<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
FILE NO. 333-58351
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AREMISSOFT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 68-0413929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
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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)
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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)
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COPIES TO:
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<S> <C> <C>
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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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OF SHARES TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE(1) FEE
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Common Stock, $.001 par value
per share................... 4,025,000 $13.00 $52,325,000 $14,546(2)
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</TABLE>
(1) Calculated in accordance with Rule 457 of the Securities Act of 1933, as
amended.
(2) The Registrant previously paid $19,175 in registration fees.
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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 JANUARY 28, 1999
PROSPECTUS
3,500,000 SHARES
AREMISSOFT CORPORATION
COMMON STOCK
AremisSoft Corporation ("AremisSoft" or the "Company") hereby offers
3,500,000 shares of its common stock (the "Common Stock"). See "Underwriting."
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 $11.00 and $13.00. 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."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------------
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 PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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Per Share................. $ $ $ $
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Total(3).................. $ $ $ $
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</TABLE>
(1) Excludes a nonaccountable expense allowance payable to Cruttenden Roth
Incorporated and FAC/Equities, representatives of the Underwriters (the
"Representatives"), and the value of warrants to purchase up to 201,250
shares of Common Stock at an exercise price of 120% of the public offering
price to be issued to the Representatives (the "Representative's Warrant").
The Company and certain stockholders (the "Selling Stockholders") have
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 the Representatives, payable by the Company estimated at
$ .
(3) The Company and the Selling Stockholders have granted the Underwriters a
45-day option to purchase up to 525,000 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 Irvine, California on or about , 1999.
CRUTTENDEN ROTH FAC/EQUITIES
INCORPORATED
<PAGE> 3
[AREMISSOFT LOGO]
[ARTWORK]
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 the Reorganization (as defined herein) and related
1.711772-for-one reverse stock split and (ii) other than a description of the
shares to be offered by the Selling Stockholders in the event the Underwriters'
over-allotment option is exercised, 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 healthcare,
manufacturing, hospitality and construction industries (the "Vertical 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. The Company
has 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 its
software development process. AremisSoft products are designed to be the primary
business software that organizations in the Vertical 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 targets customers in the Vertical 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 Vertical 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 $2.7 million
in 1993 to $42.4 million in 1997. 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 ten 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 approxi-
1
<PAGE> 5
mately 70% of total revenues for the first nine months of 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 Vertical 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 January , 1999.
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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Common Stock offered by the Company.......... 3,500,000 shares
Common Stock to be outstanding after
the Offering............................... 13,500,067 shares
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>
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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1993(1) 1994(2) 1995(3) 1996(4) 1997(5) 1997 1998
------- ------- -------- -------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $ 2,670 $ 6,449 $ 21,422 $ 34,432 $42,374 $27,859 $ 36,270
Profit (loss) from operations(6)...... (809) (2,814) (13,248) (13,448) 310 (614) 5,590
Net income (loss)..................... (821) (2,967) (14,569) (15,304) (1,620) (2,086) 2,922
Basic earnings (loss) per share....... $ (0.11) $ (0.39) $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
Weighted average number of shares
used in computing basic earnings
(loss) per share(7)................. 7,504 7,504 7,504 7,504 7,518 7,504 10,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------
ACTUAL AS ADJUSTED(8)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 456 $
Working capital (deficit)................................... (3,493)
Total assets........................................ 29,523
Long-term debt.............................................. 8,616
Total stockholders' equity (deficit)................ $(7,441) $
</TABLE>
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(1) Includes the results of operations of businesses acquired between January
and September 1993, representing approximately $2.3 million in revenues.
(2) Includes a full year of operations of the businesses acquired in 1993 and
the results of operations of businesses acquired in October 1994,
representing approximately $1.9 million in revenues.
(3) Includes a full year of operations of the businesses acquired in 1993 and
1994 and the results of operations of businesses acquired between March and
October 1995, representing approximately $6.1 million in revenues.
(4) Includes a full year of operations of the businesses acquired in 1993, 1994
and 1995 and the results of operations of businesses acquired in March 1996,
representing approximately $750,000 in revenues.
(5) Includes a full year of operations of the businesses acquired in 1993, 1994,
1995 and 1996.
(6) Includes amortization and write-off of capitalized software, software
development costs and intangible assets of approximately $932,000, $2.9
million, $5.6 million, $7.8 million and $167,000 in 1993, 1994, 1995, 1996
and 1997, respectively, and approximately $123,000 and $310,000 for the nine
months ended September 30, 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) 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 $12.00 per share.
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 has incurred net losses in the past five fiscal years. For the
years ended December 31, 1997, and December 31, 1996, the Company incurred net
losses of $1.6 million and $15.3 million, respectively, and, as of December 31,
1997, had an accumulated deficit of $35.4 million. Although the Company achieved
limited profitability during the third and fourth quarters of 1997 and the first
three quarters of 1998, no assurances can be given that the Company will sustain
profitability on a quarterly basis or achieve profitability on an 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
Vertical 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 fiscal years,
with total revenues increasing from $2.7 million, $6.4 million and $21.4 million
in 1993, 1994 and 1995, respectively, to $34.4 million and $42.4 million in
fiscal 1996 and 1997, respectively. 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.
5
<PAGE> 9
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 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 January 25, 1999, the Company had approximately 32% 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 2003. 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. 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.
6
<PAGE> 10
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 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 affect 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 Vertical Markets. A number of companies offer competitive
products to organizations in the Vertical 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 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. 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"). 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-
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<PAGE> 11
sized organizations in the manufacturing sector, one of the Vertical Markets in
which the Company competes. See "Business -- Vertical 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 -- Vertical 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 -- Vertical
Markets -- Healthcare."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The Company's products are generally used for division- 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 Vertical Markets. See
"Business -- Vertical 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
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<PAGE> 12
amount of specific sales is limited, and the delay or failure to complete one or
more large license transactions 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. 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 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
9
<PAGE> 13
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 AND EURO COMPLIANCE
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. In addition, the Euro was introduced as the currency of
participating nations of the European Union on January 1, 1999. Although the
United Kingdom is not currently a participating European Union country, a
significant number of the Company's customers are located in participating
countries. As a result, the computer systems or software used by many companies
may need to be upgraded to comply with Year 2000 and Euro requirements. The
Company has developed a program and appointed a committee of senior executives
to design and test its products as well as the products of its significant
suppliers to ensure that such products are Year 2000 and Euro compliant.
Although the Company believes all of the software products currently marketed by
the Company are Year 2000 and Euro compliant and the Company has developed many
upgrades for its products for purchase by customers to provide Year 2000 and
Euro compliance, no assurances can be given that the Company's software products
contain all necessary date code or other applicable modifications.
The purchasing patterns of customers and potential customers may be
affected by Year 2000 and Euro issues in a variety of ways. Many companies are
expending significant resources to correct or patch their current software
systems for Year 2000 and Euro compliance. Even though the Company believes that
Year 2000 and Euro 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 and Euro compliant products until they believe it is absolutely necessary,
thus resulting in potentially stalled sales within the industry. Conversely,
Year 2000 and Euro 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 and Euro
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 interim solution for Year 2000 or Euro 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
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<PAGE> 14
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 and Euro 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 and Euro Compliance."
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%, 7% and 11% of total revenues for fiscal
1995, 1996 and 1997, respectively, and 15% of total revenues for the nine month
period ended September 30, 1998. The Company may enter into additional
fixed-price 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 39% of the outstanding Common
Stock (38% 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 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
11
<PAGE> 15
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 4,721,920 shares of Common Stock. Based upon an
assumed initial public offering price of $12.00 per share, the value of the
shares held by Dr. Kyprianou following the Offering will be approximately $56.6
million, representing an aggregate increase of approximately $45.3 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 PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. 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 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
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<PAGE> 16
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 13,500,067 shares of
Common Stock (14,025,067 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 have agreed 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 2,207,529 additional shares
will be eligible for sale in the public market without restriction and 5,306,110
shares held by certain affiliates of the Company 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 of approximately $13.0
million of the $14.4 million outstanding on December 31, 1998, 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 September 30,
1998. Accordingly, purchasers in the Offering will suffer immediate and
substantial dilution of $ 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."
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 January
, 1999 (the "Reorganization"). Immediately prior to and as part of the
Reorganization, 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
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<PAGE> 17
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 healthcare, manufacturing and construction Vertical Markets. Prior to
1995, the Company operated primarily through LK Global Information Systems
(U.K.) 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 $12.00 per share, are estimated to be $ million ($
million if the Underwriters' over-allotment option, granted to the Underwriters
by the Company and the Selling Stockholders, 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 $14.4 million as of December 31, 1998, and for
working capital and other corporate purposes. The weighted average maturity of
indebtedness to be repaid upon the completion of the Offering was years and
the weighted average interest rate of such indebtedness was % per annum as
of 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."
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."
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CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 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
$12.00 per share and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1).......................................... $ 7,215 $
Long-term debt, less current maturities(1).................. 8,616
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, 85,000,000 shares
authorized; 10,000,067 shares issued and outstanding,
actual; and 13,500,067 shares issued and outstanding,
as adjusted(2)......................................... 10
Additional paid-in capital................................ 27,068
Accumulated other comprehensive income (loss)(3).......... (2,065)
Accumulated deficit....................................... (32,454)
Total stockholders' equity (deficit).............. (7,441)
Total capitalization.............................. $ 1,175 $
</TABLE>
- ---------------
(1) See Notes 5 and 6 of Notes to Consolidated Financial Statements.
(2) Excludes 51,117 shares of Common Stock underlying certain warrants. No
options to purchase shares of Common Stock were outstanding as of September
30, 1998.
(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 September 30,
1998, was $ or $ 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
3,500,000 shares of Common Stock offered hereby at an assumed an initial public
offering price of $12.00 per share, and after deducting the estimated
underwriting discount and Offering expenses payable by the Company, the net
tangible book value (deficit) as of September 30, 1998, as adjusted, would have
been $ , or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors at the
assumed initial public offering price. The following table illustrates this
dilution per share:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $12.00
Net tangible book value (deficit) per share as of September
30, 1998.................................................. $
Increase in net tangible book value per share attributable
to new investors.......................................... $
Net tangible book value per share after the Offering........ $
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, as of September 30, 1998, 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 3,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 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.............. $ $
New investors......................
-------- ----- ------ ------
Total.................... 100.0 $ 100.0
======== ===== ====== ======
</TABLE>
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997, 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, 1995, 1994 and 1993 and for each of the two years in
the period ended December 31, 1994 have been derived from the Company's
historical financial statements not included in this Prospectus. The selected
consolidated financial data set forth below as of September 30, 1998 and 1997
and for the nine month periods then ended are derived from the unaudited
Consolidated Financial Statements of the Company. The unaudited Consolidated
Financial Statements have been prepared on a consistent basis with the audited
Consolidated Financial Statements and, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial position and
results of operations of the Company for the periods covered thereby. 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. The results of
operations for the nine months ended September 30, 1998, are not necessarily
indicative of the results to be expected for the full fiscal year or in the
future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ----------------------
1993(1) 1994(2) 1995(3) 1996(4) 1997(5) 1997 1998
------- ------- -------- -------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................................. $ 812 $ 2,039 $ 6,641 $ 12,052 $17,024 $11,053 $18,174
Maintenance and services........................... 1,193 2,822 9,426 15,839 18,990 12,515 15,244
Hardware and other................................. 665 1,588 5,355 6,541 6,360 4,291 2,852
------- ------- -------- -------- ------- ------- -------
Total revenues............................... 2,670 6,449 21,422 34,432 42,374 27,859 36,270
------- ------- -------- -------- ------- ------- -------
Cost of revenues:
Software licenses.................................. 129 281 875 1,555 2,079 1,346 2,829
Maintenance and services........................... 380 842 2,735 5,393 5,377 3,485 5,662
Hardware and other................................. 585 1,323 4,829 5,760 5,147 3,458 2,374
Amortization of purchased software and capitalized
software development costs....................... 325 331 1,986 2,327 70 51 115
Write off of purchased software costs.............. -- -- 388 -- -- -- --
------- ------- -------- -------- ------- ------- -------
Total cost of revenues....................... 1,419 2,777 10,813 15,035 12,673 8,340 10,980
------- ------- -------- -------- ------- ------- -------
Gross profit......................................... 1,251 3,672 10,609 19,397 29,701 19,519 25,290
Operating expenses:
Sales and marketing................................ 766 2,133 10,811 15,182 17,834 11,497 11,995
Research and development........................... 251 521 6,428 6,409 6,233 4,641 4,165
General and administrative......................... 436 1,282 3,442 5,605 5,227 3,923 3,345
Amortization of intangible assets.................. 607 2,550 3,176 5,144 97 72 195
Write off of intangible assets..................... -- -- -- 505 -- -- --
------- ------- -------- -------- ------- ------- -------
Total operating expenses..................... 2,060 6,486 23,857 32,845 29,391 20,133 19,700
------- ------- -------- -------- ------- ------- -------
Profit (loss) from operations(6)..................... (809) (2,814) (13,248) (13,448) 310 (614) 5,590
Interest expense, net................................ (6) (207) (1,284) (1,906) (1,895) (1,445) (1,415)
------- ------- -------- -------- ------- ------- -------
Income (loss) before income taxes.................... (815) (3,021) (14,532) (15,354) (1,585) (2,059) 4,175
Income tax expense (benefit)......................... 6 (54) 37 (50) 35 27 1,253
------- ------- -------- -------- ------- ------- -------
Net income (loss).................................... $ (821) $(2,967) $(14,569) $(15,304) $(1,620) $(2,086) $ 2,922
======= ======= ======== ======== ======= ======= =======
Basic earnings (loss) per share...................... $(0.11) $ (0.39) $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======= ======= ======== ======== ======= ======= =======
Diluted earnings (loss) per share.................... $(0.11) $ (0.39) $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======= ======= ======== ======== ======= ======= =======
Weighted average number of shares used in computing:
Basic earnings (loss) per share(7)................... 7,504 7,504 7,504 7,504 7,518 7,504 10,000
======= ======= ======== ======== ======= ======= =======
Diluted earnings (loss) per share(7)................. 7,504 7,504 7,504 7,504 7,518 7,504 10,015
======= ======= ======== ======== ======= ======= =======
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
----- ------ -------- -------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 1 $ 120 $ 255 $ 867 $ 239 $ 243 $ 456
Working capital (deficit)................................ 522 863 (8,244) (15,438) (12,971) (17,016) (3,493)
Total assets..................................... 2,668 10,012 22,729 18,449 17,242 16,503 29,523
Long-term debt........................................... 358 679 12,453 13,388 10,096 12,429 8,616
Total stockholders' equity (deficit)............. 196 2,219 (12,365) (25,103) (19,534) (26,631) (7,441)
</TABLE>
- ---------------
(1) Includes the results of operations of businesses acquired between January
and September 1993, representing approximately $2.3 million in revenues.
(2) Includes a full year of operations of the businesses acquired in 1993 and
the results of operations of businesses acquired in October 1994,
representing approximately $1.9 million in revenues.
(3) Includes a full year of operations of the businesses acquired in 1993 and
1994 and the results of operations of businesses acquired between March and
October 1995, representing approximately $6.1 million in revenues.
(4) Includes a full year of operations of the businesses acquired in 1993, 1994
and 1995 and the results of operations of businesses acquired in March 1996,
representing approximately $750,000 in revenues.
(5) Includes a full year of operations of the businesses acquired in 1993, 1994,
1995 and 1996.
(6) Includes amortization and write-off of capitalized software, software
development costs and intangible assets of approximately $932,000, $2.9
million, $5.6 million, $7.8 million and $167,000 in 1993, 1994, 1995, 1996
and 1997, respectively, and approximately $123,000 and $310,000 for the nine
months ended September 30, 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.
18
<PAGE> 22
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 Vertical
Markets. Its software products provide an array of functions that address the
mission-critical information requirements of customers in the Vertical 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. As
of January 25, 1999, the Company had 520 full time employees and operations in
seven countries.
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, 1997, 44%, 22%, 22% and 8% of the Company's
revenues were derived from customers in the healthcare, manufacturing,
hospitality and construction markets, respectively. The remaining 4% of the
Company's revenues for the year ended December 31, 1997, was derived from sales
to approximately 1,000 relatively small customers in various industries
primarily based in Cyprus and India. For the year ended December 31, 1997, 75%
of the Company's revenues were derived from customers located in the United
Kingdom and 15% from customers located in Europe. The remaining 10% of revenues
for the year ended December 31, 1997, were derived from customers located in
North and South America, Cyprus and other regions.
The Company generally experiences significant differences in profit margins
from software licenses, maintenance and services, and hardware. For example, for
the years 1995, 1996, 1997 and the nine months ended September 30, 1998, gross
profit margins for software licenses were 87%, 87%, 88% and 84%, respectively;
for maintenance and services were 71%, 66%, 72% and 63%, respectively; and for
hardware were 10%, 12%, 19% and 17%, respectively. The Company's overall gross
profit margin is affected by the relative mix of its products and services
having different profit margins.
The sales cycles for the Company's products can vary significantly among
customers and across the Vertical Markets. Historically, the Company's sales
cycles have ranged from three to 12 months. Similar to
19
<PAGE> 23
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.
The Company recognizes software license and hardware revenues at the time
of the installation, provided 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 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 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 $250,000, $940,000 and $320,000 for the years
ended December 31, 1995, 1996 and 1997, respectively, and $1.25 million for the
nine months ended September 30, 1998. The cost of hardware revenues consists
primarily of the cost of hardware purchased from third parties.
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 the year ended December 31, 1995, through
the nine month period ended September 30, 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 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 165,
while research and development and administrative personnel in the United
Kingdom and other countries decreased from 216 to 85.
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. MTMS Windows is expected to be released
in the fourth quarter of 1999. In the fourth quarter of 1999, the
20
<PAGE> 24
Company released the Aremis 4.0 PMS and GCS for 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, $285,000 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, normally at the completion of a detailed program design.
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.
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, 1996 was 10% higher than the rate used for 1995, the
translation adjustment resulted in a reduction in stockholder's equity of $2.74
million for 1996. Because the exchange rate used to translate the Company's
balance sheet for the year ended December 31, 1997 was 4% lower than the rate
used for the year ended December 31, 1996, the translation adjustment resulted
in an increase in stockholders' equity of $785,000 for 1997.
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 1995, 1996 or 1997, or for
the nine month period ended September 30, 1998. Because of the number of
currencies involved, the constant currency exposures and the substantial
volatility of 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."
21
<PAGE> 25
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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses................................... 30% 32% 31% 35% 40% 40% 50%
Maintenance and services............................ 45 44 44 46 45 45 42
Hardware and other.................................. 25 24 25 19 15 15 8
--- --- --- --- --- --- ---
Total revenues............................... 100 100 100 100 100 100 100
--- --- --- --- --- --- ---
Cost of revenues:
Software licenses................................... 5 4 4 5 5 5 8
Maintenance and services............................ 14 13 13 16 13 13 16
Hardware and other.................................. 22 21 22 16 12 12 7
Amortization of purchased software and capitalized
software development costs........................ 12 5 9 7 -- -- --
Write off of purchased software costs............... -- -- 2 -- -- -- --
--- --- --- --- --- --- ---
Total cost of revenues....................... 53 43 50 44 30 30 31
--- --- --- --- --- --- ---
Gross profit........................................ 47 57 50 56 70 70 69
--- --- --- --- --- --- ---
Operating expenses:
Sales and marketing................................. 29 33 51 44 42 41 33
Research and development............................ 9 8 30 19 15 17 11
General and administrative.......................... 16 20 16 16 12 14 9
Amortization of intangible assets................... 23 40 15 15 -- -- --
Write off of intangible assets...................... -- -- -- 1 -- -- --
--- --- --- --- --- --- ---
Total operating expenses..................... 77 101 112 95 69 72 53
--- --- --- --- --- --- ---
Profit (loss) from operations......................... (30) (44) (62) (39) 1 (2) 16
Interest expense, net................................. 1 3 6 6 5 5 4
--- --- --- --- --- --- ---
Income (loss) before income taxes..................... (31) (47) (68) (45) (4) (7) 12
Income tax (expense) benefit.......................... -- 1 -- -- -- -- (3)
--- --- --- --- --- --- ---
Net income (loss)..................................... (31)% (46)% (68)% (45)% (4)% (7)% 9%
=== === === === === === ===
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO SEPTEMBER 30, 1997
Revenues
Total revenues increased 31% to $36.3 million for the nine months ended
September 30, 1998, from $27.9 million for the nine months ended September 30,
1997. This increase was due primarily to higher software license revenues 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 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 64% to $18.2 million for the nine
months ended September 30, 1998, from $11.1 million for the nine months ended
September 30, 1997. This increase is primarily due to the growth in the number
of installed customers, increased sales of license for the Company's Aremis 4.0
products, and price increases. As a percentage of total revenues, license
revenues increased to 50% for the nine months ended September 30, 1998, from 40%
for the nine months ended September 30, 1997, reflecting the Company's strategy
to increase its higher margin software license revenues as a percentage of total
revenues.
22
<PAGE> 26
Maintenance and service contract revenues increased 22% to $15.2 million
for the nine months ended September 30, 1998, from $12.5 million for the nine
months ended September 30, 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 42% for
the nine months ended September 30, 1998, from 45% for the nine months ended
September 30, 1997.
Hardware and other revenues decreased 50% to $2.9 million for the nine
months ended September 30, 1998, from $4.3 million for the nine months ended
September 30, 1997. As a percentage of total revenues, hardware and other
revenues declined to 8% for the nine months ended September 30, 1998, from 17%
for the nine months ended September 30, 1997, reflecting the Company's strategy
to reduce the sale and installation of lower margin third-party hardware.
Cost of Revenues
Cost of revenues increased 29% to $10.9 million for the nine months ended
September 30, 1998, from $8.3 million for the nine months ended September 30,
1997, primarily due to the increase in total revenues. As a percentage of total
revenues, cost of revenues increased to 31% for the nine months ended September
30, 1998, from 30% for the nine months ended September 30, 1997, primarily due
to an increase in software license revenues.
Sales and Marketing
The Company's sales and marketing expenses increased 4% to $12.0 million
for the nine months ended September 30, 1998, from $11.5 million for the nine
months ended September 30, 1997, primarily due to the expansion of sales and
marketing activities in the United States, Mexico and Argentina. As a percentage
of total revenues, sales and marketing expenses declined to 33% for the nine
months ended September 30, 1998, from 41% for the nine months ended September
30, 1997, primarily due to increased efficiencies in the Company's sales and
marketing operations.
Research and Development
Research and development expenses declined 10% to $4.2 million for the nine
months ended September 30, 1998, from $4.6 million for the nine months ended
September 30, 1997. As a percentage of total revenues, research and development
expenses declined to 11% for the nine months ended September 30, 1998, from 17%
of revenues for the nine months ended September 30, 1997. This decline 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 declined to $3.3 million for the nine
months ended September 30, 1998, from $3.9 million for the nine months ended
September 30, 1997. As a percentage of total revenues, general and
administrative expenses declined to 9% for the nine months ended September 30,
1998, from 14% for the nine months ended September 30, 1997. This decline
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.
Net Interest Expense
Net interest expense reflects interest on the Company's bank credit
facilities, as reduced by interest income on cash balances. Net interest expense
declined 2% to $1.4 million for the nine months ended September 30, 1998, from
$1.5 million for the nine months ended September 30, 1997, primarily due to a
reduction in amounts outstanding under the Company's bank credit facilities.
23
<PAGE> 27
Income Taxes
There was a provision for income taxes recorded for the nine months ended
September 30, 1998, of $1.3 million. The Company recorded a provision for income
taxes of $27,000 for the nine months ended September 30, 1997.
Recoverability of the deferred tax asset has been reviewed at September 30,
1998, and although certain subsidiaries are likely to generate 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.
FISCAL YEAR ENDED DECEMBER 31, 1997, COMPARED TO FISCAL 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.
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 declined 2% to $6.4 million for 1997 from $6.5
million for 1996. As a percentage of total revenues, hardware and other revenues
declined 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 declined 15% to $12.7 million for 1997 from $15.0 million
for 1996. As a percentage of total revenues, cost of revenues declined to 30%
for 1997 from 44% for 1996. This decline 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 decline 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.
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 declined 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.
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Research and Development
Research and development expenses declined 3% to $6.2 million for 1997 from
$6.4 million for 1996. As a percentage of total revenues, research and
development expenses declined 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 declined 7% to $5.2 million for 1997
from $5.6 million for 1996. As a percentage of total revenues, general and
administrative expenses declined to 12% for 1997 from 16% for 1996. This decline
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 declined 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.
FISCAL YEAR ENDED DECEMBER 31, 1996, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Revenues
Total revenues increased 61% to $34.4 million for 1996 from $21.4 million
for 1995, primarily due to increased software license revenues and associated
maintenance and service contract revenues as well as the inclusion of revenues
from businesses acquired in 1995.
Software license revenues increased 83% to $12.1 million for 1996 from $6.6
million for 1995, primarily due to an increase in the number of software
licenses sold, which principally consisted of sales of upgrades to the Company's
AMSyS and Fundholding 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 35% for 1996 from 31% for 1995,
reflecting that the increases in the Company's software license revenues
exceeded the increases in maintenance and service contract and hardware and
other revenues.
Maintenance and service contract revenues increased 68% to $15.8 million
for 1996 from $9.4 million for 1995. As a percentage of total revenues,
maintenance and service contract revenues increased to 46% for 1996 from 44% for
1995. This increase was primarily attributable to an increase in the number of
installed customers as a result of an increase in software licenses sold and the
integration of businesses acquired in 1995.
Hardware and other revenues increased 20% to $6.5 million for 1996 from
$5.4 million for 1995, primarily as a result of the Company's growth in system
sales in which the Company's software products are sold with hardware pursuant
to turnkey contracts. As a percentage of total revenues, hardware and other
revenues
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decreased to 19% for 1996 from 25% for 1995, reflecting the Company's efforts to
reduce sales of lower margin third-party hardware.
Cost of Revenues
Cost of revenues increased 39% to $15.0 million for 1996 from $10.8 million
for 1995, primarily due to an increase in the number of installed customers. As
a percentage of total revenues, cost of revenues declined to 44% for 1996 from
50% for 1995, primarily as a result of (i) a reduction in hardware and other
costs, as a percentage of total revenues, to 16% for 1996 from 22% for 1995, and
(ii) a reduction in amortization charges and write-offs relating to purchased
and capitalized software, as a percentage of total revenues, to 7% for 1996 from
11% for 1995. This decline was partially offset by higher cost of revenues for
service contracts as a result of the increased use of outside consultants in
1996.
Sales and Marketing
Sales and marketing expenses increased 41% to $15.2 million for 1996 from
$10.8 million for 1995, 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 declined to 44% for 1996 from 51% for 1995, primarily due to the
realization of operating efficiencies in the United Kingdom in connection with
the integration of acquired businesses.
Research and Development
Research and development expenses totaled $6.4 million for each of 1996 and
1995. As a percentage of total revenues, research and development expenses
declined to 19% for 1996 from 30% for 1995, primarily due to the increase in
total revenues and relatively constant research and development expenses.
General and Administrative
General and administrative expenses increased 65% to $5.6 million for 1996
from $3.4 million for 1995, primarily due to an increase in the number of
installed customers. As a percentage of total revenues, general and
administrative expenses were 16% for each of 1996 and 1995.
Amortization of Intangible Assets
Amortization of intangible assets increased 75% to $5.6 million for 1996
from $3.2 million for 1995, 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
Net interest expense increased 46% to $1.9 million for 1996 from $1.3
million for 1995, primarily due to greater amount of indebtedness outstanding in
1996.
Income Taxes
The Company recorded a benefit for income taxes of $50,000 in 1996 compared
to a provision for income taxes of $37,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
cash generated from operations, borrowings under bank credit facilities, private
placements of equity securities and equity contributions by its principal
stockholder. As of September 30, 1998, the Company had $456,000 of cash and cash
equivalents and a $7.2 million short-term demand facility. The Company had a
working capital deficit of $3.5 million as of September 30, 1998.
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The Company had an operating cash flow deficit of $5.4 million for the nine
months ended September 30, 1998. This deficit was primarily due to increases in
receivables and reductions in deferred revenue and accrued expenses which was
partially offset by an increase in accounts payable. The Company had operating
cash flow deficits of $4.0 million, $1.3 million and $6.1 million for 1997, 1996
and 1995, respectively. 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 its fiscal year.
Accounts receivable increased to $18.9 million as of September 30, 1998,
from $9.7 million as of September 30, 1997. Accounts receivable declined to $9.5
million as of December 31, 1997, from $11.0 million as of December 31, 1996.
During 1997, the Company funded $2.6 million of prepaid expenses and $5.7
million of deferred maintenance revenues from cash flows from operating
activities.
The Company utilized cash for investing activities of $2.0 million for the
nine months ended September 30, 1998, and $1.0 million, $4.1 million and $8.4
million for 1997, 1996 and 1995, respectively. During these periods, the Company
experienced significant growth and invested in property and equipment. In 1996
and 1995, the Company expended $3.3 million and $7.5 million (net of cash
acquired), respectively, to purchase complementary businesses.
Cash provided by financing activities was $7.7 million for the nine months
ended September 30, 1998, and $4.5 million, $6.5 million and $14.8 million for
1997, 1996 and 1995, respectively. Financing activities for the nine months
ended September 30, 1998, primarily consisted of a private placement of $9.3
million of equity securities. Financing activities for 1997 primarily consisted
of a private placement of $6.4 million of equity securities and repayment of
bank indebtedness of $2.0 million. In 1996, financing activities primarily
consisted of a stockholder contribution of $5.3 million, long-term borrowings
under the Company's bank credit facilities of $1.9 million, an increase in the
short-term demand facility of $1.3 million and repayment of bank indebtedness of
$1.7 million. Financing activities in 1995 primarily consisted of long-term
borrowings of $13.5 million under the Company's bank credit facilities and an
increase in the short-term demand facility of $1.8 million.
As of September 30, 1998, the Company had outstanding indebtedness under
its bank credit facilities of $15.8 million, which included approximately $2.4
million with maturities of one year or less at interest rates ranging from
Sterling LIBOR plus 3% to Sterling LIBOR plus 4% and a $4.4 million short-term
demand facility that bears interest at the lending bank's base rate plus the
applicable margin. The Company intends to repay a substantial portion of the
outstanding indebtedness under its bank credit facilities from the net proceeds
from the Offering. As of December 31, 1998, the indebtedness outstanding under
the Company's bank credit facilities was approximately $14.4 million.
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.
IMPACT OF THE YEAR 2000 AND EURO COMPLIANCE
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
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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. In addition, in
January 1999 the Euro was introduced as the predominant 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 compliance
issues for business transacted with entities in participating nations.
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 and Euro
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 currently both Year
2000 and Euro compliant. The Company initiated a program to assess the Year 2000
readiness of its operations including its noninformation technology systems. The
Company has also established a committee comprised of senior executive
representatives from its subsidiaries in each of the Vertical Markets to address
Year 2000 status with respect to the Company's 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.
After completion of a significant portion of its program, the Company has not
identified any significant Year 2000 or Euro compliance problems, but will
continue to monitor its information systems. However, no assurances can be given
that Year 2000 or Euro 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 key suppliers to
determine the extent to which the failure of third parties to remedy their own
Year 2000 or Euro compliance problems would materially affect the Company. The
Company has received representations from a majority of its significant
suppliers of third-party software and hardware that their products are Year 2000
and Euro compliant. The Company has also tested certain third-party products in
an effort to confirm their representations of Year 2000 and Euro compliance. The
Company has not received any indication from its suppliers that Year 2000 or
Euro compliance may materially affect their ability to conduct business. In the
event such suppliers' ability to service the Company's requirements is affected
by Year 2000 or Euro compliance problems, the Company may find it necessary to
enter into alternative arrangements with other third party suppliers and the
Company has begun to detail such contingency arrangements. 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 costs incurred by the Company in connection with Year 2000 compliance
issues were $126,000 for the nine month period ended September 30, 1998, and
$288,000, $123,000, and $186,000 for fiscal 1995, 1996, and 1997, respectively.
The Year 2000 related costs have been funded from the continuing operations of
the Company and, as of September 30, 1998, have constituted approximately 15% of
the Company's information systems budget for 1998.
The Company estimates that its total costs to complete Year 2000 compliance
will be approximately $1.0 million. Certain information system projects at the
Company have been deferred as a result of Year 2000 compliance efforts. However,
these deferrals are not expected to have a material adverse effect on the
Company's business.
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BUSINESS
THE COMPANY
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations in the healthcare,
manufacturing, hospitality and construction industries (the "Vertical 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. The Company
has 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 its
software development process. AremisSoft products are designed to be the primary
business software that organizations in the Vertical 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 targets customers in the Vertical 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 Vertical 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 $2.7 million
in 1993 to $42.4 million in 1997. 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 ten 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 70% of total revenues for the first nine months of 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 Vertical 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
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enterprise provide a strategic resource that enables an organization to respond
rapidly to changing market environments and customer needs.
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:
AREMIS ARCHITECTURE
[FLOW CHART]
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 Vertical Markets, which the Company believes 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
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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.
THE AREMISSOFT SOLUTION
The Company's enterprise-wide applications software products address the
mission-critical, business information requirements of organizations in the
Vertical Markets. AremisSoft's products are designed to provide the following
benefits:
Enhanced Functionality. 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 healthcare,
manufacturing, hospitality and construction industries. Through its concentrated
product focus, the Company believes it has developed substantial industry
expertise in the Vertical 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 Vertical Markets permits
rapid product implementation. Product applications are designed to address the
specific needs of customers in the Vertical 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 Vertical 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 Vertical Markets. The Company believes there are
significant opportunities to increase its presence and expand its customer base
within the healthcare, manufacturing, 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 Vertical 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.
33
<PAGE> 37
ACQUISITION STRATEGY
From January 1993 to March 1996, the Company acquired eleven businesses
with operations in the Vertical 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 $2.7 million in acquisitions in 1996 of entities wholly owned by the
Company's principal stockholder, Dr. Lycourgos K. Kyprianou:
<TABLE>
<CAPTION>
CONSIDERATION(1)
VERTICAL MARKET NAME OF ACQUIRED BUSINESS PRINCIPAL LOCATION DATE ACQUIRED (IN MILLIONS)
--------------- ------------------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
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
MANUFACTURING BEC Group Limited United Kingdom March 1995 3.10
Online Systems Inc. United States March 1996 0.60
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 Vertical 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.
34
<PAGE> 38
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:
PRODUCT REJUVENATION PROCESS
[FLOW CHART]
VERTICAL MARKETS
The Company currently provides customized enterprise-wide applications
software for mid-sized organizations in the Vertical 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
September 30, 1998, the Company had over 5,000 customers across the Vertical
Markets. The Company's customer base is comprised of approximately 2,000
healthcare, 450 manufacturing, 1,200 hospitality and 350 construction customers.
The Company also continues to service approximately 1,000 customers across a
variety of industries in other countries, primarily in Cyprus and India. For the
years ended December 31, 1995, 1996 and 1997, and for the nine months ended
September 30, 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 Vertical 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
35
<PAGE> 39
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
Vertical 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 Vertical 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 Vertical 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 Vertical 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 Vertical 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 Vertical 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 $2.0 million, $2.8 million and $3.1 million for fiscal 1995, 1996 and 1997,
respectively, and $500,000 for the nine month period ended September 30, 1998.
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 Vertical 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.
36
<PAGE> 40
For each of the last three years, revenues in each of the Vertical Markets
as a percentage of the Company's total revenues were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Healthcare............................................. 51.9% 47.2% 43.6%
Manufacturing.......................................... 15.4 16.1 22.4
Hospitality............................................ 29.4 22.0 22.4
Construction........................................... 3.3 9.7 7.8
Other.................................................. 0.0 5.0 3.8
---- ---- ----
Total........................................ 100% 100% 100%
==== ==== ====
</TABLE>
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
37
<PAGE> 41
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.
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 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.
38
<PAGE> 42
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 September 30, 1998, the
Company has sold approximately 5,000 units, which are being used by
approximately 3,500 healthcare providers.
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<PAGE> 43
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 January 25, 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.
40
<PAGE> 44
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
- ------------------------------------------------------------------------------------------------------------
35 installed customers(2) 350 installed customers 65 installed customers
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expected to be released in the fourth quarter of 1999
(2) Represents MTMS CoPilot customers only
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 and
incorporates all features of the Aremis Architecture. It is currently in the
Beta version testing stage of development and is expected to be released in the
fourth quarter of 1999.
MTMS consists of an integrated enterprise-wide management and control
system which provides full ERP capabilities and broad functionality and operates
in a DOS format. 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.
41
<PAGE> 45
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 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.
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<PAGE> 46
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 subvertical 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
January 25, 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 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.
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,
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<PAGE> 47
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 350 installed customers
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Released in October 1998
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.
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<PAGE> 48
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.
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 January 25, 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>
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<PAGE> 49
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 300 installed customers
1999
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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 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.
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<PAGE> 50
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.
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.
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<PAGE> 51
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 January
25, 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 -- Vertical 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, $6.4 million
and $6.2 million for fiscal 1995, 1996 and 1997, respectively, and $4.2 million
for the nine months ended September 30, 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 Vertical 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 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
48
<PAGE> 52
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 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
49
<PAGE> 53
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 January 25, 1999, the Company had 520 full-time employees. Of these
employees, 295 are based in the Company's offices in the United Kingdom and 165
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 295 employees in the United Kingdom, 118 are in the
healthcare division, 59 are in the manufacturing 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.
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 currently own any of its facilities.
50
<PAGE> 54
The following table sets forth certain information concerning the Company's
principal facilities as of September 30, 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
Hitchin, United Kingdom.... Healthcare Division 2000 7,125
Blackburn, United
Kingdom.................. Manufacturing Division 2010 12,000
Westmont, New Jersey....... Manufacturing Division 2000 4,200
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 the Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its leases.
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<PAGE> 55
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 five 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
January 25, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Dr. Lycourgos K. Kyprianou.. 44 Chairman of the Board and Chief Executive Officer
Roys Poyiadjis.............. 33 President, Chief Financial Officer and Vice
Chairman of the Board
Noel R. Voice............... 56 Director, Chief Operating Officer, General
Manager of Healthcare Systems and Secretary
H. Tate Holt................ 46 Director Nominee
M.C. Mathews................ 35 General Manager of Group Software Development
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
</TABLE>
Dr. Lycourgos K. Kyprianou has served as the Company's Chairman of the
Board, Chief Executive Officer and Secretary since the Reorganization. From 1997
to 1998, Dr. Kyprianou served as Chairman of the Board, President, Secretary and
Chief Financial Officer of AremisSoft-Nevada and served as Chairman of the Board
and Managing Director of LK Global from 1979 to 1998. 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, Chief Financial
Officer and Vice Chairman of the Board since the Reorganization. From 1997 to
1998, Mr. Poyiadjis served as a partner of Alpha Capital Limited, an investment
banking firm primarily focused on investments with 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 as well as its Chief
Operating Officer, General Manager of Healthcare Systems and Secretary since the
Reorganization. From 1997 to 1998, he served as Senior Vice President of
Administration of AremisSoft-Nevada. From 1992 to 1997, he served as the Senior
Vice President of Administration of LK Global. 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).
H. Tate Holt is expected to be appointed as a director of the Company after
the completion of the Offering. Mr. Holt is currently the 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
52
<PAGE> 56
DBS Industries, Inc. and Onside Energy Corporation. Mr. Holt has a Bachelor of
Arts degree from Indiana University.
M.C. Mathews has served as the Company's General Manager of Group Software
Development since the Reorganization. From 1997 to 1998, he served as Vice
President of Group Software Development for AremisSoft-Nevada. From 1995 to
1997, he served as the Managing Director of Software Engineering of LK Global
Software Engineering (India) Private Limited ("LK Global (India)") and from 1992
to 1995, he served as its Group Project Manager. Prior to joining LK Global
(India) 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 the Reorganization. From 1997 to 1998, he served as Managing
Director of Manufacturing for AremisSoft-Nevada. From 1995 to 1997, Mr. Crowe
served as Project Manager, Account Manager and Managing Director of LK Global
Manufacturing Systems (UK) Limited. From 1992 to 1995, he was a Managing
Director of BEC Group Limited, a manufacturing computer systems company, that
was acquired by LK Global 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 the Reorganization. From 1993 to 1996, he served as Managing
Director of LK Global Hospitality Systems (UK) Limited and later served as its
Director of International Business Development from 1996 to 1998. 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 LK
Global in 1993.
Brian Rogers has served as the Company's General Manager of Construction
Systems since the Reorganization. From 1995 to 1998, he served as Managing
Director of LK Global Construction Systems (UK) Limited. 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.
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 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 $ for each Board meeting attended and
$ 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.
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
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<PAGE> 57
during the fiscal year ended December 31, 1995, 1996 and 1997. No options to
purchase Common Stock were awarded to any executive officer or director of the
Company during the fiscal year ended December 31, 1997 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 fiscal years ended December 31, 1995, 1996 and 1997,
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................. 1997 $250,000 $200,000 -- --
Chairman of the Board and Chief 1996 $200,000 $150,000 -- --
Executive Officer 1995 $200,000 $100,000 -- --
</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 $205,000, $283,133
and $350,000 during fiscal 1995, 1996 and 1997, 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"). 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 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.
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 until terminated by the Board
of Directors or, with respect to ISOs, for a term of ten years from its original
adoption date, whichever is earlier.
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 and NSOs be less than 100% of the fair market value of
the Common Stock on the date of grant. Awards for key employees will have such
terms and be exercisable in such manner and at such time as the Compensation
Committee may determine, and the Committee may permit the deferred payment of
awards. However, each ISO must expire no later than ten years from the date of
grant. The Stock Option Plan provides that, in the event of a merger or
reorganization of the Company, outstanding options shall be subject to the
agreement of merger or reorganization.
As of January 25, 1999, there were no options to purchase Common Stock
outstanding.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Kyprianou and
Messrs. Poyiadjis and Voice, The employment agreements for Dr. Kyprianou and Mr.
Poyiadjis provide for an initial three-year term expiring on June 1, 2001. The
employment agreement for Mr. Voice provides for an initial one-year term
expiring on June 1, 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
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<PAGE> 58
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.
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 1997 were addressed by the full Board of Directors of
AremisSoft-Nevada, the sole member of which was Dr. Kyprianou. Dr. Kyprianou was
also the chief executive officer of AremisSoft-Nevada in 1997.
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 January 25, 1999, the unpaid principal balance of the loan was approximately
$1.8 million.
In 1998, the Company entered into an employment agreement with Dr.
Kyprianou for an initial three-year term expiring on June 1, 2001. The
employment agreement may be terminated by the Company or Dr. Kyprianou without
cause (as defined in the employment agreement) upon 30 days notice, or for cause
without notice. Under the employment agreement, Dr. Kyprianou is entitled to
minimum annual compensation of $250,000 and 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
employment agreement, "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 1998, the Company entered into a registration rights agreement with Dr.
Kyprianou pursuant to which Dr. Kyprianou has the right to require the Company
to use its best efforts to register under the Securities Act all or a portion of
his shares of Common Stock, subject to certain terms and conditions. Dr.
Kyprianou also has 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 the registration rights agreement. In either case, however,
Dr. Kyprianou will be responsible for underwriters' discounts and selling
commissions with respect to the shares being sold pursuant to his registration
rights agreement and the fees and expenses of his counsel in connection with
such registration. Dr. Kyprianou's rights under his registration rights
agreement are assignable to parties who agree to be bound thereby.
55
<PAGE> 59
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 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
On various dates during 1998, Roys Poyiadjis, the Company's President and
Chief Financial Officer, made loans to the Company in the aggregate principal
amount of $1.8 million. The loans are reflected in a promissory note dated
January 19, 1999, which matures on January 19, 2001, bears interest at the rate
of LIBOR plus 2% per annum and is unsecured. As of January 25, 1999, the
aggregate unpaid principal balance of the loans was approximately $1.8 million.
On May 15, 1998 the Company loaned $2.6 million to Dr. Kyprianou, which is
evidenced by a promissory note. 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 January 25, 1999, the unpaid principal
balance of the loan was approximately $1.8 million.
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."
56
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 25, 1999, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
(i) for 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, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE AFTER THE
OFFERING(2) OFFERING(2)(3)
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
--------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(4)...................... 4,721,920 47.2% 4,721,920 34.9%
Roys Poyiadjis(5).................................. 584,190 5.8% 584,190 4.3%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(TWO PERSONS).................................... 5,306,110 53% 5,306,110 39.29%
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(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
serves as trustee and has sole voting and investment power.
(5) Represents shares held by Temco Ltd for which Mr. Poyiadjis serves as
trustee and has sole voting and investment power.
SELLING STOCKHOLDERS
In the event that the Underwriters' over-allotment option is exercised in
full, the following Selling Stockholders will sell the number of shares
indicated:
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL PERCENTAGE
OWNERSHIP OWNERSHIP OWNERSHIP
PRIOR TO NUMBER OF AFTER AFTER
OVER-ALLOTMENT SHARES OVER-ALLOTMENT OVER-ALLOTMENT
EXERCISE BEING OFFERED EXERCISE EXERCISE
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Hare & Co. .......................... 87,629 11,684 75,945
Krug, Burgess, Webster Inc. ......... 103,110 11,684 91,426
Profunda Truehand S.A. .............. 132,027 58,419 73,608
Bank AustriaAktiengese/Schaft........ 151,890 45,275 106,615
RBB Bank AG.......................... 116,838 40,894 75,944
</TABLE>
In the event that the Underwriters elect to exercise less than the full
over-allotment option, the number of shares offered by the Selling Stockholders
will be reduced proportionately.
57
<PAGE> 61
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 January 25, 1999,
there were 10,000,067 shares of Common Stock issued and outstanding held by 84
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 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
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 years expiring on April
10, 2000 and were issued in payment of finder's fees in connection with a
private placement by AremisSoft-Nevada of preferred stock. 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."
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
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<PAGE> 62
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.
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
59
<PAGE> 63
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 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 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 13,500,067 shares of Common Stock (14,025,067 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
3,500,000 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 7,513,639 additional shares will be eligible for sale in
the public market, approximately 5,306,110 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 6,756,941 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 135,000 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
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<PAGE> 64
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.
Subject to certain exceptions, the Company, all of the Company's executive
officers and directors, the Selling Stockholders and certain other stockholders
of the Company have agreed 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 the Company or any securities convertible into
or exchangeable for capital stock of the Company. 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 1,450,831
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.
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 4,721,920 and 584,190 shares,
of Common Stock, respectively, as of September 30, 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. 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 will be 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."
61
<PAGE> 65
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated 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............................................. 3,500,000
=========
</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 and Selling Stockholders have 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 525,000 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 and the Selling Stockholders have agreed to pay the
Representatives 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
62
<PAGE> 66
it is exercised) set forth on the front 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, directors 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 sooner upon a change in market conditions.
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 and the Selling
Stockholders 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
Certain 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.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997 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.
63
<PAGE> 67
CHANGE IN ACCOUNTANTS
In December 1998, Pannell Kerr Forster, chartered accountants, was engaged
as the Company's independent auditors. Accordingly, the engagement of Ernst &
Young, chartered accountants, was discontinued effective December 16, 1998. The
decision to change independent accountants was approved by the Company's Board
of Directors. During their engagement, 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. 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.
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 in its
entirety 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.
The Company intends to furnish to its stockholders annual reports
containing audited financial information and furnish quarterly reports
containing condensed unaudited financial information for each of the first three
quarters of each fiscal year.
64
<PAGE> 68
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.
65
<PAGE> 69
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.
66
<PAGE> 70
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> 71
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, 1997 and 1996, 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, 1997. 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, 1997
and for the year then ended and in accordance with United Kingdom auditing
standards for financial statements as of December 31, 1996 and for the two years
then ended, 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, 1997 and 1996, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1997, 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 and 1995 consolidated financial
statements.
/s/ Pannell Kerr Forster
London, England
January 27, 1999
F-2
<PAGE> 72
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1996 1997 1998
------------- ------- -------------
(AS RESTATED- (UNAUDITED)
SEE NOTE 1)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 867 $ 239 $ 456
Accounts receivable, less allowances for doubtful accounts
of $484, $971 and $1,058 at December 31, 1996 and 1997
and September 30, 1998, respectively.................... 11,017 9,458 18,893
Other receivables......................................... 254 670 2,697
Inventory................................................. 1,283 1,070 946
Prepaid expenses and other assets......................... 1,284 2,169 1,816
------- ------- -------
Total current assets........................................ 14,705 13,606 24,808
Property and equipment, net................................. 2,386 2,040 2,195
Purchased and developed software, net of accumulated
amortization of $5,912, $5,755 and $5,789 at December 31,
1996 and 1997 and September 30, 1998, respectively........ 334 764 1,744
Intangible assets, net of accumulated amortization of
$13,241, $12,766 and $12,824 at December 31, 1996 and 1997
and September 30, 1998, respectively...................... 1,024 832 776
------- ------- -------
Total assets................................................ $18,449 $17,242 $29,523
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 3,596 $ 4,244 $ 9,125
Accrued taxes payable..................................... 3,828 4,887 4,109
Current portion of capital lease obligations.............. 68 40 --
Other accrued expenses.................................... 4,565 4,507 3,246
Bank loans and short-term demand facility................. 6,490 7,207 7,215
Deferred revenue.......................................... 11,596 5,692 4,606
------- ------- -------
Total current liabilities................................... 30,143 26,577 28,301
Long-term debt.............................................. 13,388 10,096 8,616
Capital lease obligations, less current portion............. 21 103 47
Stockholders' equity (deficit):
Series A convertible preferred stock, par value $0.001;
authorized 2,100 shares; no shares, 1,137 and no shares
issued and outstanding at December 31, 1996, 1997 and
September 30, 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 at December 31, 1996, 1997 and September 30,
1998, respectively; liquidating preference at par
value................................................... -- -- --
Common stock, par value $0.001; authorized 75,000 shares;
7,504, 7,569 and 10,000 shares issued and outstanding at
December 31, 1996 and 1997 and September 30, 1998,
respectively............................................ 8 8 10
Additional paid-in capital................................ 11,364 17,767 27,068
Accumulated deficit....................................... (33,756) (35,376) (32,454)
Accumulated other comprehensive income (loss)............. (2,719) (1,934) (2,065)
------- ------- -------
Total stockholders' equity (deficit)........................ (25,103) (19,534) (7,441)
------- ------- -------
Total liabilities and stockholders' equity (deficit)........ $18,449 $17,242 $29,523
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 73
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -----------
(AS RESTATED -- (UNAUDITED)
SEE NOTE 1)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses................................ $ 6,641 $ 12,052 $17,024 $11,053 $18,174
Maintenance and services......................... 9,426 15,839 18,990 12,515 15,244
Hardware and other............................... 5,355 6,541 6,360 4,291 2,852
-------- -------- ------- ------- -------
Total revenues................................. 21,422 34,432 42,374 27,859 36,270
Cost of revenues:
Software licenses................................ 875 1,555 2,079 1,346 2,829
Maintenance and services......................... 2,735 5,393 5,377 3,485 5,662
Hardware and other............................... 4,829 5,760 5,147 3,458 2,374
Amortization of purchased software and
capitalized software development costs......... 1,986 2,327 70 51 115
Write off of purchased software costs............ 388 -- -- -- --
-------- -------- ------- ------- -------
Total cost of revenues......................... 10,813 15,035 12,673 8,340 10,980
-------- -------- ------- ------- -------
Gross profit....................................... 10,609 19,397 29,701 19,519 25,290
Operating expenses:
Sales and marketing.............................. 10,811 15,182 17,834 11,497 11,995
Research and development......................... 6,428 6,409 6,233 4,641 4,165
General and administrative....................... 3,442 5,605 5,227 3,923 3,345
Amortization of intangible assets................ 3,176 5,144 97 72 195
Write off of intangible assets................... -- 505 -- -- --
-------- -------- ------- ------- -------
Total operating expenses....................... 23,857 32,845 29,391 20,133 19,700
-------- -------- ------- ------- -------
Profit (loss) from operations...................... (13,248) (13,448) 310 (614) 5,590
Other income (expense):
Interest income.................................. 5 11 6 1 1
Interest expense................................. (1,289) (1,917) (1,901) (1,446) (1,416)
-------- -------- ------- ------- -------
Income (loss) before income taxes.................. (14,532) (15,354) (1,585) (2,059) 4,175
Income tax expense (benefit)....................... 37 (50) 35 27 1,253
-------- -------- ------- ------- -------
Net income (loss).................................. $(14,569) $(15,304) $(1,620) $(2,086) $ 2,922
======== ======== ======= ======= =======
Basic earnings (loss) per share.................... $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======== ======== ======= ======= =======
Diluted earnings (loss) per share.................. $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======== ======== ======= ======= =======
Weighted average number of shares used in
computing:
Basic earnings (loss) per share.................... 7,504 7,504 7,518 7,504 10,000
======== ======== ======= ======= =======
Diluted earnings (loss) per share.................. 7,504 7,504 7,518 7,504 10,015
======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 74
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (DEFICIT)
------ ------ ------ ------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994....... -- -- 7,504 $ 8 $ 6,059 $ (3,883) $ -- $ 2,184
Net loss............................ -- -- -- -- -- (14,569) -- (14,569)
Currency translation adjustment..... -- -- -- -- -- -- 19 19
------ --- ------ --- ------- -------- ------- --------
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 $1,036 (unaudited)....... -- -- 1,294 1 9,301 -- -- 9,302
Conversion of preferred stock into
common stock...................... (1,137) (1) 1,137 1 -- -- -- --
Net income (unaudited).............. -- -- -- -- -- 2,922 -- 2,922
Currency translation adjustment
(unaudited)....................... -- -- -- -- -- -- (131) (131)
------ --- ------ --- ------- -------- ------- --------
BALANCES AT SEPTEMBER 30, 1998
(UNAUDITED)....................... -- $-- 10,000 $10 $27,068 $(32,454) $(2,065) $ (7,441)
====== === ====== === ======= ======== ======= ========
<CAPTION>
COMPREHENSIVE
INCOME
(LOSS)
-------------
<S> <C>
BALANCES AT DECEMBER 31, 1994.......
Net loss............................ (14,569)
Currency translation adjustment..... 19
--------
BALANCES AT DECEMBER 31, 1995 (AS
RESTATED -- SEE NOTE 1)........... (14,550)
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 $1,036 (unaudited)....... --
Conversion of preferred stock into
common stock...................... --
Net income (unaudited).............. 2,922
Currency translation adjustment
(unaudited)....................... (131)
--------
BALANCES AT SEPTEMBER 30, 1998
(UNAUDITED)....................... 2,791
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 75
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -------
(AS RESTATED -- (UNAUDITED)
SEE NOTE 1)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(14,569) $(15,304) $(1,620) $(2,086) $ 2,922
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation................................... 345 958 977 730 432
Amortization of capitalized software and
intangible assets............................ 5,162 7,471 167 123 310
Write off capitalized software and intangible
assets....................................... 388 505 -- --
Changes in assets and liabilities, net of
acquisitions
Accounts receivable.......................... (5,091) 1,106 2,933 1,250 (8,906)
Other receivables............................ (30) 832 (461) (277) (2,027)
Inventory.................................... 74 (477) 163 137 124
Prepaid expenses and other assets............ (365) 653 (2,595) (640) 353
Accounts payable............................. 1,034 422 788 537 5,381
Deferred revenue............................. 4,098 (1,290) (5,726) (557) (1,086)
Accrued taxes payable........................ 754 1,679 1,242 996 (778)
Other accrued expenses....................... 2,062 2,191 103 18 (2,127)
-------- -------- ------- ------- -------
Net cash provided by (used in) operating
activities................................... (6,138) (1,254) (4,029) 231 (5,402)
-------- -------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......... (495) (1,130) (684) 51 (585)
Capitalized software development costs....... (514) (223) (515) -- (1,419)
Payment for acquisitions, net of cash
acquired.................................. (7,527) (3,256) -- -- --
Proceeds from disposal of property and
equipment................................. 167 549 228 210 --
-------- -------- ------- ------- -------
Net cash provided by (used in) investing
activities................................... (8,369) (4,060) (971) 261 (2,004)
-------- -------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock.......... -- -- 6,402 -- 9,302
Stockholder contribution..................... -- 5,305 -- -- --
Long-term borrowings......................... 13,475 1,936 33 -- --
Principal payments of long-term borrowings... (268) (1,732) (2,040) (959) (1,480)
Principal payments of capital lease
obligations............................... (246) (353) (53) (10) (96)
Short-term demand facility................... 1,818 1,301 186 (489) 8
-------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities................................... 14,779 6,457 4,528 (1,458) 7,734
-------- -------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. 272 1,143 (472) (966) 328
Effect of foreign currency exchange rates on
cash and cash equivalents.................... (17) (531) (156) 342 (111)
Cash and cash equivalents, at beginning of
period....................................... -- 255 867 867 239
-------- -------- ------- ------- -------
Cash and cash equivalents, at end of period.... $ 255 $ 867 $ 239 $ 243 $ 456
======== ======== ======= ======= =======
Supplemental disclosure:
Interest paid................................ $ 975 $ 1,887 $ 1,900 $ 1,445 $ 933
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 76
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND EACH OF THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
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,
principally in the healthcare, manufacturing, hospitality and construction
industries.
Organization and Basis of Presentation
In October 1997, AremisSoft Corporation, under its previous name of Juno
Acquisitions, Inc. ("Juno"), entered into a Plan and Agreement of Reorganization
(the "Plan") with LK Global Information Systems BV ("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 the name to AremisSoft
Corporation. The Company will become a wholly-owned subsidiary of AremisSoft
Corporation ("AremisSoft-Delaware"), a company incorporated in Delaware, upon
the completion of a proposed reincorporation reorganization prior to the public
offering of common stock described in note 13 below. This transaction will be
effected in a share exchange and will be accounted for as a combination of
entities under common control. All intercompany accounts and transactions are
eliminated in consolidation.
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 and the 1995 financial statements have been stated in a
manner similar to a pooling of interests.
At September 30, 1998, the Company was not in compliance with certain
financial covenants in the agreements relating to its long-term debt. However,
by subsequent agreements the principal lender has waived all covenants for the
period to March 31, 1999, or until the completion of an initial public offering
of its common stock ("IPO"), whichever occurs first. In the event that the
Company does not complete an IPO by March 31, 1999, in order for the Company to
remain in compliance with any reinstated covenants it must achieve its operating
plan and/or raise additional capital or obtain an extension of the waiver from
the principal lender.
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 and 1995 financial statements, the
Company determined that adjustments would be required to such financial
statements relative to the
F-7
<PAGE> 77
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1995 and 1996 before the earnings process was completed,
(ii) the establishment of technological feasibly and the related capitalized
software development costs were not being accounted for, in some instances, in
accordance with SFAS No. 86 "Accounting for Costs of Computer Software to be
Sold, Marketed or Leased," (iii) amortization of 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 and 1995 financial statements as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- ------------
<S> <C> <C>
Revenues
1996...................................................... $35,015,853 $ 34,432,401
1995...................................................... 22,955,830 21,421,773
Cost of Revenue
1996...................................................... 13,076,760 15,034,636
1995...................................................... 10,924,456 10,812,993
Other operating expenses
1996...................................................... 24,374,939 27,195,899
1995...................................................... 19,676,575 20,680,844
Amortization and write off of intangible assets
1996...................................................... 4,808,982 5,648,766
Net loss
1996...................................................... (9,100,915) (15,302,987)
1995...................................................... (12,141,790) (14,568,653)
Basic and Fully Diluted loss per share
1996...................................................... ($1.21) ($2.04)
1995...................................................... ($1.62) ($1.94)
</TABLE>
Interim Financial Information
The interim financial information as of September 30, 1998, and for the
nine months ended September 30, 1997 and 1998, is unaudited but includes all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its financial position at such
date and its results of operations and cash flows for those periods. Operating
results for the nine months ended September 30, 1998, are not necessarily
indicative of results that may be expected for any future periods.
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.
F-8
<PAGE> 78
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognizes software license and hardware revenues at the time
of shipment, provided all shipment obligations have been met, fees are fixed and
determinable and collection of the resulting receivable is deemed probable. Fees
from licenses sold together with consulting services are generally recognized
upon shipment provided that the aforementioned criteria have been met and
payment of the license fee is not dependent upon the performance of the
consulting services. In instances where the above conditions have not been met,
both the product revenues and the consulting fees are recognized under the
percentage of completion method of contract accounting or under the completed
contract method if considered more appropriate.
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.
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' ("AICPA") Statement of Position No. 97-2 "Software
Revenue Recognition" ("SOP 97-2"), which supersedes Statement of Position No.
91-1. SOP 97-2 provides more guidance particularly with respect to multiple
deliverables and "when and if available" products. SOP 97-2 is effective for
transactions entered into for annual periods beginning after December 15, 1997.
Restatement of prior financial statements is prohibited.
In March 1998, the AICPA issued Statement of Position No. 98-4, "Deferral
of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition,"
which defers for one year the application of certain provisions of SOP 97-2.
These provisions limit what is considered vendor-specific objective evidence of
the fair value of the various elements in a multiple-element arrangement. All
other provisions of SOP 97-2 remain in effect. In December 1998, the AICPA
issued Statement of Position No. 98-9, which amends SOP 98-4, to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999. Management has
assessed this new statement, as amended, and believes its adoption will not have
a material effect on the timing of the Company's revenue recognition or cause
changes to its revenue recognition policy.
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 accumulated as a separate component of stockholders' equity.
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
F-9
<PAGE> 79
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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, normally at the completion of a detailed program design.
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.
As a result of a decision to discontinue the development of a software
product designed for financial institutions, management wrote off $388,000 of
purchased software costs in 1995.
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 one to three years, depending on the circumstances of the company
acquired, and management employment agreements are amortized over periods of
three to five years.
F-10
<PAGE> 80
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1995, the Company paid approximately $388,000 for a software product
named "FASTBANK" on the assumption that future development would occur and
financing would be made available by its bankers. Subsequent to this
acquisition, additional bank financing was not obtained and this product was not
being developed further. By the end of 1995, management had determined it would
no longer pursue the development of this product and accordingly wrote off
$388,000.
In 1996, the Company elected to replace certain members of management in
connection with the integration of an acquired business. The Company had
allocated approximately $1,515,000 to the value of this management team upon
acquisition in late 1994. This amount was being amortized on a straight-line
basis over three years. As a result of the termination of these employees, the
Company wrote off $505,000 in 1996, representing the remaining unamortized
balance at that time.
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 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
F-11
<PAGE> 81
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator used for both basic and
diluted earnings (loss) per share.... $(14,569) $(15,304) $(1,620) $(2,086) $ 2,922
Denominator for basic earnings per
share:
Weighted average shares
outstanding....................... 7,504 7,504 7,518 7,504 10,000
Denominator for diluted earnings per
share:
Denominator for basic earnings per
share............................. 7,504 7,504 7,518 7,504 10,000
Effect of dilutive securities:
Warrants............................. -- -- -- -- 15
-------- -------- ------- ------- -------
7,504 7,504 7,518 7,504 10,015
======== ======== ======= ======= =======
Basic earnings (loss) per share........ $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======== ======== ======= ======= =======
Diluted earnings (loss) per share...... $ (1.94) $ (2.04) $ (0.21) $ (0.28) $ 0.29
======== ======== ======= ======= =======
</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
F-12
<PAGE> 82
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 is required for
periods beginning after December 15, 1997, though it is not required for interim
financial statements in its initial year of adoption in 1998 and will not have
any impact on the Company's consolidated results of operations, financial
position or cash flows.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods held for resale....................... $ 498 $ 262 $ 218
Maintenance parts.................................... 785 808 728
------ ------ ------
$1,283 $1,070 $ 946
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Fixtures and equipment............................... $4,779 $5,160 $5,864
Motor vehicles....................................... 605 459 351
Leasehold improvements............................... 294 283 272
------ ------ ------
5,678 5,902 6,487
Less accumulated depreciation........................ (3,292) (3,862) (4,292)
------ ------ ------
$2,386 $2,040 $2,195
====== ====== ======
</TABLE>
At December 31, 1996 and 1997, the Company held property and equipment with
a net book value of $51,000 and $90,000, respectively, under capital leases.
Depreciation expense was $345,000, $958,000 and $977,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
4. BUSINESS COMBINATIONS
The Company made various acquisitions during 1995 and 1996, which have been
accounted for using the purchase method of accounting.
F-13
<PAGE> 83
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Current assets (including cash of $504 in 1995 and $88 in
1996).................................................... $3,078 $ 424
Property and equipment..................................... 1,417 346
Software development costs and intellectual property....... 3,972 331
Accounts payable and accrued expenses...................... 3,777 (581)
Intangible assets.......................................... 4,323 2,862
------ ------
$9,013 $3,382
====== ======
Consideration paid:
Cash consideration......................................... $7,998 $3,302
Deferred consideration..................................... 982 38
Related acquisition costs.................................. 33 42
------ ------
$9,013 $3,382
====== ======
</TABLE>
The following unaudited pro forma results of operations for the years ended
December 31, 1995 and 1996 assume that each of the above acquisitions had
occurred on January 1, 1995. (In thousands, except per share amounts.)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Revenue................................................ 28,847 36,054
Net (loss)............................................. (14,456) (15,517)
Basic (loss) per share................................. (1.93) (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,
1995, 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,
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current portion of long-term debt (Note 6)........... $2,103 $2,803 $3,115
Short-term demand facility........................... 4,387 4,404 4,100
------ ------ ------
$6,490 $7,207 $7,215
====== ====== ======
</TABLE>
The short-term demand facility bears interest at the lending bank's base
rate plus the applicable margin.
F-14
<PAGE> 84
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
------------------ SEPTEMBER 30,
DESCRIPTION 1996 1997 1998
----------- ------- ------- -------------
(UNAUDITED)
<S> <C> <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................................... $ 449 $ 309 $ 219
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $144, maturing October
2000...................................................... 2,246 1,584 1,167
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...................................................... 349 144 51
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... 685 329 80
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $84, maturing May 2001....... 1,493 1,098 855
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR inclusive of associated costs, principal
due in quarterly installments of $118, maturing April
2000...................................................... 1,712 1,176 819
Loan payable to bank, interest payable monthly at 4% over
Sterling LIBOR plus variable associated funding costs,
averaging 1/32% in 1997, principal due $823 in February
1998, balance in equal annual installments, maturing
February 2002............................................. 8,557 8,226 7,506
Loan payable to bank, interest payable at 12% per annum,
maturing 2002............................................. -- 33 34
------- ------- -------
15,491 12,899 11,731
Less current installments................................... 2,103 2,803 (3,115)
------- ------- -------
$13,388 $10,096 $ 8,616
======= ======= =======
</TABLE>
The lending bank's base rate ranged between 6.0% and 7.3% and Sterling
LIBOR ranged between 6.6% and 7.9% during the year ended December 31, 1997.
At September 30, 1998, the Company was not in compliance with certain
financial covenants in the agreements relating to its long-term debt but has
obtained a waiver in respect of all covenants for the period to March 31, 1999,
or until the completion of an IPO, whichever occurs first.
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.
F-15
<PAGE> 85
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, future minimum annual principal payments of the
Company's long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 2,803
1999....................................................... 3,359
2000....................................................... 2,918
2001....................................................... 1,936
2002....................................................... 1,883
-------
$12,899
=======
</TABLE>
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>
1998........................................................ $ 56
1999........................................................ 48
2000........................................................ 47
2001........................................................ 36
2002........................................................ 8
----
195
Less amount representing interest........................... 52
----
143
Less current portion........................................ 40
----
$103
====
</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, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $1,548
1999........................................................ 1,050
2000........................................................ 639
2001........................................................ 349
2002........................................................ 327
Thereafter.................................................. 3,057
------
$6,970
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 amounted
to $1,907,487, $1,629,113 and $802,630, respectively, while rent expense for the
nine months ended September 30, 1998 and 1997 amounted to $1,101,212 and
$1,375,867, respectively.
Employment Agreements
The Company has entered into employment agreements with its Chief Executive
Officer (CEO), and its President and Chief Financial Officer (CFO) and its Chief
Operating Officer (COO). The employment agreements for its CEO and CFO provide
for an initial three-year term expiring on June 1, 2001. The
F-16
<PAGE> 86
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employment agreement for its COO provides for an initial one-year term expiring
on June 1, 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, as defined.
Employee Benefit Plans
The Company has various defined contribution retirement plans for qualified
employees. Contributions made under the plans were $192,000, $298,000 and
$328,000 in 1995, 1996 and 1997, respectively.
9. INCOME TAX
The Company's principal subsidiaries are not resident in the United States
for tax purposes. The Company made acquisitions during both 1995 and 1996 and
the income tax expense (benefit) has principally related to prior period
adjustments (in thousands). These prior year adjustments are due to small
differences between draft tax computations used for the purposes of the tax
charge in the financial statements and the final agreed tax computations, and
are classified as "other" below.
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -----
<S> <C> <C> <C>
Statutory tax at 31%.................................... $(4,505) $(4,759) $(491)
Non deductible expenses................................. 2,831 2,600 733
Valuation allowance on operating loss................... 1,674 2,159 (207)
Other................................................... 37 (50) --
------- ------- -----
Income tax expense (benefit)............................ $ 37 $ (50) $ 35
======= ======= =====
</TABLE>
The Company's deferred tax assets as of December 31, primarily consist of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Loss carryforwards.......................................... $ 3,482 $ 2,978
Equipment................................................... 1,009 856
Other....................................................... 8 24
------- -------
4,499 3,858
Valuation allowance......................................... (4,499) (3,858)
------- -------
Total deferred tax assets......................... $ -- $ --
======= =======
</TABLE>
As of December 31, 1997, the Company had approximately $9,600,000 of net
operating loss carryforwards. The net operating losses relate to the Company's
UK operations. Such tax losses are available for carry forward indefinitely in
the UK for relief against future profits of the trades in which they arose.
These net operating loss carryforwards will not expire at any particular time
provided the Company does not change its principal activity or cease operations.
The Company has recorded a valuation allowance to offset the entire deferred tax
asset.
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 2003. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions such as continued
F-17
<PAGE> 87
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. 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 January 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.
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 June 16, 1998, each share of the Company's Series A convertible
preferred stock was converted into one share of common stock.
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,
F-18
<PAGE> 88
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 September 30, 1998, there were no
options to purchase Common Stock outstanding.
11. RELATED PARTY TRANSACTIONS
During 1998, the Company's President and Chief Financial Officer made loans
to the Company in the aggregate principal amount of $1,800,000. These loans
mature in January 2001 and bear interest at LIBOR plus 2% per annum. Interest
expense on these loans for the nine months ended September 30, 1998 amounted to
$49,325.
In May 1998, the Company loaned $2,600,000 to its Chief Executive Officer.
The loan matures in May 2000 and bears interest at LIBOR plus 2% per annum.
Interest income on this loan amounted to $96,665 for the nine months ended
September 30, 1998.
12. SEGMENT REPORTING INFORMATION
The following table presents a summary of operations by geographic region:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
---------------------------- SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------ -----------------
<S> <C> <C> <C> <C>
REVENUE:
Domestic................................... 0 333 2,324 1,547
Europe..................................... 21,422 34,099 40,050 34,723
------- ------- ------ ------
Total assets..................... 21,422 34,432 42,374 36,270
OPERATING (LOSS)INCOME:
Domestic................................... 0 (73) (14) (473)
Europe..................................... (13,248) (13,375) 296 6,063
------- ------- ------ ------
Total assets..................... (13,248) (13,448) 310 5,590
IDENTIFIABLE ASSETS:
Domestic................................... 0 439 439 541
Europe 22,729 18,347 16,803 28,982
------- ------- ------ ------
Total assets..................... 22,729 18,449 17,242 29,523
</TABLE>
13. SUBSEQUENT EVENT
PROPOSED PUBLIC OFFERING
The Company intends to file a Registration Statement with the SEC for the
sale of 3,500,000 shares of Common Stock (excluding the underwriters'
over-allotment option for additional shares).
F-19
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
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, THE SELLING
STOCKHOLDERS 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Organization of the Company........... 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 52
Certain Transactions.................. 56
Principal and Selling Stockholders.... 57
Description of Capital Stock.......... 58
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 63
Experts............................... 63
Change in Accountants................. 64
Additional Information................ 64
Glossary of Terms..................... 65
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,500,000 SHARES
[AREMISSOFT LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
CRUTTENDEN ROTH
INCORPORATED
FAC/EQUITIES
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 90
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....................................... 7,000
Printing and engraving expenses............................. *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
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, Spence
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> 91
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1998, the Company issued a convertible promissory note (the
"Note") in the principal amount of $500,000. 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 will complete 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.
Subject to stockholder approval by AremisSoft-Nevada, the Company intends to
complete the exchange and succeed to the assets and assume the liabilities of
AremisSoft-Nevada and the Company's Board of Directors will have the discretion
of enacting a 1.711772-for-one reverse stock split. When completed, each
outstanding share, option or warrant to purchase Common Stock of
AremisSoft-Nevada will automatically be converted into one share, option or
warrant to purchase Common Stock of the Company and AremisSoft-Nevada will
become a wholly-owned subsidiary of the Company. The securities are being
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*
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 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 Dr. Lycourgos
K. Kyprianou(3)
</TABLE>
II-2
<PAGE> 92
<TABLE>
<S> <C>
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
10.12 Indemnification Agreement between the Company and Roys
Poyiadjis
10.13 Promissory Note made by Dr. Lycourgos K. Kyprianou, in favor
of the Company
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
10.16 Registration Rights Agreement between the Company and Dr.
Lycourgos K. Kyprianou
10.17 Registration Rights Agreement between the Company and Roys
Poyiadjis
16.1 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
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to AremisSoft-Nevada's Form 8-K, filed on October
10, 1997
(2) Incorporated by reference to AremisSoft-Nevada'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.................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ 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 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
II-3
<PAGE> 93
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> 94
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 January 28, 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/ ROYS POYIADJIS* January 28, 1999
- ---------------------------------------------
Dr. Lycourgos K. Kyprianou,
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Executive Officer)
/s/ ROYS POYIADJIS January 28, 1999
- ---------------------------------------------
Roys Poyiadjis, President, Chief Financial
Officer
and Director
</TABLE>
* pursuant to a power of attorney
II-5
<PAGE> 95
REPORT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS, ON SCHEDULE
We have audited the consolidated financial statements of AremisSoft
Corporation as of December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997 and have issued our report thereon dated
January 27, 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
January 27, 1999
S-1
<PAGE> 96
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, 1995
Allowance for doubtful accounts.... 76 10 1 30 55
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
Nine Months ended September 30,
1998
Allowance for doubtful accounts.... 971 88 1 -- 1,058
</TABLE>
S-2
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
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 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
10.12 Indemnification Agreement between the Company and Roys
Poyiadjis
10.13 Promissory Note made by Dr. Lycourgos K. Kyprianou, in favor
of the Company
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
10.16 Registration Rights Agreement between the Company and Dr.
Lycourgos K. Kyprianou
10.17 Registration Rights Agreement between the Company and Roys
Poyiadjis
16.1 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
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to AremisSoft-Nevada's Form 8-K, filed on October
10, 1997
(2) Incorporated by reference to AremisSoft-Nevada's Form 10-K, filed on July 1,
1998
(3) Previously filed
<PAGE> 1
EXHIBIT 10.11
AGREEMENT TO INDEMNIFY
THIS AGREEMENT TO INDEMNIFY (this "Agreement") is made and entered into
as of this 16th day of November, 1998, by and between AremisSoft Corporation, a
Nevada corporation ("AremisSoft"), and Dr. Lycourgos K. Kyprianou ("Dr.
Kyprianou").
WHEREAS, Dr. Kyprianou has agreed to continue to serve, as an officer
and director of AremisSoft; and
WHEREAS, as an inducement for Dr. Kyprianou to continue serving as an
officer and director, AremisSoft desires to provide indemnification to the
greatest extent permissible under the law; and
WHEREAS, the parties to this Agreement intend to conduct their
relationships hereunder on an arm's length basis.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and as an inducement for Dr. Kyprianou's continued service as
an officer and director, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions.
a. "Expenses" shall mean any:
(1) With respect to any Indemnifiable Event, any expense,
liability, lien, cost, assessment, penalty, damage, tax, demand, or loss,
including attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement thereof;
(2) Any interest, assessments, or other charges imposed on
any of the items in part (i) above;
(3) Any federal, state, or local taxes and/or penalties
imposed as a result of the actual or deemed receipt of any payments under this
Agreement, and any Expense paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorneys' fees that Dr. Kyprianou shall
incur or suffer, which arise, result from, or relate to any breach or inaccuracy
of any of the representations and warranties of AremisSoft or the failure of
AremisSoft to perform any
-1-
<PAGE> 2
of its covenants, agreements or obligations contained in this Agreement or in
any instrument or other document delivered hereunder or in connection herewith.
b. "Indemnifiable Event" shall mean any event or occurrence that
takes place either before or after execution of this Agreement that is related
to:
(1) The fact that Dr. Kyprianou is or was a director,
officer, employee or agent of AremisSoft, or while a director, officer or agent
is or was serving at the request of AremisSoft as a director, officer, employee,
trustee, agent, or fiduciary of another corporation, partnership, joint venture,
employment benefit plan, trust or other enterprise; or
(2) Anything done or not done by Dr. Kyprianou in any such
capacity, whether or not the basis of the Proceeding is an alleged action in an
official capacity as a director, officer, employee, or agent, or in any other
capacity while serving as a director, officer or agent of AremisSoft.
c. "Proceeding" shall mean any threatened, pending, or completed
action, claim, demand, suit, arbitration or proceeding, or any claim, demand,
inquiry, hearing, or investigation, whether conducted by AremisSoft or any other
party, that Dr. Kyprianou in good faith believes might lead to the institution
of any such action, suit, arbitration or proceeding, whether civil, criminal, in
equity, administrative, investigative or other.
2. Indemnification of Dr. Kyprianou. In the event Dr. Kyprianou was, is,
or becomes a participant in, or is threatened to be made a participant in, a
Proceeding by reason of (or arising in part out of) an Indemnifiable Event,
AremisSoft shall indemnify Dr. Kyprianou from and against any and all Expenses
to the fullest extent permitted by law, as the same exists or may hereafter be
amended or interpreted (but in the case of any such amendment or interpretation,
only to the extent that such amendment or interpretation permits AremisSoft to
provide broader indemnification rights than were permitted prior thereto).
AremisSoft's obligation to indemnify Dr. Kyprianou shall apply whether or not
there is any allegation that Dr. Kyprianou was acting beyond or outside his
scope of authority as an officer, director or agent of AremisSoft. It is
intended that this covenant of indemnification shall be construed as broadly as
possible to include any claim, action, suit, proceeding or arbitration against
Dr. Kyprianou without regard to whether or not Dr. Kyprianou was at fault.
3. Payment of Expenses.
a. If so requested by Dr. Kyprianou, AremisSoft shall from time
to time, within ten (10) business days of such request, advance up to Ten
Thousand Dollars ($10,000) in expenses to Dr. Kyprianou ("Expense Advance") for
the purpose of paying legal retainers and deposits against anticipated Expenses.
The provisions of this Section shall not in any way limit AremisSoft's
obligation to indemnify Dr. Kyprianou.
b. The AremisSoft shall promptly pay Dr. Kyprianou's Expenses
reasonably incurred within thirty (30) days from Dr. Kyprianou's tender of
invoices reflecting such Expenses.
-2-
<PAGE> 3
c. If AremisSoft fails to pay any such Expenses within thirty
(30) days, AremisSoft shall pay to Dr. Kyprianou a late fee of one and one
percent (1%) per month or part thereof until all such expenses are paid in full,
in addition to all other damage suffered by Dr. Kyprianou.
d. To the extent it is ultimately found that Dr. Kyprianou is not
entitled to indemnification under the terms of this Agreement, AremisSoft shall
be entitled to be reimbursed by Dr. Kyprianou for all such amounts (the
"Reimbursed Amounts"), and Dr. Kyprianou hereby agrees to reimburse AremisSoft
promptly for the same. Dr. Kyprianou's obligation to reimburse AremisSoft for
the Reimbursed Amounts shall be unsecured and no interest shall be charged
thereon.
4. Notice and Opportunity to Defend. Dr. Kyprianou shall receive
indemnification from AremisSoft in accordance with this Agreement as soon as
practicable after Dr. Kyprianou has made written demand on AremisSoft for
indemnification. If any Proceeding is initiated, or any claim or demand is made,
against Dr. Kyprianou with respect to an Indemnifiable Event, then the Dr.
Kyprianou shall give prompt written notice of such Proceeding to AremisSoft.
AremisSoft shall, at its own expense and with its own counsel, if Dr. Kyprianou
so chooses, defend or settle such Proceeding; provided, however, that: i)
AremisSoft shall keep Dr. Kyprianou informed of all material developments and
events relating to such Proceeding; ii) Dr. Kyprianou shall have the right to
participate, at his own expense, provided that Dr. Kyprianou has requested that
AremisSoft defend Dr. Kyprianou, in the defense of such Proceeding, and shall
cooperate as reasonably requested by AremisSoft in the defense thereof; and iii)
AremisSoft shall not settle such Proceeding without the prior written consent of
Dr. Kyprianou, which consent shall not be unreasonably withheld. If AremisSoft
defends Dr. Kyprianou under a reservation of rights with respect to any
Proceeding, under such circumstances, the rights, duties and obligations of the
parties and counsel shall be governed by San Diego Federal Credit Union v. Cumis
Insurance Society, Inc. (1984) 162 Cal.App.3d 358 and California Civil Code
Section 2778 and AremisSoft shall provide to Dr. Kyprianou separate counsel paid
for by AremisSoft.
5. Partial Indemnification. If Dr. Kyprianou is entitled under any
provision of this Agreement to indemnification by AremisSoft for a portion of
Expenses, but not for the total amount of Expenses, AremisSoft shall indemnify
Dr. Kyprianou for the portion to which Dr. Kyprianou is entitled.
6. Limitation on AremisSoft. AremisSoft shall not settle any Proceeding
in any manner that would impose any penalty or limitation on Dr. Kyprianou
without Dr. Kyprianou's written consent. Dr. Kyprianou will not unreasonably
withhold consent to a proposed settlement.
7. Limitation on Dr. Kyprianou. Dr. Kyprianou shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
AremisSoft without AremisSoft's written consent. AremisSoft will not
unreasonably withhold consent to a proposed settlement.
-3-
<PAGE> 4
AremisSoft shall not be liable to indemnify Dr. Kyprianou under this
Agreement with regard to any judicial award if AremisSoft was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. Non-Exclusivity. The rights of Dr. Kyprianou under this Agreement
shall be in addition to any other indemnification rights Dr. Kyprianou may have
under AremisSoft's articles of incorporation, bylaws, applicable law, or
otherwise. To the extent that a change in applicable law (whether by statute or
judicial decision) permits greater indemnification than afforded currently under
AremisSoft's articles of incorporation, bylaws, applicable law, or this
Agreement, it is the intent of the parties that Dr. Kyprianou enjoy by this
Agreement the greater benefits afforded by such change.
9. Indemnification Not a Waiver. Dr. Kyprianou's right to
indemnification pursuant to this Agreement shall not be deemed to be his
exclusive remedy in connection with or arising from any Indemnifiable Event or
the failure of AremisSoft to perform any of its covenants or obligations
contained in this Agreement; and the exercise by Dr. Kyprianou of his right to
demand and receive such indemnification shall not be deemed to prejudice, or to
operate as a waiver of, any remedy to which he may be entitled at law or equity.
10. Liability Insurance. To the extent AremisSoft maintains an insurance
policy or policies providing directors' and officers' liability insurance, to
the extent that Dr. Kyprianou may be covered by such policy or policies, Dr.
Kyprianou shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for any corporate
director or officer.
11. Subrogation. In the event of payment under this Agreement,
AremisSoft shall be subrogated to the extent of such payment to all of the
rights of recovery of Dr. Kyprianou, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable AremisSoft effectively to bring
suit to enforce such rights.
12. No Duplication of Payments. AremisSoft shall not be liable under
this Agreement to make any payment in connection with any claim made against Dr.
Kyprianou to the extent Dr. Kyprianou has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable
under this Agreement.
13. No Right to Set Off. AremisSoft shall have no right to set off the
amount of any Expense with respect to which Dr. Kyprianou may be indemnified by
AremisSoft hereunder against the amount of any obligation of Dr. Kyprianou to
AremisSoft.
14. Accounting of Profits Under Section 16(b). AremisSoft shall not be
liable under this Agreement to make any payment in connection with any claim
made against Dr. Kyprianou for an accounting of profits made from the purchase
or sale by Dr. Kyprianou of securities of AremisSoft within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto, or
similar provisions of any state statute or common law.
-4-
<PAGE> 5
15. Authorization; Binding Nature of Agreement. AremisSoft has all
necessary power and authority to enter into and perform its obligations under
this Agreement, and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of AremisSoft and
its officers, directors and shareholders. No authorization, consent or approval
of or filing with any governmental authority or any other person is required to
be obtained or made by AremisSoft in connection with the execution, delivery or
performance of this Agreement.
16. Confidentiality. Unless otherwise required by law, including
required disclosure under federal and state securities laws, AremisSoft agrees
to, and shall undertake all necessary action required to, keep confidential all
information which relates to any Indemnifiable Event, Expense or any other
transaction or defense or indemnity arising out of this Agreement which relates
to Dr. Kyprianou.
17. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall
operate as a waiver of any other provisions hereof, nor shall such waiver
constitute a continuing waiver.
18. Binding Effect. This Agreement shall be binding on and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the AremisSoft), assigns, spouses, heirs and personal and legal
representatives. AremisSoft shall require and cause its successor to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that AremisSoft would be required to perform if no such succession had
taken place. The indemnification provided under this Agreement shall continue
for Dr. Kyprianou for any action taken or not taken while serving in an
indemnified capacity pertaining to an Indemnifiable Event even though Dr.
Kyprianou may have ceased to serve in such capacity at the time of any
Proceeding.
19. Maintenance of Obligation to Indemnify. AremisSoft hereby covenants
and agrees that it shall not permit the indemnification provided to Dr.
Kyprianou as set forth in this Agreement to be compromised, restricted, limited,
or eliminated in any manner, including by way of amendment of AremisSoft's
bylaws and other governing documents.
20. Severability. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or
unenforceable.
21. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be
-5-
<PAGE> 6
performed in such state without giving effect to the principles of conflicts of
laws, except that California law shall be applied in determining the scope and
extent of the phrase "to the fullest extent permitted by law," in Section 2 of
this Agreement.
22. Further Assurances. Each party shall execute such instruments and
other documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. Attorneys' Fees. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. Binding Arbitration. Any claim, dispute, or controversy arising out
of this Agreement, or breach thereof, shall be resolved by submission to binding
arbitration.
a. Arbitration Notice. The arbitration shall commence upon any
party sending to any other party to this Agreement a notice in writing (the
"Arbitration Notice") demanding arbitration and specifying the issue(s) to be
arbitrated and all relief sought (the "Arbitration Matter").
b. Selection of Arbitrators. The arbitrators shall be chosen as
follows:
(1) The parties, or their legal representatives, may agree
in writing upon a sole arbitrator. In the event they cannot so agree each side
shall, within fifteen (15) days after the giving of the Arbitration Notice,
exchange a list of acceptable arbitrators consisting of attorneys at law, and
from that list each side may reject all but one arbitrator from each list. The
acceptable arbitrators shall constitute a new list and the process shall be
repeated until three (3) acceptable arbitrators are designated who shall
constitute the "Arbitration Panel." If three (3) acceptable arbitrators are not
appointed within thirty (30) days after giving the Arbitration Notice, Superior
Court of the State of California for the County of Sacramento shall, upon the
filing of a petition by any of the parties hereto pursuant to the provisions of
California Code of Civil Procedure Section 1281.6 (or any successor section),
and after a hearing at which all parties are afforded an opportunity to be
present and be heard, select a the neutral arbitrator from a list of five (5)
persons obtained by the court from the parties jointly or, if they cannot agree,
from the Sacramento County office of the American Arbitration Association.
c. Books and Records. The parties agree to make available to the
Arbitration Panel all books, records, schedules, and other information requested
by it. Such matters are to be made available to the Arbitration Panel at such
times as are deemed necessary by it to make its decision as herein provided. The
Arbitration panel shall have all those powers set forth in Section 1282.6 of
California Code of Civil Procedure including, but not limited to, those powers
relating to the production of books, records, documents and other evidence.
-6-
<PAGE> 7
d. Discovery. The parties may conduct such discovery, and the
Arbitration Panel shall have such discovery powers, as are set forth in the
California Code of Civil Procedure Section 1283.05. The Arbitration Panel shall
be empowered to grant all provisional relief permitted by the California Code of
Civil Procedure. In addition to all other arbitration rights hereby provided,
the provisions of Sections 1282.2, 1282.4 and 1282.6 of the California Civil
Code shall apply. In addition to any and all arbitration rights hereby provided,
the arbitration proceedings and discovery shall be conducted pursuant to
Sections 1282 et seq. of California Code of Civil Procedure, including, without
limitation, the provisions of Sections 1282.2, 1282.4, 1283 and 1283.5.
e. Enforcement. Enforcement of the Arbitration Panel's award
shall be effected pursuant to California Civil Code Sections 1281 et seq.
However, the provisions of California Code of Civil Procedure Section 1281.8
shall not apply and the Arbitration Panel shall be specifically empowered to
grant all provisional remedies permitted under the California Code of Civil
Procedure.
f. Location. The arbitration shall take place in the County of
Sacramento, State of California, at a time and place selected by the Arbitration
Panel or at such other time and location as is acceptable to all parties. Notice
in writing of such time and place shall be given by the Arbitration Panel to
each party at least thirty (30) days prior to the date so fixed.
g. Time Periods. The Arbitration Panel shall diligently,
expeditiously, and in good faith hear and decide the Arbitration Matter under
consideration, within the limits and subject to the standards set forth in this
Agreement. In any event, such decision shall be rendered not later than thirty
(30) days after the arbitration hearing is conducted. If there is only one (1)
arbitrator, his decision shall be final and binding; if there are three (3)
arbitrators, the agreed decision of any two (2) of them shall be final and
binding. If no two (2) of the arbitrators are able to agree upon a decision, the
decision of the neutral third arbitrator shall be final and binding. The
Arbitration Panel shall prepare an award in writing which reflects the final
decision of the Arbitration Panel and a copy of same shall be delivered to each
party hereto. Judicial confirmation, correction, or vacation of the decision of
the Arbitration Panel shall be sought only in the Marin County Superior Court,
which judgment may be enforced and shall be accorded full faith and credit in
any court of competent jurisdiction, including any jurisdiction in which is
located any real property which is the subject matter of the dispute.
h. Binding Effect. The arbitration award shall be final,
conclusive and binding on all parties thereto and shall be non-appealable. The
costs of the arbitrators shall be borne by the losing party.
25. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
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<PAGE> 8
To AremisSoft: Roys Poyiadjis, President
AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ
England
With a copy to: Scott E. Bartel, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
To Dr. Kyprianou: Dr. Lycourgos K. Kyprianou
60 Bishopsgate
London EC2N 4AJ
England
26. Effectiveness. This Agreement shall immediately become effective
upon adoption by AremisSoft's Board of Directors. Notwithstanding the
effectiveness of this Agreement, AremisSoft shall use its best efforts to have
its Board of Directors approve this Agreement.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AREMISSOFT: AremisSoft Corporation
By:/s/ Roys Poyiadjis
-------------------------------
Roys Poyiadjis, President
DR. KYPRIANOU:
/s/ Dr. Lycourgos K. Kyprianou
----------------------------------
Dr. Lycourgos K. Kyprianou, an individual
-9-
<PAGE> 1
EXHIBIT 10.12
AGREEMENT TO INDEMNIFY
THIS AGREEMENT TO INDEMNIFY (this "Agreement") is made and entered into
as of this 16th day of November, 1998, by and between AremisSoft Corporation, a
Nevada corporation ("AremisSoft"), and Roys Poyiadjis.
WHEREAS, Roys Poyiadjis has agreed to continue to serve, as an officer
and director of AremisSoft; and
WHEREAS, as an inducement for Roys Poyiadjis to continue serving as an
officer and director, AremisSoft desires to provide indemnification to the
greatest extent permissible under the law; and
WHEREAS, the parties to this Agreement intend to conduct their
relationships hereunder on an arm's length basis.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and as an inducement for Roys Poyiadjis' continued service as
an officer and director, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions.
a. "Expenses" shall mean any:
(1) With respect to any Indemnifiable Event, any expense,
liability, lien, cost, assessment, penalty, damage, tax, demand, or loss,
including attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement thereof;
(2) Any interest, assessments, or other charges imposed on
any of the items in part (i) above;
(3) Any federal, state, or local taxes and/or penalties
imposed as a result of the actual or deemed receipt of any payments under this
Agreement, and any Expense paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorneys' fees that Roys Poyiadjis shall
incur or suffer, which arise, result from, or relate to any breach or inaccuracy
of any of the representations and warranties of AremisSoft or the failure of
AremisSoft to perform any
-1-
<PAGE> 2
of its covenants, agreements or obligations contained in this Agreement or in
any instrument or other document delivered hereunder or in connection herewith.
b. "Indemnifiable Event" shall mean any event or occurrence that
takes place either before or after execution of this Agreement that is related
to:
(1) The fact that Roys Poyiadjis is or was a director,
officer, employee or agent of AremisSoft, or while a director, officer or agent
is or was serving at the request of AremisSoft as a director, officer, employee,
trustee, agent, or fiduciary of another corporation, partnership, joint venture,
employment benefit plan, trust or other enterprise; or
(2) Anything done or not done by Roys Poyiadjis in any
such capacity, whether or not the basis of the Proceeding is an alleged action
in an official capacity as a director, officer, employee, or agent, or in any
other capacity while serving as a director, officer or agent of AremisSoft.
c. "Proceeding" shall mean any threatened, pending, or completed
action, claim, demand, suit, arbitration or proceeding, or any claim, demand,
inquiry, hearing, or investigation, whether conducted by AremisSoft or any other
party, that Roys Poyiadjis in good faith believes might lead to the institution
of any such action, suit, arbitration or proceeding, whether civil, criminal, in
equity, administrative, investigative or other.
2. Indemnification of Roys Poyiadjis. In the event Roys Poyiadjis was,
is, or becomes a participant in, or is threatened to be made a participant in, a
Proceeding by reason of (or arising in part out of) an Indemnifiable Event,
AremisSoft shall indemnify Roys Poyiadjis from and against any and all Expenses
to the fullest extent permitted by law, as the same exists or may hereafter be
amended or interpreted (but in the case of any such amendment or interpretation,
only to the extent that such amendment or interpretation permits AremisSoft to
provide broader indemnification rights than were permitted prior thereto).
AremisSoft's obligation to indemnify Roys Poyiadjis shall apply whether or not
there is any allegation that Roys Poyiadjis was acting beyond or outside his
scope of authority as an officer, director or agent of AremisSoft. It is
intended that this covenant of indemnification shall be construed as broadly as
possible to include any claim, action, suit, proceeding or arbitration against
Roys Poyiadjis without regard to whether or not Roys Poyiadjis was at fault.
3. Payment of Expenses.
a. If so requested by Roys Poyiadjis, AremisSoft shall from time
to time, within ten (10) business days of such request, advance up to Ten
Thousand Dollars ($10,000) in expenses to Roys Poyiadjis ("Expense Advance") for
the purpose of paying legal retainers and deposits against anticipated Expenses.
The provisions of this Section shall not in any way limit AremisSoft's
obligation to indemnify Roys Poyiadjis.
b. The AremisSoft shall promptly pay Roys Poyiadjis's Expenses
reasonably incurred within thirty (30) days from Roys Poyiadjis's tender of
invoices reflecting such Expenses.
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<PAGE> 3
c. If AremisSoft fails to pay any such Expenses within thirty
(30) days, AremisSoft shall pay to Roys Poyiadjis a late fee of one and one
percent (1%) per month or part thereof until all such expenses are paid in full,
in addition to all other damage suffered by Roys Poyiadjis.
d. To the extent it is ultimately found that Roys Poyiadjis is
not entitled to indemnification under the terms of this Agreement, AremisSoft
shall be entitled to be reimbursed by Roys Poyiadjis for all such amounts (the
"Reimbursed Amounts"), and Roys Poyiadjis hereby agrees to reimburse AremisSoft
promptly for the same. Roys Poyiadjis's obligation to reimburse AremisSoft for
the Reimbursed Amounts shall be unsecured and no interest shall be charged
thereon.
4. Notice and Opportunity to Defend. Roys Poyiadjis shall receive
indemnification from AremisSoft in accordance with this Agreement as soon as
practicable after Roys Poyiadjis has made written demand on AremisSoft for
indemnification. If any Proceeding is initiated, or any claim or demand is made,
against Roys Poyiadjis with respect to an Indemnifiable Event, then the Roys
Poyiadjis shall give prompt written notice of such Proceeding to AremisSoft.
AremisSoft shall, at its own expense and with its own counsel, if Roys Poyiadjis
so chooses, defend or settle such Proceeding; provided, however, that: i)
AremisSoft shall keep Roys Poyiadjis informed of all material developments and
events relating to such Proceeding; ii) Roys Poyiadjis shall have the right to
participate, at his own expense, provided that Roys Poyiadjis has requested that
AremisSoft defend Roys Poyiadjis, in the defense of such Proceeding, and shall
cooperate as reasonably requested by AremisSoft in the defense thereof; and iii)
AremisSoft shall not settle such Proceeding without the prior written consent of
Roys Poyiadjis, which consent shall not be unreasonably withheld. If AremisSoft
defends Roys Poyiadjis under a reservation of rights with respect to any
Proceeding, under such circumstances, the rights, duties and obligations of the
parties and counsel shall be governed by San Diego Federal Credit Union v. Cumis
Insurance Society, Inc. (1984) 162 Cal.App.3d 358 and California Civil Code
Section 2778 and AremisSoft shall provide to Roys Poyiadjis separate counsel
paid for by AremisSoft.
5. Partial Indemnification. If Roys Poyiadjis is entitled under any
provision of this Agreement to indemnification by AremisSoft for a portion of
Expenses, but not for the total amount of Expenses, AremisSoft shall indemnify
Roys Poyiadjis for the portion to which Roys Poyiadjis is entitled.
6. Limitation on AremisSoft. AremisSoft shall not settle any Proceeding
in any manner that would impose any penalty or limitation on Roys Poyiadjis
without Roys Poyiadjis's written consent. Roys Poyiadjis will not unreasonably
withhold consent to a proposed settlement.
7. Limitation on Roys Poyiadjis. Roys Poyiadjis shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
AremisSoft without AremisSoft's written consent. AremisSoft will not
unreasonably withhold consent to a proposed settlement.
-3-
<PAGE> 4
AremisSoft shall not be liable to indemnify Roys Poyiadjis under this
Agreement with regard to any judicial award if AremisSoft was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. Non-Exclusivity. The rights of Roys Poyiadjis under this Agreement
shall be in addition to any other indemnification rights Roys Poyiadjis may have
under AremisSoft's articles of incorporation, bylaws, applicable law, or
otherwise. To the extent that a change in applicable law (whether by statute or
judicial decision) permits greater indemnification than afforded currently under
AremisSoft's articles of incorporation, bylaws, applicable law, or this
Agreement, it is the intent of the parties that Roys Poyiadjis enjoy by this
Agreement the greater benefits afforded by such change.
9. Indemnification Not a Waiver. Roys Poyiadjis' right to
indemnification pursuant to this Agreement shall not be deemed to be his
exclusive remedy in connection with or arising from any Indemnifiable Event or
the failure of AremisSoft to perform any of its covenants or obligations
contained in this Agreement; and the exercise by Roys Poyiadjis of his right to
demand and receive such indemnification shall not be deemed to prejudice, or to
operate as a waiver of, any remedy to which he may be entitled at law or equity.
10. Liability Insurance. To the extent AremisSoft maintains an insurance
policy or policies providing directors' and officers' liability insurance, to
the extent that Roys Poyiadjis may be covered by such policy or policies, Roys
Poyiadjis shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for any corporate
director or officer.
11. Subrogation. In the event of payment under this Agreement,
AremisSoft shall be subrogated to the extent of such payment to all of the
rights of recovery of Roys Poyiadjis, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable AremisSoft effectively to bring
suit to enforce such rights.
12. No Duplication of Payments. AremisSoft shall not be liable under
this Agreement to make any payment in connection with any claim made against
Roys Poyiadjis to the extent Roys Poyiadjis has otherwise received payment
(under any insurance policy, bylaw, or otherwise) of the amounts otherwise
indemnifiable under this Agreement.
13. No Right to Set Off. AremisSoft shall have no right to set off the
amount of any Expense with respect to which Roys Poyiadjis may be indemnified by
AremisSoft hereunder against the amount of any obligation of Roys Poyiadjis to
AremisSoft.
14. Accounting of Profits Under Section 16(b). AremisSoft shall not be
liable under this Agreement to make any payment in connection with any claim
made against Roys Poyiadjis for an accounting of profits made from the purchase
or sale by Roys Poyiadjis of securities of AremisSoft within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto, or
similar provisions of any state statute or common law.
-4-
<PAGE> 5
15. Authorization; Binding Nature of Agreement. AremisSoft has all
necessary power and authority to enter into and perform its obligations under
this Agreement, and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of AremisSoft and
its officers, directors and shareholders. No authorization, consent or approval
of or filing with any governmental authority or any other person is required to
be obtained or made by AremisSoft in connection with the execution, delivery or
performance of this Agreement.
16. Confidentiality. Unless otherwise required by law, including
required disclosure under federal and state securities laws, AremisSoft agrees
to, and shall undertake all necessary action required to, keep confidential all
information which relates to any Indemnifiable Event, Expense or any other
transaction or defense or indemnity arising out of this Agreement which relates
to Roys Poyiadjis.
17. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall
operate as a waiver of any other provisions hereof, nor shall such waiver
constitute a continuing waiver.
18. Binding Effect. This Agreement shall be binding on and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the AremisSoft), assigns, spouses, heirs and personal and legal
representatives. AremisSoft shall require and cause its successor to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that AremisSoft would be required to perform if no such succession had
taken place. The indemnification provided under this Agreement shall continue
for Roys Poyiadjis for any action taken or not taken while serving in an
indemnified capacity pertaining to an Indemnifiable Event even though Roys
Poyiadjis may have ceased to serve in such capacity at the time of any
Proceeding.
19. Maintenance of Obligation to Indemnify. AremisSoft hereby covenants
and agrees that it shall not permit the indemnification provided to Roys
Poyiadjis as set forth in this Agreement to be compromised, restricted, limited,
or eliminated in any manner, including by way of amendment of AremisSoft's
bylaws and other governing documents.
20. Severability. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or
unenforceable.
21. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be
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<PAGE> 6
performed in such state without giving effect to the principles of conflicts of
laws, except that California law shall be applied in determining the scope and
extent of the phrase "to the fullest extent permitted by law," in Section 2 of
this Agreement.
22. Further Assurances. Each party shall execute such instruments and
other documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. Attorneys' Fees. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. Binding Arbitration. Any claim, dispute, or controversy arising out
of this Agreement, or breach thereof, shall be resolved by submission to binding
arbitration.
a. Arbitration Notice. The arbitration shall commence upon any
party sending to any other party to this Agreement a notice in writing (the
"Arbitration Notice") demanding arbitration and specifying the issue(s) to be
arbitrated and all relief sought (the "Arbitration Matter").
b. Selection of Arbitrators. The arbitrators shall be chosen as
follows:
(1) The parties, or their legal representatives, may agree
in writing upon a sole arbitrator. In the event they cannot so agree each side
shall, within fifteen (15) days after the giving of the Arbitration Notice,
exchange a list of acceptable arbitrators consisting of attorneys at law, and
from that list each side may reject all but one arbitrator from each list. The
acceptable arbitrators shall constitute a new list and the process shall be
repeated until three (3) acceptable arbitrators are designated who shall
constitute the "Arbitration Panel." If three (3) acceptable arbitrators are not
appointed within thirty (30) days after giving the Arbitration Notice, Superior
Court of the State of California for the County of Sacramento shall, upon the
filing of a petition by any of the parties hereto pursuant to the provisions of
California Code of Civil Procedure Section 1281.6 (or any successor section),
and after a hearing at which all parties are afforded an opportunity to be
present and be heard, select a the neutral arbitrator from a list of five (5)
persons obtained by the court from the parties jointly or, if they cannot agree,
from the Sacramento County office of the American Arbitration Association.
c. Books and Records. The parties agree to make available to the
Arbitration Panel all books, records, schedules, and other information requested
by it. Such matters are to be made available to the Arbitration Panel at such
times as are deemed necessary by it to make its decision as herein provided. The
Arbitration panel shall have all those powers set forth in Section 1282.6 of
California Code of Civil Procedure including, but not limited to, those powers
relating to the production of books, records, documents and other evidence.
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<PAGE> 7
d. Discovery. The parties may conduct such discovery, and the
Arbitration Panel shall have such discovery powers, as are set forth in the
California Code of Civil Procedure Section 1283.05. The Arbitration Panel shall
be empowered to grant all provisional relief permitted by the California Code of
Civil Procedure. In addition to all other arbitration rights hereby provided,
the provisions of Sections 1282.2, 1282.4 and 1282.6 of the California Civil
Code shall apply. In addition to any and all arbitration rights hereby provided,
the arbitration proceedings and discovery shall be conducted pursuant to
Sections 1282 et seq. of California Code of Civil Procedure, including, without
limitation, the provisions of Sections 1282.2, 1282.4, 1283 and 1283.5.
e. Enforcement. Enforcement of the Arbitration Panel's award
shall be effected pursuant to California Civil Code Sections 1281 et seq.
However, the provisions of California Code of Civil Procedure Section 1281.8
shall not apply and the Arbitration Panel shall be specifically empowered to
grant all provisional remedies permitted under the California Code of Civil
Procedure.
f. Location. The arbitration shall take place in the County of
Sacramento, State of California, at a time and place selected by the Arbitration
Panel or at such other time and location as is acceptable to all parties. Notice
in writing of such time and place shall be given by the Arbitration Panel to
each party at least thirty (30) days prior to the date so fixed.
g. Time Periods. The Arbitration Panel shall diligently,
expeditiously, and in good faith hear and decide the Arbitration Matter under
consideration, within the limits and subject to the standards set forth in this
Agreement. In any event, such decision shall be rendered not later than thirty
(30) days after the arbitration hearing is conducted. If there is only one (1)
arbitrator, his decision shall be final and binding; if there are three (3)
arbitrators, the agreed decision of any two (2) of them shall be final and
binding. If no two (2) of the arbitrators are able to agree upon a decision, the
decision of the neutral third arbitrator shall be final and binding. The
Arbitration Panel shall prepare an award in writing which reflects the final
decision of the Arbitration Panel and a copy of same shall be delivered to each
party hereto. Judicial confirmation, correction, or vacation of the decision of
the Arbitration Panel shall be sought only in the Marin County Superior Court,
which judgment may be enforced and shall be accorded full faith and credit in
any court of competent jurisdiction, including any jurisdiction in which is
located any real property which is the subject matter of the dispute.
h. Binding Effect. The arbitration award shall be final,
conclusive and binding on all parties thereto and shall be non-appealable. The
costs of the arbitrators shall be borne by the losing party.
25. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
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<PAGE> 8
To AremisSoft: Dr. Lycourgos K. Kyprianou
Chairman of the Board
AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ
England
With a copy to: Scott E. Bartel, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
To Roys Poyiadjis: Roys Poyiadjis
60 Bishopsgate
London EC2N 4AJ
England
26. Effectiveness. This Agreement shall immediately become effective
upon adoption by AremisSoft's Board of Directors. Notwithstanding the
effectiveness of this Agreement, AremisSoft shall use its best efforts to have
its Board of Directors approve this Agreement.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AREMISSOFT: AremisSoft Corporation
By: /s/ Dr. Lycourgos K. Kyprianou
-------------------------------
Dr. Lycourgos K. Kyprianou
Chairman of the Board
ROYS POYIADJIS:
/s/ Roys Poyiadjis
----------------------------------
Roys Poyiadjis, an individual
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<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
$2,600,000 LONDON
EFFECTIVE JUNE 4, 1998
PROMISE TO PAY. DR. LYCOURGOS K. KYPRIANOU (the "Maker") promises to pay to
AREMISSOFT CORPORATION, a Nevada corporation (the "Payee"), or to order, in
lawful money of the United States of America, the principal amount of Two
Million Six Hundred Thousand Dollars ($2,600,000), together with interest at the
LIBOR rate plus 2% per annum on the unpaid principal balance from June 4, 1998,
until paid in full. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding.
PAYMENT. The Maker will pay all principal and all accrued interest in one
payment due on or before May 15, 2000 (the "Due Date"). The Maker will pay the
Payee at 60 Bishopsgate, London, England EC2N 4AJ, or at such other place as the
Payee may designate in writing. Unless otherwise agreed or required by
applicable law, partial payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
DEFAULT. The Maker will be in default if any of the following occurs: (a) the
Maker fails to make payment when due; (b) the Maker becomes insolvent, a
receiver is appointed for any part of the Maker's property, the Maker makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by the Maker or against the Maker under any bankruptcy or insolvency laws; or
(c) a material adverse change occurs in the Maker's financial condition, or the
Payee believes the prospect of payment or performance of the indebtedness is
impaired.
PAYEE'S RIGHTS. Upon default, the Payee may declare the entire unpaid principal
balance on this Note and all accrued and unpaid interest immediately due,
without notice, and then the Maker will pay that amount. The Maker waives
presentment for payment, notice of nonpayment and notice of dishonor of this
Note.
ADDITIONAL CHARGES. Upon default, the Payee may also do one or both of the
following: (a) increase the interest rate on this Note 5.00 percentage points,
and (b) add any unpaid accrued interest to principal and such sum will bear
interest therefrom until paid at the rate provided in this Note (including any
increased rate).
<PAGE> 2
ATTORNEYS FEES; COLLECTION COSTS. Maker agrees that if action is necessary to
enforce this Note for nonpayment, Payee will be entitled to all costs and
expenses of such action, including actual attorneys' fees, in addition to any
other relief that the party may be entitled to. If this Note is not paid in full
when it becomes due, Maker agrees to pay all collection costs.
NO WAIVER; EXTENSION OF TIME FOR PAYMENT. The Payee 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 Maker.
GOVERNING LAW. This Note shall be governed by and construed in accordance with
the laws of the State of California. If there is a lawsuit, the Maker agrees
upon the Payee's request to submit to the jurisdiction of the courts of
Sacramento County, the State of California.
Maker:
- -----------------------------
LYCOURGOS K. KYPRIANOU
<PAGE> 1
EXHIBIT 10.15
AREMISSOFT CORPORATION
(a Nevada Corporation)
and its subsidiary
LK GLOBAL HEALTHCARE SYSTEMS (UK) LIMITED
--------------------------------------
CONVERTIBLE PROMISSORY NOTE
$500,000 PRINCIPAL AMOUNT
DUE JANUARY 1, 2000
-------------------------------------
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF AS PROVIDED HEREIN HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
OR UNDER THE LAWS OF ANY STATE OR
OTHER JURISDICTION.
$500,000 December 18, 1998
1. Note.
1.1 AREMISSOFT CORPORATION, a Nevada corporation and its
subsidiary LK GLOBAL HEALTHCARE SYSTEMS (UK) LIMITED (collectively, "Borrower"),
for value received hereby promises to pay to the order of Arthur D. and Marie E.
Sterling (the "Lender") the principal amount of Five Hundred Thousand Dollars
($500,000) by January 1, 2000 (the "Due Date"), together with interest from
December 18, 1998 accruing at the rate of eight percent (8%) per annum on the
outstanding principal until paid or converted, as provided in Section 3 below,
and without any rights of demand for payment prior to the Due Date.
1.2 All amounts due hereunder shall be paid to Lender on the Due
Date and at the address to be provided and specified in writing by the Lender.
1.3 On and after the effective date of an initial public offering
("IPO") of AremisSoft Corporation's Common Stock registered with the United
States Securities and Exchange Commission ("SEC"), Borrower shall have the right
to prepay any and all amounts due pursuant to this Note prior to the Due Date
and without penalty; provided, however, that Borrower shall give the Lender not
less than twenty (20) calendar days prior written notice of its intent to
prepay. The Lender may convert this Note into Shares, as provided in Section 3
below, at any time within such twenty (20) calendar day notice period.
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<PAGE> 2
2. Collateral.
2.1. This Note shall be secured by a security interest in, and a
lien on, certain receivables of LK Global Healthcare Systems (UK) Limited, as
more fully set forth in a separate Collateral Agreement (Deed of Charge)
executed simultaneously with this Note and recorded pursuant to Section 401(2)
of the Companies Act 1985 in the United Kingdom. The security interest granted
hereby shall be subordinate to existing liens and charges to Barclays Bank Plc
and its affiliate Barclays de Zoete Wedd Ltd. (collectively, "Barclays")
securing any indebtedness of Borrower to Barclays.
3. Conversion.
3.1 Lender shall have the right, but not obligation, to convert
any and all amounts of outstanding principal and accrued and unpaid interest
into shares of AremisSoft Corporation's fully paid and nonassessable Common
Stock (the "Shares"). The exact number of Shares to be delivered to the Lender
shall be determined by dividing the amount of all such principal and interest by
$6.00 per Share, as adjusted to give effect to any stock split, reverse stock
split, capital reorganization or like event (the "Conversion Price").
Notwithstanding the foregoing, the Conversion Price shall be $5.00 per Share, as
adjusted to give effect to any stock split, reverse stock split, capital
reorganization or like event, in the event that AremisSoft Corporation completes
an IPO at an offering price of less than $9.00 per share, as adjusted to give
effect to any stock split, reverse stock split, capital reorganization or like
event.
3.2 Upon conversion, the Lender shall surrender this Note duly
endorsed, and shall deliver to the Company a Notice of Conversion, in the form
attached hereto as Exhibit A, at the principal executive offices of Borrower, or
such other location as is identified to the Lender in writing, and shall state
therein the name and the amount or amounts in which the certificate or
certificates for Shares are to be issued. Borrower shall, as soon as practicable
thereafter, issue and deliver the certificate(s) to the Lender at the address
provided by the Lender. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
Note and the Lender shall be treated for all purposes as the record holder or
holders of such Shares as of such date.
3.3 In no event shall Borrower issue any certificate evidencing
any fraction of a Share, but in lieu thereof shall pay cash for such fraction at
the Conversion Price.
3.4 AremisSoft Corporation shall reserve and keep available out
of its authorized but unissued shares of Common Stock the full number of whole
shares then deliverable upon the conversion of the entire principal and any
accrued and unpaid interest of this Note.
3.5 The Lender understands that the right of conversion of this
Note is subject to full compliance with the provisions of applicable securities
laws and any exemptions thereunder.
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<PAGE> 3
4. Registration Rights.
4.1 The Lender may, at any time, make a written request ("the
Registration Request") to Borrower for registration of all or part of the
Shares, converted pursuant to Section 3 above, under and in accordance with all
federal and state securities laws (the "Demand Registration"). Upon receipt of a
Registration Request, Borrower shall as promptly as practicable, and in no event
later than one hundred twenty (120) calendar days after the Registration Request
is made, file with the SEC a registration statement covering such Shares.
Borrower shall be obligated to effect not more than one (1) Demand Registration.
If, after the Registration Request, the Lender withdraws its Shares from
registration such Demand Registration will be deemed to have occurred
4.2 If, at any time, Borrower shall determine to register any
securities of AremisSoft Corporation for its own account or for the account of
others, other than a registration relating solely to "employee benefit plans"
(Form S-8), or a registration relating solely to a Commission Rule 145
transaction (Form S-4), or a registration on any registration form which does
not permit secondary sales, Borrower will give written notice to the Lender of
its intention to effect such a registration not later than thirty (30) calendar
days prior to the anticipated date of filing with the SEC of a registration
statement with respect to such registration. Such notice shall offer the Lender
the opportunity to include in such registration statement all or part of the
Shares, converted pursuant to Section 3 above (a "Piggyback Registration").
Subject to the provisions hereof, Borrower shall include in such Piggyback
Registration all Shares with respect to which Borrower has received a written
request from the Lender for inclusion therein within fifteen (15) calendar days
after the receipt by the Lender of Borrower's notice.
4.3 If a Demand or Piggyback Registration is being made with
respect to an underwritten primary registration on behalf of AremisSoft
Corporation and the managing underwriter or underwriters advise Borrower in
writing that in their opinion the total number or dollar amount of securities of
any class requested to be included in such registration is sufficiently large to
adversely affect the success of such offering, Borrower shall include in such
registration: (i) first, all securities Borrower proposes to sell to the public,
the proceeds of which shall go to Borrower, (ii) second, up to the full number
of the Shares requested to be included in such registration in excess of the
number or dollar amount of securities Borrower proposes to sell which, in the
opinion of such managing underwriter or underwriters, can be sold without
adversely affecting the offering.
5. Accredited Investor.
The Lender represents that it is an "accredited investor," as that term
is defined in Rule 501 of Regulation D of the Securities Act of 1933, as
amended.
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<PAGE> 4
6. Noteholder Not a Shareholder.
No holder of this Note, solely by virtue of the ownership of this Note,
shall be considered a shareholder of Borrower for any purpose, nor shall
anything in this Note be construed to confer on any holder any rights of a
shareholder.
7. Amendments.
No amendment, modification or waiver of any provision of this Note nor
consent to any departure by 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.
8. Successors and Assigns.
This Note shall be binding upon Borrower and its successors and assigns
and the terms hereof shall inure to the benefit of the Lender and his successors
and assigns, including subsequent holders hereof.
9. 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.
10. Governing Law.
This Note has been executed in and shall be governed by the laws of the
State of Indiana without regard to the conflicts of law provisions thereof.
11. Replacement of Note.
Upon receipt of evidence satisfactory to Borrower of the loss, theft,
mutilation, or destruction of any Note, Borrower will make and deliver a new
Note, of like tenor, at the request of the Lender or other holder of such Note.
12. Counterparts.
This Note may be executed in one or more counterparts (including by
facsimile), each of which when taken together shall constitute one and the same
instrument.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have executed and delivered this Note as
of December __, 1998.
BORROWER: AREMISSOFT CORPORATION,
a Nevada corporation
Roys Poyiadjis, President
LK GLOBAL HEALTHCARE SYSTEMS (UK)
LIMITED
-----------------------------------------
Dr. Lycourgos K. Kyprianou, Director
Attested to by:
- -------------------------------
Dr. Lycourgos K. Kyprianou,
Secretary of AremisSoft Corporation
LENDER: ARTHUR D STERLING
-------------------------
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<PAGE> 6
EXHIBIT A
NOTICE OF CONVERSION
The undersigned holder of a convertible note (the "Note") due January 1,
2000, in the original principal amount Five Hundred Thousand Dollars ($500,000)
of AremisSoft Corporation, a Nevada corporation (the "Company") and its
subsidiary LK Global Healthcare Systems (UK) Limited hereby exercises the option
to convert the Note into ___________ shares of Common Stock of the Company in
accordance with the terms of the Note, and directs that the shares issuable upon
the conversion be issued in the name of ___________ and delivered to
______________ at the following address:
The number of shares to be received in the conversion is
________________. _____,___ This Notice of Conversion is executed by the holder
of the Note as of this __ day of ______
HOLDER:
-------------------------------
-------------------------------
(Please Print Name)
-------------------------------
(Title, if applicable)
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<PAGE> 1
EXHIBIT 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this 16th day of November, 1998 by and between AremisSoft
Corporation, a Nevada corporation ("AremisSoft"), and Dr. Lycourgos K. Kyprianou
("Dr. Kyprianou").
RECITALS
WHEREAS, AremisSoft Corporation is an existing corporation duly
organized and in good standing under the laws of the State of Nevada, with its
principal executive offices located at 60 Bishopsgate, London EC2N 4AJ, England;
and
WHEREAS, Dr. Kyprianou currently owns Eight Million Nine Hundred Forty
Nine Thousand Eight Hundred Fifty (8,949,850) shares of the outstanding Common
Stock of AremisSoft; and
WHEREAS, AremisSoft has obtained all necessary corporate approvals for
the execution and delivery of this Agreement; and
WHEREAS, the parties to this Agreement intend to conduct their
relationships hereunder on an arm's length basis; and
WHEREAS, Dr. Kyprianou and AremisSoft desire to enter into this
Agreement to provide Dr. Kyprianou with certain registration rights as provided
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Affiliate" of a specified Person shall mean any Person that directly
or indirectly controls, is controlled by, or is under common control with such
specified Person. A Person shall be deemed to control another Person if such
Person owns fifty percent (50%) or more of any equity interest in the
"controlled" Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock or partnership interests, by contract,
agreement or understanding (whether oral or written), or otherwise.
"Designated Transferee" shall have the meaning set forth in Section 10
hereof.
"EASDAQ" shall mean the European Association of Securities Dealers
Automated Quotation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Holders" shall mean Dr. Kyprianou, any Affiliate of Dr. Kyprianou and
any Designated Transferees who are holders of record of any Registrable Shares,
and any combination of one or more such Holders.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation.
"Other Holders" shall mean Persons other than the Holders who are
holders of record of equity securities of AremisSoft to whom AremisSoft grants
or has granted registration rights pursuant to a written agreement.
"Person" shall mean any individual, corporation, association,
partnership, group (as defined in Section 13(d)(3) of the Exchange Act), limited
liability company, joint venture, business trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"Registrable Shares" shall mean (i) the 8,949,850 shares of Common
Stock owned by the Holders on the date hereof, representing approximately 51.69%
of the currently outstanding Common Stock of AremisSoft, and (ii) any shares of
Common Stock acquired by a Holder directly or upon exercise of conversion of any
equity securities of AremisSoft issued or distributed after the date of this
Agreement to a Holder in respect of Registrable Shares by way of any stock
dividend, stock split or other distribution or any recapitalization or
reclassification. As to any particular Registrable Share, such Registrable Share
shall cease to be a Registrable Share when (w) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act, including sales in the Offering; (x) it
shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act; (y) it shall have been sold or transferred
to a Person other than a Designated Transferee in a private transaction effected
other than pursuant to a registration statement; or (z) it shall have been sold,
transferred or otherwise disposed of in violation of this Agreement.
"Registration Expenses" shall have the meaning set forth in Section
7(a) hereof.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Incidental Registrations
(a) Right to Include Registrable Shares. Each time AremisSoft shall
determine to file a registration statement under the Securities Act in
connection with a proposed offer and sale for cash of any equity securities
(other than an offering of debt securities that are convertible into equity
securities, an offering of equity securities in an amount not in excess of five
percent (5%) of the number of shares of Common Stock outstanding at such time,
or an offering of equity securities solely pursuant to an employee stock option
plan or other employee benefit plan registered on Form S-8 or any similar form
under the Securities Act) either by it or by any holders of its outstanding
equity securities, AremisSoft will give prompt written notice of its
determination to each
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<PAGE> 3
Holder and of such Holder's rights under this Section 2, at least thirty (30)
days prior to the anticipated filing date of such registration statement. Upon
the written request of each Holder made within twenty-one (21) days after the
receipt of any such notice from AremisSoft (which request shall specify the
Registrable Shares intended to be disposed of by such Holder), AremisSoft will
use its best efforts to effect the registration under the Securities Act of all
Registrable Shares that AremisSoft has been so requested to register by the
Holders thereof, to the extent required to permit the disposition of the
Registrable Shares so to be registered; provided, however, that (i) if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, AremisSoft shall determine for any reason not to proceed
with the proposed registration of the securities to be sold by it, AremisSoft
may, at its election, give written notice of such determination to each Holder
of Registrable Shares and thereupon shall be relieved of its obligation to
register any Registrable Shares in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection therewith),
and (ii) if such registration involves an underwritten offering, all Holders of
Registrable Shares requesting to be included in AremisSoft's registration must
sell their Registrable Shares to the underwriters on the same terms and
conditions as apply to AremisSoft, with such differences, including any with
respect to indemnification and liability insurance, as may be customary or
appropriate in combined primary and secondary offerings. If a registration
requested pursuant to this Section 2(a) involves an underwritten public
offering, any Holder of Registrable Shares requesting to be included in such
registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 2 shall relieve AremisSoft of its obligations to
effect registrations upon request under Section 4 hereof.
(b) Priority in Incidental Registration. If a registration pursuant to
this Section 2 involves an underwritten offering and the managing underwriter(s)
in good faith advise(s) AremisSoft in writing that, in its opinion, the number
of securities that AremisSoft, the Holders and any other Persons intend to
include in such registration exceeds the largest number of securities that can
be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then AremisSoft will
include in such registration (i) first, if the registration pursuant to this
Section 2 was initiated by Other Holders exercising demand registration rights,
one hundred percent (100%) of the securities such Other Holders propose to sell
(except to the extent the terms of such Other Holders' registration rights
provide otherwise); (ii) second, one hundred percent (100%) of the securities
AremisSoft proposes to sell for its own account; and (iii) third, to the extent
that the number of securities that such Other Holders exercising demand
registration rights and AremisSoft propose to sell is less than the number of
securities that AremisSoft has been advised can be sold in such offering without
having the adverse effect referred to above, such number of Registrable Shares
that the Holders have requested to be included in such registration pursuant to
Section 2(a) hereof and such number of securities that Other Holders exercising
incidental or "piggyback" registration rights of equal priority have requested
to be included in such registration and which collectively, in the opinion of
such managing underwriter(s), can be sold without having the adverse effect
referred to above (provided that if the number of Registrable Shares requested
to be registered pursuant to Section 2(a) hereof plus the number of securities
requested to be registered by Other Holders exercising such incidental or
"piggyback" registration rights exceeds the number that AremisSoft has been
advised can be sold in such offering without having the adverse effect referred
to above, the number of such Registrable Shares and
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<PAGE> 4
other securities to be included in such registration by the Holders and such
Other Holders shall be allocated pro rata (based on Common Stock equivalents)
among such Holders and such Other Holders on the basis of the relative number of
Registrable Shares or other securities that each such Holder and Other Holder
has requested to be included in such registration).
(c) Initial Public Offering. The parties agree that the currently
proposed initial public offering of the Company's securities pursuant to a Form
S-1 initially filed with the SEC on July 1, 1998 (the "Offering") is not a
registration for purposes of Section 2 hereof and that the Holders do not have
any rights under this Agreement with respect to the Offering. The rights granted
under Section 2 of this Agreement shall be applicable to all registrations
effected by AremisSoft after the Offering.
3. Holdback Agreements.
(a) If any registration of Registrable Shares shall be in connection
with an underwritten public offering, the Holders shall not effect any public
sale or distribution (except in connection with such public offering), of any
equity securities of AremisSoft, or of any security convertible into or
exchangeable or exercisable for any equity security of AremisSoft (in each case,
other than as part of such underwritten public offering), during the ninety (90)
day period (or such lesser period as the managing underwriter(s) may permit)
beginning on the effective date of such registration, if, and to the extent, the
managing underwriter(s) of any such offering determine(s) such action is
necessary or desirable to effect such offering; provided, however, that each
Holder has received the written notice required by Section 2(a) hereof;
provided, however, that each Holder shall not be obligated to comply with such
restrictions arising as a result of an underwritten public offering subject to
Section 2 hereof more than once in any twelve (12) month period; and provided,
further, that no Holder owning less than five percent (5%) of the outstanding
shares of AremisSoft shall be obligated to comply with such restrictions if such
Holder is not including shares for sale in such offering.
(b) If any registration of Registrable Shares shall be in connection
with any underwritten public offering, AremisSoft shall not effect any public
sale or distribution (except in connection with such public offering) of any of
its equity securities or of any security convertible into or exchangeable or
exercisable for any of its equity securities (in each case other than as part of
such underwritten public offering) during the ninety (90) day period (or such
lesser period as the managing underwriter(s) may permit) beginning on the
effective date of such registration, and AremisSoft shall use its best efforts
to cause each member of the management of AremisSoft who holds any equity
security and each other holder of five percent (5%) or more of the outstanding
shares of any equity security, or of any security convertible into or
exchangeable or exercisable for any equity security, of AremisSoft purchased
from AremisSoft (at any time other than in a public offering) to so agree.
4. Registration on Request.
(a) Request by Holders. On or after the date that is one hundred eighty
(180) days after the closing date of the Offering, upon the written request of
the Holders of at least ten percent (10%) of the Registrable Shares (based on
the number in clause (i) of the definition thereof) that AremisSoft effect the
registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount (which shall not be less than ten
percent (10%) of the Registrable
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<PAGE> 5
Shares (based on the number in clause (i) of its definition) in the aggregate)
and the intended method of disposition thereof, AremisSoft will promptly give
notice of such requested registration to all other Holders of Registrable Shares
and, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of: (i) the Registrable Shares that
AremisSoft has been so requested to register by Holders of at least ten percent
(10%) of the Registrable Shares; and (ii) all other Registrable Shares that
AremisSoft has been requested to register by any other Holder thereof by written
request received by AremisSoft within twenty-one (21) days after the giving of
such written notice by AremisSoft (which request shall specify the intended
method of disposition of such Registrable Shares); provided, however, that
AremisSoft shall not be required to effect more than three (3) registrations
pursuant to this Section 4; provided, further, that AremisSoft shall not be
obligated to file a registration statement relating to a registration request
under this Section 4 (x) if the registration request is delivered after delivery
of a notice by AremisSoft of an intended registration and prior to the effective
date of the registration statement referred to in such notice, (y) within a
period of ninety (90) days after the effective date of any other registration
statement of AremisSoft requested by a Holder pursuant to this Section 4 or
pursuant to which any Holder included Registrable Shares, or (z) if the Board of
AremisSoft determines in good faith that, in view of the advisability of
deferring public disclosure of material corporate developments, such
registration and the disclosure required to be made in connection therewith
would not be in the best interests of AremisSoft at such time or that, in light
of other factors and considerations (including without limitation the pendency
of a presently effective registration statement initiated by AremisSoft), such
registration would be seriously detrimental to AremisSoft (in which event
AremisSoft's obligation to file a registration statement under this Section 4
shall be deferred for a period not to exceed ninety (90) days from the receipt
of the registration request). The Holders initially requesting a registration
pursuant to this Section 4 may, at any time prior to the effective date of the
registration statement relating to such registration, revoke such request by
providing a written notice to AremisSoft revoking such request; provided,
however, that, in the event the Holders shall have made a written request for a
demand registration (I) that is subsequently withdrawn by the Holders after
AremisSoft has filed a registration statement with the SEC in connection
therewith but prior to such demand registration being declared effective by the
SEC or (II) that is not declared effective solely as a result of the failure of
Holders to take all actions reasonably required in order to have the
registration and the related registration statement declared effective by the
SEC, then, in any such event, such demand registration shall be counted as a
demand registration for purposes of this Section 4(a). Promptly after the
expiration of the twenty-one (21) day period referred to in clause (ii) above,
AremisSoft will notify all the Holders to be included in the registration of the
other Holders and the number of shares of Registrable Shares requested to be
included therein.
(b) Registration Statement Form. If any registration requested pursuant
to this Section 4 that is proposed by AremisSoft to be effected by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter(s) shall advise AremisSoft in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Effective Registration Statement. A registration requested pursuant
to this Section 4 will not be deemed to have been effected unless it has become
effective under the Securities Act and has remained effective for two hundred
seventy (270) days or such shorter period as all the
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<PAGE> 6
Registrable Shares included in such registration have actually been sold
thereunder. In addition, if within one hundred eighty (180) days after it has
become effective, the offering of Registrable Shares pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected for purposes of this Section 4.
(d) Priority in Requested Registrations. If a requested registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter(s) in good faith advise(s) AremisSoft in writing that, in its
opinion, the number of securities requested to be included in such registration
(including securities of AremisSoft that are not Registrable Shares) exceeds the
largest number of securities that can be sold in such offering without having an
adverse effect on such offering (including the price at which such securities
can be sold), then AremisSoft will include in such registration (i) first, one
hundred percent (100%) of the Registrable Shares requested to be registered
pursuant to Section 4(a) hereof (provided that if the number of Registrable
Shares requested to be registered pursuant to Section 4(a) hereof exceeds the
number that AremisSoft has been advised can be sold in such offering without
having the adverse effect referred to above, the number of such Registrable
Shares to be included in such registration by the Holders shall be allocated pro
rata among such Holders on the basis of the relative number of Registrable
Shares each such Holder has requested to be included in such registration); (ii)
second, to the extent that the number of Registrable Shares requested to be
registered pursuant to Section 4(a) hereof is less than the number of securities
that AremisSoft has been advised can be sold in such offering without having the
adverse effect referred to above, such number of shares of equity securities
AremisSoft requests to be included in such registration, and (iii) third, to the
extent that the number of Registrable Shares requested to be included in such
registration pursuant to Section 4(a) hereof and the securities that AremisSoft
proposes to sell for its own account are, in the aggregate, less than the number
of equity securities that AremisSoft has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
other securities proposed to be sold by any Other Holder that, in the opinion of
such managing underwriter(s), can be sold without having the adverse effect
referred to above (provided that if the number of such securities of such Other
Holder requested to be registered exceeds the number that AremisSoft has been
advised can be sold in such offering without having the adverse effect referred
to above, the number of such securities to be included in such registration
pursuant to this Section 4(d) shall be allocated pro rata among all such Other
Holders on the basis of the relative number of securities each such Other Holder
has requested to be included in such registration).
(e) Additional Rights. If AremisSoft at any time grants to any other
holders of equity securities of AremisSoft any rights to request AremisSoft to
effect the registration of any such shares of equity securities on terms more
favorable to such holders than the terms set forth in this Section 4 and in
Section 5 hereof, the terms of this Section 4 and of Section 5 hereof shall be
deemed amended or supplemented to the extent necessary to provide the Holders
such more favorable rights and benefits. In no event shall AremisSoft grant to
any Person any rights to request AremisSoft to effect the registration of any
shares of equity securities of AremisSoft on terms that are adverse to rights of
the Holders set forth in Section 2 and this Section 4 (it being understood that
granting additional incidental registration rights shall not be deemed adverse
to the rights of the Holders set forth in Section 2 so long as such additional
rights do not have priority over the rights of the Holders in an incidental
registration).
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5. Registration Procedures.
(a) If and whenever AremisSoft is required by the provisions of Section
2 or 4 hereof to use its best efforts to effect or cause the registration of
Registrable Shares, AremisSoft shall as expeditiously as possible:
(i) prepare and, in any event within sixty (60) days after the
end of the period within which a request for registration may be given
to AremisSoft, file with the SEC a registration statement with respect
to such Registrable Shares and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of two hundred seventy
(270) days and to comply with the provisions of the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder with
respect to the disposition of all the securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Holders thereof set forth in
such registration statement; provided, however, that (A) before filing
a registration statement (including an initial filing) or prospectus,
or any amendments or supplements thereto, AremisSoft will furnish to
one counsel selected by the Holders of a majority of the Registrable
Shares covered by such registration statement copies of all documents
proposed to be filed, which documents will be subject to the review and
comment of such counsel, and (B) AremisSoft will notify each Holder of
Registrable Shares covered by such registration statement of any stop
order issued or threatened by the SEC, any other order suspending the
use of any preliminary prospectus or of the suspension of the
qualification of the registration statement for offering or sale in any
jurisdiction, and take all reasonable actions required to prevent the
entry of such stop order, other order or suspension or to remove it if
entered;
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration
statement such number of copies of the registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as each Holder of Registrable
Shares covered by such registration statement may reasonably request in
order to facilitate the disposition of the Registrable Shares by such
Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such registration statement under the
state securities or blue sky laws of such jurisdictions as each Holder
of Registrable Shares covered by such registration statement and, if
applicable, each underwriter, may reasonably request, and do any and
all other acts and things that may be reasonably necessary to
consummate the disposition in such jurisdictions of the Registrable
Shares owned by such Holder,
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except that AremisSoft shall not for any purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this clause (iv), it would not be
obligated to be so qualified;
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition
of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
immediately give written notice thereof to each Holder and the managing
underwriter or underwriters, if any, of such Registrable Shares and
prepare and furnish to each such Holder a reasonable number of copies
of an amended or supplemental prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus shall not include an untrue statement of material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) use its best efforts to list any portion of such
Registrable Shares not already listed on any securities exchange on
which similar securities of AremisSoft are then listed, and enter into
customary agreements including a listing application and
indemnification agreement in customary form, provided that the
applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such
registration statement not later than the effective date of such
registration statement;
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
as each Holder of Registrable Shares being sold or the underwriter or
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares, including
customary indemnification and opinions;
(ix) use its best efforts to obtain a "cold comfort" letter or
letters from AremisSoft's independent public accountants in customary
form and covering matters of the type customarily covered by "cold
comfort" letters as the Holders of the Registrable Shares being sold or
the underwriters retained by such Holders shall reasonably request;
(x) make available for inspection by representatives of any
Holder of Registrable Shares covered by such registration statement, by
any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney, accountant
or other agent retained by such Holders or any such underwriter, all
financial and other records pertinent corporate documents and
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properties of AremisSoft and its subsidiaries' officers, directors and
employees to supply all information and respond to all inquiries
reasonably requested by such Holders or any such representative,
underwriter, attorney, accountant or agent in connection with such
registration statement;
(xi) promptly prior to the filing of any document that is to
be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement),
provide copies of such document to counsel to the Holders of
Registrable Shares covered by such registration statement and to the
managing underwriter(s), if any, make AremisSoft's representatives
available for discussion of such document and make such changes in such
document prior to the filing thereof as counsel for such Holders or
underwriter(s) may reasonably request;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the effective
date of the registration statement, an earning statement that shall
satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder;
(xiii) not later than the effective date of the applicable
registration statement, use its best efforts to provide a CUSIP number
for any portion of such Registrable Shares not already included in a
CUSIP number for similar securities of AremisSoft, and provide the
applicable transfer agents with printed certificates for the
Registrable Shares that are in a form eligible for deposit with the
Depository Trust Company;
(xiv) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter or
underwriters, if any, immediately and confirm the notice in writing,
(A) when the registration statement, or any post-effective amendment to
the registration statement, shall have become effective, or any
supplement or amendment to the prospectus shall have been filed, (B) of
the receipt of any comments from the SEC and (C) of any request of the
SEC to amend the registration statement or amend or supplement the
prospectus or for additional information; and
(xv) cooperate with each seller of Registrable Shares and each
underwriter, if any, participating in the disposition of such
Registrable Shares and their respective counsel in connection with any
filings required to be made with NASD, NASDAQ or EASDAQ.
(b) Each Holder of Registrable Shares hereby agrees that, upon receipt
of any notice from AremisSoft of the happening of any event of the type
described in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue
disposition of such Registrable Shares covered by such registration statement or
related prospectus until such Holder's receipt of the copies of the supplemental
or amended prospectus contemplated by Section 5(a)(vi) hereof, and, if so
directed by AremisSoft, such Holder will deliver to AremisSoft (at AremisSoft's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such
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Registrable Shares at the time of receipt of such notice. In the event
AremisSoft shall give any such notice, the period mentioned in Section 5(a)(ii)
hereof shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 5(a)(vi)
hereof and including the date when such Holder shall have received the copies of
the supplemental or amended prospectus contemplated by Section 5(a)(vi) hereof.
If for any other reason the effectiveness of any registration statement filed
pursuant to Section 4 hereof is suspended or interrupted prior to the expiration
of the time period regarding the maintenance of the effectiveness of such
Registration Statement required by Section 5(a)(ii) hereof so that Registrable
Shares may not be sold pursuant thereto, the applicable time period shall be
extended by the number of days equal to the number of days during the period
beginning with the date of such suspension or interruption to and ending with
the date when the sale of Registrable Shares pursuant to such registration
statement may be recommenced.
(c) Each Holder hereby agrees to provide AremisSoft, upon receipt of
its request, with such information about such Holder to enable AremisSoft to
comply with the requirements of the Securities Act and to execute such
certificates as AremisSoft may reasonably request in connection with such
information and otherwise to satisfy any requirements of law.
6. Underwritten Registrations. Subject to the provisions of Sections 2,
3 and 4 hereof, any of the Registrable Shares covered by a registration
statement may be sold in an underwritten offering at the discretion of the
Holder thereof. In the case of an underwritten offering pursuant to Section 2
hereof, the managing underwriter(s) that will administer the offering shall be
selected by AremisSoft; provided, however, that such managing underwriter(s)
shall be reasonably satisfactory to the Holders of a majority of the Registrable
Shares to be registered. In the case of any underwritten offering pursuant to
Section 4 hereof, the managing underwriter(s) that will administer the offering
shall be selected by the Holders of a majority of the Registrable Shares to be
registered; provided, however, that such underwriter(s) shall be reasonably
satisfactory to AremisSoft.
7. Expenses.
(a) Subject to Section 7(b), AremisSoft shall pay all fees, costs and
expenses of all registrations pursuant to Sections 2 or 4 hereof, including all
SEC, stock exchange, NASD, NASDAQ or EASDAQ registration and filing fees and
expenses, reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules of NASD, NASDAQ or
EASDAQ, fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters, if
any, in connection with blue sky qualifications of the Registrable Shares),
rating agency fees, printing expenses (including expenses of printing
certificates for Registrable Shares and prospectuses), messenger, telephone and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange or national
market system on which similar securities issued by AremisSoft are then listed,
fees and disbursements of counsel for AremisSoft and all independent certified
public accountants (including the expenses of any annual audit, special audit
and "cold comfort" letters required by or incident to such performance and
compliance), the fees and disbursements of the underwriters customarily paid by
issuers or sellers of securities (including expenses relating to "road shows"
and other marketing activities), the reasonable fees and expenses of special
experts required to be retained by AremisSoft in connection with such
registration, and
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the reasonable fees and expenses of other Persons required to be retained by
AremisSoft (collectively, "Registration Expenses").
(b) The Holders shall pay the following: (i) any underwriting discounts
or commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by the Holders pursuant to this Agreement and (ii) all fees,
costs and expenses of counsel to the Holders in connection with any registration
pursuant to this Agreement.
8. Indemnification.
(a) Indemnification by AremisSoft. In the event of any registration of
any securities of AremisSoft under the Securities Act pursuant to Section 2 or 4
hereof, AremisSoft will, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, each of the Holders of any Registrable Shares covered
by such registration statement, each Affiliate of such Holder (other than
AremisSoft) and their respective directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Holder or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including any amounts paid in any settlement effected
with AremisSoft's consent, which consent shall not be unreasonably withheld) to
which any Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof,
whether or not such Indemnified Party is a party thereto) or expenses arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereof,
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or (iii) any violation by AremisSoft of any federal, state or common law rule or
regulation applicable to AremisSoft and relating to action required of or
inaction by AremisSoft in connection with any such registration, and AremisSoft
will reimburse such Indemnified Party for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided, however, that AremisSoft
shall not be liable to any Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereof or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information with respect to such Holder furnished to AremisSoft by such
Holder specifically for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any Indemnified Party and shall survive the transfer of
such securities by such Holder.
(b) Indemnification by the Holders and the Underwriters. AremisSoft may
require, as a condition to including any Registrable Shares in any registration
statement filed in accordance with Section 2 or 4 hereof, that AremisSoft shall
have received an undertaking reasonably satisfactory to it from the Holders of
such Registrable Shares or any underwriter to indemnify and hold harmless (in
the same manner and to the same extent as set forth in Section 8(a) hereof)
AremisSoft with
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respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information with respect to the Holders of the
Registrable Shares being registered or such underwriter furnished to AremisSoft
by such Holders or such underwriter specifically for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement, or a document incorporated by reference into any of the
foregoing; provided, however, that no such Holder shall be liable for any
indemnity claims in excess of the amount of the net proceeds received by such
Holder from the sale of Registrable Shares. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
AremisSoft or any of the Holders, or any of their respective Affiliates (other
than AremisSoft), directors, officers or controlling Persons, and shall survive
the transfer of such securities by such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the failure
of the indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 8, except to the extent
that the indemnifying party is actually materially prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that the indemnified party shall have the
right, at the sole cost and expense of the indemnifying party, to employ counsel
to represent the indemnified party and its respective controlling persons,
directors, officers, employees or agents who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by the indemnified
party against such indemnifying party under this Section 8 if (i) the employment
of such counsel shall have been authorized in writing by such indemnifying party
in connection with the defense of such action, (ii) the indemnifying party shall
not have promptly employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action or counsel, or (iii) any indemnified
party shall have reasonably concluded that there may be defenses available to
such indemnified party or its respective controlling persons, directors,
officers, employees or agents which are in conflict with or in addition to those
available to an indemnifying party; provided, further, that the indemnifying
party shall not be obligated to pay for more than the expenses of one firm of
separate counsel for the indemnified party (in addition to the reasonable fees
and expenses of one firm serving as local counsel). No indemnifying party will
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to any indemnified party under Section 8(a) or 8(b) hereof
or is insufficient to hold it harmless in respect of any loss, claim, damage or
liability, or any action in respect of any loss, claim,
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<PAGE> 13
damage or liability, or any action in respect thereof referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the indemnified party and indemnifying
party or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
indemnified party and indemnifying party with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations.
Notwithstanding any other provision of this Section 8(d), no Holder of
Registrable Shares shall be required to contribute an amount greater than the
dollar amount of the net proceeds received by such Holder with respect to the
sale of any such Registrable Shares. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 8 (with appropriate modifications)
shall be given by AremisSoft and each Holder of Registrable Shares with respect
to any required registration or other qualification of securities under any
federal or state law or regulation other than the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this Section
8 shall be in addition to any liability that any party may otherwise have to any
other party.
9. Rule 144. AremisSoft covenants that it will file in a timely manner
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder (or, if AremisSoft is
not required to file such reports, it will, upon the request of any Holder of
Registrable Shares, make publicly available such information), and it will take
such further action as any Holder of Registrable Shares may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Shares, AremisSoft will deliver to such Holder a written statement
as to whether it has complied with such requirements.
10. Miscellaneous
(a) Successor and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as provided herein, no party may assign
any of its rights or delegate any of its duties under this Agreement without the
express consent of the other parties hereto. The provisions of this Agreement
that are for the benefit of the parties hereto other than AremisSoft shall also
be for the benefit of and enforceable by any subsequent Holder of any
Registrable Shares, subject to the terms of this Agreement.
(b) Counterparts. This Agreement may be executed in two or
more counterparts and by the parties hereto in separate counterparts (including
by facsimile signatures), each of which
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<PAGE> 14
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(c) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(e) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(f) Entire Agreement. This Agreement is intended by the
parties as a final expression of their Agreement and intended to be a complete
and exclusive statement of the Agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by AremisSoft with
respect to the securities issued pursuant to the Stock Subscription Agreement
and the Reorganization Agreement. This Agreement supersedes all prior Agreements
and understandings between the parties with respect to such subject matter.
(g) Notices. All notices or other communications required
hereunder shall be in writing and shall be sufficient in all respects and shall
be deemed delivered after 5 days if sent via registered or certified mail,
postage prepaid; the next day if sent by overnight courier service; or one
business day after transmission if sent by facsimile, to the following:
If to AremisSoft : AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ, England
Attn: Roys Poyiadjis
Fax: 44-171-309-1501
with copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
Fax: (916) 442-3442
If to Dr. Kyprianou: Dr. Lycourgos K. Kyprianou
60 Bishopsgate
London EC2N 4AJ, England
Fax: 44-171-309-1501
Any party hereto may change its address for purposes hereof by notice to all
other parties hereto.
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<PAGE> 15
(h) Dispute Resolution. No party to this agreement shall be
entitled to take legal action with respect to any dispute relating hereto until
it has complied in good faith with the following alternative dispute resolution
procedures. This section shall not apply to the extent it is deemed necessary to
take legal action immediately to preserve a party's adequate remedy.
(i) Negotiation. The parties shall attempt promptly
and in good faith to resolve any dispute arising out of or relating to this
Contract, through negotiations between representatives who have authority to
settle the controversy. Any party may give the other party(ies) written notice
of any such dispute not resolved in the normal course of business. Within 20
days after delivery of the notice, representatives of both parties shall meet at
a mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange information and to attempt to resolve the dispute,
until the parties conclude that the dispute cannot be resolved through
unassisted negotiation. Negotiations extending sixty days after notice shall be
deemed at an impasse, unless otherwise agreed by the parties.
If a negotiator intends to be accompanied at a meeting by an attorney,
the other negotiator(s) shall be given at least three working days' notice of
such intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal and state Rules of Evidence.
(ii) ADR Procedure. If a dispute with more than
$20,000.00 at issue has not been resolved within 60 days of the disputing
party's notice, a party wishing resolution of the dispute ("Claimant") shall
initiate assisted Alternative Dispute Resolution ("ADR") proceedings as
described in this Section. Once the Claimant has notified the other party
("Respondent") of a desire to initiate ADR proceedings, the proceedings shall be
governed as follows: By mutual agreement, the parties shall select the ADR
method they wish to use. That ADR method may include arbitration, mediation,
mini-trial, or any other method which best suits the circumstances of the
dispute. The parties shall agree in writing to the chosen ADR method and the
procedural rules to be followed within 30 days after receipt of notice of intent
to initiate ADR proceedings. To the extent the parties are unable to agree on
procedural rules in whole or in part, the current Center for Public Resources
("CPR") Model Procedure for Mediation of Business Disputes, CPR Model Mini-trial
Procedure, or CPR Commercial Arbitration Rules--whichever applies to the chosen
ADR method--shall control, to the extent such rules are consistent with the
provisions of this Section. If the parties are unable to agree on an ADR method,
the method shall be arbitration.
The parties shall select a single Neutral (as defined by CPR) third
party to preside over the ADR proceedings, by the following procedure: Within 15
days after an ADR method is established, the Claimant shall submit a list of 5
acceptable Neutrals to the Respondent. Each Neutral listed shall be sufficiently
qualified, including demonstrated neutrality, experience and competence
regarding the subject matter of the dispute. A Neutral shall be deemed to have
adequate experience if an attorney or former judge. None of the Neutrals may be
present or former employees, attorneys, or agents of either party. The list
shall supply information about each Neutral, including address, and relevant
background and experience (including education, employment history and prior ADR
assignments). Within 15 days after receiving the Claimant's list of Neutrals,
the Respondent shall select one Neutral from the list, if at least one
individual on the list is acceptable to the Respondent. If none on the list are
acceptable to the Respondent, the Respondent shall submit a list of 5 Neutrals,
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together with the above background information, to the Claimant. Each of the
Neutrals shall meet the conditions stated above regarding the Claimant's
Neutrals. Within 15 days after receiving the Respondent's list of Neutrals, the
Claimant shall select one Neutral, if at least one individual on the list is
acceptable to the Respondent. If none on the list are acceptable to the
Claimant, then the parties shall request assistance from CPR to select a
Neutral.
The ADR proceeding shall take place within 30 days after the Neutral
has been selected. The Neutral shall issue a written decision within 30 days
after the ADR proceeding is complete. Each party shall be responsible for an
equal share of the costs of the ADR proceeding. The parties agree that any
applicable statute of limitations shall be tolled during the pendency of the ADR
proceedings, and no legal action may be brought in connection with this
agreement during the pendency of an ADR proceeding.
The Neutral's written decision shall become final and binding on the
parties, unless a party objects in writing within 30 days of receipt of the
decision. The objecting party may then file a lawsuit in any court allowed by
this Contract. The Neutral's written decision shall be admissible in the
objecting party's lawsuit.
(i) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the parties. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon the
Investor, its successors or assigns, and each future holder of such securities
and AremisSoft. A waiver by any party hereto of a default in the performance of
this Agreement shall not operate as a waiver of any future or other default,
whether of a like or different kind.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AREMISSOFT CORPORATION
By: _____________________________
Roys Poyiadjis
President
By: _____________________________
Dr. Lycourgos K. Kyprianou
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EXHIBIT 10.17
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this 16th day of November, 1998 by and between AremisSoft
Corporation, a Nevada corporation ("AremisSoft"), and Roys Poyiadjis.
RECITALS
WHEREAS, AremisSoft Corporation is an existing corporation duly
organized and in good standing under the laws of the State of Nevada, with its
principal executive offices located at 60 Bishopsgate, London EC2N 4AJ, England;
and
WHEREAS, Roys Poyiadjis currently owns one million (1,000,000) shares
of the outstanding Common Stock of AremisSoft; and
WHEREAS, AremisSoft has obtained all necessary corporate approvals for
the execution and delivery of this Agreement; and
WHEREAS, the parties to this Agreement intend to conduct their
relationships hereunder on an arm's length basis; and
WHEREAS, Roys Poyiadjis and AremisSoft desire to enter into this
Agreement to provide Roys Poyiadjis with certain registration rights as provided
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Affiliate" of a specified Person shall mean any Person that directly
or indirectly controls, is controlled by, or is under common control with such
specified Person. A Person shall be deemed to control another Person if such
Person owns fifty percent (50%) or more of any equity interest in the
"controlled" Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock or partnership interests, by contract,
agreement or understanding (whether oral or written), or otherwise.
"Designated Transferee" shall have the meaning set forth in Section 10
hereof.
"EASDAQ" shall mean the European Association of Securities Dealers
Automated Quotation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Holders" shall mean Roys Poyiadjis, any Affiliate of Roys Poyiadjis
and any Designated Transferees who are holders of record of any Registrable
Shares, and any combination of one or more such Holders.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation.
"Other Holders" shall mean Persons other than the Holders who are
holders of record of equity securities of AremisSoft to whom AremisSoft grants
or has granted registration rights pursuant to a written agreement.
"Person" shall mean any individual, corporation, association,
partnership, group (as defined in Section 13(d)(3) of the Exchange Act), limited
liability company, joint venture, business trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"Registrable Shares" shall mean (i) One Million (1,000,000) shares of
Common Stock owned by the Holders on the date hereof, representing approximately
5.8% of the currently outstanding Common Stock of AremisSoft, and (ii) any
shares of Common Stock acquired by a Holder directly or upon exercise of
conversion of any equity securities of AremisSoft issued or distributed after
the date of this Agreement to a Holder in respect of Registrable Shares by way
of any stock dividend, stock split or other distribution or any recapitalization
or reclassification. As to any particular Registrable Share, such Registrable
Share shall cease to be a Registrable Share when (w) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act, including sales in the Offering; (x) it
shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act; (y) it shall have been sold or transferred
to a Person other than a Designated Transferee in a private transaction effected
other than pursuant to a registration statement; or (z) it shall have been sold,
transferred or otherwise disposed of in violation of this Agreement.
"Registration Expenses" shall have the meaning set forth in Section
7(a) hereof.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Incidental Registrations
(a) Right to Include Registrable Shares. Each time AremisSoft shall
determine to file a registration statement under the Securities Act in
connection with a proposed offer and sale for cash of any equity securities
(other than an offering of debt securities that are convertible into equity
securities, an offering of equity securities in an amount not in excess of five
percent (5%) of the number of shares of Common Stock outstanding at such time,
or an offering of equity securities solely pursuant to an employee stock option
plan or other employee benefit plan registered on Form S-8 or any similar form
under the Securities Act) either by it or by any holders of its outstanding
equity securities, AremisSoft will give prompt written notice of its
determination to each Holder and of such Holder's rights under this Section 2,
at least thirty (30) days prior to the anticipated filing date of such
registration statement.
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Upon the written request of each Holder made within twenty-one (21) days after
the receipt of any such notice from AremisSoft (which request shall specify the
Registrable Shares intended to be disposed of by such Holder), AremisSoft will
use its best efforts to effect the registration under the Securities Act of all
Registrable Shares that AremisSoft has been so requested to register by the
Holders thereof, to the extent required to permit the disposition of the
Registrable Shares so to be registered; provided, however, that (i) if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, AremisSoft shall determine for any reason not to proceed
with the proposed registration of the securities to be sold by it, AremisSoft
may, at its election, give written notice of such determination to each Holder
of Registrable Shares and thereupon shall be relieved of its obligation to
register any Registrable Shares in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection therewith),
and (ii) if such registration involves an underwritten offering, all Holders of
Registrable Shares requesting to be included in AremisSoft's registration must
sell their Registrable Shares to the underwriters on the same terms and
conditions as apply to AremisSoft, with such differences, including any with
respect to indemnification and liability insurance, as may be customary or
appropriate in combined primary and secondary offerings. If a registration
requested pursuant to this Section 2(a) involves an underwritten public
offering, any Holder of Registrable Shares requesting to be included in such
registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 2 shall relieve AremisSoft of its obligations to
effect registrations upon request under Section 4 hereof.
(b) Priority in Incidental Registration. If a registration pursuant to
this Section 2 involves an underwritten offering and the managing underwriter(s)
in good faith advise(s) AremisSoft in writing that, in its opinion, the number
of securities that AremisSoft, the Holders and any other Persons intend to
include in such registration exceeds the largest number of securities that can
be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then AremisSoft will
include in such registration (i) first, if the registration pursuant to this
Section 2 was initiated by Other Holders exercising demand registration rights,
one hundred percent (100%) of the securities such Other Holders propose to sell
(except to the extent the terms of such Other Holders' registration rights
provide otherwise); (ii) second, one hundred percent (100%) of the securities
AremisSoft proposes to sell for its own account; and (iii) third, to the extent
that the number of securities that such Other Holders exercising demand
registration rights and AremisSoft propose to sell is less than the number of
securities that AremisSoft has been advised can be sold in such offering without
having the adverse effect referred to above, such number of Registrable Shares
that the Holders have requested to be included in such registration pursuant to
Section 2(a) hereof and such number of securities that Other Holders exercising
incidental or "piggyback" registration rights of equal priority have requested
to be included in such registration and which collectively, in the opinion of
such managing underwriter(s), can be sold without having the adverse effect
referred to above (provided that if the number of Registrable Shares requested
to be registered pursuant to Section 2(a) hereof plus the number of securities
requested to be registered by Other Holders exercising such incidental or
"piggyback" registration rights exceeds the number that AremisSoft has been
advised can be sold in such offering without having the adverse effect referred
to above, the number of such Registrable Shares and other securities to be
included in such registration by the Holders and such Other Holders shall be
allocated pro rata (based on Common Stock equivalents) among such Holders and
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such Other Holders on the basis of the relative number of Registrable Shares or
other securities that each such Holder and Other Holder has requested to be
included in such registration).
(c) Initial Public Offering. The parties agree that the currently
proposed initial public offering of the Company's securities pursuant to a Form
S-1 initially filed with the SEC on July 1, 1998 (the "Offering") is not a
registration for purposes of Section 2 hereof and that the Holders do not have
any rights under this Agreement with respect to the Offering. The rights granted
under Section 2 of this Agreement shall be applicable to all registrations
effected by AremisSoft after the Offering.
3. Holdback Agreements.
(a) If any registration of Registrable Shares shall be in connection
with an underwritten public offering, the Holders shall not effect any public
sale or distribution (except in connection with such public offering), of any
equity securities of AremisSoft, or of any security convertible into or
exchangeable or exercisable for any equity security of AremisSoft (in each case,
other than as part of such underwritten public offering), during the ninety (90)
day period (or such lesser period as the managing underwriter(s) may permit)
beginning on the effective date of such registration, if, and to the extent, the
managing underwriter(s) of any such offering determine(s) such action is
necessary or desirable to effect such offering; provided, however, that each
Holder has received the written notice required by Section 2(a) hereof;
provided, however, that each Holder shall not be obligated to comply with such
restrictions arising as a result of an underwritten public offering subject to
Section 2 hereof more than once in any twelve (12) month period; and provided,
further, that no Holder owning less than five percent (5%) of the outstanding
shares of AremisSoft shall be obligated to comply with such restrictions if such
Holder is not including shares for sale in such offering.
(b) If any registration of Registrable Shares shall be in connection
with any underwritten public offering, AremisSoft shall not effect any public
sale or distribution (except in connection with such public offering) of any of
its equity securities or of any security convertible into or exchangeable or
exercisable for any of its equity securities (in each case other than as part of
such underwritten public offering) during the ninety (90) day period (or such
lesser period as the managing underwriter(s) may permit) beginning on the
effective date of such registration, and AremisSoft shall use its best efforts
to cause each member of the management of AremisSoft who holds any equity
security and each other holder of five percent (5%) or more of the outstanding
shares of any equity security, or of any security convertible into or
exchangeable or exercisable for any equity security, of AremisSoft purchased
from AremisSoft (at any time other than in a public offering) to so agree.
4. Registration on Request.
(a) Request by Holders. On or after the date that is one hundred eighty
(180) days after the closing date of the Offering, upon the written request of
the Holders of at least ten percent (10%) of the Registrable Shares (based on
the number in clause (i) of the definition thereof) that AremisSoft effect the
registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount (which shall not be less than ten
percent (10%) of the Registrable Shares (based on the number in clause (i) of
its definition) in the aggregate) and the intended method of disposition
thereof, AremisSoft will promptly give notice of such requested registration to
all other Holders of
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<PAGE> 5
Registrable Shares and, as expeditiously as possible, use its best efforts to
effect the registration under the Securities Act of: (i) the Registrable Shares
that AremisSoft has been so requested to register by Holders of at least ten
percent (10%) of the Registrable Shares; and (ii) all other Registrable Shares
that AremisSoft has been requested to register by any other Holder thereof by
written request received by AremisSoft within twenty-one (21) days after the
giving of such written notice by AremisSoft (which request shall specify the
intended method of disposition of such Registrable Shares); provided, however,
that AremisSoft shall not be required to effect more than three (3)
registrations pursuant to this Section 4; provided, further, that AremisSoft
shall not be obligated to file a registration statement relating to a
registration request under this Section 4 (x) if the registration request is
delivered after delivery of a notice by AremisSoft of an intended registration
and prior to the effective date of the registration statement referred to in
such notice, (y) within a period of ninety (90) days after the effective date of
any other registration statement of AremisSoft requested by a Holder pursuant to
this Section 4 or pursuant to which any Holder included Registrable Shares, or
(z) if the Board of AremisSoft determines in good faith that, in view of the
advisability of deferring public disclosure of material corporate developments,
such registration and the disclosure required to be made in connection therewith
would not be in the best interests of AremisSoft at such time or that, in light
of other factors and considerations (including without limitation the pendency
of a presently effective registration statement initiated by AremisSoft), such
registration would be seriously detrimental to AremisSoft (in which event
AremisSoft's obligation to file a registration statement under this Section 4
shall be deferred for a period not to exceed ninety (90) days from the receipt
of the registration request). The Holders initially requesting a registration
pursuant to this Section 4 may, at any time prior to the effective date of the
registration statement relating to such registration, revoke such request by
providing a written notice to AremisSoft revoking such request; provided,
however, that, in the event the Holders shall have made a written request for a
demand registration (I) that is subsequently withdrawn by the Holders after
AremisSoft has filed a registration statement with the SEC in connection
therewith but prior to such demand registration being declared effective by the
SEC or (II) that is not declared effective solely as a result of the failure of
Holders to take all actions reasonably required in order to have the
registration and the related registration statement declared effective by the
SEC, then, in any such event, such demand registration shall be counted as a
demand registration for purposes of this Section 4(a). Promptly after the
expiration of the twenty-one (21) day period referred to in clause (ii) above,
AremisSoft will notify all the Holders to be included in the registration of the
other Holders and the number of shares of Registrable Shares requested to be
included therein.
(b) Registration Statement Form. If any registration requested pursuant
to this Section 4 that is proposed by AremisSoft to be effected by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter(s) shall advise AremisSoft in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Effective Registration Statement. A registration requested pursuant
to this Section 4 will not be deemed to have been effected unless it has become
effective under the Securities Act and has remained effective for two hundred
seventy (270) days or such shorter period as all the Registrable Shares included
in such registration have actually been sold thereunder. In addition, if within
one hundred eighty (180) days after it has become effective, the offering of
Registrable Shares pursuant to such registration is interfered with by any stop
order, injunction or other order or requirement of the
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<PAGE> 6
SEC or other governmental agency or court, such registration will be deemed not
to have been effected for purposes of this Section 4.
(d) Priority in Requested Registrations. If a requested registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter(s) in good faith advise(s) AremisSoft in writing that, in its
opinion, the number of securities requested to be included in such registration
(including securities of AremisSoft that are not Registrable Shares) exceeds the
largest number of securities that can be sold in such offering without having an
adverse effect on such offering (including the price at which such securities
can be sold), then AremisSoft will include in such registration (i) first, one
hundred percent (100%) of the Registrable Shares requested to be registered
pursuant to Section 4(a) hereof (provided that if the number of Registrable
Shares requested to be registered pursuant to Section 4(a) hereof exceeds the
number that AremisSoft has been advised can be sold in such offering without
having the adverse effect referred to above, the number of such Registrable
Shares to be included in such registration by the Holders shall be allocated pro
rata among such Holders on the basis of the relative number of Registrable
Shares each such Holder has requested to be included in such registration); (ii)
second, to the extent that the number of Registrable Shares requested to be
registered pursuant to Section 4(a) hereof is less than the number of securities
that AremisSoft has been advised can be sold in such offering without having the
adverse effect referred to above, such number of shares of equity securities
AremisSoft requests to be included in such registration, and (iii) third, to the
extent that the number of Registrable Shares requested to be included in such
registration pursuant to Section 4(a) hereof and the securities that AremisSoft
proposes to sell for its own account are, in the aggregate, less than the number
of equity securities that AremisSoft has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
other securities proposed to be sold by any Other Holder that, in the opinion of
such managing underwriter(s), can be sold without having the adverse effect
referred to above (provided that if the number of such securities of such Other
Holder requested to be registered exceeds the number that AremisSoft has been
advised can be sold in such offering without having the adverse effect referred
to above, the number of such securities to be included in such registration
pursuant to this Section 4(d) shall be allocated pro rata among all such Other
Holders on the basis of the relative number of securities each such Other Holder
has requested to be included in such registration).
(e) Additional Rights. If AremisSoft at any time grants to any other
holders of equity securities of AremisSoft any rights to request AremisSoft to
effect the registration of any such shares of equity securities on terms more
favorable to such holders than the terms set forth in this Section 4 and in
Section 5 hereof, the terms of this Section 4 and of Section 5 hereof shall be
deemed amended or supplemented to the extent necessary to provide the Holders
such more favorable rights and benefits. In no event shall AremisSoft grant to
any Person any rights to request AremisSoft to effect the registration of any
shares of equity securities of AremisSoft on terms that are adverse to rights of
the Holders set forth in Section 2 and this Section 4 (it being understood that
granting additional incidental registration rights shall not be deemed adverse
to the rights of the Holders set forth in Section 2 so long as such additional
rights do not have priority over the rights of the Holders in an incidental
registration).
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<PAGE> 7
5. Registration Procedures.
(a) If and whenever AremisSoft is required by the provisions of Section
2 or 4 hereof to use its best efforts to effect or cause the registration of
Registrable Shares, AremisSoft shall as expeditiously as possible:
(i) prepare and, in any event within sixty (60) days after the
end of the period within which a request for registration may be given
to AremisSoft, file with the SEC a registration statement with respect
to such Registrable Shares and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of two hundred seventy
(270) days and to comply with the provisions of the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder with
respect to the disposition of all the securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Holders thereof set forth in
such registration statement; provided, however, that (A) before filing
a registration statement (including an initial filing) or prospectus,
or any amendments or supplements thereto, AremisSoft will furnish to
one counsel selected by the Holders of a majority of the Registrable
Shares covered by such registration statement copies of all documents
proposed to be filed, which documents will be subject to the review and
comment of such counsel, and (B) AremisSoft will notify each Holder of
Registrable Shares covered by such registration statement of any stop
order issued or threatened by the SEC, any other order suspending the
use of any preliminary prospectus or of the suspension of the
qualification of the registration statement for offering or sale in any
jurisdiction, and take all reasonable actions required to prevent the
entry of such stop order, other order or suspension or to remove it if
entered;
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration
statement such number of copies of the registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as each Holder of Registrable
Shares covered by such registration statement may reasonably request in
order to facilitate the disposition of the Registrable Shares by such
Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such registration statement under the
state securities or blue sky laws of such jurisdictions as each Holder
of Registrable Shares covered by such registration statement and, if
applicable, each underwriter, may reasonably request, and do any and
all other acts and things that may be reasonably necessary to
consummate the disposition in such jurisdictions of the Registrable
Shares owned by such Holder, except that AremisSoft shall not for any
purpose be required to qualify generally to do business as
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<PAGE> 8
a foreign corporation in any jurisdiction where, but for the
requirements of this clause (iv), it would not be obligated to be so
qualified;
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition
of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
immediately give written notice thereof to each Holder and the managing
underwriter or underwriters, if any, of such Registrable Shares and
prepare and furnish to each such Holder a reasonable number of copies
of an amended or supplemental prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus shall not include an untrue statement of material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) use its best efforts to list any portion of such
Registrable Shares not already listed on any securities exchange on
which similar securities of AremisSoft are then listed, and enter into
customary agreements including a listing application and
indemnification agreement in customary form, provided that the
applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such
registration statement not later than the effective date of such
registration statement;
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
as each Holder of Registrable Shares being sold or the underwriter or
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares, including
customary indemnification and opinions;
(ix) use its best efforts to obtain a "cold comfort" letter or
letters from AremisSoft's independent public accountants in customary
form and covering matters of the type customarily covered by "cold
comfort" letters as the Holders of the Registrable Shares being sold or
the underwriters retained by such Holders shall reasonably request;
(x) make available for inspection by representatives of any
Holder of Registrable Shares covered by such registration statement, by
any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney, accountant
or other agent retained by such Holders or any such underwriter, all
financial and other records pertinent corporate documents and
properties of AremisSoft and its subsidiaries' officers, directors and
employees to supply all information and respond to all inquiries
reasonably requested by such Holders
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<PAGE> 9
or any such representative, underwriter, attorney, accountant or agent
in connection with such registration statement;
(xi) promptly prior to the filing of any document that is to
be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement),
provide copies of such document to counsel to the Holders of
Registrable Shares covered by such registration statement and to the
managing underwriter(s), if any, make AremisSoft's representatives
available for discussion of such document and make such changes in such
document prior to the filing thereof as counsel for such Holders or
underwriter(s) may reasonably request;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the effective
date of the registration statement, an earning statement that shall
satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder;
(xiii) not later than the effective date of the applicable
registration statement, use its best efforts to provide a CUSIP number
for any portion of such Registrable Shares not already included in a
CUSIP number for similar securities of AremisSoft, and provide the
applicable transfer agents with printed certificates for the
Registrable Shares that are in a form eligible for deposit with the
Depository Trust Company;
(xiv) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter or
underwriters, if any, immediately and confirm the notice in writing,
(A) when the registration statement, or any post-effective amendment to
the registration statement, shall have become effective, or any
supplement or amendment to the prospectus shall have been filed, (B) of
the receipt of any comments from the SEC and (C) of any request of the
SEC to amend the registration statement or amend or supplement the
prospectus or for additional information; and
(xv) cooperate with each seller of Registrable Shares and each
underwriter, if any, participating in the disposition of such
Registrable Shares and their respective counsel in connection with any
filings required to be made with NASD, NASDAQ or EASDAQ.
(b) Each Holder of Registrable Shares hereby agrees that, upon receipt
of any notice from AremisSoft of the happening of any event of the type
described in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue
disposition of such Registrable Shares covered by such registration statement or
related prospectus until such Holder's receipt of the copies of the supplemental
or amended prospectus contemplated by Section 5(a)(vi) hereof, and, if so
directed by AremisSoft, such Holder will deliver to AremisSoft (at AremisSoft's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares at the time of
receipt of such notice. In the event AremisSoft shall give any such notice, the
period mentioned in Section 5(a)(ii) hereof shall be extended by the number of
days during the period from and including the date of
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<PAGE> 10
the giving of such notice pursuant to Section 5(a)(vi) hereof and including the
date when such Holder shall have received the copies of the supplemental or
amended prospectus contemplated by Section 5(a)(vi) hereof. If for any other
reason the effectiveness of any registration statement filed pursuant to Section
4 hereof is suspended or interrupted prior to the expiration of the time period
regarding the maintenance of the effectiveness of such Registration Statement
required by Section 5(a)(ii) hereof so that Registrable Shares may not be sold
pursuant thereto, the applicable time period shall be extended by the number of
days equal to the number of days during the period beginning with the date of
such suspension or interruption to and ending with the date when the sale of
Registrable Shares pursuant to such registration statement may be recommenced.
(c) Each Holder hereby agrees to provide AremisSoft, upon receipt of
its request, with such information about such Holder to enable AremisSoft to
comply with the requirements of the Securities Act and to execute such
certificates as AremisSoft may reasonably request in connection with such
information and otherwise to satisfy any requirements of law.
6. Underwritten Registrations. Subject to the provisions of Sections 2,
3 and 4 hereof, any of the Registrable Shares covered by a registration
statement may be sold in an underwritten offering at the discretion of the
Holder thereof. In the case of an underwritten offering pursuant to Section 2
hereof, the managing underwriter(s) that will administer the offering shall be
selected by AremisSoft; provided, however, that such managing underwriter(s)
shall be reasonably satisfactory to the Holders of a majority of the Registrable
Shares to be registered. In the case of any underwritten offering pursuant to
Section 4 hereof, the managing underwriter(s) that will administer the offering
shall be selected by the Holders of a majority of the Registrable Shares to be
registered; provided, however, that such underwriter(s) shall be reasonably
satisfactory to AremisSoft.
7. Expenses.
(a) Subject to Section 7(b), AremisSoft shall pay all fees, costs and
expenses of all registrations pursuant to Sections 2 or 4 hereof, including all
SEC, stock exchange, NASD, NASDAQ or EASDAQ registration and filing fees and
expenses, reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules of NASD, NASDAQ or
EASDAQ, fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters, if
any, in connection with blue sky qualifications of the Registrable Shares),
rating agency fees, printing expenses (including expenses of printing
certificates for Registrable Shares and prospectuses), messenger, telephone and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange or national
market system on which similar securities issued by AremisSoft are then listed,
fees and disbursements of counsel for AremisSoft and all independent certified
public accountants (including the expenses of any annual audit, special audit
and "cold comfort" letters required by or incident to such performance and
compliance), the fees and disbursements of the underwriters customarily paid by
issuers or sellers of securities (including expenses relating to "road shows"
and other marketing activities), the reasonable fees and expenses of special
experts required to be retained by AremisSoft in connection with such
registration, and the reasonable fees and expenses of other Persons required to
be retained by AremisSoft (collectively, "Registration Expenses").
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<PAGE> 11
(b) The Holders shall pay the following: (i) any underwriting discounts
or commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by the Holders pursuant to this Agreement and (ii) all fees,
costs and expenses of counsel to the Holders in connection with any registration
pursuant to this Agreement.
8. Indemnification.
(a) Indemnification by AremisSoft. In the event of any registration of
any securities of AremisSoft under the Securities Act pursuant to Section 2 or 4
hereof, AremisSoft will, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, each of the Holders of any Registrable Shares covered
by such registration statement, each Affiliate of such Holder (other than
AremisSoft) and their respective directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Holder or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including any amounts paid in any settlement effected
with AremisSoft's consent, which consent shall not be unreasonably withheld) to
which any Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof,
whether or not such Indemnified Party is a party thereto) or expenses arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereof,
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or (iii) any violation by AremisSoft of any federal, state or common law rule or
regulation applicable to AremisSoft and relating to action required of or
inaction by AremisSoft in connection with any such registration, and AremisSoft
will reimburse such Indemnified Party for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided, however, that AremisSoft
shall not be liable to any Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereof or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information with respect to such Holder furnished to AremisSoft by such
Holder specifically for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any Indemnified Party and shall survive the transfer of
such securities by such Holder.
(b) Indemnification by the Holders and the Underwriters. AremisSoft may
require, as a condition to including any Registrable Shares in any registration
statement filed in accordance with Section 2 or 4 hereof, that AremisSoft shall
have received an undertaking reasonably satisfactory to it from the Holders of
such Registrable Shares or any underwriter to indemnify and hold harmless (in
the same manner and to the same extent as set forth in Section 8(a) hereof)
AremisSoft with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in
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<PAGE> 12
conformity with written information with respect to the Holders of the
Registrable Shares being registered or such underwriter furnished to AremisSoft
by such Holders or such underwriter specifically for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement, or a document incorporated by reference into any of the
foregoing; provided, however, that no such Holder shall be liable for any
indemnity claims in excess of the amount of the net proceeds received by such
Holder from the sale of Registrable Shares. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
AremisSoft or any of the Holders, or any of their respective Affiliates (other
than AremisSoft), directors, officers or controlling Persons, and shall survive
the transfer of such securities by such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the failure
of the indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 8, except to the extent
that the indemnifying party is actually materially prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that the indemnified party shall have the
right, at the sole cost and expense of the indemnifying party, to employ counsel
to represent the indemnified party and its respective controlling persons,
directors, officers, employees or agents who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by the indemnified
party against such indemnifying party under this Section 8 if (i) the employment
of such counsel shall have been authorized in writing by such indemnifying party
in connection with the defense of such action, (ii) the indemnifying party shall
not have promptly employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action or counsel, or (iii) any indemnified
party shall have reasonably concluded that there may be defenses available to
such indemnified party or its respective controlling persons, directors,
officers, employees or agents which are in conflict with or in addition to those
available to an indemnifying party; provided, further, that the indemnifying
party shall not be obligated to pay for more than the expenses of one firm of
separate counsel for the indemnified party (in addition to the reasonable fees
and expenses of one firm serving as local counsel). No indemnifying party will
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to any indemnified party under Section 8(a) or 8(b) hereof
or is insufficient to hold it harmless in respect of any loss, claim, damage or
liability, or any action in respect of any loss, claim, damage or liability, or
any action in respect thereof referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the indemnified party and indemnifying party or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to
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<PAGE> 13
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the indemnified party and indemnifying party with respect to
the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. Notwithstanding any other provision of this Section 8(d), no
Holder of Registrable Shares shall be required to contribute an amount greater
than the dollar amount of the net proceeds received by such Holder with respect
to the sale of any such Registrable Shares. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 8 (with appropriate modifications)
shall be given by AremisSoft and each Holder of Registrable Shares with respect
to any required registration or other qualification of securities under any
federal or state law or regulation other than the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this Section
8 shall be in addition to any liability that any party may otherwise have to any
other party.
9. Rule 144. AremisSoft covenants that it will file in a timely manner
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder (or, if AremisSoft is
not required to file such reports, it will, upon the request of any Holder of
Registrable Shares, make publicly available such information), and it will take
such further action as any Holder of Registrable Shares may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Shares, AremisSoft will deliver to such Holder a written statement
as to whether it has complied with such requirements.
10. Miscellaneous
(a) Successor and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as provided herein, no party may assign
any of its rights or delegate any of its duties under this Agreement without the
express consent of the other parties hereto. The provisions of this Agreement
that are for the benefit of the parties hereto other than AremisSoft shall also
be for the benefit of and enforceable by any subsequent Holder of any
Registrable Shares, subject to the terms of this Agreement.
(b) Counterparts. This Agreement may be executed in two or
more counterparts and by the parties hereto in separate counterparts (including
by facsimile signatures), each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
Agreement.
(c) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
-13-
<PAGE> 14
(e) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(f) Entire Agreement. This Agreement is intended by the
parties as a final expression of their Agreement and intended to be a complete
and exclusive statement of the Agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by AremisSoft with
respect to the securities issued pursuant to the Stock Subscription Agreement
and the Reorganization Agreement. This Agreement supersedes all prior Agreements
and understandings between the parties with respect to such subject matter.
(g) Notices. All notices or other communications required
hereunder shall be in writing and shall be sufficient in all respects and shall
be deemed delivered after 5 days if sent via registered or certified mail,
postage prepaid; the next day if sent by overnight courier service; or one
business day after transmission if sent by facsimile, to the following:
If to AremisSoft : AremisSoft Corporation
60 Bishopsgate
London EC2N 4AJ, England
Attn: Lycourgos K. Kyprianou
Fax: 44-171-309-1501
with copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
Fax: (916) 442-3442
If to Roys Poyiadjis: Roys Poyiadjis
60 Bishopsgate
London EC2N 4AJ, England
Fax: 44-171-589-7561
Any party hereto may change its address for purposes hereof by notice to all
other parties hereto.
(h) Dispute Resolution. No party to this agreement shall be
entitled to take legal action with respect to any dispute relating hereto until
it has complied in good faith with the following alternative dispute resolution
procedures. This section shall not apply to the extent it is deemed necessary to
take legal action immediately to preserve a party's adequate remedy.
(i) Negotiation. The parties shall attempt promptly
and in good faith to resolve any dispute arising out of or relating to this
Contract, through negotiations between representatives who have authority to
settle the controversy. Any party may give the other party(ies) written notice
of any such dispute not resolved in the normal course of business. Within 20
days after delivery of the notice, representatives of both parties shall meet at
a mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange information and to attempt
-14-
<PAGE> 15
to resolve the dispute, until the parties conclude that the dispute cannot be
resolved through unassisted negotiation. Negotiations extending sixty days after
notice shall be deemed at an impasse, unless otherwise agreed by the parties.
If a negotiator intends to be accompanied at a meeting by an attorney,
the other negotiator(s) shall be given at least three working days' notice of
such intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal and state Rules of Evidence.
(ii) ADR Procedure. If a dispute with more than
$20,000.00 at issue has not been resolved within 60 days of the disputing
party's notice, a party wishing resolution of the dispute ("Claimant") shall
initiate assisted Alternative Dispute Resolution ("ADR") proceedings as
described in this Section. Once the Claimant has notified the other party
("Respondent") of a desire to initiate ADR proceedings, the proceedings shall be
governed as follows: By mutual agreement, the parties shall select the ADR
method they wish to use. That ADR method may include arbitration, mediation,
mini-trial, or any other method which best suits the circumstances of the
dispute. The parties shall agree in writing to the chosen ADR method and the
procedural rules to be followed within 30 days after receipt of notice of intent
to initiate ADR proceedings. To the extent the parties are unable to agree on
procedural rules in whole or in part, the current Center for Public Resources
("CPR") Model Procedure for Mediation of Business Disputes, CPR Model Mini-trial
Procedure, or CPR Commercial Arbitration Rules--whichever applies to the chosen
ADR method--shall control, to the extent such rules are consistent with the
provisions of this Section. If the parties are unable to agree on an ADR method,
the method shall be arbitration.
The parties shall select a single Neutral (as defined by CPR) third
party to preside over the ADR proceedings, by the following procedure: Within 15
days after an ADR method is established, the Claimant shall submit a list of 5
acceptable Neutrals to the Respondent. Each Neutral listed shall be sufficiently
qualified, including demonstrated neutrality, experience and competence
regarding the subject matter of the dispute. A Neutral shall be deemed to have
adequate experience if an attorney or former judge. None of the Neutrals may be
present or former employees, attorneys, or agents of either party. The list
shall supply information about each Neutral, including address, and relevant
background and experience (including education, employment history and prior ADR
assignments). Within 15 days after receiving the Claimant's list of Neutrals,
the Respondent shall select one Neutral from the list, if at least one
individual on the list is acceptable to the Respondent. If none on the list are
acceptable to the Respondent, the Respondent shall submit a list of 5 Neutrals,
together with the above background information, to the Claimant. Each of the
Neutrals shall meet the conditions stated above regarding the Claimant's
Neutrals. Within 15 days after receiving the Respondent's list of Neutrals, the
Claimant shall select one Neutral, if at least one individual on the list is
acceptable to the Respondent. If none on the list are acceptable to the
Claimant, then the parties shall request assistance from CPR to select a
Neutral.
The ADR proceeding shall take place within 30 days after the Neutral
has been selected. The Neutral shall issue a written decision within 30 days
after the ADR proceeding is complete. Each party shall be responsible for an
equal share of the costs of the ADR proceeding. The parties agree that any
applicable statute of limitations shall be tolled during the pendency of the ADR
proceedings, and no legal action may be brought in connection with this
agreement during the pendency of an ADR proceeding.
-15-
<PAGE> 16
The Neutral's written decision shall become final and binding on the
parties, unless a party objects in writing within 30 days of receipt of the
decision. The objecting party may then file a lawsuit in any court allowed by
this Contract. The Neutral's written decision shall be admissible in the
objecting party's lawsuit.
(i) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the parties. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon the
Investor, its successors or assigns, and each future holder of such securities
and AremisSoft. A waiver by any party hereto of a default in the performance of
this Agreement shall not operate as a waiver of any future or other default,
whether of a like or different kind.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AREMISSOFT CORPORATION
By: ______________________________
Lycourgos K. Kyprianou
Chairman of the Board
By: ______________________________
Roys Poyiadjis
-16-
<PAGE> 1
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, 1997, dated
January 27, 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
January 28, 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 JANUARY 28, 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 9-MOS
<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 SEP-30-1998
<CASH> 867 239 456
<SECURITIES> 0 0 0
<RECEIVABLES> 11,017 9,458 18,893
<ALLOWANCES> 0 0 0
<INVENTORY> 1,283 1,070 946
<CURRENT-ASSETS> 14,705 13,606 24,808
<PP&E> 2,386 2,040 2,195
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 18,449 17,242 29,523
<CURRENT-LIABILITIES> 30,143 26,577 28,301
<BONDS> 0 0 0
0 0 0
0 1 0
<COMMON> 8 8 10
<OTHER-SE> (25,103) (19,534) (7,441)
<TOTAL-LIABILITY-AND-EQUITY> 18,449 17,242 29,523
<SALES> 18,593 23,384 21,026
<TOTAL-REVENUES> 34,432 42,374 36,270
<CGS> 7,315 7,226 5,203
<TOTAL-COSTS> 30,217 30,507 22,975
<OTHER-EXPENSES> 17,663 11,557 7,705
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,917) (1,901) (1,416)
<INCOME-PRETAX> (15,354) (1,585) 4,175
<INCOME-TAX> (50) 35 1,253
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (15,304) (1,620) 2,922
<EPS-PRIMARY> (2.04) (0.21) 0.29
<EPS-DILUTED> (2.04) (0.21) 0.29
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