreement, indenture,
instrument, order, judgment or decree by which AremisSoft
(Cyprus) Limited is bound.
In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of the officers of AremisSoft (Cyprus) Limited and of
governmental officials, in which case their opinion shall state that they are so
doing and that the Underwriters are justified
26
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in relying on such opinions or certificates and copies of said opinions or
certificates shall be attached to the opinion.
(i) [intentionally deleted]
(j) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, an opinion
of Loeb & Loeb LLP in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(k) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Pannell Kerr Forster, addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are purchased,
as the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than three (3) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations or business of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth its opinion respect
to its examination of the balance sheets of the Company as of December 31, 1998
and 1997 and related statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1998, 1997 and 1996 and (iii) address
other matters agreed upon by Pannell Kerr Forster and you. In addition, you
shall have received from Pannell Kerr Forster (i) a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
its review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of its examination of the
Company's financial statements as of December 31, 1998, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses
and (ii) a letter addressed to you addressing other matters agreed upon by
Pannell Kerr Forster and you which letter shall be satisfactory to you in form
and substance.
27
<PAGE> 28
(l) You shall have received on the Closing Date and on the
date on which Option Shares are purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct in all
material respects, as if made on and as of the Closing
Date or the date on which Option Shares are to be
purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied, at or
prior to the Closing Date or the date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or, to
their knowledge, are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement
and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations
or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may
be, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations or
the Exchange Act and the applicable rules and regulations
of the Commission thereunder, as the case may be, the
Registration Statement, and any amendment or supplement
thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, the Prospectus, and any
amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading, and, since the effective
date of the Registration Statement, there has occurred no
event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth;
and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement
and Prospectus, there has not been (a) any material
adverse change in the financial condition results of
operations or business of the Company, (b) any transaction
that is material to the Company, (c) any obligation,
direct or contingent incurred by the Company, that is
material to the Company, (d) any material change in the
capital stock or material and adverse change in the
outstanding
28
<PAGE> 29
indebtedness of the Company, (e) any dividend or
distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company
which has a material adverse effect on the financial
condition results of operations or business of the
Company.
(m) The Company shall have obtained and delivered to you
an agreement from each officer, director and director-nominee of the Company,
and each beneficial or record owner of Common Stock 5% or greater of the
Company's issued and outstanding shares, in writing prior to the date hereof
that such person will not, during the Lock-up Period, effect the Disposition of
any Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Cruttenden Roth
Incorporated. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person shall have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(n) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company, as to the performance by the
Company of its obligations hereunder and as to the other conditions concurrent
and precedent to the obligations of the Underwriters hereunder.
(o) The Representatives' Warrant Agreement shall have been
entered into by the Company and you, and the Representatives' Warrants shall
have been issued and sold to you pursuant thereto.
(p) The Company shall have repaid all indebtedness
outstanding, including principal, interest and any related premiums, fees or
charges, under the Company's bank credit facilities, which may be repaid using
the net proceeds received from the sale of the Shares. The Underwriters shall
have received an acknowledgment from each of Barclays Bank plc and Barclays De
Zoete Wedd Limited to the effect that all outstanding indebtedness of the
Company to them, including principal, interest and any related premiums, fees or
charges, has been repaid in full and all security interests of the Company or
its subsidiaries in favor of such banks have been released.
29
<PAGE> 30
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, or any failure of the Company to perform its
obligations hereunder, or (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and agrees to reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company as described in
Section 4 hereof, and, provided further, that the indemnity agreement provided
in this Section 9(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 6(d) hereof.
The indemnity agreement in this Section 9(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
30
<PAGE> 31
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company as described in Section 4 hereof, and agrees to reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 9(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company (or nominee for director set forth in the Registration Statement
or Prospectus or any amendment or supplement thereto) and each person, if any,
who controls the Company within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 9 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 9, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 9. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party which pose a conflict of interest for such counsel, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with appropriate local counsel)
approved by the indemnifying party representing all the indemnified parties
under Section 9(a) or 9(b) hereof who are parties to such action), (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the
31
<PAGE> 32
action or (iii) the indemnifying party has authorized in writing the employment
of counsel for the indemnified party at the expense of the indemnifying party.
In no event shall any indemnifying party be liable in respect of any amounts
paid in settlement of any action unless the indemnifying party shall have
approved the terms of such settlement; provided that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such indemnification.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 9 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the initial public offering price, and the Company is responsible for the
remaining portion, provided, however, that (i) no Underwriter shall be required
to contribute any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter, and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 9(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls the Underwriters or the Company
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the Company
(or nominee for director set forth in the Registration Statement or Prospectus
or any amendment or supplement thereto).
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 9, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 9
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 9.
10. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Sections 7
and 9 and hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or
32
<PAGE> 33
any controlling person within the meaning of the Act or the Exchange Act, or by
or on behalf of the Company or any of its officers, directors or controlling
persons within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
11. Substitution of Underwriters. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
forty-eight (48) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective number
of Firm Shares to be purchased by the remaining Underwriters and substituted
underwriter or underwriters shall be taken as the basis of their underwriting
obligation. If the remaining Underwriters shall not take up and pay for all such
Firm Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 11, the Company shall not be liable to any
Underwriter (except as provided in Sections 7 and 9 hereof) nor shall any
Underwriter (other than an Underwriter who
33
<PAGE> 34
shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the number of Firm Shares agreed by such Underwriter to
be purchased hereunder, which Underwriter shall remain liable to the Company and
the other Underwriters for damages, if any, resulting from such default) be
liable to the Company (except to the extent provided in Sections 7 and 9
hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.
12. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., California time, on the second full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 13 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 7 and 9 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are purchased, as the case may be, (i) if the
Company shall have failed, refused or been unable to perform any agreement on
its part to be performed unless such failure or refusal is on account of the
default or omission of any Underwriter, or (ii) because any other condition to
the Underwriters' obligations hereunder is not satisfied (unless the reason for
failure to satisfy the condition is on account of the default or omission of any
Underwriter, or (iii) if additional material and adverse governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iv) if the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as to interfere
substantially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (v) if there
shall have been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (vi) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. Any termination
pursuant to any of subparagraphs (ii) through
34
<PAGE> 35
(vi) above shall be without liability of any party to any other party except as
provided in Sections 7 and 9 hereof. In the event of termination pursuant to
subparagraph (i) above, the Company shall also remain obligated to pay costs and
expenses pursuant to Section 7 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone or facsimile, in each case confirmed by letter.
If the Company shall elect to prevent this Agreement from becoming effective,
the Company shall promptly notify you by telephone or facsimile, in each case,
confirmed by letter.
13. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to any
of the several Underwriters shall be mailed, delivered or facsimiled (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, facsimile number (714) 852-9603, Attention:
Shelly Singhal; if sent to the Company, such notice shall be mailed, delivered
or facsimiled (and confirmed by letter) to AremisSoft Corporation, 60
Bishopsgate, London EC2N 4AJ, England, facsimile number 011-44-171-309-1501,
Attention: Dr. Lycourgos K. Kyprianou with a copy to Scott E. Bartel, Esq.,
Bartel Eng Linn & Shroder, 300 Capitol Mall, Suite 300, Sacramento, CA 95814,
and Michelle Rowe Hallsten, Pillsbury Madison & Sutro LLP, 400 Capital Mall,
Suite 1700, Sacramento, CA 95814.
14. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 9 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase. The Agreement constitutes
the entire agreement and understanding of the parties with respect to the
subject matter hereof.
In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you on behalf of each of the several Underwriters.
15. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
16. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
35
<PAGE> 36
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
AREMISSOFT CORPORATION
By:
----------------------------------------
Name:
Title:
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
FIRST ALBANY CORPORATION
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
----------------------------------------
Name:
Title:
By: FIRST ALBANY CORPORATION
By:
----------------------------------------
Name:
Title:
36
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Underwriters Number of Firm Shares To
Be Purchased
<S> <C>
Cruttenden Roth Incorporated.........................
First Albany Corporation.............................
Total............................................
==========
</TABLE>
37
<PAGE> 1
EXHIBIT 1.2
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement") dated as of ________,
1999 is by and between AremisSoft Corporation, a Delaware corporation (the
"Company") and Cruttenden Roth Incorporated ("Cruttenden") and First Albany
Corporation ("First Albany").
WHEREAS, Cruttenden and First Albany have agreed pursuant to an
Underwriting Agreement dated ________, 1999 (the "Underwriting Agreement") to
act as the representatives (the "Representatives") of the several underwriters
in connection with the proposed public offering (the "Public Offering") by the
Company of 3,500,000 shares of Common Stock, including up to 525,000 additional
shares of Common Stock to cover over-allotments, if any; and
WHEREAS, pursuant to Section 1 of the Underwriting Agreement, the
Company has agreed to issue warrants (the "Warrants") to the Representatives to
purchase, at a price of $0.001 per warrant, up to an aggregate of
[175,000/201,250] shares (hereinafter, and as the number thereof may be adjusted
hereto, the "Warrant Shares") of the Company's Common Stock, $0.001 par value
per share (the "Common Stock"), each Warrant initially entitling the holder
thereof to purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Underwriting Agreement set forth and for other good
and valuable consideration, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. The Company will issue
and deliver to the Representatives, Warrants to purchase [175,000/201,250]
Warrant Shares on the Closing Date referred to in the Underwriting Agreement, in
consideration for, and as part of the Representatives' compensation in
connection with, their acting as representatives of the several underwriters for
the Public Offering pursuant to the Underwriting Agreement. The text of the
Warrants and of the form of election to purchase Warrants Shares shall be
substantially as set forth in Exhibit A attached hereto. The Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
Chairperson or Vice Chairperson of the Board, President or Vice President of the
Company, under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any one of them shall have
ceased to hold such offices prior to or after the delivery of such Warrants or
did not hold such offices on the date of this Agreement. Warrants shall be dated
as of the date of execution thereof by the Company either upon initial issuance
or upon division, exchange, substitution or transfer.
2. Registration. The Warrants shall be numbered and registered on
the books of the Company (the "Warrant Register") as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register (the "Holder") as the owner in fact therefor for all purposes
and shall not be bound to recognize any equitable or other claim to
<PAGE> 2
or interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or are
to be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith. The
Warrants shall be registered initially in the name of "Cruttenden Roth
Incorporated" and "First Albany Corporation," respectively, or in such other
names or denominations as Cruttenden or First Albany, respectively, may request
in writing to the Company.
3. Exchange of Warrant Certificates. Subject to any restriction
upon transfer set forth in this Agreement, each Warrant certificate may be
exchanged for another certificate or certificates entitling the Holder thereof
to purchase a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitled such Holder to purchase. Any Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested.
4. Transfer of Warrants. Until __________, 2000, the Warrants
will not be sold, transferred, assigned or hypothecated except to (i) other
brokers or dealers; (ii) one or more bona fide officers and/or partners of
Cruttenden or First Albany, as the case may be; (iii) a successor to the
transferring Holder in merger or consolidation; (iv) a purchaser of all or
substantially all of the transferring Holder's assets; or (v) any person
receiving the Warrants from one or more of the persons listed in this Section 4
at such person's or persons' death pursuant to will, trust or the laws of
intestate succession, each of whom agrees in writing to be bound by the terms
hereof. The Warrants shall be transferable only on the Warrant Register upon
delivery thereof duly endorsed by the Holder or by the Holder's duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
the original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto.
5. Term of Warrants; Exercise of Warrants.
5.1 Each Warrant entitles the registered owner thereof to
purchase one share of Common Stock at any time from 10:00 a.m., Pacific time, on
__________, 2000 (the "Initiation Date") until 6:00 p.m., Pacific time, on
__________, 2004 (the "Expiration Date") at a purchase price of $[120%] subject
to adjustment (the "Warrant Price"). Notwithstanding the foregoing, if at 6:00
p.m., Pacific time on the Expiration Date, any Holder or Holders of the Warrants
have not exercised their Warrants and the Closing Price (as defined in Section
11.1(c) below) for the Common Stock on the Expiration Date is greater than the
Warrant Price, then each such unexercised Warrant shall be automatically
converted into a number of shares of Common Stock of the Company equal to: (A)
the number of shares of Common Stock then issuable upon exercise of a Warrant
multiplied by (B) a fraction (1) the numerator of which is the
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<PAGE> 3
difference between the Closing Price for the Common Stock on the Expiration Date
and the Warrant Price and (2) the denominator of which is the Closing Price for
the Common Stock on the Expiration Date.
5.2 The Warrant Price and the number of Warrant Shares issuable
upon exercise of each Warrant are subject to adjustment upon the occurrence of
certain events pursuant to the provisions of Section 11 of this Agreement.
Subject to the provisions of this Agreement, each Holder of Warrants shall have
the right, which may be exercised as expressed in the Warrant Certificate, to
purchase from the Company (and the Company shall issue and sell to such Holder
of Warrants) the number of fully paid and nonassessable Warrant Shares specified
in such Warrant Certificate, upon surrender to the Company, or its duly
authorized agent, of such Warrant Certificate, with the form of election to
purchase on the reverse thereof duly filled in and signed, and upon payment to
the Company of the Warrant Price, as adjusted in accordance with the provisions
of Section 11 of this Agreement, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of such Warrant Price shall be
made in cash, by wire transfer or by certified or official bank check, or any
combination thereof. No adjustment shall be made for any dividends on any
Warrant Shares issuable upon exercise of a Warrant.
5.3 Upon such surrender of Warrants, and payment of the Warrant
Price as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants, together with cash, as provided in Section 12 of this
Agreement, in respect of any fraction of a share otherwise issuable upon such
surrender and, if the number of Warrants represented by a Warrant certificate
shall not be exercised in full, a new Warrant certificate, executed by the
Company for the balance of the number of whole Warrant Shares.
5.4 In addition to the method of payment set forth above in this
Section 5 and in lieu of any cash payment required thereunder, the Holder(s) of
the Warrants shall have the right at any time and from time to time to exercise
the Warrants in full or in part by surrendering the Warrant certificate in the
manner specified in Section 5.2 in exchange for the number of Warrant Shares
equal to the product of (x) the number of Warrant Shares as to which the
Warrants are being exercised multiplied by (y) a fraction, the numerator of
which is the Closing Price less the Warrant Price and the denominator of which
is such Closing Price. Solely for the purposes of this Section 5.4, the Closing
Price shall be calculated either (i) on the date which the form of election to
purchase attached to the Warrant Certificate is deemed to have been sent to the
Company pursuant to Section 16 hereof (the "Notice Date") or (ii) as the average
of the Closing Prices for each of the five trading days preceding the Notice
Date, whichever of (i) or (ii) is greater.
5.5 If permitted by applicable law, such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid. The rights of purchase represented by the
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<PAGE> 4
Warrants shall be exercisable, at the election of the registered Holders
thereof, either as an entirety or from time to time for only part of the shares
specified therein.
6. Compliance with Government Regulations. The Company covenants
that if any shares of Common Stock required to be reserved for purposes of
exercise or conversion of Warrants require, under any Federal or state law or
applicable governing rule or regulation of any national securities exchange or
over-the-counter market, registration with or approval of any governmental
authority, listing on any such national securities exchange or approval of any
over-the-counter market before such shares may be issued upon exercise, the
Company will in good faith and as expeditiously as possible endeavor to cause
such shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be.
7. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Warrant Shares upon the exercise of Warrants;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any Warrants or certificate for Warrant Shares in a name other than
that of the registered Holder of such Warrants.
8. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant and, if requested,
indemnity or bond also reasonably satisfactory to the Company. An applicant for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
9. Reservation of Warrant Shares. There has been reserved out of
the authorized and unissued shares of Common Stock a number of shares sufficient
to provide for the exercise of the Warrants, and the transfer agent for the
Common Stock ("Transfer Agent") and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of the Warrants
are hereby irrevocably authorized and directed at all times until the Expiration
Date to reserve such number of authorized and unissued shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Transfer Agent and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of the
Warrants. The Company will supply such Transfer Agent with duly executed stock
certificates for such purposes and will itself provide or otherwise make
available any cash which may be issuable as provided in Section 12 of this
Agreement. The Company will furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto, transmitted to each Holder
pursuant to Section 11.3 of this Agreement. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled.
10. Obtaining Stock Exchange Listings. The Company will from time
to time take all action which may be necessary so that the Warrant Shares,
immediately upon their
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<PAGE> 5
issuance upon the exercise of Warrants, will be listed on the securities
exchanges and stock markets or approved for quotation in the over-the-counter
markets within the United States of America, if any, on which other shares of
Common Stock are then listed.
11. Adjustment of Warrant Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this Section
11, "Common Stock" means shares now or hereafter authorized of any class of
common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 Mechanical Adjustments. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock, (iii) combine its outstanding shares of Common Stock or (iv) issue
by reclassification of its shares of Common Stock other securities of the
Company (including any such reclassification in connection with a consolidation
or merger in which the Company is the surviving corporation), the number of
Warrant Shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder of each Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which it would have owned or would have been entitled to receive after
the happening of any of the events described above, had such Warrants been
exercised immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this paragraph (a) shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) (i) In case the Company shall distribute to all holders of
its shares of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness or assets (excluding cash dividends
or distributions payable out of consolidated earnings or earned surplus and
dividends or distributions referred to in paragraph (a) above or in subparagraph
(ii) below) or rights, options or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, then in each case the number of Warrant Shares thereafter purchasable
upon the exercise of each Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of each Warrant by a
fraction, the numerator of which shall be the then current market price per
share of Common Stock (as defined in paragraph (c) below) on the date of such
distribution, and the denominator of which shall be the then current market
price per share of Common Stock, less the then fair value (as reasonably
determined by the Board of Directors of the Company) of the portion of the
assets or evidences of indebtedness so distributed or of such rights, options or
warrants, or of such convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become
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<PAGE> 6
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such distribution.
(ii) In the event of a distribution by the Company to all holders
of its shares of Common Stock shares of capital stock of a subsidiary or
securities convertible into or exercisable for such stock, then in lieu of an
adjustment in the number of Warrant Shares purchasable upon the exercise of each
Warrant, the Holder of each Warrant, upon the exercise thereof at any time after
such distribution, shall be entitled to receive from the Company, such
subsidiary or both, as the Company shall determine, the stock or other
securities to which such Holder would have been entitled if such Holder had
exercised such Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 11.1; provided, however, that no
adjustment in respect of dividends or interest on such stock or other securities
shall be made during the term of a Warrant or upon the exercise of a Warrant.
(c) For the purpose of any computation under paragraph (b) of
this Section, the current market price per share of Common Stock at any date
shall be the average of the daily Closing Prices (as hereinafter defined) for 20
consecutive trading days commencing 30 trading days before the date of such
computation. The "Closing Price" for each day shall be the last reported sales
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case on the principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the Common Stock in
the over-the counter market as reported by the Nasdaq National Market System or
Nasdaq SmallCap System or if not approved for quotation on the Nasdaq National
Market System or Nasdaq SmallCap System, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose.
(d) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Warrant Shares purchasable upon the exercise of
each Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares purchasable immediately thereafter.
(e) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under paragraph (b) if the
Company issues or distributes to each Holder of Warrants the rights, options,
warrants or convertible or exchangeable securities, or evidences of indebtedness
or assets referred to in those paragraphs which each Holder of Warrants would
have been entitled to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect thereto. No adjustment
need be made for a change in the par value of the Warrant Shares.
(f) In the event that at any time, as a result of an adjustment
made pursuant to paragraph (a) above, the Holders shall become entitled to
purchase any securities of the Company other than shares of Common Stock,
thereafter the number of such other shares so
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<PAGE> 7
purchasable upon exercise of each Warrant and the Warrant Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in this Section 11, and the other provisions of this Agreement,
with respect to the Warrant and Warrant Shares, shall apply as nearly equivalent
as practicable on like terms to such other securities.
(g) Upon the expiration of any rights, options, warrants or
convertible or exchangeable securities for which an adjustment was made
hereunder, if any thereof shall not have been exercised, the Warrant Price and
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only rights,
options, warrants or convertible or exchangeable securities so issued were the
rights, options, warrants or convertible or exchangeable securities, if any,
actually exercised, converted or exchanged and (ii) such rights, options,
warrants or convertible or exchangeable securities, if any, were exercised,
converted or exchanged for the consideration actually received by the Company
upon such exercise, conversion or exchange plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or convertible or exchangeable securities whether
or not exercised, converted or exchanged; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price or decreasing
the number of shares of Common Stock purchasable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
convertible or exchangeable securities.
11.2 Other Adjustments of Exercise Price and Number of Warrant
Shares.
(a) In case the Company shall at any time after the date hereof
issue or sell any shares of Common Stock, including shares held in the Company's
treasury and shares of Common Stock issued upon the exercise of any options,
rights or warrants to subscribe for shares of Common Stock and shares of Common
Stock issued upon the direct or indirect conversion or exchange of securities
for shares of Common Stock, for a consideration per share less than the current
market price in effect immediately prior to the issuance or sale of such shares,
or without consideration, then forthwith upon such issuance or sale, the Warrant
Price shall (until another such issuance or sale) be reduced to the price
(calculated to the nearest full cent) equal to the quotient derived by dividing:
(i) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding immediately prior to the issuance or sale of
such shares, multiplied by the Warrant Price in effect immediately prior to such
issuance or sale, and (y) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by
(ii) the total number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however, that in
no event shall the Warrant Price be adjusted pursuant to this computation to an
amount in excess of the Warrant Price in effect immediately prior to such
computation.
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<PAGE> 8
(b) In case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share less than the current market price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, or without consideration, the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 11.2(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the time of
issuance, plus the consideration, if any, received by the Company for such
options, rights or warrants.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration received
by the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof.
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(b)(i) of this Section 11.2, or in the price per share at which the securities
referred to in subsection (b)(ii) of this Section 11.2 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or exchangeable
securities.
(c) Adjustment in Number of Warrant Shares. Upon each adjustment
of the Warrant Price pursuant to the provisions of this Section 11.2, the number
of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted
to the nearest full Warrant Share by multiplying a number equal to the Warrant
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Price.
11.3 No Adjustment; Notice of Adjustment.
(a) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant;
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<PAGE> 9
provided, however, that any adjustments which by reason of this paragraph (a)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest
one-thousandth of a share.
(b) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Warrant Price of such Warrant Shares is
adjusted, as herein provided, the Company shall promptly mail by first class,
postage prepaid, to each Holder notice of such adjustment or adjustments and a
certificate of a firm of independent public accountants selected by the Board of
Directors of the Company (who may be the regular accountants employed by the
Company) setting forth the number of Warrant Shares purchasable upon the
exercise of each Warrant and the Warrant Price of such Warrant Shares after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
11.4 No Adjustment for Dividends. Except as provided in Section
11.1, no adjustments in respect of any dividends shall be made during the term
of a Warrant or upon the exercise of a Warrant.
11.5 Preservation of Purchase Rights Upon Merger, Consolidation
etc. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, shall execute
with each Holder an agreement that each Holder shall have the right thereafter
upon payment of the Warrant Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and property which it would have owned or would have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer or lease had such Warrant been exercised immediately prior to such
action; provided, however, that no adjustment in respect of dividends, interest
or other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11. The provisions of this Section 11.5 shall similarly apply to successive
consolidations, mergers, sales transfer or leases.
11.6 Statements on Warrants. Irrespective of any adjustments in
the Warrant Price or the number or kind of shares purchasable upon the exercise
of the Warrants, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
12. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the sale time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereon shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12
be issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the Closing Price for one share of
the Common Stock, as defined in Section 11.1(c), on the
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<PAGE> 10
trading day immediately preceding the date the Warrant is presented for
exercise, multiplied by such fraction.
13. Registration Under the Securities Act of 1933. Cruttenden and
First Albany each represent and warrant to the Company that it will not dispose
of the Warrants or the Warrant Shares except pursuant to (i) an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
including a post-effective amendment to the Registration Statement, (ii) Rule
144 under the Act (or any similar rule under the Act relating to the disposition
of securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel of the Company, that an exemption from such registration is available.
14. Certificates to Bear Legends. Until such time as the Warrant,
the Warrant Shares or other securities issued upon exercise of the Warrants have
been registered under the Act, such securities shall be subject to a
stop-transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
15. Registration Rights.
15.1 Demand Registration Rights. The Company covenants and agrees
with the Representatives and any subsequent Holders of the Warrants and/or
Warrant Shares that, at any time and from time to time prior to the Expiration
Date, within 60 days after receipt of a written request from the Representatives
or from Holders of more than 25% in interest of the aggregate of Warrants and/or
Warrant Shares issued pursuant to this Agreement that the Representatives or
such Holders of the Warrants and/or Warrant Shares desire and intend to transfer
more than 25% in interest of the aggregate number of the Warrants and/or Warrant
Shares under such circumstances that a public offering, within the meaning of
the Act, will be involved, the Company shall file a registration statement (and
use its best efforts to cause such registration statement to become effective
under the Act) with respect to the offering and sale or other disposition of the
Warrant Shares (the "Offered Warrant Shares").
The Company may defer the preparation and filing of a
registration statement for up to 90 days after the request for registration is
made if the Board of Directors determines in good faith that such registration
or post-effective amendment would materially adversely affect or otherwise
materially interfere with a proposed or pending transaction by the Company,
including without limitation a material financing or a corporate reorganization,
or during any period of time in which the Company is in possession of material
inside information concerning the Company or its securities, which information
the Company determines in good faith is not ripe for disclosure.
The Company shall not honor any request to register Warrant
Shares pursuant to this Section 15.1 received later than five (5) years from the
effective date of the Company's
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Registration Statement on Form S-1 (File No. 333-58351) (the "Effective Date").
The Company shall not be required to maintain the effectiveness of the
registration statement beyond the earlier to occur of 120 days after the
effective date of the registration statement or the date on which all of the
Offered Warrant Shares have been sold (the "Termination Date"); provided,
however, that if at the Termination Date the Offered Warrant Shares are covered
by a registration statement which also covers other securities and which is
required to remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to Offered Warrant
Shares for so long as such registration statement (or any substitute
registration statement) remains or is required to remain in effect for any such
other securities. All expenses of one registration which is consummated pursuant
to this Section 15.1 shall be borne by the Company (excluding underwriting
discounts and commissions on Warrant Shares). All expenses of any subsequent
registration pursuant to this Section 15.1 shall be borne by the Representatives
and/or the Holders requesting such registration.
The Company shall be obligated pursuant to this Section 15.1 to
include in the registration statement Warrant Shares that have not yet been
purchased by a Holder of Warrants. In addition, such Holder of Warrants is
permitted to pay the Company the Warrant Price for such Warrant Shares upon the
consummation of the public offering with respect to such Warrant Shares.
15.2 Piggy-back Registration Rights. The Company covenants and
agrees with the Holders and any subsequent Holders of the Warrants and/or
Warrant Shares that in the event the Company proposes to file a registration
statement under the Act with respect to any class of security (other than in
connection with an exchange offer, a non-cash offer or a registration statement
on Form S-8 or other unsuitable registration statement form) which becomes or
which the Company believes will become effective at any time after the
Initiation Date, then the Company shall in each case give written notice of such
proposed filing to the Holders of Warrants and Warrant Shares at least 30 days
before the proposed filing date and such notice shall offer to such Holders the
opportunity to include in such registration statement such number of Warrant
Shares as they may request. The Company shall not be required to honor any such
request to register any such Warrant Shares if the request is received later
than six (6) years from the Effective Date, and the Company shall not be
required to honor any request to register any such Warrant Shares if the Company
is not notified in writing of any such request pursuant to this Section 15.2
within at least 20 days after the Company has given notice to the Holders of the
filing. The Company shall permit, or shall cause the managing underwriter of a
proposed offering to permit, the Holders of Warrant Shares requested to be
included in the registration (the "Piggy-back Shares") to include such
Piggy-back Shares in the proposed offering on the same terms and conditions as
applicable to securities of the Company included therein or as applicable to
securities of any person other than the Company and the Holders of Piggy-back
Shares if the securities of any such person are included therein.
Notwithstanding the foregoing, if any such managing underwriter shall advise the
Company in writing that it believes that the distribution of all or a portion of
the Piggy-back Shares requested to be included in the registration statement
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then the Holders of such Piggy-back Shares shall delay
their offering and sale of Piggy-back Shares (or the portion thereof so
designated by such managing underwriter) for such period, not to exceed 120
days, as the managing underwriter shall request provided that no such delay
shall be required as to Piggy-
11
<PAGE> 12
back Shares if any securities of the Company are included in such registration
statement for the account of any person other than the Company and the Holders
of Piggy-back Shares. In the event of such delay, the Company shall file such
supplements, post-effective amendments or separate registration statement, and
take any such other steps as may be necessary to permit such Holders to make
their proposed offering and sale for a period of 120 days immediately following
the end of such period of delay ("Piggy-back Termination Date"); provided,
however, that if at the Piggy-back Termination Date the Piggy-back Shares are
covered by a registration statement which is, or required to remain, in effect
beyond the Piggy-back Termination Date, the Company shall maintain in effect the
registration statement as it relates to the Piggy-back Shares for so long as
such registration statement remains or is required to remain in effect for any
of such other securities. All expenses of registration pursuant to this Section
15.2 shall be borne by the Company, except that underwriting commissions and
expenses attributable to the Piggy-back Shares and fees and disbursements of
counsel (if any) to the Holders requesting that such Piggy-back Shares be
offered will be borne by such Holders.
The Company shall be obligated pursuant to this Section 15.2 to
include in the Piggy-back offering, Warrant Shares that have not yet been
purchased by a holder of Warrants. In addition, such Holder of Warrants is
permitted to pay the Company the Warrant Price for such Warrant Shares upon the
consummation of the Piggy-back offering.
If the Company decides not to proceed with a Piggy-back offering,
the Company has no obligation to proceed with the offering of the Piggy-back
Shares, unless the Holders of the Warrants and/or Warrant Shares otherwise
comply with the provisions of Section 15.1 hereof (without regard to the 60
days' written request required thereby). Notwithstanding any of the foregoing
contained in this Section 15.2, the Company's obligation to offer registration
rights to the Piggy-back Shares pursuant to this Section 15.2 shall terminate
two (2) years after the Expiration Date.
15.3 State Securities Laws. In connection with the registration
of Warrant Shares in accordance with Section 15.1 and 15.2 above, the Company
agrees to use its best efforts to register or qualify the Warrant Shares for
offer or sale under the state securities or Blue Sky laws of such states which
the Holders of such Warrant Shares shall designate, until the dates specified in
Section 15.1 and 15.2 above in connection with registration under the Act;
provided, however, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject or to register or get a license as a broker or
dealer in securities in any jurisdiction where it is not so registered or
licensed or to register or qualify the Warrant Shares for offer or sale under
the state securities or Blue Sky laws of any state other than the states in
which some or all of the shares offered or sold in the Public Offering were
registered or qualified for offer and sale.
15.4 Indemnification.
(a) In the event of any registration with respect to any Warrant
Shares pursuant to Section 15.1 or 15.2 above, the Company will indemnify and
hold harmless any Holder whose Warrant Shares are so registered, and each
person, if any, who controls such Holder within the meaning of the Act, against
any losses, claims, damages or liabilities, joint or
12
<PAGE> 13
several, to which such Holder or such controlling person may be subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, in any such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each such Holder and each such controlling person for any
legal or other expenses reasonably incurred by such Holder or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in the preparation thereof. The Company will
not be liable to a claimant to the extent of any misstatement or omission
corrected or remedied in any amended prospectus if the Company timely delivers a
copy of such amended prospectus to such indemnified person and such indemnified
person does not timely furnish such amended prospectus to such claimant. The
Company shall not be required to indemnify any Holder or controlling person for
any payment made to any claimant in settlement of any suit or claim unless such
payment is approved by the Company.
(b) Each Holder of Warrants and/or Warrant Shares who
participates in a registration pursuant to Section 15.1 or 15.2 will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed any such registration statement, and each person, if any, who
controls the Company within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Company, or any such director, officer or
controlling person may become subject under the Act, or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement or any
material fact contained in any such registration statement, any preliminary
prospectus or final prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any such registration statement, any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in the preparation thereof; and will reimburse any legal or other
expenses reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this paragraph (b) shall not apply to amounts paid to any
claimant in settlement of any suit or claim unless such payment is first
approved by such Holder.
(c) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
15.4 but is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification
13
<PAGE> 14
may not be enforced in such case notwithstanding the fact that paragraphs (a)
and (b) of Section 15.4 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that each Holder whose Warrant Shares are being registered is
responsible pro rata for the portion represented by the public offering price
received by such Holder from the sale of such Holder's Warrant Shares (less
underwriting discounts and commissions), and the Company is responsible for the
remaining portion; provided, however, that (i) no Holder shall be required to
contribute any amount in excess of the public offering price received by such
Holder from the sale of such Holder's Warrant Shares (less underwriting
discounts and commissions) and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. This paragraph (c) shall not be operative as to any Holder of
Warrant Shares to the extent that indemnity has been received under paragraph
(a) or (b), as the case may be, of Section 15.4.
15.5 No Rights as Stockholder; Notices to Holders. Nothing
contained in this Agreement or in any of the Warrants shall be construed as
conferring upon the Holders or their transferee(s) the right to vote or to
receive dividends or to consent to or receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter or any rights whatsoever as stockholders of the Company. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock: or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right
to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed;
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 16 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
14
<PAGE> 15
16. Notices. Any notice pursuant to this Agreement to be given or
made by the registered Holder of any Warrant to the Company shall be
sufficiently given or made if sent by first-class mail or facsimile to:
AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ
England
Attn: Dr. Lycourgos K. Kyprianou
Fax: 011-44-171-309-1599
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail to such Holder at the address of such Holder as shown on the Warrant
Register.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflicts of laws.
18. Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Representatives may deem necessary
or desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Holders. This
Agreement may also be supplemented or amended from time to time by a writing
executed by or on behalf of the Company and the Holders of a majority of the
Warrants or Warrant Shares then outstanding.
19. Successor. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by the
Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
20. Merger or Consolidation of the Company. So long as Warrants
remain outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation (if not the Company),
as the case may be, shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
21. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company any
the Holders of the Warrants and Warrant Shares.
15
<PAGE> 16
22. Captions. The captions of the sections and subsections of
this Agreement are for convenience only and shall have no substantive effect.
23. Counterparts. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day, month and year first above written.
CRUTTENDEN ROTH INCORPORATED
Attest:
By:
- ------------------------------- ------------------------------------
Name:
Title:
FIRST ALBANY CORPORATION
Attest:
By:
- ------------------------------- ------------------------------------
Name:
Title:
AREMISSOFT CORPORATION
Attest:
By:
- ------------------------------- ------------------------------------
Name:
Title:
16
<PAGE> 17
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
WARRANT CERTIFICATE
OF
AREMISSOFT CORPORATION
EXERCISABLE ON OR BEFORE _________, 2004
No. 1 [#] Warrants
This Warrant Certificate certifies that the registered holder hereof or
its registered assigns, is the registered holder of Warrants expiring
__________, 2004 (the "Warrants") to purchase Common Stock, $0.001 par value per
share (the "Common Stock"), of AremisSoft Corporation, a Delaware corporation
(the "Company"). Each Warrant entitles the holder upon exercise to receive from
the Company from 10:00 a.m., Pacific time, on __________, 2000 through and until
6:00 p.m., Pacific time, on __________, 2004, one fully paid and nonassessable
share of Common Stock (a "Warrant Share") at the initial exercise price (the
"Warrant Price") of $[120%] payable in lawful money of the United States of
America upon surrender of this Warrant Certificate and payment of the Warrant
Price on the terms and conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. The Warrant Price and number of Warrant
Shares issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Pacific Time, on
__________, 2004 (the "Expiration Date"). Notwithstanding the foregoing, if at
6:00 p.m., Pacific time on the Expiration Date, any Holder or Holders of the
Warrants have not exercised their Warrants and the Closing Price (as defined in
the Warrant Agreement) for the Common Stock on the Expiration Date is greater
than the Warrant Price, then each such unexercised Warrant shall be
automatically converted into a number of shares of Common Stock of the Company
equal to: (A) the number of shares of Common Stock then issuable upon exercise
of a Warrant multiplied by (B) a fraction (1) the numerator of which is the
difference between the Closing Price for the Common Stock on the Expiration Date
and the Warrant Price and (2) the denominator of which is the Closing Price for
the Warrant Stock on the Expiration Date.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth herein.
17
<PAGE> 18
This Warrant Certificate shall not be valid unless countersigned by the
Company.
IN WITNESS WHEREOF, AremisSoft Corporation has caused this Warrant
Certificate to be signed by its Chairman and Chief Executive Officer and by its
President and Chief Financial Officer and has caused its corporate seal to be
affixed hereunto or imprinted hereon.
Dated: __________, 1999 AREMISSOFT CORPORATION
Attest:
- ----------------------- ------------------------------------
Secretary, Dr. Lycourgos K. Kyprianou
Treasurer, Chairman and Chief Executive Officer
Assistant Secretary
or Assistant Treasurer
-------------------------------------
Roys Poyiadjis
President and Chief Financial Officer
18
<PAGE> 19
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring __________, 2004 entitling the holder on
exercise to receive shares of Common Stock, $0.001 par value per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of __________, 1999 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised commencing ____________, 2000 at any time
on or before __________, 2004. The holder of Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with the
form of election to purchase set forth hereon properly completed and executed,
together with payment of the Warrant Price at the office of the Company
designated for such purpose. In the event that upon any exercise of Warrants
evidenced hereby the number of Warrants exercised shall be less than the total
number of Warrants evidenced hereby, there shall be issued to the holder hereof
or its assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. No adjustment shall be made for any dividends on any Common Stock
issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. If the number of shares of Common Stock issuable upon
such exercise is adjusted, the Warrant Agreement provides that the Warrant Price
set forth on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrants but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement. The Warrant Agreement also provides that, while the
Warrants are exercisable, the holders of the Warrants shall have an option to
exercise, without payment of any exercise price or any cash or other
consideration by such holders, the Warrants or any portion thereof into a number
of shares of Common Stock as specified in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Warrants or Common Stock purchasable upon exercise thereof.
Said registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
19
<PAGE> 20
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
20
<PAGE> 21
(Form of Election to Purchase)
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares in accordance with the
terms of the Warrant Agreement. The undersigned requests that a certificate for
such shares be registered in the name of _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _,
whose address is ______________________________________ and that such shares be
delivered to _______________________ whose address is
________________________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of ________________________, whose address
is _______________________, and that such Warrant Certificate be delivered to
_______________________, whose address is _________________________________.
Signature:
Date:
Signature Guaranteed:
21
<PAGE> 22
(Form of Assignment)
(To be Executed upon Assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-----------------------------------
-----------------------------------
-----------------------------------
the within Warrants, hereby irrevocably constituting and appointing
________________ Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
Dated: ___________________ _________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed: __________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
22
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK SEE LEGEND ON BACK COMMON STOCK
NUMBER SHARES
AremisSoft
- ---------------------------------- ------------------------
INCORPORATED UNDER THE LAWS OF THE SEE REVERSE FOR
STATE OF DELAWARE CERTAIN DEFNITIONS AND A
STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS OF SHARES
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
- -------------------- AREMISSOFT CORPORATION ---------------------
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and Bylaws of the Corporation, as now
or hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers.
DATED:
CORPORATE
SEAL
SECRETARY PRESIDENT
<PAGE> 1
EXHIBIT 5.1
Board of Directors
AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ
England
Re: Common Stock of AremisSoft Corporation
Gentlemen:
We act as counsel to AremisSoft Corporation (the "Company"), a Delaware
corporation, in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), of up to 4,370,000 shares of the
Company's Common Stock (the "Shares"), as further described in a registration
statement on Form S-1 (File No. 333-58351) filed under the Securities Act (the
"Registration Statement").
For the purpose of rendering this opinion, we examined originals or
photostatic copies of such documents as we deemed to be relevant. In conducting
our examination, we assumed, without investigation, the genuineness of all
signatures, the correctness of all certificates, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies, and the accuracy and completeness
of all records made available to us by the Company. In addition, in rendering
this opinion, we assumed that the Shares will be offered in the manner and on
the terms identified or referred to in the prospectus, including all amendments
thereto.
Our opinion is limited solely to matters set forth herein. Attorneys
practicing in this firm are admitted to practice in the State of California and
we express no opinion as to the laws of any other jurisdiction other than the
laws of the State of Delaware and the laws of the United States.
Based upon and subject to the foregoing, after giving due regard to
such issues of law as we deemed relevant, and assuming that (i) the Registration
Statement becomes and remains effective, and the prospectus which is part
thereof (the "Prospectus"), and the Prospectus delivery procedures with respect
thereto, fulfill all of the requirements of the Securities Act, throughout all
periods relevant to the opinion, and (ii) all offers and sales of the Shares
have been and will be made in compliance with the securities laws of the states,
having jurisdiction thereof, we are of the opinion that the Shares to be issued
for adequate consideration will be, validly issued, fully paid, and
nonassessable.
We hereby consent in writing to the use of our opinion as an exhibit to
the Registration Statement and any amendment thereto.
Very truly yours,
<PAGE> 1
EXHIBIT 10.14
AREMISSOFT CORPORATION,
A NEVADA CORPORATION
----------------------------------------
UNSECURED PROMISSORY NOTE
$1,781,030 PRINCIPAL AMOUNT
DUE DECEMBER 31, 2000
----------------------------------------
$1,781,030 December 31, 1998
1. Note.
AREMISSOFT CORPORATION, a Nevada corporation (the "Borrower"), for
value received hereby promises to pay to the order of Roys Poyiadjis, an
individual (the "Lender"), the principal amount of One Million Seven Hundred
Eighty-One Thousand Thirty Dollars (US $1,781,030) on December 31, 2000 (the
"Due Date") together with interest from the date hereof at the LIBOR rate plus
2% per annum (computed on the basis of a 365-day year), at the offices of the
Borrower or at such other place as Lender may designate in writing.
2. Prepayment.
Borrower reserves the right at any time to prepay the principal sum of
this Note and any and all interest accrued on the principal to the date of
payment, and without penalty, prior to the Due Date.
3. Default.
The Borrower will be in default if either of the following occurs: (a)
the Borrower fails to make payment by the Due Date; or (b) the Borrower becomes
insolvent, a receiver is appointed for any part of the Borrower's property, the
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by the Borrower or against the Borrower under any bankruptcy or
insolvency laws.
4. Lender's Rights Upon Default.
In the event of an occurrence of default specified above, the unpaid
principal and all accrued and unpaid interest shall, at the election of the
Borrower and without notice, become immediately due and payable.
1
<PAGE> 2
5. Amendments.
No amendment, modification or waiver of any provision of this Note nor
consent to any departure by the Borrower therefrom shall be effective unless the
same shall be in writing and signed by the Lender and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
6. Notices.
Any notice herein required or permitted to be given shall be in writing
and may be personally served, sent by registered or certified mail (return
receipt requested), or sent by facsimile with a copy sent by recognized national
delivery service, and shall be deemed effectively given upon personal delivery
or on the earlier of actual receipt or five (5) days after deposit with the
delivery service.
7. Successors and Assigns.
This Note shall be binding upon the Borrower and its successors and
assigns and the terms hereof shall inure to the benefit of the Lender and his
successors and assigns, including any subsequent holders hereof.
8. Severability.
The provisions of this Note are severable, and if any provision shall
be held invalid or unenforceable in whole or in part in any jurisdiction, then
such invalidity or unenforceability shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Note in any
jurisdiction.
9. No Waiver; Extension of Time for Payment.
The Lender may delay or forego enforcing any of its rights or remedies
under this Note without losing them. No extension of time for payment of the
amount owing on this Note will affect the liability of the Borrower.
10. Governing Law.
This Note shall be governed by and construed in accordance with the
laws of the State of California, without regard to the conflicts of law
provisions thereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has executed this Note effective as of
the 31st day of December, 1998.
BORROWER:
AREMISSOFT CORPORATION,
a Nevada Corporation
By
-----------------------------------
Dr. Lycourgos K. Kyprianou
Chief Executive Officer
AGREED TO AND ACCEPTED BY:
- ---------------------------
Roys Poyiadjis
3
<PAGE> 1
ERNST & YOUNG
EXHIBIT 16.2
Securities Exchange Commission 1 February 1999
450 Fifth Street NW
Washington, D.C. 20549 5/GNK/NC/DKP
USA
Dear Sirs:
We have read the statements made by AremisSoft Corporation (copy attached),
which we understand will be filed with the Commission as part of the Company's
registration statement on Form S-1. We agree with the statements concerning our
firm contained therein.
Yours faithfully
/s/ Ernst & Young
<PAGE> 2
CHANGE IN ACCOUNTANTS
In December 1998, Pannell Kerr Forster, chartered accountants, was again
engaged as the Company's independent auditors. Accordingly, the engagement of
Ernst & Young, chartered accountants, was discontinued effective December 16,
1998. Both decisions to change independent accountants were approved by the
Company's Board of Directors. During their engagement for the 1997 fiscal year
and subsequent interim periods, Ernst & Young issued no audit report which was
qualified or modified as to uncertainty, audit scope or accounting principles,
or which contained adverse opinions or disclaimers of opinion on any of the
Company's financial statements and there were no disagreements with Ernst &
Young on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements if not resolved
to their satisfaction would have caused them to make reference in connection
with their opinion to the subject matter of the disagreements.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports on the financial statements as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998, dated
March 5, 1999, in the Registration Statement (Form S-1) and related
Prospectus of AremisSoft Corporation for the registration of shares of its
common stock.
/s/ Pannell Kerr Forster
London, England
March 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM S-1 FILED WITH THE
COMMISSION MARCH 9, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<CASH> 867 239 149
<SECURITIES> 0 0 0
<RECEIVABLES> 11,501 10,429 16,805
<ALLOWANCES> (484) (971) (637)
<INVENTORY> 1,283 1,070 787
<CURRENT-ASSETS> 14,705 13,606 22,671
<PP&E> 5,678 5,902 6,300
<DEPRECIATION> (3,292) (3,862) (4,526)
<TOTAL-ASSETS> 18,449 17,242 27,952
<CURRENT-LIABILITIES> 30,143 26,577 33,187
<BONDS> 13,409 10,199 1,874
0 0 0
0 1 0
<COMMON> 8 8 10
<OTHER-SE> (25,111) (19,543) (7,119)
<TOTAL-LIABILITY-AND-EQUITY> 18,449 17,242 27,952
<SALES> 18,593 23,384 30,941
<TOTAL-REVENUES> 34,432 42,374 52,621
<CGS> 7,315 7,226 5,471
<TOTAL-COSTS> 30,217 30,507 32,649
<OTHER-EXPENSES> 17,663 11,557 12,741
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,906) (1,895) (2,030)
<INCOME-PRETAX> (15,354) (1,585) 5,201
<INCOME-TAX> (50) 35 2,026
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (15,304) (1,620) 3,175
<EPS-PRIMARY> (2.04) (0.21) .35
<EPS-DILUTED> (2.04) (0.21) .35
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
I, Dann V. Angeloff, who am named in the Registration Statement on Form
S-1 of AremisSoft Corporation (the "Company") as a person about to become a
director of the Company, pursuant to Rule 438 as promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, as amended, hereby
consent both to my nomination as a director of the Company and to the inclusion
of my name in such Registration Statement.
Executed at Los Angeles this 5th day of March, 1999.
/s/ DANN V. ANGELOFF
------------------------------------
DANN V. ANGELOFF
<PAGE> 1
EXHIBIT 99.2
CONSENT OF DIRECTOR NOMINEE
I, George Ellis, who am named in the Registration Statement on Form S-1
of AremisSoft Corporation (the "Company") as a person about to become a director
of the Company, pursuant to Rule 438 as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, hereby consent
both to my nomination as a director of the Company and to the inclusion of my
name in such Registration Statement.
Executed at Dallas, TX this 3rd day of March, 1999.
/s/ GEORGE ELLIS
------------------------------------
GEORGE ELLIS
<PAGE> 1
Exhibit 99.3
CONSENT OF DIRECTOR NOMINEE
I, H. Tate Holt, who am named in the Registration Statement on Form S-1 of
AremisSoft Corporation (the "Company") as a person about to become a director of
the Company, pursuant to Rule 438 as promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, hereby consent both to
my nomination as a director of the Company and to the inclusion of my name in
such Registration Statement.
Executed at Greenbrae, California this 4th day of March, 1999.
/s/ H. TATE HOLT
------------------------------
H. TATE HOLT
<PAGE> 1
EXHIBIT 99.4
CONSENT OF DIRECTOR NOMINEE
I, M. C. Mathews, who am named in the Registration Statement on Form
S-1 of AremisSoft Corporation (the "Company") as a person about to become a
director of the Company, pursuant to Rule 438 as promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, as amended, hereby
consent both to my nomination as a director of the Company and to the inclusion
of my name in such Registration Statement.
Executed at NOIDA, INDIA this 4th day of March, 1999.
/s/ M. C. MATHEWS
------------------------------------
M. C. MATHEWS
