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Registration No. 33-85244
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3
to Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SULCUS COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
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Pennsylvania 7372 25-1369276
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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<TABLE>
<S> <C>
Sulcus Centre, 41 N. Main St. John W. Ryba, General Counsel
Greensburg, PA 15601 Sulcus Centre, 41 N. Main Street
(412) 836-2000 Greensburg, PA 15601, (412) 836-2000
(Name, address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code of registrant's principal executive offices) number, including area code, of agent for service)
Copies to:
Peter Landau, Esq. Kenneth S. Rose, Esq.
Opton, Handler, Gottlieb, Feiler & Katz, LLP Morse, Zelnick, Rose & Lander, LLP
52 Vanderbilt Avenue, New York, NY 10017 450 Park Avenue, New York, NY 10022
(212) 599-1744 Fax (212) 972-2219 (212) 838-5030 Fax (212) 838-9190
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Approximate date of commencement of proposed sale to public: as soon as
practicable after effective date of Registration Statement. 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. / /
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be registered Proposed maximum Proposed maximum Amount of
securities to be registered offering price per Unit aggregate offering price registration fee
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Units comprised of: 460,000 Units (1) $ 10.50 $ 4,830,000 $ 1,665.38
(a) One Share of Preferred
Stock 460,000 Shares (1)
(b) Two Warrants 920,000 Warrants (1)
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Common Stock (2)(3)** $ * $ * $ *
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Preferred Stock 460,000 Shares (3)(4) $ 10.00 $ 4,600,000 $ 1,586.08
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Common Stock (3)(5)** $ * $ * $ *
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Underwriter Warrants 40,000 Warrants $ 0.00010 $ 4.00 $ 1.00
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Underwriter Units comprised of: 40,000 Units $ 10.50 $ 420,000 $ 144.83
(a) One Share of Preferred
Stock 40,000 Shares (3)(6)
(b) Two Warrants 80,000 Warrants (3)(6)
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Common Stock (3)(7)** $ * $ * $ *
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Preferred Stock 40,000 Shares (3)(8) $ 10.00 $ 400,000 $ 137.92
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Common Stock (3)(9)** $ * $ * $ *
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Total $ $ 3,534.21(10)
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(1) Represents the maximum number of securities that could be issued in
the transactions described in the registration statement including
Underwriter over-allotment option.
(2) Issuable upon conversion of the Preferred Stock.
(3) An indeterminate number of shares of Common and Preferred Stock that
may become issuable pursuant to the anti-dilution provisions of
Preferred Stock and the Warrants are also being registered pursuant to
Rule 416.
(4) Issuable upon exercise of the Warrants.
(5) Issuable upon conversion of the Preferred Stock issued upon exercise
of the Warrants.
(6) Issuable upon exercise of Underwriter Warrant.
(7) Issuable upon conversion of Preferred Stock issuable to Underwriter
upon exercise of Underwriters Warrant.
(8) Issuable upon exercise of Warrants issuable to Underwriter upon
exercise of Underwriters Warrant.
(9) Issuable upon conversion of Preferred Stock issuable upon exercise of
Warrants issuable to Underwriter.
(10) Previously paid.
* Separate filing fee not required.
** To be supplied by amendment.
The registrant hereby amends the Registration Statement on such date
or dates as may be necessary to delay effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1993 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
and Rule 404(a)
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Item No. and Heading in Form S-1 Caption or Location in Prospectus
Registration Statement
<S> <C> <C>
1. Forepart of the Registration Statement Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus Outside of Front Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Pages of
Cover Pages of Prospectus Prospectus and Outside Back Cover
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus;
Risk Factors
6. Dilution Dilution
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Description of Securities
Registered
10. Interests of Named Experts and Counsel *
11. Information with Respect to the Registrant Cover Page of Prospectus; Prospectus Summary; Risk
Factors; Price Range of Common Stock; Dividend
Policy; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Certain Transactions; Legal
Proceedings; Legal Matters; Financial Statements
12. Disclosure of Commission Position on *
Indemnification for Securities Acts Liabilities
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*Omitted because answer is negative or item is otherwise not applicable.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION DATED JULY , 1996
SULCUS
COMPUTER CORPORATION
400,000 Units
Each Unit Consisting of
One Share of Preferred Stock
and
TWO Class A Warrants
Sulcus Computer Corporation, a Pennsylvania corporation (the "Company"
or "Sulcus") hereby offers for sale 400,000 Units (the "Unit"). Each Unit
consists of one share of the Company's Series A Redeemable Convertible Preferred
Stock, no par value per share, (the"Preferred Stock") and two Class A Warrant
(the "Warrants") to purchase Preferred Stock. The shares of Preferred Stock and
Warrants included in each Unit will be immediately detachable and separately
transferrable. Each share of Preferred Stock may be converted into _____ shares
of Common Stock, no par value per share, of the Company (the "Common Stock")
commencing on _____, 1997 and prior to _____. The Preferred Stock is redeemable
by the Company any time commencing _____, 1997, upon not less than thirty (30)
days' notice, at a price of $_____per share. Two Warrants will entitle the
registered holder thereof to purchase one share of Preferred Stock at a price of
$_____ if exercised on or before _____, 1996. Thereafter, four Warrants shall
entitle the registered holder thereof to purchase one share of Preferred
Stock at a price of $_____ if exercised on or before _____, 1997, the Warrant
expiration date. See "Description of Securities" and "Risk Factors."
Prior to this Offering, there has been no public market for the
Preferred Stock or the Warrants and there can be no assurance that such a
market will develop after the completion of this Offering or, if developed,
that it will be sustained. For information regarding the factors considered in
determining the initial public offering price of the Units and the terms of the
Preferred Stock and Warrants, see "Risk Factors," "Underwriting" and
"Description of Securities-Warrants."
The Common Stock of the Company is traded on the American Stock
Exchange ("AMEX") under the symbol SUL. The closing price for the Common Stock
as quoted on the AMEX was $2-9/16 on July 26, 1996. See "Price Range of Common
Stock." It is anticipated that the Preferred Stock and Class A Warrants will be
traded on the AMEX under the symbols SULP and SULW, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" LOCATED ON PAGE 9 AND "DILUTION."
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OF THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price Underwriting Proceeds
to Public Discounts(1) to Company(2)
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<S> <C> <C> <C>
Per Unit . . . . . . . $ * $ $
Total(3) . . . . . . $ $ $
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(Footnotes appear on inside front cover.)
The Units are offered by the Underwriters on a "firm commitment"
basis, when as and if delivered to and accepted by the Underwriters, and
subject to the right of the Underwriters to reject any order in whole or in
part and to certain other conditions. It is expected that delivery of
certificates representing the Preferred Stock and Warrants comprising the Units
will be made at the offices of H. J. Meyers & Co., Inc. 1895 Mt. Hope Avenue,
Rochester, NY 14620 on or about ____________________, 1996.
H. J. MEYERS & CO., INC.
The date of this Prospectus is __________, 1996
<PAGE> 5
1. Does not include additional compensation to be received by H.
J. Meyers & Co., Inc. (the "Representative") in the form of
(i) a non-accountable expense allowance of 3% of the gross
proceeds of the offering (including proceeds from the
exercise of the Representative's over-allotment option
discussed below in footnote (3)); and (ii) 40,000 Warrants
to be granted to the Underwriters to purchase up to 40,000
Units (the "Representative's Warrant"). The Company also has
agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
2. Before deducting expenses of the offering payable by the
Company of approximately $___________________, including
the Representative's non-accountable expense allowance.
3. The Company has granted the Underwriters an over-allotment
option (the "Over-Allotment Option"), exercisable within 30
business days after the date of this Prospectus, to purchase
up to 60,000 additional Units on the same terms and
conditions as set forth above. If all such Units are
purchased, the total Price to Public, Underwriting Discounts
and Commissions, and Proceeds to the Company will be
$__________________, $______________ and $_______________,
respectively. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE
AND ANY OTHER EXCHANGES UPON WHICH THE COMPANY MAY LIST ITS SECURITIES. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S SECURITIES ON THE
AMERICAN STOCK EXCHANGE IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AS AMENDED.
The Company distributes annual reports containing audited financial
statements to its stockholders.
2
<PAGE> 6
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS
PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
THE HEADING "RISK FACTORS." EXCEPT AS OTHERWISE SPECIFIED, THE INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES THAT (I) THE PREFERRED STOCK HAS NOT BEEN
CONVERTED INTO SHARES OF COMMON STOCK, (II) THE WARRANTS HAVE NOT BEEN
EXERCISED, AND (III) THE OVER-ALLOTMENT OPTION AND THE REPRESENTATIVE'S
WARRANTS HAVE NOT BEEN EXERCISED. SEE "UNDERWRITING."
THE COMPANY
Sulcus provides automation solutions to the worldwide hospitality and
tourism market and to the domestic U.S. real estate industry and legal
professions. The Company develops, manufactures, markets and installs
integrated microcomputer systems designed to automate the creation, handling,
storage and retrieval of information and documents.
The Company sells computer systems, which include a network of
hardware, software and cabling as well as stand-alone turnkey systems. Sulcus
sells 24-hour customer support to the hospitality industry and regular business
hour support to the real estate industry and the legal profession with each new
system sold. This provides a recurring revenue stream beyond the original
system sale.
The Company's turnkey computer systems provide all of a customers
needs to automate segments of its business. Sulcus believes that this approach
is critical in the vertical markets in which it competes. Some competitors can
automate a specific task, most are unable to automate as broad a range of a
customer's business applications as Sulcus. Customers include hotels, motels,
restaurants, resorts, cruise lines, country clubs, condominiums, real estate
related businesses and law offices.
In 1988, the Company conceived a vision to build a leadership position
in turnkey computer systems for the hospitality, and real-estate industries and
developed a strategic plan to achieve that vision. The strategic plan
envisioned internal growth by way of expanded research and development, as well
as growth through acquisitions, mergers, joint ventures and similar alliances.
In order to fulfill that vision, the Company has made numerous acquisitions,
alliances and joint ventures which created additional market opportunities for
existing products, created or obtained products that complement or expand
existing product lines, and created additional product distribution channels.
The Company has assembled a comprehensive product line that includes
approximately 800 programs contained in 55 business applications with over 255
interfaces for automatic integration with third party software or hardware
systems. Sulcus has built a worldwide distribution system with over 80
locations in over 20 countries and has installed its systems on all continents
except Antarctica. See "Business--Historical Development."
3
<PAGE> 7
The Company was incorporated under the laws of the
Commonwealth of Pennsylvania on November 5, 1979, under the name "Ragtronics,
Inc." and adopted its present name in December 1982. The principal offices of
Sulcus are located at Sulcus Centre, 41 N. Main Street, Greensburg,
Pennsylvania 15601. Its telephone number at such address is (412) 836-2000.
Unless the context indicates otherwise, all references herein to the Company or
Sulcus refer to Sulcus Computer Corporation and its wholly owned subsidiaries.
4
<PAGE> 8
THE OFFERING
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Securities Offered: 400,000 Units, each Unit consisting of one share of Series A
Redeemable Convertible Preferred Stock ("Preferred Stock")
and two Class A Warrants.
Offering Price: $ per Unit
Terms of Preferred Stock: CONVERSION RIGHTS. Unless previously redeemed (see below),
each share of Preferred Stock is convertible into shares
of Common Stock, subject to adjustment in certain events, at
any time after six months from the date of issuance. No
fractional shares will be issued, nor will cash in lieu thereof
be paid.
REDEMPTION. The Preferred Stock may be redeemed by the Company
upon payment of $ per share at any time on or after
15 months from the date of this Prospectus, upon 30 days'
prior written notice.
DIVIDENDS. Payable only to the same extent as dividends are
paid on the Common Stock.
LIQUIDATION PREFERENCE. In the event of any liquidation of the
Company, holders of Preferred Stock are entitled to a
liquidation preference of $ per share (the public
offering price).
VOTING RIGHTS. Non-voting, except with respect to matters
that alter or change the powers, preferences and rights of the
Preferred Stock.
Terms of Class A Warrants: During the 75 day period commencing on the date of this
Prospectus, each Class A Warrant entitles the holder to
purchase one-half share of Preferred Stock for $
($ per share). Thereafter, and prior to ,
1997, the Class A Warrant expiration date, each Class A Warrant
entitles the holder to purchase one-quarter share of Preferred
Stock for $ ($ per share).
Warrantholders will only be entitled to exercise Class A
Warrants to purchase whole shares of the Company's Preferred Stock.
Common Stock Outstanding
and to be Outstanding
after Offering: shares of Common Stock(1)
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5
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Preferred Stock to be
Outstanding After Offering: 400,000 shares of Preferred Stock(2)
Warrants Outstanding After
the Offering: 800,000 Class A Warrants
Use of Proceeds: The net proceeds of the Offering will be used for working
capital and general corporate purposes.
Risk Factors: The Offering involves certain risks. See "Risk Factors."
AMEX Symbol: Common Stock SUL
Proposed AMEX Symbols: Preferred Stock SULP
Class A Warrants SULW
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(1) Does not include (i) 2,698,331 shares reserved for issuance under the
Company's stock option plans for employees; (ii) 605,000 shares
reserved for issuance upon exercise of options granted to directors,
consultants and advisors; (iii) 65,900 shares reserved for issuance
under various "earn out" provisions in connection with recent
acquisitions; (iv) shares reserved for issuance upon conversion of
the Preferred Stock and the conversion of the Preferred Stock issuable
to the Underwriter upon exercise of the Representative's Warrant;
and (v) 327,726 shares of Common Stock issued in connection with "earn
out" provisions to the former shareholders of JBA and subsequently
cancelled by the Company. See "Business-Historical Development-JBA,
"The Company," "Management--Stock Option Plan," "Description of
Securities," and Note 15 of Notes to Consolidated Financial
Statements.
(2) Does not include shares reserved for issuance upon the exercise of the
Class A Warrants and the exercise of the Class A Warrants issuable to
the Underwriter upon the exercise of the Representative's Warrant.
6
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SULCUS COMPUTER CORPORATION
Summary Financial Data
(Thousands, except per share data)
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<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
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1996 1995 1995 1994 1993 1992 1991
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STATEMENT OF OPERATIONS DATA
Net sales $10,942 $11,016 $44,693 $41,887 $47,346 $35,245 $17,256
Dividends and other 333 295 1,291 1,256 1,937 1,385 505
------- ------- ------- ------- ------- ------- -------
Total revenue 11,275 11,311 45,984 43,143 49,283 36,630 17,761
Cost of goods sold and services provided 4,468 4,615 18,965 20,588 23,085 15,418 6,153
Selling, general and administrative expenses 5,506 5,579 22,896 24,388 21,726 14,756 8,091
Research and development 267 366 1,199 1,597 1,878 2,342 1,044
Interest expense 129 142 598 556 403 242 285
Depreciation and amortization 384 446 1,520 2,158 2,034 960 482
Unrealized (gain) loss on investments (1) ---- (882) (1,462) 1,861 ---- ---- ----
Unusual items (2) ---- ---- 3,434 3,663 3,207 ---- ----
Income taxes ---- ---- 203 ---- ---- 821 358
Income (loss) before extraordinary item and
cumulative effect of accounting changes 521 1,044 (1,369) (11,668) (3,050) 2,091 1,348
Net income (loss) $521 $1,044 ($1,369) ($11,668) ($3,050) $3,222 $1,692
PER SHARE DATA
Income (loss) per share before extraordinary
item and cumulative effect of
accounting changes $0.03 $0.07 ($0.09) ($0.84) ($0.22) $0.17 $0.21
Net income (loss) per share $0.03 $0.07 ($0.09) ($0.84) ($0.22) $0.26 $0.26
Weighted average shares used in computing
net income (loss) per share 16,615 14,651 14,720 13,872 14,157 12,446 6,539
HISTORICAL BALANCE SHEET DATA
Working capital $6,036 $5,771 $5,390 $4,183 $8,643 $10,615 $9,438
Total assets 45,575 45,210 47,327 47,869 58,716 51,499 28,531
Long-term obligations 279 70 27 86 364 1,039 1,387
Stockholders' equity 23,230 24,111 22,894 23,087 33,373 33,489 18,316
</TABLE>
(1) On June 5, 1995, the Company restructured its investment portfolio. As
a result, under FAS No. 115, the Company no longer reports unrealized
gains or losses from the investment portfolio in its statement of
earnings.
(2) Unusual items include write-offs of assets of $514,694, $2,156,949 and
$970,184 in 1995, 1994 and 1993, respectively, a write-off of goodwill
of $1,256,000 in 1994 and provision for litigation settlements of
$2,199,333, $250,000 and $2,237,310 in 1995, 1994 and 1993,
respectively.
7
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RECENT DEVELOPMENTS
SECURITIES AND EXCHANGE COMMISSION PROCEEDING
On May 2, 1996, the Company entered into an agreement with the
Securities and Exchange Commission ("Commission") resolving the investigation
of the Company by the Commission which commenced in March 1993, concerning
Sulcus' periodic reports filed during 1991 and 1992, a registration statement
it filed in 1992 containing those reports and certain press releases issued in
1991 and 1992. Without admitting or denying any wrongdoing, the Company agreed
that it would not in the future violate Sections 17(a)(2) and (a)(3) of the
Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 promulgated thereunder.
With respect to certain press releases issued during 1991 and 1992, the Company
agreed that it would not in the future violate Section 10(b) and Rule 10b-5.
The Order does not allege violations of Section 10(b) or Rule 10b-5 against
Sulcus with regard to its periodic filings or registration statement. In
addition, John Picardi, a Sulcus employee and former Chief Financial Officer of
Sulcus' Hospitality Group, and Jeffrey Ratner, Sulcus' Chairman, without
admitting or denying any wrongdoing, agreed that they would not in the future
violate Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a),
13(b)(2)(A) and 13(b)(2) (B) of the Exchange Act and Rules 12b-20, 13a-1,
13a-13 and 13b 2-1 promulgated thereunder. There were no fines or other
penalties imposed upon the Company or Mr. Ratner. Mr. Picardi agreed not to
practice before the Commission as an accountant for a 30 month period.
SETTLEMENT OF RECENT SHAREHOLDER LITIGATION
Shortly after the Company announced on April 6, 1994, that it was
proposing to restate earnings and other financial results for 1992, twelve
shareholder class action lawsuits were commenced against the Company and
certain of its officers, and directors as well as its independent auditors, in
the United States District Court for the Western District of Pennsylvania. In
December 1995, the Company announced it had agreed to settle these lawsuits
("The Class Action") which required the establishment of a settlement fund
consisting of $800,000 in cash and 1,400,000 shares of Common Stock. For a
description of the settlement terms of the litigation see "Legal Proceedings"
and "Note 2 of Notes to Consolidated Financial Statements."
8
<PAGE> 12
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE CERTAIN
RISKS. IN ANALYZING THIS OFFERING, PROSPECTIVE PURCHASERS SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS, AMONG OTHERS:
1. PRIOR LOSSES
Sulcus has operated at a net loss during three of its last five fiscal
years. For the year ended December 31, 1995, the Company incurred a net loss of
($1,369,000), as compared to a net loss of ($11,668,000) for the same period of
1994. The 1994 results included a write-off of software development costs
($1,820,246), the write-off of an investment in an unconsolidated subsidiary
($336,703), the write-off of goodwill ($1,256,000) and a provision for
litigation settlement ($250,000). The significant improvement in 1995 is
primarily the result of increased sales and an improvement in gross margins,
which together accounted for a $4,428,378 improvement in gross margins, a
$1,492,214 reduction in selling, general and administrative expenses and
$3,323,408 in portfolio unrealized market changes (from an unrealized loss of
$1,861,403 in 1994 to an unrealized gain of $1,462,005 in 1995). During 1995,
the Company settled certain shareholder litigation which resulted in provisions
of $2,919,333 and wrote-off certain capitalized software development costs
totaling $514,694 representing the end of the estimated useful lives of certain
systems. For the three months ended March 31, 1996, the Company reported net
income of $521,404 as compared to net income of $1,043,535 for the same period
of 1995.
While management believes that there has been a favorable turn around
in the hotel and restaurant industry which should ultimately have a favorable
effect on the Company's operating results and financial condition, the Company
has experienced reduced system sales in 1994 and 1995 when compared to 1993.
Management believes that this decrease is principally attributable to customer
uncertainty regarding the Company's viability resulting from the previously
pending shareholder litigation, the previously pending SEC investigation and
increased competition. As a consequence of the losses noted above, the Company
had a retained earnings (deficit) of ($13,378,756) at December 31, 1994, a
deficit of ($14,747,712) at December 31, 1995, and a deficit of ($14,226,308)
at March 31, 1996.
Management is taking the following measures in an effort to maintain
and improve the Company's profitability: control of cost of sales and selling,
general and administrative expenses; seeking out strategic alliances to
increase product availability to meet customers requirements, investing in the
development of new products and increasing sales productivity. Notwithstanding
the foregoing, there is no assurance that the Company will be profitable in
future periods. See "Business--Historical Development," "Financial Statements,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," and "Legal Proceedings."
9
<PAGE> 13
2. EXPANSION OF BUSINESS; DOMESTICALLY AND INTERNATIONALLY
The Company's operations are subject to certain risks, such as cash
flow problems, obtaining adequate financing, achieving profitability and
management of diverse operations. The Company believes that there are other
principal material risks attendant to its international expansion associated
with the stability, both political and economic of any particular country.
Principal among those risks are the national ization or privatization of any
industry with which the Company does business in that such changes tend to
impact the time period in which contractual commitments may be honored;
currency crises with attendant exchange rate turbulence; and sudden changes in
interest rates which generally effect the ability of customers to finance their
purchases. The Company's international operations are managed on a country or
regional basis under the direction of local nationals familiar with both the
local economic and political climate. International sales are generally
denominated in the currency of that country in which the Sulcus subsidiary is
located, and most related costs and expenses are also denominated in the local
currency. This tends to lessen foreign currency risks. The exception to this
are international export sales of Sulcus' Squirrel systems, which are
denominated in U.S. dollars. However, the relatively short time between the
order and delivery of the Squirrel systems mitigates the risk of significant
currency fluctuation. Accordingly, to date, the Company has not utilized any
foreign currency or interest rate risk hedging techniques or derivatives. The
Company will continue to monitor and evaluate the need to employ such
techniques. To date the Company has not experienced any material adverse impact
as a result of recent political and economic changes or currency fluctuations
internationally. See "Business--Historical Development." These risks may be
increased to the extent Sulcus continues to expand its hospitality business or
its other lines of business both domestically and internationally. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Financial Statements."
3. NEED FOR ADDITIONAL CAPITAL
Sulcus' ability to develop and expand its presence in the hospitality
industry and to expand its existing business lines for Sulcus' other markets
and operate profitably depends in part on the availability of adequate funds.
Management believes that anticipated revenues from Sulcus' operations together
with available working capital and the proceeds of this Offering will be
sufficient to support the anticipated operating and capital requirements of the
Company for at least 12 months. Nonetheless, if technological changes render
Sulcus' products uncompetitive or obsolete, or if adequate funds are not
available from operations and the Company continues to operate at a loss,
Sulcus may be forced to seek additional financing. There can be no assurance
that any financing will be available when needed, or if available, that it can
be obtained on terms satisfactory to Sulcus. See "Business--Historical
Development," and "Management's Discussion of Financial Condition and Results
of Operations."
4. SUBSTANTIAL VARIABILITY OF OPERATING RESULTS
The Company's operating results have varied, and the Company expects
that they will continue to do so. Due to the relatively fixed nature of certain
of the Company's costs, including personnel and facilities costs, a decline in
net sales in any period typically results in lower profitability in that
quarter. A variety of factors, many of which are not within the Company's
control, influence
10
<PAGE> 14
the Company's operating results, including patterns of capital spending by
customers, pricing, the timing, size and receipt of orders, delay of shipments
to customers, timing of client projects, competition, new product or service
introductions by the Company or its competitors, levels of market acceptance
for new products, changes in operating expenses and material costs and general
economic conditions. The Company believes, therefore, that past operating
results and period-to-period comparisons should not be relied upon as an
indication of future performance. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
5. RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapidly
changing technology, accelerated product obsolescence and rapidly changing
industry standards. The Company's success will depend upon its ability to
update its existing products and to introduce new products and features in a
timely manner to meet evolving customer requirements. There can be no assurance
that the Company will be successful in these efforts. The Company's business
and results of operations will be materially and adversely affected if the
Company incurs delays in developing its products or if such products do not
gain broad market acceptance. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
products or technologies noncompetitive or obsolete. See "Business-
Competition."
6. RESEARCH AND DEVELOPMENT
The Company anticipates that it will continue to introduce new and
enhanced products. The development and testing of these products is an
inherently unpredictable process and no assurance can be given as to the timing
of releases or their market acceptance. Research and development expenses net
of capitalized software, represented 2.6%, 3.7%, 3.8% and 2.4% of total
revenues for the fiscal years ending December 31, 1995, 1994, and 1993 and the
first three months of 1996, respectively. The reduced research and development
expense is a result of the Company's plans to focus its efforts on those
specific areas having expected commercial acceptance, while at the same time,
controlling overall research and development expenditures. The Company is also
considering other, more cost effective means of expanding or improving its
software product lines, including where appropriate, external purchases or
acquisitions of software. See "Business-Product Research, Development and
Improvement."
7. COMPETITION
There are numerous software programs available that perform many of
the same functions as Sulcus' products. Competition in the computer software
market is generally intense and competitors often attempt to emulate successful
programs. Increased competition has resulted in greater discounting of prices
with no lessening of the cost of providing systems and services. Many of the
Company's current and potential competitors have substantially greater
financial, technical, marketing and other resources and larger installed
customer bases than the Company. The Company believes there are approximately
five to six competitive Property Management Systems vendors that have about the
same or more installations than Sulcus. The major competitors in the
hotel/property management market domestically (U.S.) include Hotel Information
Systems, Inc., Computerized
11
<PAGE> 15
Lodging Systems, Inc. (a subsidiary of MAI Systems Corp. (AMEX:NOW)), Encore
Systems, Inc., and Fidelio Software Corporation (a subsidiary of Micros Systems,
Inc.) In Europe, the Middle East and Africa, the major competitors are Fidelio
Software Corporation and Hotel Information Systems, Inc. In Asia, Hotel
Information Systems, Inc., and Fidelio Software Corporation are the Company's
major competitors. In the Full Service Restaurant Management System domestic
market, competitors are Micros Systems, Inc., NCR Corporation, Restaurant Data
Concepts, Inc., MenuSoft Systems, Inc. and Panasonic Communications and Systems
Co's. In Europe, the Middle East and Africa, the major competitors are Remanco
International, Inc. and Micros Systems, Inc. In Asia, Remanco International,
Inc., Micros Systems, Inc. and NCR Corporation are the Company's major
competition. The Company has not relied upon any report, study, or other
documentation in connection with this belief. Sulcus Hospitality has been an
active participant in the hospitality industry for over twelve years. The
Company expects that competition will intensify in each of its lines of
business, as more competitors enter the marketplace. There can be no assurance
that the Company will have the financial resources, technical expertise or
marketing and support capabilities for its products to successfully compete in
the marketplace. See "Business-Competition."
8. COMPETITION FOR KEY PERSONNEL-MANAGEMENT OF GROWTH
The Company's success depends in part on its ability to attract, hire,
train and retain qualified managerial, technical and sales and marketing
personnel, particularly for systems integration, support services and training.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining the technical and other
personnel it requires to conduct and expand its operations successfully. The
Company's results of operations could be materially adversely affected if the
Company were unable to attract, hire, train and retain qualified personnel. In
response to discussions with and views expressed by the Commission during the
course of the recently resolved investigation, the Company took several
measures to assure that issues raised with respect to financial statements,
books and records and internal controls will not occur in the future. These
measures included the hiring of a new Chief Financial Officer together with a
replacement of the Company's accounting staff. See "Business--Personnel."
9. PROPRIETARY RIGHTS
The Company relies on a combination of copyright and trade secret
protection, non-disclosure agreements and licensing arrangements to establish,
protect and enforce its proprietary rights. Despite the Company's efforts to
safeguard and maintain its proprietary rights, there can be no assurance that
the Company will be successful in doing so or that the Company's competitors
will not independently develop or patent technologies that are substantially
equivalent or superior to the Company's technologies.
Although the Company is not a party to any present litigation
regarding proprietary rights, there can be no assurance that third parties will
not assert intellectual property claims against the Company in the future. Such
claims, if proved, could materially and adversely affect the Company's business
and results of operations. In addition, although any such claims may ultimately
prove to be without merit, the necessary management attention to and legal
costs associated with litigation or
12
<PAGE> 16
other resolution of such claims could materially and adversely affect the
Company's business and results of operations. See "Business-Product
Protection."
The laws of certain foreign countries do not protect intellectual
property rights to the same extent or in the same manner as do the laws of the
United States. Although the Company continues to implement protective measures
and intends to defend its proprietary rights vigorously, there can be no
assurance that these efforts will be successful.
10. SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
The Company has reserved shares of Common Stock for issuance upon the
conversion of the Preferred Stock and the exercise of the Warrants included in
the Units offered hereby. The Company also has reserved 4,150,000 shares of
Common Stock for issuance to key employees, officers, directors and consultants
pursuant to Stock Option Plans and a maximum of 422,697 shares of Common Stock
issuable in connection with earn out provisions relating to acquisitions. The
Company also will issue to the Representative, in connection with this
Offering, the Representative's Warrant to purchase 40,000 Units and has
reserved ____________ shares of Common Stock and _______________ shares of
Preferred Stock issuable upon conversion of the Preferred Stock and exercise
of the Warrants included in the Units. The existence of the Warrants, the
Representative's Warrant and any other options or warrants may prove to be
a hindrance to future equity financing by the Company. Further, the holders
of such Warrants and options may exercise them at a time when the Company
would otherwise be able to obtain additional equity capital on terms more
favorable to the Company. See "Description of Securities."
11. IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Units will incur an immediate and substantial
dilution of approximately _____% of their investment in the shares of Preferred
Stock included in the Units (assuming conversion into Common Stock) in that the
pro forma net book value of the Company's Common Stock after this Offering will
be approximately $ _________ per share. See "Dilution."
12. DIVIDENDS
Sulcus has not paid any dividends on its Common Stock and does not
anticipate paying any dividends in the foreseeable future. See "Dividend
Policy." As the Preferred Stock is only entitled to dividends if, and to the
extent paid on the Common Stock, it is not anticipated that dividends will be
paid on the Preferred Stock in the foreseeable future.
13. MARKET FOR SECURITIES OFFERED; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the
Preferred Stock or the Warrants offered hereby. There can be no assurance that
any market for the Preferred Stock or the Warrants will develop or that, if
developed, it will be sustained. The conversion price of the Preferred Stock
and the exercise price of the Warrants has been determined through negotiation
by the Underwriter and Sulcus, and should not be assumed to bear any
relationship to Sulcus' asset value, net worth, or
13
<PAGE> 17
any other established criteria of value. To the extent that the Preferred Stock
suffers a sharp decline in price, the value of the Warrants may be diminished,
in whole or in part. See "Price Range of Common Stock" and "Underwriting."
14. PENNSYLVANIA ANTI-TAKEOVER LAWS; CHANGE OF CONTROL
Various provisions of the Pennsylvania Business Corporation Law, under
which Sulcus was organized, generally make "hostile" takeovers of Pennsylvania
corporations more difficult by granting certain rights to non-interested
stockholders in certain "change of control" situations by permitting such
stockholders to demand payment from a 20% controlling stockholder of the "fair
value" of such demanding stockholders' shares in cash. Such provisions may make
more difficult the removal of management which would in all likelihood be more
favorable for management. In addition, such provisions may be perceived by
certain investors, such as institutions, as making Sulcus' securities a less
attractive investment. Such provision may also render the accomplishment of a
tender offer more difficult, which may be more beneficial to management in a
hostile tender offer and may have an adverse impact on stockholders who may
want to participate in such a tender offer. Sulcus did not elect to "opt-out"
of these provisions. Employment Agreements with certain of the Company's
officers contain provisions with respect to receiving certain benefits
including monthly salary payments and stock options if their employment is
terminated due to a change in control of the Company which may make a tender
offer less attractive to certain investors. There are no anti-takeover devices
or measures contained in the Company's Articles of Incorporation, By-Laws or
other Corporate governing instruments and none are presently contemplated. See
"Management--Employment Arrangements," and "Description of Securities -
Pennsylvania Anti-takeover Laws."
14
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from this offering, after deducting
offering expenses estimated at $ ________, are estimated to be $ _________,
($ ________, if the Underwriters' over-allotment option is exercised in full).
The Company expects to use the net proceeds for working capital and general
corporate purposes.
In furtherance of the Company's strategy of acquisition of computer
software products or companies that complement or expand existing business
lines, the Company may also use a portion of the net proceeds to acquire
additional businesses or software products or to support joint ventures related
to existing businesses. The Company currently has no plans, agreements or
commitments for any such acquisitions and is not currently engaged in any
active negotiations with respect to any such acquisitions. There can be no
assurance that the Company will be able to acquire companies or software
products on a favorable basis.
Pending the application of the proceeds as described above, the
Company will make temporary investments in interest-bearing savings accounts,
certificates of deposit, United States Government obligations, preferred
securities or money market certificates. United States government obligations
are not necessarily those backed by the full faith and credit of the United
States government. Company policy does not require temporary investment to be
investment grade as determined by a nationally recognized statistical rating
organization nor does it require that such investments have any additional
safety feature such as insurance.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Preferred Stock is only entitled to dividends if and to the extent that
dividends are paid on Common Stock, and the current policy of the Board of
Directors is to retain any earnings to provide for the development and growth
of the Company. Consequently, no cash dividends are expected to be paid in the
foreseeable future.
DILUTION
Dilution represents the difference between the public offering price
per share paid by purchasers in this offering and the pro forma net tangible
book value per share immediately after completion of this offering. Net tangible
book value per share is determined by dividing the total number of outstanding
shares of common stock into the difference between total tangible assets less
total liabilities. At March 31, 1996, (unaudited), the net tangible book value
($ ________) of the Company was ($ ________) per share. After giving effect to
the sale by the Company of 400,000 shares of Preferred Stock at a public
offering price of $ _________ per share (convertible into shares of Common Stock
at $________ per share), and 800,000 Warrants at $.________ per Warrant, the pro
forma net tangible book value of March 31, 1996 would have been $ ________ per
share of Common Stock, after deduction of underwriting discounts and commissions
and estimated expenses to be incurred by the Company in connection with this
offering. Investors purchasing shares of Preferred Stock in this offering will
thus experience an immediate dilution of $ ________ (or ______%) in the tangible
book value per share of their shares of Preferred Stock, while
15
<PAGE> 19
existing shareholders will benefit from an immediate increase in the net
tangible book value of their shares of Common Stock of $ ________ per share.
The following table illustrates the foregoing effects:
Public offering price per share
Net tangible book value (deficiency) per share before offering
Increase in net tangible book value per share attributable to
existing investors
Pro forma net tangible book value per share after offering
Dilution per share to new investors
If the over-allotment option is exercised in full, the pro forma
net tangible book value after this offering would be $ ________ per share,
which would result in dilution to the new investors in this offering of
$ ________ per share of Preferred Stock.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to give effect to the sale of 400,000 shares of
Series A Redeemable Convertible Preferred Stock, and 800,000 Class A Warrants at
an assumed public offering price of $10.00 and $0.25, respectively and the
application of net proceeds therefrom (See "Use of Proceeds"). All information
set forth below should be read in conjunction with the financial statements and
notes thereto in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1996
Actual as Adjusted(1)
----------- -------------
<S> <C> <C>
Short-Term Debt Excluding Current
Maturities of Long-Term Debt $6,525,443 $6,525,443
Long-Term Debt 478,580 478,580
Stockholders' Equity
Preferred Stock; Authorized 10,000,000
shares of which 2,000,000 are
designated as Series A Redeemable
Convertible, no shares issued and
outstanding; 400,000 shares issued
and outstanding, as adjusted - 3,435,000
Common Stock; no par value; 30,700,000 shares
authorized; 15,214,944 shares issued, and
as adjusted(2) 38,114,272 38,114,272
Note Receivable from Stockholder (500,000) (500,000)
Retained Earnings (Deficit) (14,226,308) (14,226,308)
Foreign Currency Adjustment (27,583) (27,583)
Cumulative Unrealized Loss on Investments
Available for Sale (130,793) (130,793)
----------- -----------
Total Stockholders' Equity $23,229,588 $26,664,588
----------- -----------
Total Capitalization $30,233,611 $33,668,611
=========== ===========
</TABLE>
- ----------------
(1) Assumes no exercise of up to 60,000 shares from the exercise of the
Representative's Over-Allotment Option, the Representative's warrants, the
conversion of preferred shares into Common Stock or the exercise of
Warrants.
(2) Does not include 327,726 shares of Sulcus common stock cancelled by the
Company in connection with the restatement of earn-out shares for the
purchase of JBA as more fully described in "Business Historical
Development-JBA".
17
<PAGE> 21
PRICE RANGE OF COMMON STOCK
On May 19, 1992, Sulcus Common Stock began trading on the American
Stock Exchange under the symbol SUL. Previously, Sulcus' Common Stock was
traded on the over-the-counter market on the National Association of Securities
Dealers Automated Quotations ("NASDAQ") National Market System under the symbol
SULC.
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
<S> <C> <C>
March 1996 2-13/16 1-7/8
June 1996 3-13/16 2-5/8
September 1996 (through July 23) 3-5/16 2-3/8
March 1995 3-5/8 2
June 1995 3-3/4 2-1/2
September 1995 3-9/16 2-5/8
December 1995 2-7/16 1-7/8
March 1994 8-3/8 5-3/4
June 1994 6 2-11/16
September 1994 3-15/16 2-3/4
December 1994 3-7/16 2-1/16
</TABLE>
On July 26, 1996, the high and low prices for the Common Stock were
$2-11/16 and $2-9/16, respectively.
As of July 26, 1996, there were approximately 2,836 record holders of
Sulcus' Common Stock.
18
<PAGE> 22
SULCUS COMPUTER CORPORATION
Selected Financial Data
The following table sets forth selected consolidated financial data of the
Company for the three months ended March 31, 1995 and March 31, 1996 and for the
five years ended December 31, 1991 through 1995. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere herein.
(Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $10,942 $11,016 $44,693 $41,887 $47,346 $35,245 $17,256
Dividends and other 333 295 1,291 1,256 1,937 1,385 505
------- ------- ------- ------- ------- ------- -------
Total revenue 11,275 11,311 45,984 43,143 49,283 36,630 17,761
Cost of goods sold and services provided 4,468 4,615 18,965 20,588 23,085 15,418 6,153
Selling, general and administrative expenses 5,506 5,579 22,896 24,388 21,726 14,756 8,091
Research and development 267 366 1,199 1,597 1,878 2,342 1,044
Interest expense 129 142 598 556 403 242 285
Depreciation and amortization 384 446 1,520 2,158 2,034 960 482
Unrealized (gain) loss on investments (1) ---- (882) (1,462) 1,861 ---- ---- ----
Unusual items (2) ---- ---- 3,434 3,663 3,207 ---- ----
Income taxes ---- ---- 203 ---- ---- 821 358
Income (loss) before extraordinary item and
cumulative effect of accounting changes 521 1,044 (1,369) (11,668) (3,050) 2,091 1,348
Net income (loss) $521 $1,044 ($1,369) ($11,668) ($3,050) $3,222 $1,692
PER SHARE DATA
Income (loss) per share before extraordinary
item and cumulative effect of accounting
changes $0.03 $0.07 ($0.09) ($0.84) ($0.22) $0.17 $0.21
Net income (loss) per share $0.03 $0.07 ($0.09) ($0.84) ($0.22) $0.26 $0.26
Weighted average shares used in computing
net income (loss) per share 16,615 14,651 14,720 13,872 14,157 12,446 6,539
HISTORICAL BALANCE SHEET DATA
Working capital $6,036 $5,771 $5,390 $4,183 $8,643 $10,615 $9,438
Total assets 45,575 45,210 47,327 47,869 58,716 51,499 28,531
Long-term obligations 279 70 27 86 364 1,039 1,387
Stockholders' equity 23,230 24,111 22,894 23,087 33,373 33,489 18,316
</TABLE>
(1) On June 5, 1995, the Company restructured its investment portfolio. As a
result, under FAS No. 115, the Company no longer reports unrealized gains or
losses from the investment portfolio in its statement of earnings.
(2) Unusual items include write-offs of assets of $514,694, $2,156,949 and
$970,184 in 1995, 1994 and 1993, respectively, a write-off of goodwill of
$1,256,000 in 1994 and provision for litigation settlements of $2,199,333,
$250,000 and $2,237,310 in 1995, 1994 and 1993, respectively.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO
THREE MONTHS ENDED MARCH 31, 1995
The Company had net income of $521,404 in the quarter ended March 31,
1996 as compared to $1,043,535 in the quarter ended March 31, 1995 on sales
which were virtually unchanged. In 1995, the Company reported unrealized gains
on its investment portfolio of $881,683. When eliminating this amount for the
purpose of comparability, the Company showed an improvement on earnings from
$161,852 to $521,404, a change of $359,552. The Company's results for the
quarter ended March 31, 1996 improved over those for the same period of 1995
primarily as a result of improvements in margins ($72,719), reduced selling,
general and administrative expenses ($72,964) and reduced research and
development costs ($99,197). In 1995, the Company had Trading Securities which
had unrealized market appreciation in the first quarter of $881,683. Since that
time, the Company has restructured its portfolio and, therefore, these
unrealized market changes are no longer a component of net income.
Net sales for the quarter ended March 31, 1996 were $10,941,988,
representing a decrease of $74,299 (1%) when compared to net sales of
$11,016,287 for the same period of 1995. Net system sales for the quarter ended
March 31, 1996 were $6,524,818 as compared to $6,803,287 for the same period of
1995, a decrease of $278,469 (4%) due primarily to decreased sales of the
Company's Point of Sale Systems. Support revenues for the quarter ended March
31, 1996 were $4,417,170 as compared to $4,213,000 for the same period of 1995,
an increase of $204,170 (5%) due primarily to an increased base of Point of
Sale installations in 1995. Support revenues are billed and collected in
advance for periods of one to twelve months and are recognized as support
revenues ratably over the contract period. Sales by offices and distributors of
the Company were $9,310,093 (85%) and $1,631,895 (15%), respectively, of net
sales for the quarter ended March 31, 1996 as compared to $8,726,591 (79%) and
$2,289,696 (21%) for the comparable 1995 period.
Cost of goods sold for the quarter ended March 31, 1996 decreased to
$4,467,766 from $4,614,784, a decrease of $147,018 (3%) from the comparable
1995 period. As a consequence, cost of goods sold as a percentage of net sales
improved for the quarter ended March 31, 1996 to 41%, as compared to 42% for
the same period of 1995. Gross margins of the Company increased to $6,474,222
from $6,401,503, an increase of $72,719 (1%) over the same period of 1995. Cost
of system sales for the quarter ended March 31, 1996 was $3,307,969 (51% of
system sales) as compared to $3,333,777 (49% of system sales) for the same
period of 1995, a decrease of $25,808 (1%), due primarily to the mix of
software and hardware sales. Cost of support for the quarter ended March 31,
1996 was $1,159,797 (26% of support revenues) as compared to $1,281,007 (30% of
support revenues) for the same period of 1995, a decrease of $121,210 (9%),
primarily as the result of the Company's ability to control such costs.
Selling, general, and administrative expenses decreased in 1996 when
compared to 1995. For the quarter ended March 31, 1996, these expenses were
$5,506,194 as compared to $5,579,158 a decrease of $72,964 (1%) from the same
period of 1995. Selling, general, and administrative expenses as a percentage
of net sales was 50% for the quarter ended March 31, 1996 as compared to 51%
for the same period of 1995.
Research and development expense for the quarter ended March 31, 1996
decreased to $267,251 from $366,448, a decrease of $99,197 (27%) from the same
period of 1995. This decrease is attributable primarily to greater amounts
capitalized in 1996 as compared to 1995 ($42,217) and governmental grant
amounts received by the Company to support research and development ($41,238).
In 1996, the Company's Canadian subsidiary entered into an agreement with
National Research Council Canada which provides financial support
20
<PAGE> 24
for development carried out under an approved program. Total amounts expended
on research and development (including amounts expensed, amounts subsidized by
government support and amounts capitalized) was $549,139 and $564,881 for the
quarters ended March 31, 1996 and 1995, respectively.
Depreciation and amortization expense for the quarter ended March 31,
1996 decreased to $383,605 from $446,314 for the same period of 1995, a
decrease of $62,709 (14%).
Interest income for the quarter ended March 31, 1996 was $333,031 as
compared to $294,767 for the same period of 1995, an increase of $38,264 (13%),
due primarily to higher rates earned on invested balances.
Interest expense for the quarter ended March 31, 1996 decreased to
$128,799 from $142,498 for the same period of 1995, a decrease of $13,699 (10%)
due primarily to lower interest rates on outstanding borrowings.
The Company conducts its worldwide operations through separate
geographic area organizations which represent major markets or combinations of
related markets. Transfers between markets are valued at cost. Financial
information by geographic area for the quarters ended March 31, 1996 and 1995
and as of March 31, 1996 and December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net revenues(1):
Domestic $ 7,127,466 $ 8,056,017
----------- -----------
Canada 1,094,057 880,474
----------- -----------
Pacific Region 1,518,945 935,481
Europe 1,534,551 1,439,082
----------- -----------
Consolidated net revenues $11,275,019 $11,311,054
=========== ===========
Net income (loss):
Domestic $ 633,939 $ 1,496,471
----------- -----------
Canada (19,706) 68,069
----------- -----------
Pacific Region (69,330) (399,335)
Europe (23,499) (121,670)
----------- -----------
Consolidated net income $ 521,404 $ 1,043,535
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Identifiable assets:
Domestic $35,604,940 $37,646,558
----------- -----------
Canada 1,906,121 1,562,171
----------- -----------
Pacific Region 3,276,192 3,437,539
Europe 4,787,944 4,680,510
----------- -----------
Consolidated identifiable assets $45,575,197 $47,326,778
=========== ===========
</TABLE>
(1) Sales between geographic areas and export sales are not material.
The Company had a net deferred tax asset amounting to $2,099,753, net
of valuation allowances of $10,401,835 at March 31, 1996 and $10,534,223 at
December 31, 1995. The valuation allowance was decreased in the quarter ended
March 31, 1996 by $132,388 and was decreased in the quarter ended March 31,
1995 by $621,071 reflecting the Company's estimate of the valuation allowance
necessary to reduce the
21
<PAGE> 25
net deferred tax asset to the net recoverable amount. As a result, the income
statements for the quarters ended March 31, 1996 and 1995 do not reflect any
income tax provision on the pre-tax operating results for those periods. The
realizability of this deferred tax asset is contingent upon a number of factors
including the ability of the Company to maintain a level of operations that
will generate taxable income. Management believes that it is more likely than
not that the Company will generate taxable income sufficient to realize a
portion of the tax benefits associated with net operating losses and tax credit
carryforwards prior to their expiration. This belief is based upon the
Company's view of expected profits in 1996 and the next several years. If the
Company is unable to generate sufficient taxable income in the future through
operating results, increases in the valuation allowance will be required
through a non-cash charge to expense. However, if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax
asset, the valuation allowance will be reduced through a non-cash credit to
income.
1995 AS COMPARED TO 1994
The significant improvement in 1995 when compared to 1994 is primarily
the result of a 7% increase in sales and an improvement in gross margins of 8
percentage points, which together accounted for a $4,428,378 improvement in
gross margins, a $1,492,214 reduction in selling, general and administrative
expenses and $3,323,408 in portfolio unrealized market changes (from an
unrealized loss of $1,861,403 in 1994 to an unrealized gain of $1,462,005 in
1995). During 1995, the Company settled certain shareholder litigation which
resulted in provisions of $2,919,333 and wrote-off certain capitalized software
development costs totaling $514,694 representing the end of the estimated
useful lives of certain systems. Primarily as a result of the above, the
Company's net loss in 1995 was ($1,368,956) as compared to a loss of
($11,668,013) in 1994.
Net sales for the year ended December 31, 1995 were $44,693,302,
representing an increase of $2,805,986 (7%) when compared to net sales of
$41,887,316 for the same period of 1994. Net system sales for the year ended
December 31, 1995 were $27,645,389 as compared to $25,893,783 for the same
period of 1994, an increase of $1,751,606 (7%) due primarily to increased sales
of the Company's Point of Sale Systems. Support revenues for the year ended
December 31, 1995 were $17,047,913 as compared to $15,993,533 for the same
period of 1994, an increase of $1,054,380 (7%) due primarily to an increased
base of Point of Sale installations. Support revenues are billed and collected
in advance for periods of one to twelve months and are recognized as support
revenues ratably over the contract period. Sales by offices and distributors of
the Company were $35,777,862 (80%) and $8,915,440 (20%), respectively, of net
sales for the year ended December 31, 1995 as compared to $31,705,933 (76%) and
$10,181,383 (24%) for the comparable 1994 period. The Company previously
reported in two industry groups (the Real Estate/Hospitality Group and the
Legal Group). The Legal Group is not material (less than 3% of total sales) to
the consolidated operations of the Company, accounting for sales of $1,074,202
in 1995 and $1,185,910 in 1994. Therefore, this discussion and analysis is made
on the basis of one industry category.
Cost of goods sold for the year ended December 31, 1995 decreased to
$18,965,582 from $20,587,974, a decrease of $1,622,392 (8%) over the comparable
1994 period. As a consequence, cost of goods sold as a percentage of net sales
improved for the year ended December 31, 1995 to 42%, as compared to 50% for
the same period of 1994. Gross margins of the Company increased to $25,727,720
from $21,299,342, an increase of $4,428,378 (21%) over the year ended December
31, 1994. Cost of system sales for the year ended December 31, 1995 was
$14,351,669 (52% of system sales) as compared to $15,078,349 (58% of system
sales) for the same period of 1994, a decrease of $726,680 (5%), due primarily
to the mix of software and hardware sales and the ability of the Company to
control hardware costs. Cost of sales is also lower in 1995 as compared to 1994
because 1994 included amortization of $358,500 related to certain capitalized
software development costs written-off in 1994. Cost of support for the year
ended December 31, 1995 was $4,613,913 (27% of support revenues) as compared to
$5,509,625 (34% of support revenues) for
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the same period of 1994, a decrease of $895,712 (16%), primarily as the result
of the Company's ability to control such costs.
Selling, general, and administrative expenses decreased in 1995 when
compared to 1994. For the year ended December 31, 1995, these expenses were
$22,895,996 as compared to $24,388,210 a decrease of $1,492,214 (6%) over the
same period of 1994. Selling, general, and administrative expenses as a
percentage of net sales decreased to 51% for the year ended December 31, 1995,
a 7 percentage point decrease from the year ended December 31, 1994. The
reduction in expense is primarily in the areas of bad debts on accounts
receivable ($770,000), payroll related costs ($218,000) and travel related
expenses ($115,000). Reduction in bad debt expense is the result of changes in
Company procedures in extending credit and collections.
Research and development expense for the year ended December 31, 1995
decreased to $1,198,999 from $1,596,515, a decrease of $397,516 (25%), as
compared to the year ended December 31, 1994. Total amounts expended on
research and development (including amounts expensed and amounts capitalized)
was $2,201,853 and $3,153,403 for the years ended December 31, 1995 and 1994,
respectively. Management believes that these reduced expenditures do not
negatively impact the Company's competitive position in the marketplace. The
Company continuously evaluates the anticipated future sales of the software
systems, and concluded, during the fourth quarter of 1995 that certain systems
would have only nominal future sales and, therefore, should be written-off.
This write-off (recorded in the fourth quarter of 1995) amounted to $514,694
and is reported in the income statement as a separate component of expenses. In
1994, the Company wrote-off $1,820,246 related to capitalized software costs.
Depreciation and amortization expense for the year ended December 31,
1995 decreased to $1,520,033 from $2,157,857 for the same period of 1994, a
decrease of $637,824 (30%). In 1994, the Company wrote-off certain goodwill
associated with the Company's Hong Kong and Singapore subsidiaries which
resulted in a $344,000 reduction in 1995 goodwill amortization when compared to
that of 1994.
Interest income for the year ended December 31, 1995 was $1,290,691 as
compared to $1,255,848 for the same period of 1994, an increase of $34,843
(3%), due primarily to higher average invested balances.
Interest expense for the year ended December 31, 1995 increased to
$597,672 from $556,269 for the same period of 1994, an increase of $41,403 (7%)
due to higher outstanding borrowings.
During 1995, the Company made a provision for the settlement of a
shareholder class action suit and increased the estimated cost of the 1993
settlement of a previous shareholder action. On December 27, 1995, the Company
settled with the plaintiffs in the action known as "IN RE: Sulcus Computer
Corporation Securities Litigation, II". This settlement provided for a
settlement fund of $800,000 in cash and 1,400,000 Sulcus Common Shares having a
value of $2,800,000 at the time of settlement. The cash portion of the
settlement will be paid by insurance ($666,000) and the Company ($134,000). The
Company anticipates issuing the shares to the settlement fund on or before
December 31, 1996. At December 31, 1995, the Company recorded a provision of
$2,861,118 which, together with amounts accrued in 1994, represents costs which
the Company expects to incur in connection with this settlement. Additionally,
in connection with the conclusion of the 1993 settlement action known as "IN
RE: Sulcus Computer Corporation Securities Litigation", the Company expects to
incur costs of $58,215 in addition to those previously accrued.
During 1995, the Company recorded tax expense of $202,645,
representing an estimate of current and deferred taxes attributable to that
year. These taxes are incurred in jurisdictions where loss carryforwards are
not available. Due to losses from operations and loss carryforwards, the
Company incurred no expense in 1994 and 1993. The Company had a net deferred
tax asset amounting to $2,099,753, net of valuation allowances of $10,534,223
at December 31, 1995 and $11,058,609 at December 31, 1994. The valuation
allowance was decreased in the year ended December 31, 1995 by $524,386
reflecting the Company's estimate
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of the valuation allowance necessary to reduce the net deferred tax asset to
the net recoverable amount. The realizability of this deferred tax asset is
contingent upon a number of factors including the ability of the Company to
attain a level of operations that will generate taxable income. Management
believes that it is more likely than not that it will generate taxable income
sufficient to realize a portion of the tax benefits associated with net
operating losses and tax credit carryforwards prior to their expiration. This
belief is based upon the Company's view of expected profits in 1996 and the
next several years. If the Company is unable to generate sufficient taxable
income in the future through operating results, increases in the valuation
allowance will be required through a non-cash charge to expense. However, if
the Company achieves sufficient profitability to utilize a greater portion of
the deferred tax asset, the valuation allowance will be reduced through a
non-cash credit to income.
1994 AS COMPARED TO 1993
For the year ended December 31, 1994, the Company reported net loss of
($11,668,013) as compared to a net loss of ($3,050,100) for the year ended
December 31, 1993. For the year ended December 31, 1994, the Company's sales
and gross margins decreased from those reported in the same period of 1993.
Additionally, the 1994 results included a write-off of software development
costs ($1,820,246), the write-off of an investment in an unconsolidated
subsidiary ($336,703), the write-off of goodwill ($1,256,000) and a provision
for litigation settlement ($250,000) as compared to the 1993 write-off of
assets ($970,184) and provision for litigation settlement ($2,237,310).
Primarily as a result of the above, the Company's net loss in 1994 was
($11,668,013) as compared to ($3,050,100) in 1993.
Net sales for the year ended December 31, 1994 were $41,887,316,
representing a decrease of $5,458,515 or 12% when compared to net sales of
$47,345,831 for the same period of 1993. Net system sales for the year ended
December 31, 1994 were $25,893,783 as compared to $32,944,045 for the same
period of 1993, a decrease of $7,050,262 (21%) due primarily to a sales decline
in the Company's Hong Kong subsidiary, decreases of the Company's Property
Management Systems domestic sales and the loss in 1993 of a distribution
agreement by the Company's Craftech subsidiary in Hong Kong. Support revenues
for the year ended December 31, 1994 were $15,993,533 as compared to
$14,401,786 for the same period of 1993, an increase of $1,591,747 (11%) due
primarily to increased sales of the Company's Point of Sale Systems and
increased support provided under a contract with Holiday Inn Worldwide. Support
revenues are billed and collected in advance for periods of one to twelve
months and are recognized as support revenues ratably over the contract period.
Sales by offices and distributors of the Company were $31,705,933 (76%) and
$10,181,383 (24%), respectively, of net sales for the year ended December 31,
1994 as compared to $38,045,473 (80%) and $9,300,358 (20%) for the comparable
1993 period.
Cost of goods sold for the year ended December 31, 1994 decreased to
$20,587,974 from $23,084,752, a decrease of $2,496,778 (11%) over the
comparable 1993 period. Cost of goods sold as a percentage of net sales
remained relatively constant for the year ended December 31, 1994 at 50%, as
compared to 49% for the same period of 1993. As a result, gross margins of the
Company decreased to $21,299,342 from $24,261,079, a decrease of $2,961,737
(12%) over the year ended December 31, 1993. Cost of system sales for the year
ended December 31, 1994 was $15,078,349 (58% of system sales) as compared to
$19,126,487 (58% of system sales) for the same period of 1993, a decrease of
$4,048,138 (21%). Cost of support for the year ended December 31, 1994 was
$5,509,625 (34% of support revenues) as compared to $3,958,265 (27% of support
revenues) for the same period of 1993, an increase of $1,551,360 (39%)
primarily as the result of increased costs of fulfilling support contracts for
existing and acquired customers in connection with hardware and software
systems sold.
Selling, general, and administrative expenses increased in 1994 when
compared to 1993. For the year ended December 31, 1994, these expenses were
$24,388,210 as compared to $21,726,463 an increase of
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$2,661,747 (12%) over the same period of 1993. Selling, general, and
administrative expenses as a percentage of net sales increased to 58% for the
year ended December 31, 1994, a 12 percentage point increase from the year
ended December 31, 1993. This increase in costs occurred primarily in the area
of payroll and related costs ($2,346,655), legal, professional and auditing
($497,797) and was partially offset by declines in travel related costs
($391,397).
Research and development expense for the year ended December 31, 1994
decreased to $1,596,515 from $1,877,628, a decrease of $281,113 (15%) as
compared to the year ended December 31, 1993. Total amounts expended on
research and development (including amounts expensed and amounts capitalized)
was $3,153,403 and $4,346,965 for the years ended December 31, 1994 and 1993,
respectively. Management believes that these reduced expenditures do not
negatively impact the Company's competitive position in the marketplace. During
the third quarter of 1994, the Company wrote-off capitalized software costs of
$1,820,246, representing the assessment that certain customer related software
would no longer benefit future periods. This write-off is presented in the
income statement as a separate component of expenses.
Depreciation and amortization expense for the year ended December 31,
1994 increased to $2,157,857 from $2,034,144 for the same period of 1993, an
increase of $123,713 (6%).
Interest income for the year ended December 31, 1994 was $1,255,848 as
compared to $1,937,314 for the same period of 1993, a decrease of $681,466
(35%), due primarily to lower average invested balances.
Interest expense for the year ended December 31, 1994 increased to
$556,269 from $402,764 for the same period of 1993, an increase of $153,505
(38%) due to higher outstanding borrowings and higher interest rates.
During 1994 and 1993, the Company did not record a provision for
income tax expense, based upon estimates of the impact of losses for tax
purposes, changes in deferred tax assets and the availability of loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is dependent upon its ability to generate
sufficient working capital through profitable operations. Management believes
that in order to sustain profitability, it must continue to increase sales and
improve productivity related to selling, general and administrative expenses.
In order to increase sales, the Company believes that it must increase its
distribution channels and introduce additional developed or acquired
competitive products in its current market segments.
Current short-term capital needs will be funded primarily through
internal working capital and anticipated operating revenues from new sales,
continuing and new support services revenue, and a backlog of orders received
and pending. The Company has no significant unused lines of credit at either
March 31, 1996 or December 31, 1995. To date, bank credit lines have not been a
significant component of the Company's liquidity and capital resources.
At March 31, 1996, Sulcus' cash and cash equivalents increased to
$3,000,511 from $1,202,325 at December 31, 1995, an increase of $1,798,186.
This increase is primarily the result of cash received during the first quarter
of 1996 related to annual customers support agreements. This cash will be used
to support operations throughout the remainder of 1996. Since the Company
operates in a number of countries, cash and cash equivalents are maintained by
the various operating subsidiaries in the local currencies of these countries
for the purpose of paying expenses as they are due.
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The Company maintains a portfolio of short-term investments (primarily
in the form of preferred stocks) which may be used for the purpose of providing
liquidity. At March 31, 1996, the Company's short-term investment portfolio
decreased to $12,232,390 from $12,408,075 at December 31, 1995, a decrease of
$175,685 (1%) primarily related to declines in market value. These investments
are subject to risk, most notably the risk that the market value of these
assets will decline as the result of general market fluctuations, increases in
interest rates or changes in the underlying operations of the investee. Company
policy does not require temporary investments to be investment grade as
determined by a nationally recognized statistical rating organization nor does
it require that such investments have any additional safety feature such as
insurance. Through the first five months of 1995, the Company maintained its
investment philosophy of actively buying and selling investments with the
objective of generating profits of short-term differences in price ("Trading").
Management sold a portion of these investments in May and June of 1995 and
invested the proceeds of these sales in securities which will be held for the
generation primarily of dividend and interest income ("Available for Sale").
Additionally, the remaining investments were reclassified in 1995 from Trading
to Available for Sale. The Company had borrowings at March 31, 1996, and
December 31, 1995, of $6,313,889 and $6,062,905 respectively, on margin against
its investments at the brokers internally established floating interest rate
which was 7.875% at March 31, 1996.
At March 31, 1996, accounts receivable decreased to $7,959,404, as
compared to $11,134,576 at December 31, 1995, a decrease of $3,175,172 (29%)
primarily due to collections on annual support contracts. The Company's gross
accounts receivable includes hardware and software support contracts as well as
amounts due on system installations. The Company records a provision for
amounts which it estimates may ultimately be uncollectible from customers. The
allowance for uncollectible accounts remained relatively constant at March 31,
1996, increasing slightly to $2,618,013 as compared to $2,581,020 at December
31, 1995.
The Company purchases computer hardware and other equipment from
vendors under open accounts payable for the purpose of including these items in
systems sold to customers. Hardware and equipment are readily available in the
marketplace and therefore it is not necessary for the Company to maintain large
quantities of inventories to meet customer needs. Inventories of computers,
computer components and computer peripherals decreased to $2,513,392 at March
31, 1996 as compared to $2,573,826 at December 31, 1995, a decrease of $60,434
(2%). Accounts payable decreased to $3,600,038 at March 31, 1996 as compared to
$4,352,408 at December 31, 1995, a decrease of $752,370 (17%).
The Company leases facilities under operating lease agreements of
varying terms. Properties and equipment consist primarily of leasehold
improvements and equipment used in the conduct of business. Property and
equipment, net of accumulated depreciation and amortization, increased to
$2,409,965 at March 31, 1996 from $2,015,816 at December 31, 1995, an increase
of $394,149.
In addition to borrowings on margin against its investments, the
Company has outstanding short and long-term borrowings from various financial
institutions. At March 31, 1996, the Company had short-term borrowings
(excluding borrowings under margin) of $211,554 as compared to $319,805 at
December 31, 1995, a decrease of $108,251 (34%). At March 31, 1996, the Company
had long-term borrowings (including current and noncurrent portions) of
$478,577 as compared to $128,695 at December 31, 1995, an increase of $349,882.
This increase is primarily the result of 1996 capitalized lease obligations for
equipment.
The backlog of hardware and software orders at March 31, 1996 is
expected to be filled within one year and amounted to $3,632,000 as compared to
$3,353,000 at December 31, 1995.
The Company's ability to develop and expand its presence in the
hospitality industry and expand existing business lines for its other markets
depends, in a large part, on the availability of adequate funds. Cash flow has
been favorably impacted during the past year by improving sales and
profitability. These funds have generally been used to reduce levels of accounts
payable, to fund the
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development of the Company's software products, to fund capital expenditures
and to repay short-term borrowings. Management expects that to meet customer
needs, it must begin to increase levels in inventories for the Company's
manufactured point-of-sale products and continue to invest in the development
of the Company's software products at levels consistent with those of the past
two years. To finance these needs, the Company will rely primarily on operating
cash flow over the next several years together with currently available working
capital and the proceeds of this offering. On a longer term basis, the Company
is working with financial institutions to develop relationships which will be
used, in part, to provide working capital facilities which will be utilized in
the Company's operations. Nonetheless, if technological changes render Sulcus'
products uncompetitive or obsolete, or, if the Company incurs operating losses,
additional capital may be required. There can be no assurance that any
financing will be available when needed, or, if available, that it can be
obtained on terms satisfactory to the Company.
In furtherance of the Company's strategy of acquisition of computer
software products or companies that complement or expand existing business
lines, the Company intends to continue its pursuit to acquire additional
businesses or software products and/or to create joint ventures related to
existing businesses for this purpose. The Company currently has no plans,
agreements or commitments for any such transaction. There can be no assurance
that the Company will be able to acquire companies or software products on a
favorable basis.
Certain lawsuits arising in the ordinary course of business are
pending against the Company and its subsidiaries. The Company believes that the
ultimate outcome of these actions will not result in a material adverse effect
on the Company's consolidated financial position and liquidity.
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BUSINESS
GENERAL
Sulcus develops, manufactures, markets and installs microcomputer
systems designed to automate the creation, handling, storage and retrieval of
information and documents. The Company designs its systems primarily for the
hospitality and real estate industries and to a lesser extent, the legal
profession. The Company's sales practices are currently systems oriented
(rather than individual sales of hardware or software) toward the vertical
marketing of its integrated products. Systems include a network of hardware,
software and cabling as well as stand alone systems for which the hardware and
software are not separately sold. The Company's systems are offered together
with full services, training, maintenance, and support. The Company has
installed systems throughout North and South America, Europe, Africa, Asia and
Australia. Customers include property management companies, condominiums,
hotels, motels, restaurants, resorts, country clubs, cruise lines, real estate
loan and closing offices, title insurance companies, abstract companies, escrow
offices and law offices.
HISTORICAL DEVELOPMENT
The Company provides its computer systems to customers on a turnkey
basis. Each system includes hardware, software, training, maintenance and
support. Sulcus believes that this approach is critical in business
applications because while some system providers can automate a specific task,
most are unable to effectively automate a broad range of a customer's business.
The Company's sales practices and trends are currently oriented to sales of
systems (rather than individual sales of hardware or software) and to the
vertical marketing of its integrated products.
The Company began to develop in 1988 a strategic plan to achieve a
leadership position in turnkey computer systems with specialized software for
the real-estate related, hospitality and legal industry groups. These groups
were chosen because they represented, in management's opinion, large vertical
business markets. The strategic plan envisioned internal growth by way of
expanded research and development, as well as growth through acquisitions,
mergers, joint ventures and similar alliances. In furtherance of this strategy,
Sulcus pursued acquisition opportunities which created additional market
opportunities for existing products, had products that complemented or expanded
existing product lines, and created additional product distribution channels.
Sulcus has made numerous acquisitions to date as described below.
COMPUSOLV
In July 1989, a subsidiary of Sulcus, acquired a non-exclusive license
from CompuSolv for established property management software systems for the
hospitality industry. These systems are used by the hotel, motel, condominium,
restaurant and travel industries to automate front office, back office, point
of sale and call accounting systems.
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RADIX
In August 1990, Sulcus established Radix Systems, Inc., a wholly-owned
subsidiary with its primary offices in Conshohocken, Pennsylvania. Radix
provided field engineering and support services including site analysis,
cabling, and Novell(R) training. Since that time, Radix has added LANmark
support and Squirrel system sales and support.
LODGISTIX
In February 1991, Sulcus acquired Lodgistix, Inc., an integrator of
property management systems in the hospitality industry. Lodgistix was a
developer of automated hotel systems including front office, back office, sales
and catering and interfaces to other hotel-related systems. The Lodgistix
stockholders received one unit (the "Unit") of Sulcus for each 13.479 shares of
their Lodgistix Common Stock, each Unit consisting of two shares of Sulcus
Common Stock and two Class A Warrants. An aggregate of 484,375 Units were
issued to all Lodgistix stockholders with a value of $3,100,000.
SULCUS (AUSTRALIA) PTY. LTD.
Effective November 1, 1991, the Company established a direct sales
office in Australia by acquiring certain assets, trade names, leasehold
improvements and equipment for approximately $200,000 from Belvoir Lodgistix
Group Pty. Ltd. and its shareholders. Belvoir Lodgistix was the distributor of
Lodgistix, Inc.'s systems in Australia and Eastern Asia. The Company's name was
changed to Sulcus (Australia) Pty. Ltd. Sulcus (Australia) Pty. Ltd. sells and
supports the full range of the Company's property management and point-of-sale
systems.
SQUIRREL
In March 1992, the Company acquired Squirrel Companies, Inc. Squirrel
develops and markets touch-screen software systems to the hospitality industry.
Squirrel's software systems consist principally of point-of-sale software
coupled with food and beverage software and hardware. Sulcus purchased Squirrel
in exchange for $500,000, 401,260 shares of Sulcus Common Stock valued at
$2,307,245. At the closing options to purchase up to 175,000 shares of Sulcus
Common Stock at $4.25 per share were issued as well as options to purchase
225,000 shares of Sulcus Common Stock at $12.50 per share were issued, subject
to certain earn out provisions in connection with the acquisition. One half of
the options for the 175,000 shares were vested immediately and the balance
vested one year later. A total of 174,263 options were exercised. The earn out
options were to vest in each of the three years ended December 31, 1992, 1993
and 1994 if Squirrel met its earn out objective. None of these options were
exercised and have expired. In addition, the shareholders of Squirrel were
entitled to receive up to 451,665 additional shares of the Company's Common
Stock if Squirrel attained its earn out objective for those three years. For
the years ended December 31, 1992 and 1994, Squirrel achieved sufficient
earnings to entitle the former shareholders to earn out payments. The Company
issued an aggregate of 124,048 shares for 1992 and 1994 respectively, having an
aggregate value of $880,288.
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NRG
In March 1992, the Company acquired NRG Management Systems, Inc. (NRG)
in exchange for 61,968 shares of the Company's Common Stock valued at $473,207.
NRG develops and markets energy and room management software to the hotel and
motel industry. The applications include HVAC energy management, in-room safes,
mini-bar, maid status, and room occupancy and security. In 1996, the Company
began marketing an improved version of the product under the name CIRIS I. The
shareholders of NRG were entitled to receive up to 324,324 additional shares of
the Company's Common Stock if NRG attained certain projected after tax earnings
for the years 1992 through 1994. For the year ended December 31, 1992, the
Company issued 16,019 shares of Sulcus Common Stock valued at $148,173 ($9.25
per share) pursuant to the earn out formula. For the years ended December 31,
1993 and 1994, pursuant to the terms of the Stock Purchase Agreement, no earn
out shares were issued.
JBA
In July and September 1992, respectively, the Company acquired JBA (HK)
Ltd. of Hong Kong and JBA Singapore PTE. LTD. The names of the companies were
subsequently changed to Sulcus Hospitality Limited and Sulcus Singapore Pte.
Ltd., respectively. Sulcus Hospitality Limited and Sulcus Singapore Pte. Ltd.
market the full range of the Company's property management and point-of-sale
systems. The purchase price of both companies consisted of a total of $1,450,000
in cash. In addition, the former shareholders were entitled to receive shares of
Sulcus Common Stock having an aggregate value of up to $8,855,000, contingent
upon achieving certain earnings benchmarks over a three-year period. For the
year ended December 31, 1992, the Company issued 327,726 shares of Sulcus Common
Stock valued at $2,827,691. As a result of the Company's 1992 restatement of
earnings, the Company revised the contingent earn out calculation based on the
restatement adjustments that affected it. The Company cancelled the 327,726
shares of stock issued on its books and records as a result of the original
calculation; however the certificates representing these shares have not been
surrendered despite demand. As a result of the share cancellation, at December
31, 1994, the Company reduced goodwill by approximately $2,168,000, reduced
equity by approximately $912,000, the estimated current value of the shares to
be cancelled, and expensed the difference of $1,256,000 in 1994. For the years
ended December 31, 1993 and 1994, these companies did not achieve their
projection, and therefore, no earn out shares will be issued.
TECHOTEL
Effective January 1, 1993, the Company acquired Techotel, AG of Zug,
Switzerland, a hotel software development, marketing, and service organization.
The name of the company was subsequently changed to Sulcus Hospitality Group
EMEA, A.G. Sulcus Hospitality Group EMEA, A.G., through Lodgistix
(International) AG, a wholly owned subsidiary, sells and supports the full
range of the Company's property management and point-of-sale systems in 30
markets in Europe, the Middle East, and Africa, primarily through distributors.
The purchase agreement (as amended) provided for the issuance of Sulcus Common
Stock valued at $1,000,000 and as a result of subsequent discussions and
negotiations, the Company issued 200,000 shares of its Common Stock valued at
$500,000 ($2.50 per share) and paid $500,000 in cash. In addition, the
shareholders of
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Techotel were entitled to receive additional shares of the Company's Common
Stock if Techotel attained certain projected after-tax earnings for the years
ended December 31, 1993 through 1995. These earnings were achieved for the 1993
period. As a result, Sulcus has issued to the former shareholders of Techotel
90,517 shares of Sulcus Common Stock valued at $698,110 ($7.7125 per share) for
the 1993 period. It is the Company's interpretation of the purchase agreement
that Sulcus Hospitality Group EMEA, A.G. did not achieve the required earnings
for 1994 with which interpretation the former shareholders have not yet agreed
and the Company and former shareholders do not agree on the interpretation for
the 1995 earn out. This interpretation involves a range of items including
pricing of shares, licensing of products, intercompany transfer pricing,
step-down pricing, intercompany billings and a variety of interpretations of
earn out calculations for the entire earn out period. The maximum possible
remaining earn out for 1994 and 1995 is $1,926,666. The Company has calculated
the earned portion for 1995 to be $168,399. The actual number of shares to be
issued is dependent upon the final resolution. The price per share ranges from
$2.0125 to $2.2375.
LODGISTIX SCANDINAVIA
In November 1993, the Company acquired Lodgistix Scandinavia A.S., a
distributor of Lodgistix systems in Norway, Sweden and Denmark. The name of
this company was subsequently changed to Sulcus Scandinavia, A.S. Sulcus
Scandinavia A.S. offers a full range of Sulcus products including hotel
management systems, restaurant point-of-sale systems, and CIRIS I in-room
management systems. The purchase price consisted of 100,000 shares of Sulcus
Common Stock valued at $250,000 and $50,000 in cash. In addition, the former
stockholders of Lodgistix Scandinavia were entitled to receive additional
shares of the Company's Common Stock with a value up to $675,000, contingent
upon attaining certain earnings over a three year period. Sulcus Scandinavia
A.S. achieved the targeted earnings for the years ended December 31, 1993 and
1995, as a result, Sulcus has issued to the former stockholders of Lodgistix
Scandinavia A.S. 5,808 and 111,801 shares of Sulcus Common Stock valued at
$44,864 ($7.725 per share) and $225,000 ($2.0125 per share) for 1993 and 1995,
respectively. Sulcus Scandinavia did not achieve the required earnings for
1994.
INTERNATIONAL OPERATIONS
The Company has established international operations for the
marketing, support, manufacturing and/or distribution of its products as a
result of its acquisition strategy. The Company's international operations
presently consist of the following subsidiaries: Sulcus (Australia) Pty. Ltd.,
a direct sales office in Australia; Squirrel Systems of Canada, Ltd., a
Canadian subsidiary of Squirrel located in Vancouver, British Columbia which
manufactures and sells Squirrel products; Sulcus Hospitality Limited located in
Hong Kong, and Sulcus Singapore, PTE. LTD., located in Singapore, each a direct
sales office; Sulcus Hospitality Group EMEA A.G. located in Switzerland;
Lodgistix UK, Sulcus Scandinavia A.S., located in Norway; Sulcus (Malaysia) Sdn
Bhd; Squirrel (U.K.) Ltd., Sulcus Hospitality (U.K.) Ltd., and NRG Management
Systems (U.K.) located in the United Kingdom, all direct sales and support
offices, and Sulcus Hospitality Group (Belgium) located in Belgium, which
operates as a customer support office.
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Sulcus localizes its products for use in other countries so that all
monetary references, user messages, and documentation reflect the monetary
units, language and other conventions of a particular country. The Company's
international operations are subject to certain risks common to foreign
operations in general, such as governmental regulations and import
restrictions.
PRODUCTS
HARDWARE
Sulcus markets computer systems consisting of hardware, software,
training and ongoing support. The hardware platform utilized by the Company's
property management and legal systems products can be obtained from Sulcus or
from elsewhere--either from a manufacturer with whom Sulcus has a value-added
remarketing agreement (whereby Sulcus purchases such hardware at a discount) or
from a completely independent supplier. The hardware platform utilized by the
Company's point-of-sale systems is manufactured by the Company from
commercially available computer components.
In the event of a turnkey purchase in which Sulcus supplies hardware,
software and training, Sulcus offers a Hardware Service Agreement for the
maintenance of the equipment. In certain circumstances the hardware supplier
provides the equipment maintenance with no revenue accruing to Sulcus. Sulcus
performs certain remanufacturing and assembly operations at its own Greensburg,
Pennsylvania, Wichita, Kansas and Vancouver, Canada facilities. Sulcus is not
dependent on a specific manufacturer for its components or systems.
The base systems are supported by printers and other peripherals (as
requested by the customer) purchased by Sulcus from manufacturers. Sulcus is
not dependent upon any individual supplier for these peripherals and support
devices.
SOFTWARE
Through its in-house staff of applications programmers, systems
programmers, and software engineers, Sulcus develops and enhances its own
proprietary software. Sulcus attempts to have its software operate with
single-input (or file-integration) methods so that the user enters data once
and the computer will use that data in the various applications desired. The
following is a brief description of the Company's principal products:
PROPERTY MANAGEMENT SOFTWARE (PMS)
CompuSolv is a UNIX-based software system which automates hotel front
office operations and back office accounting functions. Rights to this software
were obtained under a non-exclusive license.
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LANmark is the Company's proprietary software which uses local area
network technology and is designed for managing hotels ranging in size from 150
to more than 2,000 rooms. Customers can purchase different modules of this
system to meet their specific needs including front office operations, back
office accounting functions, credit card authorization, group room sales, and
meeting/function space and event planning.
LANlite is a proprietary system designed to meet the needs of
properties which do not require all of the features of LANmark. As with the
LANmark system, customers can purchase different modules to meet their specific
needs.
LANexec is a proprietary management information system allowing
customized reports drawn from the LANmark database.
InnMaxX is a proprietary Windows based software system designed for
small lodging properties including lodges, bed and breakfast inns or small
resort properties.
CIRIS I is the Company's proprietary centralized in-room information
system which consists of energy and room management software with applications
for HVAC management, in-room safes, mini-bar, maid status and room occupancy
and security.
HOTELtrieve is a licensed computer output to laser disc information
archival and retrieval system tailored to hospitality industry requirements.
This system allows the accurate capture and faithful reproduction of all
archivable information. This system provides storage for up to one million
pages on a single disc and gives the benefits of reduced storage and retrieval
costs, shortened access time, distribution of information to multiple locations
and integration with existing customer electronic systems.
POINT-OF-SALE SOFTWARE (POS)
Squirrel Restaurant Management System offers complete automation of
full-service restaurant operations. This proprietary system automates
order-entry, credit card processing, labor cost management, time and
attendance, food and beverage management and data transfer. In addition to
stationary terminals, this system also offers remote operations through
hand-held terminals.
Squirrelite is proprietary software for restaurant operations similar
to the Squirrel Restaurant Management System but intended for smaller
installations.
OTHER SOFTWARE
The Abstractor is proprietary software which operates together with
portable computers and cellular communication to automate the collection and
organization of real estate title searches.
The Closer 2000 is proprietary software which automates real estate
transfers including closing and settlement statements, truth-in-lending
disclosures, escrow and trust accounting, forms creation and information
indexing.
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PRODUCT SUPPORT SERVICES
Management believes that support is fundamental to the continued
business relationship with Sulcus' customers. Software support agreements are
entered into in connection with substantially all system sales.
Under software support agreements, Sulcus offices provide support
services with their regional personnel and, if no solution can be found at that
level, Sulcus maintains second-level support through its Wichita, Kansas or
Vancouver, British Columbia centers which are staffed by specially trained
personnel. This multi-level support is intended to ensure that customers
receive prompt response and service. Software support services are provided for
a fee on a 24-hour, seven-day-per-week basis pursuant to a Support, Main
tenance and Enhancement Agreement.
Sulcus provides hardware support for a fee under a Hardware Service
Agreement which enables the user to call for a diagnosis and, repair or
replacement based upon the circumstances. Certain repairs and replacements come
with fees in addition to the support agreement, depending on the circumstances.
Additionally, depending upon the terms of the service agreement purchased by
the customer, hardware service may be provided at a customer's site or at
centralized facilities. The Company receives certain hardware support from
manufacturers or other service providers for a fee.
PRODUCT RESEARCH, DEVELOPMENT AND IMPROVEMENT
The Company has a number of ongoing research and development projects
consisting of developing new hardware and software products as well as
improving existing products.
Most of the Company's software products are developed internally
although the Company has purchased technology and has licenses for certain
intellectual property rights. Product documentation is also created internally.
Internal development enables Sulcus to maintain closer technical control over
the products and gives the Company the latitude to designate which
modifications and enhancements are more beneficial and when they should be
implemented. The Company has created and acquired a substantial body of
development tools and methodology for creating and enhancing its products.
These tools and methodology are intended to simplify a product's integration
with different operating systems or computers.
By making end-user follow-up contacts and by considering and
evaluating end-user requests for additional features to products, Sulcus
maintains an information base to evaluate market feasibility of new products.
Developing new software and updating existing offerings is a continual process
performed by research and development groups in the effort to keep their
products competitive. Also, since the functions of several products are
affected by changes in tax laws and regulations, Sulcus rewrites such affected
software to meet these changes for its customers.
Updates are made available without charge to those customers who have
purchased support or service agreements. Additionally, formally organized user
groups exist to provide input and suggestions on new features and modules for
products. These groups have periodic meetings and provides significant user
information for new product development. Neither the Company nor any of its
principal business units is dependent upon a single group of customers or a few
customers, the
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loss of any one or more of which would have a material adverse effect on the
Company or any of its principal business units.
MARKETS
Sulcus offers turnkey systems consisting of hardware, software,
supplies, training, maintenance and support to the hospitality and real estate
industries as well as the legal profession. These systems are installed
throughout North and South America, Europe, Africa, Australia and Asia.
Customers include property management companies, condominiums, hotels, motels,
restaurants, resorts, country clubs, cruise lines, real estate, loan and
closing offices, title insurance companies, abstract companies, escrow offices
and law offices.
The Company markets its systems through more than 80 locations in over
20 countries. These include locations maintained by the Company as sales
offices as well as locations of distributors. Customer assistance and support
services are generally offered 24 hours-a-day. The Company has generally had
good experience in utilizing its internal resources as well as distributors to
market and sell its products and services. Utilizing distributors allows the
Company to take advantage of established operations, eliminate office start-up
costs, and control costs associated with sales and marketing. Management
intends to continue to build the Company's customer and product bases through
current channels and to pursue strategic growth through acquisitions, mergers,
joint ventures or other alliances.
MARKET, DEVELOPMENT AND OPERATING AGREEMENT WITH HORWATH INTERNATIONAL
On April 8, 1996, Horwath International and Sulcus announced the
execution of a market, development, and operating agreement to market, license,
and sell worldwide a series of automated products and services to be supplied
exclusively by Sulcus. Horwath International is one of the world's largest
international networks of independent accounting and management consulting
firms with offices throughout the United States and in 90 countries of the
world. Horwath's member and correspondent firms, with more than 300 offices
and 10,000 partners and staff worldwide, offer a spectrum of professional
services including consulting, accounting, auditing, and tax. Horwath member
firms specialize and have earned a worldwide reputation as advisors to the
travel and tourism industry, as well as in information technology and
international structuring and tax planning. Sulcus hospitality products and
services will be marketed under the name HAT...MS(TM) products (Hospitality And
Tourism...Management Systems(TM)) and are designed for automating the
operations of hotels, restaurants, convention centers, country clubs, airlines,
and all other businesses involved in hospitality and tourism throughout the
world.
The initial term of the agreement is 66 months, and it will be
automatically renewable for succeeding 12-month periods. Horwath has been
granted an exclusive master license for HAT...MS(TM) products. Horwath is
required to sublicense a minimum of seven Peer Distributors and 10 Peer
Associates per year, all of which must be affiliates of Horwath International
and certified as a member in good standing. Horwath Peer Distributors will be
fully equipped with all HAT...MS(TM)/Sulcus hardware and software and will be
selected on the basis of achieving $750,000 of sales and services, after a
three-month ramp up period, in the first year and $900,000 each year
thereafter. Peer Associates will provide potential clients to either Horwath
or Sulcus without any fixed expectations
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of sales and services. Management believes that this agreement with Horwath
International should provide Sulcus with expanded global distribution.
TRAINING
Training of users is performed by employees of Sulcus who are
themselves required to go through a Company training program and occasionally
by distributors familiar with the business function of the user. Sulcus also
trains its personnel in applying the use of teaching techniques to user
requirements. Under the turnkey concept the user is taught to customize the
output for his specific needs. Sulcus conducts training at its offices and at
customers' sites.
MARKETING AND ADVERTISING
Sulcus utilizes Company owned locations and distributors for the sales
of its systems. The Company owned locations account for the majority of Sulcus'
sales and are located throughout the United States and in Australia, Hong Kong,
Singapore, Switzerland, United Kingdom, Norway, Malaysia and Canada. Sales
personnel are employees of the Company and sell Sulcus products directly to
end-users and do not represent any other companies. The Company's compensation
arrangements with its sales employees generally provide for a commission based
on sales performance. Managers engaged in sales activities are compensated by a
combination of salary and commission. Distributors are compensated by means of
a discount on the purchase price which varies with products offered and to a
lesser extent, the territory assigned. The Company sets minimum sales quota
requirements for its sales employees and during the past three fiscal years the
Company has terminated sales employees and distributors for failing to meet
such requirements. The Company is not materially dependent upon any individual
or group of sales employees or distributors.
The Company does not provide customers or distributors with rights to
return products, extended payment terms or similar working capital items. The
Company does not offer any written warranty relating to the performance of its
software products or Company manufactured point-of-sale hardware products, or
that they will operate error free. It does represent that when delivered, these
products will conform to their published specifications if used properly and
used on equipment purchased from or approved by the Company. The warranty for
hardware purchased by the Company for resale as part of a computer system is
issued by the manufacturer, and is passed on to the customer.
The Company utilizes a sales-type lease program in which the Company
retains ownership in the residual value of the leased property and assumes
certain liability under the recourse provisions in the agreement. The Company
has recorded a reserve for the estimated liability. To date actual losses from
recourse provisions have not been material.
Sulcus has a national advertising program primarily geared to trade
journals and a local and regional cooperative advertising program which
encourages the distributors to advertise in their respective areas and attend
local trade exhibits and conventions. Representatives of Sulcus attend and
demonstrate its products at national conventions of the various industries in
which its customers participate. Some of the conventions and trade shows
attended include the International Association of Hospitality Accountants,
Hotel Industry Technology Exposition and Conference, National
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Restaurant Association Convention, and the American Land Title Association
Convention. Sulcus also conducts a year-round direct-mail program.
Through its product strategies, management believes Sulcus can address
the automation requirement of each market segment. By doing so, Sulcus provides
a full-service product integration and upgrade path as a customer outgrows its
present computerized needs. This approach benefits customers by protecting
their investment in hardware and software, and allows greater flexibility for
future planning.
COMPETITION
Competition in the computer software market is generally intense and
competitors often attempt to emulate successful programs. Of the major
competitors, there does not appear to be a clear dominant vendor, due in part
to the increased number of competitors entering the marketplace over the past
several years. Increased competition has resulted in greater discounting of
prices with no lessening of the cost of providing systems and services.
Competitive advantages are afforded to those companies which are better
capitalized and have programming staffs which are able to meet the changing
demands of hotel and resort property owners or managers. There can be no
assurance that competitors will not develop competitive products or that Sulcus
will be able to successfully compete against such competitors or products. The
competitive position of Sulcus is not readily available because many companies
in this market are privately held and do not publish financial information.
Furthermore, there is no organization that routinely collects and evaluates
competitive information from which a competitive position can reliably be
ascertained.
The Company believes there are approximately five to six competitive
Property Management Systems vendors that have about the same or more
installations than Sulcus. The major competitors in the hotel/property
management market domestically (U.S.) include Hotel Information Systems, Inc.
(HIS), Computerized Lodging Systems, Inc. (a subsidiary of MAI Systems), Encore
Systems, Inc., and Fidelio Software Corporation (a subsidiary of Micros
Systems, Inc.) In Europe, the Middle East and Africa, the major competitors are
Fidelio Software Corporation and Hotel Information Systems, Inc. (HIS). In
Asia, Hotel Information Systems, Inc., and Fidelio Software Corporation are the
Company's major competitors. In the Full Service Restaurant Management System
domestic market, competitors are Micros Systems, Inc., NCR Corporation,
Restaurant Data Concepts, Inc., MenuSoft Systems, Inc. and Panasonic
Communications and Systems Co's. In Europe, the Middle East and Africa, the
major competitors are Remanco International, Inc. and Micros Systems, Inc. In
Asia, Remanco International, Inc., Micros Systems, Inc. and NCR Corporation are
the Company's major competition. The Company has not relied upon any report,
study, or other support in connection with this belief. Sulcus Hospitality has
been an active participant in the hospitality industry for over twelve years.
Management believes that compared to competitive products, Sulcus
products are not only superior in feature and function, but in connectivity and
integration to other products. Sulcus differentiates itself in the hospitality
marketplace in two ways. First, Sulcus utilizes a state-of-the-art development
platform for all of its software products which allows the Company to implement
its systems on both UNIX computers and DOS computers. The software development
platform is extremely flexible and easy to modify, allowing customization of
application programs to meet the
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specific needs of customers and provide less expensive enhancements to the
system over time. The Company's internal labor costs are also reduced because
of the efficient manner in which its programs can be created and modified.
Second, Sulcus offers a complete family of products to the hospitality
industry. These products include central reservation systems, property
management systems, restaurant POS systems, and computer-aided training.
Management believes that support is fundamental to the continued business
relationship with Sulcus' customers and that its software support is among the
industry's leaders. See "Business--Product Support Services."
The Company has generally had favorable experience in utilizing its
own employees as well as distributors for marketing and selling the Company's
products and services. Use of distributors and dealers allow the Company to
take advantage of established operations having required experience with the
Company's products. Office start-up costs are eliminated which help in the
control of the Company's costs associated with marketing and sales. The
disadvantage to using this method of distribution is the lack of direct control
and a risk inherent with changes in business and conditions of the distributor
which could result in less sales effort and less than expected revenues.
PRODUCT PROTECTION
Sulcus regards its software and application systems as proprietary and
generally relies on a combination of trade secret laws, copyrights, contracts
and internal and external nondisclosure safeguards to protect its products.
Each of the contracts under which customers use Sulcus' products contain
restrictions on using, copying and transferring the products, and prohibit
their disclosure to other parties. Despite these restrictions, it may be
possible for users or competitors to copy aspects of the products or to obtain
information that Sulcus considers as trade secrets. Sulcus believes that any
copies so obtained have limited value without access to the product source code
which is kept highly confidential. Additionally, many of Sulcus' products
contain software and hardware security devises to prevent unauthorized use or
copying. Because of the uncertain enforcement of Sulcus' proprietary rights in
foreign countries, most products distributed internationally use internal copy
protection methods. Only certain aspects of computer software can be patented,
and existing copyright laws afford limited practical protection. Sulcus has not
patented any of its products although it may seek patent protection for future
products. To maintain competitive advantages, Sulcus believes that rapid
technological changes in the computer industry places greater emphasis on the
knowledge and experience of its personnel and their ability to develop, enhance
and market new products, than on patent or copyright protection of technology.
Because of this, all employees are required to sign nondisclosure agreements at
the time of their employment.
Sulcus has registered in the United States and uses the following
trademarks and service marks on its products and services, and considers each
to be proprietary: SULCUS(R), LODGEMATE(R), LANmark(R), SQUIRREL(R),
LODGISTIX(R), PROWARE(R), LAWTOMATION(R) and SULCLINK(R).
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Sulcus has the exclusive license and assignment of the following
trademarks: COMPUSOLV(R), EVIDENCE MASTER(R) and COLLECTION LEDGER(R). Sulcus
has applied for, or intends to apply for Federal trademark or service mark
registration for HAT...ms(TM), INNMAXX(TM), LANEXEC(TM), HOTELTRIEVE(TM),
CIRIS I(TM), SQUIRRELITE(TM), NRG(TM), ONE WORLD ONE SYSTEM(sm) and
NRG SAVER(sm). Additionally, Sulcus has registered or applications are pending
for various product names in numerous foreign countries.
PERSONNEL
As of July 23, 1996, Sulcus employed 408 persons, including 31
executives engaged in management, 63 persons in administration and finance, 104
technical personnel, 51 persons engaged in sales marketing and 159 persons in
training and product support. None of Sulcus' employees are subject to
collective bargaining agreements. Sulcus believes its relations with its
employees to be excellent.
PROPERTIES
Sulcus' principal executive, and administrative operations are located
at Sulcus Centre, 41 N. Main Street, Greensburg, Pennsylvania 15601, in a
facility containing approximately 10,000 square feet. Sulcus leases this
building under several leases, with a trust established by Sulcus' principal
stockholder and Chairman, Jeffrey S. Ratner, expiring on various dates through
September 30, 2001. The annual rental commitment under these leases are
$229,111 in 1996, $138,105 in 1997, $85,860 in 1998 and $90,144 in 1999,
$91,947 in 2000, and $91,947 thereafter. The leases renew automatically for
additional two-year terms at a minimum rental of 2% over the prior year's
amount, unless canceled by either party. The aggregate rental commitment is
similar to comparable properties in the area.
Lodgistix leases approximately 22,500 square feet of office space in
Wichita, Kansas. The approximate monthly costs are $22,900, pursuant to a lease
terminating January 31, 1998. Sulcus Hospitality Group, Inc., leases
approximately 4,200 square feet of office space in Phoenix, Arizona. The
approximate monthly costs are $6,700 under a lease terminating July 31, 1996.
Squirrel Systems of Canada, Inc., leases 21,000 square feet in Vancouver,
British Columbia, Canada at an approximate monthly cost of $9,400 under a lease
terminating on October 31, 2005. Sulcus also leases regional and branch office
space under lease arrangements that vary from one year to month-to-month. The
total rent expense for these offices was $165,084; $185,251; and $161,700 for
the years ending December 31, 1995, 1994, and 1993, respectively.
In December 1992, the Company purchased an office building located at
420 West Boynton Beach Boulevard, Boynton Beach, Florida. The purchase price
was $338,000. The building has approximately 6,200 square feet, of which 742
square feet is under lease which expires at December 1996. The Company utilizes
this facility for executive, sales and administrative offices and, upon
expiration of the existing lease, will also utilize this space for such
purposes.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Sulcus are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jeffrey S. Ratner 53 Director and Chairman of the Board
Robert D. Gries 66 Director (1)
Herbert G. Ratner 88 Director
John W. Ryba 51 Director, General Counsel and Vice President, Administration
David Adler 51 Director (1)
Joel B. Nagelmann 54 President and Principal Executive Officer
H. Richard Howie 41 Chief Financial Officer, Principal Accounting Officer and
Treasurer
Delmer C. Gowing III 52 Chief Legal Officer
Margaret Santone 54 Corporate Secretary and Office Manager
William F. McLay 49 Managing Director
Barry Logan 46 Vice President, General Manager, Restaurant Division of Sulcus
Hospitality Group
Gary Campbell 53 Vice-President, International Operations, Sulcus Hospitality
Group
Bernhard Mantel 42 Vice President, Operations, Sulcus Hospitality Group EMEA, AG
Jappe Kjaer 40 President, Sulcus Scandinavia AS
Thomas Caudill 53 Vice President, General Manager, Lodging Division of Sulcus
Hospitality Group
Gerry Lau 57 Chairman, Sulcus Hospitality Limited
</TABLE>
(1) Member of Audit Committee.
Each director is elected for a period of one year at the Company's
annual meeting of Stockholders and serves until his successor is duly elected
by the Stockholders. Officers are appointed and serve at the will of the Board
of Directors subject in certain cases to the terms of employment agreements.
Herbert G. Ratner is the father of Jeffrey S. Ratner.
JEFFREY S. RATNER is a co-founder of the Company and has served as
Chief Executive Officer and Chairman of the Board of Directors since the
Company's inception in 1979. In September 1995, Mr. Ratner vacated the Chief
Executive Officer position. Since 1975, Mr. Ratner has owned Ratner Real Estate
and Ratner Development Corporation and is the Chief Executive Officer and
Chairman of the Board of both companies. In 1992, he became Chief Executive
Officer and Chairman of the Board of City Rentals, Inc., and is its sole
shareholder. These companies purchase, develop, lease and manage commercial and
residential real estate. Mr. Ratner does not devote substantial time to these
companies. On May 2, 1996, Mr. Ratner entered into an agreement with the
Securities and Exchange Commission, without admitting or denying any
wrongdoing, which provides that he would not in the future violate certain
sections of the Exchange Act and Rules thereunder. See "Recent Developments."
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ROBERT D. GRIES has been a Director of the Company since 1983. From
1964 through the present, Mr. Gries has been President of the Gries Companies
and has been engaged in venture capital financing. From 1966 to 1995 he was
Vice President, director and a major shareholder of the Cleveland Browns
Football Company, Inc., a professional National Football League team.
HERBERT G. RATNER was elected as a Director of the Company in October
1988. Until he retired in 1992, Mr. Ratner was the Chairman of the Board and
principal shareholder of City Industries, Inc., City Rentals, Inc., Supermarket
Realty, Inc. and Key Motors, Inc., since founding these companies in 1965. He
is also a member of the Board of Directors of Holy Cross Hospital in Florida.
Mr. Ratner is the father of Jeffrey S. Ratner, Chairman of the Company.
JOHN W. RYBA joined the Company in September 1987 as its General
Counsel and is presently its General Counsel and Vice President,
Administration. Mr. Ryba was elected a director in May 1989. Mr. Ryba was
engaged in the private practice of law in Pittsburgh, Pennsylvania, from 1984
until joining the Company. His firm represented computer software and hardware
companies.
DAVID H. ADLER was appointed a Director of the Company in August 1993.
Mr. Adler has been Chief Executive Officer and majority shareholder of a group
of privately-owned companies since 1985, including the Adler Financial Group,
David H. Adler Real Estate Enterprises and PEBECO (Pennsylvania Bedding
Incorporated) of Scranton, Pennsylvania, a manufacturer of King Koil and other
private labelled mattresses and sleep products.
JOEL B. NAGELMANN joined the Company in April 1995 as its President.
Previously, from March 1994, until joining the Company, he was Vice President
and General Manager of Enterprise Information Solutions Group of Amdahl
Corporation (AMEX:AMH), which develops and markets computer systems and
services. Prior to joining Amdahl Corporation, from 1988 to 1993, he was
President of Xerox Services (XCS), a division of Xerox Computer Corporation
(NYSE:XEROX). XCS develops and markets specialized software applications
domestically and internationally.
H. RICHARD HOWIE joined the Company in July 1994, as Chief Financial
Officer/Vice President-Finance and Treasurer. Previously, from January 1994 to
June 1994, he was Chief Financial Officer at Central Blood Bank, Inc. From 1987
to November 1993, he was Vice President Finance and Chief Financial Officer of
Stuart Medical, Inc., a nationwide hospital distributor of medical and surgical
supplies.
DELMER C. GOWING III joined the Company in July 1994, as its Chief
Legal Officer. He had been a partner at the law firm of Honigman, Miller,
Schwartz and Cohn, in their West Palm Beach, Florida office from 1991 to July
1994. From 1989 to 1991, he held the position of Executive Counsel of Finalco
Group, Inc., an equipment leasing company. From June 1995, he has been a
partner at Hertz, Schram & Saretsky in their West Palm Beach office while still
serving as Chief Legal Officer of the Company.
MARGARET SANTONE joined the Company in 1979 as Corporate Secretary and
Office Manager. From 1975 to the present, she has also served as the Corporate
Secretary of Ratner Development Corporation, Ratner Real Estate and City
Rentals, Inc. Ms. Santone does not devote substantial time to these companies.
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WILLIAM F. MCLAY joined the Company in 1990 as its Chief Financial
Officer until January 1991, when he left to serve as a Financial Advisor to
Foster Industries, Inc. through 1992. Mr. McLay rejoined the Company in 1993,
as Director of Corporate Planning and Development, later becoming Managing
Director. Mr. McLay was Vice-President and Controller of American Equity
Corporation from 1984 to 1989. Prior thereto, from 1976 to 1984, he served as
Controller and Treasurer of Wooding-Verona Tool Works, Inc., a subsidiary of
The Budd Company (formerly NYSE:BF).
BARRY LOGAN was promoted to Vice President, General Manager-Restaurant
Division of Sulcus Hospitality Group in 1994. He joined the Company as Vice
President of Research and Development of Squirrel at the time of its
acquisition by the Company in March 1992. Prior thereto, he was responsible for
the evolution of the Squirrel product line from its inception in 1984. Prior to
joining Squirrel in November 1984, he developed a time sharing system operation
and has been involved in a variety of computer-oriented organizations since
1972.
GARY CAMPBELL joined the Company in November 1993, as President of a
then newly formed subsidiary, Revenue Management Systems, Inc. In June 1995, he
was appointed Vice President for International Operations of Sulcus Hospitality
Group. From 1991 until joining the Company, Mr. Campbell was a founder and
President of Revenue Technology Services, Inc., a software company. Before
founding Revenue Technology Services, Inc., from 1973, he served as the
Director of Business Information Services, a subsidiary of Control Data
Corporation.
BERNHARD MANTEL joined the Company following the acquisition of its
subsidiary, Techotel, Inc. in January 1993, as the Managing Director of
Techotel, Inc. (now Sulcus Hospitality Group EMEA, AG) and Lodgistix
(International), AG, a wholly-owned subsidiary of Techotel. From 1983 until
joining Sulcus, he founded Techotel, Inc. ("Techotel") and Lodgistix
(International), AG and served in the same capacities for each. He also serves
as a Director of Techotel's subsidiary Lodgistix U.K. Ltd. (since its inception
in 1987).
JAPPE KJAER joined the Company in January 1994, as President of the
Company's subsidiary, Sulcus Scandinavia A/S (formerly Lodgistix Scandinavia
A/S), upon its acquisition by Sulcus. Mr. Kjaer founded Lodgistix Scandinavia
A/S, a Lodgistix distributor in Norway, Sweden, and Denmark, in 1987, and
served as its General Manager.
THOMAS CAUDILL was promoted to Vice President, General
Manager--Lodging Division of Sulcus Hospitality Group in 1994. Previously he
had been Vice President Sales-Eastern Region. Prior to joining the Company,
from 1986 to 1993, he was a Director of Sales for Covia, a partnership of seven
airlines, which developed and marketed the Apollo reservation system.
GERRY LAU joined the Company in February 1995 as Chairman of Sulcus
Hospitality Limited. Prior thereto, Mr. Lau served as a Managing Director of
Data General Corporation (NYSE:DGN), from March 1994 until February 1995, as a
partner of TASA International (a Swiss consulting firm), from 1993 to March
1994, and as Group Managing Director of Innovest Systems and Services Private
Limited, from 1986 to 1993.
42
<PAGE> 46
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of the Company ("Outside
Directors") are reimbursed for their direct expenses incurred in attending a
meeting. In addition, pursuant to the Company's Amended and Restated 1991 Stock
Option Plan for Directors (the "Directors Plan"), the Company has reserved
1,000,000 shares of its Common Stock for Directors (including Directors who are
officers or employees) of the Company or any of its subsidiaries. A committee
is charged with authority to administer the Directors Plan, to award options,
determine the option exercise price (at a price not less then the fair market
value of the Common Stock when granted) and fix the vesting schedule and other
terms thereof. Jeffrey S. Ratner and John W. Ryba serve on this committee.
During 1995, no options were awarded under the Directors Plan. See "Stock
Option Plans-Directors Stock Option Plan."
43
<PAGE> 47
EXECUTIVE COMPENSATION
The following tables present certain information concerning the cash
compensation and stock options provided to the named executive officers during
the years ended December 31, 1995, 1994 and 1993. More specific information
regarding compensation is provided in the notes accompanying the tables.
SUMMARY COMPENSATION TABLE
The following table reflects the total compensation paid during 1995,
1994 and 1993, for services in all capacities to the Company by the Chairman
and each of the other four most highly compensated executive officers of the
Company during 1995 (the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- -----------------------
Awards
-------
Securities
Name and Underlying
Principal Other Annual Options/SARs
Position Year Salary($) Bonuses($) Compensation(s) (#)
<S> <C> <C> <C> <C> <C>
Jeffrey Ratner 1995 350,000 ---- ---- ----
Chairman 1994 313,500 ---- ---- ----
1993 325,600 ---- ---- ----
Joel Nagelmann 1995 135,600 33,107 ---- 215,579
President 1994 ---- ---- ---- ----
1993 ---- ---- ---- ----
H. Richard Howie 1995 120,000 ---- ---- ----
Chief Financial 1994 55,000 ---- ---- 30,000
Officer 1993 ---- ---- ---- ----
Frank Morrisroe(1) 1995 146,000 ---- ---- ----
President of 1994 146,000 ---- ---- 50,000
Sulcus Hospitality 1993 110,000 ---- ---- ----
Group
William McLay 1995 120,000 ---- ---- 20,000
Managing 1994 75,000 ---- ---- 60,000
Director 1993 24,500 ---- ---- ----
Gary Campbell 1995 120,000 7,200 ---- ----
V.P. of Sulcus 1994 120,000 ---- ---- 40,000
Hospitality Group 1993 ---- ---- ---- ----
</TABLE>
(1) Mr. Morrisroe joined Sulcus in February 1991 and resigned in January
1996.
44
<PAGE> 48
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes the aggregate amount of shares subject
to stock options granted, for the period January 1, 1995, through December 31,
1995, to the Chairman and each of the Named Officers. No gain on these options
will be realized by the Named Officers without an increase in the price of
Company Common Stock from the date of grant, which will benefit all
stockholders proportionately.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
----------------- at Assumed Annual Rates
of Stock Price Appreciation
Number of for Option Individual Grants
Securities % of Total ----------------------------
Underlying Options Exercise
Options/ Granted to or Base
SARS Employees in Price Expiration
Name Granted 1995 ($/Sh) Date 5%($)(1) 10%($)(1)
- ---- ------- ------------ ------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Ratner 0 0% ---- ---- ---- ----
Joel Nagelmann 215,579 61% 2.50 01/01/01 138,141 305,255
H. Richard Howie 0 0% ---- ---- ---- ----
Frank Morrisroe(2) 0 0% ---- ---- ---- ----
Gary Campbell 0 0% ---- ---- ---- ----
William McLay 20,000 6% 2.00 01/01/01 11,051 24,420
</TABLE>
(1) The calculation of potential realizable values are based on
theoretical and arbitrary rates of appreciation in the price of
Company Common Stock from the date of grant of five and ten percent
for the option terms are mandated by the rules of the United States
Securities and Exchange Commission and may or may not accurately
reflect or predict the actual values of the stock options.
(2) Mr. Morrisroe joined Sulcus in February 1991 and resigned in January
1996. He exercised options for 60,000 shares in 1995. All
unexercised options have expired and terminated.
45
<PAGE> 49
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning the net value
realized on the exercise of stock options in 1995 by the Chairman and each of
the Named Officers as of December 31, 1995.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at 12/31/95 at 12/31/95 ($)(1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Jeffrey S. Ratner 0 0 200,000/0 $0/$0
Joel Nagelmann 0 0 87,789/127,790 $0/$0
H. Richard Howie 0 0 6,000/24,000 $0/$0
Frank Morrisroe(2) 60,000 $45,000 20,000/30,000 $0/$0
Gary Campbell 0 0 16,000/24,000 $0/$0
William McLay 0 0 28,000/52,000 $500/$2,000
</TABLE>
(1) The value of unexercised, in-the-money options is the difference between
the exercise price and the fair market value of Company Common Stock at
December 31, 1995, which was $2.125.
(2) Mr. Morrisroe joined Sulcus in February 1991 and resigned in January 1996.
46
<PAGE> 50
EMPLOYMENT ARRANGEMENTS
The Company entered into an employment agreement with each of Messrs.
Ratner and Ryba in August 1994, and Mr. Gowing in July 1994. Among other
things, each agreement provides that if the executives' employment is
terminated after a change in control of Sulcus, he may receive, under the
agreement, certain benefits including monthly salary payments and acceleration
of portions of unexercised stock options. Mr. Ratner may receive twice his then
existing salary, benefits and all options granted to him for 36 months if his
employment is terminated other than for cause (as defined in the agreement),
either voluntarily or involuntarily or due to a change in control. Benefits
include insurance, medical and other similar benefits which could otherwise be
lost due to termination. Benefits would be substantially reduced if termination
for cause occurs. If there is a "change in control" (as defined in the
agreement), Mr. Ryba may receive his then existing salary for 12 months. On
October 16, 1995, Mr. Gowing's employment agreement was revised reducing his
salary, cancelling all 150,000 stock options previously granted and granting
50,000 options at $2.25, one-half exercisable on April 17, 1996, and one-half
exercisable on December 31, 1996.
The agreements provide for an annual salary of $345,000 for Mr.
Ratner, and $104,000 for Mr. Ryba. Mr. Gowing received a salary of $15,000 per
month until November 1994, $7,500 per month until October 1995 and $1,000 per
month thereafter. Mr. Gowing may continue to work on legal matters unrelated to
the Company so long as they do not conflict with his Company duties.
Bernhard Mantel entered into an employment agreement with Techotel and
its wholly owned subsidiary Lodgistix (International) AG effective January 1,
1993, the effective date of the Company's acquisition of Techotel, now known at
Sulcus Hospitality Group EMEA, AG and Sulcus (International) AG, respectively.
Mr. Mantel serves as Managing Director (President) of both companies, positions
he held previously. The agreement, which expired December 31, 1995, provided
for an annual salary of Swiss Francs 110,625 (equivalent to U.S. $86,089 at the
exchange rate as of 1.1446 as of April 30, 1995). Mr. Mantel can earn incentive
compensation based on the consolidated pre-tax earnings of these companies
subject to a maximum of $139,100, such compensation to be payable one half in
cash and one half in incentive stock options of Sulcus at a price determined by
dividing one half of such compensation by the average closing price of Company
Common Stock on the first ten trading days of December of the year of the
earnings. In 1993, he earned no incentive compensation. In 1994 he earned
$30,203 of incentive compensation and received options to purchase 6,749 shares
of Common Stock at a price of $2.23 per share under the incentive compensation
provisions in the agreement. Either Techotel/Lodgistix or Mr. Mantel may
terminate the employment agreement at any time with 14 days written notice, and
Lodgistix may terminate immediately with "cause." "Cause" encompasses a breach
of the employment agreement by the employee, the conviction of the employee of
a felony or the commission by the employee of a fraud against the Company.
H. Richard Howie joined the Company in July 1994, as Chief Financial
Officer pursuant to an employment agreement providing for an annual salary of
$120,000. Mr. Howie was granted an option to purchase 30,000 shares of Company
Common Stock at a price of $3.375 per share. These options were cancelled and
new options for 36,000 shares were granted on March 25, 1996, at a price of
$2.4375, twenty percent of which were immediately exercisable and the rest
vesting over four years at twenty percent per
47
<PAGE> 51
year beginning in March 1997. This employment agreement can be terminated by
the Company or Mr. Howie on 14 days notice without cause.
Joel Nagelmann joined the Company in April 1995, as President of the
Company pursuant to an employment agreement providing for an annual salary of
$200,000. Mr. Nagelmann is entitled to receive annual bonuses as of December 31
in each year of his employment, commencing in 1995, based upon a percentage of
after-tax earnings of from 3% to 5% (depending on total revenues), subject to
limits of from $200,000 to $343,200, to be paid one-half in cash and one-half
in stock options. These bonus options vest one-half on the date of grant and
one-half one year later. Mr. Nagelmann was also granted an option to purchase
200,000 shares of Common Stock of the Company at $2.50 per share vesting over
five years at the rate of 20 percent per year beginning April 1995. Mr.
Nagelmann may retain all options granted and all other rights for two years if
his employment is terminated without cause. See "Certain Relationships and
Related Transactions."
The Company's employment agreements impose non-competition and
confidentiality obligations and provide for the assignment to the Company of
all rights to any technology developed by the executive during the term of his
employment. The Company has or is obtaining "key man" insurance policies in the
face amount of $200,000 on the life of Mr. Howie and $500,000 on the life of
Mr. Nagelmann under which the Company is, in each case, the beneficiary.
Copies of the foregoing agreements have been filed as exhibits to the
registration statement of which this Prospectus is a part. The above discussion
is only a summary of the terms and conditions of each of these agreements and
is qualified in all respects by reference to the actual agreements.
REPORT ON EXECUTIVE COMPENSATION
Compensation of Executive Officers
The salaries paid during 1995 to the Company's executive officers were
either (i) approved or ratified by the Board of Directors of the Company or
(ii) fixed pursuant to employment agreements approved by the Board. See
"Executive Compensation-Employment Arrangements." The Board's approvals were
based upon various subjective factors such as the executive's responsibilities,
position, qualifications, individual performance and years of experience. In no
such case did the Board undertake a formal survey or analysis of compensation
paid by other companies.
Certain executive officers received stock options during 1995 under
the Company's 1991 Stock Option Plan for Officers and Key Employees (the "Stock
Option Plan"). Options under the Stock Option Plan are either awarded by the
Stock Option Committee, whose members are the Outside Directors, or are fixed
by employment agreements approved by the Board. The Stock Option Committee
awarded options under the Stock Option Plans in 1995 based upon the terms of
employment agreements or upon various subjective factors such as the
executive's responsibilities, individual performance and anticipated
contribution to the Company's performance. The Stock Option Committee neither
undertook a formal survey or analysis of options awarded by other companies
nor, except to the extent provided for in employment agreements, established
numerical targets or goals in determining these option awards.
48
<PAGE> 52
Compensation of the Chairman
The salary of the Chairman, Jeffrey S. Ratner, is fixed pursuant to
his employment agreement with the Company. See "Executive
Compensation-Employment Arrangements." This employment agreement was negotiated
by the Board of Directors. In the case of the salary negotiated under the
employment agreement, the Board considered various subjective factors such as
Mr. Ratner's responsibilities, qualifications and perceived contributions to
the Company. However, the Board did not undertake a formal survey or analysis
of salaries paid by other companies.
Deductibility of Compensation.
Effective January 1, 1994, the Internal Revenue Service under Section
162(m) of the Internal Revenue Code will generally deny the deduction of
compensation paid to executives to the extent such compensation exceeds $1
million per executive per year, subject to an exception for compensation that
meets certain "performance-based" requirements. Whether the Section 162(m)
limitation with respect to an executive will be exceeded and whether the
Company's tax deductions for compensation paid in excess of the $1 million
limit will be denied will depend upon the resolution of various factual and
legal issues that cannot be resolved at this time. As to options granted under
the Stock Option Plan, the Stock Option Committee intends to comply to the
extent practicable with the rules governing the Section 162(m) limitations so
that compensation attributable to such options will not be subject to
limitation under such rules. As to other compensation, while it is not expected
that compensation to executives of the Company will exceed the Section 162(m)
limitation in the foreseeable future (and no officer of the Company received
compensation in 1995 which resulted in the non-deductibility of such
compensation to the Company under Section 162(m)), various relevant
considerations will be reviewed from time to time, taking into account the
interests of the Company and its shareholders, in determining whether to
endeavor to cause such compensation to be exempt from the Section 162(m)
limitation.
Submission of Report
This report on Executive Compensation was submitted by the members of
the Board of Directors, Jeffrey S. Ratner, Robert D. Gries, Herbert G. Ratner,
John W. Ryba and David Adler, except with respect to options awarded under the
Stock Option Plan, the report of which was submitted by the members of the
Stock Option Committee, Robert D. Gries and David Adler.
49
<PAGE> 53
STOCK OPTION PLANS
INCENTIVE STOCK OPTION PLAN
Sulcus has two stock option plans. The Amended and Restated 1983
Incentive Stock Option Plan for Officers and Other Key Employees (the "1983
Plan") with options to purchase 500,000 shares granted thereunder, and the 1991
Incentive Stock Option Plan for Officers and other Key Employees (the "Plan")
with 3,000,000 shares reserved for issuance thereunder of which options to
purchase 1,754,480 shares have been granted. No further options may be granted
under the 1983 Plan. The Plan, which was adopted in 1991, is administered by
the Board of Directors which selects the employees to whom the options are
granted, determines the number of shares subject to each option, sets the time
or times when the options will be granted, determines the time when the options
may be exercised and establishes the market value of the shares. The Plan
provides that the purchase price under the option shall be at least 100 percent
of the fair market value of the shares of the Company's Common Stock. The
options are not transferrable. There are limitations on the amount of incentive
stock options that an employee can be granted in a single calendar year
including a limitation that the aggregate fair market value of shares shall not
exceed $100,000. The terms of each option granted under the Plan is determined
by the Board of Directors, but in no event may such term exceed ten years. As
of July 23, 1996, options under both plans covering an aggregate of 1,785,180
shares have been granted to approximately 185 employees, at exercise prices
ranging from $1.00 to $9.25 per share. As of July 23, 1996, options for an
aggregate of 618,220 shares were exercisable.
DIRECTORS STOCK OPTION PLAN
The Board of Directors of Sulcus authorized and at the June 20, 1991
annual meeting the stockholders approved the 1991 Directors Stock Option Plan
(the "Directors Plan") covering an aggregate of 500,000 shares of Common Stock.
In October 1993, Stockholders approved increasing the number of authorized
shares to 1,000,000. A three-member committee of the Board of Directors
administers the Directors Plan. Directors of Sulcus who are not employees of
the Company are eligible to participate in the plan. Twenty percent of options
granted are exercisable in the first year and 20% in each succeeding year for
the next four years. Each option granted will have an exercise price equal to
fair market value on the date of grant.
As of July 23, 1996, options under the Directors Plan covering 238,333
shares have been granted to Directors at exercise prices ranging from $1.9375
to $6.875 per share. As of such date an aggregate of 165,416 shares were
exercisable.
50
<PAGE> 54
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of July 23,
1996, with respect to shares of Common Stock of the Company beneficially owned
by each Director and by all officers and Directors as a group, and by persons
known to the Company to be beneficial owners of more than 5% of Company Common
Stock. As of such date, 15,175,949 shares of Common Stock were outstanding.
<TABLE>
<CAPTION>
DIRECTORS, OFFICERS AND NUMBER OF SHARES
5% SHAREHOLDERS BENEFICIALLY OWNED PERCENTAGE OF CLASS
<S> <C> <C>
Jeffrey S. Ratner 1,050,000(1) 7%
41 North Main Street
Greensburg, PA 15601
Robert D. Gries 55,000(2) *
John W. Ryba 58,000(3) *
David H. Adler 69,250(4) *
Herbert Ratner 40,500(5) *
Joel Nagelmann 92,289(6) *
H. Richard Howie 7,200(7) *
Delmer C. Gowing III 25,000(8) *
William McLay 45,175(9) *
Margaret Santone 5,220(10) *
Barry Logan 48,824(11) *
Gary Campbell 18,750(12) *
Bernhard Mantel 188,502(13) 1.3%
Jappe Kjaer 46,867(14) *
Thomas Caudill 8,000(15) *
Gerry Lau 0 *
All Directors and executive officers and 1,758,577 11.6%
owners of more than 5% as a group.
(16 persons)
</TABLE>
(1) 1,000,000 of these shares were transferred in 1993 to an
Irrevocable Trust established by Mr. Ratner as Settlor for
the benefit of himself, his wife and his children. Mr. Ratner
does not have or share investment control but retains voting
control with respect to shares of the Company. The Trustee is
an independent Trustee unaffiliated with Mr. Ratner or any
other beneficiary and has the discretionary power to allocate
the shares of the Company in the Trust, or any proceeds from
the sale of any such shares, in an amount to be determined by
the Trustee in its sole discretion. Mr. Ratner disclaims
beneficial ownership with respect to any shares held in such
Trust which may be allocated by the Trustee for the benefit
of any beneficiary of the Trust other than Mr. Ratner.
Includes 50,000 shares subject to a currently exercisable
option.**
51
<PAGE> 55
(2) Includes 25,000 shares currently owned of record and 30,000
shares subject to a currently exercisable option.**
(3) Includes 58,000 shares subject to currently exercisable
options.**
(4) Includes 18,000 shares owned of record and 51,250 shares
subject to a currently exercisable option.**
(5) Includes 10,500 shares owned of record and 30,000 shares
subject to a currently exercisable option.**
(6) Includes 4,500 shares currently owned of record and 87,789
shares subject to a currently exercisable option.**
(7) Includes 7,200 shares subject to a currently exercisable
option.**
(8) Includes 25,000 shares subject to a currently exercisable
option.**
(9) Includes 13,175 shares currently owned of record and 32,000
shares subject to currently exercisable options.**
(10) Includes 20 shares currently owned of record and 5,200 shares
subject to a currently exercisable option.**
(11) Includes 900 shares currently owned of record and 47,924
shares subject to currently exercisable options.**
(12) Includes 2,750 shares currently owned of record and 16,000
shares subject to currently exercisable options.**
(13) Includes 188,502 shares currently owned of record.
(14) Includes 38,867 shares currently owned of record and 8,000
shares subject to a currently exercisable option.**
(15) Includes 8,000 shares subject to a currently exercisable
option.**
* Less than 1% issued and outstanding.
** A currently exercisable option is one which is exercisable
within 60 days from the date hereof.
52
<PAGE> 56
CERTAIN TRANSACTIONS
The Company has agreed, under certain circumstances, to provide loans
to Joel Nagelmann, its President, in a gross amount of up to $197,000 for up to
three years at the rate of 5% per annum. On October 27, 1995, the Company made
a loan in the principal amount of $100,000 at 5% interest. The loan is secured
by real estate, proceeds from its sale and other assets. The principal is
payable on either October 27, 1996, or upon the sale of a former residence,
whichever first occurs. These loans were agreed to as part of Mr. Nagelmann's
employment arrangements in April 1995 and were the result of arms length
negotiations. The Company believes that the interest rate is on more favorable
terms than Mr. Nagelmann could obtain elsewhere.
In July 1994, the Company loaned Mr. Jappe Kjaer $50,000, pending the
registration of the stock of the Company issuable to Mr. Kjaer under the terms
of the agreement for the purchase of Lodgistix Scandinavia AS (now known as
Sulcus Scandinavia AS). Mr. Kjaer was the principal shareholder of Lodgistix
Scandinavia AS and remains its President. The note will be repaid from the
proceeds of a sale of Mr. Kjaer's shares of the Company. Prior to the Company's
acquisition of Lodgistix Scandinavia AS, Mr. Kjaer borrowed $20,000 from
Lodgistix Scandinavia AS, all of which remains outstanding. These loans do not
bear interest. The $50,000 loan to Mr. Kjaer was negotiated at arms length with
Mr. Kjaer in connection with the Company's obligations to register shares of
stock issuable to him and is not comparable to a transaction with a non-related
party. The $20,000 loan was made to Mr. Kjaer when he was the principal owner
of Lodgistix Scandinavia, AS at a time prior to Sulcus' ownership of that
company.
In September 1993, the Company loaned Mr. Bernhard Mantel $500,000,
pending the registration of the stock of the Company issuable to Mr. Mantel
under terms of the agreement for the purchase of Techotel. Mr. Mantel was the
principal shareholder of Techotel and remains its Managing Director. The note
bears no interest and will be repaid from the proceeds of a sale of Mr.
Mantel's shares of the Company. The loan to Mr. Mantel was a condition of the
agreement for the purchase of Techotel, was the result of arms length
negotiations, and is not comparable to a transaction with a non-related party.
Sulcus' principal executive, and administrative operations are located
at Sulcus Centre, 41 N. Main Street, Greensburg, Pennsylvania 15601, in a
facility containing approximately 10,000 square feet. Sulcus leases this
building under several leases, with a trust established by Sulcus' principal
stockholder and Chairman, Jeffrey S. Ratner, expiring on various dates through
September 30, 2001. Rent expense under these agreements was $225,391; $185,251
and $161,700 for the years ended December 31, 1995, 1994 and 1993,
respectively. The annual rental commitment under these leases are $229,111 in
1996, $138,105 in 1997, $85,860 in 1998 and $90,144 in 1999, $91,947 in 2000,
and $91,947 thereafter. The leases renew automatically for additional two-year
terms at a minimum rental rate of 2% over the prior year's amount, unless
cancelled by either party. While these leases were not the result of arms
length negotiations the Company believes that the aggregate rental commitment
is similar to comparable properties in the area. See "Business-Property."
53
<PAGE> 57
DESCRIPTION OF SECURITIES
Sulcus' Articles of Incorporation, as amended, authorize 30,700,000
shares of Common Stock, no par value per share, of which 15,175,949 shares were
issued and outstanding as of July 23, 1996. Sulcus' Articles of Incorporation,
as amended, also authorize a class of preferred stock, consisting of 10,000,000
shares, no par value per share. No shares of Preferred Stock are currently
outstanding.
DESCRIPTION OF SECURITIES BEING OFFERED
PREFERRED STOCK
The preferred stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the Board of Directors prior to the issuance of any shares thereof, without
any further vote or action by the shareholders. Each series of preferred stock
will have such voting powers (including, if determined by the Board of
Directors, no voting rights as is the case in the Preferred Stock), preferences
and other rights as determined by the Board of Directors with such
qualifications, limitations or restrictions as may be stated in the resolutions
of the Board of Directors adopted prior to the issuance of any shares of such
series of preferred stock.
The Preferred Stock being offered hereby is currently the only class
or series of preferred stock designated by the Board of Directors. The Board
has no present plans to issue any series of preferred stock other than the
Preferred Stock being offered hereby. However, purchasers of the securities
offered hereby should be aware that the holders of any series of preferred
stock which may be issued in the future could have voting rights, rights to
receive dividends or rights to distribution in liquidation superior to those of
holders of the Preferred Stock or Common Stock, thereby diluting or negating
any voting rights, dividend rights or liquidation rights of the Preferred Stock
or Common Stock.
Because the terms of each series of preferred stock may be fixed by
the Company's Board of Directors without shareholder action, a new series of
preferred stock could be issued with terms calculated to delay or defeat a
proposed takeover of the Company, or to make the removal of Sulcus' management
more difficult. Under certain circumstances, this could have the effect of
decreasing the market price of the Preferred Stock, the Class A Warrants and
the Common Stock. Management of Sulcus is not aware of any such threatened
transaction to obtain control of the Company.
SERIES A PREFERRED STOCK
The Company has authorized the issuance of 10,000,000 shares of
preferred stock of which 2,000,000 shares have been designated Series A
Redeemable Convertible Preferred Stock, no par value per share ("Preferred
Stock"). The shares of Preferred Stock, when issued, will be duly and validly
issued, fully paid and nonassessable.
54
<PAGE> 58
The following description of certain terms of the Preferred Stock is
intended as a summary only, and is qualified in its entirety by reference to
the complete text of the Company's Articles of Incorporation and the Amendment
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
Dividends. The holders of shares of Preferred Stock will be entitled
to receive dividends to the same extent as any dividends are paid on the Common
Stock. Under Pennsylvania law, the Company may only declare and pay dividends
on its shares of capital stock out of earnings and additional paid-in capital.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of shares of
Preferred Stock shall be entitled to receive out of the assets of the Company
available for distribution or payment to shareholders, before any distribution
or payment of assets is made with respect to Common Stock of the Company or any
other stock of the Company ranking junior upon liquidation to the Preferred
Stock, liquidating distributions in the amount of $ per share (the
"Liquidation Preference"). If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the preferential amounts payable with
respect to the Preferred Stock and any other shares of Preferred Stock of the
Company ranking as to any such liquidation, dissolution or winding up on a
parity with the Preferred Stock are not paid in full, the holders of the
Preferred Stock and of such other shares of Preferred Stock will share ratably
in any such distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment to the
holders of the Preferred Stock of the full preferential amounts to which they
are entitled, the holders of shares of Preferred Stock will not be entitled to
any further participation in any distribution of assets by the Company. None of
the sale, conveyance, exchange or transfer of all of substantially all the
property and assets of the Company, the consolidation or merger of the Company
with or into any other corporation, or the merger or consolidation of any other
corporation into or with the Company shall be deemed to be a liquidation,
dissolution or winding up of the Company, provided that in each case, effective
provision is made in the certificate of incorporation of the resulting and
surviving corporation or otherwise for the protection of the rights of the
holders of Preferred Stock.
Redemption at the Option of the Company. On or after , 1997,
the Preferred Stock will be redeemable at the option of the Company in whole,
but not in part, for $ per share in cash. The Company will cause
notification of any redemption of shares to be mailed to all record holders
of Preferred Stock to be redeemed, at the address shown on the stock books of
the Company, not less than 30 nor more than 60 days prior to the date fixed
for redemption.
If on the date fixed for redemption funds necessary for the redemption
shall be available, all rights with respect to such shares shall after such
date cease and terminate except the right to receive the redemption price
without interest (unless the Company defaults in the payment of the redemption
price). Shares of the Preferred Stock redeemed shall have the status of
authorized but unissued Preferred Stock without designation as to series, but
may not thereafter be issued as shares of Preferred Stock.
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<PAGE> 59
Conversion Rights. The holders of Preferred Stock will be entitled at
any time after , 1996, to convert Preferred Stock into Common Stock
at the initial conversion rate set forth on the cover page of this Prospectus,
subject to adjustment as described below and subject to the availability of
sufficient authorized and unissued shares not reserved for other purposes,
except that, with respect to shares of Preferred Stock which the Company has
called for redemption, conversion rights will expire at the close of business on
the redemption date (unless the Company defaults in the payment of the
redemption price). No payment or adjustment will be made in respect of dividends
on Preferred Stock that may be accrued or unpaid or in arrears upon conversion
of shares of Preferred Stock. No fractional shares will be issued nor will cash
in lieu thereof be paid.
Sulcus will reserve for issuance a number of shares of Common Stock
sufficient to provide for the conversion of the Preferred Stock. When
delivered, such shares of Common Stock will be duly authorized, validly issued,
fully paid and nonassessable.
The conversion rate of the Preferred Stock is subject to adjustment in
certain circumstances, including the payment of a stock dividend on shares of
the Common Stock, certain reclassifications of the Common Stock, the issuance
to Sulcus' stockholders of rights or warrants to subscribe for or purchase
shares of Common Stock at a price per share less than the then-current market
price (as determined in the Amendment) of the Common Stock and certain cash
dividends and distributions of evidences of indebtedness or assets to holders
of certain of Sulcus' capital stock.
In case of any consolidation or merger of Sulcus with any other
corporation (other than a wholly owned subsidiary), in each case where the
Company is not the surviving entity (a "Merger"), or in case of a sale or
transfer of all or substantially all of the assets of Sulcus, or in the case of
any share exchange whereby the Common Stock is converted into other securities
or property, the Company will be required to make appropriate provision so that
the holder of each share of Preferred Stock then outstanding will have the
right thereafter to convert such share of Preferred Stock into the kind and
amount of shares of stock and other securities and property receivable upon
such consolidation, Merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such shares of Preferred Stock
might have been converted immediately prior to such consolidation, Merger,
sale, transfer or share exchange. No adjustment in the conversion rate is
required unless it would result in at least a 1% increase or decrease in the
conversion rate; however, any adjustment not made shall be carried forward.
Voting Rights. Except as may be otherwise specifically provided in the
Amended Articles of Incorporation or by Pennsylvania law, each holder of shares
of the Preferred Stock shall in all matters that alter or change the powers,
preferences or rights given to the Preferred Stock be entitled to one vote for
each share of Preferred Stock owned by such holder and the holders of the
Preferred Stock shall vote together as one class on any matter that may be
brought before any meeting of the shareholders of Sulcus relating to such
matters. Holders of Preferred Stock shall not have voting rights with respect
to any other matters.
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<PAGE> 60
So long as any shares of the Preferred Stock shall be outstanding,
Sulcus shall not, without the affirmative vote or consent of the holders of at
least two thirds of the aggregate number of shares of Preferred Stock at the
time outstanding, voting as a class, alter or change the powers, preferences or
rights given to the Preferred Stock so as to affect the holders of the
Preferred Stock adversely.
No Sinking Fund. Sulcus is not required to provide for the retirement
or redemption of the Preferred Stock through the operation of a sinking fund.
Class A Warrants
Two Class A Warrants entitle the holder thereof to purchase one share
of Preferred Stock at a price of $ if exercised on or before ,
1996. Thereafter, four Class A warrants shall entitle the registered holder
thereof to purchase one share of Preferred Stock at a price of $ if
exercised on or before , 1997. The Class A Warrants expire at 5:30 P.M.
New York City time on , one year from the date this Prospectus.
No fractional shares of Preferred Stock will be issued upon the
exercise of the Class A Warrants and no cash will be paid in lieu thereof.
The holders of the Class A Warrants will not have any of the rights or
privileges of shareholders of Sulcus prior to the exercise of the Class A
Warrants.
The exercise price and number of shares of Preferred Stock or other
securities issuable on exercise of the Class A Warrants are subject to
adjustment in certain circumstances, including issuance of a stock dividend or
a recapitalization, reorganization, Merger or consolidation of Sulcus.
No Class A Warrant will be exercisable unless at the time of exercise
a current prospectus covering shares of Preferred Stock issuable upon exercise
of such Class A Warrant is then in effect. See "Underwriting" for a description
of Warrants to be issued to the Representatives in connection with this
Offering.
DESCRIPTION OF OTHER SECURITIES
COMMON STOCK
Subject to such preferential rights as may be determined by the Board
of Directors of Sulcus in connection with the issuance of any series of
preferred stock, the holders of shares of Common Stock elect all directors, are
entitled to one vote per share for each share of Common Stock held of record by
them and do not have cumulative voting rights which means that the holders of
more than 50% of such outstanding shares voting for the election of directors
can elect all of the directors to be elected.
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<PAGE> 61
Holders of record are entitled to receive dividends when and if
declared by the Board of Directors out of legally available funds. Upon any
liquidation, dissolution or winding up of Sulcus, holders of Common Stock are
entitled to share pro rata in any distribution to the shareholders after the
holders of any preferred stock, including the Preferred Stock, have been paid
the applicable liquidation price per share fixed at the time of the original
authorization of the issue of any preferred stock, including the Preferred
Stock.
Shares of Common Stock are not redeemable and do not have any
conversion rights. All of the outstanding shares of Common Stock are fully paid
and non-assessable and duly authorized.
PENNSYLVANIA ANTI-TAKEOVER LAWS
Various provisions of the Pennsylvania Business Corporation Law (the
"BCL"), under which Sulcus was organized, generally make "hostile" takeovers of
Pennsylvania corporations more difficult by granting certain rights to
non-interested shareholders in certain "change of control" situations by
permitting such shareholders to demand payment from a 20% controlling
shareholder of the "fair value" of such demanding shareholder's shares in cash.
Such provisions may make more difficult the removal of management. The BCL
also, in certain circumstances, prohibits mergers and other "business
combinations" between Sulcus and an "interested shareholder" (or its affiliate)
unless, among other things, (i) either acquisition of such person's 20%
interest or the business combination is approved by Sulcus' Board of Directors
prior to the date such "interested shareholder" acquired its 20% interest or
(ii) if, among other requirements, the business combination is approved by a
majority of non-interested shareholders at least three months prior to the date
such person acquired 80% of the outstanding voting stock and the consideration
paid to the non-interested shareholders in such a transaction meets certain
minimum conditions.
Effective April 27, 1990, certain additional subchapters to the BCL
were adopted. Generally, these new subchapters make hostile takeovers even more
difficult by providing that under certain circumstances (i) "control shares"
lose their voting rights until such rights are restored by a majority vote of
all "disinterested shares" and "voting shares," and (ii) "control shares" may
be redeemed by the target corporation within 24 months after the "control share
acquisition" if, among other things, the acquiring person has not timely
requested a shareholder vote on whether the "control shares" should be accorded
voting rights. Further, a new subchapter provides, among other things, that any
profits earned from any sale of shares within two years before or 18 months
after a person has acquired or expressed the intent to acquire 20% of the
voting shares or an intention to acquire control (a "controlling person") are
recoverable by the Corporation if the shares were acquired within two years
before or 18 months after the acquirer became a controlling person.
The additional subchapters, in certain circumstances, also provide for
severance compensation to employees terminated by a new controlling person, as
well as mandatory preservation of certain labor agreements. They also give the
Board of Directors wider discretion in dealing with hostile takeover attempts.
In addition, Section 1721 of the BCL has been amended through the
addition of provisions that entitle the directors of a corporation, in making
decisions concerning takeovers or any other matters, to the extent they deem
appropriate, to consider, among other things, (i) the effects of any proposed
transaction upon
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any or all groups affected by such action, including, among others,
shareholders, employees, suppliers, customers and creditors, (ii) the
short-term and long-term interest of such corporation, and (iii) the resources,
intent and conduct of the person seeking control.
Sulcus did not elect within the prescribed time of the statute to opt
out of these provisions.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock, Preferred Stock and Class A
Warrants and the Warrant Agent under the Warrant Agreement, is American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the Securities covered by this Prospectus, an aggregate
of 1,487,782 shares issuable upon the exercise of certain employees, directors
and consultant's stock options at prices ranging from $1.00 to $9.25 per share
and an aggregate of approximately 399,749 shares of Common Stock issued in
private placements, are "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act. In general under Rule 144 as
currently in effect, subject to the satisfaction of certain other conditions of
Rule 144, a person, including an affiliate of the Company (or persons whose
shares are aggregated), who has owned restricted securities of the Company
beneficially for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares of the same class or, if the Common Stock is
quoted on NASDAQ, a national securities exchange or a consolidated transaction
reporting system, the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned restricted shares of Common Stock for at least three years
is entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
UNDERWRITING
The Underwriters listed below have agreed, subject to terms and
conditions of the Underwriting Agreement between the Company and H. J. Meyers &
Co., Inc. and Culverwell & Co., Inc., as Representatives of the Underwriters, to
purchase from the Company on a firm commitment basis the number of Units set
forth opposite their names. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters shall be obligated to purchase all of the Units if any of
the Units are purchased. The % underwriting discounts set forth on the
cover page of this Prospectus will be allowed to the Underwriters at the time of
delivery to the Underwriters of the Units so purchased.
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<PAGE> 63
<TABLE>
<CAPTION>
Name of Underwriter Number of Units
------------------- ---------------
<S> <C>
H. J. Meyers & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . .
Culverwell & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . .
Total 400,000
</TABLE>
The Underwriters have advised the Company that they propose to offer
the Units to the public at an offering price of $ per Unit and that the
Underwriters may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $ per Unit, no portion of which may be reallowed to certain other
dealers. After commencement of the offering, the public offering price and
concession may be changed.
The Company has granted to the Representatives an option, exercisable
during the 30 business day period from the date of this Prospectus, to purchase
up to a maximum of 60,000 additional Units on the same terms set forth above.
The Representative may exercise such right only to satisfy over-allotments in
the sale of Units.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 3% of the total proceeds of the offering including
proceeds from the over-allotment option, of which $10,000 has been paid. In
addition to the Underwriting commissions and Representatives' expense
allowance, the Company is required to pay the costs of qualifying the Preferred
Stock and Warrants under federal and state securities laws, together with legal
and accounting fees, printing and other costs in connection with this offering,
estimated to total approximately $ .
At the closing of the offering, the Company will issue to the
Representatives, for nominal consideration, Warrants (the "Representatives'
Warrant") to purchase for investment a maximum of 40,000 Units. The shares of
Preferred Stock and Warrants subject to the Representatives' Warrant will be
identical to the shares of Preferred Stock and Warrants sold to the public
except for the purchase price as provided below. The Representatives' Warrant
will be exercisable for a five year period commencing on the date of this
Prospectus. The exercise price of the Representatives' Warrant is 130% of the
public offering price of the Units offered hereby. The Representatives' Warrant
may be exercised for cash or, at the holder's option, in whole or in part, for a
number of shares of Preferred Stock and Warrants, as determined in accordance
with a specified formula based on the fair market value of the Company's
securities at the time of exercise. The Representatives' Warrant and the
securities issuable upon exercise thereof will not be transferrable prior to one
year from the date of this Prospectus except to officers of the Representatives
and members of the selling group and officers and partners thereof.
The Representatives' Warrant will contain anti-dilution provisions
providing for adjustment in the event of any recapitalization, stock dividend,
stock split or similar transactions. The Representatives' Warrant also provides
for adjustments similar to those applicable to the Class A Warrants for
reclassification, exchanges, mergers and consolidations. The Representatives'
Warrant does not entitle the Representatives
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to any rights as a shareholder of the Company until such warrant is exercised
and shares of Preferred Stock and Warrants are purchased thereunder.
The Representatives' Warrant and the securities thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, if it shall cause to be filed with
the Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Representatives
shall have the right ("piggyback right") during the five-year period commencing
on the date of this Prospectus to include in such amendment or Registration
Statement the Representatives' Warrant and the securities issuable upon the
exercise of the Representatives' Warrant at no expense to the Representatives.
Additionally, the Company has agreed that, upon written request by a holder or
holders of 50% or more of the Representatives' Warrants which is made during
the exercise period of the Representatives' Warrant, the Company will, on two
separate occasions, register the Representatives' Warrant and any of the
securities issuable upon exercise thereof. The initial such registration will
be at the Company's expense to the extent of $100,000 and any expenses in
excess of $100,000 and all expenses for the second such registration will be at
the expense of the holder(s) of the Representatives' Warrant.
For the period during which the Representatives' Warrant is
exercisable, the holder or holders will have the opportunity to profit from the
rise in the market value of the Company's Preferred Stock and Class A Warrants,
with a resulting dilution in the interests of the other shareholders of the
Company. The holder or holders of the Representatives' Warrant can be expected
to exercise it at a time when the Company would, in all likelihood, be able to
obtain any needed capital from an offering of its unissued Preferred or Common
Stock on terms more favorable to the Company than those provided for in the
Representatives' Warrant. Such fact may adversely affect the terms on which the
Company can obtain additional financing. To the extent that the Representatives
realize any gain from the resale of the Representatives' Warrant or the
securities issuable thereunder, such gain may be deemed additional underwriting
compensation under the Securities Act.
Officers, directors and holders of five percent or more of the
Company's outstanding capital stock (other than Jeffrey S. Ratner (200,000
options) or the Irrevocable Trust (1,000,000 shares) established by Mr. Ratner
for the benefit of himself, his wife and his children) have agreed with the
Representatives that they will not sell any shares of Common Stock or Series A
Preferred Stock owned by them (or subsequently acquired under any option,
warrant or convertible security owned prior to this offering) for six months
following the date of this Prospectus, without the Representative's prior
written consent.
The Company has agreed that for a period of six months from the date
of this Prospectus, it will not sell any securities (with the exception of the
shares of Common Stock issued upon conversion of Preferred Stock and the
issuance of Preferred Stock upon exercise of the Class A Warrants, currently
outstanding incentive stock options, options granted under its 1991 Director's
Stock Option Plan, shares issuable as "earn out shares" with respect to certain
transactions or issuable in connection with mergers and acquisitions), without
the prior written consent of the Representatives, which consent shall not be
unreasonably withheld.
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<PAGE> 65
The Company has also agreed that, for a period of two years from the
closing of this Offering, if it participates in any merger, consolidation or
other transaction which H. J. Meyers & Co., Inc. ("H. J. Meyers") has brought
to the Company (including an acquisition of assets or stock for which it pays,
in whole or in part, with shares of the Company's Common Stock or other
securities) then it will pay H. J. Meyers for such services an amount equal to
5% of the first $3,000,000 of value paid or received in the transaction, 2 1/2%
of any consideration paid over $3,000,000 and not greater than $5,000,000 and
2% of all such value above $5,000,000. The Company has also agreed that if,
during this two-year period, someone other than H. J. Meyers brings such a
merger, consolidation or other transaction to the Company and H. J. Meyers is
retained in writing for consultation or other services in connection therewith,
then upon consummation of the transaction the Company will pay to H. J. Meyers
as a fee the appropriate amount as set forth above or as otherwise agreed to
between the Company and H. J. Meyers.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Representatives against certain liabilities in
connection with the registration statement, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to Directors, officers and controlling persons
of the Company pursuant to the Underwriting Agreement, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Prior to this Offering, there has been no public trading market for the
Units, the Preferred Stock or the Class A Warrants, consequently, the public
offering price of the Units, and the terms of the Preferred Stock and Class A
Warrants have been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the offering price
and terms of the securities included in the Units were the market price of the
Common Stock, the Company's financial condition and prospects, market prices of
similar securities of comparable publicly traded companies, certain financial
and operating information of companies engaged in activities similar to those of
the Company and general conditions of the securities markets.
The rules of the Commission generally prohibit the Underwriters from
making a market in the Common Stock during the two business day period prior to
commencement of sales in the offering (the "Cooling Off Period"). The
Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an
exemption from such prohibition for certain passive market making transactions.
Such passive market making transactions must comply with applicable price and
volume limits and must be identified as passive market making transactions. In
general, pursuant to Rule 10b-6A, a passive market maker may display its bid
for a security at a price not in excess of the highest independent bid for the
security. If all independent bids are low or below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group numbers
may engage in passive market making in the Common Stock during the Cooling Off
Period. Passive market
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<PAGE> 66
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail, and if commenced, may be discontinued at any
time.
The foregoing is a brief summary of certain provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A Copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part. See "Available Information."
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<PAGE> 67
LEGAL PROCEEDINGS
Class Action Litigation
In April 1994, various individual Sulcus shareholders filed 12
lawsuits in the U.S. District Court for the Western District of Pennsylvania
asserting federal securities fraud claims against Sulcus and certain of its
officers and directors, and others. On October 11, 1994, these lawsuits were
consolidated under the caption "IN RE: Sulcus Computer Corporation Securities
Litigation, II." Among the principal allegations contained in one or more of
the lawsuits were the following: the Defendants made materially false and
misleading positive public representations, which were included in the
Company's quarterly reports, press releases and other documents regarding
Sulcus and its operations, management, finances, assets, earnings and future
business prospects; Sulcus' financial condition; and that financial statements
were false and misleading. The aforesaid adversely affected the integrity of
the market for Sulcus common stock and artificially inflated or maintained the
price of Sulcus common stock. The Complaints sought unspecified damages for
the decline in the value of the Company's stock together with Plaintiff's costs
and expenses.
On December 27, 1995, the parties entered into a settlement agreement
which established a settlement fund of $800,000 in cash and 1,400,000 Sulcus
Common Shares with a value of $2,800,000 as of the date of settlement. The cash
portion of the settlement will be paid by insurance ($666,000) and the Company
($134,000). At December 31, 1995, the Company recorded a provision of
$2,861,118 which, together with amounts previously accrued ($250,000)
represents costs which the Company expects to incur in connection with this
settlement agreement. It is anticipated that subject to final approval of the
settlement by the Court the shares of Sulcus Common Stock would be distributed
on or before December 31, 1996.
Other Litigation
Lodgistix is the Plaintiff in an action presently pending before the
United States District Court for the District of Kansas against Total Technical
Services (TTS). Lodgistix is claiming damages in the amount of $796,000 arising
from a breach by TTS of an equipment maintenance service agreement entered into
between the parties. TTS has filed a counterclaim against Lodgistix in the
amount of $800,000. Lodgistix denies that they breached the equipment
maintenance service agreement or that they charged the Defendant for services
beyond the scope of the aforesaid Agreement. It is the opinion of Lodgistix's
counsel, David L. Nelson, Esquire, Wichita, Kansas, that the counterclaim as
filed against Lodgistix by TTS is without merit and the probability of any
liability to the Company is remote. The efforts of Lodgistix to pursue its
claim have been stayed because of a Chapter 11 bankruptcy filing by the
Defendant.
Sulcus Computer Corporation, NRG Management Systems, Inc., Jeffrey S.
Ratner and Frank Morrisroe are Defendants in an action filed in January 1995,
in the Fort Bend County Court in Texas, by Walter Lipski, Jr. ("Lipski"), a
former executive with the Company's Hospitality Group. Lipski has claimed that
Defendants breached the Employment Agreement and Stock Purchase Agreement
entered into between the parties and seeks unspecified damages. Defendants
believe that there were no breaches and that Mr. Lipski was terminated with
cause for failing to fulfill his job duties and responsibilities, failing to
achieve financial projections for NRG Management Systems, Inc.,
misrepresentation of the assets of NRG Management
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<PAGE> 68
Systems, Inc. and further violations of the employment agreement and Stock
Purchase Agreement Mr. Lipski executed as a part of his employment with the
Company. Defendants have filed a response to Lipski's complaint. This matter is
in its earliest stages and the ultimate outcome cannot be predicted. Based on
information collected by the Company from the individual defendants, for the
reasons stated above, the Company believes that it has meritorious defenses and
intends to vigorously defend the action.
Other suits arising in the ordinary course of business are pending
against the Company and its subsidiaries. The Company cannot predict the
ultimate outcome of these actions or the ones above-described but believes they
will not result in a material adverse effect on the Company's consolidated
financial position.
LEGAL MATTERS
Certain legal matters with respect to the offering will be passed upon
for Sulcus by John W. Ryba, General Counsel for Sulcus, 41 North Main Street,
Greensburg, Pennsylvania 15601 and by Opton, Handler, Gottlieb, Feiler & Katz,
LLP, 52 Vanderbilt Avenue, New York, New York 10017, Special Counsel for
Sulcus. Peter Landau, Esq. counsel to Opton, Handler, Gottlieb, Feiler & Katz,
LLP owns 33,333 shares of Sulcus Common Stock. Morse, Zelnick, Rose & Lander,
LLP, 450 Park Avenue, New York, New York 10022 will pass upon certain legal
matters for the Underwriters.
EXPERTS
The consolidated financial statements of Sulcus Computer Corporation
as of December 31, 1995, and 1994 and for the two years then ended appearing in
this Prospectus and Registration Statement have been audited by Crowe, Chizek
and Company, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Sulcus Computer Corporation
at December 31, 1993 and for the year then ended, appearing in this Prospectus
and Registration Statement have been audited by Ferraro & McMurtry, P.C.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports (the "Reports") and other information with
the Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N. W., Room 1024, Washington, D.C. 20549, and at Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661;
and Seven World Trade Center, 13th Floor, New York, New York, 10008. Copies of
such materials also may be obtained from the Commission's Public Reference
Section of the Commission, 450 Fifth Street, N. W., Washington D.C. 20549 at
prescribed rates. The Company's securities are listed and traded on the
American Stock Exchange. The Reports and other statements and other information
concerning the Company filed with that exchange may be inspected at the offices
of such exchange.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement (the "Registration
Statement") with the Commission under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statements and in the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Each statement contained herein
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. For further information with respect to the Company and the
securities offered hereby, reference is made to such Registration Statement and
to the exhibits and schedules thereto.
The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above.
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SULCUS COMPUTER CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORTS OF INDEPENDENT AUDITORS F-1 to F2
CONSOLIDATED BALANCE SHEETS F-3
MARCH 31, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
For the three months ended March 31, 1996 and March 31, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
For the three months ended March 31, 1996 and March 31, 1995
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
For the three months ended March 31, 1996 and March 31, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-8
CONSOLIDATED BALANCE SHEETS F-9
Years ended December 31, 1995 and 1994
CONSOLIDATED STATEMENTS OF OPERATIONS F-10
Years ended December 31, 1995, 1994 and 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS F-11
Years ended December 31, 1995, 1994 and 1993
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-12
Years ended December 31, 1995, 1994 and 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-13 to F-30
</TABLE>
<PAGE> 71
[LOGO]
CROWE CHIZEK
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sulcus Computer Corporation
We have audited the accompanying consolidated balance sheet of Sulcus Computer
Corporation as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. 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. The financial statements of Sulcus Computer
Corporation as of December 31, 1993 and the year then ended were audited by
other auditors whose report dated May 13, 1994, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Sulcus Computer Corporation as of December 31, 1995 and 1994 and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company
adopted the provisions of a new accounting pronouncement, Statement of
Financial Accounting Standards No. 115, effective January 1, 1994.
Our audits referred to above also included the financial schedule listed in
answer to item 16(b). In our opinion, such financial schedule presents fairly
the information required to be set further therein.
/s/ CROWE, CHIZEK AND COMPANY LLP
-------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
March 1, 1996, except for Note 2, as to which
the date is March 21, 1996 and Note 20, as to
which the date is April 10, 1996
<PAGE> 72
[LOGO]
FERRARO & MCMURTRY
Report of Independent Auditors
May 13, 1994
The Board of Directors and Stockholders
Sulcus Computer Corporation
We have audited the consolidated balance sheet of Sulcus Computer Corporation
as of December 31, 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 1993.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit, the consolidated financial statements
present fairly, in all material respects, the financial position of
Sulcus Computer Corporation at December 31, 1993, and the consolidated
results of their operations and cash flows for the year ended December 31, 1993
in conformity with generally accepted accounting principles.
Our audit referred to above also included the financial schedules listed in
answer to item 14(a)(2). In our opinion, such financial schedules present
fairly the information required to be set forth therein.
/s/ Ferraro & McMurtry
- ------------------------
<PAGE> 73
SULCUS COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,000,511 $ 1,202,325
Short-term investments (at market) 12,232,390 12,408,075
Restricted cash 378,133 550,000
Accounts receivable, net of allowance of $2,618,013
and $2,581,020 in 1996 and 1995, respectively 7,959,404 11,134,576
Inventories 2,513,392 2,573,826
Deferred taxes 167,166 165,557
Other current assets 1,851,115 1,761,465
----------- -----------
Total current assets 28,102,111 29,795,824
Purchased and capitalized software, net of accumulated amortization
of $8,425,003 and $7,992,031 in 1996 and 1995, respectively 4,639,263 4,941,695
Property and equipment, net of accumulated depreciation of $4,190,515
and $4,247,168 in 1996 and 1995, respectively 2,409,965 2,015,816
Goodwill, net of accumulated amortization of $2,864,906
and $2,672,714 in 1996 and 1995, respectively 7,634,491 7,826,683
Deferred taxes 1,932,587 1,934,196
Other noncurrent assets 856,780 812,564
----------- -----------
Total Assets $45,575,197 $47,326,778
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term borrowings $6,525,443 $6,382,710
Current portion of long-term debt 43,686 46,713
Current portion of obligations under capital leases 155,582 --
Accounts payable 3,600,038 4,352,408
Shareholder litigation liability 2,898,598 3,108,097
Deferred revenues 5,162,639 6,195,289
Customer deposits 1,187,316 1,311,408
Other accrued liabilities 2,492,998 3,008,892
----------- -----------
Total current liabilities 22,066,300 24,405,517
Long-term debt, net of current portion 15,760 27,175
Obligations under capital leases, net of current portion 263,549 --
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 30,700,000 shares
authorized (15,214,944 and 15,145,570 shares
issued and issuable in 1996 and 1995, respectively) 38,114,272 38,016,248
Note receivable from stockholder (500,000) (500,000)
Retained earnings (deficit) (14,226,308) (14,747,712)
Foreign currency adjustment (27,583) (60,832)
Cumulative unrealized gain (loss) on investments available for sale (130,793) 186,382
----------- -----------
Total Stockholders' Equity 23,229,588 22,894,086
----------- -----------
Total Liabilities and Stockholders' Equity $45,575,197 $47,326,778
----------- -----------
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE> 74
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net revenue:
System sales $6,524,818 $6,803,287
Support revenue 4,417,170 4,213,000
Dividends and other 333,031 294,767
---------- ----------
Total revenue 11,275,019 11,311,054
---------- ----------
Cost of goods sold and services provided:
Systems 3,307,969 3,333,777
Support services 1,159,797 1,281,007
---------- ----------
Total cost of sales and services provided 4,467,766 4,614,784
Expenses:
Selling, general, and administrative 5,506,194 5,579,158
Research and development (net of capitalized
software of $240,650 and $198,433 during the
three months ended March 31, 1996 and 1995,
respectively) 267,251 366,448
Interest 128,799 142,498
Depreciation and amortization 383,605 446,314
Unrealized (gain) loss on investments -- (881,683)
---------- ----------
Total expenses 6,285,849 5,652,735
---------- ----------
Income (loss) before income taxes 521,404 1,043,535
Income taxes -- --
---------- ----------
Net income (loss) $521,404 $1,043,535
---------- ----------
Income (loss) per common share:
Net income (loss) $0.03 $0.07
----- -----
Weighted average number of common shares 16,614,944 14,651,262
========== ==========
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 75
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 521,404 $ 1,043,535
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 191,413 268,235
Amortization of capitalized software 555,627 550,770
Amortization of goodwill 192,192 178,079
Provision for doubtful accounts 153,571 105,101
Unrealized (gain) on investments -- (881,683)
Realized (gain) on investments (8,750) --
(Purchases) of trading securities -- (1,128,688)
Change in assets and liabilities:
Restricted cash 171,867 500,000
Accounts receivable 3,021,601 3,064,133
Inventory 60,434 56,676
Other current assets (49,469) (101,104)
Other assets (44,608) 44,166
Accounts payable (752,370) (891,899)
Deferred revenues (1,032,650) (1,400,476)
Shareholder litigation liability (209,499) (10,468)
Customer deposits (124,092) (783,170)
Accrued liabilities (454,587) (380,594)
----------- -----------
Total adjustments 1,670,680 (810,922)
----------- -----------
Net cash provided by operating activities 2,192,084 232,613
----------- -----------
Cash flows from investing activities:
Purchases of available for sale securities (382,740) --
Proceeds from sales of available for sale securities 250,000 --
Investment in sales-type leases (68,358) (31,323)
Payments received on sales-type leases 28,569 79,148
Capital expenditures (598,107) (81,205)
Software development capitalized (240,650) (198,433)
----------- -----------
Net cash used in investing activities (1,011,286) (231,813)
----------- -----------
Cash flows from financing activities:
Short-term borrowings 142,733 36,608
Principal payments on long-term debt (14,442) (254,278)
Payments under capital lease obligations 364,324 --
Proceeds from stock options exercised 91,524 16,571
----------- -----------
Net cash (used in) provided by financing activities 584,139 (201,099)
----------- -----------
Cumulative translation adjustment 33,249 (35,585)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,798,186 (235,884)
Cash equivalents at beginning of period 1,202,325 1,933,895
----------- -----------
Cash equivalents at end of period $ 3,000,511 $ 1,698,011
----------- -----------
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 76
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Unrealized
Common Stock Gain (Loss) Note
------------------------ Retained Foreign on Investments Receivable Stock-
Number of Earnings Currency Available From holders'
Shares Amount (Deficit) Adjustment For Sale Stockholder Equity
---------- ------------ -------------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 15,145,570 $38,016,248 ($14,747,712) ($60,832) $186,382 ($500,000) $22,894,086
Stock options exercised 66,398 91,524 -- -- -- -- 91,524
Cumulative unrealized loss on
investments available for sale -- -- -- -- (317,175) -- (317,175)
Issuance of stock to consultants 2,976 6,500 -- -- -- -- 6,500
Cumulative translation adjustment -- -- -- 33,249 -- -- 33,249
Net income -- -- 521,404 -- -- -- 521,404
---------- ----------- ------------ -------- --------- --------- -----------
Balance, March 31, 1996 15,214,944 $38,114,272 ($14,226,308) ($27,583) ($130,793) ($500,000) $23,229,588
---------- ----------- ------------ -------- --------- --------- -----------
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 77
SULCUS COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sulcus
Computer Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Investments in 50%
or less owned affiliates over which the Company has the ability to exercise
significant influence are accounted for using the equity method.
The accompanying unaudited interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. These financial statements have been prepared in
accordance with both generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with the
Company's annual audited financial statements for the year ended December 31,
1995, as filed with the Securities and Exchange Commission on Form 10-K.
NOTE 2. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On May 2, 1996, the Company entered into an agreement with the
Securities and Exchange Commission ("Commission"), resolving an investigation
which commenced in 1993. Under the terms of the May 2, 1996 agreement, without
admitting or denying any wrongdoing, the Company agreed that it would not in
the future violate Sections 17(a)(2) and 17(a)(3) of the Securities Act,
Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder. With respect to
certain press releases issued during 1991 and 1992, the Order alleged
violations of Section 10(b) and Rule 10b-5 against Sulcus. The Order does not
allege violations of Section 10(b) or Rule 10b-5 against Sulcus with regard to
accounting practices. In addition, a former accounting officer of the Company
and the Company's Chairman, without admitting or denying any wrongdoing agreed
that they would not in the future violate Sections 17(a)(2) and 17(a)(3) of the
Securities Act; Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act
and Rules 12b-20, 13a-1, 13a-13, and 13b 2-1 promulgated thereunder. There
were no fines or other penalties imposed upon the Company or its Chairman. The
Company's former accounting officer agreed not to practice before the
Commission as an accountant for a 30 month period.
NOTE 3. INCOME TAXES
In the three months ended March 31, 1996 the Company reflected no
provision for income taxes on pre-tax profits of $521,404. This is based upon
management's determination to reduce previously established valuation reserves
related to deferred tax assets, including tax loss carryforwards, pursuant to
SFAS 109.
F-7
<PAGE> 78
SULCUS COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
At March 31, 1996 and December 31, 1995, the Company had net deferred
tax assets, liabilities and valuation reserves as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets (net of deferred tax
liabilities), including tax loss carryforwards $ 12,501,588 $ 12,633,976
Valuation allowance (10,401,835) (10,534,223)
------------ ------------
Net deferred tax amounts $ 2,099,753 $ 2,099,753
============ ============
</TABLE>
NOTE 4. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined by dividing net
earnings (loss) by the weighted number of common shares outstanding. When
dilutive, common stock options are included in the computation. Fully diluted
net income (loss) per share is not presented as it is either anti-dilutive or
not different from primary earnings (loss) per share.
F-8
<PAGE> 79
SULCUS COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,202,325 $ 1,933,895
Short-term investments (at market) 12,408,075 10,324,740
Restricted cash 550,000 500,000
Accounts receivable, net of allowance of $2,581,020
and $2,597,088 in 1995 and 1994, respectively 11,134,576 11,639,243
Inventories 2,573,826 2,393,563
Deferred taxes 165,557 758,472
Other current assets 1,761,465 1,330,240
----------- -----------
Total current assets 29,795,824 28,880,153
Purchased and capitalized software, net of accumulated amortization
of $7,992,031 and $6,131,665 in 1995 and 1994, respectively 4,941,695 6,790,945
Property and equipment, net of accumulated depreciation of $4,247,168
and $3,378,817 in 1995 and 1994, respectively 2,015,816 2,301,263
Goodwill, net of accumulated amortization of $2,672,714
and $1,987,996 in 1995 and 1994, respectively 7,826,683 7,726,119
Deferred taxes 1,934,196 1,341,281
Other noncurrent assets 812,564 829,722
----------- -----------
Total Assets $47,326,778 $47,869,483
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term borrowings $6,382,710 $6,182,995
Current portion of long-term debt 46,713 468,990
Accounts payable 4,352,408 5,836,482
Shareholder litigation liability 3,108,097 439,780
Deferred revenues 6,195,289 6,922,281
Customer deposits 1,311,408 1,896,886
Other accrued liabilities 3,008,892 2,949,837
----------- -----------
Total current liabilities 24,405,517 24,697,251
Long-term debt, net of current portion 27,175 85,536
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 30,700,000 shares
authorized (15,145,570 and 14,505,318 shares
issued and issuable in 1995 and 1994, respectively) 38,016,248 37,081,413
Note receivable from stockholder (500,000) (500,000)
Retained earnings (deficit) (14,747,712) (13,378,756)
Foreign currency adjustment (60,832) (115,961)
Cumulative unrealized gain on investments available for sale 186,382 --
----------- -----------
Total Stockholders' Equity 22,894,086 23,086,696
----------- -----------
Total Liabilities and Stockholders' Equity $47,326,778 $47,869,483
----------- -----------
</TABLE>
See notes to the consolidated financial statements.
F-9
<PAGE> 80
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net revenue:
System sales $27,645,389 $25,893,783 $32,944,045
Support revenue 17,047,913 15,993,533 14,401,786
Dividends and other 1,290,691 1,255,848 1,937,314
----------- ----------- -----------
Total revenue 45,983,993 43,143,164 49,283,145
----------- ----------- -----------
Cost of goods sold and services provided:
Systems 14,351,669 15,078,349 19,126,487
Support services 4,613,913 5,509,625 3,958,265
----------- ----------- -----------
Total cost of sales and services provided 18,965,582 20,587,974 23,084,752
Expenses:
Selling, general, and administrative 22,895,996 24,388,210 21,726,463
Research and development (net of capitalized
software of $1,002,854, $1,556,888 and
$2,469,337 for 1995, 1994 and 1993,
respectively) 1,198,999 1,596,515 1,877,628
Interest 597,672 556,269 402,764
Depreciation and amortization 1,520,033 2,157,857 2,034,144
Unrealized and realized (gains) losses on
short-term investments (1,462,005) 1,861,403 --
Unusual items:
Write-off of assets 514,694 2,156,949 970,184
Write-off of goodwill -- 1,256,000 --
Provision for litigation settlement 2,919,333 250,000 2,237,310
----------- ----------- -----------
Total expenses 28,184,722 34,223,203 29,248,493
----------- ----------- -----------
Income (loss) before income taxes (1,166,311) (11,668,013) (3,050,100)
Income taxes 202,645 -- --
----------- ----------- -----------
Net income (loss) ($1,368,956) ($11,668,013) ($3,050,100)
----------- ----------- -----------
Earnings (loss) per share ($0.09) ($0.84) ($0.22)
----------- ----------- -----------
Weighted average number of common shares 14,720,327 13,872,298 14,157,335
----------- ----------- -----------
</TABLE>
See notes to the consolidated financial statements.
F-10
<PAGE> 81
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($1,368,956) ($11,668,013) ($3,050,100)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation 835,315 1,147,171 944,318
Amortization of capitalized software 2,447,296 2,388,804 2,078,614
Amortization of goodwill 684,718 1,010,686 1,089,826
Provision for doubtful accounts 573,130 1,343,489 1,253,002
Inventory obsolescence -- -- 143,839
Loss on write-off of assets 514,694 1,820,246 970,184
Write-off of goodwill -- 1,256,000 --
Unrealized and realized (gain) loss on investments (1,462,005) 1,861,403 --
Deferred income taxes -- -- (32,172)
(Purchases) sales of trading securities (851,874) 2,247,706 --
Change in assets and liabilities, net of
effects from acquisitions:
Restricted cash (50,000) -- 540,716
Accounts receivable (68,464) (425,916) (4,555,575)
Insurance receivable -- 900,000 (900,000)
Inventory (180,263) (199,887) (1,070,188)
Other current assets 249,317 (197,610) (235,065)
Other assets (235,209) 295,344 (472,941)
Accounts payable (1,484,074) 558,159 1,157,320
Deferred revenues (726,992) 468,406 (14,842)
Shareholder litigation liability 2,668,317 (585,220) 2,650,000
Customer deposits (585,478) 964,508 (1,448,459)
Accrued liabilities 166,452 200,837 (130,490)
---------- ----------- ----------
Total adjustments 2,494,880 15,054,126 1,968,087
---------- ----------- ----------
Net cash provided by (used in) operating activities 1,125,924 3,386,113 (1,082,013)
---------- ----------- ----------
Cash flows from investing activities:
Purchases of short-term investments -- -- (1,009,476)
Purchases of available for sale securities (4,341,433) -- --
Proceeds from sales of available for sale securities 4,758,359 -- --
Investment in sales-type leases (617,712) (400,841) (71,211)
Payments received on sales-type leases 189,537 250,056 853,371
Purchase of subsidiaries, net of cash used -- -- 143,423
Capital expenditures (660,444) (571,455) (596,213)
Software development capitalized (1,002,854) (1,556,888) (2,469,337)
---------- ----------- ----------
Net cash used in investing activities (1,674,547) (2,279,128) (3,149,443)
---------- ----------- ----------
Cash flows from financing activities:
Short term borrowings 199,715 295,095 4,057,997
Principal payments on long-term debt (480,638) (837,036) (429,956)
Payments under capital lease obligations -- -- (24,022)
Proceeds from stock options exercised 42,847 271,916 1,458,884
Issuance of stock and puts, net of costs -- -- 25,045
Note receivable from shareholder -- -- (500,000)
---------- ----------- ----------
Net cash provided by (used in) financing activities (238,076) (270,025) 4,587,948
---------- ----------- ----------
Cumulative translation adjustment 55,129 (113,887) 86,117
---------- ----------- ----------
Net increase (decrease) in cash
and cash equivalents (731,570) 723,073 442,609
Cash and cash equivalents at beginning of year 1,933,895 1,210,822 768,213
---------- ----------- ----------
Cash and cash equivalents at end of year $1,202,325 $ 1,933,895 $1,210,822
---------- ----------- ----------
</TABLE>
See notes to the consolidated financial statements.
F-11
<PAGE> 82
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Cumulative
Unrealized
Common Stock Gain On Note
----------------------- Retained Foreign Investments Receivable Stock-
Number of Earnings Currency Available From holders'
Shares Amount (Deficit) Adjustment For Sale Stockholder Equity
---------- ---------- --------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 13,369,219 $32,237,950 $ 1,339,357 ($88,191) $ -- $ -- $ 33,489,116
Net redemption of value of puts
expired and outstanding -- 375,000 -- -- -- -- 375,000
Stock options exercised 382,086 1,458,884 -- -- -- -- 1,458,884
Issuance of puts -- 25,045 -- -- -- -- 25,045
Issuance of stock, acquisition
of company and contingent
earnouts 344,464 1,488,541 -- -- -- -- 1,488,541
Cumulative translation adjustment -- -- -- 86,117 -- -- 86,117
Note receivable from stockholder -- -- -- -- -- (500,000) (500,000)
Net loss -- -- (3,050,100) -- -- -- (3,050,100)
---------- ----------- ------------ -------- -------- --------- ------------
Balance, December 31, 1993 14,095,769 35,585,420 (1,710,743) (2,074) 0 (500,000) 33,372,603
Stock options exercised 135,827 271,916 -- -- -- -- 271,916
Issuance of stock, contingent
earnouts on acquisitions of
companies 70,836 511,077 -- -- -- -- 511,077
Cumulative translation adjustment -- -- -- (113,887) -- -- (113,887)
Issuance of stock, shareholder
litigation 530,612 1,625,000 -- -- -- -- 1,625,000
Cancellation of shares previously
issued as contingent earnout
related to acquisition (327,726) (912,000) -- -- -- -- (912,000)
Net loss -- -- (11,668,013) -- -- -- (11,668,013)
---------- ----------- ------------ -------- -------- --------- ------------
Balance, December 31, 1994 14,505,318 37,081,413 (13,378,756) (115,961) 0 (500,000) 23,086,696
Stock options exercised 17,660 42,847 -- -- -- -- 42,847
Issuance of stock, contingent
earnouts on acquisitions of
companies 573,477 784,592 -- -- -- -- 784,592
Cumulative translation adjustment -- -- -- 55,129 -- -- 55,129
Cumulative unrealized gain on
investments available for sale -- -- -- -- 186,382 -- 186,382
Issuance of stock to consultants 7,408 12,000 -- -- -- -- 12,000
Issuance of stock as settlement of
previously recorded liabilities 41,707 95,396 -- -- -- -- 95,396
Net loss -- -- (1,368,956) -- -- -- (1,368,956)
---------- ----------- ------------ -------- -------- --------- ------------
Balance, December 31, 1995 15,145,570 $38,016,248 ($14,747,712) ($60,832) $186,382 ($500,000) $ 22,894,086
---------- ----------- ------------ -------- -------- --------- ------------
</TABLE>
See notes to the consolidated financial statements.
F-12
<PAGE> 83
SULCUS COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
NOTE 1. LINE OF BUSINESS
Sulcus Computer Corporation (the Company) develops, installs, and markets
turnkey computer systems with specific software through its subsidiaries. The
Company also markets support services in conjunction with the placement of
software systems and provides trade credit to its customers.
NOTE 2. LEGAL PROCEEDINGS AND LITIGATION SETTLEMENTS
In April 1994, various individual Sulcus shareholders filed 12 lawsuits in
the U.S. District Court for the Western District of Pennsylvania asserting
federal securities fraud claims against Sulcus and certain officers, directors
and others. These lawsuits were consolidated under the caption "IN RE: Sulcus
Computer Corporation Securities Litigation,II."
On December 27, 1995, the parties entered into a settlement agreement (which
was approved on a preliminary basis by the Court on February 23, 1996) which
established a settlement fund of $800,000 in cash and 1,400,000 Sulcus Common
Shares with a value of $2,800,000. The cash portion of the settlement will be
paid by insurance ($666,000) and the Company ($134,000). At December 31, 1995,
the Company recorded a provision of $2,861,118 which, together with amounts
accrued in 1994, represents costs which the Company expects to incur in
connection with this agreement. The Company anticipates issuing the shares to
the settlement fund on or before December 31, 1996. At December 31, 1995, the
$2,800,000 liability related to this settlement is included in the "Shareholder
Litigation Liability".
____________________
Sulcus and certain of its officers, directors and a former director had been
named as defendants in six class action Complaints designated by the Court as
IN RE: Sulcus Computer Corporation Securities Litigation. In December 1993,
the parties entered into a settlement agreement which established a settlement
fund of $600,000 in cash and 250,000 Sulcus Common Shares with a value of
$1,625,000. The Company has also agreed to pay up to $75,000 of expenses for
administering the settlement. The cash portion of the settlement was covered
entirely by insurance, which was received and distributed in June, 1994.
On September 16, 1994, the court formally approved the settlement agreement
and the number of shares to be issued were increased to 530,612, effective
October 16, 1994. These shares were reflected as issued and outstanding at
December 31, 1994.
____________________
Sulcus and Jeffrey S. Ratner were defendants in an action filed in June 1994,
in the Superior Court of Fulton County of the State of Georgia by Raymond D.
Schoenbaum, Theodore J. Munchak, and Nathan I. Lipson. The action alleged that
Sulcus and Mr. Ratner made fraudulent misrepresentations and that Sulcus and
Mr. Ratner have breached the Stock Purchase Agreement entered into between
Sulcus and Squirrel Companies, Inc., in March 1992, by failing to make certain
payments of stock.
F-13
<PAGE> 84
On March 20, 1996, the Company, Mr. Ratner and the Plaintiffs agreed to
resolve this dispute. Under the terms of this agreement, the Company agreed to
deliver 498,488 shares of Sulcus Common Shares. These shares will represent
the entire earn-out for the years ended December 31, 1992, 1993 and 1994 and,
therefore, the Company will cancel 120,488 shares previously issued. At
December 31, 1995, the Company recorded an increase in goodwill and capital
stock in the amount of $391,193 to reflect this settlement. On March 21, 1996,
the court dismissed the claims and counterclaims.
____________________
Other suits arising in the ordinary course of business are pending against
the Company and its subsidiaries. The Company believes that the ultimate
outcome of these actions and those described above will not result in a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
including contingencies, as well as the reported amounts of revenues and
expenses during the financial statement period. Actual results could differ
from those estimates. Examples of significant estimates include the
collectability of receivables, the future benefit of capitalized computer
software costs, lives assigned to goodwill, the net recoverability of deferred
tax assets and contingencies relating to sales-type financed leases. These
estimates are particularly susceptible to material changes in the near term.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sulcus
Computer Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Investments in
50% or less owned affiliates over which the Company has the ability to exercise
significant influence are accounted for using the equity method.
CASH AND CASH EQUIVALENTS
The Company considers as cash and cash equivalents certificates of
deposit and commercial paper with original maturities of less than three months
which consists of deposits in commercial banks in the U.S. and abroad. The
Company limits the amount of money placed in any one bank in order to reduce
credit risk.
SHORT-TERM INVESTMENTS
During 1995, the Company changed its investment philosophy and
consequently bought and sold certain investments to realign its investment
portfolio. From January 1, 1994 (effective date of current accounting
standards) through June 5, 1995, the Company actively bought and sold
investments in corporate preferred stocks and mutual funds consisting primarily
of corporate and U.S. government securities with the objective of generating
profits on short-term differences in price, and accordingly, classified its
investments as "Trading Securities" whereby they were carried at market with
unrealized gains or losses reflected in current earnings. During the second
quarter of 1995, the Company restructured its investments in short-term
marketable securities and changed its investment philosophy to one of holding
securities for the generation primarily of dividend and interest income. As a
result, investments and changes in the market value of the investments arising
subsequent to this change (June 5, 1995) are accounted for as "Available for
Sale". This accounting treatment will mean that investments are carried at
market value with unrealized gains and losses on investments treated as a
component of Stockholders' Equity. Realized gains and losses on sales of
investments, as determined on a specific identification basis, are included in
the consolidated statement of operations.
F-14
<PAGE> 85
Prior to the effective date of current accounting standards (prior to
January 1, 1994), the Company's short-term investments were carried at the
lower of cost or market. The cumulative effect of adopting the new accounting
standards (Statement of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities") was not material and
accordingly, no cumulative effect of accounting change was reported.
RESTRICTED CASH
The restricted cash at December 31, 1995, represents cash collateral
for a deposit received on a significant contract in December 1995. As security
for product delivery and for the deposit received under the contract, the
Company issued a letter of credit of $550,000, which expires on December 31,
1996. At the customer's direction, upon the delivery of systems, a draw down
is permitted at the rate of 25% of the value of the equipment delivered. As of
February 29, 1996, approximately $172,000 of restricted cash was released for
general purposes. The restricted cash at December 31, 1994, represents a
customer deposit received on a significant contract which was held in escrow
with a financial institution. As security for performance and the advances
received under the contract, the Company issued a letter of credit, as amended,
of $500,000. The $500,000 remaining in restricted cash at December 31, 1994
was offset by customer deposits in the same amount. In January 1995, the
Company had fulfilled substantially all obligations under this contract and the
cash was released for general purposes and the letter of credit expired.
INVENTORIES
Inventories consist substantially of software and hardware products in
finished form and are valued at the lower of cost or market. Cost is
determined by the specific identification method. Market is net realizable
value.
PURCHASED AND CAPITALIZED SOFTWARE
Purchased software has been developed by third parties to the stage of
technological feasibility at the date of acquisition. Software development
costs incurred prior to establishing technological feasibility are charged to
operations and included in research and development costs. Software
development costs incurred after establishing technological feasibility are
capitalized. Amortization of purchased and capitalized software is provided
for when the product is available for general release to customers over the
greater of the amount computed using the remaining estimated economic life of
the product or the ratio that current gross revenues for a product bear to the
total of current and anticipated revenues for that product. The products are
generally being amortized over 3 to 5 years.
PROPERTY AND EQUIPMENT
Property and equipment is comprised of office furniture, fixtures,
service equipment, leasehold improvements, and land and building and are
recorded at cost. Depreciation is based upon the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs are
charged to expense as incurred.
GOODWILL
Goodwill, which represents the excess of the cost of purchased
companies over the fair value of their net assets at the date of acquisition,
is being amortized on a straight-line basis over lives ranging from 10 to 20
years. The Company annually evaluates the carrying value of goodwill based on
current operating results and forecasts of the specific businesses acquired.
INCOME TAXES
Income tax expense includes U.S. and international income taxes.
Certain items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effect of the difference is
reported as deferred income taxes. Deferred tax assets and liabilities are
measured using enacted
F-15
<PAGE> 86
tax rates expected to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be realized or settled. A
valuation allowance is provided to reduce deferred tax assets to an amount more
likely than not to be realized. Non-U.S. subsidiaries compute taxes in effect
in the various countries. Earnings of these subsidiaries may also be subject
to additional income and withholding taxes when they are distributed as
dividends. Undistributed earnings of non-U.S. subsidiaries are not material.
REVENUE RECOGNITION
The Company recognizes revenue on sales of systems including software
and hardware upon delivery or installation and when all obligations of the
respective contract have been fulfilled. Support services revenue are billed
in advance and recorded as deferred revenue and recognized as income ratably
over the service period of the Software Support and Hardware Maintenance
Agreement.
TRANSLATION ON NON-U.S. CURRENCY AMOUNTS
For non-U.S. subsidiaries which operate in a local currency
environment, assets and liabilities are translated to U.S. dollars at the
current exchange rates at the balance sheet date. Income and expense items are
translated at average rates of exchange prevailing during the year. Translation
adjustments are accumulated in a separate component of stockholders' equity.
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is computed based on the number of
common shares outstanding, adjusted for the assumed conversion of shares
available upon the exercise of dilutive options, after the assumed repurchase
of common shares with the related proceeds. Fully diluted earnings (loss) per
share is not presented as it is either anti-dilutive or not different from
primary earnings (loss) per share.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year reporting practices.
NOTE 4. SHORT-TERM INVESTMENTS
Securities available for sale at December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Unrealized
--------------------------- Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government Securities
maturing between 1 and 5 years $515,470 $ - $ 3,435 $512,035
Mutual Funds 1,557,016 - 33,726 1,523,290
Preferred Stocks 10,149,207 223,543 - 10,372,750
----------- -------- ------- -----------
$12,221,693 $223,543 $37,161 $12,408,075
=========== ======== ======= ===========
</TABLE>
Trading securities at December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
Unrealized Market
Cost Gain(Loss) Value
----------- ------------ -----------
<S> <C> <C> <C>
Mutual Funds $ 2,362,393 ($387,188) $ 1,975,205
Preferred Stocks 9,610,155 (1,260,620) 8,349,535
----------- ------------ -----------
$11,972,548 ($1,647,808) $10,324,740
=========== ============ ===========
</TABLE>
Effective June 5, 1995, the Company restructured its investments as
short-term marketable securities and changed its investment philosophy to one
of holding securities for the generation of dividend and interest
F-16
<PAGE> 87
income. As a result, investments and changes in market value of the
investments arising subsequent to this date are accounted for as "Available for
Sale". At June 5, 1995, the market value of the securities was below cost by
$185,803.
The Company's investments are subject to risk, most notably the risk
that the market value of these assets will decline as the result of general
market fluctuations, increases in interest rates or changes in the underlying
operations of the investee. Company policy does not require temporary
investments to be investment grade as determined by a nationally recognized
statistics rating organization nor does it require that such investments have
any additional safety features such as insurance. At December 31, 1995, an
aggregate amount of $4,470,750 of investments were below investment grade, of
which $2,600,000 represented an investment in the preferred stock of one
issuer.
The Company's short-term investment portfolio has been pledged as
collateral against borrowings under a brokerage margin account (See Note 9).
Proceeds, realized gains and realized losses from the sales of
securities classified as available for sale for the year ended December 31,
1995 were $4,758,359, $130,000 and $2,441, respectively. Proceeds, realized
gains and realized losses from the sales of securities classified as trading
securities for the year ended December 31, 1995 were $2,190,926, $76,211 and
$13,112, respectively. Unrealized gains on trading securities amounted to
$1,271,347 through June 5, 1995.
NOTE 5. PURCHASED AND CAPITALIZED SOFTWARE
Purchased and capitalized software consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Purchased software $7,006,270 $7,186,171
Capitalized software 5,927,456 5,736,439
Accumulated amortization (7,992,031) (6,131,665)
---------- ----------
Net purchased and capitalized software $4,941,695 $6,790,945
========== ==========
</TABLE>
The Company capitalized software development costs of $1,002,854,
$1,556,888 and $2,469,337 during the years ended December 31, 1995, 1994 and
1993, respectively. Amortization for the years ended December 31, 1995, 1994,
and 1993 was $2,447,296, $2,388,804, and $2,078,614, respectively. Software
amortization is included in cost of sales.
The Company wrote off capitalized software costs of $514,694 during the
fourth quarter of 1995 and $1,820,246 during the third quarter of 1994. These
write-offs were based on the Company's assessment of its capitalized software
and the conclusion that these costs would not benefit future periods.
F-17
<PAGE> 88
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Buildings and leasehold improvements $1,007,171 $ 754,499
Furniture and equipment 5,255,813 4,925,581
Accumulated depreciation (4,247,168) (3,378,817)
---------- ----------
Net property and equipment $2,015,816 $2,301,263
========== ==========
</TABLE>
NOTE 7. LEASES
AS LESSOR
Included in "Other Current Assets" and "Other Noncurrent Assets" are
amounts receivable under lease programs to customers. Classification as to
current or noncurrent is determined based upon scheduled payment by customers
in the case of sales-type lease receivables and lease maturity dates in the
case of net investment in financed leases. The Company, during 1993 and 1992,
leased its products to customers under sales-type leases. The Company's
investment in these sales-type leases is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Minimum lease payments receivable $71,274 $290,211
Estimated residual value of leased property 22,002 34,258
Unearned and deferred income (35,474) (95,749)
------- --------
Net investment in sales-type leases $57,802 $228,720
======= ========
</TABLE>
The scheduled maturities for sales-type lease receivables at December
31, 1995 are $54,046 in 1996 and $17,228 in 1997. The lease receivable
proceeds and the leased property are pledged as collateral under an April 30,
1993 loan agreement with a financial institution (See "Long-Term Debt").
In 1993 the Company modified its sales-type lease program by entering
into an agreement with a finance company whereby it receives 100% of the
discounted minimum lease payments at inception of the lease, assigns the lease
payments to the finance company, grants the finance company a security interest
in the leased equipment and accepts certain recourse liability in event of
default by the lessee. The Company retains ownership in the residual value of
the leased property and has recorded a reserve for the estimated liability
under the recourse agreement. At December 31, 1995 and December 31, 1994, the
Company had the following net investment in these financed sales-type leases:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Estimated residual value of leased property $1,315,427 $574,034
Unearned income (269,951) (127,651)
---------- --------
Net investment in financed sales-type leases $1,045,476 $446,383
========== ========
</TABLE>
At December 31, 1995, the Company was contingently liable for
approximately $874,000 related to sales-type leases financed under this
agreement. To date, actual losses from recourse provisions have not been
material.
F-18
<PAGE> 89
AS LESSEE
The Company has operating leases with third parties for primary office
space in various locations. The future annual rental commitments under these
leases are $948,000 in 1996; $708,500 in 1997; $332,000 in 1998; $269,000 in
1999; $256,000 in 2000 and $1,332,200 thereafter. Rent expense under these
agreements and other operating leases was $1,611,081, $1,491,615 and
$1,698,119, for the years ended December 31, 1995, 1994, and 1993. See
"Related Party Transactions" for additional operating leases.
NOTE 8. LONG TERM DEBT
The Company's and subsidiaries' long-term debt consists of the
following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Note payable to bank by Squirrel, prime plus
1%, guaranteed by Sulcus Computer Corporation $ - $ 91,500
Note payable to individual by Lodgistix at prime - 239,647
Note payable to financial institution by Sulcus
Hospitality Group subsidiary at 12% 70,566 175,418
Notes payable to bank at prime plus 1/2% 3,322 47,961
------ -------
73,888 554,526
Less - current portion 46,713 468,990
-------- --------
Long-term debt $ 27,175 $ 85,536
======== ========
</TABLE>
The Lodgistix note payable was secured by certain inventories, accounts
receivables, equipment and software programs of Lodgistix, Inc. The note was
paid in 1995.
The Sulcus Hospitality Group borrowings were made pursuant to an April
1993 loan agreement with a financial institution. The debt is secured by
certain sales-type leases of the Company and principal payments are required
based upon customer lessee payments received under the sales type leases.
Scheduled maturities of long-term debt at December 31, 1995 are $46,713
in 1996 and $27,175 in 1997.
F-19
<PAGE> 90
NOTE 9. SHORT-TERM BORROWINGS
The Company's short-term borrowings consists of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Borrowings with brokerage firm on margin against
the Company's short term investment portfolio $6,062,905 $5,145,753
Unsecured line of credit with a commercial
bank, at prime - 365,000
Unsecured demand note of the Company's Squirrel
subsidiary with a bank at prime 271,448 295,000
Bank credit lines of the Company's Swiss
subsidiary at prime 48,357 377,242
---------- ----------
Total short-term borrowings $6,382,710 $6,182,995
========== ==========
</TABLE>
At December 31, 1995, the Company could borrow up to $6,100,000 under a
brokerage margin account which is secured by the Company's short-term
investment portfolio, having a market value of $11,914,274. Interest is
charged and paid monthly based on the broker's internally established rate
which was 8.375% at December 31, 1995.
The Company's Swiss subsidiary (Lodgistix International, AG) has a line
of credit with a bank totaling $127,000 (150,000 Swiss francs). The line of
credit is cancelable at any time and is secured by deposits with the bank which
approximated $58,467 at December 31, 1995. At December 31, 1995, interest was
7.00%.
NOTE 10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- ------------ ---------
<S> <C> <C> <C>
Current:
Domestic $150,000 $ - $ -
Foreign 52,645 - -
Deferred:
Domestic - - -
-------- ------------ ---------
Total $202,645 $ - $ -
======== ============ =========
</TABLE>
F-20
<PAGE> 91
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. federal statutory tax rate (35%) (35%) (34%)
State income taxes, net of federal income tax effect 8% (4%) (5%)
Benefits not recorded due to net carryforward position 39% 42% 47%
Foreign and Other 5% 1% 4%
Tax credits generated 0% (4%) (12%)
---- ----- -----
17% 0% 0%
==== ===== =====
</TABLE>
The Company's U.S. federal effective rate is generally unaltered by the
rates applicable to its foreign operations as a U.S. foreign tax credit would
be generated for taxes paid in those jurisdictions. Foreign taxes are
recognized on foreign taxable income for which no foreign tax credit is
generated.
Permanent differences include tax-free dividend income and amortization
of goodwill. No tax benefits were recorded for non-deductible write-offs of
goodwill and certain other expenses. Due to the net operating losses, no
material tax payments have been made.
The following summarizes the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
Deferred Tax Consequences at December 31, 1995
-----------------------------------------------
Assets Liabilities Total
----------- --------------- -------------
<S> <C> <C> <C>
Accounts receivable allowance $749,534 $ - $749,534
Unrealized loss on investments 72,463 - 72,463
Inventory writedowns 108,160 - 108,160
Accrued expenses not currently deductible 66,300 - 66,300
Less valuation allowance (830,900) - (830,900)
---------- ----------- ----------
Current 165,557 - 165,557
---------- ----------- ----------
Property and equipment book/tax cost differential - (35,196) (35,196)
Tax loss carryforwards 11,619,173 - 11,619,173
Tax credits 1,800,000 - 1,800,000
Software costs capitalized for financial
reporting purposes - (1,746,458) (1,746,458)
Less valuation allowance (9,703,323) - (9,703,323)
---------- ------------ ----------
Noncurrent 3,715,850 (1,781,654) 1,934,196
---------- ------------ ----------
Total $3,881,407 $(1,781,654) $2,099,753
========== ============ ==========
</TABLE>
F-21
<PAGE> 92
<TABLE>
<CAPTION>
Deferred Tax Consequences at December 31, 1994
-----------------------------------------------
Assets Liabilities Total
----------- --------------- -------------
<S> <C> <C> <C>
Accounts receivable allowance $1,012,864 $ - $1,012,864
Unrealized loss on investments 642,645 - 642,645
Accrued expenses not currently deductible 275,792 - 275,792
Inventory writedowns 270,600 - 270,600
Deferred revenue 48,750 - 48,750
Other assets 13,466 - 13,466
Less valuation allowance (1,505,645) - (1,505,645)
----------- ------------- -----------
Current 758,472 - 758,472
----------- ------------- -----------
Property and equipment book/tax cost differential - (104,823) (104,823)
Tax loss carryforwards 11,665,194 - 11,665,194
Tax credits 1,844,380 - 1,844,380
Software costs capitalized for financial
reporting purposes - (2,510,506) (2,510,506)
Less valuation allowance (9,552,964) - (9,552,964)
----------- ------------ -----------
Noncurrent 3,956,610 (2,615,329) 1,341,281
----------- ------------ -----------
Total $4,715,082 $(2,615,329) $2,099,753
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Deferred Tax Consequences at December 31, 1993
-----------------------------------------------
Assets Liabilities Total
----------- --------------- -------------
<S> <C> <C> <C>
Accounts receivable allowance $ 582,676 $ - $ 582,676
Accrued expenses not currently deductible 275,792 - 275,792
Inventory writedowns 642,160 - 642,160
Deferred revenue 48,750 - 48,750
Other assets 13,466 - 13,466
Less valuation allowance (924,174) - (924,174)
----------- ------------ -----------
Current 638,670 - 638,670
----------- ------------ -----------
Property and equipment book/tax cost differential - (182,823) (182,823)
Tax loss carryforwards 10,339,532 - 10,339,532
Tax credits 1,492,385 - 1,492,385
Software costs capitalized for financial
reporting purposes - (3,410,738) (3,410,738)
Less valuation allowance (6,777,273) - (6,777,273)
----------- ------------ -----------
Noncurrent 5,054,644 (3,593,561) 1,461,083
----------- ------------ -----------
Total $5,693,314 $(3,593,561) $2,099,753
=========== ============ ===========
</TABLE>
Management believes that it is more likely than not that it will
generate taxable income sufficient to realize a portion of the tax benefits
associated with net operating losses and tax credit carryforwards prior to
their expiration. This belief is based upon the Company's view of expected
profits in 1996 and the next several years. The Company believes that the
results of 1995 were affected by a write-off of software and a shareholder
litigation settlement. Without these items, which are not expected to repeat
in the future, the Company would have generated net income in 1995.
Furthermore, the Company expects increased sales and only slight increases in
expenses in 1996.
F-22
<PAGE> 93
The $524,386 decrease in the valuation allowance in 1995 represents the
realization of tax benefits of temporary differences and net operating loss
carryforwards which reversed during 1995 through the generation of taxable
income. The $3,564,888 and $2,431,387 increases in the valuation allowance in
1994 and 1993 respectively represent the temporary differences and net
operating loss carryforwards generated in those years that the Company believed
were not likely to result in tax benefits. Management believes that the
valuation allowance is appropriate given the current estimates of future
taxable income. If the Company is unable to generate sufficient taxable income
in the future through operating results, increases in the valuation allowance
will be required through a charge to expense. However, if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax
asset, the valuation allowance will be reduced through a credit to income.
The Company has approximately $29,846,000 of net operating losses, a
portion of which are subject to certain limitations under the Internal Revenue
Code Section 382, and $1,800,000 of tax credits ($1,700,000 of research
activities credits and $100,000 of investment tax credits) available to offset
future federal tax liabilities. The net operating loss carryforwards expire as
follows:
<TABLE>
<S> <C>
2001 $ 377,000
2002 1,363,000
2003 1,946,000
2004 4,501,000
2005 2,193,000
2006 6,579,000
2007 4,055,000
2008 5,733,000
2009 3,099,000
-----------
Total $29,846,000
===========
</TABLE>
NOTE 11. RELATED PARTY TRANSACTIONS
The Company leases office space in Greensburg, Pennsylvania from a
trust established by a major stockholder. The leases commenced on various dates
from March 1, 1983 and expire on various dates through September 30, 2001. The
leases may be renewed for additional two-year terms at the rate of 2% over the
prior year's amount unless specifically canceled by either party. Rent expense
under these agreements was $225,391, $185,251 and $161,700 for the years ended
December 31, 1995, 1994, and 1993, respectively. The future annual rental
commitments under these leases are $229,111 in 1996, $138,105 in 1997, $85,860
in 1998, $90,144 in 1999, $91,947 in 2000 and $91,947, thereafter.
The Company has made a relocation loan to its President in the amount
of $100,000 which is secured by real estate and bears interest at the rate of
5%. Interest is payable quarterly and the principal is payable on the earlier
of the sale of a former residence or October 27, 1996.
NOTE 12. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company had contractual commitments to
purchase certain electronic and other materials used to manufacture systems for
the restaurant management and energy management products.
F-23
<PAGE> 94
Based on the contract provisions, these obligations totalled $1,924,000, and
are expected to be fulfilled as follows:
<TABLE>
<S> <C>
1st Quarter, 1996 $1,212,000
2nd Quarter, 1996 $559,000
3rd Quarter, 1996 $86,000
4th Quarter, 1996 $67,000
</TABLE>
The Company has employment agreements with certain of its executive
officers and management personnel. These agreements generally continue until
terminated by either party. The agreements contain certain change in control
provisions.
NOTE 13. INCENTIVE STOCK OPTION PLANS
The Company maintains three stock option plans at December 31, 1995:
the 1983 Incentive Stock Options Plan (1983 plan), the 1991 Incentive Stock
Option Plan (1991 Plan), and the Directors Plan. Options can no longer be
granted under the 1983 Plan. The 1991 Plan (as amended) allows for 3,000,000
stock options available for grant under the plan, which extends through January
1, 2001. The 1991 Plan allows for all of the future stock options to be
granted at any time prior to the termination of the plan. The option price may
not be less than the fair market value at date of grant. Options granted under
the 1991 plan become available to be exercised based upon a five year vesting
schedule.
The employee stock option plan activity for the years ended December
31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
Options
Outstanding Price
----------- -------
<S> <C> <C>
Outstanding, January 1, 1993 1,036,480 $1.000 - $9.250
--------- ---------------
1993
- ----
Granted 945,500 $6.625 - $9.250
Exercised (169,467) $1.250 - $6.625
Canceled (413,816) $2.281 - $9.250
--------- ---------------
Outstanding, December 31, 1993 1,398,697 $1.000 - $9.250
--------- ---------------
1994
- ----
Granted 957,500 $2.1875 - $7.750
Exercised (90,592) $1.250 - $5.375
Canceled (720,822) $1.375 - $9.250
--------- ----------------
Outstanding, December 31, 1994 1,544,783 $1.000 - $9.250
--------- ----------------
1995
- ----
Granted 328,500 $2.000 - $3.500
Exercised (81,660) $2.125 - $3.500
Canceled (338,841) $2.281 - $8.625
--------- ---------------
Outstanding, December 31, 1995 1,452,782 $1.000 - $9.250
========= ===============
</TABLE>
F-24
<PAGE> 95
The Company has authorized 500,000 Nonqualified 1991 Directors Options
under the 1991 Directors Plan. The board of directors on August 20, 1993 and
the stockholders on October 12, 1993 approved the amendment to the Company's
Nonqualified 1991 Director Option Plan to increase the number of shares under
the plan to 1,000,000. During the year ended December 31, 1993, 70,000
director options were granted at prices ranging from $6.625 to $6.875. During
1993, 20,000 director options were exercised. During the year ended December
31, 1994, 50,000 director options were granted at $3.00. During the year ended
December 31, 1995, 83,333 director options were granted at $2.50 and 60,000
options were cancelled at prices ranging from $3.00 to $5.625. No options were
exercised in 1994 or 1995. All options are granted at prices not less than
fair market value.
During March 1992, approximately 388,516 and 11,484 options were
granted to Squirrel shareholders and advisors, respectively, at $4.25 per share
in connection with the acquisition of Squirrel. At December 31, 1992, 87,500
options were exercisable and the balance are exercisable after March 25, 1993.
During the year ended December 31, 1994, 40 options granted to Squirrel
shareholders and advisors were exercised. During 1995, 75,000 options were
cancelled.
The Company periodically grants options to consultants and advisors.
During the year ended December 31, 1995, a total of 50,000 options were granted
at $2.50. All options are granted at prices not less than fair market value.
At December 31, 1995, under all plans, options for approximately
1,199,553 and 1,971,115 shares were exercisable and outstanding, respectively,
at prices ranging from $1.000 to $9.250.
The Financial Accounting Standards Board issued a statement in October
1995 entitled "Accounting for Stock-Based Compensation" which will be effective
for the Company in 1996. This statement establishes an accounting method based
on the fair value of equity instruments awarded to employees as compensation,
however, companies are permitted to continue applying previous accounting
standards in the determination of net income with disclosure in the notes to
the financial statements of the differences between previous accounting
measurements and those formulated by the new accounting standard. Beginning in
1996, the Company intends to determine net income using previous accounting
standards and to make the appropriate disclosures in the notes to the financial
statements as permitted by the standard.
NOTE 14. NOTE RECEIVABLE FROM STOCKHOLDER
During the year ended December 31, 1993, the Company extended a loan to
the former principal stockholder and current president of Techotel AG (now
Sulcus Hospitality Group EMEA AG) in the amount of $500,000, pending the
registration of the stock of the Company issuable to him under terms of the
agreement for the purchase of Techotel. The note will be repaid upon the
registration by the Company for the stock issuable to him. Based on the nature
of the note, it has been reflected as a reduction of equity.
NOTE 15. ACQUISITIONS
In October of 1993, the Company completed its acquisition of
Lodgistix Scandinavia A.S., a distributor of Lodgistix systems in Norway,
Sweden and Denmark. The purchase price consisted of Sulcus Common Stock having
a value of $300,000. In addition, the former stockholders of Lodgistix
Scandinavia receive additional shares of the Company's stock up to a value of
$675,000 contingent upon attaining certain earnings over a three year period.
Lodgistix Scandinavia achieved such earnings for 1993 and 1995. As a result,
the Company will issue to the former stockholders of Lodgistix Scandinavia
5,808 and 111,801 shares of Sulcus common stock for an aggregate value of
$44,864 ($7.725 per share) and $225,000 ($2.0125 per share) for 1993 and 1995,
respectively. This additional consideration has been recorded as goodwill at
December 31, 1995. Lodgistix Scandinavia did not achieve required earnings for
1994.
F-25
<PAGE> 96
Effective January 1, 1993, Sulcus acquired Techotel AG of Switzerland.
The purchase agreement (as amended) provided for the issuance of $1,000,000 of
Common Stock. In addition, the shareholders were entitled to receive shares of
Sulcus based upon a multiple of 1.30 times earnings up to an aggregate value of
$2,890,000 over a three-year period ending December 31, 1995. Techotel
achieved such earnings for 1993 and 1995. As a result, the Company will issue
to the former stockholders of Techotel 90,517 and 83,676 shares of Sulcus
common stock for an aggregate value of $698,110 ($7.7125 per share) and
$168,399 ($2.0125 per share) for 1993 and 1995, respectively. This additional
consideration has been recorded as goodwill at December 31, 1995. Techotel did
not achieve the required earnings for 1994.
In 1992, Sulcus acquired Sulcus Hospitality Limited and Sulcus
Singapore PTE. LTD., sales offices located in Hong Kong and Singapore,
respectively for $1,450,000 in cash. In addition, the shareholders were
entitled to receive shares of Sulcus based upon a multiple of 2.75 times
earnings up to an aggregate value of $8,855,000 contingent upon attaining after
tax earnings over a three-year period. The only year that these subsidiaries
achieved earnings sufficient to entitle the former shareholders to contingent
payments was 1992 and, as a result, the Company issued to the former
shareholders (as amended) 320,827 shares of Sulcus common stock for an
aggregate value of $3,047,852 ($9.50 per share). Subsequent to this
determination Sulcus withheld 23,175 shares with an aggregate value of $220,161
with regard to the write off of the Craftech subsidiary. As a result of the
1992 restatement of earnings, the Company revised the contingent earnout
calculation based on the restatement adjustments that affected it. The Company
reduced the number of shares of stock issued as a result of the original
calculation, all of which are restricted. As a result, the Company reduced
goodwill at December 31, 1994 by approximately $2,168,000, reduced equity by
approximately $912,000, the estimated current value of the shares to be
canceled, and expensed the difference of $1,256,000 in 1994.
Effective March 1, 1992, Sulcus acquired all of the outstanding stock
of Squirrel Companies, Inc. ("Squirrel"). The purchase price consisted of
$500,000 in cash and 401,260 shares (at $5.75 per share) of the Company's stock
having a value of $1,955,500, net of issuance costs of approximately $351,745,
in exchange for all of the outstanding common stock of Squirrel. In addition,
the shareholders of Squirrel were entitled to receive additional shares of
Sulcus up to an aggregate value of $4,065,000 as well as 225,000 of the
Company's options contingent upon Squirrel's attaining after tax earnings over
a three-year period ending in 1994. Squirrel achieved such earnings for 1992
and 1994 and, as a result, the Company issued to the former shareholders of
Squirrel 53,212 shares for an aggregate value of $703,198 for 1992 and 70,836
shares for an aggregate value of $177,090 for 1994. These additional amounts
are recorded as a component of goodwill. On March 20, 1996, the Company
resolved disputes with the former owners of Squirrel with regard to the
calculation of earnouts in 1992 through 1994. The Company will issue 498,488
shares under the terms of the agreement and will cancel 120,488 earnout shares
which are a portion of the 124,048 earnout shares described above. To reflect
this settlement, the Company recorded an increase in goodwill and capital stock
in the amount of $391,193.
F-26
<PAGE> 97
NOTE 16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net interest paid $596,322 $556,269 $402,764
Non-cash activities:
Acquisitions:
Fair value of assets acquired - - $3,772,457
Common stock issued - - $1,300,000
Liabilities assumed - - $2,472,457
Common stock issued in settlement
of shareholder litigation - $1,625,000 -
Common stock issued for contingency
payments on acquisitions $393,399 $511,077 $188,541
Issuance of stock to consultants $12,000 - -
Issuance of stock as settlement of
previously recorded liabilities $95,396 - -
Issuance of stock as settlement
of Squirrel litigation $391,193 - -
Cancellation of shares previously issued as
contingent earnout related to acquisitions - $912,000 -
Unrealized gain on investments available for sale $186,382 - -
</TABLE>
NOTE 17. SEGMENT REPORTING
The Company conducts its worldwide operations through separate
geographic area organizations which represent major markets or combinations of
related markets. Transfers between markets are valued at cost.
Financial information by geographic area for years ended December 31,
1995, 1994, and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Domestic $31,195,481 $30,190,420 $35,792,461
Canada 3,625,643 2,859,899 2,367,905
Pacific Region 5,736,551 4,852,745 7,077,521
Europe 5,426,318 5,240,100 4,045,258
----------- ----------- -----------
Consolidated net revenues $45,983,993 $43,143,164 $49,283,145
=========== =========== ===========
</TABLE>
F-27
<PAGE> 98
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss):
Domestic ($147,949) ($8,183,839) ($1,716,591)
Canada 273,760 210,686 (1,453)
Pacific Region (1,290,717) (3,304,369) (1,937,632)
Europe (204,050) (390,491) 605,576
----------- ------------ -----------
Consolidated net income (loss) ($1,368,956) ($11,668,013) ($3,050,100)
=========== ============ ===========
Identifiable assets:
Domestic $37,646,558 $39,288,050 $47,366,589
Canada 1,562,171 1,259,913 1,233,470
Pacific Region 3,437,539 2,560,219 5,867,076
Europe 4,680,510 4,761,301 4,248,506
----------- ----------- -----------
Consolidated identifiable assets $47,326,778 $47,869,483 $58,715,641
=========== =========== ===========
</TABLE>
The 1995 Domestic segmental operating income includes the $2,919,333
litigation settlement provision and $514,694 write-off for software costs
developed and capitalized for the U.S. markets. The 1994 Domestic segmental
loss includes a $1,647,808 unrealized loss on short-term investments, a
$1,820,246 write off of capitalized software and a $250,000 provision for
litigation.
The 1994 Pacific Region operating losses include $336,703 to write off
investments in two affiliates and a net charge of $1,256,000 to write off
goodwill.
The 1994 European operating loss includes approximately $400,000
related to a French subsidiary.
Other than short-term investments in marketable securities, which are
generally available for working capital, there are no significant non-operating
corporate assets.
Sales between geographic areas and export sales are not material.
Identifiable assets by geographic area exclude intercompany loans,
advances and investments in affiliates. Intercompany trade receivables have
been eliminated. Corporate assets are principally cash, trade receivables and
intangibles.
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
data for the years ended December 31, 1995 and 1994. The Company believes this
information has been prepared on the same basis as the Consolidated Financial
Statements and that all necessary adjustments (consisting only of normal
recurring adjustments) have been included in the amounts as stated below to
present fairly the selected quarterly information when read in conjunction with
its Consolidated Financial Statements and Notes thereto.
F-28
<PAGE> 99
<TABLE>
<CAPTION>
(In Dollars)
Fiscal Quarter Ended
----------------------------------------------------------------------------------------
March June September December March June September December
31, 30, 30, 31, 31, 30, 30, 31,
1995 1995 1995 1995 1994 1994 1994 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 11,311,054 11,152,637 11,197,496 12,322,806 10,537,828 10,974,798 10,399,027 11,231,511
Cost of sales
and expenses 10,267,519 10,465,330 11,124,788 15,292,667 11,869,101 12,586,370 13,264,878 17,090,828
Income (loss)
before taxes 1,043,535 687,307 72,708 (2,969,861) (1,331,273) (1,611,572) (2,865,851) (5,859,317)
Tax provision 0 0 0 202,645 0 0 0 0
Net income
(loss) 1,043,535 687,307 72,708 (3,172,506) (1,331,273) (1,611,572) (2,865,851) (5,859,317)
========= ======= ====== ========== ========== ========== ========== ==========
Earnings (loss)
per share 0.07 0.05 0.00 (0.21) (0.09) (0.11) (0.20) (0.40)
==== ==== ==== ===== ===== ===== ===== =====
</TABLE>
The Company's results for the first quarter 1995 include $881,683,
which relates to the unrealized gain on investments. The Company's results for
the fourth quarter 1995, include the provision for litigation settlement of
$2,919,333 and write off of capitalized software of $514,694.
The Company's results for the fourth quarter of 1994 include a
provision of $336,703 to write off an investment in two unconsolidated
affiliates in Singapore and Hong Kong, referred to as Guthrie Retail Systems
and a provision of approximately $400,000 to write down the assets and provide
for expenses related to the disposition of its wholly-owned French subsidiary.
Management reached a decision in the fourth quarter of 1994 to dispose of the
companies because anticipated future revenues did not justify further
investments in these operations. Total 1994 sales of these companies included
in the consolidated statement of operations were approximately $800,000. In
addition, the results of the fourth quarter includes a charge of $1,256,000 to
write off goodwill related to the acquisition of Hong Kong and Singapore (See
Note 14).
NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments presented below are not
necessarily indicative of the amounts the Company might realize in actual
market transactions.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH (INCLUDING RESTRICTED CASH): The carrying amounts reported in the
balance sheet for cash and restricted cash approximates their fair
value.
SHORT-TERM INVESTMENTS: Short-term investments consists of stocks,
mutual funds and debt securities. Fair values are based on quoted
market prices.
SHORT- AND LONG-TERM DEBT: The carrying amount of the Company's
borrowings under margin accounts and floating rate debt approximates
its fair value. Long-term fixed rate debt is not material.
SHAREHOLDER LITIGATION LIABILITY: Portions due in the form of stock
for settlement of shareholder litigation liability is valued based
upon quoted market prices.
The carrying amounts of trade payables and receivables approximate
their fair value and have been excluded from the accompanying table.
F-29
<PAGE> 100
The carrying amounts and fair value of the Company's financial
instruments are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash $1,202,325 $1,202,325 $1,933,895 $1,933,895
Restricted cash 550,000 550,000 500,000 500,000
Short-term investments 12,408,075 12,408,075 10,324,740 10,324,740
Short-term borrowings 6,382,710 6,382,710 6,182,995 6,182,995
Shareholder litigation
liability 3,108,097 3,283,097 439,780 439,780
Long-term borrowings 73,888 73,888 554,526 554,526
</TABLE>
NOTE 20. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On April 10, 1996, the Company entered into an agreement in principle
with the staff of the Securities and Exchange Commission ("Commission"),
resolving an investigation which commenced in 1993. This agreement is subject
to approval of the full Commission. During 1994, in response to views
expressed by the Commission's staff, the Company reviewed and restated its
financial statements for the years ended December 31, 1992 and 1991 with
respect to accounting for costs and revenue associated with various acquisition
transactions and with respect to the adoption of accounting principles related
to income taxes. Under the terms of the April 10, 1996 agreement, without
admitting or denying any wrongdoing, the Company agreed that it would not in
the future violate Sections 17(a)(2) and 17(a)(3) of the Securities Act,
Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder. With respect to
certain press releases issued during 1991 and 1992, the proposed Order
Instituting Proceedings alleges violations of Section 10(b) and Rule 10b-5
against Sulcus. The proposed Order Instituting Proceedings does not allege
violations of Section 10(b) or Rule 10b-5 against Sulcus with regard to
accounting practices. In addition, a former accounting officer of the Company
and the Company's Chairman, without admitting or denying any wrongdoing agreed
that they would not in the future violate Sections 17(a)(2) and (a)(3) of the
Securities Act; Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act
and Rules 12b-20, 13a-1, 13a-13, and 13b 2-1 promulgated thereunder. There
were no fines or other penalties imposed upon the Company or its Chairman. The
Company's former accounting officer agreed not to practice before the
Commission as an accountant for a 30 month period.
F-30
<PAGE> 101
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances create any implication that there has been no change in
the affairs of the Company since the date hereof or that information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Available Information
Additional Information
Prospectus Summary
Summary Financial Data
Recent Developments
Risk Factors
Use of Proceeds
Dividend Policy
Dilution
Capitalization
Price Range of Common Stock
Selected Financial Data
Management's Discussion and
Analysis of Financial Condition and Results
Business
Management
Principal Shareholders
Certain Transactions
Description of Securities
Shares Eligible for Future Sale
Underwriting
Legal Proceedings
Experts
Index to Financial Statements
SULCUS
COMPUTER CORPORATION
400,000 Units
Each Unit consisting of:
One Share of Preferred Stock
and
Two Class A Warrants
----------------
PROSPECTUS
----------------
H. J. MEYERS & CO., INC.
JULY , 1996
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses are estimated:
<TABLE>
<S> <C>
SEC Registration Fee $ 3,500
American Stock Exchange Fees $ 15,000
Accounting fees $ 25,000
Legal Fees $ 65,000
Printing, Engraving & Mailing $ 60,000
Warrant agent, Transfer agent & registrars fees $ 20,000
Blue Sky fees and expenses $ 22,500
Miscellaneous expenses $ 29,000
---------
TOTAL $ 240,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 through 1747 of the Pennsylvania 1988 Business
Corporation Law permits indemnification of officers, directors and employees
and agents of a corporation.
Article 5.3 of Article V of the Registrant's By-Laws provides as
follows:
5.3 Indemnification of Directors, Officers and Employees: The
Corporation shall indemnify any person who was or is threatened to be made a
party to any threatened, pending or contemplated action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding or the defense or settlement thereof of any claim,
issue or matter therein, to the fullest extent permitted by the laws of
Pennsylvania as they may exist from time to time.
Expenses incurred by any such person in defending any such action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding if authorized by a majority of
the Directors of the Corporation who are not interested in such action, suit or
proceeding. The proper officers of the Corporation, without further
authorization by the Board of Directors may, in their discretion, purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a Director, officer, employee or agent for another
corporation, partnership, joint venture, trust or other enterprise,
II-1
<PAGE> 103
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the laws of
Pennsylvania and under this Article 5.3.
The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any agreement, vote of shareholders or disinterested Directors
or otherwise, both as to action is his official capacity and to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent of the type
referred to above and shall insure to the benefit of the heirs, executors and
administrators of such a person.
The Stock Purchase Agreements relating to the acquisition of Techotel,
A.G. and Lodgistix Scandinavia, A.S. contain provisions whereby the
Shareholders of each of those companies shall indemnify and hold harmless
Sulcus, each director of Sulcus, each officer of Sulcus who signed the
Registration Statement, and each person who controls any of the foregoing
persons within the meaning of the Securities Act with respect to any statement
or omission from such Registration Statement, filed with the Commission, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to Sulcus specifically for use in connection with
the preparation of such registration statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's By-Laws, the Stock
Purchase Agreements, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person in connection with the securities being
registered), the Registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by the
registrant without registration under the Securities Act of 1933, as amended:
On November 15, 1993, Registrant agreed to issue 34,000 shares of its
common stock to the three shareholders of Lodgistix Scandinavia, A.S. in
connection with the acquisition on November 15, 1993, of all of the issued and
outstanding capital stock of Lodgistix Scandinavia, A.S., subject to certain
adjustment, depending upon the price of Sulcus shares on the effective date of
the Registration Statement filed to permit the sale of such shares. As of the
date hereof, the former shareholders of Lodgistix Scandinavia have received an
aggregate of 255,295 shares of Common Stock.
II-2
<PAGE> 104
On August 3, 1994, Registrant agreed to issue up to 33,333 of its
common stock to Peter Landau, Esq. as payment for legal services rendered and
to be rendered to Registrant and for expenses in connection therewith.
On August 24, 1994, Registrant agreed to issue 31,707 shares of its
common stock to the Wall Street Group, Inc. as payment for financial public
relations consulting services rendered and to be rendered to Registrant.
On December 13, 1994, Registrant agreed to issue 96,000 shares of its
common stock to O. Gene Bicknell in payment of a Promissory Note and interest
thereon.
The Registrant believes the issuances of the securities referred to
above were and in the case of issuances to be made in the future will be exempt
from registration under the Act pursuant to Section 4(2) of the Act, as not
involving any public offering. Claims of such exemptions are based upon the
following; (i) all of the purchasers in such transactions were sophisticated
investors with the requisite knowledge and experience in financial and business
matters to evaluate the merits and risk of an investment in the Registrant,
were able to bear the economic risk of an investment in the Registrant, had
access to or were furnished with the kinds of information that registration
under the Act would have provided, and acquired securities for their own
accounts in transactions not involving any general solicitations or general
advertising, and not with a view to the distribution thereof, and (ii) a
restrictive legend was placed on each certificate evidencing the securities.
None of the foregoing transactions involved an underwriter (as defined in the
Act).
ITEM 16. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES
Unless otherwise noted, the following exhibits are filed with this
Registration Statement.
16 (A) EXHIBITS
<TABLE>
<S> <C>
1(a) Form of Underwriting Agreement
(b) Form of Agreement Among Underwriters*
(c) Form of Selected Dealers Agreement*
(2)(a) Agreement and Plan of Reorganization between Lodgistix and Sulcus.**
(a)(i) Amendment 1. to Agreement and Plan of Reorganization.**
(ii) Amendment 2. to Agreement and Plan of Reorganization.**
(b) Agreement of Merger between Lodgistix and Sulcus.**
(b)(i) Amendment 1. to Agreement of Merger.**
(b)(ii) Amendment 2. to Agreement of Merger.**
(c)(i) Certificate of Merger - Delaware ***
(c)(ii) Certificate of Merger - Kansas ***
(d) Stock Purchase Agreement among Sulcus, Squirrel and shareholders of Squirrel ****
(e) Stock Purchase Agreement and Plan of Reorganization among Sulcus, NRG and
shareholders of NRG ****
</TABLE>
II-3
<PAGE> 105
<TABLE>
<S> <C>
(f) Stock Purchase Agreement among Sulcus, JBA and shareholders of JBA++
(g) Stock Purchase Agreement among Sulcus, Techotel and shareholders of Techotel*****
(h) Stock Purchase Agreement among Sulcus, Lodgistix Scandinavia and shareholders
of Lodgistix Scandinavia *******
(3)(a) Articles of Incorporation+
(b) Certificate of Amendment to Articles of Incorporation+
(c) Form of Proposed Amendments to Articles of Incorporation***
(c)(i) Form of Proposed Amendment to Preferred Stock Provisions of Articles of
Incorporation
(d) By-Laws*
(4)(a) Form of Common Stock Certificate+
(a)(i) Form of Class A Redeemable Warrant
(a)(ii) Form of Class A Warrant
(b) Form of Underwriter's Warrant X
(c) Form of Warrant Agreement
(d) Form of Preferred Stock Certificate
(e) Form of Class B Warrant***
(f) Form of Class B Warrant Agreement***
(5)(a) Opinion of Counsel for Sulcus
(b) Opinion of David Nelson, Esq. *********
(10)(a) Incentive Stock Option Plan, as amended*
(a)(i) Form of 1991 Incentive Stock Option Plan***
(b) Director's Stock Option Plan*
(b)(ii) Form of 1991 Directors Stock Option Plan***
(c) Form of Incentive Stock Option Agreement*
(d) Form of Directors Stock Option Agreement*
(h) Management Agreement between Hospitality Management Systems, Inc. and
CompuSolv, Inc., dated March 1, 1989*
(i) Exclusive License Agreement between Hospitality Management Systems, Inc. and
CompuSolv, Inc., dated July 14, 1989*
(j) Form of Distributor Agreement*
(l) Form of Reseller Agreement (Software)*
(n) Form of Support, Maintenance & Enhancement Agreement*
(o) Form of Hardware Service Agreement*
(x) Form of Purchase/License Agreement between Hospitality Management Systems,
Inc. and Purchaser*
(y) Lease for premises at 41 N. Main Street, Greensburg, PA*
</TABLE>
II-4
<PAGE> 106
<TABLE>
<S> <C>
(viii) Employment Agreement with Jeffrey S. Ratner ********
(viii)(a)Amendment to Employment Agreement with Jeffrey S. Ratner *********
(ix) Employment Agreement with John W. Ryba ********
(x) Employment Agreement with Delmer C. Gowing, III ********
(xi) Employment Agreement with H. Richard Howie ********
(xiii) Employment Agreement with Joel Nagelmann**********
(aa) Citibank Agreement*
(bb) Radix Agreement**
(11) Statement RE: Computation of Per Share Earnings
(24)(a) Consents of Ferraro & McMurtry, P.C. and Crowe, Chizek and Company, LLP
(Included in Part II of Registration Statement)
(b) Consent of Counsel (contained in his opinion Exhibit 5(a) included in Part II of
Registration Statement) X
(c) Consent of Litigation Counsel contained in his opinion Exhibit 5(b) (included in Part
II of Registration Statement) *********
(16)(B) FINANCIAL STATEMENT SCHEDULES
Schedule I -Marketable Securities - Other Investments **********
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information **********
</TABLE>
+ Incorporated by reference to Form S-18 Registration Statement
(No. 2-91055-W) of Registrant filed on May 10, 1984.
++ Filed with Amendment No. 1 to Registration Statement 33-48682 filed on
June 16, 1992.
+++ Filed with Amendment No. 2 to Registration Statement 33-48682 filed on
June 16, 1992.
++++ Filed with Amendment No. 3 to Registration Statement 33-48682 filed on
June 16, 1992.
* Incorporated by reference to Form S-1 Registration Statement
(No. 33-32469) of Registrant filed on December 7, 1989.
** Incorporated by reference to Form S-4 Registration Statement
(No.33-37923) of Registrant filed on November 23, 1990.
*** Incorporated by reference to Form 10-K Annual Report (No. 0-13226)
filed on May 15, 1994.
II-5
<PAGE> 107
**** Incorporated by reference to Form 8-K current report for March 1992.
***** Incorporated by reference to Form 8-K current report for February 1993.
******* Incorporated by reference to Form 8-K current report for November 1993.
***** Incorporated by reference to Form S-1 Registration Statement
*** (No. 33-85244), filed on October 14, 1994.
***** Incorporated by reference to Amendment No. 1 to Form S-1
**** Registration Statement (No. 33-85244), filed on January 19, 1995.
***** Incorporated by reference to Form 10-K Form 10-K Annual Report
***** (No. 0-13226) filed on April 15, 1996.
X To be filed by Amendment
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section 10(a)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information
set forth in the Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating
to the securities being offered therein, and the offering of
such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 108
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
II-7
<PAGE> 109
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Sulcus Computer
Corporation, do hereby constitute and appoint Jeffrey S. Ratner, H. Richard
Howie and John W. Ryba, and each of them, our true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution in each of them,
to do any and all acts and things in our respective names and on our respective
behalves in the capacities indicated below that Jeffrey S. Ratner, H. Richard
Howie and John W. Ryba, or any of them, may deem necessary or advisable to
enable Sulcus Computer Corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us or any of
us in our respective names in the capacities indicated below any and all
amendments (including post-effective amendments) hereto and to file the same,
with all exhibits thereto and other documents therewith, with the Securities
and Exchange Commission; and we do hereby ratify and confirm all that Jeffrey
S. Ratner, H. Richard Howie and John W. Ryba, or any of them, shall 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:
II-8
<PAGE> 110
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, thereunto duly authorized, in the City of Greensburg, Commonwealth
of Pennsylvania, on July , 1996.
SULCUS COMPUTER CORPORATION
By:/s/ Joel Nagelmann *
----------------------------------------
Joel Nagelmann
President and Principal Executive Officer
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 and Title Date
------------------- ----
<S> <C>
/s/Jeffrey S. Ratner * July , 1996
- ---------------------------------------- -----------------------
Jeffrey Scott Ratner
Chairman of the Board and Director
/s/John W. Ryba * July , 1996
- ---------------------------------------- -----------------------
General Counsel and Director
/s/Robert D. Gries * July , 1996
- ---------------------------------------- -----------------------
Robert D. Gries, Director
/s/Herbert G. Ratner * July , 1996
- ---------------------------------------- -----------------------
Herbert G. Ratner, Director
/s/David H. Adler July , 1996
- ---------------------------------------- -----------------------
David Adler, Director
/s/ Joel Nagelmann * July , 1996
- ---------------------------------------- -----------------------
Joel Nagelmann, President and
Principal Executive Officer
/s/H. Richard Howie * July , 1996
- ---------------------------------------- -----------------------
H. Richard Howie, Chief Financial
Officer and Chief Accounting Officer
*By/s/ John W. Ryba July , 1996
- ---------------------------------------- -----------------------
John W. Ryba
Attorney-in-fact
</TABLE>
II-9
<PAGE> 1
EXHIBIT 1(a)
UNDERWRITING AGREEMENT
_______ __, 1996
H.J. Meyers & Co., Inc.
as Representatives of the several Underwriters
named in Schedule I hereto
1895 Mt. Hope Avenue
Rochester, New York 14620
Gentlemen:
SULCUS COMPUTER CORPORATION, a Pennsylvania corporation (the
"Company"), confirms its agreement with H.J. Meyers & Co., Inc. ("Meyers") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 9), for whom Meyers is acting as representative
(in such capacity, Meyers shall hereinafter be referred to as "you" or the
"Representative"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective numbers
of shares of the Company's Series A Convertible Preferred Stock, no par value
per share ("Preferred Stock"), and Class A Warrants to purchase shares of
Preferred Stock ("Warrants"), set forth in Schedule A hereto. The Preferred
Stock and Warrants will be separately transferable immediate following
issuance, and are hereinafter referred to as the "Firm Securities."
Each Warrant is exercisable commencing on the date of issuance and
ending one year from the date of the Prospectus, as hereinafter defined. Each
Warrant shall entitle the holder to purchase one share of Preferred Stock at an
exercise price of $________ per share if exercised on or before _______ __,
1996 (the "First Warrant Exercise Price"). Thereafter, the Warrant shall
entitle the holder to purchase one-half share of Preferred Stock for $_________
($___________ per share) (the "Second Warrant Exercise Price"). Both the First
Warrant Exercise Price and the Second Warrant Exercise Price are subject to
adjustment.
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 60,000 shares of Preferred Stock and Warrants for the
purpose of covering over-allotments, if any. Such 60,000 shares of Preferred
Stock, 60,000 Warrants and the shares of Preferred Stock issuable upon exercise
of such Warrants are hereinafter referred to as the "Option Securities." The
Company also proposes to issue and sell to you warrants (the "Underwriters'
Warrants") pursuant to the Underwriters' Warrant Agreement (the "Underwriters'
Warrant Agreement") for the purchase of an additional 40,000 shares of
Preferred Stock and Warrants, respectively. Such 40,000 shares of Preferred
Stock, 40,000 Warrants and the shares of Preferred Stock issuable upon exercise
of such Warrants are hereinafter referred to as the "Underwriters' Securities."
The Firm Securities, the Option Securities, the Underwriters' Warrants and the
Underwriters' Securities (collectively, hereinafter referred to as the
"Securities"), are more fully described in the Registration Statement and the
Prospectus referred to below.
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) A registration statement (File No. 33-85244) on Form S-1 relating
to the public offering of the Securities, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Act") and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. "Preliminary Prospectus" shall mean each prospectus
filed pursuant to Rule 430 of the Rules and Regulations. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement", and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) or Rule 430A of the Rules and Regulations or otherwise utilized and not
required to be so filed shall differ from said prospectus as then amended, the
term "Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b)
or Rule 430A or so utilized from and after the date on which it shall have been
filed or utilized, and (ii) if such registration statement or prospectus is
amended or such prospectus is supplemented, after the effective date of such
registration statement (the "Effective Date") and prior to the Option Closing
Date (as defined in Section 2(b)), the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the
case may be.
(b) At the time the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (as defined herein) and
each Option Closing Date (as defined herein), if any, and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriters or a dealer, (i) the Registration Statement and
Prospectus will in all material respects conform to the requirements of the Act
and the Rules and Regulations, and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein, in light of the
circumstances in which they were made, or necessary to make the statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf
of you or by any Underwriter through you specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus with respect to stabilization, the material set forth in the second
paragraph under the heading "Underwriting" and the identity of counsel to the
Underwriters under the heading "Legal Matters" constitute the only information
furnished in writing by you, or by any Underwriter through you, for inclusion
in the Registration Statement and Prospectus, as the case may be.
(c) The Company and each of its subsidiaries identified on Exhibit 21
to the Registration Statement, each of which is wholly owned, has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with full power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions in which the
nature of its business or the character or location of its properties requires
such qualification, except where failure to so qualify will not materially
affect its business, properties or financial condition. Except as otherwise
indicated, the term "Subsidiary" shall include each of the subsidiaries
identified on Exhibit 21 to the Registration Statement and the term "Company"
shall mean, collectively, the Company and its subsidiaries, unless the context
indicates otherwise.
2
<PAGE> 3
(d) The authorized capital stock of the Company as of the Effective
Date is set forth under "Capitalization" in the Prospectus. The shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and non-assessable;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company or any Subsidiary have been granted or entered into by the Company or
any Subsidiary. The Securities conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Securities are duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company.
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company, and assuming due execution by the other party or
parties hereto, constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and lawful
authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is
required in connection with the authorization, issuance and sale of the
Securities or the Representative's Warrant, except such as may be required
under the Act or state securities laws.
(g) Neither the Company nor any Subsidiary is in violation, breach or
default of or under, and the consummation of the transactions herein
contemplated, and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument to
which the Company is a party or by which the Company or any Subsidiary may be
bound or to which any of the property or assets of the Company or any
Subsidiary are subject, nor will such action result in any violation of the
provisions of the charter or the by-laws of the Company or any Subsidiary, or
any statute or any order, rule or regulation applicable to the Company or any
Subsidiary; of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or any Subsidiary; in each case where
the breach or default would have a material adverse effect on the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each Subsidiary has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material
leases and subleases under which the Company and each Subsidiary is the lessor
or sublessor of properties or assets or under which the Company and each
Subsidiary holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor any Subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and, except as described in the Prospectus, no claim has
been asserted by anyone adverse to rights of the Company or any Subsidiary as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company or any
Subsidiary to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted.
3
<PAGE> 4
(i) Except as set forth in the Prospectus, the Company owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, mark registrations, copyrights and licenses necessary for the
conduct of its business and has not received any notice of conflict with the
asserted rights of others in respect thereof. All patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
franchises and other intangible properties and assets (all of the foregoing
being herein called "Intangibles") that the Company owns or has pending, or
under which it is licensed, that are material to the business of the Company
are properly described in the Prospectus. There is no right under any
Intangible, necessary to the business of the Company as presently conducted or
as the Prospectus indicates it contemplates conducting, except as properly
described in the Prospectus. Except as set forth in the Prospectus, to the
knowledge of the Company, it has not infringed, is not infringing, and has not
received notice of infringement with respect to asserted Intangibles of others,
except for such infringement or alleged infringement that has not had, or
cannot be reasonably expected to have, a material adverse effect on the
financial condition, results of operations, business, properties, assets or
future prospects of the Company. Except as properly described in the
Prospectus, to the knowledge of the Company, there is no infringement by others
of Intangibles of the Company. Except as properly described in the Prospectus,
to the knowledge of the Company, there is no Intangible, of others which has
had or may in the future have a material adverse effect on the financial
condition, results of operations, business, properties, assets or future
prospects of the Company.
(j) To the knowledge of the Company, Crowe, Chizek and Company, LLP
and Ferraro & McMurtry, P.C., which have given their report on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are with respect
to the Company and the Subsidiaries independent public accountants as required
by the Act and the Rules and Regulations.
(k) The financial statements and schedules, together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flows of
the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. To the knowledge of the Company, no
other financial statements are required by Form S-1 or otherwise to be included
in the Registration Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of operations,
business, properties, or assets of the Company from the latest information set
forth in the Registration Statement or the Prospectus, except as properly
described in the Prospectus; and, except as set forth in the Prospectus, there
is no fact known to the Company which could reasonably be expected to have a
material and adverse effect on the future prospects of the Company or any
Subsidiary (other than political or economic matters of general applicability
or as properly described in the Prospectus).
(l) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and Prospectus, neither the Company nor any Subsidiary has incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and there has not
been any change in the capital stock of, or any incurrence of long-term debt
by, the Company or any Subsidiary or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any Subsidiary or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
other), net worth, results of operations, business, management or properties of
it which would be material to the business or
4
<PAGE> 5
financial condition of the Company, and neither the Company nor any Subsidiary
has become party to, and neither the business nor the property of the Company
or any Subsidiary has become the subject of, any material litigation whether or
not in the ordinary course of business.
(m) Except as set forth in the Prospectus, there is not now pending
nor, to the knowledge of the Company, threatened, any action, suit or
proceeding (including those related to environmental matters, discrimination on
the basis of age, sex, religion or race, or any regulatory matters) to which
the Company or any Subsidiary is a party before or by any court or governmental
agency or body, which could result in any material adverse change in the
condition (financial or other), business prospects, net worth or properties of
the Company or any Subsidiary; and no labor disputes involving the employees of
the Company or any Subsidiary exist which could be expected to materially
adversely affect the conduct of the business, property or operations or the
financial condition or earnings of the Company.
(n) Except as set forth in the Prospectus, each of the Company and the
Subsidiaries (i) has paid all federal, state, local, and foreign taxes for
which it is liable to the extent such taxes are due and payable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(p) Except as set forth in the Prospectus, the Company and each
Subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects complying therewith. To the best knowledge of the Company or such
Subsidiary, none of the activities or business of the Company or any Subsidiary
is in violation of, or could cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations or net worth of the Company.
(q) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or if made, failed to disclose fully any such contribution
made in violation of law, or (ii) made any payment to any state, federal or
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company and the Subsidiaries to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(r) On the Closing Dates (as defined in Section 2 (c)), all transfer
or other taxes (including franchise, capital stock or other tax, other than
income taxes imposed by any jurisdiction), if any, which are required to be
paid in connection with the sale and transfer of the
5
<PAGE> 6
Securities to the Underwriters hereunder will have been fully paid or provided
for by the Company and all laws imposing such taxes will have been fully
complied with.
(s) Any contract, agreement, instrument, lease or license required to
be described in the Registration Statement or the Prospectus has been properly
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to the Registration Statement.
(t) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities hereunder.
(u) The Company has no subsidiaries other than those identified on
Exhibit 21 to the Registration Statement.
(v) Except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings, whether oral or written,
for services in the nature of a finder's or origination fee with respect to the
sale of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company, the
Subsidiaries or any of its officers, directors, stockholders, partners,
employees or affiliates that may affect the Underwriters' compensation, as
determined by the National Association of Securities Dealers, Inc. ("NASD").
(w) Neither the Commission nor, to the knowledge of the Company, the
"blue sky" or securities authority of any jurisdiction has issued an order (a
"Stop Order") suspending the effectiveness of the Registration Statement,
preventing or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Securities, nor, to the knowledge of the
Company, has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(x) The Company has all requisite power and authority to execute,
deliver, and perform this Agreement. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery and
performance of this Agreement by the Company. This Agreement has been duly
authorized, executed and delivered by the Company, is the legal, valid and
binding obligation of the Company, and is enforceable as to the Company in
accordance with its terms (subject to applicable bankruptcy, insolvency and
other laws affecting creditors' rights generally and except as rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws and public policy). No consent, authorization, approval, order,
lien, certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or other
tribunal is required by the Company for the execution, delivery, or performance
of this Agreement by the Company (except filings under the Act which have been
or will be made before the Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been obtained at or
prior to the date of this Agreement). No consent of any party to any material
contract, agreement, instrument, lease, license, arrangement, or understanding
to which the Company is a party, or to which any of its properties or assets
are subject, is required for the execution, delivery or performance or this
Agreement; and the execution, delivery, and performance of this Agreement will
not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under any such material contract, agreement, instrument,
lease, license, arrangement or understanding, or violate or result in a breach
of any term of the articles of incorporation or by-laws of the Company, or
violate, result in a breach of, or conflict with any law, rule, regulation
(except for such law, rule or regulation the
6
<PAGE> 7
violation of which would not have a material adverse effect on the financial
condition, results of operations, business, properties or assets of the
Company), order, judgment, or decree binding on the Company or to which any of
its operations, businesses, properties, or assets is subject.
(y) The Company has caused to be duly executed agreements ("Lock-up
Agreements") pursuant to which each of the Company's officers, directors and
principal shareholders set forth on Schedule 1(y) hereto has agreed not to,
directly or indirectly, offer to sell, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate or other encumber or dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any
shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for the
period described therein without the prior written consent of the
Representative. The Company has no reason to believe that the Lock-up
Agreements are not legally binding upon, and enforceable against the respective
security holder signatories thereto. The Company will cause the Transfer Agent,
to mark an appropriate legend on the face of stock certificates representing
all of such securities and to place "stop transfer" orders on the Company's
stock ledgers.
(z) The Securities have been approved for quotation on the American
Stock Exchange, subject to notice of issuance.
(aa) Except as set forth in the Prospectus, no officer, director,
principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, principal stockholder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities required to be set forth
in the Prospectus.
(bb) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(cc) The minute book of the Company has been made available to the
Underwriters and contains a complete record in all material respects of all
meetings and actions of the directors and stockholders of the Company,
respectively, since the time of its respective incorporation, and accurately
reflects all transactions referred to in such minutes in all material respects.
(dd) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company, have the right to
include any securities issued by the Company in the Registration Statement or
any registration statement to be filed by the Company or to require the Company
to file a registration statement under the Act and except as described in the
Registration Statement, no person or entity holds any price protection
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has as of the effective date of the Registration
Statement purchased term key-person insurance on the life of Joel B. Nagelmann
in the amount of $1,000,000, which policy names the Company as the sole
beneficiary thereof.
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<PAGE> 8
(ff) The Company has entered into a warrant agreement substantially in
the form filed as Exhibit 10.13 to the Registration Statement (the "Warrant
Agreement") with American Stock Transfer and Trust Company, Inc., in form and
substance satisfactory to the Representative, with respect to the Warrants.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company agrees to issue and sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to buy from the Company, at $_____________
per share of Preferred Stock and $__________ per Warrant, respectively, at the
place and time hereinafter specified, the number of shares of Preferred Stock
and Warrants set forth opposite each Underwriter's name in Schedule I hereto
(the "Firm Securities").
Delivery of the Firm Securities against payment therefor shall take
place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m. New York time on _______
__, 1996, or at such later time and date as you may designate, such time and
date of payment and delivery for the Firm Securities being herein called the
"First Closing Date." Time shall be of the essence and delivery at the time and
place specified in this subsection (a) is a further condition to the
obligations of the Underwriters hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriters to
purchase all or any part of an aggregate of 60,000 additional shares of
Preferred Stock and Warrants at the same price per security as the Underwriters
shall pay for the Firm Securities being sold pursuant to the provisions of
subsection (a) of this Section 2 (such additional Units being referred to
herein as the "Option Securities"). This option may be exercised within 30
business days after the Effective Date upon notice by you to the Company
advising it as to the amount of Option Securities as to which the option is
being exercised, the names and denominations in which such Option Securities
are to be registered and the time and date when such Option Securities are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Securities against payment therefor shall take place at the offices of
H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 (or
at such other place as may be designated by agreement between you and the
Company). Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to the obligations of
the Underwriters hereunder.
The option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Securities referred to
in subsection (a) above.
(c) The Company will make the certificates for the Securities, as
applicable, to be purchased by the Underwriters hereunder available to you for
inspection at least two full business days prior to the First Closing Date or
the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
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<PAGE> 9
Definitive certificates in negotiable form for the Securities, as
applicable, to be purchased by the Underwriters hereunder will be delivered by
the Company to you for the several accounts of the Underwriters against payment
of the purchase price by you, for the several accounts of the Underwriters, at
your option, by certified or bank cashier's checks in New York Clearing House
funds or by wire transfer, payable to the order of the Company or up to three
designees of the Company.
In addition, in the event the Underwriters exercise the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Option Securities
shall be made to or upon the order of the Company by you, for the several
accounts of the Underwriters, at your option, by certified or bank cashier's
checks payable in New York Clearing House funds or by wire transfer, at the
offices of H.J. Meyers & Co., Inc. at the time and date of delivery of such
Option Securities as required by the provisions of subsection (b) above,
against receipt of the certificates for the securities underlying such Option
Securities by you, for the several accounts of the Underwriters, registered in
such names and in such denominations as you may request.
It is understood that the Underwriters propose to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriters Underwriters' Warrants, for an aggregate purchase price of $5.00,
which warrants shall entitle the holder thereof to purchase an aggregate of
40,000 shares of Preferred Stock and 40,000 Warrants. The Representative's
Warrant shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred thirty percent (130%) of the initial public offering price of the
Securities. The Warrants issuable upon exercise of the Underwriters' Warrant
shall be exercisable at one hundred twenty (120%) percent of the exercise price
of the publicly offered Warrant. The Representative's Warrant Agreement and
form of Warrant Certificate shall be substantially in the form filed as Exhibit
10.12 to the Registration Statement. Payment for the Representative's Warrant
shall be made on the Closing Date.
3. COVENANTS OF THE COMPANY
The Company covenants and agrees with the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will
not at any time, whether before or after the Effective Date, file any amendment
to the Registration Statement or supplement to the Prospectus of which you
shall not previously have been advised and furnished with a copy or to which
you or counsel for the Underwriters shall have objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by the Underwriters of the distribution of
the Firm Securities and Option Securities contemplated hereby (but in no event
more than nine months after the Effective Date) and (B) 25 days after the
Effective Date, the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Firm Securities and Option
Securities.
Promptly after you or the Company is advised thereof, you will advise
the Company or the Company will advise you, as the case may be, and confirm the
advice in writing, of the receipt of
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<PAGE> 10
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop orders or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Firm Securities and Option Securities for such
period as in the opinion of counsel for the Underwriters the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales
by an underwriter or dealer, of any event of which the Company has knowledge
and which materially affects the Company or the Firm Securities and Option
Securities, or which in the opinion of counsel for the Company or counsel for
the Underwriters should be set forth in an amendment to the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Firm
Securities and Option Securities, or in case it shall be necessary to amend or
supplement the Prospectus to comply with the Act or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not contain
any untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of
the circumstances under which they are made, not misleading. The preparation
and furnishing of any such amendment or supplement to the Registration
Statement or amended Prospectus or supplement to be attached to the Prospectus
shall be without expense to the Underwriters, except that in case the
Underwriters are required, in connection with the sale of the Firm Securities
and Option Securities, to deliver a Prospectus nine months or more after the
Effective Date, the Company will upon request of and at the expense of the
Underwriters, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriters with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and the
rules and regulations thereunder in connection with the issuance and offering
of the Securities.
(b) The Company will use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and the
Company will furnish such information to counsel for the Underwriters as may be
required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer
in securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale
of the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as you may reasonably request.
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<PAGE> 11
(c) If the sale of the Securities provided for herein is not
consummated due to the Company's breach of any representation or warranty or
condition contained in this Agreement, or because of the Company's actions or
failure to take such actions as are reasonably required hereunder, and the
Representative is prepared to perform in accordance with the terms herein, the
Company shall pay all costs and expenses incident to the performance of the
Company's obligations hereunder in accordance with Section 8 hereof.
(d) The Company will furnish to you as early as practicable prior to
the Closing Date and any Additional Closing Date, as the case may be, but no
less than two full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company, if any, which have been
read by the Company's independent certified public accountants, as stated in
their letters to be furnished pursuant to Section 4(e).
(e) For so long as the Company is a reporting company under either
Section 12(b), Section 12(g) or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from
the date hereof, (i) as soon as practicable after the end of each fiscal year,
a balance sheet of the Company and any subsidiaries as at the end of such
fiscal year, together with statements of income, stockholders' equity and cash
flows of the Company and any subsidiaries as at the end of such fiscal year,
all in reasonable detail and accompanied by a copy of the certificate or report
thereon of independent public accountants; (ii) as soon as they are available,
a copy of all quarterly financial statements; (iii) as soon as they are
available, a copy of all reports (financial or other) mailed to security
holders; (iv) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission; and
(v) such other information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing
Date two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may reasonably
request. The Company will deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the Act, from
time to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
(h) The Company will make generally available to its security holders
and deliver to you as soon as it is practicable to do so, but in no event later
than 90 days after the end of 12 months after the end of its current fiscal
quarter, an earnings statement (which need not be audited) covering a period of
at least 12 consecutive months beginning after the Effective Date which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, preliminary Prospectus or Prospectus and take any other action,
which in the opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the
Underwriters, may be reasonably necessary or advisable in connection with the
distribution of the Securities and will use its best efforts to cause the same
to become effective as promptly as possible.
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<PAGE> 12
(j) Prior to the Effective Date, the persons identified in Paragraph
1(y) shall have executed the Lock-up Agreements described therein. You shall
have received written waivers of demand and/or piggy back registration rights,
if any, from all the holders thereof prior to the Effective Date of the
Registration Statement.
(k) The Company shall upon the initial filing of the Registration
Statement make all filings required to obtain approval for listing for
quotation of the Securities on the American Stock Exchange and shall use its
best efforts to maintain such listing for at least five years from the date of
this Agreement. On or before the Effective Date, the Company shall cause the
Company to be listed in Moody's OTC Industrial Manual and shall use its best
efforts to cause such listing to be maintained for five years from the date of
this Agreement.
(l) The Company represents that it has not taken, and agrees that it
will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock or Securities or
to facilitate the sale or resale of the Common Stock or Securities.
(m) During the 90-day period commencing as of the First Closing Date,
the Company will not, without your prior written consent, which consent shall
not be unreasonably withheld or delayed, grant options to purchase shares of
Common Stock at a price less than the closing bid price of the Common Stock on
the Effective Date. Furthermore, during the 24-month period commencing on the
Effective Date no options shall be granted by the Company to its officers or
directors pursuant to any stock option plan unless such option is either (a)
not exercisable during such 24-month period, or (b) the shares issuable upon
exercise of such option are subject to a lock-up agreement with the
Representative restricting the sale of such shares during such 24 month period.
(n) Prior to the Closing Date or any Additional Closing Date, as the
case may be, the Company will not issue any press release or other
communication directly or indirectly and will hold no press conference with
respect to the Company, or its financial condition, results of operations,
business, properties, or assets, or this offering, without your prior written
consent, which consent will not be unreasonably withheld.
(o) Jeffrey S. Ratner shall be Chairman and Joel B. Nagelmann shall be
Principal Executive Officer and President of the Company on the Closing Dates
and, prior to the Effective Date, the Company will obtain and thereafter keep
in effect during the three-year period commencing on the First Closing Date key
person life insurance on the life of Mr. Nagelmann in an amount not less than
$1,000,000, on terms, and with an insurance agency, mutually agreed upon by the
Company and you.
(p) During the period of the offering, and for a period of six (6)
months from the Effective Date, the Company will not sell or otherwise dispose
of any securities of the Company, except for shares of Common Stock issuable
upon exercise of options, warrants or convertible securities outstanding on the
Effective Date, options granted under stock option plans or shares issuable as
"earn out shares" with respect to certain transactions or shares issuable in
connection with merger and acquisitions, without your prior written consent,
which consent shall not be unreasonably withheld.
(q) The Company will reserve and keep available that number of its
authorized but unissued shares of Preferred Stock and Common Stock,
respectively, which are issuable upon exercise of the Warrants and
Underwriters' Warrants and upon conversion of the Preferred Stock, in each
case, as are outstanding from time to time.
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(r) Within 90 days from the First Closing Date, the Company shall
deliver to you, at the Company's expense, three bound volumes in form and
content acceptable to you, containing the Registration Statement and all
exhibits filed therewith, and all amendments thereto, and all other
correspondence, filings, certificates and other documents filed and/or
delivered in connection with this offering.
(s) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds will be used, directly or indirectly, to acquire
any securities issued by the Company.
(t) For a period of three (3) years from the Closing Date, the Company
shall, as the Representative may reasonably request, but not more often than
monthly, furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and Warrants and (ii)
the list of holders of all of the Company's securities.
(u) For a period of three (3) years after the effective date of the
Registration Statement, the Company shall notify the Representative of each
meeting of the Board of Directors of the Company (the "Board") and an
individual selected by the Underwriters shall, at the sole discretion of the
Company, be permitted to attend all meetings of the Board and the Company shall
send to such individual all notices and other correspondence and communications
sent by the Company to members of the Board.
(v) The Company will cause a Registration Statement under the Exchange
Act covering the Preferred Stock and Warrants to be declared effective
concurrently with the completion of the offering of the Securities.
4. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for
the Securities which they have agreed to purchase hereunder are subject to the
accuracy (as of the date hereof, and as of the Closing Dates) of and compliance
with the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 4:00 p.m., New York time, on
the date following the date of this Agreement, or at such later time or on such
later date as to which you may agree in writing; on the Closing Dates, no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to the knowledge of any Underwriter or to
the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Morse, Zelnick, Rose &
Lander, LLP, counsel to the Underwriters; and no stop order shall be in effect
denying or suspending effectiveness of the Registration Statement nor shall any
stop order proceedings with respect thereto be instituted or pending or
threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Opton, Handler, Gottlieb, Feiler & Katz,
LLP ("Opton Handler"), counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) the Company and each Subsidiary has been duly organized
and is validly existing as a corporation in good standing under the
laws of its state of incorporation and
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<PAGE> 14
is duly authorized to transact business as a foreign corporation in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the Company;
(ii) to the best knowledge of such counsel, (a) the Company
has obtained, or is in the process of obtaining, all licenses, permits
and other governmental authorizations necessary to the conduct of its
business as described in the Prospectus, and (b) such obtained
licenses, permits and other governmental authorizations are in full
force and effect, and the Company is in all material respects
complying therewith;
(iii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all of the Company's
outstanding securities requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Prospectus; the
outstanding securities of the Company have not been issued in
violation of the preemptive rights of any stockholder, under the
Pennsylvania General Laws or the Company's Charter or By-laws and the
stockholders of the Company do not have any statutory preemptive
rights or, to the best of such counsel's knowledge, other than as set
forth in the Prospectus, other rights to subscribe for or to purchase,
and there are no restrictions upon the voting of any of the Common
Stock; the Warrants and the Underwriters' Warrants conform to the
respective descriptions thereof contained in the Prospectus; the
Securities to be issued as contemplated in the Registration Statement
have been duly authorized and, when issued and paid for, will be
non-assessable and free of preemptive rights under the Pennsylvania
General Laws or the Company's Charter or By-laws, and, to the best of
such counsel's knowledge, contractual preemptive rights, and no
personal liability will attach to the ownership thereof; a sufficient
number of shares of Common Stock have been reserved for issuance upon
exercise of the Warrants, the Underwriters' Warrants (without regard
to the anti-dilution provisions thereof) and upon such issuance upon
exercise in accordance with the terms of the Underwriters' Warrants,
when the purchase price is paid, will be fully paid, non-assessable
and free of preemptive rights under the Pennsylvania General Laws or
the Company's Charter or By-laws and, to the best of such counsel's
knowledge, contractual preemptive rights, and no personal liability
will attach to the ownership thereof; and to the best of such
counsel's knowledge, except as set forth in the Prospectus, neither
the filing of the Registration Statement nor the offering or sale of
the Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied, for or relating to the registration of the
Securities;
(iv) this Agreement, the Warrant Agreement and the
Underwriters' Warrants, have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution and
delivery by you, all of such agreements are, or when duly executed
will be, the valid, legally binding and enforceable obligations of the
Company except (i) as limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights, or (ii) as
limited by general principles of equity; provided, however, that no
opinion need be expressed as to the enforceability of the indemnity
provisions contained in Section 6 or the contribution provisions
contained in Section 7 of this Agreement;
(v) the certificates evidencing the Shares and the
Underwriters' Warrants are in valid and proper form;
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(vi) except as disclosed in the Prospectus, such counsel
knows of no pending legal or governmental proceedings to which the
Company is a party which could materially adversely affect the
business, property, financial condition or operations of the Company
or which question the validity of the Securities, this Agreement or
the Underwriters' Warrants, or of any action taken or to be taken by
the Company pursuant to this Agreement or the Underwriters' Warrants;
except as disclosed in the Prospectus, no such proceedings are known
to such counsel to be threatened against the Company; and there are no
governmental proceedings or regulations known to such counsel required
to be described or referred to in the Registration Statement which are
not so described or referred to;
(vii) to the knowledge of such counsel, the Company is not in
violation of or default under this Agreement, the Warrant Agreement or
the Underwriters' Warrants, and the execution and delivery hereof and
thereof and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein
contemplated will not result in a violation of, or constitute a
default under, the Charter or By-laws of the Company, or, to the best
of such counsel's knowledge, in the performance or observation of any
material obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any
contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company is a party or, to
the best of such counsel's knowledge, in a violation of any material
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign applicable
to the Company;
(viii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except for the financial statements and
other financial and statistical data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of
the Act and the Rules and Regulations;
(ix) during the course of the preparation of the Registration
Statement, such counsel has participated in conferences with officers
and other representatives of the Company, the Representative and
independent public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus
contained therein and related matters were discussed and, although
such counsel need not pass upon and does not assume any responsibility
for the adequacy, accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained
therein (except as specified in such counsel's opinion), solely on the
basis of the foregoing without independent check and verification, no
facts have come to such counsel's attention which lead it to believe
that the Registration Statement or any amendment thereto, at the time
the Registration Statement or amendment became effective, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading or the Prospectus or any amendment or supplement thereto,
at the time they were filed pursuant to Rule 424(b) or at the date
hereof, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which
they were made, not misleading (except that no view need be expressed
as to (i) financial information and statistical data and information
included in the Registration Statement or the Prospectus, (ii)
information included in the Registration Statement or the Prospectus
which was furnished by or on behalf of the
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<PAGE> 16
Representatives, or (iii) information included in the second paragraph
of the "Underwriting" section of the Prospectus).
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents are accurate and complete in all material respects and
such counsel is familiar with the contracts and other documents
referred to in the Registration Statement and the Prospectus and any
such amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized (other than real
property leases) or described therein or to be filed as exhibits
thereto which are not so summarized, described or filed;
(xi) to the best of such counsel's knowledge, no
authorization, approval, consent or license of any governmental or
regulatory authority or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery of the Securities
by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Representative's Warrant or the Shares and Warrants underlying the
Representative's Warrant, other than registration or qualification of
the Securities under applicable state or foreign securities or blue
sky laws (as to which such counsel need express no opinion) and
registration under the Act;
(xii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds," "Executive Compensation"
(other than the data contained in the Executive Compensation table),
"Principal Shareholders", "Certain Transactions" "Description of
Securities" and "Shares Eligible for Future Sale" have been reviewed
by such counsel and, insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiii) to the best knowledge of such counsel, no holders of
Common Stock or other securities of the Company have any rights with
respect to the registration of such securities in the Registration
Statement, except as described in the Prospectus or which have been
validly waived or satisfied. All such registration rights known to
such counsel have been so described and have been validly waived or
satisfied with respect to the transaction contemplated hereby;
(xiv) the Company is not required, and will not be required
as a result of this offering, to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as you or counsel for the Underwriters shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact and may be limited to the law of the United States the State of
Pennsylvania and the state of incorporation of each subsidiary of the Company.
With respect to the laws of jurisdictions other than New York and the United
States (including but not limited to the laws of the states of Pennsylvania and
Maryland) such opinion may reasonably rely upon opinions of local counsel
acceptable to the Underwriters and its counsel.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Morse, Zelnick, Rose
& Lander, LLP, counsel to the Underwriters, and you shall have received from
such counsel a signed opinion, dated as of the First Closing Date, with respect
to the validity of the issuance of the Securities, the form of the Registration
Statement and
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Prospectus (other than the financial statements and other financial data
contained therein), the execution of this Agreement and other related matters
as you may reasonably require. The Company shall have furnished to counsel for
the Underwriters such documents as they may reasonably request for the purpose
of enabling them to render such opinion.
(d) At the time this Agreement is executed and at the Closing Date and
any Additional Closing Date, as the case may be, you shall have received a
letter, addressed to the Underwriters and in form and substance satisfactory to
you, with reproduced copies or signed counterparts thereof for each of the
Underwriters, from Crowe, Chizek and Company, Inc. ("Crowe, Chizek") dated the
date of delivery:
(i) confirming that they are, and during the period covered
by their report(s) included in the Registration Statement and the
Prospectus they were, independent certified public accountants with
respect to the Company within the meaning of the Act and the public
Regulations and stating that the response to Item 10 of the
Registration Statement is correct insofar as it related to them;
(ii) stating that, in their opinion, the financial statements
and schedules of the Company included in the Registration Statement
examined by them comply in form in all material respects with the
applicable accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited
interim financial statements of the Company (with an indication of the
date of the latest available unaudited interim financial statements),
a reading of the latest available minutes of the shareholders and
Board of Directors of the Company and committees of such board,
inquiries to certain officers and other employees of the Company
responsible for financial and accounting matters, and other specified
procedures and inquiries, nothing has come to their attention that
caused them to believe that (A) the unaudited financial statements and
schedules of the Company included in the Registration Statement and
Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and
the related published rules and regulations under either such act or
are not fairly presented in conformity with generally accepted
accounting principles (except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the
Exchange Act) applied on a basis consistent with that of the audited
financial statements appearing therein, (B) any unaudited financial
information of the Company included in the Prospectus was not
determined on a basis substantially consistent with the corresponding
information in the audited statements of operations, (C) there was any
change in the capital stock or debt of the Company or any decrease in
the net current assets or shareholders' equity of the Company as of
the date of the latest available monthly financial statements of the
Company or as of a specified date not more than five business days
prior to the date of such letter, each as compared with the amounts
shown in the December 31, 1995 balance sheet included in the
Registration Statement and Prospectus, other than as properly
described in the Registration Statement and Prospectus or any change
or decrease (which shall be set forth therein) which you in your sole
discretion shall accept, or (D) there was any decrease in revenue, net
earnings, or net earnings per share of Common Stock of the Company
during the period of December 31, 1995 to the date of the latest
available monthly financial statements of the Company or to a
specified date not more than five business days prior to the date of
such letter, each as compared with the corresponding prior year
period, other than as properly described in the Registration Statement
and
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<PAGE> 18
Prospectus or any decrease (which shall be set forth therein) which
you in your sole discretion shall accept; and
(iv) stating that they have compared specific numerical data
and financial information pertaining to the Company set forth in the
Registration Statement, each Preliminary Prospectus, and the
Prospectus, if applicable, which have been specified by you prior to
the date of this Agreement, to the extent that such data and
information may be derived from the general accounting records of the
Company, and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of
specified readings, inquiries, and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter, and
found them to be in agreement.
(e) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of such
Closing Date, and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which
are required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statements of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change
in the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the Effective Date, and the Company shall not have
incurred any material liabilities or entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, rule or finding would materially
and adversely affect the business, property, condition (financial or
otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the Chairman of the Board and the principal financial or accounting
officer of the Company, dated as of the First Closing Date, evidencing
compliance with the provisions of this subsection (f).
(f) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the several Underwriters to purchase and pay for the Option
Shares referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) the Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending, or, to the knowledge
of any Underwriter or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the part
of the Commission for additional information shall have been complied
with to the reasonable satisfaction of Morse, Zelnick, Rose & Lander,
LLP, counsel to the Underwriters;
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<PAGE> 19
(ii) at the Option Closing Date there shall have been
delivered to you the signed opinion of Opton, Handler, counsel to the
Company, dated as of the Option Closing Date, in form and substance
reasonably satisfactory to Morse, Zelnick, Rose & Lander, LLP, counsel
to the Underwriters, which opinion shall be substantially the same in
scope and substance as the opinion furnished to you at the First
Closing Date pursuant to Sections 4(b) hereof, except that such
opinion, where appropriate, shall cover the Option Securities rather
than the Firm Securities. If the First Closing Date is the same as the
Option Closing Date, such opinions may be combined;
(iii) at the Option Closing Date, there shall have been
delivered to you a certificate of the Chairman of the Board and the
principal financial or accounting officer of the Company dated the
Option Closing Date, in form and substance satisfactory to Morse,
Zelnick, Rose & Lander, LLP, counsel to the Underwriters,
substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4 (e)
hereof;
(iv) at the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Crowe, Chizek, dated the Option Closing Date and addressed to
you, confirming the information in each of their letter referred to in
Section 4(d) as of the date thereof and stating that, without any
additional investigation required, nothing has come to their attention
during the period from the ending date of their review referred to in
said letter to a date not more than five (5) days prior to the Option
Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date;
(v) all proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be reasonably satisfactory in form and substance to you, and you
and Morse, Zelnick, Rose & Lander, LLP, counsel to the Underwriters,
shall have been furnished with all such documents, certificates and
opinions as you may request in connection with this transaction in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(g) If any of the conditions herein provided for in this Section shall
not have been completely fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriters under this
Agreement may be canceled at, or at any time prior to, each Closing Date by
your notifying the Company of such cancellation in writing or by telegram at or
prior to the applicable Closing Date. Any such cancellation shall be without
liability of any Underwriter to the Company, except as otherwise provided
herein.
(h) On or before the Closing Date, the Company shall have executed and
delivered to the Warrant Agent the Warrant Agreement substantially in the form
filed as exhibit 10.13 to the Registration Statement, in final form and
substance satisfactory to the Representative and its counsel.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Securities is
subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 4:00 p.m. New York time, on the date following the date of this Agreement,
or on such later date or time as the Company and you may agree in writing.
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<PAGE> 20
(b) On the Closing Dates, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Option
Securities on exercise of the option provided for in Section 2(b) hereof shall
be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls such Underwriter, within the meaning of
the Act, from and against any losses, claims, damages or liabilities (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees), joint or several, to which such Underwriter or such controlling person
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment thereof or supplement thereto, (B) any blue
sky application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they were made;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Meyers, severally and each other Underwriter, severally, but not
jointly, agrees to indemnify and hold harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company, within the meaning of the Act, from and against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees) to which the Company or
any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged untrue statement or omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in preparation thereof. This indemnity will be
in addition to any liability which any Underwriter may otherwise have.
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<PAGE> 21
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably 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 under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party
or (ii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the indemnifying
party, and the indemnified party or parties have received an opinion of counsel
reasonably satisfactory to the indemnifying party opining that the indemnified
party or parties have one or more legal defenses available to it which are in
conflict to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party or parties, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). The indemnifying party shall be free to settle any claim or action
in respect to which indemnity may be sought against it pursuant to this
Section; provided, however, that the indemnifying party shall not settle any
such claim or action if such settlement would result in the imposition against
the indemnified party or parties of a judgment, decree or order in the nature
of equitable relief without the consent of the indemnified party, which shall
not be unreasonably withheld in light of all factors of importance to such
indemnified party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which (i) the indemnified party makes claims for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that such
Underwriter is responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount appearing on
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<PAGE> 22
the cover page of the Prospectus bears to the public offering price appearing
thereon, and Company shall be responsible for the remaining portion, provided,
however, that (a) if such allocation is not permitted by applicable law, then
the relative fault of the Company and such Underwriter and controlling persons,
in the aggregate, in connection with the statements or omissions which resulted
in such damages and other relevant equitable considerations shall also be
considered. The relative fault shall be determined by reference to, among other
things, whether in the case of an untrue statement of a material fact or the
omission to state a material fact, such statement or omission relates to
information supplied by the Company or such Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if the respective obligations of
the Company and the Underwriters to contribute pursuant to this Section 7 were
to be determined by pro rata or per capita allocation of the aggregate damages
(even if the Underwriters have to be treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b) that
the contribution of any Underwriter shall not be in excess of its proportionate
share of the portion of such losses, claims, damages or liabilities for which
such Underwriter is responsible. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to their respective underwriting
obligations and not joint. If the full amount of the contribution specified in
this paragraph is not permitted by law, then each Underwriter and each person
who controls each Underwriter shall be entitled to contribution from the
Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriters. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Securities to the Underwriters is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the filing required by
the NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees (not to exceed $25,000) and disbursements
of counsel to the Underwriters, in connection with the qualification of the
Securities under the state securities or Blue Sky Laws which you shall
designate; the cost of printing and furnishing to the Underwriters copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selling Agreement and the Blue Sky Memorandum; the cost of
printing the certificates representing the Shares and Warrants, the expenses of
Company due diligence meetings and presentations, and the expense (which shall
not exceed $7,500) of placing one or more "tombstone" advertisements as
directed by you. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3 (a) of
this Agreement except as otherwise set forth in said Section.
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<PAGE> 23
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to you the balance of a non-accountable expense
allowance of $ [3% of gross proceeds of the Offering], of which $10,000 has
been paid. In the event the over-allotment option is exercised in part or in
full, the Company shall pay to you at the Option Closing Date, as a
non-accountable expense allowance, an amount equal to 3% of the gross proceeds
received upon exercise of the over-allotment option. In the event the proposed
offering is terminated for any reason, the Representative shall return any
portion of the $10,000 advanced by the Company not previously expended in
connection with the proposed offering for actual accountable out-of-pocket
expenses. If the proposed offering is not completed due to the Company's breach
of any representation or warranty or condition contained in this Agreement, or
because of the Company's actions or failure to take such actions as are
reasonably required hereunder, and the Representatives are prepared to perform
in accordance with the terms herein, the Company shall be liable for all of the
Representative's actual accountable out-of-pocket expenses, including
reasonable legal fees in an amount up to the $10,000 previously received.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless each Underwriter, and the
Underwriters agree to indemnify and hold harmless, severally and not jointly,
the Company from and against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees) to which the indemnified party may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase the number of Securities which it has agreed to purchase
under this Agreement, you shall be obligated to purchase all of the Securities
not purchased by the defaulting Underwriter unless such purchase shall cause
you to be in violation of the net capital requirements of Rule 15c3-1 of the
Exchange Act, in which case you, and any other underwriters satisfactory to you
who so agree, shall have the right, but shall not be obligated, to purchase (in
such proportions as may be agreed upon among them) all of the Securities. If
you or the other underwriters satisfactory to you do not elect to purchase the
Securities which the defaulting Underwriter or Underwriters agreed but failed
to purchase, this Agreement shall terminate without liability on the part of
any non-defaulting Underwriter or the Company except for the payment of
expenses to be borne by the Company and the Underwriters as provided in Section
8(a) and the indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 6 and 7 hereof.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agree to purchase the
Securities of a defaulting Underwriter, either you or the Company may postpone
the First Closing Date for up to seven full business days in order to affect
any changes that may be necessary in the Registration Statement, the Prospectus
or in any other document or agreement, and to file promptly any amendments or
any supplements to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary.
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10. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that
you may, at your option, delay its effectiveness until 4:00 p.m., New York
time, on the first full business day following the Effective Date, or at any
such earlier time after the Effective Date as you in your discretion shall
first commence the initial public offering by the Underwriters of any of the
Securities. The time of the initial public offering shall mean the time of
release by you of the first newspaper advertisement with respect to the
Securities, or the time when the Securities are first generally offered by the
Underwriters to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by you at any time before it becomes effective
as provided above except that Sections 3(c), 6, 7, 8, 13, 14, 15 and 16 shall
remain in effect notwithstanding such termination.
11. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15 and
16, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2 (b), if exercised, may be canceled, at any time
prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the
Underwriters for the resale of the Securities agreed to be purchased hereunder,
by reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree, (ii)
trading in securities on the New York Stock Exchange or the American Stock
Exchange having been suspended or limited, (iii) material governmental
restrictions having been imposed on trading in securities generally which are
not in force and effect on the date hereof, (iv) a banking moratorium having
been declared by federal or New York State authorities, (v) an outbreak of
major international hostilities or other national or international calamity
having occurred, (vi) the passage by the Congress of the United States or by
any state legislative body of similar impact, of any act or measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by you to have a material adverse impact on
the business, financial condition or financial statements of the Company, (vii)
any material adverse change in the financial or securities markets beyond
normal fluctuations in the United States having occurred since the date of this
Agreement, or (viii) any material adverse change having occurred, since the
respective dates for which information is given in the Registration Statement
and Prospectus, in the earnings, business, prospects or general condition of
the Company, financial or otherwise, whether or not arising in the ordinary
course of business.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11 or in Section 10,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
12. REPRESENTATIVE'S WARRANT.
On the First Closing Date, the Company will issue to you, for total
consideration of $5.00 and upon the terms and conditions set forth in the form
of Underwriters' Warrants annexed as an exhibit to the Registration Statement,
a Underwriters' Warrants to purchase, in the aggregate 40,000 shares of
Preferred Stock and 40,000 Warrants. In the event of conflict in the terms of
this Agreement and the Underwriters' Warrants, the language of the
Underwriters' Warrants shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or its Affiliates, where appropriate, and
the Underwriters, set forth in or made pursuant to this Agreement will remain
in full force and effect regardless of any investigation
24
<PAGE> 25
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling persons and will survive delivery of and payment
for the Securities and the termination of this Agreement.
14. NOTICE.
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to any Underwriter, will be
mailed, delivered or telecopied and confirmed to it at H.J. Meyers & Co., Inc.
2495 Mt. Hope Avenue, Rochester, New York 14620-4S96, with a copy sent to
Kenneth S. Rose, Esq., Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue,
New York, New York 10022, or if sent to the Company, will be mailed, delivered,
or telecopied and confirmed to it at Sulcus Centre, 41 North Main Street,
Greenburg, Pennsylvania 15601 with a copy sent to Opton, Handler, Gottlieb,
Feiler & Katz, LLP, 52 Vanderbilt Avenue, New York, New York 10017, Attention:
Peter Landau, Esq.
15. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriters, the Company and, to the extent expressed, the Affiliates, any
person controlling the Company, or any Underwriter, and directors of the
Company, nominees for directors of the Company (if any) named in the
Prospectus, the officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such purchaser, from any Underwriter of the Securities.
16. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and you, as Representative of the several
Underwriters, in accordance with its terms.
Yours very truly,
SULCUS COMPUTER CORPORATION
By:________________________________
Jeffrey S. Ratner
Chairman of the Board
Dated: _________ __, 1996
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
H.J. MEYERS & CO., INC.
By:________________________________
Authorized Officer
Dated: _________ __, 1996
25
<PAGE> 26
SCHEDULE I
Underwriting Agreement dated _______ ___, 1996
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SECURITIES TO BE PURCHASED
- ----------- -------------------------------------------
SHARES OF PREFERRED
STOCK WARRANTS
------------------- --------
<S> <C> <C>
H.J. Meyers & Co., Inc.
Culverwell & Co., Inc.
Total 500,000 500,000
----- ------- -------
</TABLE>
26
<PAGE> 1
EXHIBIT 3(c)(i)
Filed this day of
July, 1996
Commonwealth of Pennsylvania
Department of State
Secretary of the Commonwealth
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
SULCUS COMPUTER CORPORATION
In compliance with the requirements of Section 1915 of the Business
Corporation Law, act of December 21, 1988 (P.L. 1444, No. 177), the undersigned
corporation desiring to amend its Articles, does hereby certify that:
FIRST: The name of the corporation is SULCUS COMPUTER CORPORATION.
SECOND: The address of its present registered office in this
Commonwealth is: 41 North Main Street, Greensburg,
Pennsylvania, 15601.
THIRD: The statute under which the corporation was incorporated was
the 1933 Business Corporation Law of the Commonwealth of
Pennsylvania (P.L. 364, as amended).
FOURTH: The date of its incorporation is November 5, 1979.
FIFTH: This Amendment was authorized by resolution duly adopted by
at least a majority of the members of the board of directors
of the corporation.
SIXTH: These Articles of Amendment are to be effective on July ,
1996.
SEVENTH: The Articles of Incorporation are hereby amended by the
deletion of paragraph seventh thereof which contains a
provision stating the number, designation, relative rights,
preferences, and limitations of a series of 8,000,000 shares
of Series A Redeemable Convertible Preferred Stock, no par
value per share, under authority contained in the Articles of
Incorporation, shares of which were previously issued and
outstanding and all of which have been converted into shares
of the Corporation's Common Stock, no par value per share,
and replacing said paragraph seventh in its entirety.
1
<PAGE> 2
EIGHTH: The Articles of Incorporation are hereby amended by the
addition of a provision stating the number, designation,
relative rights, preferences, and limitations of a series of
2,000,000 shares of Series A Redeemable Convertible Preferred
Stock, no par value per share, under authority contained in
the Articles of Incorporation, as follows:
1. Designation. The Series A Redeemable Convertible Preferred
Stock, no par value per share, is hereinafter called the
"Preferred Stock." The shares of the Preferred Stock shall be
fully-paid and non-assessable.
2. Dividends. Holders of shares of Preferred Stock will be
entitled to receive dividends and distributions in cash,
common stock or otherwise when, as and if and only to the
same extent declared by the Board of Directors on shares of
the Corporation's Common Stock.
3. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Preferred Stock shall
be entitled to receive out of the assets of the Corporation
available for distribution or payment to shareholders, before
any distribution or payment of assets is made with respect to
Common Stock of the Corporation or any other stock of the
Corporation ranking junior upon liquidation to the Preferred
Stock, liquidating distributions in the amount of $ per
share. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the
preferential amounts payable with respect to the Preferred
Stock and any other shares of preferred stock of the
Corporation ranking as to any such liquidation, dissolution
or winding up on a parity with the Preferred Stock are not
paid in full, the holders of the Preferred Stock and of such
other shares of preferred stock will share ratably in any
such distribution of assets of the Corporation in proportion
to the full respective preferential amounts to which they are
entitled. After payment to the holders of the Preferred Stock
of the full preferential amounts to which they are entitled,
the holders of shares of Preferred Stock will not be entitled
to any further participation in any distribution of assets by
the Corporation. None of the sale, conveyance, exchange or
transfer of all or substantially all the property and assets
of the Corporation, the consolidation or merger of the
Corporation with or into any other corporation, or the merger
or consolidation of any other corporation into or with the
Corporation shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this
Section 3; provided that in each case, effective provision is
made in the certificate of incorporation of the resulting and
surviving corporation or otherwise for the protection of the
rights of the holders of Preferred Stock.
4. Redemption at the Option of the Corporation. On or after ,
1997, Preferred Stock will be redeemable at the option of the
Corporation in whole, but not in part, for $ per share in
cash.
The Corporation will cause notification of any redemption of
shares to be mailed to all record holders of Preferred Stock
to be redeemed, at the address shown on the stock books of
the Corporation, not less than 30 days nor more than 60 days
prior to the date fixed for redemption.
2
<PAGE> 3
If the notice of redemption issued by the Corporation shall
have been duly given, and if on the date fixed for redemption
funds necessary for the redemption shall be available
therefor, then, notwithstanding that the certificates
evidencing any shares of Preferred Stock so called for
redemption shall not have been surrendered, all rights with
respect to the shares so called for redemption shall
forthwith after such date cease and terminate, except for the
right of the holders to receive the redemption price without
interest thereon (unless the Corporation defaults in the
payment of the redemption price) upon surrender of their
certificates therefor.
The respective holders of record of the Preferred Stock to be
redeemed shall be entitled to receive the redemption price
upon actual delivery or certificates for the number of shares
to be redeemed, duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly
endorsed in blank. Shares of the Preferred Stock redeemed
pursuant to the provisions of this Section 4 shall have the
status of authorized but unissued preferred stock without
designation as to series, but may not thereafter be issued as
shares of Preferred Stock.
5. Conversion
(a) Subject to and upon compliance with the provisions of
this Section 5, unless previously redeemed by the
Corporation, the holder of a share of Preferred Stock shall
have the right, at such holder's option, at any time after
, 1997 to convert such share into fully paid
and nonassessable shares of Common Stock of the Corporation,
which shall be equal to $ per share of Common Stock
(the "Conversion Rate"). The right to convert shares called
for redemption pursuant to Section 4 shall terminate at
the close of business on the date fixed for such redemption
unless the Corporation shall default in making payment of
the amount payable upon such redemption. Except as set forth
in subparagraph (d) below, the Conversion Rate shall remain
the same throughout the life of the Preferred Stock.
(b) The holders of shares of Preferred Stock at the close of
business on a dividend payment record date shall be entitled
to receive the dividend payable on such shares on the
corresponding dividend payment date notwithstanding the
conversion thereof or the Corporations's default in payment
of the dividend due on such dividend payment date. A holder
of shares of Preferred Stock on a dividend payment record
date who (or whose transferee) surrenders any of such shares
for conversion into shares of Common Stock on a dividend
payment date will receive the dividend payable by the
Corporation on such shares of Preferred Stock on such date,
and the converting holder need not include payment in the
amount of such dividend upon surrender of shares of Preferred
Stock for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or
for dividends on the shares of Common Stock issued upon such
conversion.
(c) In order to exercise the conversion privilege, the
holders of each share of Preferred Stock to be converted
shall surrender the certificate representing such share at
the office of the Transfer Agent for the Preferred Stock in
New York, New York, appointed for such purpose by the
Corporation, with the Notice of Election to Convert on the
back of said
3
<PAGE> 4
certificate completed and signed. Unless the shares issuable
on conversion are to be issued in the same name as the name
in which such share of Preferred Stock is registered, each
share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient to pay any
transfer or similar tax.
As promptly as practicable after the surrender of the
certificates for shares of Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate of
certificates for only the number of full shares of Common
Stock issuable upon the conversion of such shares in
accordance with the provisions of this Section 5, no
fractional interest in respect of a share of Common Stock
arising upon such conversion shall be issued nor will cash be
paid in lieu thereof.
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on
which the certificates for shares of Preferred Stock shall
have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date, unless
the stock transfer books of the Corporation shall be closed
on that date, in which event such person or persons shall be
deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such
stock transfer books are open, and such notice received by
the Corporation. All shares of Common Stock delivered upon
conversion of the Preferred Stock will upon delivery be duly
and validly issued and fully paid and nonassessable, free of
all liens and charges and not subject to any preemptive
rights.
(d) The Conversion Rate shall be adjusted from time to time
as follows:
(i) In case the Corporation shall (A) pay a dividend
or make a distribution on its Common Stock in shares
of its Common Stock, unless the payment thereof
would increase the number of shares of Common Stock
outstanding by less than one percent (1%), provided
however that any adjustments which by reason of this
paragraph (d) are not required to be made shall be
carried forward and taken into account in any
subsequent adjustment, and further provided that all
calculations under this paragraph (d) shall be made
to the nearest cent or to the nearest one-hundredth
of a share, as the case may be, (B) subdivide or
reclassify its outstanding shares of Common Stock
into a greater number of shares, or (C) combine its
outstanding shares of Common Stock into a smaller
number of shares, the Conversion Rate in effect at
the time of the record date for such dividend or
distribution or the effective date of such
subdivision, classification or reclassification
shall be adjusted so that the holder of any share of
Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number
of shares of Common Stock of the corporation which
such holder would have owned or have been entitled
to receive after the happening of any of the events
described above had such share of Common Stock been
converted immediately prior to the happening of such
event and had such Common Stock received such
dividend or other distribution
4
<PAGE> 5
or participated in such subdivision, combination or
reclassification. An adjustment made pursuant to
this subparagraph (i) shall become effective
immediately, except as provided in subparagraph (x)
below, after the payment record date in the case of
a dividend or distribution and shall become
effective immediately after the effective date in
the case of subdivision, combination or
reclassification.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the
current market price (as defined in subparagraph
(vii) below) at the record date for the
determination of shareholders entitled to receive
such rights or warrants, the Conversion Rate in
effect at the opening of business of the day
following the date fixed for such determination
shall be reduced by multiplying the Conversion Rate
in effect immediately prior to the date of issuance
of such rights or warrants by a fraction of which
the numerator shall be the number of shares of
Common Stock outstanding at the close of business on
the date fixed for such determination plus the
number of shares of Common Stock which the aggregate
offering price of the total number of shares of
Common Stock so offered for subscription or purchase
would purchase at such current market price of the
Common Stock, and of which the denominator shall be
the number of shares of Common Stock outstanding on
the date fixed for such determination plus the
number of additional shares of Common Stock offered
for subscription or purchase. Such adjustment shall
be made successively whenever any such rights or
warrants are issued, and shall become effective
immediately, except as provided in subparagraph (x)
below, after such determination. For purposes of
determining under this paragraph the number of
shares of Common Stock outstanding at any time,
there shall be excluded all shares of Common Stock
held in the treasury of the Corporation. In the
event that any or all such rights or warrants are
not so issued or expire or terminate before being
exercised, the conversion price then in effect shall
be appropriately readjusted.
(iii) In case the Corporation shall distribute to
all holders of its Common Stock evidence of its
indebtedness or assets (including securities but
excluding cash dividends or a distribution referred
to in subparagraph (i) above) or subscription rights
or warrants to subscribe for or purchase any of its
securities (excluding those referred to in
subparagraph (ii) above) the Conversion Rate shall
be adjusted so that it shall equal the price
determined by multiplying the Conversion Rate in
effect immediately prior to the close of business on
the date fixed for the determination of shareholders
entitled to receive such distribution by a fraction
of which the numerator shall be the current market
price per share of the Common Stock on the date
fixed for such determination less the then fair
market value (as determined by the Board of
Directors of the Corporation, in good faith and in
the exercise of its reasonable business judgment) of
the portion of the assets or evidences of
indebtedness so distributed applicable to one share
of Common Stock and the denominator shall be such
current market price per share of the Common Stock
as determined by subparagraph (v). Such adjustment
shall become effective immediately prior to the
opening of business on the date following the date
fixed for
5
<PAGE> 6
the determination of shareholders entitled to
receive such distribution, except as provided in
subparagraph (x) below.
(iv) In case the Corporation is a participant in a
consolidation, merger or combination with another
corporation (other than with a wholly owned
subsidiary of the Corporation and other than a
merger which does not result in any
reclassification, conversion, exchange or
cancellation of the Common Stock of the Corporation)
or in case of any sale or transfer of all or
substantially all of the assets of the Corporation,
as a result of which holders of Common Stock shall
be entitled to receive stock, securities or other
property or assets (including cash) with respect to
or in exchange for such Common Stock, or any share
exchange whereby the Common Stock is converted into
other securities or property of the Corporation,
then the holder of each share of Preferred Stock
then outstanding shall have the right to convert
such shares to receive stock, other securities or
property or assets (including cash) or any
combination thereof, having a value equal to the
value of the stock, other securities, property and
assets (including cash) which such holder would have
been entitled to receive upon such consolidation,
merger, combination, sale or transfer, or exchange,
if he had held the Common Stock issuable upon the
conversion of such shares of Preferred Stock
immediately prior to such consolidation, merger,
combination, sale or transfer, or exchange.
(v) In case the Corporation shall hereafter issue or
sell any shares of Common Stock (except as provided
in subparagraph (viii) below or except in connection
with a firm commitment underwritten public offering
of Common Stock registered under applicable
securities laws) for a consideration per share less
than the current market price per share (as
determined pursuant to subparagraph (vii) below) on
the date of such issuance or sale, the Conversion
Rate of the shares of Common Stock shall be adjusted
so that the same shall equal the price determined by
multiplying the Conversion Rate in effect
immediately prior to the date of such issuance or
sale by a fraction of which the numerator shall be
the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance or
sale multiplied by the current market price
immediately prior to such issuance or sale and
(ii)the consideration received by the Corporation
upon such issuance or sale, and of which the
denominator shall be the total number of shares of
Common Stock outstanding after such issuance or sale
multiplied by the current market price immediately
prior to such issuance or sale.
(vi) In case the Corporation shall hereafter issue
or sell any securities convertible into Common Stock
entitling the holders thereof to convert such
securities into Common Stock at a price per share
less than the current market price per share of
Common Stock (as determined pursuant to subparagraph
(vii) below) on the date of such issuance or sale,
the Conversion Rate of the shares of Common Stock
shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Rate
in effect immediately prior to the date of such
issuance or sale of such securities by a fraction
the numerator of which shall be the number of shares
of Common Stock outstanding on the date of such
issuance or sale plus the number
6
<PAGE> 7
of shares of Common Stock which the aggregate
consideration which would be received by the
Corporation upon conversion of such securities would
purchase at such current market price, and of which
the denominator shall be the number of shares of
Common Stock outstanding on the date of such
issuance or sale plus the number of additional
shares of Common Stock issuable upon conversion of
such securities.
(vii) For the purpose of any computation under
subparagraphs (ii), (iii), (v), (vi) and paragraph 2
above, the current market price per share of Common
Stock on any date shall be deemed to be the average
of the daily closing prices per shares of Common
Stock for the twenty consecutive business days
selected by the Corporation ending within fifteen
days of the date in question. The closing price for
each day shall be the last reported sales prices
regular way, or, in case no such reported sales
takes place on such day, the average of the reported
closing bid and asked prices regular way in either
case, on the New York or American Stock Exchange,
or, if the Common Stock is not listed or admitted to
trading on such Exchanges or no such quotations are
available, the average of the closing bid and asked
prices in the over-the-counter market as furnished
by any member of the National Association of
Securities Dealers, Inc. selected from time to time
by the Corporation for that purpose, or, if no such
quotations are available, the fair market value of
the Common Stock as determined in good faith in the
exercise of their reasonable business judgment by
the Board of Directors of the Corporation.
(viii) No adjustment in the Conversion Rate shall be
required in the case of (i) the grant by the
Corporation of stock options to officers, directors
or employees of the Corporation or any Subsidiary,
(ii) the issuance of shares of Common Stock pursuant
to the exercise of such stock options, whether
granted prior to or subsequent to the date hereof,
or (iii) the issuance of such additional shares of
Common Stock as may be issuable upon the exercise of
such stock options as a result of adjustment in the
number of shares covered by such options for stock
dividends, stock splits or other changes in the
capitalization of the Corporation.
(ix) No adjustment in the Conversion Rate shall be
required unless such adjustment would require an
increase or decrease of at least 1/100th of a share
in the conversion ratio resulting from the
Conversion Rate then in effect, provided however
that any adjustments which by reason of this
paragraph (d) are not required to be made shall be
carried forward and taken into account in any
subsequent adjustment and all calculations shall be
made to the nearest cent or to the nearest
one-hundredth of a share as the case may be.
(x) Whenever the Conversion Rate is adjusted, as
herein provided, the Corporation shall promptly file
with any conversion agent an officers' certificate
setting forth the Conversion Price after such
adjustment and setting forth a brief statement of
the facts requiring such adjustment, which
certificate shall be conclusive evidence of the
correctness of such adjustment. Promptly after
delivery of such certificate, the Corporation shall
prepare a notice of such adjustment of the
Conversion Price
7
<PAGE> 8
setting forth the adjusted Conversion Price and the
date on which such adjustment becomes effective and
shall mail such notice of such adjustment of the
conversion Number to the holder of each share of
Preferred Stock at the last address of such holder
as shown on the stock books of the Corporation.
(xi) In any case in which this subsection (d)
provides that an adjustment shall become effective
immediately after a record date for an event, the
Corporation may defer until the occurrence of such
event (A) issuing to the holder of any share of
Preferred Stock converted after such record date and
before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event
over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment
and (B) paying to such holder any amount in cash in
lieu of any fraction pursuant to subsection (c) of
this Section 5.
(e) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out
of the aggregate of its authorized but unissued shares of
Common Stock or its issued shares of Common Stock held in it
treasury, or both, for the purposes of effecting conversions
of the Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all outstanding
shares of Preferred Stock not theretofore converted. For
purposes of this subsection (e), the number of shares of
Common Stock which shall be deliverable upon the conversion
of all outstanding shares of Series A Preferred Stock shall
be computed as if at the time of computation all such
outstanding shares were held by a single holder.
6. Voting Rights. Except as may be otherwise specifically
provided in the Articles of Incorporation, as amended, or by
statute, each holder of shares of Preferred Stock shall in
all matters that alter or change the powers, preferences or
rights given to the Preferred Stock be entitled to one vote
for each share of Preferred Stock owned by such holder and
the holders of the Preferred Stock shall vote together as one
class on any matter that may be brought before any meeting of
the shareholders of the Corporation relating to such matters.
Holders of Preferred Stock shall not have voting rights with
respect to any other matters.
So long as any shares of Preferred Stock shall be
outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of at least two
thirds of the aggregate number of shares of Preferred Stock
at the time outstanding, voting as a class, alter or change
the powers, preferences or rights given to the holders of the
Preferred Stock herein so as to affect the holders of the
Preferred Stock adversely.
7. Sinking Fund. The Corporation is not required to provide for
the retirement or redemption of the Preferred Stock through
the operation of a sinking fund.
8
<PAGE> 9
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of
Amendment to be signed by a duly authorized officer and its corporate seal,
duly attested by another such officer, to be hereunto affixed this day
of July, 1996.
SULCUS COMPUTER CORPORATION
Attest:
- ------------------------------- By: _____________________________
Margaret Santone, Secretary John W. Ryba, Vice President
<PAGE> 1
EXHIBIT 4(a)(ii)
CLASS A WARRANT AGREEMENT
WARRANT AGREEMENT dated as of July , 1996 between Sulcus Computer
Corporation, having its principal place of business at Sulcus Centre, 41 N.
Main Street, Greensburg, Pennsylvania 15601 (the "Company") and American Stock
Transfer & Trust Company, having its principal place of business at 40 Wall
Street, New York, New York 10005 (the "Warrant Agent");
WHEREAS, the Company has sold to the public and proposes to issue
400,000 Units ("Units") each Unit consisting of one share of Series A
Redeemable Convertible Preferred Stock (the "Preferred Stock") and two Class A
Stock Purchase Warrants (the "Warrants"), all as more fully set forth in a
Registration Statement attached hereto filed by the Company with the Securities
and Exchange Commission and declared effective on July , 1996 (the
"Registration Statement"); and
WHEREAS, the Units were offered by the Underwriters on a "firm
commitment" basis; and
WHEREAS, the Company may sell up to 60,000 additional Units to be
issued if the Underwriters of the Units exercise their over subscription
privilege in connection with their underwriting of the Units; and
WHEREAS, two Class A Warrants will entitle the holder to purchase one
share of Preferred Stock at $ per share on or before , 1996 ("First Exercise
Date"), or one-half share of Preferred Stock thereafter and on or before , 1997
("Last Exercise Date"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange and replacement of the Warrant
Certificates and the exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Agreement the terms and conditions upon which the Warrant Certificates shall be
issued, transferred, exchanged and replaced and the Warrants exercised, and to
provide for the rights of the holders of the Warrants.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and the respective undertakings herein below set forth, the
Company and the Warrant Agent agree as follows:
W I T N E S S E T H:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
SECTION 1.01. The Company hereby appoints the Warrant Agent to act on
behalf of the Company in accordance with the terms and conditions herein set
forth, and the Warrant Agent hereby accepts such appointment and agrees to
perform the same in accordance with such provisions.
SECTION 1.02. The Warrant Certificates for the Warrants shall be
issued in registered form only. The text of the Warrant Certificate, including
the form of assignment and subscription to be printed on the
1
<PAGE> 2
reverse side thereof, shall be substantially in the form of Exhibit A annexed
hereto, which text is hereby incorporated in this Agreement by reference as
though fully set forth herein and to whose terms and conditions the Company and
the Warrant Agent hereby agree. Each Warrant Certificate shall evidence the
right, subject to the provisions of this Agreement and of such Warrant
Certificate, to purchase the number of validly issued, fully paid and
non-assessable shares of Series A Preferred Stock, as that term is defined in
Section 1.05 of this Agreement, stated therein, free of preemptive rights,
subject to adjustment as provided in Article III of this Agreement.
SECTION 1.03. Upon the written order of the Company, signed by the
President or any Vice President, and the Secretary, Treasurer, Assistant
Secretary or Assistant Treasurer of the Company, the Warrant Agent shall issue
and register Warrants in the names and denominations specified, and will
countersign and deliver Warrant Certificates evidencing the same in accordance
with that order. Each Warrant Certificate shall be dated the date of its
countersignature. Each Warrant Certificate shall be executed on behalf of the
Company by the manual or facsimile signature of the President of the Company,
under its corporate seal, affixed or facsimile, attested by the manual or
facsimile signature of the Secretary of the Company and shall be countersigned
manually by the Warrant Agent.
The Warrant Certificates shall not be valid for any purpose unless so
countersigned. In any case any officer whose facsimile signature has been
placed upon any Warrant Certificate shall have ceased to be such before such
Warrant Certificate is issued, it may be issued with the same effect as if such
officer had not ceased to be such at the date of issuance.
SECTION 1.04. Except as otherwise expressly stated herein, all terms
used in this Agreement have the meanings provided in the Class A Warrant
Certificate.
SECTION 1.05. The term "Preferred Stock" shall mean the aggregate
number of shares that the Company, by its Certificate of Incorporation, as from
time to time amended, is authorized to issue, which are limited in respect of
the rights of the holders thereof to participate in dividends or in
distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS,
CALL OF WARRANTS AND TRADING OF WARRANTS
SECTION 2.01. (1) Two Warrants shall entitle the person in whose name
at the time the Warrant shall be registered upon the books to be maintained by
the Warrant Agent for that purpose (the "Warrant Holder"), subject to the
provisions of the Warrant Certificates and of this Agreement, to purchase from
the Company at any time after its date of issuance and on or after the First
Exercise Date but at or before the Last Exercise Date, the number of shares of
Preferred Stock stated therein, as adjusted, at the Warrant Price in effect at
such date, payable in full at the time of purchase in the manner provided in
Section 2.02 of this Agreement.
(2) Each Warrant shall be exercisable in accordance with the terms
herein and in the Warrant Certificate which among other things contains certain
terms as to the Warrant Price.
SECTION 2.02. (1) The Warrant Holder may exercise a Warrant, in whole
or in part, by surrender of the Warrant Certificate, with the form of
subscription thereon duly executed to the Warrant Agent
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at the address designated in the Letter of Transmittal, together with the
Warrant Price for each share of Common Stock to be purchased in lawful money of
the United States, or by certified check, bank draft, or postal or express
money order payable in United States dollars to the order of the Company or to
American Stock Transfer & Trust Company.
(2) Upon receipt of a Warrant Certificate with the form of election to
purchase thereon duly executed and accompanied by payment of the aggregate
Warrant Price for the shares of Preferred Stock for which the Warrant is then
being exercised, the Warrant Agent shall requisition from the transfer agent
certificates for the total number of the shares of Preferred Stock, as defined
in Section 1.05 of this Agreement, for which the Warrant is being exercised in
such names and denominations as are required for delivery to the Warrant
Holder, and the Warrant Agent shall thereupon deliver such certificates to or
in accordance with the instructions of the Warrant Holder. The Company
covenants and agrees that it has duly authorized and directed its transfer
agent (and will authorize and direct all of its future transfer agents) to
comply with all such requests of the Warrant Agent.
(3) In case any Warrant Holder shall exercise his Warrant with respect
to less than all of the shares of Preferred Stock that may be purchased under
the Warrant, a new Warrant Certificate for the balance shall be countersigned
and delivered to or upon the order of the Warrant Holder.
(4) The Company covenants and agrees that it will pay when due and
payable any and all taxes which may be payable in respect of the issue of
Warrants, or the issue of any shares of Preferred Stock upon the exercise of
Warrants. However, neither the Company nor the Warrant Agent shall be required
to issue or deliver any Warrant Certificate or shares of Preferred Stock in a
name other than that of the Warrant Holder at the time of surrender if any tax
is payable in respect of such transfer until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid. In the event that any transfer tax is
due and payable, the Warrant Agent shall be under no obligation to issue or
deliver any Warrant Certificate or shares of Preferred Stock in a name other
than that of the Warrant Holder until the Company has notified the Warrant
Agent that the transfer tax, if any, has been paid, or in the alternative, that
no transfer tax is due and payable by reason of an exemption.
(5) The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently account to the Company for all
monies received by the Warrant Agent for the purchase of shares of Preferred
Stock upon the exercise of Warrants. The Warrant Agent covenants and agrees
that it shall pay to the Company all monies received by the Warrant Agent for
the purchase of shares of Preferred Stock upon the Exercise of Warrants as soon
as practical after review and acceptance of receipt thereof.
(6) The Warrant Agent covenants and agrees that upon the exercise of
any of the Warrants, the Warrant Agent shall provide written notice to the
Company and to H. J. Meyers (the Underwriter") at its offices, the expense of
which notice shall be borne by the Company. Each notice shall provide the
previous, current and total number of Warrants exercised, payments made and
preferred shares issued. Such notice shall be made as soon as practical after
the Warrant is received, examined and accepted under the terms of this
Agreement. Nothing contained herein shall be construed so as to prevent the
Warrant Agent from providing the information required by this Section 2.02 (6)
in a consolidated or tabular form, provided that all other provisions of this
Section are complied with.
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(7) The Warrant Agent covenants and agrees that shall provide a list
of each and every holder of the Warrants to the Company and the Underwriter at
such time or from time to time as shall be requested by the Company or the
Underwriter, but in no event shall such a list be provided less frequently than
once per annum at a date as shall be determined by the Company.
SECTION 2.03 No fractional shares of Preferred Stock will be issued
upon exercise of the Warrants nor will cash in lieu thereof be paid.
ARTICLE III
ADJUSTMENT OF SHARES OF PREFERRED STOCK PURCHASABLE
AND OF WARRANT PRICE.
SECTION 3.01. In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the outstanding Preferred Stock in
shares of its Preferred Stock, (ii) subdivide the outstanding Preferred Stock,
(iii) combine the outstanding Preferred Stock into a smaller number of shares,
or (iv) issue any shares of its capital stock by reclassification of the
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Warrant Price, and the number and kind of shares
receivable upon exercise, in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination, or
reclassification shall be proportionately adjusted so that the holder of any
Warrant exercised after such time shall be entitled to receive the aggregate
number and kind of shares which if such Warrant had been exercised immediately
prior to such time, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend subdivision, combination, or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
SECTION 3.02. In case the Company shall issue rights, options, or
warrants to all holders of Preferred Stock entitling them to subscribe for or
purchase Preferred Stock (or securities convertible into or exchangeable for
Preferred Stock) at a price per share (or having a conversion price per share,
if a security convertible into or exchangeable for Preferred Stock) at a price
per share (or having a conversion price per share, if a security convertible
into or exchangeable for Preferred Stock) less than the "current market price"
per share of Preferred Stock (as defined in Section 3.04 of this Article III)
on such record date, then, in each case, the Warrant Price shall be adjusted by
multiplying the Warrant Price in effect immediately prior to such record date
by a fraction of which the numerator shall be the number of shares of Preferred
Stock outstanding on such record date plus the number of shares of Preferred
Stock which the aggregate offering price of the total number of shares of
Preferred Stock so to be offered (or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such "current
market price" and of which the denominator shall be the number of shares of
Preferred Stock outstanding on such record date plus the number of additional
shares of Preferred Stock to be offered for subscription or purchase (or into
which the convertible or exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; provided, however, than, to the extent
the shares of Preferred Stock (or securities convertible into or exchangeable
for shares of Preferred Stock) are not delivered, the Warrant Price shall be
readjusted after the expiration of such right, options, or warrants (but only
with respect to Warrants exercised after such expiration), to the Warrant Price
which would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made upon the basis of delivery of only the number
of shares of Preferred Stock (or securities convertible into or exchangeable
for shares of Preferred Stock) actually issued. In case any subscription price
may be paid in a consideration part or all of which shall be in a form other
than cash, the value of such
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consideration shall be as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive absent manifest error.
Shares of Preferred Stock owned by or held for the account of the Company or
any majority-owned subsidiary shall not be deemed outstanding for the purpose
of any such computation.
SECTION 3.03. In case the Company shall distribute to all holders of
Preferred Stock (including any such distribution made to the stockholders of
the Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness or assets (other
than cash dividends or distributions and dividends payable in shares of
Preferred Stock), or subscription rights, options, or warrants or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Preferred Stock (excluding those referred to in Section 3.02 of the
Article III), then, in each case, the Warrant Price shall be adjusted by
multiplying the Warrant Price in effect immediately prior to the record date
for the determination of stockholders entitled to receive such distribution by
a fraction, of which the numerator shall be the "current market price" per hare
of Preferred Stock (as defined in Section 3.04 of this Article III) on such
record date, less the fair market value (as determined in good faith by the
board of directors of the Company, whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or
assets so to be distributed, or of such subscription rights, options, or
warrants or convertible for exchangeable securities containing the right to
subscribe or purchase shares of Preferred Stock, applicable to one share, and
of which the denominator shall be such "current market price" per share of
Preferred Stock. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of such distribution
retroactive to the record date for the determination of stockholders entitled
to receive such distribution.
SECTION 3.04. For the purpose of any computation under Sections 3.02
and 3.03 of this Article III, the "current market price" per share of Preferred
Stock on any date shall be deemed to be the average of the daily closing prices
for the 30 consecutive trading days commencing 45 trading days before such
date. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
closing bid price regular way, in either case on the principal national
securities exchange on which the Preferred Stock is listed or admitted to
trading or, if the Preferred Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price as furnished by
the National Association of Securities Dealers, Inc. through NASDAQ or a
similar organization if NASDAQ is no longer reporting such information. If on
any such date the Preferred Stock is not quoted by any such organization, the
fair value of the Preferred Stock on such date, as determined in good faith by
the board of directors of the Company, whose determination shall be conclusive
absent manifest error, shall be used.
SECTION 3.05. No adjustment in the Warrant Price shall be required if
such adjustment is less the $0.05; provided, however, that any adjustments
which by reason of this Section 3.05 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article III shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be.
SECTION 3.06. In any case in which this Article III shall require that
an adjustment in the Warrant Price be made effective as of a record date for a
specified event the Company may elect to defer until the occurrence of such
event issuing to the holder of any Warrant exercised after such record date the
shares, if any, issuable upon such exercise over and above the shares, if any,
issuable upon such exercise on the basis of the Warrant Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
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SECTION 3.07. Upon each adjustment of the Warrant Price as a result of
the calculations made in Section 3.01, 3.02, or 3.03 of this Article III, each
Warrant outstanding prior to the making of the adjustment in the Warrant Price
shall thereafter evidence the right to purchase, at the adjusted Warrant Price,
that number of shares (calculated to the nearest thousandth) obtained by
dividing (A) the product obtained by multiplying the number of shares
purchasable upon exercise of a Warrant prior to adjustment of the number of
shares by the Warrant Price in effect prior to adjustment of the Warrant Price
by (B) the Warrant Price in effect after such adjustment of the Warrant Price.
SECTION 3.08. In case of any capital reorganization of the Company, or
of any reclassification of the Preferred Stock (other than a reclassification
of the Preferred Stock referred to in Section 3.01 of this Article III), or in
the case of the consolidating of the Company with or the merger of the Company
into any other corporation other than a wholly owned subsidiary and in all
other cases, only where the Company is not the surviving or continuing entity,
or of the sale, transfer, or lease of the properties and assets of the Company
as, or substantially as, an entirety to any other corporation or other entity,
each Warrant shall after such capital reorganization, reclassification of
Preferred Stock, consolidation, merger, sale, transfer, or lease, be
exercisable, upon the terms and conditions specified in this Agreement, for the
number of shares of stock or other securities, assets, or cash to which a
holder of the number of shares purchasable (at the time of such capital
reorganization, reclassification of Preferred Stock, consolidation, merger,
sale, transfer, or lease) upon exercise of such Warrant would have been
entitled upon such capital reorganization, reclassification of Preferred Stock,
consolidation, merger, sale, transfer, or lease; and in any such case, if
necessary, the provisions set forth in this Article III with respect to the
rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities, assets, or cash thereafter
deliverable on the exercise of the Warrants. The subdivision or combination of
shares of Preferred Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the Preferred
Stock for the purposes of this subsection. The Company shall not effect any
such consolidation, merger, transfer, or lease unless prior to or
simultaneously with the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing, receiving, of leasing such assets or other appropriate
corporation of entity shall expressly assume, by written instrument duly
executed and delivered to each holder of a Warrant, the obligation to deliver
to the holder of each Warrant such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holders may be entitled to
purchase and to perform the other obligations of the Company under this
Agreement.
SECTION 3.09. The Company may make such reductions in the Warrant
Price, in addition to those required by this Article III, as it shall, in its
sole discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF
WARRANT HOLDERS
SECTION 4.01. No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Preferred Stock for any
purposes, nor shall anything contained in any Warrant Certificate be construed
to confer upon any Warrant Holder, as such, any of the rights of a shareholder
of a Company or any right to vote, give or withhold consent to any action by
the Company, whether upon any recapitalization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise,
receive dividends or subscription rights, or otherwise, until in connection
with the exercise of any Warrant, such Warrant shall have been surrendered and
the purchase price for the shares of Preferred Stock for which such Warrant is
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being exercised shall have been received by the Warrant Agent; provided,
however, that any such surrender and payment on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those shares
of Preferred Stock are to be issued as the record holder or holders thereof for
all purposes at the opening of business on the next succeeding day on which
such stock transfer books are open and the Warrant surrendered shall not be
deemed to have been exercised, in whole or in part, as the case may be, until
such next succeeding day on which stock transfer books are open.
SECTION 4.02. The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record (who are not also
shareholders of record) any publication, mailing or notice which it shall
provide to all of its shareholders of record. For purposes of this Section
4.02, the Warrant Holders of record shall be those Warrant Holders who are of
record on a date even with the date chosen by the Company for the purpose of
determining the shareholders of record who shall be entitled to receive such
publication, mailing or notice.
SECTION 4.03. If any Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as to indemnity
or otherwise as they may in their discretion reasonably impose, which shall, in
the case of a mutilated Warrant Certificate, include the surrender thereof,
issue a new Warrant Certificate of like denomination and tenor as, and in
substitution for, the Warrant Certificate so lost, stolen or mutilated or
destroyed.
SECTION 4.04. (1) The Company covenants and agrees that at all times
it shall reserve and keep available for the exercise of outstanding Warrants
such number of authorized shares of Preferred Stock as are sufficient to permit
the exercise in full of such warrants and that it will make available to the
Warrant Agent from time to time a number of duly executed certificates
representing shares of Preferred Stock sufficient theretofore.
(2) The Company shall secure the listing, upon official notice of
issuance, of shares of Preferred Stock issuable upon exercise of Warrants upon
any securities exchange upon which shares of Preferred Stock become listed.
(3) The Company covenants that all shares of Preferred Stock issued on
exercise of Warrants, upon payment of the Warrant Price therefore, shall be
validly issued, fully paid, non-assessable and free of preemptive rights.
(4) The Company shall use its best efforts to secure the effective
registration of the Warrants and the shares of Preferred Stock issuable upon
exercise of the Warrants under the Securities Act of 1933, as amended (the
"Act"), and to register or qualify such Warrants and shares of Preferred Stock
under the laws of any states in which the sale of the Units was registered or
qualified and shall use its reasonable good faith efforts to register and
qualify such Warrants and shares of Preferred Stock in such additional states
and jurisdictions as my be appropriate; provided, however, that the Company
shall have no obligation to register such Warrants and shares of Preferred
Stock or maintain the effectiveness of such registration or qualification, as
aforesaid, in the event that, by amendment to the Act or otherwise, such
registration or qualification is not required at the time such Warrants and
shares of Preferred Stock are to be issued or, if permitted by applicable
Federal securities laws or the rules and regulations promulgated thereunder, at
any time when the relationship of the Warrant Price to the then current market
price of the Company's Preferred Stock makes it unlikely that any Warrants will
be exercised.
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(5) The Company will furnish to the Warrant Agent, upon request, an
opinion of counsel not unsatisfactory to the Warrant Agent to the effect that
(i) a Registration Statement under the Act is then in effect with respect to
shares of Preferred Stock issuable upon exercise of the Warrants and that the
prospectus included therein complies as to form in all material respects,
except as to financial statements, including schedules, and other accounting
and financial data, as to which such counsel need express no opinion, with the
requirements of the Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder; or (ii) a Registration
Statement under the Act with respect to said shares of Preferred Stock is not
required; and (iii) the shares shall be validly issued, fully paid and
non-assessable. In the event that said opinion states that such a Registration
Statement is in effect, the Company will from time to time furnish the Warrant
Agent with current prospectuses meeting the requirements of the Act and such
rules and regulations in sufficient quality to permit the Warrant Agent to
deliver a prospectus ("Prospectus") to each Warrant Holder upon exercise
thereof. The Company further agrees to pay all fees, costs and expenses in
connection with the preparation and delivery to the Warrant Agent of the
foregoing opinions and Prospectuses and the above mentioned registrations and
other actions, and to immediately notify the Warrant Agent in the event that
(i) the Commission shall have issued or threatened to issue any order
preventing or suspending the use of any Prospectus; (ii) at any time any
Prospectus shall contain any 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; or (iii) for any reason it shall be
necessary to amend or supplement any Prospectus in order to comply with the
Act.
SECTION 4.05. If the number of shares purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 3.07 of Article II, the Company
shall not be required to issue fractions of shares upon exercise of the
Warrants or to distribute share certificates which evidence fractional shares
or pay any cash in lieu thereof.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01. Prior to due presentment for registration of transfer of
any Warrant, the Company and the Warrant Agent may deem and treat the Warrant
Holder as the absolute owner of such Warrant, notwithstanding any notation of
ownership or other writing thereon, for the purpose of any exercise thereof and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01. The Company will from time to time promptly pay, subject
to the provisions of Section 2.02 of this Agreement, all taxes and reasonable
charges that may be imposed upon the Company or the Warrant Agent in respect of
the issuance or delivery of shares of Preferred Stock upon the exercise of
Warrants.
SECTION 6.02 (1) The Warrant Agent may resign and be discharged from
its duties under this Agreement upon thirty (30) days notice in writing, mailed
to the Company by registered or certified mail, and to each Warrant Holder. The
Company may remove the Warrant Agent or any successor Warrant Agent upon thirty
(30) days notice in writing, mailed to the Warrant Agent or successor Warrant
Agent, as the case may be, by registered or certified mail, and to each Warrant
Holder; provided, however, the Company shall appoint a new
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Warrant Agent as hereinafter provided and such removal shall not become
effective until a successor Warrant Agent has been appointed and has accepted
such appointment. If the Warrant Agent shall resign or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after it has been notified in writing of such resignation or
incapability by the Warrant Agent or by a Warrant Holder, who shall, with such
notice, submit his Warrant Certificate for inspection by the Company, then any
Warrant Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Any successor Warrant Agent,
whether appointed by the Company or by such a court, shall be a registered
transfer agent, bank or trust company, subject to the terms and conditions of
this Section 6.02, in good standing and incorporated under the laws of any
State of the United States, having its principal office in the United States of
America. After appointment, the successor Warrant Agent shall be vested with
the same power, rights, duties and responsibilities and if it had been
originally named as Warrant Agent without further act or deed. The former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder and execute and deliver any further
assurance, conveyance, act or deed necessary for such purpose. Failure to give
any notice provided for in this Section, however, or any defect therein, shall
not affect the legality or validity of the resignation of removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case
may be.
(2) Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto. In case at
the time such successor to the Warrant Agent shall succeed to the agency
created by this Agreement, any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrant Certificates so countersigned, and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant agent may countersign such Warrant Certificate in its own name or in
the name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under this
prior name and deliver Warrant Certificates so countersigned; and in case at
that time any of the Warrant Certificates shall not have been countersigned,
the Warrant Agent may countersign such Warrant Certificates either in its prior
name or in its changed name; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
SECTION 6.03. The Company agrees to pay the Warrant Agent from time to
time, on demand of the Warrant Agent, reasonable compensation for all services
rendered by it hereunder and also its reasonable expenses and counsel fees and
other disbursements of any kind incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Warrant Agent for, and to hold it harmless
against, any loss, liability or expense arising out of or in connection with
the acceptance and administration of this Agreement (including the reasonable
costs and expenses of defending against any such claim), except to the extent
any such loss, liability or expense results from the gross negligence, willful
misconduct or bad faith on the part of the Warrant Agent.
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SECTION 6.04. The Company covenants and agrees that it shall, at the
Company's expense, provide to the Warrant Agent copies of its current
prospectus in such quantity as to enable the Warrant Agent to deliver one copy
of such current prospectus to each Warrant Holder. Notwithstanding anything
else contained in this Section 6.04, the Company shall not be obligated to
provide copies of its current prospectus for the purpose of allowing the
Warrant Agent to deliver such copies to any Warrant Holder who delivers all of
his redeemable warrants for redemption pursuant to Section 2.03 or who shall
notify the Company of his intent to permit redemption of all of his Warrants
pursuant to Section 2.03 herein or to any person who shall hold any Warrant
subject to the terms of this Agreement after the earlier of the Redemption Date
or the Last Exercise Date for the Warrants.
SECTION 6.05. The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant Certificates, by their acceptance
thereof, shall be bound:
(1) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, that fact or matter, unless other evidence in respect thereof be
herein specifically prescribed, may be deemed to be conclusively proved and
established by a certificate signed by the President or the Secretary of the
Company and delivered to the Warrant Agent. That certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon that
certificate.
(2) The Warrant Agent shall be liable hereunder only for its own gross
negligence, willful misconduct or bad faith.
(3) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates, except its countersignature thereof, or be required to
verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(4) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof, except
the due execution hereof by the Warrant Agent, or in respect of the validity or
execution of any Warrant Certificate, except its countersignature thereof; nor
shall it be responsible for any Warrant Certificate; nor shall it be
responsible for the adjustment of the Warrant Price, the redemption price or
the making of any change in the number of shares of Preferred Stock purchasable
under the provisions of Article III of this Agreement or responsible for the
manner, method or amount of any such change or the ascertaining of the
existence of facts that would require any such adjustment or change except with
respect to the exercise of Warrant Certificates after actual notice of any
adjustment of the Warrant Price; nor shall it by any act under this Agreement
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any share of Preferred
Stock will when issued be validly issued, fully paid, non-assessable and free
of preemptive rights.
10
<PAGE> 11
(5) The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrant
Certificates or other securities of the Company to obtain a pecuniary interest
in any transaction in which the Company may be interested or contract with or
lend money to or otherwise act as fully and freely as though it was not Warrant
Agent or subject to this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(6) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
officer or assistant officer of the Company, and to apply to any such officer
or assistant officer for advice or instructions in connection with its duties,
and shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer or assistant
officer.
(7) The Warrant Agent may consult with its counsel or other counsel
satisfactory to it, including counsel for the Company, and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered, or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
(8) The Warrant Agent shall incur no liability to the Company or to
any holder of any Warrant for any action taken by it in reliance upon any
Warrant Certificate or certificate for Preferred Stock, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,,
notice, direction, consent, certificate, statement, or other paper or document
reasonable believed by it to be genuine and to be a signed, executed, and where
necessary, verified or acknowledged, by the proper person or persons.
SECTION 6.06. The Warrant Agent and the Company may, without the
consent or concurrence of the Warrant Holders, by supplemental agreement or
otherwise, make any changes or corrections in this Agreement that the Company
shall have been advised by counsel are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained, and which shall not be inconsistent with
the provisions of the Warrant Certificates, provided such changes or
corrections do not adversely affect the privileges or immunities of the Warrant
Holders.
SECTION 6.07. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 6.08. Forthwith upon the appointment after the date hereof of
any transfer agent for the Preferred Stock, or any subsequent transfer agent
for the Preferred Stock, the Company will file with the Warrant Agent a
statement setting forth the name and address of such transfer agent.
SECTION 6.09. Notice or demand pursuant to this Agreement to be given
or made by the Warrant Agent or by any Warrant Holder to or on the Company
shall be sufficiently given or made and effective on the third business day
after posting thereof, unless otherwise provided in this Agreement, if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
41 North Main Street
Greensburg, Pennsylvania 15601
11
<PAGE> 12
Notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
40 Wall Street
New York, New York 10005
Notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Underwriter shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the
Underwriter with the Company) as follows:
180 Maiden Lane
19th Floor
New York, NY 10031
Notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this
Agreement on the Warrant Agent, Company or Underwriter shall be promptly
forwarded by the recipient thereof to each of the Company, Warrant Agent or
Underwriter who shall not have received or made such demand or notice.
SECTION 6.10. The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the laws of the Commonwealth of
Pennsylvania.
SECTION 6.11. Nothing in this Agreement shall be construed to give to
any person or corporation other than the parties hereto and the Warrant Holders
any right, remedy or claim under promise or agreement hereof. All covenants,
conditions, stipulations, promises and agreements contained in this Agreement
shall be for the sole and exclusive benefit of the Company and the Warrant
Agent and their successors and of the Warrant Holders, and their heirs,
representatives, successors, assigns and transferees.
SECTION 6.12. A copy of this Agreement shall be available for
inspection by any Warrant Holder during the regular business hours and at the
corporate office of the Warrant Agent in New York, New York, at which time the
Warrant Agent may require any Warrant Holder to submit his Warrant Certificate
for inspection by it.
SECTION 6.13. This Agreement shall terminate on the Last Exercise
Date, or such earlier date upon which all Warrants have been exercised, except
that the Warrant Agent shall account to the Company pursuant to Paragraph (5)
of Section 2.02 of this Agreement for all cash held by it. The provisions of
Sections 6.03 and 6.05 of this Agreement shall survive such termination.
12
<PAGE> 13
SECTION 6.14. The Article headings in this Agreement are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
SECTION 6.15. This Agreement may be executed in any number of
counterparts, each of which is so executed shall be deemed to be an original,
and all such counterparts shall together constitute but on and the same
agreement.
ATTEST: SULCUS COMPUTER CORPORATION:
_______________________________ By: __________________________________
Title: ______________________________
ATTEST: AMERICAN STOCK TRANSFER & TRUST COMPANY
_______________________________ By: __________________________________
Title: ______________________________
13
<PAGE> 1
EXHIBIT 11
SULCUS COMPUTER CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years ended December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) attributable
to common stockholders $521,404 $1,043,535 ($1,368,956) ($11,688,013) ($3,050,100)
=========================== =============================================
Shares:
Weighted average number of
common shares outstanding 16,555,758 14,485,019 14,720,327 13,872,298 13,509,078
Assumed conversion of stock options (A) 59,186 76,243 105,130 286,830 648,257
--------------------------- ---------------------------------------------
Average common shares and
common stock equivalents 16,614,944 14,561,262 14,825,457 14,159,128 14,157,335
=========================== =============================================
Earnings (loss) per share $0.03 $0.07 ($0.09) ($0.84) ($0.22)
=========================== =============================================
</TABLE>
(A) Effect of stock options is antidilutive for the years ended December 31,
1995, 1994, and 1993.
<PAGE> 1
EXHIBIT 16(b)
SULCUS COMPUTER CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged to Amount Balance
beginning Acquired cost and charged at end
of period Valuations expenses off of period
--------- ---------- -------- --- ---------
<S> <C> <C> <C> <C>
For the three months ended March 31:
- ------------------------------------
1996
Allowance for doubtful accounts $2,581,020 $0 $153,571 $116,578 $2,618,013
1995
Allowance for doubtful accounts $2,597,088 $0 $105,101 $159,271 $2,542,918
For the twelve months ended December 31:
- ----------------------------------------
1995
Allowance for doubtful accounts $2,597,088 $0 $573,130 $589,198 $2,581,020
1994
Allowance for doubtful accounts $1,494,042 $0 $1,343,489 $240,443 $2,597,088
1993
Allowance for doubtful accounts $1,046,107 $163,486 $1,253,002 $968,553 $1,494,042
</TABLE>
<PAGE> 1
Exhibit 24(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 of the Registration Statement on
Form S-1 (33-85244) of Sulcus Computer Corporation to the use of our report
dated May 13, 1994 appearing in the prospectus, which is part of such
Registration statement, and to the reference to us under the heading "Experts"
in such Prospectus.
We also consent to the incorporation by reference therein of our report with
respect to the financial schedules of Sulcus Computer Corporation for the years
ended December 31, 1993, 1992, 1991 included in the Annual Report (Form 10-K)
for 1993 filed with the Securities and Exchange Commission.
/s/ FERRARO & MCMURTRY
Ferraro & McMurtry, P.C.
(Formerly Ferraro Krebs & McMurtry, P.C.)
July 25, 1996
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Amendment No. 3 to Registration Statement No.
33-85244 of Sulcus Computer Corporation on Form S-1 of our report dated March
1, 1996, except for Note 2, as to which the date is March 21, 1996 and Note 20,
as to which the date is April 10, 1996 on the 1995 and 1994 financial
statements and schedule of Sulcus Computer Corporation appearing in the
Prospectus, which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ CROWE, CHIZEK AND COMPANY LLP
---------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
July 25, 1996
