<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 2000
FILE NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AREMISSOFT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 68-0413929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION CLASSIFICATION CODE) NO.)
OR ORGANIZATION)
</TABLE>
GOLDSWORTH HOUSE
DENTON WAY
WOKING, SURREY GU21 3LG
UNITED KINGDOM
TELEPHONE: 011-44-1483-885-000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROYS POYIADJIS
PRESIDENT AND VICE CHAIRMAN
AREMISSOFT CORPORATION
SENTRY OFFICE PLAZA
216 HADDON AVENUE, SUITE 607
WESTMONT, NEW JERSEY 08108
TELEPHONE: 212-246-2141
FACSIMILE: 212-765-7385
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT E. BARTEL, ESQ. DAVID P. STONE, ESQ.
BARTEL ENG LINN & SCHRODER WEIL, GOTSHAL & MANGES LLP
300 CAPITOL MALL, SUITE 1100 767 FIFTH AVENUE
SACRAMENTO, CA 95814 NEW YORK, NY 10153
TELEPHONE: 916-442-0400 TELEPHONE: 212-310-8000
FACSIMILE: 916-442-3442 FACSIMILE: 212-310-8007
</TABLE>
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value...... 3,450,000 shares(1) $38.9375(2) $134,334,375(2) $35,465
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares subject to the underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices reported on the Nasdaq
National Market on February 28, 2000.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 6, 2000
PROSPECTUS
3,000,000 SHARES
AREMISSOFT LOGO
AREMISSOFT CORPORATION
COMMON STOCK
------------------
We are selling 2,800,000 shares of common stock and the selling stockholder
named in this prospectus is selling 200,000 shares. We will not receive any
proceeds from the sale of the shares by the selling stockholder. The
underwriters named in this prospectus may purchase up to 450,000 additional
shares of common stock from us to cover over-allotments.
The common stock is quoted on the Nasdaq National Market under the symbol
AREM. The last reported sale price of the shares of our common stock on the
Nasdaq National Market on March 3, 2000 was $44 1/4 per share.
------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to AremisSoft (before expenses).................... $ $
Proceeds to the Selling Stockholder (before expenses)....... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
------------------
SALOMON SMITH BARNEY
SG COWEN
WILLIAM BLAIR & COMPANY
ROTH CAPITAL PARTNERS, INC.
, 2000
<PAGE> 3
DESCRIPTION OF GRAPHICS
Inside Front Cover
The graphic reads "ENTERPRISE APPLICATION SOFTWARE SOLUTIONS" across the
top. Logo in center. In the top left corner are the words "AremisSoft
Healthcare" and the description, "AremisSoft is one of the UK's leading
suppliers of primary and community healthcare systems. The product range
includes clinical systems, fundholding, EDI, GP-FHSA links and community care
software. The resource AremisSoft has at its disposal and the flexible
architecture of the software enable fast reaction to the ever changing
legislation in the healthcare sector. "The graphic depicts a computer screen of
healthcare software. In the bottom left corner are the words "AremisSoft
Construction" and the description, "ViXEN plus is an integrated management and
control system, designed specifically for contracting companies across the
industrial spectrum. The modularity and integration offered by ViXEN plus makes
it possible to use individual routines as building blocks to construct a unique
management system tailored to meet a company's particular requirements,
including those that differ among divisions within a company." The graphic
depicts a computer screen of construction software. In the top right corner are
the words "AremisSoft Hospitality" and the description, "Aremis Hotel has been
designed to operate in hotels ranging from the largest international group to
the smallest privately owned concern. Using the latest technology available,
Aremis Hotel provides: open access database, graphical display of rooms, maps
and photographs, data replication between hotel and group head office for
reservations, guest history and accounting data, touch screen technologies and
direct links to the Internet." The graphic depicts a computer screen of
hospitality software. In the bottom right corner are the words "AremisSoft
Manufacturing" and the description, "MTMS is a client-server-based
manufacturing management system that brings ERP to the manufacturing
environment. MTMS combines high levels of functionality with an open
architecture to provide a choice of user interface, database technology and
hardware platform." The graphic depicts a computer screen of manufacturing
software. At the bottom are the words Advanced Real-time Enterprise-wide
Mission-Critical Integrated Software.
In the Center of the following page is a sphere with the logo and the words,
"Analyze Customer & Market Requirements," "Design Aremis Solutions," "Build
Solution Using C++/Aremis," and "Deliver Solution." In the top left corner is a
graphic depicting healthcare customers. In the bottom left corner is a graphic
depicting construction customers. In the top right corner is a graphic
depicting hospitality customers. In the bottom right corner is a graphic
depicting a manufacturing device. In the bottom center is the words:
ADVANCED
- -- Exploitation of modern development methods and tools
- -- Object-oriented development approach
REAL-TIME
- -- Client-server architecture
- -- Graphical user interface (GUI)
- -- On-Line and user-friendly
ENTERPRISE-WIDE
- -- Supports personnel, workgroup, departmental, divisional and
enterprise-wide customers
- -- Architecture supports multinational clients
MISSION-CRITICAL
- -- Supports core businesses 24 hours a day, 7 days a week
INTEGRATED SOFTWARE
- -- Platform independence
- -- Supports common relational database systems
- -- High component re-use across vertical markets
- -- Shared technologies
- -- Fully scalable architecture
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Price Range of Our Common Stock............................. 13
Capitalization.............................................. 14
Selected Consolidated Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 17
Business.................................................... 28
Management.................................................. 44
Related Party Transactions.................................. 50
Principal and Selling Stockholders.......................... 52
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 57
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding us and the
common stock being sold in this offering.
AREMISSOFT CORPORATION
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. Our fully integrated suite
of Internet-enabled products allows our customers to manage and execute
mission-critical functions within their organization, including accounting,
purchasing, manufacturing, customer service, and sales and marketing. The
modular design of our products enables us to provide customers with a cost-
effective scalable solution which can be easily implemented. We focus on
mid-sized organizations with annual revenues of less than $200 million to
capitalize on a market we believe is receptive to our cost-effective solutions
and shorter implementation periods. To date, we have licensed our software
applications to more than 6,000 customers in over twenty countries.
Our software applications use our internally developed three-tiered, object
oriented software architecture, which we call the Aremis architecture. This
architecture enables us to develop software solutions rapidly and
cost-effectively by taking advantage of the common requirements of customers in
our target markets. In addition, we believe that, with 212 developers based in
our facilities in India, we have established a cost-effective model for
implementing, supporting and enhancing our software applications.
In December 1999, we acquired e-nnovations.com, an Internet software
solutions provider located in Bangalore, India. We believe this acquisition is a
key strategic milestone in our development because it enables us to address the
rapidly expanding market opportunities brought about by the Internet. For over
two years, we have partnered with e-nnovations.com and have utilized their
technological capabilities in several large projects. This acquisition enables
us to continue to leverage the diverse technological capabilities of
e-nnovations.com to address our customers' current and future e-business needs.
We believe the e-nnovations.com acquisition will also assist us to develop an
application service provider, or ASP, delivery method to best suit the evolving
requirements of our expanding customer base.
Our objective is to be a leading provider of enterprise-wide software
applications for mid-sized organizations in the manufacturing, healthcare,
hospitality and construction industries. Our strategy for achieving this
objective includes:
- focusing on marketing to mid-sized organizations,
- further penetrating our target markets in the manufacturing, healthcare,
hospitality and construction industries,
- increasing efficiencies by using our software development facilities
based in India,
- providing Internet-enabled software solutions in response to our
customers' needs,
- expanding on our technological expertise, and
- expanding sales, marketing, support and service.
------------------------
Our principal executive offices are located at Goldsworth House, Denton
Way, Woking, Surrey GU21 3LG, United Kingdom, and our telephone number is
011-44-1483-885-000.
1
<PAGE> 6
THE OFFERING
Common stock offered by us.... 2,800,000 shares
Common stock offered by the
selling stockholder........... 200,000 shares
Common stock to be outstanding
after this offering........... 18,001,595 shares
Use of proceeds............... For working capital and other general corporate
purposes and to fund potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market
symbol........................ AREM
The table above is based on shares outstanding as of March 3, 2000. This
table excludes:
- 2,888,800 shares of our common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $14.66 per
share,
- 221,200 shares of our common stock reserved for future issuances under
our 1998 Stock Option Plan,
- 330,000 shares of our common stock issuable upon exercise of warrants at
an exercise price of $7.50 per share, and
- 42,354 shares of our common stock issuable upon exercise of warrants at
an exercise price of $8.56 per share.
------------------------
As used in this prospectus, the terms "we," "us," "our," and "AremisSoft"
mean AremisSoft Corporation and its subsidiaries, unless otherwise indicated.
Except as otherwise indicated, all information in this prospectus:
- assumes that the underwriters' over-allotment option is not exercised,
and
- assumes a public offering price of $44 1/4 per share, the closing price
of our common stock on March 3, 2000.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................ $ 21,422 $ 34,432 $42,374 $52,621 $73,386 $ 76,302
Gross profit.......................... 10,609 19,397 29,701 41,566 56,375 58,086
Profit (loss) from operations......... (13,248) (13,448) 310 7,231 17,875 13,657
Income (loss) after taxes before
extraordinary item.................. (14,569) (15,304) (1,620) 3,175 12,117 7,899
Net income (loss)..................... $(14,569) $(15,304) $(1,620) $ 3,175 $13,280 $ 9,062
======== ======== ======= ======= ======= ========
Basic earnings (loss) per share before
extraordinary item.................. $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.95 $ 0.62
======== ======== ======= ======= ======= ========
Diluted earnings (loss) per share
before extraordinary item........... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.90 $ 0.59
======== ======== ======= ======= ======= ========
Basic earnings (loss) per share after
extraordinary item.................. $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 1.04 $ 0.71
======== ======== ======= ======= ======= ========
Diluted earnings (loss) per share
after extraordinary item............ $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.99 $ 0.68
======== ======== ======= ======= ======= ========
Weighted average number of shares used
in computing basic earnings (loss)
per share........................... 7,504 7,504 7,518 9,120 12,762 12,762
Weighted average number of shares used
in computing diluted earnings (loss)
per share........................... 7,504 7,504 7,518 9,135 13,405 13,405
</TABLE>
The basis for the determination of shares used in computing per share data
is described in note 1 of notes to our consolidated financial statements.
The consolidated statement of operations data for the year ended December
31, 1999 includes the operations of e-nnovations.com from December 17, 1999, the
date we acquired that business. The unaudited pro forma consolidated statement
of operations data reflects the combined results of operations of our company
and e-nnovations.com as if we had acquired that business on January 1, 1999. The
unaudited pro forma data is not necessarily indicative of what actually would
have occurred if the acquisition had occurred on January 1, 1999, nor is it
indicative of future operating results.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,386 $128,467
Working capital............................................. 17,840 132,921
Total assets................................................ 60,944 176,025
Long-term debt.............................................. -- --
Total stockholders' equity.................................. 36,246 151,327
</TABLE>
The actual and as adjusted consolidated balance sheet data give effect to
the e-nnovations.com acquisition which was consummated in December 1999. The as
adjusted consolidated balance sheet data also gives effect to our receipt of the
estimated net proceeds from the sale of 2,800,000 shares of common stock offered
by us in this offering, after deducting the underwriting discounts and estimated
offering expenses.
3
<PAGE> 8
RISK FACTORS
Investing in the shares of our common stock offered by this prospectus
involves a high degree of risk. You should carefully consider the risks
described below in addition to the other information in this prospectus. Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks. The trading price of the shares of our common
stock could decline due to any of these risks, and you could lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND WE COULD SUFFER LOSSES IN THE FUTURE.
Until the second half of 1997, we incurred substantial losses. Our losses
were $1.6 million for 1997 and $15.3 million for 1996. As of December 31, 1999,
we had an accumulated deficit of $18.9 million.
Although we have operated profitability since the third quarter of 1997, we
cannot assure you that we will sustain profitability on a quarterly or annual
basis in the future. We expect to continue to incur increasing cost of revenues,
research and development, sales and marketing and general and administrative
expenses. If we are to continue to sustain profitability given our planned
expenditure levels, we will need to generate and sustain increased revenues.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE CAUSING VOLATILITY, OR DECLINE
IN THE MARKET PRICE OF OUR COMMON STOCK.
Our revenues, gross margins and other operating results have fluctuated
significantly in the past and may vary significantly from quarter to quarter.
These fluctuations may be due to a number of factors, many of which are beyond
our control. These factors include:
- the relatively long sales cycles for our products,
- the size and timing of our licensing transactions,
- the timing of release, proper operation and market acceptance of our
rejuvenated products, product enhancements or new products,
- changes in the budget cycles of our customers,
- seasonality of our customers' technology purchases, and
- foreign currency exchange rates.
The timing of our revenue recognition can be affected by many factors,
including the timing of a contract's execution and delivery, a customer's
acceptance and our post-delivery obligations with respect to the installation
and implementation of our products. As a result, the time between contract
execution and the satisfaction of the criteria necessary for revenue recognition
can be lengthy and unpredictable and, consequently, may affect our revenues. As
a result, it is possible that in some future quarters our results of operations
may fall below the expectations of some securities analysts and investors. In
that event, the trading price of our stock may likely be materially and
adversely affected.
WE MAY ACQUIRE OTHER COMPANIES' PRODUCTS, TECHNOLOGIES OR BUSINESSES THAT
COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND DILUTE STOCKHOLDER
VALUE.
As part of our strategy, we expect to continue to pursue acquisitions of
other businesses, products and technologies. In connection with an acquisition,
we may pay cash, issue stock or incur debt. Our stockholders will be diluted if
we finance acquisitions by incurring convertible debt or issuing equity
securities. In addition, we may be required to incur expenses related to
goodwill and other intangible asset amortization.
4
<PAGE> 9
Acquisitions of companies and businesses also involve numerous other risks,
including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired business,
- diversion of our management's attention from other business concerns,
- risks of entering markets in which we have no or limited direct
experience, and
- the potential loss of key employees of the acquired business.
From 1993 through 1996, we acquired eleven companies with aggregate annual
revenues in the last fiscal year prior to acquisition of approximately $24.2
million and we recently acquired e-nnovations.com which had revenues of
approximately $3.1 million in 1999. Our acquisition strategy is focused on
acquisitions that are potentially larger in scope and size than any of our
previous acquisitions and we cannot assure you that we will successfully
integrate an acquisition of this size into our operations. Although we currently
have no agreement, understanding or arrangement with respect to any future
acquisitions, we continually evaluate acquisition opportunities. Any future
acquisition may also disrupt our ongoing business, divert the attention of our
management and employees from day to day operations and increase our operating
expenses.
FAILURE TO MANAGE OUR GROWTH MAY SERIOUSLY HARM OUR ABILITY TO DELIVER
PRODUCTS IN A TIMELY MANNER, FULFILL EXISTING CUSTOMER COMMITMENTS AND ATTRACT
AND RETAIN NEW CUSTOMERS.
We have grown rapidly in the last five years, with total revenues
increasing from $21.4 million in 1995 to $73.4 million in 1999. Our growth has
placed a significant strain on our management, operations and financial
resources. Our recent expansion has resulted in substantial growth in the number
of our employees, the scope of our operating and financial reporting systems and
the geographic area of our operations. This growth has placed, and will continue
to place, a significant strain on our managerial, operational and financial
resources. Accordingly, our future operating results will depend on our ability
to continue to implement and improve our operational and customer support
systems and to expand, train and manage our employee base. We cannot assure you
that we will be able to manage our expansion successfully, and our inability to
do so may seriously harm our ability to deliver products in a timely manner,
fulfill existing customer commitments and attract and retain new customers.
WE MUST SUCCESSFULLY DEVELOP NEW PRODUCTS AND KEEP PACE WITH RAPID
TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.
The market for our 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. Our future success will depend upon our ability
to continue to enhance our 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. We cannot
assure you that we 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. We can also not assure you
that our new or enhanced products will achieve market acceptance. Our customers
utilize a wide variety of hardware, software, database and networking platforms.
As a result, we must continue to support and maintain our products on a variety
of these platforms. In particular, we must continue to anticipate and respond
adequately to advances in other software and desktop computer operating systems
like Microsoft Windows.
5
<PAGE> 10
WE MAY NOT SUCCEED IN PENETRATING THE E-BUSINESS AND APPLICATION SERVICE
PROVIDER MARKETS.
We may not have the resources, skills and product offerings that will be
required to successfully penetrate the e-business and application service
provider markets. To succeed in these markets, we must continue to:
- develop expertise in marketing and selling Internet-based applications
and services,
- develop and cultivate new sales channels to market our applications to
prospective customers, and
- hire, train and integrate new technical and sales personnel.
The e-business and application service provider markets that we may attempt
to penetrate may not become substantial commercial markets for our applications
or may not evolve in a manner that will enable our applications to achieve broad
market acceptance.
UNDETECTED ERRORS MAY INCREASE OUR COSTS AND IMPAIR THE MARKET ACCEPTANCE OF
OUR PRODUCTS AND TECHNOLOGY.
Our products and technology have occasionally contained, and may in the
future contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify their cause.
Regardless of the source of these errors, we must divert the attention of our
engineering personnel from our research and development efforts to address the
errors. We cannot assure you that we will not incur warranty or repair costs, be
subject to liability claims for damages related to product errors or experience
delays as a result of these errors in the future. Any insurance policies that we
have may not provide sufficient protection should a claim be asserted. Moreover,
the occurrence of errors, whether caused by our products or technology or the
products of another vendor, may result in significant customer relations
problems and injury to our reputation and may impair the market acceptance of
our products and technology.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FROM PRODUCT DEFECTS, WHICH MAY
HARM OUR OPERATING RESULTS.
If our products malfunction or suffer from design defects, we may also be
subject to product liability claims. Our license agreements with our customers
typically contain provisions designed to limit our exposure to liabilities
arising from product liability claims. We also maintain errors and omissions
liability insurance in the amount of $6.0 million for damages as a result of
product defects or errors. However, we cannot assure you that the provisions in
our license agreements limiting our liability will be enforceable under
international, federal, state or local laws and judicial decisions or that our
insurance coverage will be sufficient to cover all losses resulting from product
defects or errors. To the extent our insurance is insufficient to cover any
losses we may incur, our operating results will suffer.
COMPETITION IN THE MARKETS FOR OUR PRODUCTS AND TECHNOLOGY IS INTENSE. WE MAY
NOT BE ABLE TO COMPETE EFFECTIVELY IN THESE MARKETS AND WE MAY LOSE MARKET SHARE
TO OUR COMPETITORS.
The markets for our enterprise-wide software applications are intensely
competitive and we expect competition to intensify in the future. We may not be
able to compete effectively in these markets and we may lose market share to our
competitors. Our principal competitors for products sold to customers in the
manufacturing industry include Epicor, Fourth Shift, QAD and Symix. We also
believe that large enterprise software vendors, like Baan, Oracle, PeopleSoft
and SAP, are increasing their marketing efforts to mid-sized organizations in
the manufacturing industry. In the healthcare industry, our principal
competitors include EMIS, GPASS, In Practice and TOREX. In the hospitality
industry, our principal competitors are Innsite and MICROS Systems. In the
construction industry, our competitors include Database, Estimation and FCG
Computer Systems. In addition, we face indirect competition from
6
<PAGE> 11
suppliers of customized enterprise-wide software applications with highly
customized software and from the internal information technology departments of
large organizations who develop their own systems.
MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO. THIS MAY LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY AND MAY DISCOURAGE CUSTOMERS FROM PURCHASING OUR
PRODUCTS.
Many of our competitors have greater financial, personnel and other
resources than we do, which may limit our ability to compete effectively. These
competitors may be able to respond more quickly to new or emerging technologies
or changes in customer requirements. These competitors may also:
- benefit from greater economies of scale,
- benefit from longer operating histories and name recognition,
- offer more aggressive pricing, and
- devote greater resources to the promotion of their products.
Any of these advantages may discourage customers from purchasing our
products. If we are unable to compete successfully against our existing or
potential competitors, our revenues and margins will decline.
WE FACE A RISK FROM INCREASED COMPETITION AS A RESULT OF ACQUISITIONS OF
COMPETITORS BY LARGE SOFTWARE COMPANIES.
We believe the fragmented nature of the enterprise-wide software
applications market will result in future acquisitions of competitors by large
software companies or strategic alliances, which will lead to significant
consolidation in our industry. As a result, we may face an increase in
competition from larger companies and new entrants to the industry which could
harm our business and cause our stock price to decline.
OUR ABILITY TO ACQUIRE COMPLEMENTARY BUSINESSES AND PRODUCTS MAY BE HARMED BY
THE INCREASING CONSOLIDATION IN OUR MARKETS.
Increasing consolidation in our markets may require us to compete with
other software companies for strategic acquisition opportunities. We have
acquired complementary businesses and products in the past and we expect to
continue to pursue similar opportunities in the future. As competition in our
markets has increased, a number of our competitors have been acquired or have
entered into strategic alliances. A continuation of this trend may require us to
compete with other software companies for attractive acquisition opportunities
and may lead to fewer opportunities and increased acquisition costs which will
harm our acquisition strategy.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAY CAUSE FLUCTUATIONS IN OUR
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Sales of our products require an extensive marketing effort because
decisions to purchase these products generally involve the evaluation of the
product by a significant number of a potential customer's personnel in various
functional and geographic areas. Our 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 evaluate available enterprise-wide software
applications and require us to provide a significant level of education about
the use and benefits of our products. As a result, our sales cycle averages
between one and 12 months from initial contact to execution of a license
agreement. Our ability to forecast the timing and amount of specific sales is
limited, and the delay or failure to complete one or more large license
transactions could cause our operating results to fall below the expectations of
securities analysts and investors and cause our stock price to decline.
7
<PAGE> 12
WE ARE DEPENDENT ON OUR KEY PERSONNEL, PARTICULARLY DR. LYCOURGOS K.
KYPRIANOU, OUR FOUNDER AND CHIEF EXECUTIVE OFFICER. ANY LOSS OF THE SERVICES OF
OUR KEY PERSONNEL WOULD HARM OUR BUSINESS.
Our future success depends to a large extent on the continued services of
our senior management and key personnel. In particular, we are highly dependent
on the services of Dr. Lycourgos K. Kyprianou, our founder and chief executive
officer. If we were to lose the services of Dr. Kyprianou or other key
personnel, our ability to manage operations and generate revenues would be
harmed.
OUR FAILURE TO RETAIN AND ATTRACT QUALIFIED PERSONNEL COULD HARM OUR BUSINESS.
Our products require sophisticated research and development, sales and
marketing, and technical customer support. Our success depends on our ability to
attract, train and retain qualified personnel in each of these areas.
Competition for personnel in all of these areas is intense and we may not be
able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel
we require is very competitive, due to the limited number of people available
with the necessary technical skills and understanding of our products and
technology. If we fail to attract and retain qualified personnel, our business
will suffer.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS MAY HARM OUR COMPETITIVENESS.
Our success is substantially dependent upon the protection of our
internally developed technology, including our Aremis architecture. Our
profitability could suffer if third parties infringe upon our intellectual
property rights or misappropriate our technology and other assets. To protect
our rights to our intellectual property, we rely on the protection provided by
applicable copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. We have a trademark application pending, but do not currently hold any
patents or registered copyrights. Despite our efforts, it may be possible for
unauthorized third parties to copy portions of our products or reverse engineer
or obtain and use information that we regard as proprietary. Policing
unauthorized use of our software is difficult and, while we are unable to
determine the extent to which piracy of our products exists, software piracy can
be expected to be a problem. In addition, the laws of some countries, including
India and the United Kingdom, do not protect our proprietary rights to the same
extent as do the laws of the United States. Any failure by us to protect our
intellectual property could result in competitors offering products
incorporating the same or similar technology which could reduce demand for our
products. Further, litigation to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others could result in substantial costs and diversion of
resources.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR PROFITABILITY.
We expect that enterprise-wide software applications will increasingly be
subject to claims of infringement relating to software codes as the number of
products and competitors in our industry segment grows and the functionality of
products overlaps. We do not currently have liability insurance to protect
against the risk of third party intellectual property infringement claims. Any
claim, with or without merit and whether or not insured against, could be
time-consuming, result in costly litigation and require us to enter into royalty
and licensing agreements. These royalty or licensing agreements, if required,
might not be available on terms that are acceptable to us. An infringement
claim, even if not meritorious, could result in the expenditure of significant
resources and could negatively affect our profitability.
8
<PAGE> 13
WE OCCASIONALLY ENTER INTO FIXED PRICE SERVICE CONTRACTS, WHICH MAY LEAD TO
LOWER MARGINS AND HARM OUR OPERATING RESULTS.
We offer a combination of enterprise-wide software applications,
implementation and support services to our customers. We have, from time to
time, entered into fixed-price service contracts that require us to provide
support services for a fixed price regardless of our actual costs incurred in
fulfilling our support service obligations. Revenues attributable to fixed-price
service contracts were approximately 11% of our total revenues for 1997,
approximately 11% of our total revenues for 1998 and approximately 14% of our
total revenues for 1999. Our inability to successfully complete these contracts,
as budgeted, could lead to lower operating margins and reduced revenues and
profits.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
OUR RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED BY CURRENCY FLUCTUATIONS.
We currently have operations in Argentina, Bulgaria, Germany, India,
Ireland, Mexico, the United Kingdom and the United States and independent
distributors in 14 additional countries. A significant portion of our revenues
is received in currencies other than the United States dollar, primarily in the
British pound. We also anticipate receiving substantial future payments in
Bulgarian Leva relating to our work with the Bulgarian National Health Insurance
Fund and other customers in Bulgaria. Because our financial statements are
reported in United States dollars, fluctuations of the British pound and other
currencies against the United States dollar have caused, and will continue to
cause, us to recognize foreign currency transaction gains or losses, which may
be material to our operations and impact our reported financial condition and
results of operations.
WE FACE RISKS ASSOCIATED WITH DOING BUSINESS IN INTERNATIONAL MARKETS.
Our principal executive offices are located in the United Kingdom. Revenues
from our operations outside of the United States accounted for approximately 97%
of our total revenues in 1999. We expect that a significant portion of revenues
for the foreseeable future will be derived outside the United States. We are
subject to risks inherent in international business activities, including:
- difficulties in collecting accounts receivable and longer collection
periods,
- changing and conflicting regulatory requirements,
- potentially adverse tax consequences,
- tariffs and general export restrictions,
- difficulties in staffing and managing foreign operations,
- political instability,
- reduced protection for intellectual property rights in some countries,
and
- fluctuations in currency exchange rates.
THE TAX BENEFITS THAT WE CURRENTLY RECEIVE IN INDIA MAY BE LOST IF WE FAIL TO
SATISFY SPECIFIED CONDITIONS.
We maintain development and support facilities in New Delhi and Bangalore,
India. As of February 29, 2000, we had approximately 40% of our workforce in
India. As a means of encouraging foreign investment, the Indian government
provides tax incentives and exemptions from regulatory restrictions. Among the
benefits that directly affect us are tax holidays (temporary exemptions from
taxation on operating income) and liberalized import and export duties. The
current tax holiday to which we are entitled expires in March 2001. To be
eligible for these tax benefits, we must continue to meet specified conditions
including continuing to operate in a qualified software technology park and
exporting
9
<PAGE> 14
sales of at least 75% of our inventory turnover. Our failure to meet these
conditions could result in cancellation of the benefits or a requirement to pay
damages in an amount as later determined by the Indian government and customs
duty on plant, machinery, equipment, raw materials, components and consumables.
In addition, goods, raw materials and components for production imported by our
offices in India are generally exempt from the levy of a customs duty. These tax
benefits could be discontinued or modified in the future which could
significantly harm our operations in India.
OUR OPERATING RESULTS MAY BE HARMED BY CHANGING CONDITIONS IN INDIA.
Although wage costs in India are significantly lower than in the United
States, the 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 the 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 effect of
inflation on our financial statements for the periods discussed in this
prospectus has been insignificant, increases in inflation in the future or
changes in interest rates, taxation or other social, political, economic or
diplomatic developments could harm our operating results.
OUR PRODUCTS FOR THE HEALTHCARE INDUSTRY ARE SUBJECT TO GOVERNMENT REGULATIONS
AND SPECIFICATIONS THAT CAN BE DIFFICULT TO SATISFY. OUR EFFORTS TO SATISFY
THESE REGULATIONS AND SPECIFICATIONS MAY CAUSE THE PRICES OF OUR PRODUCTS TO
INCREASE SUBSTANTIALLY, WHICH MAY ADVERSELY AFFECT SALES.
Our products designed for the healthcare industry in the United Kingdom are
regulated by the National Health Service, a governmental agency commonly
referred to as the NHS, through a product accreditation procedure. While our
healthcare products currently meet NHS specifications for information systems,
these requirements are expected to be updated pursuant to the NHS' new
Information Management and Technology Strategy. The new mandatory specifications
are expected to require that all information technology systems in the United
Kingdom's healthcare marketplace conform with one another. Although we are
currently modifying our healthcare industry products in anticipation of the
proposed specifications, we may not meet all of these specifications or, if we
meet them, our related costs may be substantial and make the cost of our
healthcare products prohibitive for our customers. In addition, we have
experienced and expect to continue to experience a decrease in purchases of our
existing healthcare products as organizations in the healthcare industry in the
United Kingdom postpone purchases pending release of final regulations and
specifications. These regulations and specifications, as well as future changes
to NHS specifications for information systems, could harm our revenues from
healthcare related products.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS, OR TO ASSERT U.S.
SECURITIES LAWS CLAIMS IN THE UNITED KINGDOM AND TO SERVE PROCESS ON
SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS AND THESE EXPERTS.
A majority of our directors, all of our executive officers and some of the
experts named in this prospectus are nonresidents of the United States. A
substantial portion of our assets and all or a substantial portion of the assets
of these officers and experts are located outside of the United States. As a
result, it may be difficult to effect service of process within the United
States with respect to matters arising under the United States securities laws
or to enforce, in United States courts, judgments predicated upon civil
liability under U.S. securities laws. It also may be difficult to enforce in the
United Kingdom, in original actions or in actions for enforcement of judgments
of U.S. courts, civil liabilities predicated upon U.S. securities laws.
10
<PAGE> 15
RISKS RELATED TO THIS OFFERING
DR. KYPRIANOU OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK AND HAS SIGNIFICANT
INFLUENCE OVER MATTERS REQUIRING SHAREHOLDER APPROVAL, WHICH COULD DELAY OR
PREVENT A CHANGE OF CONTROL.
Following the closing of this offering, Dr. Kyprianou will beneficially own
approximately 42% of the outstanding common stock. In connection with the
private placement with Info-quest, an information technology company listed on
the Athens Stock Exchange, Dr. Kyprianou and Info-quest entered into a voting
agreement. As a result of the voting agreement, Dr. Kyprianou's beneficial
ownership includes shares held by Info-quest. The voting agreement requires Dr.
Kyprianou to vote his shares to elect board representatives of Info-quest and
Info-quest is similarly required to vote its shares for the board
representatives nominated by our board of directors. In addition, the agreement
provides that each of Dr. Kyprianou and Info-quest vote their shares by mutual
agreement on all other matters. As a result, these stockholders may, as a
practical matter, be able to substantially influence all matters requiring
stockholder approval which could delay or prevent a change of control.
OUR COMMON STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN
THE FUTURE.
The market price of our common stock is highly volatile and may be subject
to significant fluctuations in response to actual or anticipated variations in
quarterly operating results and other factors. From the time of our initial
public offering through March 3, 2000, the closing price of our common stock
reported on the Nasdaq National market has ranged from $3 7/8 to $46 1/8 per
share. In addition, the stock market in general, and the market for technology
related stocks in particular, has experienced extreme volatility that often has
been unrelated to the operating performance of particular companies. These broad
market and industry fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DETER TAKEOVERS
WHICH MAY PREVENT YOU FROM RECEIVING A PREMIUM FOR YOUR SHARES.
Provisions of our certificate of incorporation, bylaws and Delaware law
could delay, defer or prevent a change in our control. Our 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 our common stockholders could be adversely affected by the rights of
preferred stockholders in the future. In addition, we are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits us 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 Delaware law. The ability
of our board of directors to issue shares of preferred stock without further
stockholder approval, as well as the anti-takeover provisions of Delaware law,
could have the effect of delaying, deferring or preventing a change in control,
even if doing so would be beneficial to our stockholders.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain our future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
11
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995, in the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors, including the risks outlined under "Risk Factors," that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock offered by us will be approximately $115.1 million, after deducting the
underwriting discounts and our estimated offering expenses. We will not receive
any proceeds from the sale of shares by the selling stockholder.
We expect to use the net proceeds of this offering for working capital and
other general corporate purposes and capital expenditures. We may also apply a
portion of the net proceeds to acquire or invest in businesses, products or
technologies that complement ours. We have no present plans, agreements or
arrangements with respect to any acquisitions or investments. Pending these
uses, we will invest the net proceeds in government securities and other
short-term, investment-grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain our future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE> 17
PRICE RANGE OF OUR COMMON STOCK
Our common stock began trading publicly on the Nasdaq National Market on
April 22, 1999 and is traded under the symbol AREM. The following table shows
the high and low per share closing prices of our common stock for the periods
indicated.
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Second quarter, beginning April 22, 1999.................... $ 5 3/32 $ 3 7/8
Third quarter............................................... $14 1/4 $ 5
Fourth quarter.............................................. $32 1/2 $11 7/8
</TABLE>
<TABLE>
<CAPTION>
2000
- ----
<S> <C> <C>
First quarter, through March 3, 2000........................ $46 1/8 $27 1/4
</TABLE>
On March 3, 2000, the closing price of the common stock on the Nasdaq
National Market was $44 1/4 per share, and there were 110 holders of record of
our common stock.
13
<PAGE> 18
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1999, other than the number of shares outstanding which are shown
as of March 3, 2000:
- on an actual basis, and
- on an as adjusted basis to give effect to this offering and our receipt
of the estimated net proceeds therefrom, after deducting underwriting
discounts and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 13,386 $128,467
======== ========
Stockholders' equity:
Preferred stock, $.001 par value per share; 15,000,000
shares authorized; no shares issued and outstanding.... $ -- $ --
Common stock, $.001 par value per share, 85,000,000 shares
authorized; 15,201,595 shares issued and outstanding,
actual; and 18,001,595 shares issued and outstanding,
as adjusted............................................ 15 18
Additional paid-in capital................................ 57,325 172,403
Accumulated deficit....................................... (18,921) (18,921)
Accumulated other comprehensive income (loss)............. (2,173) (2,173)
-------- --------
Total stockholders' equity........................ 36,246 151,327
-------- --------
Total capitalization............................ $ 36,246 $151,327
======== ========
</TABLE>
The above table excludes the following:
- 2,888,800 shares of our common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $14.66 per
share,
- 221,200 shares of our common stock reserved for future issuances under
our 1998 Stock Option Plan,
- 330,000 shares of our common stock issuable upon exercise of warrants at
an exercise price of $7.50 per share, and
- 42,354 shares of our common stock issuable upon exercise of warrants at
an exercise price of $8.56 per share.
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the selected consolidated statement of operations data for
the years ended December 31, 1997, 1998 and 1999, and the selected consolidated
balance sheet data as of December 31, 1998 and 1999, from our consolidated
financial statements included in this prospectus. We have derived the selected
consolidated statement of operations data for the years ended December 31, 1995
and 1996, and the selected consolidated balance sheet data as of December 31,
1995, 1996 and 1997, from consolidated financial statements which are not
included in this prospectus. Please read the selected consolidated financial
data presented below in conjunction with the consolidated financial statements
and notes thereto and other financial information included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
December 31, 1999 includes the operations of e-nnovations.com from December 17,
1999, the date we acquired that business. The unaudited pro forma consolidated
statement of operations data reflects the combined results of operations of our
company and e-nnovations.com as if we had acquired that business on January 1,
1999. The unaudited pro forma data is not necessarily indicative of what
actually would have occurred if the acquisition had occurred on January 1, 1999,
nor is it indicative of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses....................... $ 6,641 $ 12,052 $17,024 $26,416 $37,224 $39,458
Maintenance and services................ 9,426 15,839 18,990 21,680 30,435 30,658
Hardware and other...................... 5,355 6,541 6,360 4,525 5,727 6,187
-------- -------- ------- ------- ------- -------
Total revenues.................. 21,422 34,432 42,374 52,621 73,386 76,302
Cost of revenues:
Software licenses....................... 875 1,555 2,079 2,654 4,468 5,118
Maintenance and services................ 2,735 5,393 5,377 5,319 8,620 8,779
Hardware and other...................... 4,829 5,760 5,147 2,817 3,625 4,021
Amortization of purchased software and
capitalized software development
costs................................ 1,986 2,327 70 265 298 298
Write-off of purchased software costs... 388 -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total cost of revenues.......... 10,813 15,035 12,673 11,055 17,011 18,216
-------- -------- ------- ------- ------- -------
Gross profit.............................. 10,609 19,397 29,701 41,566 56,375 58,086
Operating expenses:
Sales and marketing..................... 10,811 15,182 17,834 21,594 25,518 25,727
Research and development................ 6,428 6,409 6,233 6,207 5,916 6,902
General and administrative.............. 3,442 5,605 5,227 4,868 7,108 7,239
Write-off of offering costs............. -- -- -- 1,592 -- --
Amortization of intangible assets....... 3,176 5,144 97 74 -- 4,603
Profit on disposition of subsidiary..... -- -- -- -- (42) (42)
Write-off of intangible assets.......... -- 505 -- -- -- --
-------- -------- ------- ------- ------- -------
Total operating expenses........ 23,857 32,845 29,391 34,335 38,500 44,429
-------- -------- ------- ------- ------- -------
</TABLE>
15
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Profit (loss) from operations............. (13,248) (13,448) 310 7,231 17,875 13,657
Other income (expense):
Interest expense, net..................... (1,284) (1,906) (1,895) (2,030) (661) (661)
-------- -------- ------- ------- ------- -------
Income (loss) before income taxes......... (14,532) (15,354) (1,585) 5,201 17,214 12,996
Income tax expense (benefit).............. 37 (50) 35 2,026 5,097 5,097
Income (loss) after taxes before
extraordinary item...................... (14,569) (15,304) (1,620) 3,175 12,117 7,899
Extraordinary item -- gain on debt
forgiveness............................. -- -- -- -- 1,163 1,163
-------- -------- ------- ------- ------- -------
Net income (loss)......................... $(14,569) $(15,304) $(1,620) $ 3,175 $13,280 $ 9,062
======== ======== ======= ======= ======= =======
Basic earnings (loss) per share before
extraordinary item...................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.95 $ 0.62
======== ======== ======= ======= ======= =======
Diluted earnings (loss) per share before
extraordinary item...................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.90 $ 0.59
======== ======== ======= ======= ======= =======
Basic earnings (loss) per share after
extraordinary item...................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 1.04 $ 0.71
======== ======== ======= ======= ======= =======
Diluted earnings (loss) per share after
extraordinary item...................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.99 $ 0.68
======== ======== ======= ======= ======= =======
Weighted average number of shares used in
computing:
Basic earnings (loss) per share......... 7,504 7,504 7,518 9,120 12,762 12,762
Diluted earnings (loss) per share....... 7,504 7,504 7,518 9,135 13,405 13,405
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 255 $ 867 $ 239 $ 149 $13,386
Working capital (deficit)........................... (8,244) (15,438) (12,971) (10,516) 17,840
Total assets........................................ 22,729 18,449 17,242 27,952 60,944
Long-term debt...................................... 12,453 13,388 10,096 -- --
Total stockholders' equity (deficit)................ (12,365) (25,103) (19,534) (7,109) 36,246
</TABLE>
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
information contained in "Selected Consolidated Financial Data" and our
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus.
OVERVIEW
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. We were founded in Cyprus
in 1978 and initially focused on developing customized enterprise-wide software
applications for international organizations located in the Middle East and Near
East. In 1986, we established our New Delhi, India software development and
support facility to access the skilled Indian labor force and capture cost
efficiencies. We established operations in the United Kingdom in 1992. From 1993
to 1996, we completed eleven acquisitions and established operations in the
United States, Mexico, Argentina and Ireland. By the end of 1996, all operating
entities were consolidated. In 1997, we reorganized as a United States holding
company, changing our domicile from the Netherlands to Nevada. We reincorporated
in Delaware in 1999 in connection with our initial public offering. As of
December 31, 1999, we had 535 full time employees and conducted business in over
twenty countries.
During 1999, we continued to expand our revenues in Europe, primarily
through large contracts in emerging markets in the manufacturing and healthcare
industries. We also experienced a decline in our revenues in the United Kingdom,
primarily in our healthcare division, as customers delayed purchase decisions
earlier in the year while they waited for government adoption of accreditation
procedures for healthcare products under recently adopted specifications.
During the second quarter of 1999, we completed the initial public offering
of our shares of common stock generating net proceeds of approximately $12.9
million. We used the proceeds to reduce our debt and for other corporate
purposes. In exchange for the early retirement of our indebtedness to a bank,
which occurred in the fourth quarter, we received a discount of approximately
$1.2 million, net of taxes, resulting in a one-time extraordinary gain for the
forgiveness of debt. By the end of 1999, we repaid all of our indebtedness to
banks and other lenders, which we expect will result in lower interest expense
in the year 2000.
During the fourth quarter of 1999, we were awarded two significant
contracts in Bulgaria. One contract was with a private Bulgarian information
technology company, Insyst Electronics, for our manufacturing products and
significant Internet related services. The contract is structured in multiple
phases and we anticipate recognizing revenues from the contract over a fifteen
month implementation period from the day of signing. The estimated value of all
phases under the contract is $9.2 million.
The second contract was with the Bulgarian National Health Insurance Fund,
commonly referred to as the NHIF, in connection with automating the Bulgarian
nationwide healthcare system. The contract is structured in multiple phases and
we anticipate recognizing revenues from the contract over a three year period
from the day of signing, with the later phases subject to the availability of
approximately $20 million in third party lease financing made available to
Bulgaria's general practitioners for the purchase of equipment and software to
be installed in their offices. The estimated value of all phases under the
contract is approximately $37.5 million, with later phases contingent upon
acceptance by the NHIF of the earlier phases and other conditions relating to
our performance. Under the contract, we will install a comprehensive suite of
our Internet-enabled healthcare products to provide financial, patient and
clinical information management and a communications network to link hospitals,
pharmacies, laboratories and general practitioners with the NHIF headquarters
and some regional centers. Initially, we will provide our products to
approximately 5,000 of Bulgaria's 12,000 general practitioners, 500 of its 1,000
pharmacies and 30 of its 250 hospitals. The NHIF has agreed to cooperate with us
in processing third party lease financing and has offered the possibility of a
financial guarantee for the lease obligations of their general practitioners.
17
<PAGE> 22
In October 1999, we divested ourselves of our Cyprus operations in exchange
for approximately $2.6 million in cash to be received in 2000 and approximately
9.5%, or 4,000,000 shares, of GlobalSoft.com, a recently organized Cyprus
company formed for the purpose of consolidating several Cyprus based software
companies. Dr. Lycourgos K. Kyprianou, our chairman and chief executive officer,
is the chairman of the board of GlobalSoft.com.
In December 1999, we completed our acquisition of e-nnovations.com, an
Internet software solutions provider located in Bangalore, India, for $14.5
million. In connection with the acquisition, we anticipate allocating
approximately $13.8 million to intangible assets, including goodwill, which will
be amortized over a period of three years, or $4.6 million per year.
Revenues
We derive our revenues from software licenses, maintenance and service
contracts and hardware sales. Software license revenues represent both new
licenses and upgrades derived from the licensing and service of industry
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. Hardware sales revenues are derived from
the sale of third-party hardware to customers requiring turnkey solutions. The
sales cycles for our products can vary significantly among customers.
Historically, our sales cycles have ranged from one to 12 months.
For the year ended December 31, 1999, we derived 35% of our revenues from
customers in the manufacturing industry, 27% from customers in the healthcare
industry, 26% from customers in the hospitality industry and 7% from customers
in the construction industry. The remaining 5% of our revenues for the year
ended December 31, 1999, were derived from sales to approximately 1,000
relatively small customers in various industries.
For the year ended December 31, 1999, our revenues were derived from
customers located in the following areas:
<TABLE>
<CAPTION>
AREA PERCENTAGE OF REVENUE
- ---- ---------------------
<S> <C>
United Kingdom.......................................... 35%
Rest of Europe.......................................... 44
United States........................................... 3
Asia.................................................... 5
Rest of world........................................... 13
---
Total......................................... 100%
===
</TABLE>
We recognize software license revenue upon execution of a contract and
delivery of software, provided that the license fees are fixed and determinable,
no significant obligations remain, collection of the resulting receivable is
deemed probable and no substantial customization or modification to core
software is required. We recognize software license and service revenues on a
percentage of completion basis when, among other things, customer contracts
require substantial customization or modification to our 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. We
believe that our accounting policies are consistent with the guidance provided
by the American Institute of Certified Public Accountants' Statement of Position
(SOP) 97-2, as modified by SOP 98-9, Software Revenue Recognition.
Cost of Revenues
The cost of software license revenues consists primarily of personnel costs
as well as the costs of third-party software, media and freight. The cost of
maintenance and service contract revenues consists primarily of salary, travel
and other personnel costs. In addition, cost of service revenues may include the
18
<PAGE> 23
cost of outsourcing services when relatively large service contracts require
resources in excess of our resources. In general, our costs are higher when
services are outsourced. Costs incurred as a result of outsourcing were
approximately $320,000 for the year ended December 31, 1997, $18.0 million for
1998 and $12.0 million for 1999. The cost of hardware revenues consists
primarily of the cost of hardware purchased from third parties.
Gross Profit
We generally experience significant differences in profit margins from
software licenses, maintenance and services, and hardware. For example, gross
profit margins for our software licenses were 88% for 1997, 90% for 1998, and
88% for 1999. For maintenance and services, our gross profit margins were 72%
for 1997, 76% for 1998 and 72% for 1999. For hardware, our gross profit margins
were 19% for 1997, 38% for 1998 and 37% for 1999. Our overall gross profit
margin is affected by our relative mix of revenue sources.
Operating Expenses
Sales and marketing expenses consist primarily of sales personnel costs,
advertising and other public relations expenses. Research and development
expenses consist primarily of personnel costs, facility overhead and other
expenses associated with the development of new and enhanced products and
technologies. General and administrative expenses include salaries and benefits
for administrative, executive, finance, legal, human resources, data center,
distribution and internal systems personnel and associated overhead costs, as
well as bad debt, accounting and legal expenses. General and administrative
expenses also include depreciation, which represents the write down of the cost
of property and equipment over their expected useful lives. Amortization of
intangible assets consists of the amortization of customer lists and management
contracts of acquired businesses. Amortization of goodwill resulting from the
December 1999 acquisition of e-nnovations.com was not material in 1999.
We continue to make substantial investments and operational cost
improvements in our sales and marketing, research and development and
administrative infrastructure. From 1997 through 1999, we increased our sales
and marketing staff from 85 employees to 270 employees. During the same period,
we reduced our total research and development and administrative staff from 331
employees to 276 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, our research and development
and administrative personnel in India increased from 115 to 212, while research
and development and administrative personnel in the United Kingdom and other
countries decreased from 216 to 64.
Research and Development
We have several software products which are under development or were
recently released. We expect a number of customers currently using rejuvenated
or legacy products to transition to our new products, which would likely reduce
the number of installed customers of the rejuvenated or legacy products.
We capitalize the qualifying costs of developing our software products.
Capitalization of such costs requires that technological feasibility has been
established. We define the establishment of technological feasibility as the
completion of all planning, designing, coding and testing activities that are
necessary to establish products that meet design specifications, including
functions, features and technical performance requirements. Under this
definition, establishing technological feasibility is considered complete only
after the majority of customer testing and customer feedback has been
incorporated into the product functions. Development costs incurred prior to the
establishment of technological feasibility are expensed as incurred. When
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.
19
<PAGE> 24
Purchased Software
We capitalize as purchased software the costs associated with software
products either purchased from other companies for resale or developed by other
companies under contract with us. 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 external factors including, but not
limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Currency Translation and Transactions
A significant portion of our business is conducted in currencies other than
United States dollars (the currency into which our historical financial
statements have been prepared). Historically, we have recorded a majority of our
operating expenses in British pounds, and a substantial portion of our research
and development costs in Indian rupees. In addition, during the fourth quarter
of 1999 we were awarded a significant contract with the Bulgarian National
Health Insurance Fund valued at $37.5 million which calls for payment in
Bulgarian Leva. However, we anticipate converting payments made in Bulgarian
Leva into U.S. dollars promptly upon receipt of payments. Our consolidated
balance sheets are translated into U.S. 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 included as a
component of accumulated other comprehensive income (loss). Increases in the
exchange rate from British pounds to U.S. 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 our balance sheet for the year ended December 31, 1999 was
2.9% higher than the rate used for the year ended December 31, 1998, the
translation adjustment resulted in a decrease in stockholders' equity of
$148,000 for 1999.
Net gains and losses resulting from currency exchange transactions are
included in our statement of operations. We did not incur material net foreign
exchange transaction losses in 1997, 1998 or 1999. Because of the number of
currencies involved, the constant currency exposures and the substantial
volatility of exchange rates, we cannot assure you that we will not experience
currency losses in the future. We cannot predict the effect of exchange rate
fluctuations on our future operating results. We have not previously undertaken
hedging transactions to cover our currency exposure, but may implement programs
to mitigate foreign currency risk exposure in the future as management deems
appropriate.
20
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by each item in our consolidated statements of
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses....................................... 31% 35% 40% 50% 51%
Maintenance and services................................ 44 46 45 41 41
Hardware and other...................................... 25 19 15 9 8
--- --- --- --- ---
Total revenues.................................. 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses....................................... 4 5 5 5 6
Maintenance and services................................ 13 16 13 10 12
Hardware and other...................................... 22 16 12 5 5
Amortization of purchased software and capitalized
software development costs........................... 9 7 -- 1 --
Write-off of purchased software costs................... 2 -- -- -- --
--- --- --- --- ---
Total cost of revenues.......................... 50 44 30 21 23
--- --- --- --- ---
Gross profit.............................................. 50 56 70 79 77
--- --- --- --- ---
Operating expenses:
Sales and marketing..................................... 51 44 42 41 35
Research and development................................ 30 19 15 12 8
General and administrative.............................. 16 16 12 9 10
Write-off of offering costs............................. -- -- -- 3 --
Amortization of intangible assets....................... 15 15 -- -- --
Write-off of intangible assets.......................... -- 1 -- -- --
--- --- --- --- ---
Total operating expenses........................ 112 95 69 65 53
--- --- --- --- ---
Profit (loss) from operations............................. (62) (39) 1 14 24
Other income (expense):
Interest expense, net..................................... (6) (6) (5) (4) (1)
--- --- --- --- ---
Income (loss) before income taxes......................... (68) (45) (4) 10 23
Income tax expense........................................ -- -- -- (4) (7)
Extraordinary item -- gain on debt forgiveness............ -- -- -- -- 2
--- --- --- --- ---
Net income (loss)......................................... (68)% (45)% (4)% 6% 18%
=== === === === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Total revenues increased to $73.4 million for 1999 from $52.6 million for
1998. This increase was due primarily to higher software license revenues as a
result of an increase in the sale of licenses, and associated maintenance and
service contract revenues, generated by all four divisions.
Software license revenues increased to $37.2 million for 1999 from $26.4
million for 1998. This increase was due primarily to the growth in the number of
installed customers, increased sales of licenses for our recent generation of
products and price increases. As a percentage of total revenues, software
license revenues were 51% for 1999 and 50% for 1998, reflecting our strategy to
increase our software license revenues, which provide higher margins, as a
percentage of total revenues.
21
<PAGE> 26
Maintenance and service contract revenues increased to $30.4 million for
1999 from $21.7 million for 1998, 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 remained the same
at 41% for both 1999 and 1998.
Hardware and other revenues increased to $5.7 million for 1999 from $4.5
million for 1998. As a percentage of total revenues, hardware and other revenues
decreased to 8% for 1999 from 9% for 1998, reflecting our strategy to reduce the
sale and installation of third-party hardware which has lower margins than
software licenses.
Cost of Revenues
Total cost of revenues increased to $17.0 million for 1999 from $11.1
million for 1998. As a percentage of total revenues, total cost of revenues
increased to 23% for 1999 from 21% for 1998.
The cost of software license revenues increased to $4.5 million for 1999
from $2.7 million for 1998. As a percentage of total revenues, the cost of
software license revenues increased to 6% in 1999 compared to 5% for 1998. The
increase from 1998 to 1999 was primarily the result of increased software
license revenues in 1999.
The cost of maintenance and service revenues increased to $8.6 million for
1999 from $5.3 million for 1998. As a percentage of total revenues, the cost of
maintenance and service revenues increased to 12% for 1999 from 10% for 1998.
This increase was primarily due to the use of outside personnel in certain
regions until our operations in these regions are firmly established.
The cost of hardware and other revenues increased to $3.6 million for 1999
from $2.8 million for 1998. As a percentage of total revenues, the cost of
hardware and other revenues was 5% for 1999 and 5% for 1998.
Sales and Marketing
Our sales and marketing expenses increased to $25.5 million for 1999 from
$21.6 million for 1998, primarily due to the expansion of sales and marketing
activities principally in Europe. As a percentage of total revenues, sales and
marketing expenses decreased to 35% for 1999, from 41% for 1998, primarily due
to increased efficiencies in our sales and marketing operations.
Research and Development
Research and development expenses decreased to $5.9 million for 1999 from
$6.2 million for 1998. As a percentage of total revenues, research and
development expenses decreased to 8% for 1999 from 12% for 1998. This decrease
was primarily due to cost savings resulting from the shifting of research and
development functions from the United Kingdom to India and a significant portion
of the planned expenditures relating to our new generation of software products
having been incurred in prior accounting periods.
General and Administrative
General and administrative expenses increased to $7.1 million for 1999 from
$4.9 million for 1998. As a percentage of total revenues, general and
administrative expenses increased to 10% for 1999, from 9% for 1998.
Net Interest Expense
Net interest expense reflects interest on our credit facilities, as reduced
by interest income on cash balances. Net interest expense decreased to $0.7
million for 1999 from $2.0 million for 1998, primarily due to repayment of all
long and short-term debts.
22
<PAGE> 27
Income Taxes
There was a provision for income taxes recorded for 1999 of $5.1 million.
We recorded a provision for income taxes of $2.0 million for 1998. The increase
in income taxes resulted from the increase in our profitability in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Total revenues increased to $52.6 million for 1998 from $42.4 million for
1997. This increase was due primarily to higher software license revenues as a
result of an increase in the sale of licenses and associated maintenance and
service contract revenues, principally generated by the manufacturing and
hospitality divisions, which were partially offset by a slight decrease in
revenues from the healthcare division. The decrease in healthcare related
revenues was likely 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 to $26.4 million for 1998 from $17.0
million for 1997. This increase is primarily due to the growth in the number of
installed customers, increased sales of licenses for our recent generation of
products and price increases. As a percentage of total revenues, software
license revenues increased to 50% for 1998 from 40% for 1997, reflecting our
strategy to increase our higher margin software license revenues as a percentage
of total revenues.
Maintenance and service contract revenues increased to $21.7 million for
1998 from $19 million for 1997, as a result of the increase in the number of
installed customers and the growth in software license revenues. As a percentage
of total revenues, maintenance and service contract revenues declined to 41% for
1998 from 45% for 1997, primarily as a result of our increased sales of higher
margin software licenses.
Hardware and other revenues decreased to $4.5 million for 1998 from $6.4
million for 1997. As a percentage of total revenues, hardware and other revenues
decreased to 9% for 1998 from 15% for 1997, reflecting our strategy to reduce
the sale and installation of lower margin third-party hardware.
Cost of Revenues
Total cost of revenues decreased to $11.1 million for 1998 from $12.7
million for 1997. As a percentage of total revenues, total cost of revenues
decreased to 21% for 1998 from 30% for 1997. This decrease was primarily the
result of an increase in sales of higher margin products.
The cost of software license revenues increased to $2.7 million for 1998
from $2.1 million for 1997. As a percentage of total revenues, the cost of
software license revenues was 5% for both 1998 and 1997. The increase in cost of
revenues from 1997 to 1998 was primarily the result of increased software
license revenues in 1998. Although the cost of software license revenues
increased from 1997 to 1998, the significant increase in software license
revenues for 1998 resulted in a 2.2% increase in gross profit on software
license revenues for 1998.
The cost of maintenance and service revenues decreased to $5.3 million for
1998 from $5.4 million for 1997. As a percentage of total revenues, the cost of
maintenance and service revenues decreased to 10% for 1998 from 13% for 1997.
This decrease was primarily due to increased efficiencies in the delivery of
maintenance and other services. The decrease in the cost of maintenance and
service revenues from 1997 to 1998 resulted in a 3.5% increase in gross profit
on maintenance and service revenues for 1998.
The cost of hardware and other revenues decreased to $2.8 million for 1998
from $5.1 million for 1997. As a percentage of total revenues, the cost of
hardware and other revenues decreased to 5% for 1998 from 12% for 1997. This
decrease was primarily attributable to a decrease in hardware sales generally,
which was partially offset by the sale of hardware with higher margins. The
decrease in cost of hardware and other revenues from 1997 to 1998 resulted in a
19% increase in gross profit on hardware and other revenues for 1998.
23
<PAGE> 28
Sales and Marketing
Our sales and marketing expenses increased to $21.6 million for 1998 from
$17.8 million for 1997, primarily due to the expansion of sales and marketing
activities principally in the United States and Europe. As a percentage of total
revenues, sales and marketing expenses decreased to 41% for 1998, from 42% for
1997, primarily due to increased efficiencies in our sales and marketing
operations.
Research and Development
Research and development expenses were $6.2 million for both 1998 and 1997.
As a percentage of total revenues, research and development expenses decreased
to 12% for 1998 from 15% of revenues for 1997. The decrease was primarily due to
cost savings resulting from the shifting of research and development functions
from the United Kingdom to India and a significant portion of the planned
expenditures relating to our new generation of software products having been
incurred in prior accounting periods.
General and Administrative
General and administrative expenses decreased to $4.9 million for 1998 from
$5.2 million for 1997. As a percentage of total revenues, general and
administrative expenses decreased to 9% for 1998 from 12% for 1997. This
decrease reflects the effect of our cost cutting and cost control measures,
including the closure of our office at Dukes Court, Central Woking, England,
during the fourth quarter of 1997. The decrease was partially offset by a one
time charge in 1998 reflecting severance payments to four individuals in the
aggregate amount of approximately $500,000.
Write-off of Offering Costs
In July 1998, we filed a registration statement in connection with our
initial public offering. Securities and Exchange Commission Staff Accounting
Bulletin, Topic 5:A (Expenses of Offering), deems that a postponement of the
offering process for greater than 90 days be treated as an aborted offering and
that all related costs be expensed. Accordingly, we wrote-off approximately $1.6
million in costs associated with our initial public offering in 1998.
Net Interest Expense
Net interest expense reflects interest on our credit facilities, as reduced
by interest income on cash balances. Net interest expense increased to $2.0
million for 1998 from $1.9 million for 1997, primarily due to a slight increase
in amounts outstanding under our credit facilities.
Income Taxes
There was a provision for income taxes recorded for 1998 of $2.0 million.
We recorded a provision for income taxes of $35,000 for 1997. The increase in
income taxes resulted from the increase in our profitability in 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the unaudited consolidated statement of
operations data for each of the eight quarters prior to December 31, 1999. In
the opinion of management, this information has been prepared substantially on
the same basis as the audited consolidated financial statements appearing
elsewhere in this prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited consolidated quarterly results of operations data.
The unaudited consolidated quarterly data should be read in conjunction with our
audited consolidated financial statements and the notes thereto appearing
elsewhere in this prospectus. The operating results for any quarter should not
be considered indicative of results of any future period.
24
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses........ $ 4,108 $ 6,535 $ 7,532 $ 8,241 $ 5,360 $ 8,890 $11,071 $11,903
Maintenance and
services............... 4,563 4,876 5,804 6,437 6,274 6,590 8,486 9,085
Hardware and other....... 1,425 895 532 1,673 1,478 1,262 721 2,266
------- ------- ------- ------- ------- ------- ------- -------
Total revenues...... 10,096 12,306 13,868 16,351 13,112 16,742 20,278 23,254
Cost of revenues:
Software licenses........ 480 640 735 799 716 1,061 1,373 1,318
Maintenance and
services............... 1,257 1,140 1,379 1,543 1,987 2,059 2,732 1,842
Hardware and other....... 1,139 596 322 760 1,037 884 566 1,138
Amortization of purchased
software and
capitalized software
development costs...... 17 17 17 214 62 62 58 116
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.......... 2,893 2,393 2,453 3,316 3,802 4,066 4,729 4,414
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 7,203 9,913 11,415 13,035 9,310 12,676 15,549 18,840
Operating expenses:
Sales and marketing...... 3,901 4,549 5,936 7,208 4,865 5,774 7,329 7,550
Research and
development............ 1,496 1,150 1,518 2,043 1,464 1,197 1,205 2,050
General and
administrative......... 1,069 1,069 1,269 1,461 1,188 1,496 1,773 2,651
Write-off of offering
costs.................. -- -- -- 1,592 -- -- -- --
Amortization of
intangible assets...... 24 24 100 (74) 88 88 88 (264)
Profit on disposition of
subsidiary............. -- -- -- -- -- -- -- (42)
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.......... 6,490 6,792 8,823 12,230 7,605 8,555 10,395 11,945
------- ------- ------- ------- ------- ------- ------- -------
Profit from operations..... 713 3,121 2,592 805 1,705 4,121 5,154 6,895
Other income (expense):
Interest expense, net.... (457) (475) (483) (615) (507) (341) (290) 477
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.................... 256 2,646 2,109 190 1,198 3,780 4,864 7,372
Income tax expense......... 100 1,031 822 73 395 1,247 1,605 1,850
------- ------- ------- ------- ------- ------- ------- -------
Income after taxes before
extraordinary item....... 156 1,615 1,287 117 803 2,533 3,259 5,522
Extraordinary item -- gain
on debt forgiveness...... -- -- -- -- -- -- -- 1,163
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).......... $ 156 $ 1,615 $ 1,287 $ 117 $ 803 $ 2,533 $ 3,259 $ 6,685
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Similar to other enterprise-wide software applications companies, we have
experienced and expect to continue to experience seasonal fluctuations in our
operating results. We have generally realized lower revenues in our first and
second fiscal quarters and higher revenues in our third and fourth fiscal
quarters. This is due, in part, to the March 31 fiscal year-end of many of our
customers. In general, during our first fiscal quarter, many customers have
already expended their information technology budgets. As a result, our third
and fourth fiscal quarters generally reflect greater revenue recognition because
of a higher concentration of software system installations.
25
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through borrowings
under bank credit facilities, private placements of equity and debt securities,
equity contributions by our principal stockholder and our initial public
offering. In April 1999, we sold 3,300,000 shares of our common stock in our
initial public offering, generating net proceeds of approximately $12.9 million.
In June 1999, we sold 230,000 shares of our common stock and generated
approximately $1.1 million in connection with the exercise of a portion of the
over-allotment option granted to the underwriters of our initial public
offering. In October 1999, we sold 1,600,000 shares of our common stock to
Info-quest in a private placement, generating net proceeds of approximately
$16.2 million. As of December 31, 1999, we had approximately $13.4 million of
cash and cash equivalents and no short-term borrowings and a working capital
surplus of approximately $17.8 million.
We may, from time to time, consider acquisitions of complementary
businesses, products or technologies, which may require additional financing. In
addition, continued growth in our business may, from time to time, require
additional capital. We cannot assure you that additional capital will be
available to us 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 our stockholders.
We had an operating cash flow surplus of $13.1 million for 1999. This was
primarily due to an increase in our revenue and the related net income. We had
operating cash flow deficits of $6.7 million and $4.0 million for 1998 and 1997,
respectively. Operating cash flow is affected by seasonality, among other
factors, and is often disproportionately higher in our third and fourth quarters
than in the first two quarters of the year.
Accounts receivable increased to $18.1 million for 1999 from $16.2 million
for 1998. The increase in accounts receivable in 1999 was primarily the result
of a greater number of significant contracts in 1999. These more significant
contracts have, by their terms, a longer period for payment, which is customary
in the industry. As of December 31, 1999, the average days revenue outstanding
was 90 compared to 112 for 1998. Accounts receivable increased to $16.2 million
as of December 31, 1998, from $9.5 million as of December 31, 1997.
We had an allowance for doubtful accounts of $507,000 for 1999 and $639,000
for 1998. We had $765,000 and $452,000 of write-offs in 1999 and 1998,
respectively. Due to our growth, we do not believe that historical write-offs
are necessarily indicative of future write-offs. We review the adequacy of the
allowance for doubtful accounts based primarily on a review of aged receivables,
with special attention paid to amounts over 90 days old. At December 31, 1999,
the allowance for doubtful accounts was $765,000, which management believes is
adequate to cover our receivable balance at December 31, 1999.
Accrued payroll taxes decreased to approximately $574,000 for 1999 from
$586,000 for 1998.
We utilized cash for investing activities of $17.6 million, $2.6 million
and $1.0 million for 1999, 1998 and 1997, respectively. During these periods, we
experienced significant growth and invested in property and equipment. During
the fourth quarter of 1999, we acquired e-nnovations.com for approximately $14.5
million.
Cash provided by financing activities was $18.1 million, $9.1 million and
$4.5 million for 1999, 1998 and 1997, respectively. Financing activities for
1999 primarily consisted of the initial public offering and a private placement
in October 1999. The net proceeds from the issuance of shares during the period
were $30.2 million. We used $13.9 million of the proceeds for payment of long
and short term borrowings. Financing activities for 1998 primarily consisted of
a private placement in February 1998 of approximately 1,294,500 shares of our
common stock, the net proceeds of which were $9.3 million. We used $2.9 million
of those proceeds for the repayment of long term borrowings in 1998. Financing
activities for 1997 primarily consisted of a private placement of equity
securities in the aggregate amount of $6.4 million, of which approximately $2.0
million was used to repay bank indebtedness. We believe that the net proceeds
from this offering, together with existing cash and cash equivalents, will be
sufficient to meet our working capital and currently planned expenditure
requirements for the next 12 months.
26
<PAGE> 31
As of December 31, 1999, we had no outstanding indebtedness under our bank
credit facilities.
IMPACT OF THE YEAR 2000
Although we continue to test our internal systems, we have experienced no
material problems as a result of the Year 2000 changeover. However, because we
and our customers are substantially dependent upon the proper functioning of our
computer systems, a failure of our systems to be Year 2000 compliant could
materially disrupt our operations, which could seriously harm our business.
The scope of our Year 2000 preparation included the review and evaluation
of our information technology and non-information technology systems and the
evaluation of the readiness of our third party suppliers and our software
application products. As part of our Year 2000 readiness program, we also
inquired as to the Year 2000 readiness of our critical suppliers and customers.
We have not received any reports from our critical suppliers or customers of any
material problems experienced by them on account of the Year 2000 changeover. If
our critical suppliers or customers are not Year 2000 compliant, they may
experience material costs to remedy problems, or they may face litigation costs.
In either case, Year 2000 issues could adversely affect the ability of our
critical suppliers to provide products and services to us and reduce or
eliminate the budgets that current or potential customers could have to license
our products.
The aggregate costs incurred by us as of December 31, 1999, in connection
with Year 2000 compliance were approximately $812,000. Of this amount,
approximately $133,300 was incurred for Year 2000 compliance related to our
internal information systems. These costs were expensed by us as incurred in
compliance with EITF 96-14. The remaining amounts were incurred substantially
for the Year 2000 compliance of our products.
EURO CONVERSION
In January 1999, the Euro was introduced as the currency of a number of
participating nations in the European Union. Although the United Kingdom is not
currently a participating nation, the introduction of the Euro raises conversion
issues for business transacted with entities in participating nations. Our
products either include or have been upgraded to include the Euro and we do not
believe that the Euro conversion has had or will have an adverse effect on our
business. Because our critical internal systems have been modified to
accommodate a conversion to the Euro, we believe it is adequately prepared in
the event the United Kingdom converts to the Euro in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates
A significant portion of our business is transacted in currencies other
than the United States dollar. Our functional currency is the British Pound and
the functional currency of our non-United Kingdom subsidiaries are their local
currencies. As a result, we are subject to exposure from movements in foreign
currency exchange rates, specifically the U.S. dollar/British pound, the U.S.
dollar/Bulgarian Leva and the British pound/Bulgarian Leva exchange rates. We do
not use derivative financial instruments for speculative trading purposes, nor
do we hedge our foreign currency exposure to manage our foreign currency
fluctuation risk.
Interest Rate Sensitivity
In the past, our exposure related to adverse movements in interest rates
was primarily derived from the variable rate on our bank credit facilities. As
of the year ended December 31, 1999, we had repaid all of our indebtedness to
banks and other lenders. Therefore, we believe we are not currently exposed to
any market risks related to interest rate sensitivity.
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<PAGE> 32
BUSINESS
OVERVIEW
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. Our fully-integrated suite
of Internet-enabled products allows our customers to manage and execute
mission-critical functions within their organization, including accounting,
purchasing, manufacturing, customer service, and sales and marketing. The
modular design of our products enables us to provide customers with a cost-
effective scalable solution which can be easily implemented. We focus on
mid-sized organizations with annual revenues of less than $200 million to
capitalize on a market we believe is receptive to our cost-effective solutions
and shorter implementation periods. To date, we have licensed our software
applications to more than 6,000 customers in over twenty countries.
Our software applications use our internally developed three-tiered, object
oriented software architecture, which we call the Aremis architecture. This
architecture enables us to develop software solutions rapidly and
cost-effectively by taking advantage of the common requirements of customers in
our target markets. In addition, we believe that, with 212 developers based in
our facilities in India, we have established a cost-effective model for
implementing, supporting and enhancing our software applications.
In December 1999, we acquired e-nnovations.com, an Internet software
solutions provider located in Bangalore, India. We believe this acquisition is a
key strategic milestone in our development because it enables us to address the
rapidly expanding market opportunities brought about by the Internet. For over
two years, we have partnered with e-nnovations.com and have utilized their
technological capabilities in several large projects. This acquisition enables
us to continue to leverage the diverse technological capabilities of
e-nnovations.com to address our customers' current and future e-business needs.
We believe the e-nnovations.com acquisition will also assist us to develop an
application service provider, or ASP, delivery method to best suit the evolving
requirements of our expanding customer base.
INDUSTRY BACKGROUND
Enterprise-wide software applications are designed to help a business
manage and execute its mission-critical operations. They provide an organization
with a strategic resource that can be used to generate and disseminate
mission-critical information, as well as enable it to respond rapidly to
changing market environments and customer needs.
Businesses are increasingly demanding flexible solutions that assist in the
management and execution of mission-critical functions in a continually changing
business environment. In the past, host-centric systems operating on mainframes
or mid-range computers achieved broad market acceptance. Although these systems
served the near-term needs of customers, they lacked the flexibility necessary
to operate in the modern marketplace due to their inability to accommodate
variations in business requirements and technology infrastructure. As a result,
companies like Baan, Oracle, PeopleSoft and SAP developed more flexible
enterprise-wide solutions targeted at Fortune 1000 companies. Although these
solutions have undergone significant evolution since their introduction, they
remain very expensive and require significant resources because they involve
lengthy implementation cycles and substantial customization. Small to mid-sized
organizations generally cannot afford and do not have the information technology
resources to purchase, implement and support these large-scale enterprise-wide
systems.
According to Forrester Research, an independent market research firm,
global packaged applications license revenues are estimated to grow from $14
billion in 1998 to over $41 billion by 2003. The international portion of this
market is estimated to grow from $6 billion to over $20 billion, representing an
annual compounded growth rate of approximately 27%. This growth can be
attributed, in part, to a shift among organizations away from developing
enterprise-wide software applications in-house to purchasing these applications
from outside sources. This shift has been fueled by the growing complexity of
new technology, the increasing failure rate of in-house software development
projects, and the difficulty in hiring, training and retaining software
professionals. By outsourcing their software needs, businesses can
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<PAGE> 33
reduce their risk of in-house development failures and ensure quicker time to
market with new and increased functionality.
As a result, there is a substantial global market opportunity for
enterprise-wide software applications which cater to mid-sized organizations and
offer:
- ease of integration,
- faster implementation,
- reduced risks associated with business and technological changes,
- lower costs, and
- industry-specific and customized functionality.
THE AREMISSOFT SOLUTION
We focus on mid-sized organizations with limited information technology
resources and a need for cost-effective, modularized software systems that can
be scaled as the company grows. Our solutions provide the following benefits:
Industry-Specific Applications. We offer enterprise-wide software
applications for mid-sized organizations specifically tailored to four
vertical markets: manufacturing, healthcare, hospitality and construction.
Through our industry focus and history of working closely with customers,
we believe we have developed a high level of expertise in
industry-specific, complex business processes which enables us to develop
software applications to address our customers' specific needs.
Comprehensive Product Suite. Our comprehensive suite of products
provides our customers with significant flexibility and a wide range of
functions. We utilize a modular approach in configuring our solutions,
drawing upon a broad array of modules that handle various business
functions such as accounting, purchasing, manufacturing, customer service
and sales and marketing. As a result, our customers are able to incorporate
their business processes into a single system and add new modules as their
business needs increase.
Rapid Implementation and Integration Advantages. The modular design
and object oriented nature of our products, combined with our vertical
market focus and expertise, permits rapid product implementation. Our
software applications are designed to address the specific needs of our
customers so they need only purchase those applications with the functions
they require. This limits the need for extensive customizing after
installation and eliminates implementation and training time for
unnecessary features. Our software products operate on numerous hardware
platforms, are compatible with all major databases and can be integrated
with a variety of Internet technologies.
Global Service and Support. We provide high quality global service
and support, which we believe is a critical component of our solution. We
offer dedicated product service and support by highly trained personnel
locally and through our software development and support facilities in
India. We believe our investment in worldwide customer support services and
user groups improves communication and feedback, enhancing customer
satisfaction and cultivating long-term relationships with our customers.
Ease of Migration. Although we encourage our customers to migrate to
our newer products, we also support their use of legacy products. By
providing support for legacy products, we protect our customers' investment
in their existing systems and reduce the costs and business interruptions
associated with mandatory system upgrades. We believe this is critical to
customer satisfaction and improves our success in transitioning customers
to our rejuvenated and new products.
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<PAGE> 34
THE AREMISSOFT STRATEGY
Our business objective is to attain a leadership position as a provider of
enterprise-wide software applications in our target markets. As part of our
business strategy, we intend to continue to:
Focus on Marketing to Mid-sized Organizations. We believe that the
market for providing cost-effective, enterprise-wide software applications
to mid-sized organizations is large and underserved. We believe our
software products are well suited for this market because they are
generally less expensive and have significantly shorter implementation
periods than products marketed to larger businesses, which typically
require implementation periods in excess of one year. We intend to continue
to focus on the mid-sized market which is not easily penetrated by large
software vendors who face difficulties in tailoring their applications to
address the needs of smaller organizations.
Further Penetrate Targeted Markets. We believe there are significant
opportunities to increase our presence and expand our customer base within
the manufacturing, healthcare, hospitality and construction industries. We
intend to leverage the expertise we have developed in each of these
industries to further penetrate these markets and to take advantage of the
common functionality across these industries by utilizing our Aremis
architecture.
Increase Efficiencies by Using Our Software Development Facilities in
India. We believe our software development and support facilities in India
provide us with a significant competitive advantage in product development,
implementation, product rejuvenation and administrative functions. Our team
in India is responsible for research and development and shares
responsibilities for design and specification with our technical personnel
in the United Kingdom. We also utilize the satellite link that we
established between our operations in India and each of our other offices
to increase operating efficiency and enhance communications throughout our
operations. We intend to increase the use of our operations in India to
reduce costs in other areas of our business including administrative
functions.
Provide Internet-Enabled Software Solutions. Through our recent
acquisition of e-nnovations.com, we have enhanced our ability to provide
fully integrated Internet-enabled software solutions. We anticipate
releasing future versions of our software which have enhanced Internet
capabilities, including the delivery of our applications directly to our
customers over the Internet.
Expand on our Technological Expertise. We believe that our
three-tiered object oriented architecture enables us to respond to and
rapidly incorporate new technologies. We intend to continue to invest in
the development of new technologies and products to address evolving
customer requirements. In addition, our technology strategy is focused on
transitioning customers from legacy products to products utilizing our
Aremis architecture.
Expand Sales, Marketing, Support and Service. We believe there are
significant opportunities to expand our market position in our existing
markets by further developing our sales, marketing and support
infrastructure. We sell and support our software products directly in
Argentina, Bulgaria, Germany, India, Ireland, Mexico, the United Kingdom
and the United States and indirectly in 14 additional countries through
value added resellers. We plan to continue to invest significantly in
expanding our sales, marketing, support and services in these and other
geographic regions.
ACQUISITION STRATEGY
We believe we have developed a successful and proven acquisition model,
from pre-acquisition due diligence to post-acquisition integration. We believe
our model enables us to integrate acquired products and customers and, over
time, rejuvenate those products and transition those customers to our new
applications. A significant aspect of our growth strategy is, and will continue
to be, the acquisition of complementary businesses to achieve market presence
and increase our customer base. From January 1993 to March 1996, we acquired
eleven businesses, and in December 1999, we acquired e-nnovations.com.
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<PAGE> 35
Our acquisition strategy focuses on the corporate, financial and
operational characteristics of a potential business to be acquired. We
extensively consider a potential acquisition's customer base, products and
applications, application environment and operating platform to assess the
potential for rejuvenation utilizing our Aremis architecture.
After we have acquired a business, it is integrated into our operations.
The first step in the integration process is to establish a satellite link
between it and our software development and support facilities in India. A team
within our India facilities immediately assumes responsibility for product
development, finance and administration. As a result, we are able to reduce
staff in the development and administrative functions of the acquired business.
The next step in the process is to begin rejuvenating the acquired products
and transitioning them to our Aremis architecture. At this point, we offer
customers of the acquired business three choices, to transition to one of our
products, to upgrade to a rejuvenated legacy product or to continue to utilize
the existing legacy product. We are sensitive to the customer's investment in
legacy systems and do not require them to transition to the rejuvenated
products, rather, we continue to support the acquired businesses' legacy
products until all customers are transitioned to one of our rejuvenated or new
products. Because the transition process is gradual and, to a large extent,
controlled by the customer, disruption to the customer's operations is
minimized.
The following table illustrates a typical product rejuvenation process:
PRODUCT REJUVENATION PROCESS
[FLOW CHART]
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<PAGE> 36
THE AREMIS ARCHITECTURE
We believe that our Aremis architecture enables us to produce high quality,
scalable enterprise-wide software applications with substantially reduced
development, implementation and maintenance costs. The foundation of our Aremis
architecture is a three-tiered, object-oriented model, as depicted below:
AREMIS ARCHITECTURE
[AREMIS ARCHITECTURE CHART]
The three tiers of our Aremis architecture consist of presentation, logic
and database. The presentation tier is the interface between the user and the
system which, in the Aremis architecture, is a graphical user interface, or GUI.
The logic tier comprises the applications within each product that interact with
the database tier. The database tier 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 any one tier, without
needing to modify others.
We believe that our Aremis architecture's object orientation provides us
with a significant competitive advantage. We have devoted significant resources
to developing an extensive proprietary software library of well-defined,
reusable business objects which link business rules and policies to our
applications. This object orientation enables our 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 our products and our markets. We believe
that approximately 70% of the objects used within the Aremis architecture are
common across the markets we target. This means that the same objects can be
used in applications across various industries without substantial modification.
The object orientation of our Aremis architecture also helps to minimize
training costs since our software developers, who are already trained in the
development methods and language, can be assigned to various vertical markets
with little or no additional training. In a similar manner, we can add modules
to a customer's Aremis system with minimal additional cost and training.
Our Aremis architecture encompasses most industry standard database
technologies including:
<TABLE>
<S> <C>
- Informix - SQL Server
- Oracle - Sybase
</TABLE>
This provides our customers with the flexibility to utilize our high quality
data warehousing and data mining applications. Our Aremis architecture is also
based on open, client/server computing technology. This open environment
provides compatibility with other software applications, even among multiple
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<PAGE> 37
revision levels of the same or different products. Components of the Aremis
architecture have been implemented on numerous hardware platforms and operating
systems, including:
<TABLE>
<S> <C>
- Windows NT - Novell
- Windows 95 - Multitasking DOS environments
- UNIX
</TABLE>
OUR PRODUCTS
We provide customized enterprise-wide software applications for mid-sized
organizations in four principal vertical markets. For each of the last three
years, revenues in each of these markets, as a percentage of our total revenues,
were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Manufacturing............................................... 22% 32% 35%
Healthcare.................................................. 45 30 27
Hospitality................................................. 24 26 26
Construction................................................ 8 8 7
Other....................................................... 1 4 5
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</TABLE>
As a result of the acquisitions we completed from January 1993 to March
1996, our customer base is in various stages of transition to products utilizing
our Aremis architecture. Each of our legacy products was originally acquired as
part of an acquisition and subsequently rejuvenated. In the rejuvenation
process, a legacy product is enhanced by incorporating the then current features
of the Aremis architecture appropriate for that product. New customers in each
of our target markets are sold rejuvenated products and updated versions of
products, while existing customers of the acquired businesses are encouraged to
transition to the rejuvenated product line at their own pace. As a result, the
products we sell and support consist of:
- legacy products of acquired businesses that have not been rejuvenated,
- legacy products of acquired businesses that have been rejuvenated and
incorporate features of our Aremis architecture, and
- new products that incorporate all or a substantial portion of the
features of our Aremis architecture.
We currently sell and support products in each of the following vertical
markets: manufacturing, healthcare, hospitality and construction.
MANUFACTURING PRODUCTS
[PRODUCT GRAPH]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
Aremis Enterprise is a fully-integrated enterprise-wide management and
control system which provides full enterprise resource planning capabilities and
broad functionality and is compatible with larger enterprise resource planning
systems. Aremis Enterprise consists of nine main application modules and
incorporates features of our Aremis architecture.
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<PAGE> 38
MTMS, which operates on UNIX or Windows platforms, is compatible with
larger enterprise resource planning systems. MTMS was acquired in connection
with our acquisition of BEC Group Limited and was subsequently rejuvenated. The
rejuvenated version of MTMS contains the same application modules and programs
as Aremis Enterprise but does not incorporate all features of our Aremis
architecture.
License fees for the Aremis Enterprise and MTMS products range from
approximately $50,000 to $500,000 depending upon the size of a customer and
number of application modules utilized.
The following table describes the main application modules and the primary
customer benefits of Aremis Enterprise and the rejuvenated MTMS products:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Manufacturing Data Management - Enables the creation of, and access to, parts
details, bills of material, process routes and
other resources fundamental to the control of the
manufacturing process
Production Planning - Assists in the control of daily targets for
inventory and labor
Production Control - Facilitates ordering and controlling work in
progress
Inventory and Stores - Defines and controls inventory requirements,
records unplanned inventory movements, tracks
inventory in all stages of the manufacturing
process and generates product forecasts
Purchasing - Integrates purchase orders, material requirements
planning, quality control and purchase invoice
validation
Sales - Provides several methods of entering purchase
orders
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 - Enables management of quality control of raw
materials and finished products
Environment - Contains the control mechanism to support a range
of database facilities
</TABLE>
HEALTHCARE PRODUCTS
[HEALTHCARE PRODUCTS FLOW CHART]
- ---------------
(1) Some customers have been licensed for more than one version of the product
and, as a result, are represented more than once in the number of installed
customers.
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<PAGE> 39
Global Clinical System for Windows, commonly referred to as GCS for
Windows, is a navigation system for managing the medical and administrative
tasks that are routinely encountered by physicians, physician groups and
community hospitals. It utilizes many features of our Aremis architecture,
incorporating object-oriented and touch screen technologies. GCS for Windows
consists of nine main application modules.
AMSyS is a DOS-based clinical system we acquired in connection with our
acquisition of Advanced Medical Systems Limited that we subsequently
rejuvenated. The rejuvenated version of AMSyS incorporates primarily the same
application modules as GCS for Windows but in a non-Windows format and operates
alone or in a PC/local area network environment.
Genisyst is a product we acquired in connection with our acquisition of
Genisyst Limited. The rejuvenated version of Genisyst incorporates functionality
similar to GCS for Windows and provides a nondisruptive transition for customers
to GCS for Windows.
License fees for our GCS products range from approximately $20,000 for
single users to $150,000 for multiple user systems, depending upon the number of
application modules utilized. License fees for our other rejuvenated products
vary depending on the product but are generally lower than GCS license fees.
The following table describes the main application modules and their
primary customer benefit of GCS for Windows:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Administration Manager - Contains all basic patient record information including
name, age, gender 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 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 including age,
gender 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 issuance of drugs and prescriptions
</TABLE>
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<PAGE> 40
HOSPITALITY PRODUCTS
[HOSPITALITY PRODUCTS FLOW CHART]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
Aremis 4.0 Property Management System, commonly referred to as Aremis 4.0
PMS, is a comprehensive client/server hotel property management system that can
be dynamically configured to match a customer's business model. Aremis 4.0 PMS
consists of eight main application modules that offer a wide range of functions
for both the front and back office operations in a hotel and incorporates
features of our Aremis architecture. Aremis 4.0 PMS is scalable to accommodate
hotels with more than 500 rooms.
IGS Hotel is a product we acquired in connection with our acquisition of
IGS Leisure Technology Limited. IGS Hotel operates in a DOS format and offers a
wide range of functions for both the front and back office operations in a
hotel. The rejuvenated version of IGS Hotel contains primarily the same
application modules as Aremis 4.0 PMS but does not incorporate all features of
our Aremis architecture.
License fees for IGS Hotel and Aremis 4.0 PMS range from approximately
$11,000 to $1.0 million, depending on the size of a customer and number of
application modules utilized.
The following table describes the main application modules and the primary
customer benefits of Aremis 4.0 PMS and the rejuvenated version of IGS Hotel:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Front Office - Assists hotels in managing their front office
operations from reservation through check out
Central Reservations - Provides hotel chains with a central reservations
facility for each hotel within the chain
Data Warehousing - Provides a central information database for hotel
chains and an executive information system for
management
History & Marketing - Provides hotels with key profile information on
guests and prospects
Conferencing & Banqueting - Assists hotels in organizing events and facilitates
the reservation process by 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 - Offers interfaces to a number of high quality
third-party hardware and software systems including
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>
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<PAGE> 41
CONSTRUCTION PRODUCTS
[CONSTRUCTION PRODUCTS FLOW CHART]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
ViXEN Windows is a fully-integrated Windows-based management and control
system designed specifically for contracting companies across a variety of
industries. It consists of 13 main application modules and incorporates many
features of our Aremis architecture.
ViXEN Plus & ODBC operates on a UNIX platform. The product was acquired in
connection with our acquisition of Briter Computer Systems Limited and was
subsequently rejuvenated. ViXEN Plus & ODBC operates in a multi-user environment
and contains the same application modules as ViXEN Windows but does not
incorporate all features of our Aremis architecture.
License fees for a ViXEN contracting system range from approximately
$80,000 to $500,000 depending on the size of a customer and number of
application modules utilized.
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<PAGE> 42
The following table describes the main application modules and the primary
customer benefits of ViXEN Windows and ViXEN Plus:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Services and Maintenance - Controls various tasks related to servicing and
maintaining equipment and facilities by allowing
users to record and manage customer address and plant
equipment parameters
Job Costing - Records and analyzes costs of each job; serves as the
hub of the ViXEN contracting system
Purchase Orders - Produces printed orders, calculates prices and
discounts automatically and records the value of
outstanding orders as part of work in progress
Estimating - Calculates a quote based on changes in labor rates,
overhead, task factors, wastage, allowances,
increased cost percentages and desired profit margin
and performs sensitivity analysis
Inventory Control - Maintains control of inventory changes by providing
detailed information on inventory levels, goods
ordered from suppliers and incoming and outgoing
transactions
Price File Database - Provides 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 in the 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 - Automatically posts invoices through the Job Costing
module and performs sales analyses
Purchase Ledger - Logs invoices, validates input data, specifies
payment options, makes automatic payments and
produces invoices and checks
Nominal Ledger - Provides 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 - Encompasses a range of necessary features,
integrating other ViXEN modules in a UNIX environment
</TABLE>
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<PAGE> 43
CUSTOMERS
We primarily focus on mid-sized organizations within the manufacturing,
healthcare, hospitality and construction industries worldwide. As of February
29, 2000, we had licensed software products to over 6,000 customers in over
twenty countries. No one customer accounted for more than 10% of our total
revenues in 1999. The following is a representative list of companies in our
targeted markets:
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION
- ---------------------- --------------------- ---------------------- -------------------------
<S> <C> <C> <C>
ABB Kent Joy BHB Hospital Trust Bass (Toby Inns) CWS Engineering Services
Alcan Aluminum Birmingham Multifund Cliveden East Midlands
Electricity
British Aerospace Blackburn National Forte Limited London Electricity
Health Trust
Fernz Corporation Dudley Multifund Friendly Hotels Midlands Electricity
Nabisco Biscuit Co. Durham Multifund Jarvis Hotels NG Bailey & Co.
Rotork Controls Kingston & Richmond Jurys Hotel Group Norweb Contracting
Spartan Electronics Lambeth & Lewisham Millennium & Copthorne ROMEC
Hotels
Telefon AB LM Ericsson Potteries Healthcare Regal Hotel Group Southern Electric
Tomkins Group South Wales GP Group Thistle Hotels Southwestern Electricity
Watts Industries Southampton Multifund Whitbread (Travel Inn) Yorkshire Electricity
Europe
</TABLE>
SALES AND MARKETING
We market our products primarily through a direct sales force organized
around our target markets which enables us to address the specialized needs of
our customers in each of these markets. In the manufacturing and hospitality
industries, we also rely, to a limited extent, on value added resellers to sell
our products.
We have adopted a tailored sales and marketing strategy to develop demand
for our products by creating visibility for us and awareness of our products.
This strategy includes advertisements in leading trade publications,
participation in trade shows and sponsorship of user groups. In addition, we
have developed corporate sales and marketing materials as well as general
financial and technical materials that we distribute to each of our subsidiaries
for inclusion in their sales materials as well as make available on our web
site, thereby promoting a consistent portrayal of our image and products.
The sales cycles for our products vary across each target market typically
ranging from one to 12 months. The average sales cycle for our manufacturing
products is three to nine months, healthcare is one to three months, hospitality
is three to six months, and construction is six to 12 months. The sales cycle
depends on many factors, including the size of customer's organization, the
number of individuals involved in the purchasing decision, whether a potential
customer has retained a consultant to assist in a purchasing decision, the
status of a customer's implementation of a hardware system and the degree of
implementation, consulting and training required.
PRODUCT DEVELOPMENT
Since our inception, we have made substantial investments in research and
development. We are continually designing and developing new generations of
software applications to provide improved performance and enhanced functions
utilizing the most recent proven technology.
We maintain research and development centers in both the United Kingdom and
India. Our operation in the United Kingdom concentrates primarily on new product
design and prototyping using our Aremis
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<PAGE> 44
architecture. Our software engineering research division also evaluates and
develops new technologies and methodologies for the future benefit of our broad
range of products. These include hand held, imaging, Internet/intranet, voice
activation, touchscreen and multimedia technologies. Coding, integration and
testing are performed at our software development and support facilities in
India, where employees are divided into teams for each target market. Our teams
in India also focus on incorporating enhancements and error corrections to
existing products.
Use of the software development and support facilities in India provides us
with access to highly skilled software engineers. In contrast, the available
pool of appropriately skilled software professionals in Europe and the United
States is limited. In addition, the cost of recruiting and training software
developers in C++ and Java is substantially greater in Europe and North America.
We believe our facilities in India provide us with a significant advantage over
our competitors in Western Europe and the United States, even with the
additional communications and management overhead associated with remote
development.
CUSTOMER SERVICE AND SUPPORT
We provide service and support to our customers to promote rapid and
efficient implementation. Our service and support offerings include:
Installations and Training. Installations are planned and overseen by
specialized project managers in accordance with customer requirements and
pre-installation consultation is provided when necessary. We offer a
fully-integrated training program to support customer implementation of our
products to help ensure successful installations.
Customer Support. In addition to local support provided on a daily basis,
we provide a high level of customer support through our software development and
support facilities in India. Support and product information are also provided
through our web page. In addition, through user groups in the United Kingdom and
North America, we seek feedback to enhance the support and development of our
products as well as our brand.
Business Review Services. We provide a business review service to ensure
that our customer organizations recognize and respond to market trends. These
reviews assess the factors influencing the performance of a customer's business
with respect to the management of required information services. As part of the
service, we produce a comprehensive report containing recommendations for
improvement and the related costs and benefits.
PROPRIETARY RIGHTS AND LICENSING
Our success is dependent upon our proprietary technology and other
intellectual property. We have submitted an application for federal registration
of the AremisSoft tradename, trademark and logo with the United States Patent
and Trademark Office. We have not registered any copyrights nor have we received
or applied for any patents for our products, technology or other intellectual
property. We rely primarily on the protection provided by applicable copyright,
trademark and trade secret laws, as well as confidentiality procedures and
licensing arrangements, to establish and protect our rights to our software. We
also enter into confidentiality agreements with some employees, distributors and
customers and limit access to and distribution of the source codes for our
products and other proprietary technology.
We enter into license arrangements that provide for the nonexclusive
license of our software. These license agreements generally allow the use of our
software solely by the customer for internal purposes without the right to
sublicense or transfer the software to third parties. These 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.
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<PAGE> 45
COMPETITION
The enterprise-wide software applications market, including the market for
client/server-based systems, is intensely competitive and rapidly changing. The
competition that we encounter varies across and within each vertical market
depending upon, among other things, the customer's size and specific system
requirements. There are many factors that affect competition in the software
applications market, including a vendor's responsiveness to customer needs and
the quality of customer support as well as a product's architecture,
functionality, speed of implementation, ease of integration, performance,
features, reliability, breadth of distribution and price. Although some factors
are applicable to each vertical market, others are unique to specific markets or
take on greater relative importance.
In the manufacturing industry, the principal factors include the ease of
implementation of a product and its functions, customer service, training and
price. Our main competitors in the manufacturing industry include:
<TABLE>
<S> <C>
- Epicor - QAD
- Fourth Shift - Symix
- Glovia
</TABLE>
In the healthcare industry in the United Kingdom, the principal factors
include the ability to produce applications to market in relatively short
periods of time, compliance with the requirements of primary care groups,
compliance with National Health Service specifications, access to reliable
software support, system implementation and maintenance costs. Our main
competitors in the healthcare industry include:
<TABLE>
<S> <C>
- EMIS - Microtest Europe
- Exeter Systems - PCTI Solution
- GPASS - Seetec
- In Practice - TOREX
- Medical Care Systems
</TABLE>
In the hospitality industry, the principal factors include the
functionality of the product, the ease of implementation, the return on the
customer's investment, customer service, training and price. Our main
competitors in the hospitality industry in the United Kingdom and Europe are
Innsite and MICROS Systems.
In the construction industry, the principal factors include the ability to
collect marketing data, produce accurate invoicing, profit control and
purchasing information, as well as price. Our main competitors in the
construction industry are:
<TABLE>
<S> <C>
- Database - FCG Computer Systems
- Estimation - Misys
</TABLE>
HEALTHCARE REGULATIONS
The healthcare industry in the United Kingdom is regulated by the National
Health Service, commonly referred to as the NHS, a government agency. Health
authorities ensure that the healthcare services provided meet the needs of
residents in their designated areas.
Our healthcare products sold in the United Kingdom are regulated by the NHS
through an accreditation process. The requirements for accreditation ensure that
computer systems provide consistent core functions and conform to NHS standards.
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<PAGE> 46
A new Information Management and Technology Strategy is expected to be
published by the NHS. The strategy will set the information technology standards
for the future including specifications for primary care groups. The purpose of
the strategy is to ensure that all primary care groups have in place an
auditable clinical system with the ability to provide management information.
Primary care groups are groups of physicians who combine practices to manage a
budget for staff, provide hospital referrals, drug costs, community nursing
services and management costs. The NHS recently recommended that major
investments in information technology systems to support primary care groups
should not be made before the strategy is published. As a result, we anticipate
that we will continue to experience delays in customer purchases of our
healthcare products pending such publication.
The strategy is expected to be the basis for drafting an updated
requirements for accreditation. In the future, the NHS is expected to only
reimburse primary care groups for purchases of information technology systems
that meet its accreditation criteria.
EMPLOYEES
As of December 31, 1999, we had 535 full-time employees. Of these
employees, 241 are based in our offices in the United Kingdom, 115 are based in
our software development and support facility in New Delhi, India and 97
employees are based in our software and development facility in Bangalore,
India. The remaining 82 employees are in various facilities in other locations.
None of our employees is represented by any collective bargaining agreements and
we have never experienced a work stoppage. We consider our relationship with our
employees to be good and we have not experienced any interruptions of operations
due to labor disagreements.
All of our employees in India are full-time employees. We do not employ
contractors or fixed term temporary personnel in India. In order to retain key
personnel, we operate a number of incentive programs, including subsidized
housing, car allowances, and overseas allowances and bonuses for employees
working on special projects. Currently, we utilize a three-shift system at our
facilities in India, thereby allowing us to ensure key projects are delivered on
time and to specification and facilitating customer access to our software
staff.
PROPERTIES
We lease various facilities which house our administration, sales,
marketing, support and research and development functions. The following table
sets forth information concerning our principal facilities as of December 31,
1999:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION LEASE EXPIRATION SQUARE FOOTAGE
- -------- -------- ---------------- --------------
<S> <C> <C> <C>
Blackburn, United Manufacturing Division 2010 12,000
Kingdom..................
Bangalore, India........... Internet, Workflow, 2002 11,700
Research and Development
New Delhi, India........... Research and Development, 2001 7,620
Customer Support
Woking, United Kingdom..... Principal Executive 2012 7,430
Offices
Hitchin, United Kingdom.... Healthcare Division 2000 7,125
Alton, United Kingdom...... Construction Division 2005 4,500
Westmont, New Jersey....... Manufacturing Division 2000 4,200
Nicosia, Cyprus............ Administration 2004 4,000
</TABLE>
We also have been assigned relatively small leaseholdings elsewhere in
Argentina, Bulgaria, Germany, India, Ireland, Mexico, the United Kingdom and the
United States which expire on various dates from
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<PAGE> 47
2000 through 2013. We believe that our current facilities will be sufficient to
meet our needs for the next 12 months.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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<PAGE> 48
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table lists our current directors, executive officers and
other key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Dr. Lycourgos K. Kyprianou..... 45 Chairman of the Board and Chief Executive Officer
Roys Poyiadjis................. 34 President and Vice Chairman of the Board
Michael A. Tymvios............. 37 Chief Financial Officer
Noel R. Voice.................. 58 Chief Operating Officer, Secretary and Director
M.C. Mathews................... 35 General Manager of Group Software Development and
Director
Barry J. Crowe................. 55 General Manager of Manufacturing Systems
Dennis Badman.................. 53 General Manager of Healthcare Systems
Michael J. Gadbury............. 52 General Manager of Hospitality Systems
Brian Rogers................... 59 General Manager of Construction Systems
Dann V. Angeloff............... 64 Director
George H. Ellis................ 50 Director
H. Tate Holt................... 48 Director
Theodoros Fessas............... 48 Director
George Papadopoulos............ 53 Director
John Malamas................... 52 Director
</TABLE>
Dr. Lycourgos K. Kyprianou has served as our chairman of the board and
chief executive officer since October 1997 and has served as chairman of the
board and managing director of our subsidiaries and predecessors since 1978. Dr.
Kyprianou is the sole founder of our worldwide business, including our software
development and support facility in India. Dr. Kyprianou received a bachelor of
science degree with first class honors in computer science from the University
of London and a doctorate in philosophy (computer science) from Cambridge
University.
Roys Poyiadjis has served as our president and vice chairman of the board
since June 1998 and our chief financial officer from October 1998 through
September 1999. From 1997 to 1998, Mr. Poyiadjis served as a partner of Alpha
Capital Limited, an investment banking firm primarily focused on investments in
technology companies. From 1995 to 1996, he served as a director of Lehman
Brothers International Ltd. and from 1993 to 1995 he served as an associate with
Morgan Stanley & Co. International Limited. Mr. Poyiadjis received a bachelor of
science (honors) degree in communications engineering from the University of
Kent and a masters degree in business administration from the London Business
School.
Michael A. Tymvios has served as our chief financial officer and senior
vice president of finance since September 1999. From 1991 to 1999, Mr. Tymvios
was a partner at Morison International, a certified public accounting firm.
Prior to joining Morison International, he was a senior manager at Deloitte
Haskins & Sells. He is a chartered certified accountant and a fellow member of
the Chartered Association of Certified Accountants of the United Kingdom. Mr.
Tymvios received a bachelor of science (honors) degree in economics from the
University of Athens.
Noel R. Voice has served as a director since June 1998 and as our chief
operating officer and secretary since October 1997. From 1992 to 1997, he served
as the senior vice president of administration of our United Kingdom operations.
From 1987 to 1992, he was founder and managing director of Noble Marketing Ltd.,
a sales and marketing consulting firm. From 1987 to 1989, he was managing
director of Cara Consulting Ltd., a United Kingdom hotel systems company.
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<PAGE> 49
M.C. Mathews has served as a director since April 1999 and has served as
our general manager of group software development since October 1997. Since
1995, he has served as the managing director of software engineering of LK
Global Software Engineering (India) Private Limited, one of our subsidiaries.
From 1992 to 1995, he served as our group project manager. Prior to joining us
in 1990, Mr. Mathews was employed as a programmer with Alphabetics Ltd., an IBM
distributor in India. Mr. Mathews received a bachelor of science (honors) degree
from Kerala and a masters of science degree in physics from Delhi Universities.
Barry J. Crowe has served as our general manager of manufacturing systems
since October 1997. Since 1995, Mr. Crowe served as project manager, account
manager and managing director of one of our subsidiaries, 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 we
acquired. From 1988 to 1991, he served as a consultant for the BM Group, plc, a
construction company. Mr. Crowe is a chartered structural engineer.
Dennis Badman has served as our general manager of healthcare systems since
May 1999 and a senior manager of healthcare systems since August 1998. From 1994
to 1998, Mr. Badman served as general manager of LK Global Field Engineering,
one of our subsidiaries. From 1989 to 1994, he served as the regional manager of
Misys Computer Maintenance.
Michael Gadbury has served as our general manager of hospitality systems
since October 1997. From 1996 to 1998, he served as director of international
business development of LK Global Hospitality Systems (UK) Limited, one of our
subsidiaries, From 1993 to 1996, he served as our managing director. From 1984
to 1993, he was a managing director of IGS Leisure Technology Limited, a hotel
computer systems company we acquired.
Brian Rogers has served as our general manager of construction systems
since October 1997. Since 1995, he has served as managing director of LK Global
Construction Systems (UK) Limited, one of our subsidiaries. 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, one of our subsidiaries.
Dann V. Angeloff has served as a director since April 1999. Mr. Angeloff is
the founder and president of The Angeloff Company, a corporate financial
advisory firm, a position he has held since 1976. He also currently serves as a
director of Public Storage, Inc., a New York Stock Exchange listed company,
Nicholas/Applegate Growth Equity Fund, top jobs.net, plc, a company quoted on
the Nasdaq National Market and various private companies. Mr. Angeloff is a
former trustee of the University of Southern California and is a university
counselor. He received a bachelor of science degree in business administration
and a masters degree in finance from the University of Southern California.
George H. Ellis has served as a director since April 1999. Mr. Ellis
currently serves on the board of directors of various private companies. Since
1996, he has provided consulting services to various technology related
companies. From 1986 to 1996, he was the chief financial officer of Sterling
Software, Inc., a New York Stock Exchange listed company. Mr. Ellis is a
certified public accountant and received a bachelor of science degree in
accounting from Texas Tech University and a juris doctor degree from the
Southern Methodist University School of Law.
H. Tate Holt has served as a director since April 1999. Since 1990, Mr.
Holt has been president of Holt & Associates, a growth management consulting
firm. From 1987 to 1990, he served as a senior vice president of Automatic Data
Processing (ADP). Prior to 1987, Mr. Holt held positions in various senior
sales, marketing and general management positions at IBM, Triad Systems
Corporation and ADP. Mr. Holt is also a director of DBS Industries, Inc. and
Onsite Energy Corporation. Mr. Holt received a bachelor of arts degree from
Indiana University.
Theodoros Fessas has served as a director since November 1999. Since 1981,
Mr. Fessas has been the majority shareholder and president of several companies,
including Info-quest, that comprise the QUEST Group, a diversified information
technology and communications enterprise, headquartered in Athens,
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<PAGE> 50
Greece. Prior to that, Mr. Fessas worked in the construction industry as an
independent engineer while also serving as a scientific associate with the
thermodynamics faculty of Metsovio University. Mr. Fessas received a bachelors
of science degree in mechanical engineering from National Technical University
of Athens and a master of science degree in thermodynamics from Birmingham
University, England.
George Papadopoulos has served as a director since November 1999. Mr.
Papadopoulos was appointed as the managing director of Info-quest in February
2000. From 1977 to January 2000, he was the general manager of Info-quest. From
1995 to 1996, he served as the general manager of Decision System Integration, a
subsidiary of Info-quest, and from 1985 to 1995, he was a founder and managing
director of ABC Systems and Software. Mr. Papadopoulos received a degree in
agricultural engineering from the University of Thessaloniki and a bachelors of
arts degree in economics from the University of Athens.
John Malamas has served as a director since November 1999. Since 1987, Mr.
Malalmas has served as the corporate administrator and finance manager of the
QUEST Group. Mr. Malamas worked as a financial manager in various Greek and
multinational companies from 1973 to 1987 when he joined the QUEST Group. From
1990 to 1992, he served as the general manager of Com-Quest. Mr. Malamas
received a bachelors degree in business administration from University of
Pireus.
BOARD OF DIRECTORS
Our board of directors consists of ten members, all of whom are elected for
one-year terms at each annual meeting of stockholders. 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 are able to
elect all of the directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The audit committee of the board of directors makes recommendations
regarding the retention of independent auditors, reviews the scope of the annual
audit undertaken by our independent auditors and the progress and results of
their work, and reviews our financial statements, internal accounting and
auditing procedures and corporate program to ensure compliance with applicable
laws. The members of the audit committee are Messrs. Angeloff, Ellis and Holt.
Compensation Committee
The compensation committee of the board of directors reviews and approves
executive compensation policies and practices, reviews salaries and bonuses for
our officers, administers our 1998 Stock Option Plan and other benefit plans,
and considers other matters as may, from time to time, be referred to them by
the board of directors. The current members of the compensation committees are
Dr. Kyprianou and Messrs. Poyiadjis, Angeloff, Ellis and Holt.
COMPENSATION OF THE BOARD OF DIRECTORS
Our directors who are not also our employees or employees of one of our
subsidiaries receive $20,000 per year plus $1,000 for each board meeting
attended and $1,000 for each committee meeting attended. Directors do not
receive any other cash compensation for services as a director. All directors
are reimbursed for their expenses incurred in attending meetings. Each outside
director also receives, for each year of service as a director, options to
purchase 20,000 shares of common stock. All options are granted at an exercise
price equal to the fair market value of the common stock on the date of grant
and vest at the rate of 33 1/3% per year commencing on the grant date.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to our
chairman of the board and chief executive officer for 1997, 1998 and 1999 and
our two other highest paid executive officers whose
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<PAGE> 51
total salary and bonuses for 1999 exceeded $100,000. No other executive
officer's total annual compensation for services rendered in all capacities for
1997, 1998 and 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
-------------------------- ALL OTHER AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
- --------------------------- ---- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(2)........... 1999 $250,000 $300,000 -- 700,000
Chairman of the Board and 1998 250,000 200,000 -- --
Chief Executive Officer 1997 250,000 200,000 -- --
Roys Poyiadjis.......................... 1999 200,000 300,000 -- 700,000
President and Vice Chairman of
the Board
Noel R. Voice........................... 1999 100,000 50,000 -- 60,000
Chief Operating Officer, General
Manager of Healthcare Systems and
Secretary
</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 approximately
$250,000 in 1997 and 1998.
OPTION GRANTS IN 1999
The following table provides information relating to stock options granted
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ----------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Lycourgos
Kyprianou............ 400,000 19.53% $ 5.000 04/22/04 $ 552,563 $1,221,020
300,000 14.65 10.875 09/01/04 901,369 1,991,789
Roys Poyiadjis......... 200,000 9.77 5.000 04/22/04 276,282 610,510
500,000 24.41 10.875 09/01/04 1,502,281 3,319,648
Noel R. Voice.......... 30,000 1.04 5.000 04/22/04 41,442 91,577
30,000 1.04 10.875 09/01/04 90,137 199,179
</TABLE>
The exercise price of each option was equal to the fair market value of our
common stock on the date of the grant. Percentages shown under "Percent of Total
Options Granted to Employees in the Last Fiscal Year" are based on an aggregate
of 2,048,800 options granted to our employees under the 1998 Stock Option Plan
and outside of this plan during the year ended December 31, 1999.
Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the five-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth. Potential realizable values
are computed by:
- multiplying the number of shares of common stock subject to a given
option by the exercise price,
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
five-year term of the option, and
- subtracting from that result the aggregate option exercise price.
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<PAGE> 52
FISCAL YEAR END OPTION VALUES
The following table sets forth, for each of the executive officers named in
the summary compensation table, the number and value of exercisable and
unexercisable options for the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNSECURED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Lycourgos Kyprianou................... 133,333 266,667 $3,666,658 $7,333,343
150,000 150,000 3,243,750 3,243,750
Roys Poyiadjis............................ 66,666 133,334 1,833,315 3,666,685
250,000 250,000 5,406,250 5,406,250
Noel R. Voice............................. 10,000 20,000 275,000 550,000
15,000 15,000 324,375 324,375
</TABLE>
Amounts shown under the column "Value of Unexercised In-The-Money Options
at December 31, 1999" represent the difference between the fair market value of
the shares of common stock underlying the options at December 31, 1999, $32.50
per share (the closing price on the last trading day of 1999, as reported by the
Nasdaq National Market) less the corresponding exercise price of such options.
1998 STOCK OPTION PLAN
In October 1997, our board of directors adopted the 1998 Stock Option Plan,
which provides for awards in the form of options, including incentive stock
options and nonqualified stock options. Our directors, officers, employees and
consultants are eligible for the grant of nonqualified stock options, while only
our employees are eligible for the grant of incentive stock options. Options can
have a term of up to ten years from the date of grant.
The 1998 Stock Option Plan is administered by our compensation committee.
The consideration for each award under the 1998 Stock Option Plan is established
by the compensation committee, but in no event can the option exercise prices
for incentive stock options be less than 100% of the fair market value of the
common stock on the date of grant. Awards for employees have such terms and are
exercisable in such manner and at a time as the compensation committee
determines, subject to the terms of the plan.
Our board of directors may amend the 1998 Stock Option Plan as desired
without further action by our stockholders except as required by applicable law.
The 1998 Stock Option Plan will continue in effect, unless terminated by our
board of directors, for a term of ten years expiring in October 2007.
As of March 3, 2000, options to purchase 1,278,800 shares of common stock
were outstanding under the 1998 Stock Option Plan at a weighted exercise price
of $5.2609 per share. In addition, we granted options outside the 1998 Stock
Option Plan to purchase 860,000 shares of common stock at an exercise price of
$10.875 per share and 750,000 shares at an exercise price of $35.00 per share.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dr. Kyprianou and Mr.
Poyiadjis. The employment agreements for Dr. Kyprianou and Mr. Poyiadjis expire
on June 1, 2001. Each of the employment agreements may be terminated by us or
the employee without cause (as defined in the employment agreements) upon 30
days notice, or for cause without notice. Under the terms of Dr. Kyprianou's
employment agreement, Dr. Kyprianou is entitled to minimum annual compensation
of $350,000 in 2000 and $400,000 in 2001. Under the terms of Mr. Poyiadjis'
employment agreement, Mr. Poyiadjis is entitled to minimum annual compensation
of $300,000 in 2000 and $350,000 in 2001. Under their employment agreements, Dr.
Kyprianou and Mr. Poyiadjis are each 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. Each of
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<PAGE> 53
these agreements also contain provisions prohibiting each of Dr. Kyprianou and
Mr. Poyiadjis from competing with us during the term of their employment. The
employment agreements with Dr. Kyprianou and Mr. Poyiadjis also provide that we
will indemnify them 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 our agents.
Dr. Kyprianou and Mr. Poyiadjis are also entitled to bonuses based on a
bonus plan adopted by the compensation committee at its December 1999 meeting.
Under this plan, Dr. Kyprianou and Mr. Poyiadjis are each entitled to receive a
bonus based on our ability to meet earnings per share targets, as established by
the board of directors or compensation committee. The bonus can be up to three
times their 2000 annual salaries, but cannot exceed $1.4 million individually.
In 1999, the compensation committee awarded each of Dr. Kyprianou and Mr.
Poyiadjis a $300,000 bonus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors consists of five
directors including Dr. Kyprianou, our chief executive officer, and Mr.
Poyiadjis, our president. A majority of the members of the compensation
committee are non-employee directors and none of our executive officers serve on
the board of directors or compensation committee of any other entities.
In May 1998, we loaned approximately $2.6 million to Dr. Kyprianou. The
loan accrued interest at the rate of LIBOR plus 2% per annum and was repaid in
November 1999.
During the third and fourth quarters of 1998, Mr. Poyiadjis made loans to
us in the aggregate amount of approximately $1.7 million. The loans were
reflected in a promissory note that accrued interest at the rate of LIBOR plus
2%. We repaid the loan in May 1999.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation that limit
the liability of our directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under Delaware law. Delaware law 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:
- for any breach of their duty of loyalty to the company or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- that arises under Section 174 of the Delaware General Corporation Law for
unlawful payment of dividends or unlawful stock repurchases or
redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation and bylaws also provide for
indemnification of our directors and officers to the fullest extent permitted by
Delaware law. We have entered into separate indemnification agreements with some
of our directors and officers that could require us, among other things, to
indemnify such persons against some 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. We believe that the limitation of liability provision in our
certificate of incorporation and the indemnification agreements facilitate our
ability to continue to attract and retain qualified individuals to serve as
directors and officers.
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<PAGE> 54
RELATED PARTY TRANSACTIONS
INFO-QUEST PRIVATE PLACEMENT
In October 1999, we raised approximately $17.6 million in a private
placement of 1.6 million shares of our common stock to Info-quest S.A.
Concurrent with the private placement, Info-quest acquired an additional 1.2
million shares of our common stock from LK Global (Holdings) N.V., a company
controlled by Dr. Kyprianou, our chief executive officer. In connection with
this private placement, we agreed to increase the size of our board of directors
to ten and nominate three representatives of Info-quest to our board of
directors so long as Info-quest holds twenty percent or more of our outstanding
common stock. If we increase the size of our board of directors or Info-quest
sells a portion of its shares, the number of directors it may nominate will be
adjusted in accordance with the agreement. As a result of the private placement
and concurrent purchase from LK Global (Holdings) N.V., Info-quest's holdings of
our common stock exceeded twenty percent of the outstanding common stock. In
accordance with the agreement, in November 1999 we increased the size of our
board to ten directors and appointed three representatives of Info-quest:
Messrs. Fessas, Papadopolous and Malamas.
We also granted Info-quest preemptive rights to acquire from us at anytime
we make further issuances of our equity or convertible debt securities an amount
of our securities necessary to maintain, after any future issuance, its
percentage of ownership in us immediately before the issuance. Info-quest has
indicated it will not exercise its pre-emptive rights in connection with this
offering.
Info-quest may require us to register under the Securities Act all or a
portion of its shares at our expense. In addition if we propose to register any
of our securities either for our own account or the account of others,
Info-quest is entitled to include their shares in the registration at our
expense. However, Info-quest agreed not to sell or transfer any of our shares
until October 2000 without our prior written consent if, after giving affect to
the sale, Info-quest would hold less than twenty percent of our outstanding
common stock. Finally, Info-quest granted us a right of first refusal with
respect to any of our shares it decides to sell in the future.
In connection with the private placement to Info-quest in October 1999,
Info-quest entered into a voting agreement with LK Global (Holdings) N.V., a
company controlled by Dr. Kyprianou, our chief executive officer, in which
Info-quest and LK Global (Holdings) agreed to vote all of our shares owned by
them for a slate of directors, seven of which are nominated by us and three of
which are nominated by Info-quest, for a total of ten directors. Pursuant to the
voting agreement, both parties shall also agree on the voting of their shares on
all other matters. If Info-quest and LK Global (Holdings) cannot agree on the
voting of their shares for any particular matter, neither of the parties will
vote their shares on that matter.
OFFICER LOANS
During the third and fourth quarters of 1998, Mr. Poyiadjis, our president,
made loans to us in the aggregate principal amount of approximately $1.7
million. The loans were reflected in a promissory note dated December 31, 1998,
bearing interest at the rate of LIBOR plus 2% per annum. We repaid the loan in
May 1999 and the largest aggregate amount outstanding under the note at any time
during 1999 was $1.8 million. The purpose of the loans made by Mr. Poyiadjis was
to provide us with additional working capital.
On May 15, 1998, we loaned $2.6 million to Dr. Kyprianou, our chief
executive officer, which was evidenced by a promissory note. The loan was made
to Dr. Kyprianou in order to provide temporary liquidity to Dr. Kyprianou. The
loan accrued interest at the rate of LIBOR plus 2% per annum. Dr. Kyprianou
repaid the loan in November 1999 and the largest aggregate amount outstanding
under the note at any time during 1999 was $1.9 million.
For a description of the employment and indemnification agreements we have
entered into with some of our directors and executive officers, please see the
section of this prospectus entitled "Management."
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<PAGE> 55
REGISTRATION RIGHTS
In connection with the private placement to third party investors of our
common stock and a convertible note in 1998, we granted the investors
registration rights. Pursuant to their registration rights, the holders thereof
may require us to register all or a portion of their shares at our expense. In
addition, if we propose to register any of our securities either for our own
account or the account of others, these investors are entitled to include their
shares in the registration at our expense.
We have also entered into registration rights agreements with each of Dr.
Kyprianou and Mr. Poyiadjis, who will beneficially own in the aggregate
4,067,410 shares of our common stock after this offering, exclusive of the
shares of Info-quest which Dr. Kyprianou may be deemed to beneficially own as a
result of the voting agreement. Under these agreements, Dr. Kyprianou and Mr.
Poyiadjis each have the right to require us to use our best efforts to register
all or a portion of their shares at our expense. In addition, if we propose to
register any of our securities either for our own account or the account of
others, Dr. Kyprianou and Mr. Poyiadjis are entitled to include their shares at
our expense. Dr. Kyprianou and Mr. Poyiadjis' registration rights are assignable
to parties who agree to be bound by the terms of registration rights.
In connection with our initial public offering in April 1999, we issued
warrants to Roth Capital Partners, Inc., formerly known as Cruttenden Roth
Incorporated. The warrants are exercisable beginning April 27, 2000 and the
holders have the right, subject to limitations, to require us to register the
shares of our common stock issuable upon exercise of the warrants. The expense
of one registration which is requested by Roth Capital Partners, Inc. will be
borne by us. All expenses of any subsequent registration shall be borne by them.
If we propose to register any of our securities either for our own account or
the account of others, the holders are also entitled to include their shares at
our expense.
For a description of the registration rights granted to Info-quest, see
"-- Info-quest Private Placement" above.
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<PAGE> 56
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 3, 2000, and as adjusted to reflect
the sale of the shares of common stock offered hereby, for:
- each person or entity known by us to own beneficially more than five
percent of our outstanding shares of common stock,
- each of our directors and executive officers,
- all directors and executive officers as a group, and
- the selling stockholder.
The number of shares shown as beneficially owned by each stockholder is
adjusted to reflect the sale of shares offered in this offering. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Securities
and Exchange Act of 1934. Under this rule, shares may be deemed to be
beneficially owned by more than one person if, for example, persons share the
power to vote or the power to dispose of the shares. In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares within sixty days of the date as of which the information is
provided, for example, upon exercise of an option or warrant. In computing the
percentage ownership of any person, the number of shares is deemed to include
the amount of shares beneficially owned by such person, and only that person, by
reason of such acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date.
The percentage of beneficial ownership for the following table is based on
15,201,595 shares of common stock outstanding as of March 3, 2000 and 18,001,595
shares of common stock outstanding after the completion of this offering.
Unless otherwise indicated, the address for each listed stockholder is: c/o
AremisSoft Corporation, Goldsworth House, Denton Way, Woking, Surrey GU21 3LG,
United Kingdom. To our knowledge, except as indicated in the footnotes to this
table or pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to the shares of
common stock indicated.
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<PAGE> 57
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING NUMBER AFTER THE OFFERING
---------------------- OF SHARES --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------------ ---------- -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(1)......... 7,637,379 48.90 -0- 7,637,379 41.47
Info-quest S.A.(2).................... 7,220,713 47.50 -0- 7,220,713 40.11
AL. Pantou 25
Athens 17671 Greece
Roys Poyiadjis(3)..................... 1,162,953 7.46 200,000 962,953 5.24
Michael Tymvios....................... 10,000 * -0- 10,000 *
Noel R. Voice......................... 35,000 * -0- 35,000 *
M.C. Mathews.......................... 35,000 * -0- 35,000 *
Dann V. Angeloff...................... 40,000 * -0- 40,000 *
George H. Ellis....................... 25,000 * -0- 25,000 *
H. Tate Holt.......................... 20,000 * -0- 20,000 *
All directors and executive officers
as a group (8 persons).............. 8,965,332 58.44 200,000 8,765,332 48.32
</TABLE>
- ---------------
(1) Represents shares held by LK Global (Holdings) N.V., for which Dr. Kyprianou
has sole voting and investment power, and includes 3,732,923 shares held by
Info-quest S.A. which is a party to a voting agreement with LK Global
Holdings N.V. and Dr. Kyprianou.
(2) Includes 3,904,456 shares held by LK Global (Holdings) N.V., which is a
party to a voting agreement with Info-quest.
(3) Represents shares held by Onyx Capital, Inc. for which Mr. Poyiadjis has
sole voting and investment power.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our 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, and 15,000,000 shares of preferred stock, $.001 par value per
share. As of March 3, 2000, there were 15,201,595 shares of common stock issued
and outstanding held by 110 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. Our 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. All outstanding
shares of common stock are, and the common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable. In the event
of any liquidation, dissolution or winding up of our affairs, the holders of
common stock will be entitled to share ratably in our assets remaining after the
payment or provision for payment of all of our debts and obligations and
liquidation payments to holders of outstanding shares of 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
Our 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
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<PAGE> 58
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. We have no present plan
to issue any shares of preferred stock.
WARRANTS AND OPTIONS
As of March 3, 2000, we had warrants outstanding to purchase an aggregate
of 42,354 shares of our common stock at an exercise price of $8.56 per share.
The warrants are immediately exercisable, expire on April 10, 2000 and were
issued in payment of finder's fees in connection with our private placement of
preferred stock in October 1997. The number of shares issuable upon exercise of
the warrants is subject to adjustment in the event of dividends and other
distributions, issuances of convertible securities and stock splits, stock
dividends and similar events.
As of March 3, 2000, we also had warrants outstanding to purchase up to
330,000 shares of common stock at an exercise price of $7.50 per share. The
warrants are exercisable beginning April 27, 2000, expire on April 22, 2003 and
were issued to Roth Capital Partners, Inc., formerly known as Cruttenden Roth
Incorporated, in connection with our initial public offering. The number of
shares and the exercise price are subject to adjustment in some circumstances to
prevent dilution. These warrants are nontransferable for a period of one year
beginning April 22, 1999, except under limited circumstances.
As of March 3, 2000, we had options outstanding to purchase 2,888,800
shares of our common stock and had reserved 221,200 shares of our common stock
for future grants.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Provisions of our certificate of incorporation and bylaws summarized in the
following paragraphs may have the effect of discouraging a future takeover
attempt that is not approved by our board of directors but that individual
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 our board of directors or management more difficult.
Preferred Stock
Our board of directors has the authority to authorize issuance of shares of
preferred stock and 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, our board of directors 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 merger or other transaction by which a
third party seeks control, and thereby assist management in retaining our
position.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors
Our bylaws require that a stockholder give no fewer than 60 nor greater
than 90 days advance written notice with regard to the nomination of candidates
for election as directors and with regard to other matters to be brought before
our annual meeting of stockholders. Although our 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, our bylaws may have the effect of
precluding a nomination for the election of directors or precluding the
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<PAGE> 59
conduct of business at a particular annual meeting if the proper procedures are
not followed which may also discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise attempt
to obtain control, even if the conduct of the solicitation or attempt might be
beneficial to us and our stockholders.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law that
generally 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 the stockholder became an
interested stockholder, unless:
- before that 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,
- 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 by persons who are
directors and officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer, or
- 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 Delaware General Corporation Law, an
"interested stockholder" is defined as any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation, or
- 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 Delaware General Corporation Law may have the effect of
delaying, deterring or preventing a change in control without further action by
our stockholders.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the common stock is Olde Monmouth
Stock Transfer Co., Inc., Atlantic Highlands, New Jersey.
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<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the completion of this offering, we will have issued and outstanding
18,001,595 shares of common stock (18,451,595 if the underwriters'
over-allotment option is exercised in full). The shares of common stock sold in
this offering will be freely tradable by persons other than our affiliates
without restriction under the Securities Act of 1933.
RESTRICTED SECURITIES
As of March 3, 2000, approximately 2,692,670 shares were "restricted
securities" within the meaning of Rule 144 under the Securities Act. These
shares may not be sold in the absence of registration under the Securities Act
of 1933 unless an exemption from registration is available. Of those shares,
approximately 502,545 are eligible for resale under Rule 144(k).
REGISTRATION RIGHTS
As of March 3, 2000, the holders of approximately 5,606,179 shares of
common stock, or their permitted transferees, have the right to require us to
register their shares, plus up to 372,354 additional shares that may be acquired
upon exercise of outstanding warrants. After these shares become registered,
they will become freely tradable, without restriction, under the Securities Act
(except for shares purchased by our affiliates).
RULE 144
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of restricted securities, a person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of then outstanding shares of our common stock, or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to manner of sales provisions, notice
requirements and the availability of current public information.
RULE 144(k)
Under Rule 144(k), if two years have elapsed since the date of acquisition
of restricted securities from us or any of our affiliates and the acquirer or
subsequent holder thereof is deemed not to have been an affiliate at any time
during the 90 days preceding a sale, a person would be entitled to sell such
shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements and the availability
of current public information requirements. An "affiliate" of an entity is a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with such entity and may include
officers and directors, principal stockholders and stockholders with special
relationships.
LOCK-UP AGREEMENTS
Our officers and directors, the selling stockholder and other of our
stockholders have signed lock-up agreements under which they agreed not to
dispose of or hedge any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock for a period of 90 days after
the date of this prospectus. Dispositions can be made sooner with the prior
written consent of Salomon Smith Barney Inc.
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<PAGE> 61
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we and the selling stockholder have agreed to sell to each
underwriter, the number of shares set forth opposite the name of the
underwriter.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Salomon Smith Barney Inc. ..................................
SG Cowen Securities Corporation.............................
William Blair & Company, L.L.C..............................
Roth Capital Partners, Inc..................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of various legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those covered
by the over-allotment option described below, if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., SG Cowen Securities
Corporation, William Blair & Company, L.L.C. and Roth Capital Partners, Inc. are
acting as representatives, propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the underwriters may change the public offering price and the other selling
terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 450,000 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.
We, our officers and directors, the selling stockholder and other of our
stockholders have agreed that, for a period of 90 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any of our shares of common stock or any
securities convertible into or exchangeable for shares of common stock. Salomon
Smith Barney Inc. in its sole discretion may release any of the securities
subject to these lock-up agreements at any time without notice.
Our common stock is quoted on the Nasdaq National Market under the symbol
"AREM".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us and the selling stockholder in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY US PAID BY SELLING STOCKHOLDER
--------------------------- ----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of common stock in the open
market after the distribution has been completed in order to cover syndicate
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<PAGE> 62
short positions. Stabilizing transactions consist of bids or purchases of common
stock made for the purpose of preventing or retarding a decline in the market
price of the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
We estimate that the total expenses we will incur in connection with this
offering, not including the underwriting discount, will be approximately
$766,000. No expenses will be borne by the selling stockholder.
We and the selling stockholder have agreed to indemnify the underwriters
against various liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
Roth Capital Partners, formerly known as Cruttenden Roth Incorporated,
acted as underwriter of our initial public offering. In connection with the
initial public offering, we issued to Roth Capital Partners warrants to purchase
330,000 shares of our common stock at an exercise price of $7.50 per share.
LEGAL MATTERS
The validity of the shares of common stock offered hereby and other legal
matters in connection with this offering will be passed upon for us by Bartel
Eng Linn & Schroder, Sacramento, California. Legal matters in connection with
this offering will be passed upon for the underwriters by Weil, Gotshal & Manges
LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, 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 are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of e-nnovations.com as of December
31, 1998 and 1999, and for each of the three years in the period ended December
31, 1999, 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
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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<PAGE> 63
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 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 or the exhibits and schedules to the registration
statement. For further information with respect to us and the common stock
offered by us in this offering, we refer you to the registration statement and
the exhibits and schedules filed as part of the registration statement.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. We refer you in each
instance to a copy of the exhibit or schedule for a more complete description of
the matter involved. Each such statement is qualified in all respects by such
reference to such exhibit. The registration statement and the exhibits and
schedules 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. We are
subject to the informational requirements of the Exchange Act of 1934 and file
reports and other information with the Commission in accordance with the
Commission's rules. Such reports and other information may be inspected and
copied at the public reference facilities and regional offices of the Commission
referred to above.
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<PAGE> 64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AREMISSOFT CORPORATION
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
E-NNOVATIONS.COM
Independent Auditors' Report................................ F-21
Consolidated Balance Sheets................................. F-22
Consolidated Statements of Operations....................... F-23
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-24
Consolidated Statements of Cash Flows....................... F-25
Notes to Consolidated Financial Statements.................. F-26
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... F-29
</TABLE>
F-1
<PAGE> 65
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, 1999 and 1998, 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, 1999. 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. 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, 1999 and 1998, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ PANNELL KERR FORSTER
London, England
March 2, 2000
F-2
<PAGE> 66
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 149 $13,386
Accounts receivable, less allowances for doubtful accounts
of $639 and $507 at December 31, 1998 and 1999,
respectively.............................................. 16,166 18,115
Accounts receivable -- disposition proceeds................. -- 2,592
Other receivables........................................... 903 705
Inventory................................................... 787 1,603
Deposits paid on service and maintenance contracts.......... 3,531 3,712
Prepaid expenses and other assets........................... 1,135 2,423
------- -------
Total current assets:............................. 22,671 42,536
------- -------
Loan receivable -- related party........................... 1,886 --
Investments................................................. -- 1,803
Property and equipment, net................................. 1,774 1,847
Purchased and developed software, net of accumulated
amortization of $6,075 and $5,893 at December 31, 1998 and
1999, respectively........................................ 1,284 948
Intangible assets, net of accumulated amortization of
$13,036 and $11,534 at December 31, 1998 and 1999,
respectively.............................................. 337 13,810
------- -------
Total assets...................................... $27,952 $60,944
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $ 3,669 $ 6,910
Accrued payroll taxes....................................... 586 574
Accrued value added taxes................................... 1,649 1,055
Accrued income taxes........................................ 2,059 6,572
Current portion of capital lease obligations................ 55 24
Other accrued expenses...................................... 2,946 2,371
Bank loans and short-term demand facility................... 15,530 --
Deferred revenue............................................ 6,693 7,190
------- -------
Total current liabilities......................... 33,187 24,696
------- -------
Loan and accrued interest payable-related party............. 1,781 --
Capital lease obligations, less current portion............. 93 2
------- -------
Total liabilities................................. 35,061 24,698
------- -------
Stockholders' equity (deficit):
Series-A convertible preferred stock, par value $0.001:
authorized 2,100 shares; no shares issued and outstanding
at December 31, 1998 and 1999, respectively............... -- --
Series-B convertible preferred stock, par value $0.001:
authorized 3,500 shares; no shares issued and outstanding
at December 31, 1998 and 1999, respectively............... -- --
Common stock, par value $0.001: authorized 85,000 shares;
10,000 and 15,193 shares issued and outstanding at
December 31, 1998 and 1999, respectively.................. 10 15
Additional paid-in capital.................................. 27,107 57,325
Accumulated deficit......................................... (32,201) (18,921)
Accumulated other comprehensive income (loss)............... (2,025) (2,173)
------- -------
Total stockholders' equity (deficit).............. (7,109) 36,246
------- -------
Total liabilities and stockholders' equity...... $27,952 $60,944
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 67
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Software licenses......................................... $ 17,024 $26,416 $37,224
Maintenance and services.................................. 18,990 21,680 30,435
Hardware and other........................................ 6,360 4,525 5,727
-------- ------- -------
Total revenues....................................... 42,374 52,621 73,386
Cost of revenues:
Software licenses......................................... 2,079 2,654 4,468
Maintenance and services.................................. 5,377 5,319 8,620
Hardware and other........................................ 5,147 2,817 3,625
Amortization of purchased software and capitalized
software development costs............................. 70 265 298
-------- ------- -------
Total cost of revenues............................... 12,673 11,055 17,011
-------- ------- -------
Gross profit................................................ 29,701 41,566 56,375
Operating expenses:
Sales and marketing....................................... 17,834 21,594 25,518
Research and development.................................. 6,233 6,207 5,916
General and administrative................................ 5,227 4,868 7,108
Write-off of offering costs............................... -- 1,592 --
Amortization of intangible assets......................... 97 74 --
Profit on disposition of subsidiary....................... -- -- (42)
-------- ------- -------
Total operating expenses............................. 29,391 34,335 38,500
-------- ------- -------
Profit from operations...................................... 310 7,231 17,875
Other income (expense):
Interest expense, net..................................... 1,895 2,030 661
-------- ------- -------
Income (loss) before income taxes........................... (1,585) 5,201 17,214
Income tax expense.......................................... 35 2,026 5,097
-------- ------- -------
Income (loss) after taxes before extraordinary item......... (1,620) 3,175 12,117
Extraordinary item -- gain on debt forgiveness.............. -- -- 1,163
-------- ------- -------
Net income (loss)........................................... $ (1,620) $ 3,175 $13,280
======== ======= =======
Basic earnings (loss) per share before extraordinary item... $ (0.21) $ 0.35 $ 0.95
======== ======= =======
Diluted earnings (loss) per share before extraordinary
item...................................................... $ (0.21) $ 0.35 $ 0.90
======== ======= =======
Basic earnings (loss) per share after extraordinary item.... $ (0.21) $ 0.35 $ 1.04
======== ======= =======
Diluted earnings (loss) per share after extraordinary
item...................................................... $ (0.21) $ 0.35 $ 0.99
======== ======= =======
Basic weighted average shares outstanding................... 7,518 9,120 12,762
Diluted weighted average shares outstanding................. 7,518 9,135 13,405
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) (DEFICIT) INCOME (LOSS)
------ ------ ------ ------ ---------- ----------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996........... -- $ -- 7,504 $ 8 $11,364 $(33,756) $(2,719) $(25,103) $(18,042)
Issuance of common
stock in connection
with the
acquisition of the
net assets of
Juno............... -- -- 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) (1,620)
Currency translation
adjustment......... -- -- -- -- -- -- 785 785 785
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1997........... 1,137 1 7,569 8 17,767 (35,376) (1,934) (19,534) (835)
Issuance of common
stock, net of costs
of $1,046.......... -- -- 1,294 1 9,340 -- -- 9,341 --
Conversion of
preferred stock
into common
stock.............. (1,137) (1) 1,137 1 -- -- -- -- --
Net income........... -- -- -- -- -- 3,175 -- 3,175 3,175
Currency translation
adjustment......... -- -- -- -- -- -- (91) (91) (91)
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1998........... -- -- 10,000 10 27,107 (32,201) (2,025) (7,109) 3,084
Issuance of common
stock in connection
with public and
private issuance,
net of costs of
$3,878............. -- -- 5,130 5 29,681 -- -- 29,686 --
Issuance of common
stock in connection
with the conversion
of a promissory
note............... -- -- 63 -- 537 -- -- 537 --
Net income........... -- -- -- -- -- 13,280 -- 13,280 13,280
Currency translation
adjustment......... -- -- -- -- -- -- (148) (148) (148)
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1999........... -- $ -- 15,193 $15 $57,325 $(18,921) $(2,173) $ 36,246 $ 13,132
====== ==== ====== === ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $(1,620) $ 3,175 $13,280
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 977 695 1,093
Amortization of capitalized software and intangible
assets.................................................. 167 339 298
Gain on disposition of subsidiary......................... -- -- (42)
Extraordinary item........................................ -- -- (1,163)
Changes in assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable....................................... 2,933 (6,602) (6,477)
Other receivables......................................... (461) (226) (129)
Inventory................................................. 163 295 (723)
Deposits paid on service and maintenance contracts........ -- (3,531) (283)
Prepaid expenses and other assets......................... (2,595) 1,059 (1,210)
Accounts payable.......................................... 788 (622) 3,867
Deferred revenue.......................................... (5,726) 937 692
Accrued taxes payable..................................... 1,242 (647) 4,298
Other accrued expenses.................................... 103 (1,611) (447)
------- ------- -------
Net cash provided by (used in) operating activities..... (4,029) (6,739) 13,054
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment......................... (684) (373) (1,355)
Capitalized software development costs...................... (515) (325) --
Loan to related party (net)................................. -- (1,886) (1,781)
Payment for acquisition, net of cash acquired............... -- -- (14,537)
Proceeds from disposal of property and equipment............ 228 4 82
------- ------- -------
Net cash used in investing activities................... (971) (2,580) (17,591)
------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock......................... 6,404 9,341 30,223
Principal payments of long-term borrowings.................. (2,040) (2,850) (9,204)
Long-term borrowing......................................... 33 511 --
Loan from related party..................................... -- 1,781 1,886
Principal payments of capital lease obligations............. (55) (30) (61)
Short-term demand facility.................................. 186 372 (4,705)
------- ------- -------
Net cash provided by financing activities............... 4,528 9,125 18,139
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (472) (194) 13,602
Effect of foreign currency exchange rates on cash and cash
equivalents............................................... (156) 104 (365)
Cash and cash equivalents, at beginning of year............. 867 239 149
------- ------- -------
Cash and cash equivalents, at end of year................... $ 239 $ 149 $13,386
======= ======= =======
Supplemental disclosure:
Interest paid........................................... $ 1,900 $ 2,188 $ 1,390
Assets acquired under capital leases.................... $ 138 $ 34 $ --
Investment acquired in connection with disposition of
subsidiary............................................ $ -- $ -- $ 1,803
Conversation of promissory note and accrued interest
into 62,759 shares of common stock.................... $ -- $ -- $ 537
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AremisSoft Corporation ("AremisSoft") develops, markets, implements and
supports enterprise-wide applications software targeted to mid-sized
organizations in the manufacturing, healthcare, hospitality and construction
industries.
Organization and Basis of Presentation
In October 1997, AremisSoft, under its previous name of Juno Acquisitions,
Inc., a Nevada corporation ("Juno"), entered into a Plan and Agreement of
Reorganization (the "Plan") with LK Global Information Systems, B.V. ("LK
Global"), a company incorporated in The Netherlands. Under the terms of the
Plan, Juno acquired all of the issued and outstanding common stock of LK Global
in exchange for 7,503,920 shares of its common stock (the "1997 Acquisition").
Prior to the 1997 Acquisition, Juno had no significant operations.
LK Global was accounted for as the acquirer and as the surviving accounting
entity because the former stockholder of LK Global received approximately 99% of
the voting rights in the combined corporation. The shares issued by Juno have
been accounted for as if those shares comprised the historical share capital of
LK Global. The outstanding capital stock of Juno, at the date of the 1997
Acquisition, has been accounted for as shares issued by LK Global to acquire the
net assets of Juno.
Because LK Global is the accounting survivor, the financial statements
presented for all periods are those of LK Global and its subsidiaries
(collectively, the "Company") with a change in name to AremisSoft Corporation
shortly after the 1997 reorganization. All inter-company accounts and
transactions are eliminated in consolidation.
During 1999, AremisSoft reincorporated in Delaware. As a result of this
reincorporation, shareholders of the Nevada corporation have effectively become
shareholders of the newly formed Delaware corporation.
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 and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from ongoing support of
installed software, and training, consulting and implementation services.
Hardware sales revenues are primarily derived from the sale of third-party
hardware to customers requiring turnkey solutions.
Software license revenues consist of sales of software licenses which, for
periods subsequent to December 31, 1997, are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 97-2, "Software Revenue Recognition." Under SOP 97-2, software license
revenues are recognized upon execution of a contract and delivery of software,
provided that the license fee is fixed and determinable, no significant
production, modification or customization of the software is required and
collection is considered probable by management. When contracts do require
significant production, modification or customization of software, the Company
recognizes revenue under the percentage of completion method. During 1999,
software license revenues were recognized in accordance with SOP 97-2, as
modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition
with respect to Certain Transactions." The Company believes it is in compliance
with SOP 97-2, as modified by SOP 98-9.
F-7
<PAGE> 71
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also enters into arrangements with customers to use multiple
copies of software products under site license agreements. If all other criteria
for recognition of revenue are met, revenue is recognized upon delivery of the
product.
Product sales to distributors are not recognized until the products have
been shipped to the end-user. Maintenance contract revenues are recognized
ratably over the life of the contract. Service contract revenues are recognized
in accordance with the terms of the contract and add-on hardware sales revenues
are recognized when the hardware is shipped to the customer. The Company does
not enter into sales contracts, either for direct sales or with distributors,
which include provisions for rights of return. In addition, the Company does not
enter into price protection agreements or inventory balancing agreements with
distributors.
Fees earned during 1999 from contracts accounted for under the percentage
of completion method amounted to approximately $10.2 million, while billed and
unpaid receivables due under these contracts amounted to approximately $2.0
million at December 31, 1999. Fees earned during 1998 from contracts accounted
for under the percentage of completion method amounted to approximately $9.2
million, while billed and unpaid receivables due under these contracts amounted
to approximately $5.0 million at December 31, 1998. These contracts involved
substantial modification and customization of the Company's core software,
Aremis 4.0 architecture, in industries where the Company did not have a fully
developed "off the shelf" software product to offer the customer. These
contracts typically provide for defined milestone objectives with payment when
the milestone is achieved and the customer has accepted delivery. There were no
amounts included in accounts receivable relating to unbilled amounts or
retainage. Prior to 1998, the Company did not receive any revenues from
agreements which required contract accounting.
Foreign Currency
The functional currency of the Company and its United Kingdom subsidiaries
is the British pound. The functional currencies of the other subsidiaries are
their local currencies.
For reporting purposes, the financial statements are presented in United
States dollars and in accordance with Statement of Financial Accounting Standard
No. 52, "Foreign Currency Translation". The consolidated balance sheets are
translated into United States dollars at the exchange rates prevailing at the
balance sheet dates and the statements of operations and cash flows at the
average exchange rates for the relevant periods. Gains and losses resulting from
translation are included as a component of accumulated other comprehensive
income (loss).
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
International Operations
The Company currently has operations in the United Kingdom, the United
States, Argentina, Mexico, India, Ireland, Bulgaria and Cyprus and independent
distributors in 14 additional countries. A significant portion of the Company's
revenues are received in currencies other than the United States dollar (the
currency into which the Company's historical financial statements have been
translated), primarily British pounds. As a result, a portion of the Company's
sales are subject to certain risks, including adverse developments in the
foreign political and economic environment, trade barriers, managing foreign
operations and potentially adverse tax consequences. There can be no assurance
that any of these factors will not have a material adverse effect on the
Company's financial condition or results of operations in the future.
F-8
<PAGE> 72
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company defines the establishment of technological
feasibility as the completion of all planning, designing, coding and testing
activities that are necessary to establish products that meet design
specifications, including functions, features and technical performance
requirements. In most instances the Company may arrange for customer testing and
considers the customers' feedback in determining if feasibility is established.
Development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. When the software is fully documented and
available for unrestricted sale, capitalization of development costs ceases, and
amortization commences and is computed on a product-by-product basis, based on
either a straight-line basis over the economic life of the product or the ratio
of current gross revenues to the total of current and anticipated future gross
revenues, whichever is greater.
The Company capitalizes as purchased software the costs associated with
software products either purchased from other companies for resale or developed
by other companies under contract with the Company. The cost of the software is
amortized on the same basis as capitalized software development costs. The
amortization period is re-evaluated quarterly with respect to certain external
factors including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.
The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Company's ability to
market its software products in the future and generate cash flows sufficient to
support future operations.
Intangible Assets
Goodwill and other intangible assets consisting of customer lists and
management employment agreements related to acquired businesses are being
amortized over periods of three to five years. Amortization of intangibles
amounted to $97,000, $74,000 and $0 for the years ended December 31, 1997, 1998
and 1999 respectively.
F-9
<PAGE> 73
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.
Offering Costs
In July 1998, the Company filed an S-1 Registration Statement in connection
with an initial public offering ("IPO") of its common stock. As a result of a
delay in the registration process, the Company wrote off approximately $1.6
million in offering costs in 1998. Offering costs incurred in 1999 were
capitalized and have been offset against the proceeds from the offering.
Accounting for Stock Based Compensation
Employee stock options are accounted for under Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25), which
requires recognition of expense when the option price is less than the fair
value of the stock at the date of grant.
The Company generally awards options for a fixed number of shares at an
option price equal to the fair value at the date of grant. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation" (SFAS 123).
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.
F-10
<PAGE> 74
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain estimates used by management are particularly susceptible to
significant changes, such as the recoverability and amortization periods of
purchased and developed software and intangible assets. Management believes that
the estimates used are adequate based on the information currently available.
Net Income (Loss) Per Common Share
SFAS No. 128 "Earnings per share" requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. The diluted net income (loss) per share data
is computed using the weighted average number of shares of common stock
outstanding plus the dilutive effects of common stock equivalents.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Numerator used for basic and diluted earnings (loss) per
share:
Income (loss) before extraordinary item................... $(1,620) $3,175 $12,117
Extraordinary item........................................ -- -- 1,163
------- ------ -------
Net income (loss)......................................... $(1,620) $3,175 $13,280
======= ====== =======
Denominator for basic earnings (loss) per share:
Weighted average shares outstanding....................... 7,518 9,120 12,762
======= ====== =======
Denominator for diluted earnings (loss) per share:
Denominator for basic earnings (loss) per share........... 7,518 9,120 12,762
Effect of dilutive securities:
Warrants and options................................... -- 15 643
------- ------ -------
Weighted average shares outstanding....................... 7,518 9,135 13,405
======= ====== =======
Basic earnings (loss) per share:
Before extraordinary item................................... $ (0.21) $ 0.35 $ 0.95
Extraordinary item.......................................... -- -- 0.09
------- ------ -------
After extraordinary item.................................... $ (0.21) $ 0.35 $ 1.04
======= ====== =======
Diluted earnings (loss) per share:
Before extraordinary item................................... $ (0.21) $ 0.35 $ 0.90
Extraordinary item.......................................... -- -- 0.09
------- ------ -------
After extraordinary item.................................... $ (0.21) $ 0.35 $ 0.99
======= ====== =======
</TABLE>
Fair Value of Financial Instruments
In the opinion of management the carrying amounts for the Company's
financial instruments which include cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses 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.
F-11
<PAGE> 75
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Finished goods held for resale.............................. $287 $1,321
Maintenance parts........................................... 500 282
---- ------
$787 $1,603
==== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Fixtures and equipment................................... $ 5,652 $ 5,833
Motor vehicles........................................... 360 81
Leasehold improvements................................... 288 280
------- -------
6,300 6,194
Less accumulated depreciation............................ (4,526) (4,347)
------- -------
$ 1,774 $ 1,847
======= =======
</TABLE>
At December 31, 1998 and 1999, the Company held property and equipment with
a net book value of $98,000 and $27,000, respectively, under capital leases.
Depreciation expense was $977,000, $695,000 and $1,093,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
4. BANK LOANS PAYABLE
Bank loans payable at December 31, 1998, all of which is collateralized and
fully guaranteed, consists of the following (in thousands):
Description
<TABLE>
<S> <C>
Loan payable to bank, interest payable quarterly at 3% over
bank base rate, principal due in monthly installments of
$10....................................................... $ 187
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $146......................... 1,019
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $85.......................... 768
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR inclusive of associated costs, principal
due in quarterly installments of $119..................... 714
Loan payable to bank, interest payable monthly at 4% over
Sterling LIBOR plus variable associated funding costs,
averaging 1/32% in 1998, principal due in equal annual
installments of $1,872.................................... 7,487
Loan payable to bank, interest payable at 12% per annum..... 35
Short term demand facility -- bears interest at the lending
banks base rate plus the applicable margin................ 5,320
-------
Total............................................. $15,530
=======
</TABLE>
F-12
<PAGE> 76
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999 all of the above loans were repaid primarily from the proceeds
of the Company's initial public offering. Management negotiated a settlement
with the lender whereby approximately $1,163,000 (net of tax) of principal
indebtedness was forgiven. This amount has been reflected as an extraordinary
item in the accompanying consolidated statement of operations. The lending
bank's base rate ranged between 6.25% and 7.5% and Sterling LIBOR ranged between
6.6% and 7.9% during the year ended December 31, 1999.
5. ACQUISITIONS AND DISPOSITIONS
Acquisition
In December 1999, the Company acquired all the issued and outstanding
common stock of e-nnovations.com in exchange for approximately $14.5 million in
cash. The acquisition has been accounted for using the purchase method of
accounting. The operations of e-nnovations.com are included in the accompanying
consolidated financial statements from the date of acquisition. e-nnovations.com
is an Internet software solutions provider. The excess of purchase price over
net assets acquired amounted to approximately $13.8 million and has been
temporarily allocated to goodwill. Management is currently evaluating the
allocation of goodwill to certain identifiable intangible assets. Amortization
of goodwill and identifiable intangible assets are expected to be provided on a
straight line basis over three years. Amortization expense in 1999 was not
material.
The aggregate estimated fair value of the assets and liabilities of the
acquired business and the aggregate consideration paid is as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets (including cash of $2).................. $ 603
Property and equipment..................................... 126
Intangible assets.......................................... 13,810
-------
$14,539
=======
Consideration paid:
Cash consideration......................................... $14,539
</TABLE>
Disposition
In October 1999, the Company disposed of its Cyprus operations in exchange
for approximately $2.6 million in cash to be received in 2000 and approximately
4 million shares of common stock (representing a 9.5% interest) in
GlobalSoft.com. GlobalSoft.com is a software development company with operations
in Cyprus and Eastern Europe. GlobalSoft.com was formed in 1999 by the
acquisition of AremisSoft (Cyprus) Ltd as well as six other unrelated Cyprus
entities. The Company's CEO is also the chairman of the board of GlobalSoft.com.
A summary of the exchange transactions is as follows (in thousands):
<TABLE>
<S> <C> <C>
Net assets disposed off.................................... $4,353
Estimated fair value of shares of GlobalSoft.com(1)........ $1,803
Cash to be received........................................ 2,592
------
4,395
------
Gain on disposal........................................... $ 42
======
</TABLE>
- ---------------
(1) The value of the GlobalSoft.com shares at the date of acquisition was
estimated at $0.45 per share based upon similar sales of GlobalSoft.com
common stock to third parties. At December 31, 1999, the Company accounts
for this investment under the cost method.
F-13
<PAGE> 77
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Cyprus operations included in the accompanying 1998 and 1999
consolidated statements of operations are as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1998 1999
----- -----
<S> <C> <C>
Revenues.................................................... $ 810 $ 669
Net income.................................................. 285 286
Basic earnings per share.................................... 0.03 0.02
Diluted earnings per share.................................. 0.03 0.02
</TABLE>
The following unaudited pro forma results of operations for the year ended
December 31, 1999 assume that the acquisition of e-nnovations.com and
disposition of Cyprus had occurred on January 1, 1999 (in thousands, except per
share amounts):
<TABLE>
<S> <C>
Revenues.................................................... $75,633
Net income.................................................. 8,776
Basic earnings per share after extraordinary item........... 0.69
Diluted earnings per share after extraordinary item......... 0.65
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition and disposition had occurred on
January 1, 1999, nor is it indicative of future operating results.
6. CAPITAL LEASE OBLIGATIONS
The Company has entered into various non-cancellable capital lease
agreements for items of property and equipment. Annual payments for the years
ending December 31, 2000 and 2001 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $27
2001........................................................ 3
---
30
Less amount representing interest........................... 4
---
26
Less current portion........................................ 24
---
$ 2
===
</TABLE>
F-14
<PAGE> 78
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
Operating Leases
The Company leases office space, equipment and motor vehicles under
non-cancellable operating leases which expire on various dates through 2012. As
of December 31, 1999 required future minimum rentals to be paid are as follows
(in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,201
2001........................................................ 797
2002........................................................ 626
2003........................................................ 421
2004........................................................ 378
Thereafter.................................................. 2,831
------
$6,254
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 amounted
to approximately $1.9 million, $2.0 million and $1.4 million, respectively.
Registration rights
In connection with the private placement to third party investors of the
Company's common stock and convertible notes in 1998, the investors were granted
registration rights. Pursuant to their registration rights, the holders thereof
may require the Company to register under the Securities Act all or a portion of
their shares at the Company's expense. In addition, if the Company proposes to
register any of its securities either for its own account or the account of
others these investors are entitled to include their shares in the registration
at the Company's expense.
Employment Agreements
The Company has entered into employment agreements with its Chief Executive
Officer (CEO) and its President which expire on June 1, 2001. 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 terms of the CEO's employment agreement, he is
entitled to minimum annual compensation of $350,000 in 2000 and $400,000 in
2001. Under the terms of the President's employment agreement, he is entitled to
minimum annual compensation of $300,000 in 2000 and $350,000 in 2001. Under
their employment agreements, each is entitled to receive a severance benefit
equal to one times 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" (as defined). The CEO and the President are also entitled
to bonuses (estimated at $600,000 in 1999) based on a bonus plan adopted by the
compensation committee at its December 1999 meeting.
During the third and fourth quarters of 1998, the Company's president made
loans to the Company in the aggregate principal amount of approximately $1.7
million. The loans were reflected in a promissory note dated December 31, 1998,
bearing interest at the rate of LIBOR plus 2% per annum and was repaid in 1999.
In May 1998, the Company loaned $2.6 million to its CEO, which was
evidenced by a promissory note in order to provide temporary liquidity to the
CEO. The loan accrued interest at the rate of LIBOR plus 2% per annum and was
repaid in November 1999.
F-15
<PAGE> 79
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Benefit Plans
The Company has various defined contribution retirement plans for qualified
employees. Contributions made under the plans were $328,000, $311,000 and
$115,000 in 1997, 1998 and 1999, respectively.
8. INCOME TAX
The Company's principal subsidiaries are not resident in the United States
for tax purposes. Income (loss) from operations before income taxes and
extraordinary items included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
US income (loss)...................................... $ (103) $(1,917) $ (816)
Foreign income (loss)................................. (1,482) 7,118 18,030
------- ------- -------
$(1,585) $ 5,201 $17,214
======= ======= =======
The provision for income taxes was estimated as
follows:
Income taxes estimated to be payable (refundable)
currently
US Federal.......................................... $ 23 $ 963 $ (519)
US state and local.................................. 11 (1) 6
Foreign............................................. 1 1,064 5,610
------- ------- -------
$ 35 $ 2,026 $ 5,097
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes compared with the
amounts at the US federal statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Tax at statutory rate..................................... $(539) $1,769 $5,853
Differences in tax rates.................................. 48 (9) (627)
Non-deductible expenses................................... 733 499 841
Valuation allowance on operating loss..................... (207) 147 (496)
Prior years over accrued and other........................ -- (380) (474)
----- ------ ------
Income tax expense $ 35 $2,026 $5,097
===== ====== ======
</TABLE>
The Company's deferred tax assets as of December 31, 1998 and 1999
primarily consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Loss carry forwards......................................... $ 3,083 $ 2,523
Equipment................................................... 675 806
Other....................................................... 290 223
------- -------
4,048 3,552
Valuation allowance......................................... (4,048) (3,552)
------- -------
Total deferred tax assets................................. $ -- $ --
======= =======
</TABLE>
F-16
<PAGE> 80
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated net operating loss carryforwards at December 31, 1999 and their
expiration dates are shown below:
<TABLE>
<CAPTION>
EXPIRATION NET OPERATING
COUNTRY OF JURISDICTION DATES LOSS
----------------------- ------------- -------------
<S> <C> <C>
United Kingdom........................................... No expiration $8,410
United States............................................ 2005-2018 $ 76
</TABLE>
The Company has recorded a valuation allowance to offset the entire
deferred tax asset where it is more likely than not that the asset will not be
realized.
The Indian government, as a means of encouraging foreign investment,
provides significant tax incentives and exemptions to regulatory restrictions.
Certain of these benefits that directly affect the Company include, among
others, tax holidays (temporary exemptions from taxation on operating income)
and liberalized import and export duties. The current tax holiday to which the
Company is subject expires in 2001. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions such as continued
operation in a qualifying software technology park and export sales of at least
75% of inventory turnover. A failure to meet such conditions could result in the
cancellation of the benefits or a requirement to pay damages in an amount to be
determined by the Indian government and customs duty on plant, machinery,
equipment, raw materials, components and consumables. With respect to duties,
subject to certain conditions, goods, raw materials and components for
production imported by the Company's offices in India are exempt from the levy
of a customs duty. No assurances can be given that such tax benefits will be
continued in the future or at their current levels.
9. STOCKHOLDERS' EQUITY
Stock Split
In 1999, the Board of Directors approved a 1.711772-for-1 reverse stock
split of issued and outstanding common shares. All shares, per share and warrant
information in the accompanying financial statements has been restated to
reflect the effect of the split.
Common and Preferred Stock
During 1999, the Company completed an initial public offering of its common
stock and sold additional shares in a private placement whereby 5,130,000 shares
of common stock were issued in exchange for approximately $30.2 million in cash,
net of issuance costs. The private placement occurred in October 1999 and
resulted in $17.6 million in proceeds through the issuance of 1.6 million shares
to a related entity. This related entity also acquired an additional 1.2 million
shares of the Company's common stock from an entity controlled by the Company's
CEO. At December 31, 1999, this related entity owned over 20% of the Company's
outstanding stock.
The Company is authorized to issue 85,000,000 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. 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.
F-17
<PAGE> 81
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The preferred
stock is not redeemable. There are provisions to protect the preferred holders
from dilution in events such as subdivision or combination of the common stock,
the payment of stock dividends or distributions of other securities or other
reclassifications, exchanges or substitutions. The preferred stock votes with
the common stock on an as-converted basis.
On October 10, 1997, in connection with the Plan and Agreement of
Reorganization referred to in note 1, the Company offered its Series A
convertible preferred stock in a private placement. As a result of the private
placement 1,137,000 shares of the Series A convertible preferred stock were
issued and the Company received proceeds of approximately $6.4 million (net of
costs of $609,000), including shares issued to various parties in lieu of
commissions and finders' fees related to the private placement. In June 1998,
all of the outstanding Series A preferred stock was converted into common stock.
Upon conversion, all holders of the Company's Series A convertible preferred
stock waived their right to receive dividends as described above. At December
31, 1998 and 1999 there were no preferred shares outstanding.
Warrants
In connection with the issuance of its Series A convertible preferred
stock, the Company issued warrants to purchase an aggregate of 51,117 shares of
common stock. The warrants were issued in payment of finders' fees in connection
with the offering. Such warrants have an exercise price of $8.56 per share, are
assignable and expire on April 10, 2000. At the time of issuance management
determined that the value of the warrants was not material to the financial
statements.
During 1999 the Company issued warrants to purchase up to 330,000 shares of
common stock at an exercise price of $7.50 per share to the underwriters of the
April 1999 IPO. The warrants are exercisable beginning April 27, 2000 and expire
on April 22, 2003.
Convertible Promissory Note
In December 1998, the Company executed a convertible promissory note (the
"Note") in the principal amount of $500,000, which bears interest at the rate of
8% per annum. The Note was issued, and the proceeds received, in January 1999.
The Note converts into shares of the Company's common stock, at the option of
the holder at $8.56 per share. These securities were sold to one accredited
investor and a fee of 10% of the principal amount of the Note was paid as a
finder's fee. Management has evaluated the Note's beneficial conversion feature
and determined that its value was not be material to the basic financial
statements. In December 1999, the promissory note and accrued interest thereon
was converted into 62,759 shares.
Stock Option Plan
In October 1997, the Company adopted the "1998 Stock Option Plan", which
provides for awards in the form of options, including incentive stock options
("ISOs") and non-statutory 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. In addition, the Company granted
options outside the 1998 Stock Option Plan. As of December 31, 1999, there were
2,138,000 options to purchase common stock outstanding.
F-18
<PAGE> 82
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity during 1999, and related
information follows:
<TABLE>
<CAPTION>
1999
---------------------------------
NUMBER OF WEIGHTED
OPTIONS AVERAGE EXERCISE
(IN THOUSANDS) PRICE
-------------- ----------------
<S> <C> <C>
Outstanding at the beginning of year.............. -- --
Granted........................................... 2,138 $8.06
Outstanding at the end of year.................... 2,138 $8.06
Exercisable at end of year........................ 735 $9.37
</TABLE>
The exercise price of options outstanding as of December 31, 1999 ranged
from $5 to $14. The weighted average remaining contractual life of those options
is 4.5 years.
Options granted under the stock option plan are accounted for under APB 25,
and since options have been granted at prices equal to the fair value of the
Company's common stock on the date of grant, no compensation has been recognized
for the option grants. Had compensation cost for the plan been determined based
upon estimated fair value of the options at the grant dates consistent with FASB
123, pro forma net income after extraordinary item would have been approximately
$8.1 million or $0.64 per share-basic and $0.61 per share-diluted. The weighted
average fair value of options granted during 1999 is estimated to be $3.83 per
option assuming the following: no dividend yield, risk free interest rate of 6%,
an expected term of the option of 3 years, and an expected weighted average
volatility of 46%.
10. SEGMENT REPORTING INFORMATION
The Company develops markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations mainly in the
manufacturing, healthcare, hospitality, and construction industries. Management
considers each industry to be a reportable segment, with each industry
representing a strategic business that offers products and services to various
customers. These industries are managed separately because each requires
different product and marketing strategies.
Within each industry, the Company has adopted a tailored sales and
marketing strategy. This strategy includes advertisements in leading trade
publications, participation in trade shows and sponsorship of user groups. In
addition, the Company has developed corporate sales and marketing materials as
well as general financial and technical materials that are distributed to each
of the Company's subsidiaries for inclusion in their sales materials, thereby
promoting a consistent portrayal of the Company's image and products. The
Company markets its products primarily through a direct sales force in each of
the industries. In the manufacturing and hospitality industries, the Company
also relies, to a limited extent, on distributors to sell the Company's
products.
The accounting policies adopted by each industry are the same as those
described in the summary of significant accounting policies. Management
evaluates performance based on profit (loss) from operations before interest and
income taxes.
F-19
<PAGE> 83
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers....................... $9,587 $18,909 $10,190 $3,318 $ 370 $42,374
Depreciation and amortization..... 258 318 167 59 342 1,144
Profit (loss) from operations..... 182 325 322 231 (750) 310
Total segment assets.............. 4,105 4,250 4,129 749 4,009 17,242
</TABLE>
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers....................... $16,635 $15,990 $13,799 $4,421 $1,776 $52,621
Depreciation and amortization..... 189 216 207 43 379 1,034
Profit (loss) from operations..... 3,993 1,461 1,914 429 (566) 7,231
Total segment assets.............. 12,514 6,682 6,337 1,301 1,118 27,952
</TABLE>
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers...................... $25,485 $19,988 $19,180 $5,305 $ 3,428 $73,386
Depreciation and amortization.... 321 352 328 74 316 1,391
Profit (loss) from operations.... 8,913 3,454 4,943 928 (363) 17,875
Total segment assets............. 17,950 13,434 13,706 3,375 12,479 60,944
</TABLE>
The following table represents revenue by country based on country of
customer domicile and long-lived assets by country based on the location of the
assets:
<TABLE>
<CAPTION>
REVENUE LONG-LIVED ASSETS
--------------------------- -------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------- -------------------------
1997 1998 1999 1997 1998 1999
------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
United Kingdom...................... $39,057 $31,100 $25,779 $1,649 $2,008 $ 1,645
Rest of Europe...................... 1,002 13,069 32,073 1,109 577 400
United States....................... 1,840 1,517 2,272 107 111 105
Asia................................ 475 1,800 3,719 752 687 16,243
Rest of world....................... -- 5,135 9,543 20 12 15
------- ------- ------- ------ ------ -------
$42,374 $52,621 $73,386 $3,637 $3,395 $18,408
======= ======= ======= ====== ====== =======
</TABLE>
11. SUBSEQUENT EVENT
Proposed Public Offering
The Company plans to file a registration statement with the Securities and
Exchange Commission for the sale of 2,800,000 shares of common stock (excluding
the underwriters' over-allotment option).
F-20
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
e-nnovations.com Pvt Ltd
We have audited the accompanying consolidated balance sheets of
e-nnovations.com Pvt Ltd as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997, 1998
and 1999. 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. 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
e-nnovations.com Pvt Ltd at December 31, 1998 and 1999, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Pannell Kerr Forster
Nicosia, Cyprus
March 3, 2000
F-21
<PAGE> 85
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 24,600 $ 2,137
Accounts receivable, less allowances for doubtful
accounts............................................... 250,182 400,098
Other receivables......................................... 33,813 --
Inventory................................................. 92,871 115,050
Prepaid expenses and other assets......................... 72,893 113,484
-------- --------
Total current assets.............................. 474,359 630,769
-------- --------
Property and equipment, net................................. 34,914 126,125
-------- --------
Total assets...................................... $509,273 $756,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 48,155 $ 9,354
Deferred revenue.......................................... 24,976 --
Bank loans and short-term demand facility................. 28,374 --
-------- --------
Total current liabilities......................... 101,505 9,354
-------- --------
Long-term debt.............................................. 64,492 --
-------- --------
Total liabilities................................. 165,997 9,354
======== ========
Stockholders' equity:
Share capital............................................. 244 244
Additional paid up capital................................ 58,617 58,617
Accumulated reserves...................................... 284,415 688,679
-------- --------
Total stockholders' equity........................ 343,276 747,540
-------- --------
Total liabilities and stockholders' equity........ $509,273 $756,894
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 86
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses................................... $ 323,793 $720,276 $2,342,527
Maintenance and services............................ 94,299 152,496 233,802
Hardware and other.................................. 37,257 68,496 482,714
---------- -------- ----------
Total revenues.............................. 455,349 941,268 3,059,043
Cost of revenues:
Software licenses................................... 93,000 162,329 728,804
Maintenance and services............................ 57,672 84,458 167,132
Hardware and other.................................. 18,593 32,381 416,413
---------- -------- ----------
Total cost of revenues...................... 169,265 279,168 1,312,349
---------- -------- ----------
Gross profit:
Software licenses................................... 230,793 557,947 1,613,723
Maintenance and services............................ 36,627 68,038 66,670
Hardware and other.................................. 18,664 36,115 66,301
---------- -------- ----------
Total gross profit.......................... 286,084 662,100 1,746,694
Operating expenses:
Sales and marketing................................. 83,330 62,942 218,961
Research and development............................ 124,742 224,167 985,949
General and administrative.......................... 49,906 63,811 137,520
---------- -------- ----------
Total operating expenses.................... 257,978 350,920 1,342,430
---------- -------- ----------
Profit from operations................................ 28,106 311,180 404,264
Other income (expenses):
Interest income..................................... -- -- --
Interest expenses................................... (5,376) (9,111) --
---------- -------- ----------
Income before income taxes............................ 22,730 302,069 404,264
Income tax expense.................................... -- -- --
---------- -------- ----------
Net income............................................ $ 22,730 $302,069 $ 404,264
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 87
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE CAPITAL TOTAL
---------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID UP CAPITAL RESERVES EQUITY
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 105 $244 $58,617 $(40,384) $ 18,477
Net income....................... -- -- -- 22,730 22,730
--- ---- ------- -------- --------
Balance at December 31, 1997....... 105 244 58,617 (17,654) 41,207
Net income....................... -- -- -- 302,069 302,069
--- ---- ------- -------- --------
Balance at December 31, 1998....... 105 244 58,617 284,415 343,276
Net income....................... -- -- -- 404,264 404,264
--- ---- ------- -------- --------
Balance at December 31, 1999....... 105 $244 $58,617 $688,679 $747,540
=== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 88
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 22,730 $302,069 $ 404,264
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Depreciation............................................ 14,203 16,415 62,318
Changes in assets and liabilities:
Increase in current assets........................... (81,999) (344,417) (178,873)
Increase in current liabilities...................... 36,383 44,925 (92,151)
-------- -------- ---------
Net cash provided by (used in) operating
activities...................................... (8,683) 18,992 195,558
Cash flows from investing activities:
Purchases of property and equipment....................... (26,496) (23,970) (153,529)
-------- -------- ---------
Net cash used in investing activities.............. (26,496) (23,970) (153,529)
Cash flows from financing activities:
Proceeds (repayment) of loan.............................. 33,256 31,236 (64,492)
-------- -------- ---------
Net cash provided by (used in) financing
activities...................................... 33,256 31,236 (64,492)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents...... (1,923) 26,258 (22,463)
Effect of foreign currency exchange rates on cash and cash
equivalents............................................. -- -- --
Cash and cash equivalents, at beginning of the year..... 265 (1,658) 24,600
-------- -------- ---------
Cash and cash equivalents, at end of the year........... $ (1,658) $ 24,600 $ 2,137
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 89
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
e-nnovations.com Pvt Ltd is an Internet software solutions provider and it
develops, markets, implements and supports enterprise-wide applications software
targeted to mid-sized organizations.
Organization and Basis of Presentation
The financial statements have been prepared under the historical cost
convention, in accordance with the generally accepted accounting principles in
the United States.
All expenses are accounted for on accrual basis.
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 and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from ongoing support of
installed software, and training, consulting and implementation services.
Hardware sales revenues are primarily derived from the sale of third-party
hardware to customers requiring turnkey solutions.
Software license revenues consist of sales of software licenses which, are
recognized in accordance with the American Institute of Certified Public
Accountants' Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
Under SOP 97-2, software license revenues are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management. When
contracts do require significant production, modification or customization of
software, the Company recognizes revenue under the percentage of completion
method. In 1999, software license revenues were recognized in accordance with
SOP 97-2, as modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition with respect to Certain Transactions." The Company believes it is
currently in compliance with SOP 97-2, as modified by SOP 98-9.
Foreign Currency
The functional currency of the Company and its subsidiaries is the Indian
Rupee. 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".
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
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
F-26
<PAGE> 90
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
Income Taxes
The Indian government, as a means of encouraging exports, provides
significant tax incentives and exemptions. 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.
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 these estimates.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Finished goods held for resale.............................. $79 $ 81
Maintenance parts........................................... 14 34
--- ----
$93 $115
=== ====
</TABLE>
F-27
<PAGE> 91
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Fixtures and equipment...................................... $158 $303
Motor vehicles.............................................. -- 8
---- ----
158 311
Less accumulated depreciation............................... 123 185
---- ----
$ 35 $126
==== ====
</TABLE>
Depreciation expense was $14, $16 and $62 for the years ended December 31,
1997, 1998 and 1999, respectively.
4. SEGMENT REPORTING INFORMATION
The following table represents revenue by country based on country of
customer domicile and long-lived assets by country based on the location of the
assets:
<TABLE>
<CAPTION>
REVENUE LONG-LIVED ASSETS
-------------------------------- ----------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- ----------------------------
1997 1998 1999 1997 1998 1999
-------- -------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Europe..................... $268,491 $470,634 $ 764,761 $ 2,105 $ 5,237 $ 25,225
Asia....................... 119,503 329,444 1,835,426 25,254 29,677 100,900
Rest of world.............. 67,355 141,190 458,856 -- -- --
-------- -------- ---------- ------- ------- --------
$455,349 $941,268 $3,059,043 $27,359 $34,914 $126,125
======== ======== ========== ======= ======= ========
</TABLE>
F-28
<PAGE> 92
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for
AremisSoft Corporation (the "Company") set forth below gives effect to the
acquisition of e-nnovations.com Pvt Ltd ("e-nnovations.com"). The historical
financial information set forth below has been derived from, and is qualified by
reference to, the financial statements of the Company and e-nnovations.com and
should be read in conjunction with those financial statements and the notes
thereto included elsewhere herein. The unaudited pro forma condensed combined
financial information presents the combined results of operations of the
companies for the year ended December 31, 1999, giving effect to the Company's
acquisition of e-nnovations.com as if such acquisition had been consummated as
of January 1, 1999 under the purchase method of accounting. The information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The unaudited pro forma
condensed combined financial information does not purport to represent what the
consolidated results of operations or financial condition of the Company would
actually have been if the e-nnovations.com acquisition had in fact occurred on
January 1, 1999 nor does it purport to be indicative of the consolidated results
of operations or financial condition of the Company that may be achieved in the
future.
F-29
<PAGE> 93
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------
PRO FORMA PRO FORMA
AREMISSOFT E-NNOVATIONS.COM COMBINED ADJUSTMENTS COMBINED
---------- ---------------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses...................... $37,224 $2,343 $39,567 $ (109) $39,458
Maintenance and services............... 30,435 234 30,669 (11) 30,658
Hardware and other..................... 5,727 483 6,210 (23) 6,187
------- ------ ------- ------- -------
Total revenues............... 73,386 3,059 76,445 (143) 76,302
------- ------ ------- ------- -------
Cost of revenues:
Software licenses...................... 4,468 729 5,197 (79) 5,118
Maintenance and services............... 8,620 167 8,787 (8) 8,779
Hardware and other..................... 3,625 416 4,041 (20) 4,021
Amortization of purchased software and
capitalized software development
cost................................. 298 -- 298 -- 298
------- ------ ------- ------- -------
Total cost of revenues....... 17,011 1,312 18,323 (107) 18,216
------- ------ ------- ------- -------
Gross profit........................... 56,375 1,747 58,122 (36) 58,086
------- ------ ------- ------- -------
Operating expenses:
Sales and marketing.................... 25,518 219 25,737 (10) 25,727
Research and development............... 5,916 986 6,902 -- 6,902
General and administrative............. 7,108 137 7,245 (6) 7,239
Profit on disposition of subsidiary.... (42) -- (42) -- (42)
Amortization of intangible assets...... -- -- -- 4,603 4,603
------- ------ ------- ------- -------
Total operating expenses..... 38,500 1,342 39,842 4,587 44,429
------- ------ ------- ------- -------
Profit from operations................. 17,875 404 18,279 (4,622) 13,657
Other income (expense):
Interest expense, net................ 661 -- 661 -- 661
------- ------ ------- ------- -------
Income before income taxes............. 17,214 404 17,618 (4,622) 12,996
Income tax expense..................... 5,097 -- 5,097 -- 5,097
------- ------ ------- ------- -------
Income after taxes before extraordinary
item................................. 12,117 404 12,521 (4,622) 7,899
Extraordinary item-gain on debt
forgiveness....................... 1,163 -- 1,163 -- 1,163
------- ------ ------- ------- -------
Net income............................. $13,280 $ 404 $13,684 $(4,622) $ 9,062
======= ====== ======= ======= =======
Basic earnings per share before
extraordinary item................... $0.95 $0.62
======= =======
Diluted earnings per share before
extraordinary item................... $0.90 $0.59
======= =======
Basic earnings per share after
extraordinary item................... $1.04 $0.71
======= =======
Diluted earnings per share after
extraordinary item................... $0.99 $0.68
======= =======
Basic weighted average shares
outstanding.......................... 12,762 12,762
Diluted weighted average shares
outstanding.......................... 13,405 13,405
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
F-30
<PAGE> 94
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
In December 1999, the Company acquired all the issued and outstanding
common stock of e-nnovations.com in exchange for approximately $14.5 million in
cash. The acquisition has been accounted for using the purchase method of
accounting. The operations of e-nnovations.com are included in the historical
consolidated financial statements of the Company from the date of acquisition.
The excess of purchase price over net assets acquired amounted to approximately
$13.8 million and has been temporarily allocated to goodwill. Management is
currently evaluating the allocation of goodwill to certain identifiable
intangible assets. Amortization of goodwill and identifiable intangible assets
is being provided on a straight line basis over three years. An adjustment has
been made to the unaudited pro forma condensed combined financial information to
record $4,603,000 of amortization expense in 1999.
The accompanying historical financial statements of the Company include the
operations of e-nnovations.com from December 17, 1999, the date of acquisition.
The accompanying historical financial information of e-nnovations.com reflect
the operations of e-nnovations.com for the full 1999 year. Accordingly, a pro
forma adjustment has been made to exclude 14 days of operations of
e-nnovations.com included in both entities historical figures.
F-31
<PAGE> 95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
AREMISSOFT CORPORATION
COMMON STOCK
[AREMISSOFT LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
SG COWEN
WILLIAM BLAIR & COMPANY
ROTH CAPITAL PARTNERS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 96
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 us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses will be borne by the selling stockholder. All of the
amounts shown are estimates, except for the SEC registration fee and the NASD
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 35,465
NASD fee.................................................... 13,934
Printing and engraving expenses............................. 250,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses..................................... 250,000
Transfer agent and registrar fees........................... 3,000
Miscellaneous............................................... 13,601
--------
Total.................................................. $766,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation contains provisions eliminating or
limiting director liability to us and our stockholders for monetary damages
arising from acts or omissions in the capacity as a director. The provisions do
not, however, eliminate the personal liability of a director for any breach of a
director's duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or for any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate personal liability,
under a negligence standard, for violations of Delaware statutory provisions
concerning unlawful dividends or stock repurchases or redemptions. This
provision offers persons who serve on our board of directors protection against
awards of monetary damages resulting from breaches of their duty of care, except
as discussed above. As a result, our ability or our stockholders' ability 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.
Our certificate of incorporation and bylaws also provide that we will
indemnify our 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.
We have entered into separate indemnification agreements with our directors
and some of our officers that require us to, among other things, advance
expenses as a result of any proceeding against them and to which they could be
indemnified. We may, from time to time, agree to provide similar indemnification
to our employees and agents.
The employment agreements with Dr. Kyprianou and Mr. Poyiadjis also provide
that we will indemnify these 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 our agents.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 1997, we have sold and issued the following securities:
In December 1998, we issued a convertible promissory note to an
accredited investor in the principal amount of $500,000 which bears
interest at the rate of 8% per annum. The note converts into shares of our
common stock, at the option of the holder, at $8.56 per share. The
securities were
II-1
<PAGE> 97
sold to one accredited investor and a fee of 10% of the principal amount of
the note was paid as a finder's fee. We relied on the exemption from
registration contained in Section 4(2) of the Securities Act. On December
5, 1999, the investor converted the note into 62,759 shares of our common
stock.
In March 1999, we changed our corporate domicile from Nevada to
Delaware pursuant to a merger agreement. In connection with the merger, the
board of directors declared a 1.711772-for-one reverse stock split prior to
the effectiveness of the merger. Pursuant to the merger agreement, each
outstanding share of common stock and option and warrant to purchase common
stock of our predecessor automatically became one share of our common stock
and an option or warrant to purchase our common stock, and the corporate
existence of our predecessor ceased. We relied on the exemption from
registration contained in Rule 145(a)(2) of the Securities Act.
In April 1999, we issued a warrant to purchase 330,000 shares of our
common stock with an exercise price of $7.50 per share to Roth Capital
Partners, Inc., formerly known as Cruttenden Roth Incorporated, the
underwriter for our initial public offering.
From September 1999 to February 2000, we granted to our officers and
directors non-qualified stock options to purchase an aggregate of 1,610,000
shares.
From April 1999 to February 2000, we granted an aggregate of 1,278,800
shares of our common stock to our employees, officers and directors under
our 1998 Stock Option Plan.
In October 1999, we issued 1,600,000 shares of our common stock to
Info-quest, a Greek corporation, for an aggregate purchase price of
$17,600,000.
The sales and issuances of the shares of common stock and options and
warrants to purchase common stock since March 1999 were made by us in reliance
upon the exemptions from registration provided under Section 4(2) of the
Securities Act. The offers and sales were made to accredited investors as
defined in Rule 501(a) under the Securities Act, no general solicitation was
made by us or any person acting in our behalf; the securities sold were subject
to transfer restrictions, and the certificates for those shares contained an
appropriate legend stating that they had not been registered under the
Securities Act and may not be offered or sold absent registration or pursuant to
an exemption therefrom.
II-2
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Unless otherwise noted, the following exhibits are filed with this
registration statement.
(a) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Merger between the Registrant and AremisSoft
Corporation, a Nevada corporation dated March 5, 1999(1)
2.2 Plan and Agreement of Reorganization between AremisSoft
Corporation, a Nevada corporation and LK Global Information
Systems, B.V.(1)
2.3 Addendum to the Plan and Agreement of Reorganization between
AremisSoft Corporation, a Nevada corporation and LK Global
Information Systems, B.V.(1)
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Form of Warrant to purchase Common Stock(1)
5.1 Opinion of Bartel Eng Linn & Schroder*
10.1 1998 Stock Option Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Nonqualified Stock Option Agreement(1)
10.4 Employment Agreement with Dr. Lycourgos K. Kyprianou,
Chairman of the Board and Chief Executive Officer(3)
10.5 Employment Agreement with Roys Poyiadjis, President and Vice
Chairman of the Board(3)
10.6 Indemnification Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.7 Indemnification Agreement between the Registrant and Roys
Poyiadjis(1)
10.8 Convertible Promissory Note made by the Registrant in favor
of Arthur Sterling and Marie Sterling(1)
10.9 Registration Rights Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.10 Registration Rights Agreement between the Registrant and
Roys Poyiadjis(1)
10.11 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's October 1997 private
placement(1)
10.12 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's February 1998 private
placement(1)
10.13 Stock Purchase Agreement between the Registrant and
Info-quest SA(3)
10.14 Contracts between the Registrant and the National Health
Insurance Fund of Bulgaria(3)
10.15 Share Purchase Agreement between the Registrant and
e-nnovations.com(2)
21.1 Subsidiaries of the Registrant(3)
23.1 Consent of Bartel Eng Linn & Schroder contained in Exhibit
5.1*
23.2 Consents of Pannell Kerr Forster, chartered accountants(3)
24.1 Power of Attorney (included on signature pages)(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Previously filed with the Registrant's Registration Statement on Form S-1
(No. 333-58351)
(2) Incorporated by reference to the Registrant's Form 8-K filed on December 29,
1999
(3) Filed herewith
II-3
<PAGE> 99
(B) FINANCIAL STATEMENT SCHEDULES.
Report of Pannell Kerr Forster, Independent Auditors, on Schedule
II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the undersigned registrant pursuant to the foregoing provisions, or otherwise,
the undersigned registrant 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
undersigned registrant of expenses incurred or paid by a director, officer, or
controlling person of the undersigned registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
undersigned registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of 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> 100
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 Nicosia, Cyprus, on March 5, 2000.
AREMISSOFT CORPORATION,
a Delaware Corporation
/s/ DR. LYCOURGOS K. KYPRIANOU
--------------------------------------
Dr. Lycourgos K. Kyprianou,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dr. Lycourgos Kyprianou and Roys
Poyiadjis or either of them as his true and lawful attorneys-in-fact and agent,
with full power of substitution and re-substitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agent or any of
them, or of their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
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>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ DR. LYCOURGOS K. KYPRIANOU March 5, 2000
- -----------------------------------------------------
Dr. Lycourgos K. Kyprianou,
Chairman of the Board and
Chief Executive Officer
/s/ ROYS POYIADJIS March 5, 2000
- -----------------------------------------------------
Roys Poyiadjis,
President and Vice Chairman of the Board
/s/ MICHAEL TYMVIOS March 5, 2000
- -----------------------------------------------------
Michael Tymvios,
Chief Financial Officer
/s/ DANN V. ANGELOFF March 5, 2000
- -----------------------------------------------------
Dann V. Angeloff,
Director
</TABLE>
II-5
<PAGE> 101
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ GEORGE H. ELLIS March 5, 2000
- -----------------------------------------------------
George H. Ellis,
Director
/s/ H. TATE HOLT March 5, 2000
- -----------------------------------------------------
H. Tate Holt,
Director
/s/ NOEL VOICE March 5, 2000
- -----------------------------------------------------
Noel Voice,
Director
/s/ M.C. MATHEWS March 5, 2000
- -----------------------------------------------------
M.C. Mathews,
Director
/s/ THEODOROS FESSAS March 5, 2000
- -----------------------------------------------------
Theodoros Fessas,
Director
/s/ GEORGE PAPADOPOULOS March 5, 2000
- -----------------------------------------------------
George Papadopoulos,
Director
/s/ JOHN MALAMAS March 5, 2000
- -----------------------------------------------------
John Malamas,
Director
</TABLE>
II-6
<PAGE> 102
REPORT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS, ON SCHEDULE II
We have audited the consolidated financial statements of AremisSoft
Corporation as of December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999 and have issued our report thereon dated
March 2, 2000 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ PANNELL KERR FORSTER
London, England
March 5, 2000
<PAGE> 103
SCHEDULE II
AREMISSOFT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADD ITEMS
CHARGED TO
BALANCE AT COSTS AND EXCHANGE BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES DIFFERENCES DEDUCTIONS END OF PERIOD
----------- ------------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts.... $484 $560 $(16) $ 57 $971
Year ended December 31, 1998
Allowance for doubtful accounts.... 971 110 10 452 639
Year ended December 31, 1999
Allowance for doubtful accounts.... 639 652 19 765 507
</TABLE>
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Merger between the Registrant and AremisSoft
Corporation, a Nevada corporation dated March 5, 1999(1)
2.2 Plan and Agreement of Reorganization between AremisSoft
Corporation, a Nevada corporation and LK Global Information
Systems, B.V.(1)
2.3 Addendum to the Plan and Agreement of Reorganization between
AremisSoft Corporation, a Nevada corporation and LK Global
Information Systems, B.V.(1)
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Form of Warrant to purchase Common Stock(1)
5.1 Opinion of Bartel Eng Linn & Schroder*
10.1 1998 Stock Option Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Nonqualified Stock Option Agreement(1)
10.4 Employment Agreement with Dr. Lycourgos K. Kyprianou,
Chairman of the Board and Chief Executive Officer(3)
10.5 Employment Agreement with Roys Poyiadjis, President and Vice
Chairman of the Board(3)
10.6 Indemnification Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.7 Indemnification Agreement between the Registrant and Roys
Poyiadjis(1)
10.8 Convertible Promissory Note made by the Registrant in favor
of Arthur Sterling and Marie Sterling(1)
10.9 Registration Rights Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.10 Registration Rights Agreement between the Registrant and
Roys Poyiadjis(1)
10.11 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's October 1997 private
placement(1)
10.12 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's February 1998 private
placement(1)
10.13 Stock Purchase Agreement between the Registrant and
Info-quest SA(3)
10.14 Contracts between the Registrant and the National Health
Insurance Fund of Bulgaria(3)
10.15 Share Purchase Agreement between the Registrant and
e-nnovations.com(2)
21.1 Subsidiaries of the Registrant(3)
23.1 Consent of Bartel Eng Linn & Schroder contained in Exhibit
5.1*
23.2 Consents of Pannell Kerr Forster, chartered accountants(3)
24.1 Power of Attorney (included on signature pages)(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Previously filed with the Registrant's Registration Statement on Form S-1
(No. 333-58351)
(2) Incorporated by reference to the Registrant's Form 8-K filed on December 29,
1999
(3) Filed herewith
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
BETWEEN
LK GLOBAL INFORMATION SYSTEMS, B.V.
AND
DR. LYCOURGOS K. KYPRIANOU
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated June __, 1999, is
entered into by and between LK Global Information Systems, B.V., a Netherlands
corporation (the "Company") and Dr. Lycourgos K. Kyprianou (the "Executive"),
collectively referred to herein as the "parties."
WHEREAS, the Company wishes to employ the Executive to serve as Chief
Executive Officer and Chairman of the Board of Directors (the "Board") of the
Company and its subsidiary corporations; and
WHEREAS, the Company also wishes to have Executive serve, without
additional compensation, as the Chief Executive Officer and Chairman of the
Board of Directors of its parent, AremisSoft Corporation, a Delaware Corporation
("AremisSoft").
NOW, THEREFORE, for and in consideration of the mutual promises and
conditions made herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Executive to
render full-time services to the Company on an exclusive basis, upon the terms
and conditions set forth below, from the date of this Agreement until the
employment relationship is terminated in accordance with the provisions of this
Agreement. This Agreement is for a term of three (3) years (the "Stated Term")
unless terminated earlier as provided for herein (the "Employment Term").
1.2. ACCEPTANCE. Executive hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Executive shall accept and follow
the direction and authority of the Board and the AremisSoft Board of Directors
(the "AremisSoft Board"), as appropriate. In the performance of his duties he
shall comply with all existing and future regulations applicable to employees of
the Company and to the Company's business.
1
<PAGE> 2
1.3. TERMINATION OF PRIOR AGREEMENTS. Upon execution of this Agreement
all prior employment agreements between Executive and the Company, its
subsidiaries or AremisSoft shall be deemed terminated and there shall be no
right to severance or other related benefits thereunder.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Executive shall serve as Chief Executive Officer
and Chairman of the Board of Directors of the Company and its subsidiaries. In
such capacities, Executive shall do and perform all services, acts, or other
things necessary or advisable to manage and conduct the business of the Company,
including, but not limited to, the supervision, direction and control of the
business and other employees of the Company and its subsidiaries, subject to the
policies and direction of the Board. To the extent consistent with the Company's
and the Company's subsidiaries' charter documents (i.e. articles and bylaws),
Executive shall have all powers, duties and responsibilities necessary to carry
out his duties, and such other powers and duties as the Board may prescribe
consistent with such charter documents.
2.2. SPECIAL DUTIES. Executive shall also serve, without additional
compensation, as Chief Executive Officer and Chairman of the Board of Directors
of the Company's parent, AremisSoft. In such capacities, Executive shall do and
perform all services, acts, or other things necessary or advisable to manage and
conduct the business of AremisSoft, including, but not limited to, the
supervision, direction and control of the business and other employees of
AremisSoft, subject to the policies and direction of the AremisSoft Board. To
the extent consistent with AremisSoft's Certificate of Incorporation
("articles") and Bylaws ("bylaws"), Executive shall have all powers, duties and
responsibilities necessary to carry out his duties, and such other powers and
duties as the AremisSoft Board may prescribe consistent with its articles and
bylaws.
2.3. EXCLUSIVE SERVICES. It is understood and agreed that the Executive
may not engage in any other business activity during the Employment Term,
whether or not for profit or other remuneration, without the prior written
consent of the Company; provided, however, that the Executive may make personal
financial investments which do not involve any material active participation on
his part, and may engage in charitable, philanthropic, educational, religious,
civic and similar types of activities to the extent that such activities do not
hinder or otherwise interfere with the business of the Company, its parent or
subsidiaries, or the performance of the Executive's duties under this Agreement.
Notwithstanding the foregoing, during the Employment Term, Executive shall not
directly or indirectly acquire any stock or interest in any corporation,
partnership, or other business entity that competes, directly or indirectly,
with the business of the Company, its parent or subsidiaries, without obtaining
the prior written consent of the Company.
It is also understood and agreed that the Executive will not compete
with the Company during the Employment Term. For purposes of this Agreement, the
phrase "compete with the Company," or the substantial equivalent thereof, means
that Executive, either alone or as a partner, member, director, employee,
shareholder or agent of any other business, or in any other individual
2
<PAGE> 3
or representative capacity, directly or indirectly owns, manages, operates,
controls, or participates in the ownership, management, operation or control of,
or works for or provides consulting services to, or permits the use of his name
by, or lends money to, any business or activity which is or which becomes, at
the time of the acts or conduct in question, directly or indirectly competitive
with the development, financing and/or marketing of the products, proposed
products or services of the Company, its parent or subsidiaries.
2.4. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, the Executive shall report directly to the Board for all
matters concerning the Company and its subsidiaries and to the AremisSoft Board
for all matters concerning AremisSoft.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay the Executive salary for
the services to be rendered by him, to the Company and its subsidiaries, during
the term of this Agreement at the rate of U.S. Two Hundred Fifty Thousand
Dollars (US $250,000) annually (prorated for any portion of a year), subject to
increases, if any, as the Company's Compensation Committee or Board may
determine in its discretion after periodic review of the Executive's performance
of his duties hereunder. Such base salary shall be payable in periodic
installments in accordance with the terms of the Company's regular payroll
practices in effect from time to time during the term of this Agreement, but in
no event less frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Executive hereunder, Executive is eligible to receive bonuses,
periodically, at the discretion of the Board or Compensation Committee.
3.3. STOCK OPTIONS. Executive may be granted stock options to purchase
shares of the Company's or AremisSoft's common stock, as determined from time to
time by the Board or the AremisSoft Board or their respective compensation
committees and subject to (a) the terms and conditions contained in the
applicable stock option plans, (b) the terms and conditions set forth herein and
(c) the Executive's execution of a stock option agreement and all documents
customarily required by the Company or AremisSoft to effect the grant of the
options.
3.4. EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Executive in the performance of Executive's services under this Agreement
in accordance with the expense reimbursement policies of the Company in effect
from time to time during the Employment Term, upon presentation of proper
expense statements or vouchers or such other written supporting documents as the
Company may reasonably require.
3
<PAGE> 4
3.5. VACATION. The Executive shall be entitled to four (4) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable). Notwithstanding anything to the contrary in this Agreement,
vacation time shall cease to accrue beyond eight weeks at any given time during
the Employment Term.
3.6. INDEMNIFICATION. Consistent with the terms of the Company's and
AremisSoft's charter documents, the Executive shall be indemnified against any
losses, costs, damages or expenses incurred as a direct consequence of the
discharge of his duties or by reason of his status as an agent and hold
Executive harmless for any actions taken or decisions made by him in good faith
while performing services in his capacity as Chief Executive Officer and
Chairman of the Board of Directors of the Company, its subsidiaries and parent,
during the Employment Term.
3.7. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, the Executive shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided
for in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to terminate
this Agreement for cause upon: (a) Executive's willful and continued failure to
substantially perform his duties with the Company (other than such failure
resulting from his incapacity due to physical or mental illness) (b) Executive's
willful engagement in gross misconduct, as determined by the Board, which is
materially and demonstrably injurious to the Company; or (c) Executive's
commission of a felony, or an act of fraud against the Company or its parent or
subsidiaries.
Executive shall not be entitled to any severance benefits and all
options which have not vested shall be canceled upon termination for cause.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate this
Agreement at any time upon thirty (30) days written notice to Executive, without
cause, subject to the express terms and provisions below.
4.4. SEVERANCE BENEFIT UPON TERMINATION WITHOUT CAUSE. Notwithstanding
anything to the contrary in this Agreement, if Executive is terminated without
cause, Executive shall receive a lump sum cash payment equal to the annual base
salary of Executive, as contained in Section 3.1 of this Agreement, then in
effect.
4
<PAGE> 5
4.5. VOLUNTARY TERMINATION BY EXECUTIVE. Notwithstanding anything to
the contrary in this Agreement, Executive may terminate this Agreement at any
time upon thirty (30) days written notice to the Company, subject to the terms
and provisions below.
Other than termination "without cause", as contained in Section 4.4 of
this Agreement, or a "change of control" of the Company, as contained in Section
4.6 of this Agreement, the Company shall not be obligated to pay any severance
benefit to Executive if Executive terminates this Agreement pursuant to this
Section 4.5.
4.6. SEVERANCE BENEFIT UPON CHANGE IN CONTROL. Notwithstanding anything
to the contrary in this Agreement, if the Company terminates this Agreement for
any reason, other than "for cause" pursuant to Section 4.2 of this Agreement,
within one hundred eighty (180) days of a "change of control" as hereinafter
defined, the Company shall pay Executive a lump sum cash payment equal to 2.99
times the annual base salary of Executive, as contained in Section 3.1 of this
Agreement, or Executive's then current rate of compensation, whichever is
greater. For purposes of this Section 4.6, a "change of control" shall mean an
event involving one transaction or a series of related transactions in which (i)
the Company or AremisSoft issues securities equal to more than fifty percent
(50%) of the issued and outstanding capital stock of the Company or AremisSoft
to any individual, firm, partnership, or other entity, including a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), (ii) the Company or AremisSoft issues securities equal to
more than fifty percent (50%) of the issued and outstanding capital stock of the
Company or AremisSoft in connection with a merger, consolidation or other
business combination (other than for purposes of reincorporation), (iii) the
Company or AremisSoft is acquired in a merger or other business combination
transaction in which the Company or AremisSoft is not the surviving corporation
(other than a reincorporation), or (iv) more than fifty percent (50%) or more of
the Company's or AremisSoft's consolidated assets or earning power are sold or
transferred.
4.7. DISABILITY. If Executive becomes permanently and totally disabled,
this Agreement shall be terminated. Executive shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment,
as confirmed by three independent physicians, which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. Upon termination due to disability, Executive shall be
entitled to receive a lump sum payment equal to his annual base salary, as
contained in Section 3.1 of this Agreement, then in effect.
4.8. DEATH. If Executive dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon termination due to death, the designated beneficiary, as provided
in Section 6.8 below, or the estate or representative of Executive, shall be
entitled to receive a lump sum payment equal to his annual base salary, as
contained in Section 3.1 of this Agreement, then in effect.
5
<PAGE> 6
4.9. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not impair any obligation that
accrued prior to termination, nor shall it excuse the performance of any
obligation which is required or contemplated hereunder to be performed after
termination, and any such obligation shall survive the termination of employment
and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR AND NON-COMPETITION. The Executive acknowledges that he
will have access at the highest level to, and the opportunity to acquire
knowledge of, the Company's customer lists, customer needs, business plans,
trade secrets and other confidential and proprietary information from which the
Company may derive economic or competitive advantage, and that he is entering
into the covenants and representations in this Article V in order to preserve
the goodwill and going concern value of the Company, and to induce the Company
to enter into this Agreement. The Executive agrees not to compete with the
Company or to engage in any unfair competition with the Company during the
Employment Term, but not limited to the acts and conduct described below.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term, Executive
agrees to keep secret and to retain in the strictest confidence all confidential
matters which relate to the Company or its "affiliate" (as that term is defined
in the Exchange Act), including, without limitation, customer lists, client
lists, trade secrets, pricing lists, business plans, financial projections and
reports, business strategies, internal operating procedures, and other
confidential business information from which the Company derives an economic or
competitive advantage, or from which the Company might derive such advantage in
its business, labeled "secret" or "confidential" or some similar term, and not
to disclose any such information to anyone outside of the Company, whether
during or after the Employment Term, except as required in connection with
performing the services to the Company.
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term, the
Executive will have access to confidential records and data pertaining to the
Company's customers, their needs, and the relationship between the Company and
its customers. Such information is considered secret and is disclosed during the
Employment Term in confidence. Accordingly, during the Employment Term,
Executive and any entity controlled by him or with which he is associated (as
the terms "control" and "associate" are defined in the Exchange Act) shall not,
directly or indirectly (i) solicit for a competitive purpose, interfere with,
induce or entice away any person or entity that is or was a client, customer or
agent of the Company or its affiliates (as the term "affiliate" is defined in
the Exchange Act), or (ii) in any manner persuade or attempt to persuade any
such person or entity (A) to discontinue its business relationship with the
Company or its affiliates, or (B) to enter into a business relationship with any
other entity or person the loss of which the Executive should reasonably
anticipate would be detrimental to the Company or its affiliates in any respect.
6
<PAGE> 7
5.4. NON-SOLICITATION OF EXECUTIVES. The Executive and any entity
controlled by him or with which he is associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, during the Employment
Term, directly or indirectly solicit, interfere with, offer to hire or induce
any person who is or was an officer or employee of the Company or any affiliate
(as the term "affiliate" is defined in the Exchange Act) (other than secretarial
personnel) to discontinue his or her relationship with the Company or an
affiliate of the Company, in order to accept employment by, or enter into a
business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.") The foregoing
restriction, however, shall not apply to any business with which Executive may
become associated after the Employment Term.
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company, the Executive agrees to promptly deliver to the Company
all Company or affiliate memoranda, notes, records, reports, manuals, drawings,
designs, computer files in any media, and other documents (including extracts
and copies thereof) relating to the Company or its affiliates, and all other
property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Executive, either alone or with others, during the Employment Term, whether
or not conceived or developed during Executive's working hours, and with respect
to which the equipment, supplies, facilities or trade secret information of the
Company was used, or that relate at the time of conception or reduction to
practice of the invention to the business of the Company, or to the Company's
actual or demonstrably anticipated research or development, or that result from
any work performed by Executive for the Company, shall be the sole property of
the Company. Upon the request of the Company, Executive shall disclose to the
Company all inventions or ideas conceived during the Employment Term, whether or
not the property of the Company under the terms of this provision, provided that
such disclosure shall be received by the Company in confidence. Upon the request
of the Company, Executive shall execute all documents, including patent
applications and assignments, required by the Company to establish the Company's
rights under this provision.
5.7. REPRESENTATIONS. The Executive represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and the
performance of his duties shall not result in a breach of, or constitute a
default under, any agreement or understanding, whether oral or written,
including, without limitation, any restrictive covenant or confidentiality
agreement, to which he is a party or by which he may be bound.
5.8. NON-PAYMENT UPON NON-COMPLIANCE. Should Executive breach any one
of the covenants set forth in this Article V, the Company shall have no
obligation to make the payments or to provide Executive the benefits described
in Sections 4.4 or 4.6 above, as applicable, in addition to all other rights and
remedies the Company may have available at law or in equity. The Company shall
provide written notice to Executive, ten (10) days prior to an expected payment,
of the breach of a covenant and the ensuing non-payment thereof; provided,
however, that if the Company learns
7
<PAGE> 8
of the breach without sufficient time to provide ten (10) days notice, the
Company shall provide written notice as soon thereafter as practicable.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; provided, however, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Executive:
Dr. Lycourgos K. Kyprianou
------------
------------
------------
To the Company:
LK Global Information Systems B.V.
------------
------------
------------
With Copy to:
Scott E. Bartel
BARTEL ENG LINN & SCHRODER
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Facsimile: (916) 442-3442
6.2. NO ASSIGNMENT, IN GENERAL. Except as provided below, this
Agreement, and the rights and obligations of the parties, may not be assigned by
either party without the prior written consent of the other party.
6.3. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including without
limitation stock of the Company, shall be subject to governmental withholding
requirements for income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate
8
<PAGE> 9
in the determination of the Company, and the Executive agrees to report all such
amounts as ordinary income on his personal income tax returns and for all other
purposes, as appropriate.
6.4. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.5. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such provision, or a relinquishment of any right thereunder,
or to affect either the validity of this Agreement, and shall not prevent
enforcement of such provision, or any similar provision, at any time.
6.6. DESIGNATION OF BENEFICIARY. If the Executive shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided herein
shall be made to such beneficiary as he shall have designated in writing filed
with the Secretary of the Company or, in the absence of such designation, to his
estate or personal representative.
6.7. ATTORNEYS FEES. In the event of any litigation arising out of this
Agreement, or the parties' performance as outlined herein, the prevailing party
shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
6.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY: LK GLOBAL INFORMATION SYSTEMS B.V.
By:
-------------------------------------
Its:
-------------------------------------
EXECUTIVE:
----------------------------------------
Dr. Lycourgos K. Kyprianou
AREMISSOFT: AREMISSOFT CORPORATION
(FOR PURPOSES OF SECTION
1.3 ONLY)
----------------------------------------
Roys Poyiadjis, President
10
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
BETWEEN
LK GLOBAL INFORMATION SYSTEMS, B.V.
AND
ROYS POYIADJIS
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated June __, 1999, is
entered into by and between LK Global Information Systems, B.V., a Netherlands
corporation (the "Company") and Roys Poyiadjis (the "Executive"), collectively
referred to herein as the "parties."
WHEREAS, the Company wishes to employ the Executive to serve as
President and Vice Chairman of the Board of Directors (the "Board") of the
Company and its subsidiary corporations; and
WHEREAS, the Company also wishes to have Executive serve, without
additional compensation, as the President and Vice Chairman of the Board of
Directors of its parent, AremisSoft Corporation, a Delaware Corporation
("AremisSoft").
NOW, THEREFORE, for and in consideration of the mutual promises and
conditions made herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Executive to
render full-time services to the Company on an exclusive basis, upon the terms
and conditions set forth below, from the date of this Agreement until the
employment relationship is terminated in accordance with the provisions of this
Agreement. This Agreement is for a term of three (3) years (the "Stated Term")
unless terminated earlier as provided for herein (the "Employment Term").
1.2. ACCEPTANCE. Executive hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Executive shall accept and follow
the direction and authority of the Board and the AremisSoft Board of Directors
(the "AremisSoft Board"), as appropriate. In the performance of his duties he
shall comply with all existing and future regulations applicable to employees of
the Company and to the Company's business.
1
<PAGE> 2
1.3. TERMINATION OF PRIOR AGREEMENTS. Upon execution of this Agreement
all prior employment agreements between Executive and the Company, its
subsidiaries or AremisSoft shall be deemed terminated and there shall be no
right to severance or other related benefits thereunder.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Executive shall serve as President and Vice
Chairman of the Board of Directors of the Company and its subsidiaries. In such
capacities, Executive shall do and perform all services, acts, or other things
necessary or advisable to manage and conduct the business of the Company,
including, but not limited to, the supervision, direction and control of the
business and other employees of the Company and its subsidiaries, subject to the
policies and direction of the Board. To the extent consistent with the Company's
and the Company's subsidiaries' charter documents (i.e. articles and bylaws),
Executive shall have all powers, duties and responsibilities necessary to carry
out his duties, and such other powers and duties as the Board may prescribe
consistent with such charter documents.
2.2. SPECIAL DUTIES. Executive shall also serve, without additional
compensation, as President and Vice Chairman of the Board of Directors of the
Company's parent, AremisSoft. In such capacities, Executive shall do and perform
all services, acts, or other things necessary or advisable to manage and conduct
the business of AremisSoft, including, but not limited to, the supervision,
direction and control of the business and other employees of AremisSoft, subject
to the policies and direction of the AremisSoft Board. To the extent consistent
with AremisSoft's Certificate of Incorporation ("articles") and Bylaws
("bylaws"), Executive shall have all powers, duties and responsibilities
necessary to carry out his duties, and such other powers and duties as the
AremisSoft Board may prescribe consistent with its articles and bylaws.
2.3. EXCLUSIVE SERVICES. It is understood and agreed that the Executive
may not engage in any other business activity during the Employment Term,
whether or not for profit or other remuneration, without the prior written
consent of the Company; provided, however, that the Executive may make personal
financial investments which do not involve any material active participation on
his part, and may engage in charitable, philanthropic, educational, religious,
civic and similar types of activities to the extent that such activities do not
hinder or otherwise interfere with the business of the Company, its parent or
subsidiaries, or the performance of the Executive's duties under this Agreement.
Notwithstanding the foregoing, during the Employment Term, Executive shall not
directly or indirectly acquire any stock or interest in any corporation,
partnership, or other business entity that competes, directly or indirectly,
with the business of the Company, its parent or subsidiaries, without obtaining
the prior written consent of the Company.
It is also understood and agreed that the Executive will not compete
with the Company during the Employment Term. For purposes of this Agreement, the
phrase "compete with the Company," or the substantial equivalent thereof, means
that Executive, either alone or as a partner, member, director, employee,
shareholder or agent of any other business, or in any other individual or
representative capacity, directly or indirectly owns, manages, operates,
controls, or participates
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<PAGE> 3
in the ownership, management, operation or control of, or works for or provides
consulting services to, or permits the use of his name by, or lends money to,
any business or activity which is or which becomes, at the time of the acts or
conduct in question, directly or indirectly competitive with the development,
financing and/or marketing of the products, proposed products or services of the
Company, its parent or subsidiaries.
2.4. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, the Executive shall report directly to the Board for all
matters concerning the Company and its subsidiaries and to the AremisSoft Board
for all matters concerning AremisSoft.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay the Executive salary for
the services to be rendered by him, to the Company and its subsidiaries, during
the term of this Agreement at the rate of U.S. Two Hundred Thousand Dollars (US
$200,000) annually (prorated for any portion of a year), subject to increases,
if any, as the Company's Compensation Committee or Board may determine in its
discretion after periodic review of the Executive's performance of his duties
hereunder. Such base salary shall be payable in periodic installments in
accordance with the terms of the Company's regular payroll practices in effect
from time to time during the term of this Agreement, but in no event less
frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Executive hereunder, Executive is eligible to receive bonuses,
periodically, at the discretion of the Board or Compensation Committee.
3.3. STOCK OPTIONS. Executive may be granted stock options to purchase
shares of the Company's or AremisSoft's common stock, as determined from time to
time by the Board or the AremisSoft Board or their respective compensation
committees and subject to (a) the terms and conditions contained in the
applicable stock option plans, (b) the terms and conditions set forth herein and
(c) the Executive's execution of a stock option agreement and all documents
customarily required by the Company or AremisSoft to effect the grant of the
options.
3.4. EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Executive in the performance of Executive's services under this Agreement
in accordance with the expense reimbursement policies of the Company in effect
from time to time during the Employment Term, upon presentation of proper
expense statements or vouchers or such other written supporting documents as the
Company may reasonably require.
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<PAGE> 4
3.5. VACATION. The Executive shall be entitled to four (4) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable). Notwithstanding anything to the contrary in this Agreement,
vacation time shall cease to accrue beyond eight weeks at any given time during
the Employment Term.
3.6. INDEMNIFICATION. Consistent with the terms of the Company's and
AremisSoft's charter documents, the Executive shall be indemnified against any
losses, costs, damages or expenses incurred as a direct consequence of the
discharge of his duties or by reason of his status as an agent and hold
Executive harmless for any actions taken or decisions made by him in good faith
while performing services in his capacity as President and Vice Chairman of the
Board of Directors of the Company, its subsidiaries and parent, during the
Employment Term.
3.7. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, the Executive shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided
for in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to terminate
this Agreement for cause upon: (a) Executive's willful and continued failure to
substantially perform his duties with the Company (other than such failure
resulting from his incapacity due to physical or mental illness) (b) Executive's
willful engagement in gross misconduct, as determined by the Board, which is
materially and demonstrably injurious to the Company; or (c) Executive's
commission of a felony, or an act of fraud against the Company or its parent or
subsidiaries.
Executive shall not be entitled to any severance benefits and all
options which have not vested shall be canceled upon termination for cause.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate this
Agreement at any time upon thirty (30) days written notice to Executive, without
cause, subject to the express terms and provisions below.
4.4. SEVERANCE BENEFIT UPON TERMINATION WITHOUT CAUSE. Notwithstanding
anything to the contrary in this Agreement, if Executive is terminated without
cause, Executive shall receive a lump sum cash payment equal to the annual base
salary of Executive, as contained in Section 3.1 of this Agreement, then in
effect.
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<PAGE> 5
4.5. VOLUNTARY TERMINATION BY EXECUTIVE. Notwithstanding anything to
the contrary in this Agreement, Executive may terminate this Agreement at any
time upon thirty (30) days written notice to the Company, subject to the terms
and provisions below.
Other than termination "without cause", as contained in Section 4.4 of
this Agreement, or a "change of control" of the Company, as contained in Section
4.6 of this Agreement, the Company shall not be obligated to pay any severance
benefit to Executive if Executive terminates this Agreement pursuant to this
Section 4.5.
4.6. SEVERANCE BENEFIT UPON CHANGE IN CONTROL. Notwithstanding anything
to the contrary in this Agreement, if the Company terminates this Agreement for
any reason, other than "for cause" pursuant to Section 4.2 of this Agreement,
within one hundred eighty (180) days of a "change of control" as hereinafter
defined, the Company shall pay Executive a lump sum cash payment equal to 2.99
times the annual base salary of Executive, as contained in Section 3.1 of this
Agreement, or Executive's then current rate of compensation, whichever is
greater. For purposes of this Section 4.6, a "change of control" shall mean an
event involving one transaction or a series of related transactions in which (i)
the Company or AremisSoft issues securities equal to more than fifty percent
(50%) of the issued and outstanding capital stock of the Company or AremisSoft
to any individual, firm, partnership, or other entity, including a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), (ii) the Company or AremisSoft issues securities equal to
more than fifty percent (50%) of the issued and outstanding capital stock of the
Company or AremisSoft in connection with a merger, consolidation or other
business combination (other than for purposes of reincorporation), (iii) the
Company or AremisSoft is acquired in a merger or other business combination
transaction in which the Company or AremisSoft is not the surviving corporation
(other than a reincorporation), or (iv) more than fifty percent (50%) or more of
the Company's or AremisSoft's consolidated assets or earning power are sold or
transferred.
4.7. DISABILITY. If Executive becomes permanently and totally disabled,
this Agreement shall be terminated. Executive shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment,
as confirmed by three independent physicians, which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. Upon termination due to disability, Executive shall be
entitled to receive a lump sum payment equal to his annual base salary, as
contained in Section 3.1 of this Agreement, then in effect.
4.8. DEATH. If Executive dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon termination due to death, the designated beneficiary, as provided
in Section 6.8 below, or the estate or representative of Executive, shall be
entitled to receive a lump sum payment equal to his annual base salary, as
contained in Section 3.1 of this Agreement, then in effect.
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<PAGE> 6
4.9. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not impair any obligation that
accrued prior to termination, nor shall it excuse the performance of any
obligation which is required or contemplated hereunder to be performed after
termination, and any such obligation shall survive the termination of employment
and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR AND NON-COMPETITION. The Executive acknowledges that he
will have access at the highest level to, and the opportunity to acquire
knowledge of, the Company's customer lists, customer needs, business plans,
trade secrets and other confidential and proprietary information from which the
Company may derive economic or competitive advantage, and that he is entering
into the covenants and representations in this Article V in order to preserve
the goodwill and going concern value of the Company, and to induce the Company
to enter into this Agreement. The Executive agrees not to compete with the
Company or to engage in any unfair competition with the Company during the
Employment Term, but not limited to the acts and conduct described below.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term, Executive
agrees to keep secret and to retain in the strictest confidence all confidential
matters which relate to the Company or its "affiliate" (as that term is defined
in the Exchange Act), including, without limitation, customer lists, client
lists, trade secrets, pricing lists, business plans, financial projections and
reports, business strategies, internal operating procedures, and other
confidential business information from which the Company derives an economic or
competitive advantage, or from which the Company might derive such advantage in
its business, labeled "secret" or "confidential" or some similar term, and not
to disclose any such information to anyone outside of the Company, whether
during or after the Employment Term, except as required in connection with
performing the services to the Company.
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term, the
Executive will have access to confidential records and data pertaining to the
Company's customers, their needs, and the relationship between the Company and
its customers. Such information is considered secret and is disclosed during the
Employment Term in confidence. Accordingly, during the Employment Term,
Executive and any entity controlled by him or with which he is associated (as
the terms "control" and "associate" are defined in the Exchange Act) shall not,
directly or indirectly (i) solicit for a competitive purpose, interfere with,
induce or entice away any person or entity that is or was a client, customer or
agent of the Company or its affiliates (as the term "affiliate" is defined in
the Exchange Act), or (ii) in any manner persuade or attempt to persuade any
such person or entity (A) to discontinue its business relationship with the
Company or its affiliates, or (B) to enter into a business relationship with any
other entity or person the loss of which the Executive should reasonably
anticipate would be detrimental to the Company or its affiliates in any respect.
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<PAGE> 7
5.4. NON-SOLICITATION OF EXECUTIVES. The Executive and any entity
controlled by him or with which he is associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, during the Employment
Term, directly or indirectly solicit, interfere with, offer to hire or induce
any person who is or was an officer or employee of the Company or any affiliate
(as the term "affiliate" is defined in the Exchange Act) (other than secretarial
personnel) to discontinue his or her relationship with the Company or an
affiliate of the Company, in order to accept employment by, or enter into a
business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.") The foregoing
restriction, however, shall not apply to any business with which Executive may
become associated after the Employment Term.
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company, the Executive agrees to promptly deliver to the Company
all Company or affiliate memoranda, notes, records, reports, manuals, drawings,
designs, computer files in any media, and other documents (including extracts
and copies thereof) relating to the Company or its affiliates, and all other
property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Executive, either alone or with others, during the Employment Term, whether
or not conceived or developed during Executive's working hours, and with respect
to which the equipment, supplies, facilities or trade secret information of the
Company was used, or that relate at the time of conception or reduction to
practice of the invention to the business of the Company, or to the Company's
actual or demonstrably anticipated research or development, or that result from
any work performed by Executive for the Company, shall be the sole property of
the Company. Upon the request of the Company, Executive shall disclose to the
Company all inventions or ideas conceived during the Employment Term, whether or
not the property of the Company under the terms of this provision, provided that
such disclosure shall be received by the Company in confidence. Upon the request
of the Company, Executive shall execute all documents, including patent
applications and assignments, required by the Company to establish the Company's
rights under this provision.
5.7. REPRESENTATIONS. The Executive represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and the
performance of his duties shall not result in a breach of, or constitute a
default under, any agreement or understanding, whether oral or written,
including, without limitation, any restrictive covenant or confidentiality
agreement, to which he is a party or by which he may be bound.
5.8. NON-PAYMENT UPON NON-COMPLIANCE. Should Executive breach any one
of the covenants set forth in this Article V, the Company shall have no
obligation to make the payments or to provide Executive the benefits described
in Sections 4.4 or 4.6 above, as applicable, in addition to all other rights and
remedies the Company may have available at law or in equity. The Company shall
provide written notice to Executive, ten (10) days prior to an expected payment,
of the breach of a covenant and the ensuing non-payment thereof; provided,
however, that if the Company learns
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<PAGE> 8
of the breach without sufficient time to provide ten (10) days notice, the
Company shall provide written notice as soon thereafter as practicable.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; provided, however, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Executive:
Roys Poyiadjis
------------
------------
------------
To the Company:
LK Global Information Systems B.V.
------------
------------
------------
With Copy to:
Scott E. Bartel
BARTEL ENG LINN & SCHRODER
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Facsimile: (916) 442-3442
6.2. NO ASSIGNMENT, IN GENERAL. Except as provided below, this
Agreement, and the rights and obligations of the parties, may not be assigned by
either party without the prior written consent of the other party.
6.3. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including without
limitation stock of the Company, shall be subject to governmental withholding
requirements for income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate
8
<PAGE> 9
in the determination of the Company, and the Executive agrees to report all such
amounts as ordinary income on his personal income tax returns and for all other
purposes, as appropriate.
6.4. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.5. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such provision, or a relinquishment of any right thereunder,
or to affect either the validity of this Agreement, and shall not prevent
enforcement of such provision, or any similar provision, at any time.
6.6. DESIGNATION OF BENEFICIARY. If the Executive shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided herein
shall be made to such beneficiary as he shall have designated in writing filed
with the Secretary of the Company or, in the absence of such designation, to his
estate or personal representative.
6.7. ATTORNEYS FEES. In the event of any litigation arising out of this
Agreement, or the parties' performance as outlined herein, the prevailing party
shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
6.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY: LK GLOBAL INFORMATION SYSTEMS B.V.
By:
-------------------------------------
Its:
-------------------------------------
EXECUTIVE:
----------------------------------------
Roys Poyiadjis
AREMISSOFT: AREMISSOFT CORPORATION
(FOR PURPOSES OF SECTION
1.3 ONLY)
----------------------------------------
Dr. Lycourgos K. Kyprianou,
Chief Executive Officer
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<PAGE> 1
Exhibit 10.13
STOCK PURCHASE AGREEMENT
BETWEEN
AREMISSOFT CORPORATION
A DELAWARE CORPORATION
AND
INFO-QUEST SA
A GREEK CORPORATION
1,600,000 SHARES OF COMMON STOCK, PAR VALUE, $0.001
September 10, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of September
10, 1999, is made and entered into by and between AremisSoft Corporation, a
Delaware corporation (the "Company") on the one hand and Info-quest SA,a
corporation organized under the laws of Greece (the "Purchaser") on the other
hand. Reference to dollars in this Agreement shall mean United States dollars.
W I T N E S S E T H
WHEREAS, the Company desires to sell shares of its Common Stock, par
value .001 per share (the "Common Stock") to Purchaser who is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D, promulgated by
the United States Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "Securities Act") upon the terms and
conditions contained herein; and
WHEREAS, the Purchaser desires to purchase Common Stock upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
representations, warranties, covenants, and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. PURCHASES
1.1 Purchase of AremisSoft Common Stock. Upon the terms and subject to
the conditions set forth in this Agreement, the Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, one million six hundred thousand (1,600,000) shares of Common
Stock (the "Common Stock").
1.2 Consideration. In consideration of the purchase in Section 1.1, the
Purchaser hereby agrees to pay to the Company seventeen million six hundred
thousand dollars ($17,600,000), or $11.00 per share (the "Consideration").
1.3 Transfer of Funds. Within eight (8) business days from the date of
execution of this Agreement, the Consideration provided for in Section 1.2 above
should be delivered into the escrow established pursuant to Section 1.6 of this
Agreement via wire transfer to an account and pursuant to wire transfer
instructions to be provided by the Escrow Agent appointed by the parties
pursuant to Section 1.6 below.
1.4. Transfer of the Common Stock. Within eight (8) business days from
the date of execution of this Agreement, the Company shall deliver into the
escrow established pursuant to Section 1.6 of this Agreement stock
certificate(s) evidencing one million six hundred thousand (1,600,000) shares
of AremisSoft Common Stock issued in the name of the Purchaser or in a
different manner as the Purchaser shall determine and instruct Company in
<PAGE> 3
writing.
1.5. Conditions to the Closing. The purchase of the Common Stock shall
be completed at a Closing on the Closing Date as provided for in Section 1.6
of this Agreement when all of the following conditions have been satisfied:
1.5.1. The Consideration provided for in Section 1.2 of this
Agreement has been received into the escrow, via wire transfer, as provided
for in Section 1.3 of this Agreement.
1.5.2. The Common Stock have been delivered into the escrow as
provided for in Section 1.4 of this Agreement.
1.5.3. The waiting period under the Hart-Scott-Rodino Act
codified at Section 7A of the Clayton Act has expired.
1.5.4. Any other regulatory approvals required to be obtained
prior to the Closing have been obtained by the Parties.
1.5.5. The simultaneous closing of the Stock Purchase
Agreement between Purchaser and LK Global (Holdings) NV of even date herewith.
1.6. The Closing; Closing Date. The Closing Date shall occur three (3)
days after all of the conditions set forth in Section 1.5 of this Agreement have
been satisfied (the "Closing Date"). The Closing shall occur at the offices of
Bartel Eng Linn & Schroder, 300 Capitol Mall, Suite 1100, Sacramento, CA, 95814,
or at such other time and place mutually agreed upon by the Parties. The parties
agree to execute a separate escrow agreement between the parties and an Escrow
Agent mutually acceptable to the Parties setting forth the duties and
responsibilities of the escrow, a form of which is attached hereto as Exhibit
"A".
1.7. Deliveries at the Closing. Upon the terms and conditions set forth
in this Agreement, at the Closing and on the Closing Date, the Escrow Agent
shall make the following deliveries, provided that all of the conditions set
forth in Section 1.5 of this Agreement have been satisfied:
(a) Deliveries to the Company at the Closing. At the Closing,
the Escrow Agent shall deliver to the Company, via wire transfer pursuant to
instructions provided to the Escrow Agent prior to the Closing, seventeen
million six hundred thousand dollars ($17,600,000) in immediately available
funds; and
(b) Deliveries the Purchaser at the Closing. At the Closing,
the Escrow Agent shall deliver to the Purchaser the stock certificate(s)
evidencing one million six hundred thousand (1,600,000) shares of AremisSoft
Common Stock issued in the name of the Purchaser or in a different manner as the
Purchaser shall have determined and instructed the Company in writing prior to
the Closing and a check or wire transfer representing all interest accrued on
the Consideration during the escrow period less the amount of $22,500
representing one half of the Federal Trade Commission filing fee to be
reimbursed to the Company.
<PAGE> 4
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that on the
date hereof and on the Closing Date:
2.1. Due Organization; Good Standing and Corporate Power. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted, and to own, lease and operate any properties related to such
business, except where the failure to have such power and authority would not
individually or in the aggregate have a Material Adverse Effect (as defined
below). For purposes of this Agreement, a "Material Adverse Effect" shall mean
an event that could reasonably be expected to have a material adverse effect on
the business of the Company, or on its results of operations, properties or
financial condition; including, but not limited to, any event which reasonably
could be expected to result in a potential liability to the Company either
individually or in the aggregate in excess of ten percent (10%) of its current
assets as reflected on the Company's audited financial statements for the period
ended December 31, 1998.
2.2. Capitalization and Voting Rights.
2.2.1. On the Closing Date, the authorized capital stock of
the Company will consist of 85,000,000 shares of Common Stock, of which
13,530,051 shares shall be issued and outstanding, before the issuance of the
Common Stock, and 15,000,000 shares of Preferred Stock, par value .001 per
share, of which no shares are issued and outstanding. All of such issued and
outstanding shares of Common Stock will be validly issued, fully paid and the
holders thereof will not be entitled to any preemptive or other similar rights.
The rights, privileges, preferences and restrictions of the Common Stock and
Preferred Stock are as stated in the Company's Articles of Incorporation.
2.3. Authorization.
2.3.1. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the execution and delivery of
this Purchase Agreement and the sale and issuance of the Common Stock pursuant
hereto and the performance of the Company's obligations hereunder has been, or
will be, taken prior to the Closing Date.
2.3.2. The Common Stock when issued and delivered for the
consideration expressed and in compliance with the provisions of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable federal and state securities laws.
2.4. No Conflict; No Consents or Approvals Required. The Company is not
in violation or default of any provision of its articles of incorporation or
bylaws or in violation or default under any judgment, order, writ or decree or
agreement to which it is a party or by
<PAGE> 5
which it is bound, or, to the best of its knowledge, of any provision of any
federal or state statute, rule or regulation of any country applicable to the
Company which violation or default, or violations and defaults in the aggregate,
would have a Material Adverse Effect. Neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company of the
transactions contemplated therein will:
2.4.1. conflict with or violate any provision of the
Certificate of Incorporation or Bylaws of the Company;
2.4.2. conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment or decree applicable to the Company
or by which it or any of its properties or assets are bound or affected; or
2.4.3. conflict with or result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, cancellation,
suspension, revocation, impairment, forfeiture or nonrenewal of, or result in
the creation of any lien, charge or encumbrance on any of the properties or
assets of the Company pursuant to any of the terms, conditions or provisions of,
any material note, bond, mortgage, indenture, deed of trust, lease, permit,
license, franchise, authorization, agreement or other instrument or obligation
to which the Company is a party or by which the Company or any of its respective
properties or assets are bound or affected.
2.5. Disclosure. The Company has provided the Purchaser with copies of
the Company's final prospectus, dated April 22, 1999 (hereinafter the
"Prospectus"), relating to the Company's initial public offering of 3,300,000
shares of common stock, and the Company's SEC Form 10-Q for the quarter ended
June 30, 1999 (hereinafter the "Form 10-Q") as disclosure documents relating to
the Company's business and financial condition. Neither this Agreement, the
exhibits and schedules hereto, nor any other written statements or certificates
made or delivered by the Company to the Purchaser in connection herewith
including, but not limited to, the Company's Prospectus and Form 10-Q, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein and therein not misleading.
2.6. Offering. Assuming the accuracy of the representations set forth
in Section 3 hereof, the offer, sale and issuance of the Common Stock to the
Purchaser on the Closing Date as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act.
2.7. Binding Effect. This Agreement and all other agreements and
instruments contemplated hereunder, constitute a valid and binding agreement of
the Company, enforceable in accordance with its respective terms subject to
applicable bankruptcy, insolvency, and other laws affecting the enforcement of
creditors' rights generally.
2.8. Financial Authorization. The consolidated balance sheet of the
Company as of December 31, 1998 (the "1998 Balance Sheet") and related
consolidated statement of operations, changes in stockholders' equity and cash
flows for the fiscal year then ended,
<PAGE> 6
reported on by Pannell Kerr Forster, included in the Company's Prospectus,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Company as of such date and results of
operations and cash flows for such fiscal year.
2.9. Intellectual Property. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted without, to the knowledge of the Company, any conflict
with or infringement of the rights of others. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company, or that would conflict
with the Company's business as proposed to be conducted.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants that on the date hereof and on
the Closing Date:
3.1. Authorization. All action on the part of the Purchaser, and its
officers, directors and stockholders, necessary for the purchase of the Common
Stock pursuant hereto and the performance of the Purchaser's obligations
hereunder has been taken.
3.2. Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon such Purchase's representation to the Company, which
by the Purchaser's execution of this Agreement the Purchaser hereby confirms,
that the Common Stock to be purchased by the Purchaser are being acquired for
investment purposes for the Purchaser's own account and not with a view to the
resale or distribution of any part thereof except in accordance with applicable
federal and state securities laws.
3.3. Reliance Upon Purchaser's Representations. The Purchaser
understands that the Common Stock has not been registered under the Securities
Act on the grounds that the transactions contemplated by this Agreement and the
issuance of the Common Stock hereunder are exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and Regulation D promulgated
thereunder, and that the Company's reliance on such exemption is predicated on
the Purchaser's representations set forth herein.
3.4. Receipt of Information. The Purchaser has received all the
information, including, but not limited to, the Company's Prospectus and Form
10-Q, as well as all other information it considers necessary or appropriate for
deciding whether to purchase the Common Stock. The Purchaser further represents
that it has had the opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Common Stock
hereby, and the business, properties, prospects, and financial condition of the
Company and to obtain additional information (to the extent the Company
<PAGE> 7
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to the
Purchaser or to which the Purchaser has access.
3.5. Investment Experience. The Purchaser represents that it is
experienced in evaluating and investing in securities of companies in the
software and information technology industry space and acknowledges that it is
able to fend for itself, can bear the economic risk of the investment, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment in the Common
Stock. The Purchaser further represents that it has not been organized solely
for the purpose of acquiring the Common Stock.
3.6. Accredited Investor. The Purchaser represents and warrants that it
is an "accredited investor" as that term is defined in SEC Rule 501(a) of
Regulation D, 17 C.F.R. 230.501(a).
3.7. Resales under SEC Rule 144. The Purchaser understands that the
Common Stock issued, or to be issued, hereunder may not be sold in the United
States or to a U.S. person, without registration under the Securities Act or an
exemption therefrom. Furthermore, the Purchaser understands that the Purchaser
will be deemed an "affiliate" under SEC Rule 144, 17 C.F.R. 230.144 ("Rule
144"), and that all resales of the Common Stock must be made in compliance with
Rule 144.
3.8. Restrictive Legend. Each certificate representing the Common Stock
shall (unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in a form substantially as follows (in
addition to any legend required under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE."
4. ADDITIONAL COVENANTS BY THE PARTIES
4.1. Board Representation. Upon the Purchaser's acquisition of an
aggregate of fifteen percent (15%) of the Company's issued and outstanding
shares of voting common stock, the Company shall increase the size of its Board
of Directors
<PAGE> 8
to nine (9) and shall appoint two (2) directors nominated by the Purchaser.
Thereafter, for so long as the Purchaser owns fifteen percent (15%) or more up
to twenty percent (20%) of the Company's issued and outstanding shares of voting
common stock, the Company shall include in its slate of director nominees the
two (2) directors nominated by the Purchaser at the Company's annual meeting of
stockholders. Upon the Purchaser's acquisition of an aggregate of twenty percent
(20%) of the Company's issued and outstanding shares of voting common stock, the
Company shall increase the size of its Board of Directors to ten (10) and shall
appoint another director for a total of three (3) directors nominated by the
Purchaser. Thereafter, for so long as the Purchaser owns twenty percent (20%) or
more of the Company's issued and outstanding shares of voting common stock, the
Company shall include in its slate of director nominees the three (3) directors
nominated by the Purchaser at the Company's annual meeting of stockholders.
Thereafter, in the event that the number of directors is changed, the Purchaser
shall be entitled to nominate thirty percent (30%) of the directors rounded to
the nearest whole number, provided however, if the Purchaser owns less than
twenty (20%) but more than fifteen percent (15%), then the number of directors
Purchaser may nominate shall be reduced to twenty two percent (22%) of the
directors rounded to the nearest whole number. However, in the event that
Purchaser owns less than fifteen percent (15%) but more than ten percent (10%),
then the number of directors Purchaser is entitled to nominate shall be reduced
to ten percent (10%) of the number of directors rounded to the nearest whole
number. Finally, if Purchaser owns less than ten percent (10%) of the Company's
issued and outstanding shares, then the Purchaser shall not be entitled to
nominate any director.
4.2. Standstill Agreement. Purchaser agrees that from and after the
date of this Agreement (the "Standstill Period"),the Purchaser will not, nor
will it permit any of its Affiliates to, from or after the date such person
becomes an Affiliate, without the prior approval of a majority vote (a
"Requisite Board Vote") of the directors who are not the directors nominated by
the Purchaser pursuant to this Agreement or otherwise Affiliates of the
Purchaser (the "Disinterested Directors") do any of the following:
4.2.1. acquire, or offer to acquire, whether by purchase,
gift, or by joining a partnership or other group (as defined in SEC Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), any shares of the Company's voting Common or Preferred Stock (the
"Voting Stock"), securities convertible into, exchangeable for, or exercisable
for Voting Stock, which would result in the Purchaser beneficially owning more
than fifty percent (50%) of the Company's voting stock as defined by SEC Rule
13d-3; or
4.2.2. (i) solicit, initiate or participate in any
"solicitation" of "proxies" or become a "participant" in any "election contest"
(as such terms are defined or used in Regulation 14A under the Exchange Act,
disregarding clause (iv) of Rule 14a-1(1)(2) and including any exempt
solicitation pursuant to Rule 14a-2(b)(1)); call, or in any way participate in a
call for, any special meeting of stockholders of the Company (or take any action
with respect to acting by written consent of the
<PAGE> 9
stockholders); request, or take any action to obtain or retain any list of
holders of any securities of the Company; initiate or propose any stockholder
proposal or participate in the making of, or solicit stockholders for the
approval of, one or more stockholder proposals relating to the Company's Voting
Stock; (ii) deposit any Voting Stock in a voting trust or subject them to any
voting agreement or arrangements, except as provided for herein; (iii) form,
join, or in any way participate in a group with respect to any shares of Voting
Stock, or any securities the ownership thereof would make the owner a beneficial
owner of Voting Stock; (iv) otherwise act to control or influence the Company or
the management, the Disinterested Directors, policies or affairs of the Company
(other than solely by and through directors nominated by the purchaser pursuant
to this Agreement); (v) to disclose any intent, purpose, plan or proposal with
respect to this Agreement or the Company, its Affiliates or the board of
directors, management, policies, or affairs or securities or assets of the
Company or its Affiliates that is inconsistent with this Agreement, including
any intent, purpose, plan or proposal that is conditioned upon, or that would
require the Company or any of its Affiliates to make public disclosure relating
to any such intent, purpose, plan, proposal or condition; or (vi) assist,
advise, encourage or act in concert with any person with respect to, or seek to
do, any of the foregoing.
4.3. Regulatory Compliance. The Parties agree to cooperate one with the
other in the preparation and filing of all required regulatory filings
including, but not limited to, the filing by Purchaser of a Schedule 13D and
Form 3 with the SEC and any notice filings with the Federal Trade Commission
under Section 7A of the Clayton Act.
4.4. Press Releases and Publicity. The parties agree not to issue any
press release or otherwise disclose the existence of this agreement or any
proposed business relationship between the parties without the prior written
consent of the other party unless such disclosure is required by U.S. Federal
Securities laws or the rules of the NASDAQ Stock Market. The consent of the
other party to a proposal for public disclosure shall not be unreasonably
withheld.
4.5. NASDAQ Listing. The Company agrees that it will not voluntarily
remove from listing on the NASDAQ Stock Market the Company's common stock,
unless it is to transfer such listing to another public securities market or
stock exchange in the United States. In addition, the Company agrees not to
voluntarily undertake any action which would result in the removal of the shares
from listing on the NASDAQ Stock Market.
4.6. Preemptive Rights. Purchaser shall have the right to acquire from
the Company an amount of any newly issued equity securities or convertible debt
securities which the Company may issue, from time to time, sufficient in
quantity to maintain Purchaser's percentage equity ownership immediately before
the issuance of the newly issued equity or convertible debt securities giving
effect to the conversion of any convertible debt or preferred stock ("Preemptive
Rights). The exercise of the Preemptive Rights granted pursuant to this Section
4.6 shall be on the same terms and
<PAGE> 10
conditions as the terms and conditions applicable to the purchasers of the newly
issued securities. The Preemptive Rights granted to Purchaser shall also apply
to the exercise of stock options and warrants previously issued by the Company
or covered under the Company's stock option plans, except that the purchase
price for the shares shall be at the fair market value of the shares at the time
of issuance, and not the exercise price of the stock option or warrant. The
Company undertakes to promptly notify Purchaser of any new issuances of equity
or convertible debt securities and Purchaser shall have fourteen (14) days from
the date of said notice in which to notify the Company of the exercise of
Preemptive Rights. Thereafter, Purchaser shall have thirty (30) days in which to
purchase the securities covered by the Preemptive Rights.
4.7. Lock-up Agreement. For a period of twelve (12) months from the
Closing Date (the "Lock-up Period") Purchaser agrees that it will not sell,
transfer, or otherwise dispose of any of the Company's shares it may own if the
transaction will result in Purchaser owning less than twenty percent (20%) of
the Company's issued and outstanding shares without the prior written consent of
the Company.
4.8. Right of First Refusal. As additional consideration for the sale
of the Common Stock to Purchaser pursuant to this Agreement, Purchaser grants to
the Company a right of first refusal to purchase any shares of the Company's
common stock owned by the Purchaser for which the Purchaser intends to sale,
transfer or otherwise dispose of on the same terms and conditions which the
Purchaser intends to sell to any bona fide third party. In this respect, the
Purchaser shall provide the Company with fourteen (14) days prior written notice
of any proposed sell, transfer, or other disposition of the Common Stock with a
description of the price and other terms and conditions applicable to the
transaction. If the Company elects to exercise its right of first refusal, then
it shall notify the Purchaser of the exercise of its right and shall transfer
the consideration and close the transaction within thirty (30) days from the
exercise of its right.
4.9. Registration Rights Agreement. As additional consideration for the
purchase of the Common Stock, the Purchaser shall be granted registration rights
on the Common Stock as more specifically provided for in the Registration Rights
Agreement attached hereto as "Exhibit A".
4.10. Terminating Event Prior to the Closing Date. If, prior to the
Closing Date the Company has materially breached any representation or warranty
in this Agreement or is in material breach of any of the covenants provided for
in tthis Agreement, or any of the events specified in Sections 4.10.1. through
4.10.6. below shall occur, then notwithstanding anything else to the contrary in
this Agreement the Purchaser may terminate this Agreement without any further
liability to the Company:
4.10.1. If the Board of Directors approves of, or the Company
incurs, any debt or issues any guarantee which in the aggregate are in excess of
$50 million;
<PAGE> 11
4.10.2. If the Company disposes of all of its intellectual
property, or if the Board of Directors approves of such disposal;
4.10.3. If the Board of Directors approves of, or the Company
completes an acquisition of another company or assets of another company in a
transaction valued in excess of $100 million;
4.10.4. If the Board of Directors approves of, or the Company
commences a voluntary liquidation proceeding;
4.10.5. If the Company materially amends its certificate of
incorporation or its bylaws or if the Board of Directors approves such
amendment; or
4.10.6. If the Company repurchases in the aggregate in excess
of twenty percent (20%) of its issued and outstanding shares of common stock or
the Board of Directors approves such repurchase.
5. MISCELLANEOUS
5.1. Entire Agreement. This Agreement, together with the agreements
attached hereto as exhibits, constitutes the entire agreement among the parties
and no party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein and therein.
5.2. Survival of Warranties. The warranties, representations, and
covenants of the Company and the Purchaser, jointly and severally, contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement.
5.3. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the Company and the
Purchaser. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the Company or the Purchaser, or their respective
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
Notwithstanding anything else to the contrary in this Agreement, the Purchaser
may transfer the shares of AremisSoft Common Stock acquired by it pursuant to
this Agreement and the Stock Purchase Agreement between LK Global (Holdings) NV
and the Purchaser of even date herewith (the "LK Holdings Agreement"), to a
wholly owned subsidiary of the Purchaser, provided however, that the subsidiary
of the Purchaser also agrees to be jointly and severally obligated with the
Purchaser to perform all of Purchaser's obligations under this Agreement and the
LK Holdings Agreement.
5.4. Governing Law. This Agreement shall be governed by and construed
in
<PAGE> 12
accordance with the laws of the State of New York.
5.5. Counterparts and Signatures. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement. This Agreement may
be executed and transmitted to the parties by electronic means, including, but
not limited to, by facsimile machine, and facsimile signatures shall have equal
dignity with original signatures.
5.6. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.7. Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received by delivery in person, by facsimile, telex or
telegram or by an overnight courier service or three (3) days after deposit in
the U.S. Mail, certified with postage prepaid, addressed as follows:
If to Company: AremisSoft Corporation
Goldsworth House
Denton Way
Woking, Surrey GU21 3LG
United Kingdom
Attn: Dr. Lycourgos K. Kyprianou
with copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Scott E. Bartel, Esq.
If to Purchaser: Info-quest SA
AL. Pantou 25
Athens 17671 Greece
Attn: Theodoros Fessas, CEO
or to such other addresses as a party may designate by five (5) days'
prior written notice to the other party.
5.8. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which
<PAGE> 13
such party may be entitled.
5.9. Amendments and Waivers. This Agreement may not be amended,
modified or supplemented and no waivers of or consents to departures from the
provisions hereof may be given unless consented to in writing by the parties.
5.10 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: AremisSoft Corporation
/s/ Theodoros Fessas By: /s/ Lycourgos K. Kyprianou
- ------------------------------- ------------------------------------
Lycourgos K. Kyprianou
Chief Executive Officer
PURCHASER: Info-quest SA
By: /s/ Theodoros Fessas
------------------------------------
Theodoros Fessas
Chairman of the Board and CEO
<PAGE> 14
EXHIBIT "A"
ESCROW AGREEMENT
This Escrow Agreement and Instructions (the "Agreement") dated as of
September 10, 1999 is made and entered into by and among AremisSoft Corporation,
a Delaware corporation (the "Company"), Info-quest SA, a corporation organized
under the laws of Greece (the "Purchaser"), and [NAME OF BANK ACTING AS ESCROW]
(the "Escrow Agent").
WHEREAS, the Purchaser and the Company have entered into a Stock
Purchase Agreement dated September 10, 1999 (the "Stock Purchase Agreement");
and
WHEREAS, the Stock Purchase Agreement, pursuant to Section 1.6, calls
for an escrow to facilitate the payment of the purchase price and delivery of
the shares and to accommodate the time and location difference between the
parties; and
WHEREAS, the Purchaser and the Company desire to appoint [NAME OF BANK
ACTING AS ESCROW] to act as Escrow Agent to receive the deposit of, (i)
1,600,000 shares of the Company's Common Stock (the "Escrowed Shares") from the
Company and (ii) the purchase price of $17,600,000 USD (the "Purchase Price")
from the Purchaser and to distribute the same to the relevant parties under the
terms set forth herein and the Stock Purchase Agreement after all of the
conditions to the Closing specified in Section 1.5 of the Stock Purchase
Agreement have been satisfied; and
WHEREAS, the Escrow Agent agrees to maintain an escrow account pursuant
to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT; DELIVERIES TO AND BY THE ESCROW AGENT.
Within eight (8) business days of the execution of the Stock Purchase Agreement,
the Company shall deliver stock certificates representing the Escrowed Shares in
the name of Info-quest SA to the Escrow Agent and the Purchaser shall deliver
the Purchase Price to the Escrow Agent via wire transfer instructions to be
provided by the Escrow Agent.
2. ESCROW AGENT TO HOLD ESCROWED SHARES AND TRANSFER PURCHASE PRICE TO AN
INTEREST BEARING ACCOUNT. The Escrow Agent shall hold and release the Escrowed
Shares and the Purchase Price only in accordance with the terms and conditions
of this Agreement. As soon as practicable after receipt of the Purchase Price,
the Escrow Agent shall deposit the Purchase Price into an interest bearing
account for the benefit of the Purchaser. After deducting $22,500 to be
transferred to the Company as reimbursement for the Federal Trade Commission
filing fee paid by the Company on Info-quest SA's behalf, the Escrow Agent shall
return all interest accrued on the Purchase Price to the Purchaser upon release
of the Escrowed Shares and the Purchase Price, as provided in Section 3 below.
3. RELEASE OF ESCROWED SHARES AND PURCHASE PRICE. Subject to the provisions of
Section 8, the Escrow Agent shall release the Escrowed Shares to the Purchaser
and the Purchase Price plus $22,500 as reimbursement for one half of the Federal
Trade Commission filing fee
1
<PAGE> 15
to the Company on the Closing Date, as that term is defined in the Stock
Purchase Agreement. A check or wire transfer representing all interest accrued
on the Purchase Price during the Escrow Period, less $22,500 to be paid to the
Company as reimbursement for the Federal Trade Commission filing fee, shall be
delivered to the Purchaser along with the Escrowed Shares. In the event, (i) the
Escrow Account has not been established within eight (8) business days of the
execution of this Agreement or such other date as is agreed in writing by the
Company and the Purchaser and delivered to the Escrow Agent, (ii) a final
objection is entered by the Federal Trade Commission concerning the consummation
of the transactions by the parties, or (iii) this Agreement is terminated
pursuant to Section 4.10 of the Stock Purchase Agreement or by the Purchaser and
the Company by mutual agreement and notification thereof to the Escrow Agent
prior to delivery of the Escrowed Shares and the Purchase Price, the Escrow
Agent shall return the Escrowed Shares to the Company and the Purchase Price,
including any accrued interest, less the $22,500 Federal Trade Commission filing
fee, to the Purchaser within five (5) days from the Escrow Agent's receipt of
delivery instructions from the appropriate party.
4. ACKNOWLEDGMENT; DISPUTES. The parties acknowledge that the only terms and
conditions upon which the Escrowed Shares are to be released are set forth in
Section 3 of this Agreement. The Company and the Purchaser reaffirm their
agreement to abide by the terms and conditions of this Agreement with respect to
the release of the Escrowed Shares and the Purchase Price. Any dispute with
respect to the release of the Escrow Shares shall be resolved pursuant to
Section 8 or by agreement among the affected parties.
5. ESCROW PERIOD. The duration of the escrow (the "Escrow Period") shall begin
with the delivery of the Escrowed Shares and Purchase Price to the Escrow Agent
and shall terminate when all deliveries required to be made by the Escrow Agent
pursuant to this Agreement have in fact been made.
During the Escrow Period, the Purchaser and the Company are aware,
understand and agree that they are not entitled to any of the Purchase Price or
any of the Escrowed Shares, nor any of the rights, preferences or privileges
pertaining thereto, unless and until the Escrowed Shares are released to the
Purchaser and the Purchase Price is released to the Company. Until the release
by the Escrow Agent, the Escrowed Shares shall be deemed to be beneficially
owned by the Company, as treasury shares. Notwithstanding such status as
treasury shares, during the Escrow Period, the Company shall not encumber, in
any way, the Escrowed Shares.
6. DUTIES OF ESCROW AGENT. The Escrow Agent acts hereunder as depository only
and is not responsible or liable for the sufficiency, correctness, authenticity
or validity of any instrument deposited with it thereunder, or the identity,
authority or right of any person executing or depositing the same. The Escrow
Agent is authorized and directed to hold the Escrowed Shares and the Purchase
Price, and at the time the Escrowed Shares are to be delivered to the
appropriate party, as required by Section 3 above, the Escrow Agent will
transmit the Escrowed Shares by certified mail or courier to the address
provided by the appropriate party and the Escrow Agent will transmit the
Purchase Price via wire or other means as provided by the appropriate party.
7. RIGHTS AND LIABILITIES OF THE PARTIES. The Escrow Agent shall have the right
to act upon any notice, request, waiver, consent or other paper, document, or
facsimile of the same believed by the Escrow Agent to be genuine and to be
signed by the proper party or parties. The Escrow Agent shall not be liable for,
and both of the parties agree to indemnify and hold
2
<PAGE> 16
the Escrow Agent harmless from and against, liability for any error of judgment
or for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection herewith, except its own wilful misconduct or recklessness. The
Escrow Agent shall have no duties to anyone other than those signing this
Agreement.
8. CONTROVERSIES. If any controversy arises between the parties concerning the
subject matter of this Agreement or its terms or conditions, the Escrow Agent
will not be required to determine the controversy or to take any action
regarding it. The Escrow Agent may hold all documents and instruments and may
wait for settlement of any such controversy by final appropriate legal
proceedings or other means as, in the Escrow Agent's sole discretion, it deems
to be required. In such event, the Escrow Agent will not be liable for interest
or damages arising from any nondelivery thereunder. Furthermore, the Escrow
Agent may, at its option, file an action of interpleader requiring the parties
to answer and litigate any claims and rights between themselves. The Escrow
Agent is authorized to deposit with the clerk of the court all documents and
instruments held, and the parties agree to pay all costs, expenses, charges, and
attorneys' fees incurred by the Escrow Agent due to any such interpleader
action. Upon initiating such action, the Escrow Agent shall be fully released
and discharged of and from all obligations and liability imposed by the terms of
this Agreement.
9. ACTIONS BY THE ESCROW AGENT. The Escrow Agent shall be entitled to act and
rely upon any statement, request, notice or instructions respecting this
Agreement given to the Escrow Agent by the parties. However, any statement or
notice to the Escrow Agent under this Agreement, or with respect to the
termination of this Agreement, must be confirmed in writing to the Escrow Agent.
At any time during the Escrow Period, the Escrow Agent has the authority to
release the Escrowed Shares from escrow solely to the transfer agent for the
purpose of breaking down the certificates held under this Agreement so long as
the Escrow Agent first obtains the written consent of the Company and the
Purchaser.
10. EXPENSES. The parties agree and acknowledge that all expenses of Escrow
Agent in administering this escrow, other than expenses relating to a
controversy concerning this escrow, shall be paid solely by the Company without
the right of contribution from the Purchaser. Notwithstanding the foregoing, the
Company and the Purchaser each agree to pay one half of all expenses incurred by
the Escrow Agent with respect to any controversies which may arise pursuant to
this Agreement.
11. 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 the Company: AremisSoft Corporation
Goldsworth House
Denton Way
Woking, Surrey GU21 3LG
United Kingdom
Attn: Dr. Lycourgos K. Kyprianou
3
<PAGE> 17
with a copy to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
If to the Purchaser: Info-quest SA
AL. Pantou 25
Athens 17671 Greece
Attn: Theodoros Fessas, CEO
If to Escrow Agent: [TO BE SUPPLIED]
Any party hereto may change its address for purposes hereof by notice
to all other parties hereto.
12. GOVERNING LAW. This Agreement shall be construed in accordance with the laws
of the State of California.
13. SIGNATURES AND COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which may be deemed an original, but all of which together
shall constitute one and the same instrument. This Agreement may be transmitted
and executed by the parties by electronic means, including, but not limited to
by facsimile machine, and facsimile signatures shall have equal integrity, force
and effect as an original signature.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
THE COMPANY: AREMISSOFT CORPORATION
By:
---------------------------------
Dr. Lycourgos K. Kyprianou
Chief Executive Officer
THE PURCHASER: INFO-QUEST SA
By:
---------------------------------
Theodoros Fessas
Chief Executive Officer
ESCROW AGENT: [NAME OF ESCROW AGENT
By:
---------------------------------
<PAGE> 19
REGISTRATION RIGHTS AGREEMENT
BETWEEN
AREMISSOFT CORPORATION
A DELAWARE CORPORATION
AND
INFO-QUEST SA
A CORPORATION ORGANIZED UNDER THE LAWS OF GREECE
SEPTEMBER 10, 1999
<PAGE> 20
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into
as of this 10th day of September, 1999 by and between AremisSoft Corporation, a
Delaware corporation ("AremisSoft" or the "Company"), and Info-quest SA
("Info-quest").
RECITALS
WHEREAS, Info-quest SA has entered into Stock Purchase Agreements of even date
herewith (the "Purchase Agreements") wherein AremisSoft and LK Global (Holdings)
NV agree to sell and Info-quest agrees to purchase two million eight hundred
thousand (2,800,000) shares of AremisSoft Common Stock pursuant to an exemption
from the registration requirements under the Securities Act of 1933, as amended
(the "Securities Act"); and
WHEREAS, AremisSoft and Info-quest desire to enter into this Agreement in
order to grant to Info-quest the right to register the shares of Common Stock
purchased by Info-quest pursuant to the Purchase Agreements.
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.
"Holder" or "Holders" shall mean Info-quest SA, any Affiliate of Info-quest
SA 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.
<PAGE> 21
"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 the all of the shares of AremisSoft Common
Stock owned by the Holder on the date hereof or acquired by the Holder
subsequently thereto.
"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
Right to Include Registrable Shares. On or after twelve (12) months
from the Closing Date as specified in the Purchase Agreement, 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 connection with a SEC
Rule 145 transaction registered on Form S-4, 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. 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 2.1 involves an underwritten public
<PAGE> 22
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.
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
2.1 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 2.1 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
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).
3. Holdback Agreements.
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 one hundred eighty (180)
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 2.1 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
<PAGE> 23
be obligated to comply with such restrictions if such Holder is not including
shares for sale in such offering.
4. Registration on Request.
Request by Holders. On or after twelve (12) months from the Closing
Date specified in the Purchase Agreement, upon the written request of the
Holders of seventy five percent (75%) of the Registrable Shares that AremisSoft
effect the registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount 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 seventy five percent (75%) 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 one (1) registration in any twelve (12) month
period nor more than two (2) registrations in total 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 one hundred eighty
(180) 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 thirty (30) 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.
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
<PAGE> 24
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.
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 one hundred
eighty (180) 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 SEC or other governmental
agency or court, such registration will be deemed not to have been effected for
purposes of this Section 4.
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 4.1 hereof (provided that if the number of Registrable
Shares requested to be registered pursuant to Section 4.1 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 4.1 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 4.1 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 4.4 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).
5. Registration Procedures.
<PAGE> 25
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:
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;
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 tone hundred eighty (180) 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;
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;
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 a foreign corporation in any
jurisdiction where, but for the requirements of this Section 5.1.4., it would
not be obligated to be so qualified;
use its best efforts to cause such Registrable Shares covered by
such registration statement to be registered with or approved by such other
governmental
<PAGE> 26
agencies or authorities as may be necessary to enable the Holders thereof to
consummate the disposition of such Registrable Shares;
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;
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;
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;
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;
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 or any such representative, underwriter,
attorney, accountant or agent in connection with such registration statement;
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
<PAGE> 27
document and make such changes in such document prior to the filing thereof as
counsel for such Holders or underwriter(s) may reasonably request;
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;
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;
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
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.
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 5.1.6. 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 5.1.6. 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 5.1.2. 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 5.1.6. hereof and including the date when such Holder shall
have received the copies of the supplemental or amended prospectus contemplated
by Section 5.1.6. 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 5.1.2.
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.
<PAGE> 28
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.
Subject to Section 7.2., 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, 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 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").
The Holders shall pay the following: any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of Registrable
Shares by the Holders pursuant to this Agreement, printing expenses (including
expenses of printing certificates for Registrable Shares and prospectuses),
messenger, telephone and delivery expenses, the fees and disbursements of the
underwriters (including expenses relating to "road shows" and other marketing
activities) and all fees, costs and expenses of counsel to the Holders in
connection with any registration pursuant to this Agreement.
8. Indemnification.
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
<PAGE> 29
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.
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 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
<PAGE> 30
than AremisSoft), directors, officers or controlling Persons, and shall survive
the transfer of such securities by such Holder.
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.
Contribution. If the indemnification provided for in this Section 8
shall for any reason be unavailable to any indemnified party under Section 8.1
or 8.2 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 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 8.4, no Holder of
Registrable Shares shall be required to contribute
<PAGE> 31
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.
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.
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. Other Covenants
9.1. 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. Notwithstanding
anything else to the contrary, the registration rights granted to the Holder
under this Agreement shall not be available for any sale of Registrable
Securities which could be sold in compliance with SEC Rule 144 and all
registration rights granted to the Holder under this Agreement shall terminate
once the Registrable Securities can be sold pursuant to SEC Rule 144(k) ( a
period of two years from the issuance of the Registrable Securities so long as
the Holder is not an Affiliate of the Company.)
9.2. Early Release From Lock-up and Acceleration of Registration
Rights. If, during the first twelve (12) months from the Closing Date specified
in the Purchase Agreements the Company has materially breached any
representation or warranty in Section 2 of the Stock Purchase Agreement between
the Holder and the Company of even date herewith, or is in material breach of
any of the covenants provided for in the aforesaid Stock Purchase Agreement, or
any of the events specified in Sections 9.2.1. through 9.2.6. below shall occur
which were disapproved by a unanimous vote of the directors nominated by the
Holder pursuant to Section 4.1 of the aforesaid Stock Purchase Agreement at a
meeting of the Company's Board of Directors, then notwithstanding anything else
to the contrary in this Agreement or in the Stock Purchase Agreement the Holder
shall be released from the Lock-up provisions of the aforesaid Stock Purchase
Agreement and the registration rights provided for in this Agreement shall
become immediately available:
9.2.1. If the Board of Directors approves of, or the Company incurs,
any debt or issues any guarantee which in the aggregate are in
excess of $50 million;
<PAGE> 32
9.2.2. If the Company disposes of all of its intellectual property,
or if the Board of Directors approves of such disposal;
9.2.3. If the Board of Directors approves of, or the Company
completes an acquisition of another company or assets of
another company in a transaction valued in excess of $100
million;
9.2.4. If the Board of Directors approves of, or the Company
commences a voluntary liquidation proceeding;
9.2.5. If the Company materially amends its certificate of
incorporation or its bylaws or if the Board of Directors
approves such amendment; or
9.2.6. If the Company repurchases in the aggregate in excess of
twenty percent (20%) of its issued and outstanding shares of
common stock or the Board of Directors approves such
repurchase.
10. Miscellaneous
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. Notwithstanding anything else to
the contrary in this Agreement, the Holder may transfer the Registrable Shares
to a wholly owned subsidiary of the Purchaser, provided however, that the
subsidiary of the Holder also agrees to be jointly and severally obligated with
the Holder to perform all of Holder's obligations under this Agreement and the
Purchase Agreements.
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.
Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
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.
<PAGE> 33
Entire Agreement. This Agreement and the Purchase 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 Purchase
Agreement. This Agreement supersedes all prior Agreements and understandings
between the parties with respect to such subject matter.
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:
<PAGE> 34
If to Company: AremisSoft Corporation
Goldsworth House
Denton Way
Woking, Surrey GU21 3LG
United Kingdom
Attn: Dr. Lycourgos K. Kyprianou
with copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Scott E. Bartel, Esq.
If to Holder: Info-quest SA
AL. Pantou 25
Athens 17671 Greece
Attn: Theodoros Fessas
Any party hereto may change its address for purposes hereof by notice to all
other parties hereto.
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 //// //// ////
<PAGE> 35
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
INFO-QUEST SA
By: ______________________________
Theodoros Fessas, CEO
<PAGE> 1
Exhibit 10.14
Translation from Bulgarian
DRAFT NO 14-154 AS OF DECEMBER 16, 1999
CONTRACT
On this current day of December 16, 1999, in the City of Sofia, between:
The NATIONAL HEALTH INSURANCE FUND, represented by Dr. ILKO TODOROV SEMERDZHIEV,
Director, and THEODORA PETKOVA HRISTOVA, Chief Financial Officer, hereinafter
called BUYER, on the one hand and, on the other hand,
AREMISSOFT CORPORATION, represented by Mr. M.C. Mathews, Director, hereinafter
called SELLER,
the following contract was concluded based on Art.46, paragraph 1 of the Law for
Public Orders:
1.1. The BUYER shall buy and the SELLER shall sell the following goods
and/or services: Supply of Application software
- - Integrated Information System PHASE 1 and PHASE 2;
- - Provision of installation of the above system at the Head Quarters of the
National Health Insurance Fund and at the Regional Health Insurance Funds
that are situated in the country's District centers;
- - Provision of education and support within a 12-month guarantee period after
the system installation.
1.2. The Parties agree to start negotiations for the supply of Application
Software - Integrated Information System Phase 3 and Phase 4, which
negotiations shall be in conformity with the provisions of the Law for
Public Offers.
1.3. Negotiations under the previous paragraph may begin not later than the
date the Seller has performed half (50 percent) of his obligations
under this contract, and the Buyer has paid half (50 percent) of the
contract price.
1.4. The Parties agree that, in the course of the negotiations under
Art.1.2. above, the price of the Application Software supplied
(Integrated Information System PHASE 1 and PHASE 2) shall not exceed
the price, which the SELLER has offered at his financial bid (Leva
8,460,000).
2. The following present indivisible part of this Contract:
(a) the Contract terms and conditions;
(b) the Bid, the Financial Bid inclusive, as presented by the SELLER;
(c) technical specifications;
<PAGE> 2
(d) Official Letter by the BUYER for assigning the execution of Public
Order;
(e) Attachments No.No. 1 and 2 for future cooperation between the BUYER and
the SELLER for the provision of licenses and hardware for the 'General
Practitioner' and Hospital Information Systems;
(f) Bank Guarantees for:
- Reimbursement for advance payments made
The bank guarantee shall serve to reimburse the BUYER for advance payments made
under the Contract, in case the SELLER fails to abide by the Contract terms and
conditions. The BUYER shall discharge the Bank Guarantee upon provision of goods
and services stipulated under this Contract, the cost of which equals the amount
of the advance payments made.
The BUYER shall transfer to the account of the SELLER the amount of Leva
1,415,600.00 (one million four hundred and fifteen thousand and six hundred),
which amount presents advance payment for the execution of this Contract as
stipulated for the 1-st and 2-nd Phase.
- Fair Performance
The bank guarantee for fair performance shall be in the amount of 3% (three
percent) of the total Contract price for Phases 1 and 2, or Leva 212,340.00 (two
hundred and twelve thousand and three hundred and forty). It shall secure that
the SELLER abides by all Contract terms and conditions. As soon as the goods and
services have been provided the amount of the guarantee shall be decreased to 1%
(one percent) of the Contract price to cover the liability of the SELLER with
regard to the guarantee period.
- General Bank Guarantee for Contract Fulfillment
The General Bank Guarantee shall enter into legal force only in case the
National Health Insurance Fund pays the BUYER, to the account of the BUYER at
'BULBANK' AD, Sofia, the amount of Leva 5,662,400.00 (five million six hundred
and sixty two thousand and four hundred).
The following are the terms of the Bank Guarantee Contract:
The guarantee shall be payable at first written demand signed by the Director of
the NHIF or by a proxy authorized by the Director, in case the SELLER happens to
be in default of his obligations under this Contract. The proxy shall be
authorized by Letter of authorization with notarized signature of the Director
of the NHIF.
The Bank's liability shall be proportionally reduced with each payment on the
guarantee that has been effected.
Within the term of validity of the guarantee, the Bank's liability may be
extinguished in total or partially only in case the BUYER has approved of the
above in written while designating therewith the amount by which the Bank's
liability has been reduced. The written approval shall be signed by the Director
of the NHIF or by a person authorized by the Director. The latter shall be
authorized by Letter of authorization with notarized signature of the Director
of the NHIF.
<PAGE> 3
The SELLER shall receive from the Bank portions of the amount guaranteed only
after written confirmation, from the BUYER to the Bank, in which the actual
amount of the portion shall be stated. The amount of interest that has been
agreed between the Buyer and the Bank shall be calculated and transferred to the
BUYER's bank account as of the dates of maturity, for the whole period the
amounts of the guarantee remain with the Bank.
Upon termination of the Contract, the SELLER shall give his approval on the
transfer, by the Bank, of the rest of the amount on the deposit account to the
BUYER.
The terms for payment for Phases 3 and 4 of this Contract shall be negotiated in
the year of 2000 by signing Attachment to the Contract.
To certify of the above the Parties state herewith their wish to perform this
Contract in conformity with the legislation of the Republic of Bulgaria.
This Contract shall enter legal force after the presentation at the NHIF of a
Contract for Issuance of Bank Guarantee for the fulfillment of the general terms
and conditions of the Contract between the BUYER and the SELLER. The Contract
for Issuance of Bank Guarantee shall be signed between 'BULBANK' AD, City of
Sofia, and the SELLER.
This Contract has been prepared and signed in two identical copies, one of which
for each Party.
Signed and sealed by Dr. Ilko Semerdzhiev
Director of the National Health Insurance Fund
(sign) (seal)
Theodora Hristova
Chief Financial Officer of the National Health Insurance Fund
(sign)
Signed and sealed by M.C. Mathews
Director of ArtemisSoft Corporation
(sign)
(FOLLOWS TRANSLATION OF PARTS OF ANOTHER DRAFT CONTRACT)
......... the quality of Goods that are subject to this Contract.
10.2. The cost of concurring services performed by the SELLER, if not included
in the Contract price for provision of Goods, shall be negotiated by the Parties
in advance and shall not exceed the prevailing costs which the SELLER uses for
other parties, when providing similar services.
<PAGE> 4
11. WARRANTY FOR QUALITY
11.1. The SELLER guarantees that the Goods supplied by him in execution of the
Contract shall be in full conformity with the requirements of the BUYER, as
described in the Technical Specification. The SELLER guarantees that all goods
supplied by him under this Contract shall be faultless both with regard to
defects of constructional, material or productional origin (except in case the
construction and/or the material have been specified by the BUYER), as well as
to defects that have their source in the SELLER's negligence, which defects may
come out upon the normal use of the Goods supplied and under the prevailing
conditions in the country of their final destination.
11.2. The SELLER undertakes the obligation to secure support, operative and
technical assistance, within the framework of the technical support provided by
'Oracle'.
11.3. The SELLER undertakes the obligation, upon notification of any defect that
has emerged in the Goods supplied by him, to promptly and adequately repair or
exchange, on his own account, the defected Goods or parts of them.
11.4. In case the SELLER, after due notification, does not correct the faults in
time, the BUYER is entitled to undertake necessary action from his own name but
on the account of the SELLER, for removing the defects that have emerged in the
Goods.
12. PRICES AND TERMS OF PAYMENT
12.1. The SELLER is entitled to remuneration in the amount of Leva 7,078,000.00
(seven million and seventy eight thousand). The Contract price does not include
VAT since direct supplies of imported software are VAT-exempt.
12.2. The Contract price includes:
- Leva 7,078,000.00 (seven million and seventy eight thousand) for
supplies for Phases 1 and 2, as well as for the following:
- installation of the system at the Head Quarters of the National Health
Insurance Fund and at the Regional Health Insurance Funds situated in the
country's District centers;
- provision of education and support within a 12-month guarantee period
after system installation.
12.3. The SELLER shall be entitled to ask for payment on the Contract against
presentation of a pro-forma invoice for the supply of Goods and/or Services as
well as of a Protocol for the Delivery and Acceptance of the above. The Protocol
shall be prepared in two identical copies and shall be signed by authorized
representatives of the Parties.
12.4. Payments shall be effected by the BUYER within a term not longer than
three banking days considered from the date of presentation of the pro-forma
invoice and the Protocol for Delivery and Acceptance of Goods.
<PAGE> 5
12.5. In case the BUYER terminates the Contract on one or more of the grounds
that have been stated therewith, or on the grounds of the Bulgarian Law, the
SELLER shall be entitled to remuneration for the Goods actually supplied and/or
the Services actually provided, only in case the latter shall be suitable for
separate use by the BUYER.
13. AMENDMENTS TO THE CONTRACT
13.1. This Contract shall be amended only by mutual agreement between the
Parties expressed in written, and in conformity with the Bulgarian Laws.
14. ASSIGNMENT OF OBLIGATIONS TO THIRD PARTIES
14.1. The SELLER is not entitled to assign to third parties, partially or in
total, his obligations under this Contract, unless the BUYER has given his prior
written approval of such action.
For the correctness of translation:
(Sworn translator J. Avramov)
<PAGE> 6
Translation from Bulgarian
DRAFT NO 14-156 AS OF DECEMBER 16, 1999
CONTRACT
On this current day of December 16, 1999, in the City of Sofia, between:
The NATIONAL HEALTH INSURANCE FUND, represented by Dr. ILKO TODOROV SEMERDZHIEV,
Director, and THEODORA PETKOVA HRISTOVA, Chief Financial Officer, hereinafter
called BUYER, on the one hand and, on the other hand
ARTEMISSOFT CORPORATION, represented by Mr. M.C. Mathews, Director, hereinafter
called SELLER,
the following contract was concluded based on Art.46, paragraph 1 of the Law for
Public Orders:
1.1. The BUYER shall buy and the SELLER shall sell the following goods and/or
services:
- - Supply for the NHIF of Application software - Intermediate Integrated
Information System for the registration of secured persons, of medical
service providers, of medicines and of drug-stores, and for reporting the
activities of the above.
- - Provision of installation of the above system at the Head Quarters of the
National Health Insurance Fund and at the Regional Health Insurance Funds
that are situated in the country's District centers.
- - Provision of education and support within a 12-month guarantee period after
the system installation.
2. The following present indivisible part of this Contract:
(a) the Contract terms and conditions;
(b) the Bid, the Financial Bid inclusive, as presented by the SELLER;
(c) technical specifications;
(d) Official Letter by the BUYER for assigning the execution of Public
Order;
(e) Bank Guarantees for:
- Reimbursement for advance payments
The bank guarantee shall serve to reimburse the BUYER for advance payments made
under the Contract, in case the SELLER fails to abide by the Contract terms and
conditions. The BUYER shall discharge the Bank Guarantee upon provision of goods
and services stipulated under this Contract, the cost of which equals the amount
of the advance payments made.
<PAGE> 7
The BUYER shall transfer to the account of the SELLER the amount of Leva
98,000.00 (ninety eight thousand), which amount presents advance payment for the
execution of this Contract as stipulated.
- Fair Performance
The bank guarantee for fair performance shall be in the amount of 3% (three
percent) of the total Contract price, or Leva 14,700.00 (fourteen thousand and
seven hundred). It shall secure that the SELLER abides by all Contract terms and
conditions. As soon as the goods and services have been provided the amount of
the guarantee shall be decreased to 1% (one percent) of the Contract price to
cover the liability of the SELLER with regard to the guarantee period.
- General Bank Guarantee for Contract Fulfillment
The General Bank Guarantee shall enter into legal force only in case the
National Health Insurance Fund pays the BUYER, to the BUYER's account at
'BULBANK' AD, the City of Sofia, the amount of Leva 392,000.00 (three hundred
and ninety two thousand).
The following are the terms of the Bank Guarantee Contract:
The guarantee shall be payable at first written demand signed by the Director of
the NHIF or by a proxy authorized by the Director, in case the SELLER happens to
be in default of his obligations under this Contract. The proxy shall be
authorized by Letter of authorization with notarized signature of the Director
of the NHIF.
The Bank's liability shall be proportionally reduced with each payment effected
on the guarantee.
Within the term of validity of the guarantee, the Bank's liability may be
extinguished in total or partially only in case the BUYER has approved of the
above in written, and has designated therewith the amount by which the Bank's
liability has been reduced. The written approval shall be signed by the Director
of the NHIF or by a person authorized by the Director. The latter shall be
authorized by Letter of authorization with notarized signature of the Director
of the NHIF.
The SELLER shall receive from the Bank portions of the amount guaranteed only
after written confirmation, from the BUYER to the Bank, in which the actual
amount of the portion shall be stated. The amount of interest that has been
agreed between the Buyer and the Bank shall be calculated and transferred to the
BUYER's bank account as of the dates of maturity, for the whole period the
amounts of the guarantee remain with the Bank.
Upon termination of the Contract, the SELLER shall give his approval on the
transfer, by the Bank, of the rest of the amount on the deposit account to the
BUYER.
To certify of the above the Parties state herewith their wish to perform this
Contract in conformity with the legislation of the Republic of Bulgaria.
<PAGE> 8
This Contract shall enter legal force after the presentation at the NHIF of a
Contract for Issuance of Bank Guarantee for the fulfillment of the general terms
and conditions of the Contract between the BUYER and the SELLER. The Contract
for Issuance of Bank Guarantee shall be signed between 'BULBANK' AD, City of
Sofia, and the SELLER.
This Contract has been prepared and signed in two identical copies, one copy for
each Party.
Signed and sealed by Dr. Ilko Semerdzhiev
Director of the National Health Insurance Fund
(sign) (seal)
Theodora Hristova
Chief Financial Officer of the National Health Insurance Fund
(sign)
Signed and sealed by M.C. Mathews
Director of ArtemisSoft Corporation
(sign)
<PAGE> 9
(FOLLOWS TRANSLATION OF PARTS OF ANOTHER DRAFT CONTRACT)
12. PRICES AND TERMS OF PAYMENT
12.1. The SELLER is entitled to remuneration in the amount of Leva 490,000.00
(four hundred and ninety thousand). The Contract price does not include VAT
since direct supplies of imported software are VAT-exempt.
12.2. The Contract price includes:
- Leva 490,000.00 (four hundred and ninety thousand) for supply for the
NHIF of Application software - Intermediate Integrated Information
System for the registration of secured persons, of medical service
providers, of medicines and of drug-stores, and for reporting the
activities of the above,
as well as for the following:
- installation of the system at the Head Quarters of the National Health
Insurance Fund and at the Regional Health Insurance Funds situated in
the country's District centers;
- provision of education and support within a 12-month guarantee period
after system installation.
12.3. The SELLER shall be entitled to ask for payment on the Contract against
presentation of a pro-forma invoice for the supply of Goods and/or Services as
well as of Protocol for the Delivery and Acceptance of the above. The Protocol
shall be prepared in two identical copies and shall be signed by authorized
representatives of the Parties.
12.4. Payments shall be effected by the BUYER within a term not longer than
three banking days considered from the date of presentation of the Pro-forma
Invoice and the Protocol for Delivery and Acceptance of Goods.
12.5. In case the BUYER terminates the Contract on one or more of the grounds
that have been stated therewith, or on the grounds of the Bulgarian Law, the
SELLER shall be entitled to remuneration for the Goods actually supplied and/or
the Services actually provided, only in case the latter shall be suitable for
separate use by the BUYER.
For the correctness of translation:
(Sworn translator J. Avramov)
<PAGE> 10
[The following information is also provided in the Bulgarian Language]
ANNEX NO. 1
With a view to provide for quick integration in the System of the GPs with which
the NHIF is going to sign contracts in the year 2000, both sides agree to
cooperate in:
1. Providing lease finance for about 5000 GPs for a period of 3 years for the
computer system (PC, modem and printer) and the clinical module license for each
GP.
2. The price of this GP system will not exceed the BGL equivalent of USD: 4000.
- - including leasing taxes.
3. The Seller will provide the financing through a Bulgarian or Foreign Bank
depending on the conditions.
4. The Buyer will check out the possibility to issue a guarantee for the leasing
of the systems to the financing organization.
5. This Annex is subject to confirmation by both sides in the year 2000.
CA AUCEIAEEOAE(beta): ___________________ FOR BUYER: ______________________
------------------- ----------------------
CA ECIUEIEOAE(beta): ___________________ FOR SELLER:______________________
------------------- ----------------------
<PAGE> 11
[The following information is also provided in the Bulgarian Language]
ANNEX NO. 2
With a view to provide integrated hospital information systems for the 30
regional hospitals in the country both sides agree to the following:
1) The Seller will supply his application software package - integrated hospital
information system, localized according to Bulgarian regulations, for the 30
regional hospitals at a price with 50% discount from the price of a single
installation.
2) The price of the integrated hospital system will not exceed the BGL
equivalent of USD: 300000.- per hospital, based on delivery of the system to 30
hospitals.
3) The Buyer reserves himself the right to announce a procedure according the
Public Procurement Act for the integrated hospital system in 2000-2001.
4) This Annex is subject to further detailing and confirmation by both sides in
year 2000.
CA AUCEIAEEOAE(beta): ___________________ FOR BUYER: _________________________
------------------- -------------------------
CA ECIUEIEOAE(beta): ___________________ FOR SELLER: ________________________
------------------- ------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY COUNTRY OR STATE OF ORGANIZATION
<S> <C>
AremisSoft (UK) Plc United Kingdom corporation
Briter Computer Systems Limited United Kingdom corporation
LK Global Construction Systems (UK) Ltd United Kingdom corporation
LK Global Field Engineering Systems (UK) Ltd United Kingdom corporation
LK Global Financial Systems (UK) Limited United Kingdom corporation
LK Global Healthcare Systems (UK) Ltd United Kingdom corporation
LK Global Hospitality Systems (UK) Ltd United Kingdom corporation
LK Global Human Resources (UK) Limited United Kingdom corporation
LK Global Information Systems (UK) Plc United Kingdom corporation
LK Global Manufacturing Systems (UK) Ltd United Kingdom corporation
LK Global Software Engineering (UK) Limited United Kingdom corporation
AremisSoft (E.E. M.E. A.) Limited Cyprus corporation
LK Global Manufacturing Systems (US) Inc Delaware corporation
Online Applications Inc. Delaware corporation
LK Global Software Engineering (India) Private Limited Indian corporation
e-nnovations.com Indian corporation
LK Global Information Systems BV Netherlands corporation
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated March 2, 2000 and March 5, 2000, in the
Registration Statement (Form S-1) and related Prospectus of AremisSoft
Corporation for the registration of shares of its common stock.
/s/ Pannell Kerr Forster
London, England
March 5, 2000
<PAGE> 2
Exhibit 23.2
CONSENT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated March 3, 2000, 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
Nicosia, Cyprus
March 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<CASH> 239 149 13,386
<SECURITIES> 0 0 0
<RECEIVABLES> 10,429 16,805 18,621
<ALLOWANCES> (971) (639) (507)
<INVENTORY> 1,070 787 1,603
<CURRENT-ASSETS> 13,606 22,671 42,536
<PP&E> 5,902 6,300 6,194
<DEPRECIATION> (3,862) (4,526) (4,347)
<TOTAL-ASSETS> 17,242 27,952 60,944
<CURRENT-LIABILITIES> 26,577 33,187 24,696
<BONDS> 10,199 1,874 2
0 0 0
1 0 0
<COMMON> 8 10 15
<OTHER-SE> (19,543) (7,119) 36,231
<TOTAL-LIABILITY-AND-EQUITY> 17,242 27,952 60,944
<SALES> 23,384 30,941 42,951
<TOTAL-REVENUES> 42,374 52,621 73,386
<CGS> 7,226 5,471 8,093
<TOTAL-COSTS> 30,507 32,649 42,529
<OTHER-EXPENSES> 11,557 12,741 12,982
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,895) 2,030 661
<INCOME-PRETAX> (1,585) 5,201 17,214
<INCOME-TAX> 35 2,026 5,097
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 1,163
<CHANGES> 0 0 0
<NET-INCOME> (1,620) 3,175 13,280
<EPS-BASIC> (0.21) 0.35 1.04
<EPS-DILUTED> (0.21) 0.35 0.99
</TABLE>