<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-12209
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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
------------------------
UNICOMP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7371 84-1003745
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1800 SANDY PLAINS PARKWAY, SUITE 305
MARIETTA, GEORGIA 30066
(770) 424-3684
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
STEPHEN A. HAFER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNICOMP, INC.
1800 SANDY PLAINS PARKWAY, SUITE 305
MARIETTA, GEORGIA 30066
(770) 424-3684
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
David F. Evans Gregory Gorder
David K. Armstrong Richard C. Sohn
Snell & Wilmer L.L.P. Perkins Coie
111 E. Broadway, Suite 900 1201 Third Avenue, 40th Floor
Salt Lake City, Utah 84111 Seattle, Washington 98101-3099
(801) 237-1900 (206) 583-8888
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 12, 1996
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.
<PAGE>
PROSPECTUS
1,500,000 SHARES
[LOGO]
UNICOMP, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by UniComp,
Inc. ("UniComp" or the "Company"). The Company's Common Stock is quoted on the
Nasdaq National Market under the symbol "UCMP." On November 11, 1996, the last
reported sale price of the Common Stock as reported by the Nasdaq National
Market was $5.44 per share. See "Price Range of Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (3).......................................... $ $ $
</TABLE>
(1) Excludes a nonaccountable expense allowance payable to Cruttenden Roth
Incorporated, representative of the Underwriters (the "Representative"), and
the value of warrants to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price to be issued to
the Representative (the "Representative's Warrant"). The Company and certain
shareholders (the "Selling Shareholders") have 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 this offering payable by the Company estimated
at $760,000, including the Representative's nonaccountable expense allowance
of $150,000, assuming a public offering price of $5.00 per share.
(3) The Company and the Selling Shareholders have granted the Underwriters a
45-day option to purchase up to 225,000 additional shares of Common Stock on
the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If all such shares of Common Stock are purchased,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Shareholders will be $ ,
$ , $ and $ , respectively. See "Principal
Shareholders" and "Underwriting."
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to certain other conditions. It is expected that the
delivery of the certificates representing the Common Stock offered hereby will
be at the offices of the Representative, Irvine, California, on or about
, 1996.
CRUTTENDEN ROTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy or information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market.
Reports, proxy or information statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, including exhibits filed as part thereof,
copies of which may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
"UNIBOL" is a registered trademark in the United Kingdom and the Company has
applied for United States trademark registration for the use of the name
"UNIBOL." This Prospectus also contains other trademarks and trade names, which
are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS
INCLUDES FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY. SEE "RISK FACTORS." EXCEPT AS
OTHERWISE SPECIFIED, INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
UniComp, Inc. ("UniComp" or the "Company") provides information technology
services to businesses located primarily in the United Kingdom and
platform-migration software and payment-processing systems to users in North
America and Europe. The Company's strategy is to emphasize its platform-
migration and payment-processing software products and to expand its services
business within its existing geographic markets. The Company believes this
strategy will allow it to expand profit margins and provide its high-quality
information technology services to a broad and growing installed base of users
of its platform-migration and payment-processing products.
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
The Company believes that as companies strive to compete and utilize complex new
technologies, more companies will move toward outsourcing their information
technology requirements, thereby enhancing the Company's information technology
services business.
The Company believes that decreasing prices, increasing functionality in
information technology products and the inherent constraints of proprietary
platforms have contributed to increased market acceptance of open systems and
customer demand for information technology products based on such systems.
Changing to new computing platforms, however, often results in significant
disruption of business operations as users are retrained and software errors are
discovered and corrected. Also critical is the potential loss of data contained
in existing databases that may result from a change to new applications
software. The Company's platform-migration software products address these
issues, enabling its customers to move more efficiently to open systems.
Payment processing for commercial businesses has grown rapidly in recent
years as a result of a proliferation in, and increased usage of, credit and
debit cards and wider acceptance of such cards among merchants. Advances in
payment-processing and telecommunications technologies have also been key
factors contributing to such growth. The Company designs, develops and markets
payment-processing systems that provide merchants with greater hardware
independence by supporting a variety of hardware platforms, including personal
computers, point-of-sale terminals and other peripheral devices. The Company's
strategy in the payment-processing market is to focus its sales and marketing
efforts on the relatively small number of large payment processors and hardware
vendors.
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. In fiscal year 1996,
approximately 51% of total revenues were derived from the Company's maintenance
and other technology services, with more than 80% of total revenues attributable
to international operations, primarily in Northern Ireland.
The Company was incorporated in Colorado in 1985. Its executive offices are
located at 1800 Sandy Plains Parkway, Suite 305, Marietta, Georgia 30066 and its
telephone number is (770) 424-3684. Unless the context otherwise indicates,
references to "UniComp" or the "Company" include UniComp, Inc. and its wholly
owned subsidiaries.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,500,000 shares
Common Stock to be outstanding immediately
after this offering........................ 7,090,245 shares (1)
Use of proceeds.............................. Repayment of outstanding indebtedness,
working capital and other general corporate
purposes, including potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol................ UCMP
</TABLE>
SUMMARY FINANCIAL DATA (2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------- ------------------------
FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1994 1995 1996 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 12,206 $ 18,325 $ 22,291 $ 10,063 $ 11,620
Operating income.......................................... 1,604 2,217 2,555 1,277 1,205
Income before taxes....................................... 1,465 2,117 2,262 1,179 1,043
Provision for taxes....................................... 255 495 203 130 300
Net income................................................ 1,210 1,622 2,059 1,049 743
Net income per share...................................... $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
Weighted average shares outstanding....................... 4,344 4,710 5,188 5,186 5,483
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
-------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (3)
--------- --------------
BALANCE SHEET DATA:
Total assets........................................................................... $ 16,060 $ 20,200
Working capital........................................................................ 1,320 6,916
Debt, including current portion........................................................ 3,116 1,116
Total stockholders' equity............................................................. 8,418 14,558
</TABLE>
- ------------------------
(1) Based on shares outstanding as of August 31, 1996. Excludes (i) 832,500
shares of Common Stock issuable upon exercise of outstanding stock options
granted under the Company's Long Term Incentive Plan (the "LTI Plan"), (ii)
205,000 shares of Common Stock reserved for future issuance under the LTI
Plan, (iii) 150,000 shares of Common Stock reserved for future issuance
under the Company's 1996 Director Incentive Plan (the "Director Plan"), (iv)
150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of an outstanding warrant to purchase shares of Common Stock at
$6.90 per share issued in connection with the sale of such convertible
promissory notes (the "Note Warrant"), and (vi) 87,500 shares of Common
Stock issuable upon exercise of outstanding warrants to purchase shares of
Common Stock at $6.00 per share and 87,500 shares of Common Stock issuable
upon exercise of outstanding warrants to purchase shares of Common Stock at
$7.00 per share issued to a financial advisor to the Company (together, the
"Advisor Warrants"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Management--Long-Term Incentive Plan"
and "--Director Plan", "Description of Capital Stock" and "Underwriting."
(2) The Summary Financial Data prior to the pooling-of-interests transaction
with Smoky Mountain Technologies, Inc. ("Smoky Mountain") in April 1996,
give effect to the resulting combined entity.
(3) Adjusted to reflect the sale of the 1,500,000 shares of Common Stock offered
hereby (after deducting underwriting discounts and commissions and estimated
offering expenses) and the application of the estimated net proceeds
therefrom.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. CERTAIN STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "USE
OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS STATEMENTS MADE IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS, CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS AND INDUSTRY DEVELOPMENTS TO DIFFER
MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE, ACHIEVEMENTS OR DEVELOPMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: COMPETITION IN THE INFORMATION TECHNOLOGY INDUSTRY;
DEPENDENCE ON FOREIGN SALES; RAPID TECHNOLOGICAL CHANGE IN THE INFORMATION
TECHNOLOGY INDUSTRY; PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS;
THE COMPANY'S ABILITY TO MANAGE OVERSEAS OPERATIONS; THE COMPANY'S ABILITY TO
MANAGE GROWTH AND ACQUISITIONS; AVAILABILITY OF QUALIFIED PERSONNEL; AND OTHER
FACTORS REFERENCED IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER EACH OF THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE SHARES OF
COMMON STOCK OFFERED HEREBY.
HIGHLY COMPETITIVE INFORMATION TECHNOLOGY INDUSTRY
The information technology industry is intensely competitive and subject to
rapid change. The Company believes the principal competitive factors it faces
include reputation and quality of service, relative price and performance,
technical expertise and product availability. The Company's competitors in the
information technology services market include installation and service
organizations within many established companies, computer manufacturers, custom
software developers, regional systems integrators, software and hardware
distributors and systems consultants. The market for the Company's platform-
migration software is highly competitive as well. The Company believes that the
principal competitive factors in this business include product performance, time
to market for new product introductions, adherence to industry standards, price
and marketing and distribution resources. The market for the Company's
payment-processing systems is also highly competitive. The Company believes that
the principal competitive factors in this business include the ability to
provide a comprehensive, integrated payment-processing system, product
performance, time to market for new product introductions, adherence to industry
standards, price, marketing and distribution resources. Some of the Company's
current and potential competitors have longer operating histories and financial,
sales, marketing, technical and other competitive resources that are
substantially greater than those of the Company. As a result, the Company's
competitors may be able to adapt more quickly to changes in customer needs or to
devote greater resources than the Company to sales, marketing and product
development. As the markets in which the Company competes have matured, product
price competition has intensified and is likely to continue to intensify. Such
price competition could adversely affect the Company's results of operations.
There can be no assurance that the Company will be able to continue to compete
successfully with existing or new competitors. See "Business--Competition."
DEPENDENCE ON FOREIGN SALES
The Company's revenues from international operations represented 83.7%,
84.7% and 78.4% of total revenues for fiscal years 1996, 1995 and 1994,
respectively. The Company expects that its international operations will
continue to account for a significant percentage of its total revenues. Certain
risks are inherent in international operations, including unexpected changes in
regulatory requirements, currency exchange rate fluctuations, changes in trade
policy or tariff regulations, customs matters, longer payment cycles, higher tax
rates or additional withholding requirements, difficulty in enforcing
agreements, intellectual property protection difficulties, foreign collection
problems and military, political and transportation obstacles. In addition,
foreign operations involve uncertainties arising from local business practices,
5
<PAGE>
cultural considerations and international political and trade tensions.
Denomination of the Company's revenues and expenses are generally in
corresponding currencies. As a result the Company has not hedged against foreign
currency exchange rate risks to date. The Company may in the future seek to
implement hedging techniques with respect to foreign currency transactions.
There can be no assurance, however, that such hedging activities would
successfully protect against foreign currency exchange losses or against other
international sales risks such as exchange limitations, price controls or other
foreign currency restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Marketing and
Distribution" and Note 12 of Notes to the Supplemental Consolidated Financial
Statements.
RAPID TECHNOLOGICAL CHANGE AND INTRODUCTION OF NEW PRODUCTS AND SERVICES
The information technology industry is characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements, which could disrupt the Company's services
business and render the Company's products obsolete. The Company's future
success will depend in large part on its ability to anticipate and respond to
such advances, changes and new product introductions. Any failure by the Company
to do so could have a material adverse effect on its competitive position and
results of operations. In addition, the Company is subject to the risks
generally associated with new product introductions and applications, including
lack of market acceptance, delays in development or failure of products to
perform as expected. In February 1996, the Company released version 1.05 of its
UNIBOL400 product, which is the first version offered for widespread commercial
distribution. The UNIBOL400 product has yet to achieve a substantial installed
user base. There can be no assurance as to when, if ever, the UNIBOL400 product
will achieve a substantial user base. See "Business--Products and Services" and
"--Product Development."
POTENTIAL FOR DELAYS IN PRODUCT INTRODUCTION
Delays in product development and introduction may have an adverse effect on
the product's success and the Company's reputation and results of operations,
and may allow competitors to introduce products and gain market share during any
such delays. Any failure by the Company to timely develop and introduce new
products and product enhancements that are responsive to market conditions and
customer requirements may have an adverse effect on the Company's business,
results of operations and financial condition. Furthermore, the complex software
products developed by the Company may contain undetected errors when first
introduced or when new versions are released. There can be no assurance that
current or future releases of Company products will not contain errors or that
any such errors will not result in loss or delay of market acceptance of such
products. The Company has previously experienced delays in developing and
introducing new products, and there can be no assurance that it will be able to
introduce future products on a timely basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Strategy" and "--Product Development."
MANAGEMENT OF OVERSEAS OPERATIONS
The Company's headquarters and administrative offices are in Atlanta,
Georgia; however, as of August 31, 1996, approximately 200 of the Company's 230
employees work in the Company's Belfast, Northern Ireland facilities. This
geographical distance, as well as the time-zone difference, can isolate
management from operational issues, delay communications and require devotion of
a significant amount of time, effort and expense to international travel. There
can be no assurance that the Company will not face significant management
demands associated with its international operations in the future. Any
significant disruption in the management of the Company's international
operations could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Strategy," "--Product Development" and "--Marketing and
Distribution."
6
<PAGE>
OPERATIONS IN NORTHERN IRELAND
A substantial majority of the Company's personnel and operations are located
in Northern Ireland. In addition, 83.7% of the Company's total revenues for
fiscal year 1996 are attributable to operations in Northern Ireland. Northern
Ireland has historically experienced periods of religious, civil and political
unrest. There can be no assurance that further unrest in Northern Ireland will
not occur, which could disrupt the Company's ability to provide information
technology services and product development programs and have a material adverse
effect on the Company's results of operations and financial condition. In fiscal
years 1996, 1995 and 1994, the Company received grants of approximately
$389,000, $369,000 and $285,000, respectively, from the government of Northern
Ireland to fund the Company's research and development programs. The Company's
use of these funds is subject to various rules and regulations, including the
requirement that the Company repay such funds in the event it removes certain
operations from Northern Ireland. There can be no assurance that the Company
will continue to be eligible for or will receive similar grants in the future
or, if such grants are received, whether additional restrictions will apply to
the Company's use of such funds. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Product
Development" and
"--Facilities."
RISK OF ACQUISITION PROGRAM
A substantial portion of the Company's growth to date has been attributable
to its acquisition program, which has primarily been driven by opportunities
that have presented themselves to the Company. Significant administrative,
operational and financial resources are required to successfully integrate and
manage the Company's diverse businesses. There are numerous operational and
financial risks involved in managing acquired businesses, including difficulties
in assimilating acquired operations, diversion of management's attention,
amortization of acquired intangible assets, increases in administrative costs,
additional costs associated with debt or equity financing and potential loss of
key employees or customers of acquired operations. There can be no assurance
that the Company will be successful in integrating its current acquisitions or
retaining and motivating key personnel of acquired companies. Any failure to
integrate the Company's current and potential future businesses, maintain and
expand its acquired customer and technology base and retain and motivate key
employees of acquired companies could have an adverse effect on the Company's
business, results of operations and financial condition. The Company may use
some of the net proceeds of this offering to pursue strategic acquisitions as
part of its overall growth strategy. While the Company has no understandings,
commitments or agreements with respect to any acquisition, it anticipates that
potential acquisition opportunities may become available in the future. There
can be no assurance that the Company will complete any future acquisitions or
that any completed acquisition will result in the Company's receiving the
anticipated benefit of any such acquisition. See "Business--Strategy" and
"--Acquisition History."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL AND RETENTION OF KEY EMPLOYEES
The Company's success depends in part on its ability to attract, hire, train
and retain qualified managerial, technical and sales and marketing personnel.
Competition for such personnel is intense. In particular, there can be no
assurance that the Company will be successful in attracting and retaining the
technical 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. The Company's success also depends to a significant extent on the
continued service of Stephen A. Hafer, its President and Chief Executive
Officer, and other members of the Company's management, the loss of any one of
whom could have a material adverse effect on the Company's business, results of
operations and financial condition. None of the Company's executive officers is
party to a written employment or noncompete agreement with the Company. The
Company has purchased a $1.0 million key person life insurance policy on the
life of Mr. Hafer. See "Management."
7
<PAGE>
UNCERTAINTY OF FUTURE RESULTS
Product revenues generated by the Company's software products are difficult
to forecast because of the evolving product lifecycle of the UNIBOL36 product,
the recent introduction of the UNIBOL400 product and the recent acquisition of
the Company's payment-processing systems business. In addition, although the
Company's service revenues are more predictable than its product revenues,
unexpected variations in job pricing and complexity could have an adverse effect
on the profitability of customer service projects. The Company bases its expense
levels, which are relatively fixed in the short term, in significant part on its
expectations of future product revenues and service demands. If demand for the
Company's products and services is below expectations, results of operations
could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Much of the Company's future success depends on its ability to protect its
proprietary technology. The Company relies principally on trade secret and
copyright law, as well as nondisclosure agreements and other contractual
arrangements, to protect such proprietary technology. There can be no assurance
that such measures will be adequate to protect the Company from infringement by
others of its technologies or that the Company will be effective in preventing
misappropriation of its proprietary rights. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. See "Business--Intellectual
Property."
RISK OF CLAIM ASSOCIATED WITH ACQUISITION
In connection with its acquisition in 1993 of ICS Computing Group, Limited
("ICGL"), the Company incurred a claim by the seller related to pension
overfunding. Based upon the advice of its U.K. solicitor, the Company believes
that it has adequate defenses to this claim such that the expected outcome would
not be material to the Company's results of operations or financial condition.
Due to uncertainties of the legal process, however, there can be no assurance
that the outcome of this claim will be in accordance with the Company's
expectations.
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Immediately following consummation of this offering, the Company's executive
officers and directors and their affiliates will beneficially hold an aggregate
of approximately 22% of the Company's outstanding shares of Common Stock
(approximately 21% if the Underwriters' over-allotment option is exercised in
full). As a result, these shareholders, acting together, may be able to exert
significant influence on many matters requiring approval by the shareholders of
the Company, including the election of directors. See "Principal Shareholders."
BROAD MANAGEMENT DISCRETION IN USE OF NET PROCEEDS
The Company intends to use approximately $2.0 million of the estimated net
proceeds of this offering for repayment of outstanding indebtedness. The
remainder of the net proceeds will be used for working capital and other general
corporate purposes, including financing anticipated growth. Accordingly, the
Company's management will retain broad discretion as to the use of a substantial
portion of the net proceeds of this offering. See "Use of Proceeds."
VOLATILITY OF STOCK PRICE
The Common Stock is currently quoted on the Nasdaq National Market. The
market price of the Common Stock could be subject to significant fluctuations in
response to quarterly variations in the Company's results of operations, changes
in earnings estimates by analysts, announcements of new products or services
offered by the Company or its competitors, loss of key customer, distributor or
vendor
8
<PAGE>
relationships, general conditions in the computer software industry, or other
events or factors, including events or factors that may be unrelated to the
Company. Furthermore, in recent years, the stock market in general, and the
market for shares of stock in technology companies in particular, has
experienced extreme price fluctuations. Such fluctuations could materially and
adversely affect the market price of the Common Stock in the future. See "Price
Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. Upon completion of this
offering, in addition to the 1,500,000 shares offered hereby, approximately
3,698,000 shares that are not subject to lock-up agreements with the
Representative will remain eligible for resale in the public market without
restriction under the Securities Act of 1933, as amended (the "Securities Act").
The executive officers, directors, certain other shareholders of the Company and
their affiliates and certain warrant holders have agreed, pursuant to lock-up
agreements with the Representative, that they will not, without the prior
written consent of the Representative, sell or otherwise dispose of an aggregate
of approximately 1,631,000 outstanding shares of Common Stock and approximately
525,000 shares of Common Stock issuable upon exercise of outstanding options or
warrants beneficially owned by them for a period of 12 months from the date of
this Prospectus. Upon the expiration of these lock-up agreements, such shares of
Common Stock will become eligible for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. The Representative may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to any of such lock-up agreements.
In September 1996, the Company filed a registration statement on Form S-3
(Registration No. 333-11605) for the resale of up to 125,000 shares acquired by
the holders of such shares in connection with the Company's acquisition of Smoky
Mountain. As of October 31, 1996, Messrs. George Gruber and B. Michael Wilson
have sold a total of 91,131 shares under this registration statement. These
holders also have the right to require the Company to file registration
statements in April 1997 and April 1998 for the resale to the public of an
additional 125,000 shares and 250,000 shares of Common Stock, respectively.
Holders of 235,000 of the shares to be registered for public resale in April
1998 have entered into 12-month lock-up agreements with the Representative,
agreeing to defer their registration rights until the earlier of release of
these shares from the lock-up agreements and the expiration of the lock-up
agreements. The Representative may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to any of
such lock-up agreements. The Company intends to maintain the effectiveness of
the current registration statement on Form S-3 regarding the resale of the
remaining unsold portion of the 125,000 shares. As a result, these shares may be
sold at any time into the public market. In addition, 100,000 of the 125,000
shares eligible for registration in April 1997 have been registered for sale in
this offering in the event the Underwriters' over-allotment option is exercised.
None of the 250,000 shares covered by the current registration statement on Form
S-3 or the registration statement to be filed in April 1997 are covered by
lock-up agreements. See "Principal Shareholders" and "Description of Capital
Stock--Registration Rights."
As of October 31, an aggregate of 200,000 shares of Common Stock were
reserved for issuance pursuant to the Note Warrant and the Advisor Warrants.
Holders of the Note Warrant and the Advisor Warrants each possess certain
registration rights with regard to the 25,000 shares and 175,000 shares,
respectively, issuable thereunder. The holders of the Advisor Warrants have
entered into 12-month lock-up agreements with the Representative, subject to
earlier release by the Representative. See "Description of Capital
Stock--Registration Rights."
As of October 31, 1996, 832,500 shares of Common Stock were subject to
options outstanding under the LTI Plan, 237,502 of which were currently
exercisable at a weighted average exercise price of $3.31 per share. The
remainder of these options become exercisable at various points over the next
four years at a weighted average exercise price of $4.23 per share. An
additional 205,000 shares of Common Stock are
9
<PAGE>
reserved for future issuance under the LTI Plan. The Company has filed a
registration statement on Form S-8 to register the shares of Common Stock
reserved for issuance under the LTI Plan, thus permitting the resale of such
shares in the public market without restriction under the Securities Act,
subject in certain events to the expiration of lock-up agreements and Rule 144.
As of October 31, 1996, 150,000 shares of Common Stock were reserved for
future issuance under the Director Plan. The Company intends to file a
Registration Statement on Form S-8 to register the shares of Common Stock
reserved for future issuance under the Director Plan, thus permitting the resale
of such shares in the public market without restriction under the Securities
Act, subject in certain events to the expiration of lock-up agreements and Rule
144.
Upon completion of this offering, the Representative will receive the
Representative's Warrant to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price. The Representative
possesses certain demand and incidental rights to require the Company to
register for public resale the shares of Common Stock issuable under the
Representative's Warrant. The Representative's Warrant may not be exercised
until the first anniversary of the date of this Prospectus. See "Description of
Capital Stock--Representative's Warrant" and "Underwriting."
The Company maintains the effectiveness of a registration statement on Form
S-3 dated June 14, 1993, as amended (Registration No. 33-64312), for the public
resale of 75,000 shares of Common Stock held by Mr. Hafer, the Company's
President, Chief Executive Officer and Chairman of the Board. Of these shares,
16,000 shares have been sold by Mr. Hafer and 59,000 shares remain eligible for
sale. As a result, these shares may be sold at any time into the public market.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the Company's shareholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. Furthermore, certain provisions of the Company's charter
documents may have the effect of delaying or preventing changes in control or
management of the Company, which could have an adverse effect on the market
price of the Common Stock. See "Description of Capital Stock."
DILUTION
The assumed public offering price for the shares of Common Stock offered
hereby is substantially higher than the net tangible book value per share of
Common Stock. As a result, purchasers of shares of Common Stock in this offering
are likely to incur immediate and substantial dilution per share. See
"Dilution."
NO DIVIDENDS ON THE COMMON STOCK
The Company has not paid any cash dividends on the Common Stock since its
inception and does not anticipate paying cash dividends for the foreseeable
future. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby, at an assumed public offering price of $5.00 per
share, are estimated to be approximately $6.1 million (approximately $6.5
million if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company will not receive any proceeds from the sale, if any, of
shares of Common Stock by the Selling Shareholders pursuant to exercise of the
Underwriters' over-allotment option. See "Principal Shareholders."
The Company intends to use approximately $2.0 million of the net proceeds of
this offering to repay principal and accrued interest on certain outstanding
indebtedness, comprised of a short-term line of credit and a term loan. As of
August 31, 1996, the outstanding principal amounts under the short-term line of
credit and the term loan were approximately $1.4 million and $546,000,
respectively. The short-term line of credit bears interest based on the Bank of
Ireland base rate plus 1.75% (7.5% per annum as of August 31, 1996) and matures
in May 1997. The term loan bears interest at LIBOR plus 1.75% (8.63% per annum
as of August 31, 1996) and matures in February 1999. The remainder of the net
proceeds will be used for working capital and other general corporate purposes,
including the potential use of a portion of the net proceeds to finance
strategic alliances or acquisitions of complementary businesses, products or
technologies. Although the Company reviews and considers possible acquisitions
on an on-going basis, no specific acquisitions are currently under consideration
or discussion. The amounts, if any, actually expended for each described use are
at the discretion of the Company and may vary significantly depending on a
number of factors, including the Company's future revenue growth, the amount of
cash generated by the Company's operations, the progress of the Company's
product development programs, changing competitive conditions and market
acceptance of the Company's products.
Pending their uses as set forth above, the net proceeds of this offering
will be invested in government securities or in short-term, investment-grade,
interest-bearing securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported by the Nasdaq National Market. Such
quotations do not include retail mark-ups, mark-downs, or other fees or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1997
Third Quarter (through November 11, 1996)..................................... $ 6.06 $ 5.31
Second Quarter ended August 31, 1996.......................................... 7.63 5.00
First Quarter ended May 31, 1996.............................................. 8.63 6.25
FISCAL YEAR 1996
Fourth Quarter ended February 29, 1996........................................ $ 8.50 $ 5.38
Third Quarter ended November 30, 1995......................................... 7.25 5.25
Second Quarter ended August 31, 1995.......................................... 7.25 3.75
First Quarter ended May 31, 1995.............................................. 4.75 3.25
FISCAL YEAR 1995
Fourth Quarter ended February 28, 1995........................................ $ 3.88 $ 3.00
Third Quarter ended November 30, 1994......................................... 4.13 2.88
Second Quarter ended August 31, 1994.......................................... 4.13 2.25
First Quarter ended May 31, 1994.............................................. 6.13 3.38
FISCAL YEAR 1994
Fourth Quarter ended February 28, 1994........................................ $ 6.38 $ 4.00
Third Quarter ended November 30, 1993......................................... 8.13 4.75
Second Quarter ended August 31, 1993.......................................... 8.88 3.13
First Quarter ended May 31, 1993.............................................. 4.31 2.88
</TABLE>
On November 11, 1996, the closing sale price of the Common Stock on the
Nasdaq National Market was $5.44 per share. As of August 31, 1996, there were
approximately 580 owners of record of the Common Stock. Because many of such
shares may be held by brokers and other institutions on behalf of shareholders,
the Company is unable to estimate the total number of beneficial owners
represented by these record holders.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock, and presently
intends to retain any future earnings to finance its operations and expand its
business. It therefore does not anticipate paying cash dividends for the
foreseeable future.
12
<PAGE>
DILUTION
The net tangible book value of the Company as of August 31, 1996 was
approximately $2.6 million or $0.46 per share of Common Stock. Net tangible book
value per share represents the Company's total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. Without
taking into account any further changes in net tangible book value after August
31, 1996 other than the receipt of the estimated net proceeds from the sale of
the 1,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $5.00 per share, the net tangible book value of the Company as
of August 31, 1996 would have been $8,729,000 million, or $1.23 per share. This
represents an immediate increase in net tangible book value of $0.77 per share
to existing shareholders and an immediate dilution of $3.77 per share to
purchasers of Common Stock in this offering, as illustrated by the following
table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................................... $ 5.00
Net tangible book value per share as of August 31, 1996................... $ 0.46
Increase per share attributable to new investors.......................... 0.77
---------
Net tangible book value per share after this offering......................... 1.23
---------
Dilution per share to new investors........................................... $ 3.77
---------
---------
</TABLE>
The foregoing excludes (i) 832,500 shares of Common Stock issuable upon
exercise of outstanding stock options granted under the LTI Plan, (ii) 205,000
shares of Common Stock reserved for future issuance under the LTI Plan, (iii)
150,000 shares of Common Stock reserved for future issuance under the Director
Plan, (iv) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of the Note Warrant, and (vi) 175,000 shares of Common Stock issuable
upon exercise of the Advisor Warrants. The exercise of any of the above
described options or warrants may result in additional dilution. See
"Management--Long-Term Incentive Plan" and "--Director Plan," "Description of
Capital Stock" and "Underwriting."
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of August 31, 1996 and (ii) the adjusted capitalization of the Company
reflecting the sale of the 1,500,000 shares of Common Stock offered hereby at an
assumed public offering price of $5.00 per share and the receipt and application
of the net proceeds therefrom (after deducting underwriting discounts and
commissions and estimated offering expenses). The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Revolving lines of credit................................................................. $ 1,826 $ 440
Current portion of long-term debt......................................................... 279 209
--------- -----------
Total short-term debt................................................................. 2,105 649
--------- -----------
Long-term debt, less current portion...................................................... 1,011 467
--------- -----------
Total debt............................................................................ 3,116 1,116
--------- -----------
Stockholders' equity:
Common Stock, $.01 par value per share; 25,000,000 shares authorized; 5,590,245 shares
issued and outstanding, actual; 7,090,245 shares issued and outstanding, as adjusted
(1)................................................................................... 56 71
Additional paid-in capital.............................................................. 8,177 14,302
Retained earnings....................................................................... 1,218 1,218
Treasury stock.......................................................................... (850) (850)
Cumulative translation adjustment....................................................... (183) (183)
--------- -----------
Total stockholders' equity................................................................ 8,418 14,558
--------- -----------
Total capitalization...................................................................... $ 11,534 $ 15,674
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 832,500 shares of Common Stock issuable upon exercise of
outstanding stock options granted under the LTI Plan, (ii) 205,000 shares of
Common Stock reserved for future issuance under the LTI Plan, (iii) 150,000
shares of Common Stock reserved for future issuance under the Director Plan,
(iv) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of the Note Warrant, and (vi) 175,000 shares of Common Stock
issuable upon exercise of the Advisor Warrants. See "Management's Discussion
and Analysis of Financial Condition--Liquidity and Capital Resources,"
"Management-- Long-Term Incentive Plan" and "--Director Plan," "Description
of Capital Stock" and "Underwriting."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data selected by the Company set forth below with
respect to the Company's statement of operations data for each of the fiscal
years in the three-year period ended February 29, 1996 and with respect to the
Company's balance sheet data at February 28, 1995 and February 29, 1996, are
derived from the audited consolidated financial statements and notes thereto of
the Company included elsewhere herein. The selected consolidated financial data
with respect to the statement of operations data for February 29, 1992 and
February 28, 1993 and the balance sheet data at February 29, 1992, February 28,
1993 and February 28, 1994 are derived from audited consolidated financial
statements not included in this Prospectus. The selected consolidated financial
data set forth below with respect to the Company's statement of operations data
for the six months ended August 31, 1996 and 1995 and the Company's balance
sheet data at August 31, 1996 are derived from unaudited consolidated financial
statements included in this Prospectus. The selected financial data with respect
to the Company's balance sheet data at August 31, 1995 are derived from
unaudited consolidated financial statements not included in this Prospectus. The
results of operations for the six months ended August 31, 1996 are not
necessarily indicative of results to be expected for any future period of the
fiscal year ending February 28, 1997. The selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues........................... $ 1,452 $ 2,799 $ 12,206 $ 18,325 $ 22,291 $ 10,063 $ 11,620
Cost of sales............................ 1,072 1,787 5,407 6,443 7,978 3,368 4,742
--------- --------- --------- --------- --------- ----------- -----------
Gross profit............................. 380 1,012 6,799 11,882 14,313 6,695 6,878
Operating expenses....................... 733 2,009 5,195 9,665 11,758 5,418 5,672
--------- --------- --------- --------- --------- ----------- -----------
Operating income (loss).................. (353) (997) 1,604 2,217 2,555 1,277 1,206
Other expenses (income).................. 47 (17) 139 100 293 98 163
--------- --------- --------- --------- --------- ----------- -----------
Income (loss) before taxes............... (400) (980) 1,465 2,117 2,262 1,179 1,043
Provision for taxes...................... 152 -- 255 495 203 130 300
--------- --------- --------- --------- --------- ----------- -----------
Net income (loss)........................ $ (552) $ (980) $ 1,210 $ 1,622 $ 2,059 $ 1,049 $ 743
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Net income (loss) per share.............. $ (0.21) $ (0.31) $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Weighted average shares outstanding...... 2,659 3,192 4,344 4,710 5,188 5,186 5,483
Balance Sheet Data:
Total assets............................. $720 $1,550 $7,310 $9,958 $ 16,672 $ 12,036 $ 16,060
Working capital (deficit)................ (235) (391) 656 (566) 1,349 294 1,320
Debt, including current portion.......... 181 503 1,798 1,656 4,507 2,946 3,116
Total stockholders' equity............... 112 (35) 1,851 3,352 6,117 4,638 8,418
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED HEREIN, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING ECONOMIC, COMPETITIVE AND
TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES AND PRICES, AS WELL AS OTHER FACTORS DISCUSSED IN "RISK FACTORS." THESE
AND OTHER FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED.
RECENT DEVELOPMENTS
On October 29, 1996, Smoky Mountain entered into an agreement with the
Atalla Division of Tandem, Inc ("Atalla"). Atalla designs, manufactures and
supports secure on-line transaction automation systems for financial, retail and
business applications. Under the agreement, Atalla will act as a worldwide
non-exclusive value added reseller for Smoky Mountain and will market Smoky
Mountain's LAN software and related software with Atalla's APTM Personal
Transaction Machine, a point-of-sale terminal. Atalla will receive preferential
pricing terms and the parties have also agreed not to market competing products
during the two-year term, or any renewal terms, of the agreement.
The Company anticipates shipments under the agreement to begin in the first
calendar quarter of 1997. The Company is currently unable to predict the
contribution the agreement will make to its results of operations. Any such
contribution is subject to various risk factors and uncertainties, including
Atalla's ability to market its products and receive orders, the Company and
Smoky Mountain's being able to fulfill and service those orders, the impact of
competitive products, timely development and market acceptance of the Company's
products and upgrades to existing products and other related risk factors
referenced in this Prospectus. See "Risk Factors."
OVERVIEW
UniComp provides information technology services to businesses located
primarily in the United Kingdom and platform-migration software and
payment-processing systems to users in North America and Europe. In fiscal year
1996, the Company generated $22.3 million in total revenues, of which $11.4
million were derived from information technology services and $5.5 million were
derived from sales of ancillary computer equipment and supplies. The remaining
$5.4 million in revenues were derived from license fees for the Company's
platform-migration software and payment-processing systems. The Company expects
revenues from software licensing to increase as a percentage of total revenues
in the future.
During each of the last three fiscal years, approximately 80% of the
Company's total revenues were derived from its international operations.
Denomination of the Company's revenues and expenses are generally in
corresponding currencies. As a result, the Company has not hedged against
foreign currency exchange rate risks to date.
Cost of sales for maintenance and information technology services includes
supplies, parts, subcontractors and other direct costs of delivering the
services, except for salary costs, which are included in selling, general and
administrative costs. Cost of sales for ancillary computer equipment and
supplies consists of the actual cost of the products sold. Cost of sales for
software licensing includes amortization of capitalized software development
costs, as well as any royalties payable on embedded technologies. The Company
amortizes capitalized software development costs over the estimated life of the
product, generally three to four years. Gross margins can increase significantly
as software licensing revenues increase over amortization costs.
Selling, general and administrative expenses include salaries and related
costs for all employees, travel, internal equipment, premises and marketing
costs, as well as general office and administrative costs. Development grants
received from the government of Northern Ireland have been recorded as a
reduction
16
<PAGE>
in selling, general and administrative expenses, or a reduction in capitalized
development costs, and are anticipated to remain relatively constant for the
foreseeable future. Although the Company expects the dollar amount of selling,
general and administrative expenses to increase as the Company grows, it
anticipates that these expenses will remain constant or decrease as a percentage
of total revenues.
In the first quarter of fiscal year ending February 28, 1997, the Company
began investing in sales and marketing resources associated with the
introduction and promotion of new products such as UNIBOL400 and a version of
UNIBOL36 supporting Windows NT. Additionally, the Company expanded sales and
marketing efforts associated with its newly acquired payment-processing
division. These sales and marketing activities increased selling, general and
administrative expenses in advance of increases in revenues anticipated from
these investments for the six months ended August 31, 1996. The Company expects
these expenses as a percentage of total revenues to decrease from that level for
the remainder of the fiscal year ending February 28, 1997.
In April 1996, the Company completed its acquisition of Smoky Mountain,
which designs, develops and markets payment-processing systems. The acquisition
has been accounted for by the pooling-of-interests method. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. The Selected
Consolidated Financial Data give retroactive effect to the pooling-of-interests
with Smoky Mountain prior to the transaction date since it results in the most
meaningful presentation of historical results. As such, the consolidated balance
sheets at February 29, 1996 and at February 28, 1995 and 1994 and the
consolidated results of operations for the fiscal years ended February 29, 1996
and February 28, 1995 and 1994 present the resulting combined entity in the
Supplemental Consolidated Financial Statements included in this Prospectus. See
Notes 1 and 3 of Notes to the Supplemental Consolidated Financial Statements.
On August 1, 1995, the Company acquired certain assets and liabilities of
Advec Limited ("Advec"), a provider of information technology services and
ancillary products in Northern Ireland. The acquisition has been accounted for
by the purchase method. As such, Advec's results of operations have been
included since the date of acquisition.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations in
dollars and as a percentage of total revenues for the fiscal years ended
February 29, 1996 and February 28, 1995 and 1994 and the six months ended August
31, 1996 and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1994 1995 1996 1995 1996
-------------- -------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Total revenues............................... $12,206 100.0% $18,325 100.0% $22,291 100.0% $10,063 100.0% $11,620 100.0%
Cost of sales................................ 5,407 44.3 6,443 35.2 7,978 35.8 3,368 33.5 4,742 40.8
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Gross profit................................. 6,799 55.7 11,882 64.8 14,313 64.2 6,695 66.5 6,878 59.2
Operating expenses........................... 5,195 42.6 9,665 52.7 11,758 52.7 5,418 53.8 5,672 48.8
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating income............................. 1,604 13.1 2,217 12.1 2,555 11.5 1,277 12.7 1,206 10.4
Other expenses (income)...................... 139 1.1 100 0.5 293 1.3 98 1.0 163 1.4
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Income before taxes.......................... 1,465 12.0 2,117 11.6 2,262 10.2 1,179 11.7 1,043 9.0
Provision for taxes.......................... 255 2.1 495 2.7 203 0.9 130 1.3 300 2.6
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Net income................................... $ 1,210 9.9% $ 1,622 8.9% $ 2,059 9.3% $1,049 10.4% $ 743 6.4%
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
</TABLE>
17
<PAGE>
SIX MONTHS ENDED AUGUST 31, 1996 COMPARED TO SIX MONTHS ENDED AUGUST 31,
1995
REVENUES. Revenues for the six months ended August 31, 1996 increased to
$11.6 million compared to $10.1 million for the comparable period in the prior
fiscal year, an increase of $1.5 million or 15.5%.
Revenues from maintenance and other information technology services
increased to $6.8 million for the six months ended August 31, 1996 from $5.0
million for the comparable period in the prior fiscal year, an increase of $1.8
million or 36.7%. A portion of this increase was due to approximately $450,000
of additional maintenance and service revenues for the six months ended August
31, 1996 arising as a result of the Advec acquisition. The remainder of the
increase was due to an increase in revenues from new and renewed hardware and
software maintenance contracts, as well as an increase in services such as
custom programming and implementation and consultancy.
Revenues from sales of equipment and supplies remained consistent at $2.6
million for the six months ended August 31, 1996 and 1995. An increase in
equipment revenues from the Advec acquisition of approximately $500,000 was
offset by overall decreases in equipment sales from other divisions in Northern
Ireland during the six months ended August 31, 1996. The Company sells computer
equipment and supplies as an adjunct to the maintenance, consulting, and custom
programming businesses. These products have relatively low profit margins
compared to other revenue sources.
Revenues from software licensing decreased slightly to $2.2 million for the
six months ended August 31, 1996 compared to $2.5 million for the comparable
period in the prior fiscal year, a decrease of $262,000 or 10.6%. This decrease
was primarily due to the recognition for the six months ended August 31, 1995 of
$950,000 of revenue associated with a large sale of platform-migration software
to Siemens Nixdorf totaling $1.5 million for the fiscal year ended February 29,
1996. In addition, UNIBOL36 licensing continues to decline as its product life
cycle reaches maturity with revenues of $680,000 for the six months ended August
31, 1996 compared to $990,000 for the comparable period in the prior fiscal
year, a decrease of $310,000. The Company released a version of UNIBOL36
supporting Windows NT in September 1996 which is anticipated to expand the
UNIBOL36 market and may cause an increase in UNIBOL36 revenues in the second
half of fiscal year ending February 28, 1997 as compared to the first half of
the year. This decrease was partially offset by revenues generated by UNIBOL400
of $215,000 for the first half of fiscal year ending February 28, 1997 as the
Company's distributors and resellers utilize and market this product and begin
installs at customer sites.
Revenues generated from payment-processing systems continue to grow
dramatically as this segment expands both market penetration for existing
products and gains market acceptance of new products. Revenues from
payment-processing systems increased to $977,000 for the six months ended August
31, 1996 from $250,000 in the comparable period of the prior fiscal year, an
increase of $727,000.
INTERNATIONAL REVENUES. Revenues from international operations, principally
in the United Kingdom, increased to $9.4 million for the six months ended August
31, 1996 from $8.9 million for the comparable period in the prior fiscal year,
an increase of $481,000 or 5.4%. This increase was primarily attributable to
increased revenues arising as a result of the Advec acquisition and increased
revenues from additional contracts and the renewal of existing contracts offset
by a decline in revenues from the sale of platform-migration software as a
result of the prior year's large sale to Siemens Nixdorf and an overall decrease
in platform-migration revenues.
Revenues in the United States increased to $2.2 million for the six months
ended August 31, 1996 from $1.1 million for the comparable period in the prior
fiscal year, an increase of $1.1 million or 97.6%. This increase was primarily
due to a $749,000 increase in revenues from the payment-processing division for
the first half of fiscal year 1997. Additionally, domestic revenues from the
UNIBOL division increased to $945,000 for the six months ended August 31, 1996
from $632,000 in the comparable period of the prior fiscal year, and increase of
$313,000.
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<PAGE>
GROSS PROFIT. Gross profit for maintenance and other information technology
services declined slightly to 82.6% of maintenance and service revenues for the
six months ended August 31, 1996 from 88.8% for the comparable period in the
prior fiscal year due principally to pricing pressure caused by more competitive
market conditions on bids for new and renewed contracts.
Gross profit for equipment and software declined to 26.4% of equipment and
software revenues for the six months ended August 31, 1996, compared to 44.9% or
the comparable period in the prior fiscal year. The decrease in gross margin on
equipment and software was principally due to an increase in amortization of
approximately $200,000 on capitalized software based on the first release of
UNIBOL400 in the fourth quarter of the fiscal year ended February 29, 1996 and
the decline in software licensing revenues described above. These margins are
expected to increase in future periods as UNIBOL400 and payment-processing
systems gain additional market acceptance and licensing revenues increase.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $5.3 million for the six months ended August 31, 1996 compared to $5.1
million for the comparable period in the prior fiscal year, and increase of
$241,000 or 4.7%. This increase was primarily a planned result of increased
costs associated with sales and marketing personnel, increased advertising, and
the introduction and promotion of new products. Selling, general and
administrative expenses as a percentage of total revenues improved to 46.0% for
the six months ended August 31, 1996 compared to 50.5% for the comparable period
in the prior fiscal year. The largest component of the Company's selling,
general and administrative expenses consisted of employee salaries and related
costs, which were $4.1 million for the six months ended August 31, 1996 compared
to $3.9 million for the six months ended August 31, 1995.
OTHER EXPENSES. Other expense was $163,000 for the six months ended August
31, 1996 as compared to $98,000 for the comparable period in the prior fiscal
year. The interest expense component increased to $150,000 for the six months
ended August 31, 1996 from $100,000 for the comparable period in the prior
fiscal year. The increase in interest expense was principally due to interest
costs associated with the $2.0 million principal amount of 7.0% convertible
notes issued in December 1995. All of these notes have been converted into
shares of the Company's common stock as of August 31, 1996.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 28.8% for the six months ended August 31, 1996,
compared to 11.0% for the comparable period in the prior fiscal year. This
increase was principally due to the fact that the Company became fully taxable
after the elimination of the valuation allowance on the Company's deferred tax
asset during fiscal year ended February 28, 1996, which has resulted in an
increase in the tax provision for the first half of fiscal year 1997 to $300,000
from $130,000 for the comparable period in the prior fiscal year, an increase of
$170,000. Upon completion of an examination by the Inland Revenue Bureau in the
second quarter of fiscal year 1997, the Company recorded a tax credit of
$51,000. The Company's effective income tax rate exclusive of this tax credit
was 33.7%.
FISCAL YEAR ENDED FEBRUARY 29, 1996 COMPARED TO FISCAL YEAR ENDED FEBRUARY
28, 1995
REVENUES. Revenues for fiscal year 1996 increased to $22.3 million compared
to $18.3 million for fiscal year 1995, an increase of $4.0 million or 21.6%.
Revenues from maintenance and other information technology services
increased to $11.4 million for fiscal year 1996 from $9.0 million for fiscal
year 1995, an increase of $2.4 million or 27.6%. Revenues arising from the Advec
acquisition contributed approximately $330,000 to such increase. The remainder
of the increase was due principally to the effects of a full year of revenue
from CI Computer Software Limited ("CICS"), which was acquired in September
1994, and the increase in revenues from additional contracts and the renewal of
existing contracts.
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<PAGE>
Revenues from the sale of ancillary equipment and supplies increased to $5.5
million for fiscal year 1996 from $4.1 million for fiscal year 1995, an increase
of $1.4 million or 34.2%. The increase was principally due to a large sale to
British Coal and the Advec acquisition.
Revenues from software licensing increased to $5.4 million for fiscal year
1996 compared to $4.8 million for fiscal year 1995, an increase of $560,000 or
11.7%. Software sales from payment-processing systems increased to $790,000 for
fiscal year 1996 from $360,000 for fiscal year 1995, an increase of 119.2%.
The foregoing increases were partially offset by the elimination of sound
system revenues for fiscal year 1996 as a result of the divestiture of the
Company's sound systems business in the prior fiscal year.
INTERNATIONAL REVENUES. Revenues from international operations, principally
in the United Kingdom, increased to $18.7 million for fiscal year 1996 from
$15.5 million for fiscal year 1995, an increase of $3.2 million or 20.2%.
Revenues in the United States increased to $3.6 million for fiscal year 1996
from $2.8 million for fiscal year 1995, an increase of $800,000 or 29.9%.
GROSS PROFIT. Gross profit for maintenance and other information technology
services declined slightly to 84.0% of maintenance and other information
technology service revenues for fiscal year 1996 from 88.2% for fiscal year
1995, primarily due to reduced profits attributable to increased price
competition.
Gross profit for ancillary equipment and software was 43.5% of ancillary
equipment and software revenues for fiscal year 1996 compared to 43.0% for
fiscal year 1995. Increased amortization on capitalized software based on the
first release of UNIBOL400 in the fourth quarter of fiscal year 1996 was offset
by higher margins on sales of payment-processing systems.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $11.0 million for fiscal year 1996 compared to $9.0 million for fiscal year
1995, an increase of $2.0 million or 22.6%. This increase was primarily related
to increased salaries and related costs due to the full-year effect of the CICS
acquisition for fiscal year 1996 and the effect of additional expenses from the
date of the Advec acquisition. Selling, general and administrative expenses as a
percentage of total revenues remained relatively constant at 49.6% for fiscal
year 1996 compared to 49.2% for fiscal year 1995.
OTHER EXPENSES. Other expenses increased to $293,000 for fiscal year 1996
compared to $100,000 for fiscal year 1995, an increase of $193,000. Interest,
the primary component of other expenses, increased to $251,000 for fiscal year
1996 from $224,000 for fiscal year 1995, an increase of $27,000 or 12.1%. The
increase in interest expense was due to the issuance of $2.0 million principal
amount of 7.0% convertible promissory notes in December 1995. The Company also
initiated new borrowings from the Bank of Ireland related to the acquisition of
a new building for Company operations in Belfast, Northern Ireland. Other income
for fiscal year 1995 included the gain on the disposition of the Company's sound
systems business of $154,000.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 9.0% for fiscal year 1996, compared to 23.4%
for fiscal year 1995. Substantially all the tax expense recorded in fiscal year
1995 related to operations in the United Kingdom. Approximately $450,000 of tax
expense was recorded for operations in the United Kingdom for fiscal year 1996.
Additionally, in fiscal year 1996 approximately $55,000 of tax expense was
recorded in the United States for certain state taxes and federal alternative
minimum taxes. However, the $505,000 of total tax expense recorded for fiscal
year 1996 was reduced by approximately $302,000 due to elimination of the
deferred tax asset valuation allowance relating to the net operating loss
carryforward in the United States. Based on the Company's earnings history and
projected future taxable income, management determined that it was more likely
than not that the balance of the deferred tax asset would be realized in future
periods. Due to the elimination of the deferred tax asset valuation allowance,
the effective income tax rate in future periods is expected to significantly
increase.
20
<PAGE>
FISCAL YEAR ENDED FEBRUARY 28, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY
28, 1994
REVENUES. Revenues for fiscal year 1995 increased to $18.3 million compared
to $12.2 million for fiscal year 1994, an increase of $6.1 million or 50.1%.
Revenues from maintenance and other information technology services increased to
$8.9 million for fiscal year 1995 from $5.7 million for fiscal year 1994, an
increase of $3.2 million or 57.7%. Revenues from sales of ancillary equipment
and software increased to $8.9 million for fiscal year 1995 from $6.0 million
for fiscal year 1994, an increase of $2.9 million or 47.8%. These increases were
due principally to the inclusion of ICGL revenues of $14.5 million for an entire
year for fiscal year 1995 compared to $9.1 million for only nine months in
fiscal year 1994. Sound system revenues decreased to $468,000 for fiscal year
1995 from $503,000 for fiscal year 1994 due to the disposition of the Company's
sound systems business in fiscal year 1995.
INTERNATIONAL REVENUES. Revenues in the United Kingdom increased to $15.5
million for fiscal year 1995 from $9.6 million for fiscal year 1994, an increase
of $5.9 million or 62.3%. This increase was primarily due to the inclusion of
the ICGL revenues for an entire year in fiscal year 1995 compared to revenues
for only nine months in fiscal year 1994. Other increases were due to the
inclusion of revenues from CICS, which was acquired in September 1994, of
approximately $533,000 and increases in software license and maintenance fees.
Revenues in the United States increased to $2.8 million for fiscal year 1995
from $2.6 million for fiscal year 1994, which was principally due to an increase
in revenue from sales of payment-processing systems of approximately $475,000
from fiscal year 1994 to fiscal year 1995. Payment-processing systems sales
began in October 1993 and accounted for revenues of $50,000 for fiscal year
1994. This increase was offset by a decrease in certain information technology
service revenues of $207,000 to $182,000 for fiscal year 1995 from $389,000 for
fiscal year 1994.
GROSS PROFIT. Gross profit increased to 64.8% of total revenues for fiscal
year 1995 compared to 55.7% of total revenues in fiscal year 1994. The increase
in gross profit was primarily due to the acquisition of ICGL and continued
growth of operations in the United Kingdom.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $9.0 million for fiscal year 1995 from $4.6 million for fiscal year 1994, an
increase of $4.4 million or 96.0%. The increase was due principally to the
inclusion of ICGL for the entire year in fiscal year 1995.
OTHER EXPENSES. Other expenses decreased to $100,000 for fiscal year 1995
compared to $139,000 for fiscal year 1994, a decrease of $39,000 or 27.7%. The
interest expense component increased to $224,000 for fiscal year 1995 from
$174,000 for fiscal year 1994 due principally to a full year of debt service on
the purchase of ICGL. Other income in fiscal year 1995 included the gain on
disposal of the Company's sound systems business of $154,000.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 23.4% for fiscal year 1995, compared to 17.4%
for fiscal year 1994. Substantially all of the tax expense recorded in fiscal
years 1995 and 1994 related to operations in the United Kingdom. During fiscal
year 1994, the Company utilized all remaining tax loss carryforwards in the
United Kingdom, thereby increasing the effective income tax rate in fiscal year
1995 compared to fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. During this period, the
Company has met its liquidity requirements primarily through operations, private
placements of debt and equity securities, bank financing and grants from the
government of Northern Ireland.
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<PAGE>
The Company has generated positive operating cash flows of $2.5 million,
$2.8 million and $3.0 million for each of fiscal years 1996, 1995 and 1994.
During the fiscal year ended February 29, 1996, the Company expended $1.6
million for capital improvements, including approximately $600,000 for a new
building in Northern Ireland. The Company also expended $1.0 million to purchase
the rights to use and modify the source code for the database embedded in the
UNIBOL400 product. Other significant investing expenditures in fiscal year 1996
included the Advec acquisition for approximately $420,000, and increased
capitalization of internally developed software costs of approximately $600,000
to $1.7 million in fiscal year 1996 from $1.1 million in fiscal year 1995,
principally due to an increase in development costs necessary to bring the
UNIBOL400 product to general availability.
The Company issued $2.0 million principal amount of 7.0% convertible
promissory notes in December 1995. The proceeds from the convertible promissory
notes were used to acquire the rights to use and modify the source code of the
database embedded in the UNIBOL400 product and for general working capital
purposes. As of August 31, 1996, all the principal and related accrued interest
thereon had been converted into 430,291 shares of Common Stock.
In connection with the addition of the new building in Belfast, Northern
Ireland, the Company secured a 10-year variable interest mortgage based on LIBOR
plus 1.75% (8.63% per annum as of August 31, 1996) of approximately $690,000
payable with quarterly installments of approximately $17,300. Other significant
sources of cash from financing activities include additional borrowings of
approximately $417,000 on the short-term line of credit in the United Kingdom
and of approximately $618,000 of proceeds from the exercise of stock options.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $389,000, $369,000 and $285,000
for fiscal years 1996, 1995 and 1994, respectively. These grants are subject to
the legislative rules and regulations of Northern Ireland and the United
Kingdom. Management does not anticipate that the receipt of grants will diminish
significantly in the foreseeable future; however, there can be no assurance that
the Company will be able to continue to receive such grants.
The Company believes that the net proceeds of this offering, together with
cash generated from operations and available credit, if necessary, will be
sufficient to meet its working capital needs both on a short- and a long-term
basis. However, the Company's capital needs will depend on many factors,
including the Company's ability to maintain the upward trend of profitable
operations, the need to develop and improve products, and various other factors.
Depending on its working capital requirements, the Company may seek additional
financing through debt or equity offerings in the private or public markets at
any time. The Company's ability to obtain additional financing will depend on
its results of operations, financial condition and business prospects, as well
as conditions then prevailing in the relevant capital markets. There can be no
assurance that financing will be available or, if available, will be on terms
acceptable to the Company.
SEASONALITY AND INFLATION
The Company's operations have not proven to be significantly seasonal,
although quarterly revenues and net income may vary. Although the Company cannot
accurately determine the amounts attributable thereto, the Company has been
affected by inflation through increased costs of employee compensation and other
operating expenses. The Company believes that these have not had a material
effect on the Company's results of operations or financial condition.
22
<PAGE>
BUSINESS
OVERVIEW
UniComp provides information technology services to businesses located
primarily in the United Kingdom and platform-migration software and
payment-processing systems to users in North America and Europe. The Company's
strategy is to emphasize its platform-migration and payment-processing software
products and to expand its services business within its existing geographic
markets. The Company believes this strategy will allow it to expand profit
margins and provide its high-quality information technology services to a broad
and growing installed base of users of its platform-migration and
payment-processing products.
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. In fiscal year 1996,
approximately 51% of total revenues were derived from the Company's maintenance
and other information technology services, with more than 80% of total revenues
attributable to international operations, primarily in Northern Ireland.
INFORMATION TECHNOLOGY SERVICES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
The Company believes that, as companies strive to compete and utilize complex
new technologies, more companies will move toward outsourcing their information
technology requirements. The Company believes that this movement will enhance
its information technology services business.
The Company provides information technology services, including maintenance
and support services, installation and integration of software and hardware
systems and outsourcing of information technology services. Maintenance and
support services consist of system upkeep, including system maintenance,
technical support and training. Installation and integration services include
system consulting and design, custom software modification, software
installation and testing, as well as a broad range of systems configuration and
integration services for computer networks. The Company also provides
information technology services to businesses on an outsourced basis, thereby
offering its customers an opportunity to reduce information technology overhead
while continuing to respond to technological change. Outsourcing services
include disaster recovery, facilities management and related information
technology support services.
PLATFORM-MIGRATION SOFTWARE
During the past several years, there has been a movement in the computer
industry from proprietary systems toward open and portable systems. The Company
believes that decreasing prices, increasing functionality in information
technology products and the inherent constraints of proprietary platforms have
contributed to increased market acceptance of open systems and customer demand
for information technology products based on such systems. Changing to new
computing platforms, however, often results in significant disruption of
business operations as users are retrained and software errors are discovered
and corrected. Also critical is the potential loss of data contained in existing
databases that may result from a change to new applications software.
In response to the demand for applications software capable of running on
multiple computing platforms, UniComp has developed platform-migration software
that rehosts existing code to an open computing platform. The Company believes
that its UNIBOL rehosting solution allows businesses and independent software
vendors ("ISVs") to migrate their applications software to open systems in a
more
23
<PAGE>
cost-effective manner than competing methodologies. Rehosting enables businesses
to retain their investment in existing software and databases. Rehosting also
allows ISVs to expand their market opportunities without replacing or rewriting
applications, retraining or replacing software developers or incurring the cost
and disruption of re-engineering their products.
PAYMENT-PROCESSING SYSTEMS
Payment processing refers to the sequence of activities that occur among a
customer, a merchant and a payment processor when goods or services are sold.
Payment processing for commercial businesses has grown rapidly in recent years
as a result of a proliferation in and increased usage of credit and debit cards
and wider acceptance of such cards among merchants. Advances in
payment-processing and telecommunications technologies have also been key
factors contributing to such growth. The Company believes that the transition
from paper-based to electronic payment processing provides greater convenience
to merchants and consumers, reduces fees charged to merchants and facilitates
faster, more accurate settlement of payments.
The Company designs, develops and markets payment-processing systems that
provide merchants with greater hardware independence by supporting a variety of
hardware platforms, including personal computers, point-of-sale terminals and
other peripheral devices. Payment-processing systems include the software and
hardware combinations that allow electronic settlement of payment transactions.
The Company's strategy in the payment-processing market is to focus its sales
and marketing efforts on the relatively small number of large payment processors
and hardware vendors. The Company is currently selling its payment-processing
systems to each of the three largest payment processors in the United States,
which together represent over one million merchant locations and more than $250
billion in annual transaction volume.
MARKETS
INFORMATION TECHNOLOGY SERVICES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
According to the Outsourcing Institute, a leading industry publication, the
worldwide information technology services market, which includes maintenance,
support and systems integration services, was estimated to be $38 billion in
1995 and is expected to grow to $65 billion by 1998. The information technology
services market in Northern Ireland, where more than 80% of the Company's total
revenues are derived, is estimated by the Company to have been approximately
$150 million in 1995. The Company believes that the information technology
markets in Northern Ireland and the United Kingdom are regionally focused and
highly fragmented, with the U.K. market being substantially larger than that of
Northern Ireland. The Company believes that as companies strive to compete and
utilize complex new technologies, more companies will move toward outsourcing
their information technology requirements.
PLATFORM-MIGRATION SOFTWARE
IBM's midrange computing platforms, the System/36 and the AS/400, have
served as a popular computing solution for business applications since IBM's
introduction of these two systems in 1983 and 1988, respectively. While IBM
discontinued producing the System/36 in 1988, industry sources estimate
approximately 150,000 System/36 systems remained in use worldwide at the end of
1995. Industry publications estimate that over 360,000 AS/400 systems were in
use worldwide at the end of 1995. The Gartner Group estimates that, by the end
of 1997, the installed base of AS/400 systems will increase to over 450,000
systems worldwide.
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<PAGE>
In adopting IBM's midrange computing platforms, businesses, and the ISVs
that support them, have invested substantial resources developing applications
software that provides a wide variety of manufacturing, accounting and other
information-management functions. According to industry sources, by 1995, an
estimated 25,000 software applications had been developed for use on AS/400
systems. Development of applications software intended for use on IBM's midrange
computing platforms continues, assisted by approximately 8,000 ISVs that IBM
estimates develop and market applications software for the AS/400 platform. In
1995, these ISVs generated an estimated $2.5 billion in revenues from AS/400
applications software sales.
IBM computing platform users and developers have historically been
constrained by the nonportable and proprietary nature of IBM's operating
systems. Software applications written for the System/36 and AS/400 platforms
would not run on other computing platforms, including those using open operating
systems such as UNIX, or other portable operating systems such as Windows NT.
These other computing platforms often offer users significant advantages,
including access to a wider range of software and hardware vendors, as well as
increased system capacity, interoperability and scalability. Since the late
1980s, vendors of hardware and, to a lesser extent, software have experienced
substantial price reductions of their products due to increased competition and
the availability of alternative operating systems. The Company believes that
decreasing prices and increasing functionality in information technology
products have also led to increased market acceptance of open systems and
customer demand for information technology products based on such systems. The
Gartner Group estimates that sales of server/host systems based on the UNIX and
Windows NT operating systems will increase to $40 billion annually by the year
2000, up from an estimated $22 billion in 1996. Industry sources estimate that
the UNIX applications software market is currently smaller, but growing faster,
than the AS/400 applications software market.
Changing to new computing platforms often results in significant disruption
of business operations as users are retrained and errors in the new software are
discovered and corrected. Even more critical to many businesses is the potential
loss of data contained in existing databases that may result from a change to
new applications software. ISVs must also adapt to customer demands associated
with increased popularity of new computing platforms. ISVs that have developed
successful AS/400 applications software are faced with the challenge of
migrating their products to new platforms to meet customer demands while
maintaining their existing customer base for applications software running on
the AS/400 platform.
Approaches to migrating System/36 and AS/400 systems may be summarized as
follows:
<TABLE>
<S> <C>
REFACING Refacing involves replacing the "green-screen" interface with a
graphical user interface. Because refacing affects only the end-user
interface, the source code must still be run on the original computing
platform, thereby defeating the goal of many users to upgrade system
performance, interoperability and scalability.
RE-ENGINEERING Re-engineering requires rewriting existing applications software to
enable it to operate on a new computing platform. Since this entails
completely rewriting applications software to meet customer
requirements, it often results in increased cost, risk of failure,
disruption and delay.
PACKAGED SOLUTIONS Migrating to a new computing platform can sometimes be accomplished by
installing an applications software package that has been
independently developed to run on open or portable platforms. While a
substantial number of packaged software applications are available,
businesses implementing this approach will often have to abandon their
investment in existing databases and software and may incur
substantial retraining costs.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
REHOSTING Rehosting involves migration of applications software to a new
computing platform with minimal change to the source code or user
interface. Rehosting is achieved by rebuilding applications software
to run efficiently on the new computing platform. This solution often
enables businesses to enjoy the continued use of their existing
programs and databases, reduce retraining costs and obtain the
advantages of a new computing platform. The Company offers a rehosting
solution through its UNIBOL product line.
</TABLE>
PAYMENT-PROCESSING SYSTEMS
The market for payment-processing systems has grown substantially over the
last several years as electronic-based transaction settlement has begun to
replace paper-based settlement. According to Credit Card News, a leading
industry publication, the total U.S. credit-card charge volume for VISA and
MasterCard was in excess of $530 billion in 1995 and represented in excess of 9
billion transactions, up from $440 billion and 7.6 billion transactions in 1994.
The market for check verification services has also demonstrated rapid growth.
The dollar volume of checks verified in 1995 increased 18.1% to $178 billion
from $151 billion in 1994.
The payment-processing market is dominated by a few large
transaction-processing companies, the five largest of which, the Company
believes, are as follows:
<TABLE>
<CAPTION>
AGGREGATE MERCHANT
TRANSACTION VOLUME LOCATIONS
------------------ -----------
<S> <C> <C>
First Data Merchant Services....................................................... $ 129.5 billion 558,000
National Processing, Inc........................................................... $ 65.7 billion 125,000*
National Data Corporation.......................................................... $ 65.0 billion* 400,000*
Bank of America.................................................................... $ 24.8 billion 95,000
First USA Payment Tech, Inc........................................................ $ 24.6 billion 180,000
</TABLE>
- ------------------------
Sources: Credit Card News, June 15, 1996; *Company estimates
STRATEGY
The Company's strategy is to become the leading provider of
platform-migration software and hardware-independent payment-processing systems
to businesses worldwide, and to continue to provide high-quality information
technology services in the United Kingdom. Key elements of this strategy
include:
LEVERAGE COMPLEMENTARY BUSINESSES. The Company intends to initiate efforts
to market its information technology services to its platform-migration software
and payment-processing systems clients. The Company believes that cross-selling
among its different businesses will increase total revenues by expanding the
range of customers to whom it can effectively market its information technology
services and products.
EMPHASIZE SOFTWARE PRODUCTS. To enhance its current competitive advantage,
the Company intends to continue to invest in product development and marketing.
Initially, the Company intends to focus on its UNIBOL400 product, including
developing support for programs written using the COBOL/400 language, as well as
support for the Windows NT platform. The Company is also developing enhancements
and add-ons to its payment-processing systems to provide data collection for
time and attendance reporting, inventory ordering, frequent shopper programs,
electronic benefits processing and remote bill paying. Finally, the Company
intends to expand its marketing efforts for platform-migration software and
payment-processing systems, primarily through increasing its direct sales force
to better penetrate target markets.
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<PAGE>
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company believes that its
success to date is partially attributable to a preference by many companies
located in Northern Ireland and the United Kingdom to conduct business with
regional providers of information technology services. The Company intends to
leverage its name recognition and reputation within its existing geographic
markets to increase its market share in Northern Ireland and expand its customer
base throughout the United Kingdom.
EXPAND DISTRIBUTION CHANNELS. The Company intends to continue to emphasize
distribution of its platform-migration software and payment-processing systems
through multiple distribution channels. It currently markets and distributes its
platform-migration software through its direct sales force, as well as through
independent distributors in over 30 countries. Additionally, the Company has
entered into strategic or marketing relationships with major UNIX hardware
system vendors, including Hewlett-Packard, Siemens Nixdorf and Data General, as
well as international systems integrators. The Company also markets and sells
its platform-migration software through ISVs. The Company believes that its
multichannel distribution strategy enables it to effectively market its products
and services to a wide range of potential customers. The Company currently
markets its payment-processing systems through large transaction-processing
companies, as well as point-of-sale hardware and software vendors.
ACQUIRE STRATEGIC BUSINESSES, PRODUCTS AND TECHNOLOGIES. The Company
intends to continue to seek opportunities to acquire businesses, products and/or
technologies that it believes will complement its business operations. The
Company seeks opportunistic acquisitions that may provide complementary
technology, expertise or access to certain distribution channels. In addition,
the Company may seek to acquire certain component technologies that may provide
opportunities to accelerate its product development efforts.
PRODUCTS AND SERVICES
UniComp provides information technology services and designs, develops and
markets platform-migration software and payment-processing systems. In fiscal
year 1996, UniComp generated $22.3 million in total revenues, of which $11.4
million were derived from information technology services and $5.5 million were
derived from sales of ancillary computer equipment and supplies. The remaining
$5.4 million in revenues were derived from license fees for the Company's
platform-migration software and payment-processing systems.
INFORMATION TECHNOLOGY SERVICES
The Company provides a wide variety of information technology services,
including maintenance and support services, installation and integration of
software and hardware systems and outsourcing of information technology
services. Maintenance and support services consist of system upkeep, including
computer system maintenance, technical support and training. Installation and
integration services include system consulting and design, custom software
modification, software installation and testing, as well as a broad range of
systems configuration and integration services for computer networks. The
Company also provides information technology services to businesses on an
outsourced basis, offering its customers an opportunity to reduce information
technology overhead while continuing to respond to technological change.
Outsourcing services include disaster recovery, facilities management and
related information technology support services.
Typically, the Company's maintenance and support contracts are for an
initial term of one to three years and are terminable by either party upon three
months' notice subsequent to the initial term. The Company's installation and
integration contracts typically provide for payment on a time-and-materials
basis and are terminable by the customer on 30 days' notice. Outsourcing
agreements vary by customer, depending on the type of service to be provided by
the Company.
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PLATFORM-MIGRATION SOFTWARE
The Company designs, develops and markets platform-migration software under
its UNIBOL brand.
UNIBOL36. The UNIBOL36 system rehosts applications software written in RPG
or COBOL, and related data, from IBM's System/36 to UNIX or Windows NT systems.
During each of the last three fiscal years, the UNIBOL36 product has been the
Company's largest source of revenues from software licensing.
UNIBOL400. The UNIBOL400 system rehosts applications software written in
RPG/400 from IBM's AS/400 to UNIX systems. The Company released version 1.05,
the first version released for widespread commercial distribution, in February
1996. In August 1996, the Company released a version supporting Oracle database
connectivity. As of August 31, 1996, the UNIBOL400 system was installed at 10
sites in the United States and Europe.
Advantages of the UNIBOL rehosting solution include:
<TABLE>
<S> <C>
VERSATILITY The UNIBOL36 system enables the migration to open systems of
applications software written in either RPG or COBOL languages. The
Company currently offers the UNIBOL36 system on most major UNIX
platforms, including IBM RS/6000, HP9000, Siemens Nixdorf RM Series,
DEC Alpha, Sun Sparcstation, Data General Aviion and Intel/SCO UNIX.
The UNIBOL400 system currently supports applications software written
in the most popular AS/400 language, RPG/400. The Company expects to
release a version that supports COBOL/400 in calendar year 1997. The
UNIBOL400 system is currently available on four UNIX hardware
platforms, including two of the most popular UNIX platforms. In
September 1996, the Company released its UNIBOL36 NT product, which
supports the Windows NT platform. The Company also plans to develop a
version of the UNIBOL400 system that supports Windows NT.
USER INTERFACE The UNIBOL systems preserve the "look and feel" of the legacy system's
user interface, thereby saving businesses that are migrating to a new
computing platform substantial retraining, documentation and technical
support costs. By enabling the use of a single set of end-user
documentation, this feature allows for efficient technical support of
applications software running on multiple computing platforms.
DEVELOPER INTERFACE The UNIBOL systems offer software developers many System/36- and
AS/400-style development tools, as well as access to native UNIX
development facilities. This feature facilitates the transition from a
System/36 or AS/400 development environment to a UNIBOL environment on
new computing platforms and allows further development of migrated
applications software.
NATIVE ENVIRONMENT The UNIBOL36 and UNIBOL400 systems are native System/36 and AS/400
application development and execution environments for open systems,
essentially replacing the functionality of the proprietary operating
system under which the applications software was written. The Company
believes that, as a native open-systems environment, the UNIBOL
environment generally enables applications software to operate at
least as efficiently as under the original proprietary operating
system.
</TABLE>
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<TABLE>
<S> <C>
MILLENNIUM FEATURE Many software applications contain six-character date fields with a
two-character year that will incorrectly interpret the year 2000 as
the year 1900. The Company's UNIBOL36 product solves this rapidly
approaching problem through an algorithm that interprets two-digit
years that are less than 40 as being in the 21st century rather than
the 20th century, thereby solving the millennium problem without
extensive re-coding. Users may change year settings to increase or
decrease the trigger value.
</TABLE>
PAYMENT-PROCESSING SYSTEMS
The Company designs, develops and markets software and hardware systems to
facilitate the settlement of electronic payment transactions. Functions
supported by the Company's payment-processing systems include credit, debit and
purchase-card processing, check authorization and guarantee, signature capture,
communication, retrieval and address verification. To address the lack of
interoperability that now exists among many vendors' hardware and software
products, the Company's payment-processing systems are designed to provide
payment processors and merchants with a high degree of hardware independence by
supporting a variety of hardware platforms, including personal computers and
certain point-of-sale terminals, as well as the Company's own payment-processing
hardware and other peripheral devices.
The Company believes its Universal Payment Software ("UPS") to be the most
critical component of its payment-processing systems. The UPS applications
software facilitates transaction processing at merchant locations and operates
on a variety of hardware platforms, including personal computers, the Company's
Universal Payment Adapter Master Controller and certain electronic cash
registers ("ECRs"). The UPS applications software facilitates a variety of
functions, including credit, debit and purchase-card processing, check
authorization and guarantee, signature capture, communication and retrieval and
address verification.
The Company also designs, develops and markets a variety of ancillary
hardware, software and related systems that comprise certain of its
payment-processing systems. The Company's Universal Terminal Software acts as
the application environment for a variety of point-of-sale peripherals, while
the Universal Payment Host resides on a personal computer located at the payment
transaction processor and collects data for authorization and settlement
processing on the host computer. The Company's Universal Payment Adaptor Master
Controller and Universal LAN Adapter products provide the hardware platforms on
which the UPS applications software operates and supports connectivity with up
to 63 peripheral devices, including several types of point-of-sale terminals,
ECRs, printers and other devices, as well as entire local area networks.
MARKETING AND DISTRIBUTION
The Company currently markets and distributes its services and products in
the United States and the United Kingdom through its direct sales force. In
addition, the Company markets its platform-migration software through
independent distributors in over 30 countries. The Company has entered into
strategic relationships with major UNIX hardware system vendors, including
Hewlett-Packard, Siemens Nixdorf and Data General, as well as international
systems integrators. The Company also markets and sells its platform-migration
software through ISVs. The Company believes that its multi-channel distribution
strategy enables it to effectively market its platform-migration software and
services to a wide range of potential customers. The Company currently markets
its payment-processing systems through large transaction-processing companies,
as well as through point-of-sale hardware and software vendors.
DIRECT SALES AND MARKETING FORCE
As of August 31, 1996, the Company marketed and sold its information
technology services through 22 direct sales and marketing personnel. The Company
organizes its information technology services business
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such that each service technician maintains a direct relationship with certain
of the Company's service customers. Specific marketing programs vary by target
customer. The Company believes that its direct sales approach, including having
Company service technicians serve as client-relationship managers, leads to
better account penetration and management, better communications and long-term
relationships with its clients and greater opportunities for follow-on sales of
products and services to its existing client base. To date, the Company has
focused its sales and marketing efforts for information technology services
primarily on businesses in Northern Ireland.
As of August 31, 1996, the Company marketed and sold its platform-migration
software directly through the Company's 18-person UNIBOL sales and marketing
staff, which is supported by 15 individuals on the Company's UNIBOL technical
support staff. UNIBOL's direct sales force operates from the Company's offices
in Belfast, Atlanta, Dallas and Los Angeles. The Company markets its UNIBOL
products through direct mail, public relations, advertising programs, seminars,
audio conferences, trade shows, newsletters and its Internet homepage.
As of August 31, 1996, the Company marketed and sold its payment-processing
systems directly through a three-person sales and marketing staff. The Company
also employs two technical support personnel focused on payment-processing
systems. The Company is currently selling its payment-processing systems to each
of the three largest payment processors, which together represent over one
million merchant locations and more than $250 billion in annual transaction
value. Because the target market for the Company's payment-processing systems
consists of a small number of large transaction processors, the Company's direct
sales staff markets its payment-processing systems largely through system
demonstrations and collateral sales materials.
DISTRIBUTORS
As of August 31, 1996, independent distributors in over 30 countries sold
the Company's UNIBOL products. Distributors primarily consist of software
consultants and systems integrators. A distributor qualifies to sell the
Company's products by paying an annual support and maintenance fee. The
Company's distribution agreements typically provide for a one-year term and are
terminable upon 60 days' notice by either party. The Company's distributors
generally do not hold inventory of UNIBOL products, but will place orders for
immediate shipment.
The Company generally does not rely on distributors in its other businesses.
HARDWARE VENDORS
The Company is a strategic partner in Hewlett-Packard's AS/400 Open Midrange
Alternative Program, which provides cooperative marketing support for the
UNIBOL400 product. In addition, the Company has an OEM bundling agreement with
Siemens Nixdorf under which Siemens Nixdorf provides platform-migration,
training, systems integration and ongoing support services for UNIBOL products.
The Company is also an authorized ISV for Data General's Aviion computer systems
and is a strategic partner in Data General's worldwide competitive ISV
recruitment program, which provides the Company with access to cooperative
marketing programs and applications software porting assistance.
INDEPENDENT SOFTWARE VENDORS
According to industry sources, there are approximately 8,000 ISVs currently
supporting applications software for the AS/400 platform. The Company believes
that, by using the UNIBOL400 system, ISVs will be able to offer their
applications software on open systems and other portable platforms. The Company
believes it can accelerate market acceptance of its UNIBOL400 product by
leveraging its reputation in the System/36 market and focusing on the ISV
distribution channel. The Company also believes that, by using the ISV
distribution channel, it will derive licensing revenue from both the initial
sale to an ISV of the
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UNIBOL400 system and from subsequent license fees payable when an ISV licenses
its migrated applications to end users.
As of August 31, 1996, the Company had entered into licensing agreements
with over 25 ISVs for the UNIBOL400 product. The Company believes these ISVs
have developed significant software tools in their respective industries, which
are often mission-critical, enterprise-wide software applications for a specific
vertical market. These ISVs and their respective industries include HTE, Inc.
(public sector), Artesia Data Systems, Inc. (oil and gas) and Cass Logistics
Inc. (transportation). Generally, the Company's UNIBOL ISV agreements are
nonexclusive, have a one-year term and are terminable by either party on 30
days' notice. Typically, an ISV will pay an initial development and migration
fee and annual support payments to the Company for the right to migrate the
ISV's applications software to a new computing platform, and will pay an
additional fee for each user of the ISV's applications software running under
the UNIBOL400 system.
SIGNIFICANT CUSTOMERS
No one of the Company's customers accounted for more than 10% of the
Company's total revenues in any of its three most recent fiscal years. The
following table lists some of the Company's significant end-users and customers.
INFORMATION TECHNOLOGY SERVICES
British Fuels Limited
CPL Distribution Limited
Data Sciences UK Limited
Dopra Systems Integration Limited
Dupont Limited
Granada Computer Services. (UK) Limited
Guinness & Co. (NI) Limited
Harland & Wolff PLC
John Henderson Limited
Northern Ireland Airports Limited
Northern Ireland Health Boards
Ulster Carpet Mills Limited
PAYMENT-PROCESSING SYSTEMS
First Data Merchant Services
National Data Corporation
National Processing, Inc.
Telecheck Services, Incorporated
PLATFORM-MIGRATION SOFTWARE
Data General Corporation
DECSA S.A.S.
DCS Limited
DHL International Limited
Glasgow City Council
Hewlett-Packard Company
Logix
Siemens Nixdorf Informations Systeme AG
Sligos
Synapse Midrange Services Limited
Tesco Stores Limited
PRODUCT DEVELOPMENT
As of August 31, 1996, the Company's product development staff consisted of
31 employees, 28 of whom were located in Belfast, Northern Ireland. The market
for midrange business computing products has historically been characterized by
frequent technological advances, evolving industry standards and escalating
customer expectations. As a result, the Company's future growth and success will
be largely dependent on its ability to enhance its existing products and develop
or acquire new products.
The Company anticipates that the long-term success of the UNIBOL400 product
will require further product development, including development of support for
the Windows NT platform. The Company anticipates supporting Windows NT by
implementing a client/server version of its UNIBOL400 product, with a Windows 95
or Windows NT personal computer client networked to a server running Windows NT
and supporting object linking and embedding technology. Following the release of
the client/server version of UNIBOL400 for Windows NT, the Company plans to
develop an object-oriented application framework for use in the development and
deployment of commercial applications software.
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The Company is also developing enhancements and add-ons to its
payment-processing systems to provide data collection for time and attendance
reporting, inventory ordering, frequent shopper programs, electronic benefits
processing and remote bill paying.
COMPETITION
Some of the Company's current and potential competitors have longer
operating histories and financial, sales, marketing, technical and other
competitive resources that are substantially greater than those of the Company.
As a result, the Company's competitors may be able to adapt more quickly to
changes in customer needs or to devote greater resources to this market than the
Company. Such competitors could also attempt to increase their presence in the
Company's markets by forming strategic alliances with other competitors of the
Company, offering new or improved products and services to the Company's
customers or increasing their efforts to gain and retain market share through
competitive pricing. As the markets in which the Company competes have matured,
price competition has intensified and is likely to continue to intensify. Such
price competition could adversely affect the Company's results of operations.
There can be no assurance that the Company will be able to continue to compete
successfully with existing or new competitors.
INFORMATION TECHNOLOGY SERVICES
The Company believes that it is one of the largest providers of information
technology services in Northern Ireland. The market for the Company's
information technology services is intensely competitive due primarily to low
barriers to entry. The Company believes that the primary competitive factors in
this market include familiarity with local customs and practices, price,
technical expertise and reputation. The Company believes that it has many direct
and indirect competitors, none of which is dominant in the Company's
marketplace. The Company faces indirect competition from hardware manufacturers
that service their own equipment such as Digital Equipment Company and IBM. The
Company also faces direct competition from various independent information
technology service providers in Northern Ireland.
The Company believes that it competes by providing quality products and
services at competitive prices. The Company also believes that it distinguishes
itself from its competition on the basis of its technical expertise, vendor
alliances, direct sales strategy and customer-service orientation. Based on the
level of the Company's recurring business with many of its large customers, the
Company believes that it compares favorably to many of its competitors with
respect to the principal competitive factors set forth above.
PLATFORM-MIGRATION SOFTWARE
The market for the Company's platform-migration software is highly
competitive. The Company believes that the principal competitive factors in this
business include product performance, time to market for new product
introductions, adherence to industry standards, price and marketing and
distribution resources. The Company believes that it competes favorably in all
of these categories. The Company faces direct competition from developers of
rehosting solutions, including Financial Technologies, Inc., Universal Software,
Emphasys Software and California Software, Inc. In addition, the Company faces
competition from companies that provide other migration solutions such as
refacing, re-engineering and packaged software applications. These competitors
include Wall Data Incorporated, PKS Software GmbH, Raconix and EFA Associates.
PAYMENT-PROCESSING SYSTEMS
The market for the Company's payment-processing systems is highly
competitive. The Company believes that the principal competitive factors in this
business include the ability to provide comprehensive, integrated
payment-processing systems, product performance, time to market for new product
introductions, adherence to industry standards, price, marketing and
distribution resources. The Company believes that it competes favorably in all
of these categories. The Company faces competition from vendors of
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payment-processing software and hardware systems, including Verifone, Checkmate,
IC Verify, Banktec and Open Systems.
ACQUISITION HISTORY
In December 1985, the Company was organized as Liberty Ventures, Ltd., a
Colorado corporation, for the primary purpose of seeking selected mergers or
acquisitions. In September 1986, the Company acquired UniComp Systems, Inc., a
Texas corporation, for shares of the Company's Common Stock and changed its name
to UniComp, Inc.
In June 1992, for 1,500,000 shares of the Company's Common Stock, the
Company acquired Arccom Management Systems, Inc., a Georgia corporation largely
owned by two of the Company's executive officers and directors, Messrs. Henry
and Hafer, that marketed and sold the UNIBOL36 product in the United States.
In May 1993, the Company acquired for $4.1 million ICGL, a U.K. company
consisting of three subsidiary companies, one of which, Unibol, Ltd., is the
developer of the UNIBOL36 and UNIBOL400 platform-migration software. The
acquisition of ICGL also included its two subsidiaries specializing in the
delivery of technology products and services to businesses located in Northern
Ireland and the United Kingdom: ICS Computing Limited, specializing in
vertical-market applications software and services; and Computer Maintenance
Ireland Limited, providing hardware maintenance, systems integration, training
and systems support, primarily in Northern Ireland.
In September 1994, the Company acquired CICS, a United Kingdom company that
provides software consultancy, custom software applications and hardware supply
and installation for the IBM AS/400 marketplace in Northern Ireland, primarily
in exchange for assuming the net liabilities of CICS and forgiving a $200,000
working capital loan made by CICS to the seller.
In August 1995, the Company acquired the assets (including hardware sales
and maintenance contracts) and certain liabilities of Advec, a computer
consulting company in Northern Ireland, for approximately $420,000.
In April 1996, the Company acquired Smoky Mountain, a North Carolina
corporation specializing in payment-processing systems, for 500,000 shares of
Common Stock.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary and relies primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions, including employee and third-party
nondisclosure agreements to protect its proprietary rights. The Company seeks to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company has
filed an application to register its trademark "UNIBOL" product logo in the
United States and has registered such mark in the United Kingdom. The Company
presently has no patents or patent applications pending. The Company believes
that the ownership of patents is not presently a significant factor in its
business and that its success does not depend on the ownership of patents, but
primarily on the innovative skills, technical competence and marketing abilities
of its personnel. The Company requires its personnel to enter into
confidentiality agreements.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information the Company regards as proprietary.
EMPLOYEES
As of August 31, 1996, the Company employed approximately 230 persons on the
basis of full-time equivalent employment, including 40 (10 in the United States
and 30 in the United Kingdom) in sales, marketing and related activities; 160
(15 in the United States and 145 in the United Kingdom) in software
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development and customer support operations; and 30 (10 in the United States and
20 in the United Kingdom) in general administration and finance.
None of the Company's employees is represented by a labor union. The Company
believes that its relationship with its employees is good.
FACILITIES
The Company leases its headquarters in Marietta, Georgia, which currently
totals approximately 10,745 square feet. The Company pays approximately $18,800
per month as its base lease. The lease expires in September 2000 and contains a
renewal option for one additional three-year term. The Company's headquarters
include sufficient space for its sales and marketing, administrative, finance
and management personnel. The Company leases approximately 30,000 square feet of
office and warehouse in Belfast, Northern Ireland, at a monthly cost of $15,000
under a 10-year lease expiring in 1999. The Company owns another facility in
Belfast under a 10-year mortgage loan with interest at a variable rate of LIBOR
plus 1.75% (8.63% per annum as of August 31, 1996) with an outstanding principal
balance as of August 31, 1996 of approximately $610,000. Annual payments on this
loan are approximately $69,000. The Company also leases office space in
California and Texas at an aggregate cost of $3,080 per month. During August,
1996 the Company purchased a facility for its payment-processing business in
North Carolina at a cost of $200,000. The Company believes that either its
current facilities are adequate to meet its needs for the foreseeable future or
adequate space is readily available in all geographical areas in which the
Company does business.
LEGAL PROCEEDINGS
In connection with its acquisition in 1993 of ICGL, the Company incurred a
claim by the seller related to pension overfunding. Based upon the advice of its
U.K. solicitor, the Company believes that it has adequate defenses to this claim
such that the expected outcome would not be material to the Company's financial
condition or results of operations. Due to uncertainties of the legal process,
however, no assurance can be made that the outcome of this case will be in
accordance with the Company's expectations.
The Company is not presently a party to any other material litigation and,
to management's knowledge, no material litigation is threatened against the
Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- ------------------------------------------
<S> <C> <C>
Stephen A. Hafer.......................... 47 Chairman of the Board, President and Chief
Executive Officer
J. Patrick Henry.......................... 44 President of Unibol, Inc. and Director
L. Allen Plunk............................ 26 Chief Financial Officer
Nelson J. Millar.......................... 59 Director
Thomas Zimmerer........................... 55 Director
</TABLE>
STEPHEN A. HAFER. Mr. Hafer currently serves as the Company's Chairman of
the Board, President and Chief Executive Officer, positions he has held since
January 1993. From July 1990 to January 1993, Mr. Hafer was the Company's Chief
Financial Officer. Mr. Hafer has been Chairman of the Board of Linder Financial
Corporation, an asset-based lending company, since November 1994 and President
since September 1995. He has served as Treasurer of Foutz & Associates, a public
relations company, since 1981 and as President and Chairman of Arccom
Technologies, Inc., an investment holding company, since 1990. Mr. Hafer holds a
B.S. in Accounting from Florida State University.
J. PATRICK HENRY. Mr. Henry has been President of Unibol, Inc., which
controls the Company's North and South American UNIBOL operations, since January
1992 and a Director of the Company since 1992. Mr. Henry first joined the
Company in March 1991 as Vice President of Sales with seven years of data
processing experience as a Marketing Manager at Burroughs Corporation. Mr. Henry
holds a B.S. in Industrial Management from Georgia Institute of Technology and
an M.B.A. in Finance from Georgia State University.
L. ALLEN PLUNK. Mr. Plunk was appointed as the Company's Chief Financial
Officer in August 1996. From June 1992 until joining the Company, Mr. Plunk was
with Coopers & Lybrand L.L.P., where he was most recently a manager and
specialized in accounting and Securities and Exchange Commission reporting
related to the software industry. Mr. Plunk is a Certified Public Accountant and
holds a B.B.A. in Accounting from Harding University.
NELSON J. MILLAR. Mr. Millar has been a Director of the Company since
November 1994. Mr. Millar has been the President and owner of Trafalgar
Management Consultants in Belfast, Northern Ireland since 1993. From September
1992 to May 1993, Mr. Millar acted as the Managing Director of the ICS Computing
Group Limited, the group of companies that the Company acquired in May 1993.
From 1976 to 1993, Mr. Millar was the Managing Director of CMI Limited, the
systems integration subsidiary acquired by the Company. Mr. Millar holds a
Higher National Diploma in Business Studies from Queen's University in Belfast,
Northern Ireland, and is a member of the British Computer Society and Fellow of
the Institute of Directors.
THOMAS ZIMMERER. Dr. Zimmerer has been a Director of the Company since May
1994. Dr. Zimmerer holds the Allen and Ruth Harris Chair of Excellence in
Business, and has served as Professor of Management at East Tennessee State
University since 1993. Dr. Zimmerer co-founded Clemson University's Emerging
Technology and Marketing Center and has co-authored eight books and over 90
articles and professional papers. In addition, he has served as a consultant to
over 75 United States and foreign corporations. Dr. Zimmerer holds a B.S.B.A. in
Management and Economics from the
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American University in Washington, D.C., an M.S. in Economics from Louisiana
State University and a Ph.D. in Management from the University of Arkansas.
OTHER KEY EMPLOYEES
In addition to the executive officers named above, the Company considers the
following individuals to be key employees:
SAMUEL JAMES FRAZER. Mr. Frazer has been Managing Director of CICS, a
subsidiary of the Company, since its incorporation in 1986.
GEORGE GRUBER. Mr. Gruber cofounded Smoky Mountain in October 1993 and
currently serves as its Vice President and Secretary. From 1992 to 1994, Mr.
Gruber was Director of Research and Development of ATM International, Inc., a
modem manufacturing company. From 1985 to 1992, he was Director of Research and
Development at the predecessor of SK Technologies Corporation, which is a
leading manufacturer of retail point-of-sale software.
IAN GRAHAM. Dr. Graham has been Managing Director of Unibol Limited, the
Company's European UNIBOL operations, including overseeing development of the
UNIBOL products since 1980. He holds a B.S.c. and a Ph.D. in Electronic
Engineering from Queens University in Belfast, Northern Ireland.
DAVID MAWHINNEY. Mr. Mawhinney has been Managing Director of ICS since May
1993, having joined ICS in 1980 as a sales executive. From 1984 to 1991, he was
ICS's Sales Manager and, from 1991 to 1993, its Sales Director. Mr. Mawhinney
holds an Honors Degree in Psychology from Queen's University in Belfast,
Northern Ireland.
KEN ROULSTON. Mr. Roulston has been Managing Director of Computer
Maintenance Ireland Limited since 1993, having joined CMI as a sales manager in
1986. Mr. Roulston is an advisor to the Board of the Interactive Systems Centre,
which is part of the University of Ulster, and is involved in the research of
emerging technologies.
B. MICHAEL WILSON. Mr. Wilson cofounded Smoky Mountain in October 1993, and
currently serves as its President. Mr. Wilson previously founded Lighthouse
Technologies, Inc. in March 1992, which he merged into Smoky Mountain in October
1993. Mr. Wilson was manager of Research and Development for SK Technologies
Corporation from 1989 to 1992.
COMPENSATION OF DIRECTORS
Nonemployee Directors are reimbursed for all out-of-pocket expenses incurred
in attending meetings of the Board of Directors and committees thereof.
Nonemployee Directors are also eligible to participate in the Director Plan.
Under the Director Plan, each nonemployee Director will receive an option to
purchase up to 10,000 shares of Common Stock upon his or her initial appointment
or election to the Board of Directors and an option to purchase 5,000 shares of
Common Stock on March 1 of each year, beginning in fiscal year 1997 and ending
in fiscal year 2006. All such options are immediately exercisable on their date
of grant. See "--Director Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established a Compensation Committee,
consisting of all members of the Board, and an Audit and Nominating Committee,
consisting of Mr. Millar, Dr. Zimmerer and Mr. Hafer.
The Compensation Committee establishes the Company's general compensation
policies, compensation plans and specific compensation levels for its executive
officers, and administers the LTI Plan.
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The Audit and Nominating Committee recommends the appointment of the
Company's independent auditors and reviews the Company's corporate accounting
and reporting practices, internal accounting controls, audit plans and results,
investment policies and financial results. The Audit and Nominating Committee
also makes recommendations to the Board of Directors concerning candidates for
election as directors.
DIRECTOR PLAN
GENERAL. The Director Plan was adopted by the Company's Board of Directors
in August 1996 and became effective upon adoption. The Director Plan provides
for the grant of nonqualified stock options to all nonemployee Directors of the
Company pursuant to an automatic, nondiscretionary grant mechanism. The Company
has reserved 150,000 shares of Common Stock for grants under the Director Plan.
SUMMARY. The Board of Directors believes that the Director Plan will
promote the Company's success and enhance its value by (i) strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable persons as nonemployee Directors of the Company and (ii) linking
the personal interests of nonemployee Directors to those of the Company's
shareholders. A committee may be appointed by the Board of Directors to
administer the Director Plan. Such committee would have the full power and
discretion to interpret and administer the Director Plan, but would not have the
authority to determine eligibility or to (i) determine the number, exercise
price or vesting period of options granted or (ii) take any action that would
result in grants under the Director Plan not being treated as "formula grants"
under the Exchange Act.
ELIGIBILITY. Only nonemployee Directors are eligible to participate in the
Director Plan. Two Directors are currently eligible to participate in the
Director Plan.
TERMS OF OPTIONS. The exercise price of options granted to nonemployee
Directors must be 100% of the fair market value of the Common Stock on the day
before the date of grant. The consideration for exercising options granted to
nonemployee Directors may consist only of cash, cash equivalents or previously
acquired shares of Common Stock having a fair market value at the time of
exercise equal to the total option price. Options granted have a 10-year term,
unless the option is earlier terminated, forfeited or surrendered pursuant to
the provisions of the Director Plan. Options granted may be exercised under the
Director Plan on or after the date of grant.
Each person who first becomes a nonemployee Director of the Company on or
after the effective date of the Director Plan will automatically be granted an
option to purchase up to 10,000 shares of Common Stock as of the date he or she
becomes a Director. Additionally, each individual who is a nonemployee Director
on March 1, 1997, and each anniversary date thereafter through and including
March 1, 2005, will automatically be granted an option to purchase 5,000 shares
of Common Stock.
If a Director ceases to serve as a Director because of death or disability,
the options previously granted to him or her under the Director Plan will remain
exercisable for one year after the Director's date of death or disability, or
until the options' scheduled expiration date, whichever is earlier. If a
Director ceases to be a Director for any reason other than death or disability,
the options previously granted to him or her under the Director Plan will remain
exercisable for 90 days after the Director's service on the Board terminates, or
until their scheduled expiration date, whichever is earlier.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Appropriate adjustments shall be
made in the option exercise price in the event any change is made in the
Company's capitalization, such as a merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the Company's corporate structure that results in
a greater or lesser number of shares of Common Stock outstanding, so that the
proportionate interests of the nonemployee Directors will be maintained as
before the occurrence of such event.
37
<PAGE>
AMENDMENT AND TERMINATION. The Committee may amend, terminate or modify the
Director Plan at any time. However, Board of Director approval is required for
any Director Plan amendment that would materially increase the benefits to
nonemployee Directors or the number of securities that may be issued, or
materially modify the eligibility requirements of the Director Plan. Further,
Director Plan provisions relating to the amount, price and timing of securities
to be rewarded under the Director Plan may not be amended more than once every
six months.
LONG-TERM INCENTIVE PLAN
In 1993, the Company adopted the LTI Plan to assist the Company in securing
and retaining key employees and consultants. The LTI Plan authorizes grants of
incentive stock options, nonqualified stock options, stock appreciation rights
("SARs"), restricted stock, performance shares and dividend equivalents to
officers and key employees of the Company and outside consultants to the
Company. There are 1,037,500 shares of Common Stock available for issuance under
the LTI Plan.
The LTI Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines the total number and types of
awards granted in any year, the number and selection of employees or consultants
to receive awards, the number and type of awards granted to each grantee and the
other terms and provisions of the awards, subject to the limitations set forth
in the LTI Plan.
STOCK OPTION GRANTS. The Compensation Committee has the authority to select
employees who are subject to the provisions of Section 16 of the Exchange Act
who are to receive options under the LTI Plan and to specify the terms and
conditions of each option so granted (incentive or nonqualified), the exercise
price (which must be at least equal to the fair market value of the Common Stock
on the date of grant with respect to incentive stock options), the vesting
provisions and the option term. The Company's Chief Executive Officer has
similar authority with respect to employees who are not subject to the
provisions of Section 16 of the Exchange Act. Unless otherwise provided in the
option grant, options granted under the LTI Plan expire ten years from the date
of grant or, if earlier, 30 days after the optionee's termination of service
with the Company, other than by reason of death or disability, 12 months after
the optionee's disability or 15 months after the optionee's death. As of
September 30, 1996, options to purchase 832,500 shares of Common Stock were
outstanding under the LTI Plan at a weighted average exercise price of $4.15 per
share, options to purchase 162,500 shares of Common Stock had been exercised at
a weighted average exercise price of $3.40 per share, and 205,000 shares of
Common Stock remained available for grant under the LTI Plan.
STOCK APPRECIATION RIGHTS. The Compensation Committee may grant SARs
separately or in tandem with a stock option award. A SAR is an incentive award
that permits the holder to receive (per share covered thereby) an amount equal
to the amount by which the fair market value of a share of Common Stock on the
date of exercise exceeds the fair market value of such share on the date the SAR
was granted. Under the LTI Plan, the Company may pay such amount in cash, in
Common Stock or in a combination of both. Unless otherwise provided by the
Compensation Committee at the time of grant, the provisions of the LTI Plan
relating to the termination of employment of a holder of a stock option will
apply equally, to the extent applicable, to the holder of a SAR. A SAR granted
in tandem with a related option will generally have the same terms and
provisions as the related option with respect to exercisability. A SAR granted
separately will have such terms as the Compensation Committee may determine,
subject to the provisions of the LTI Plan. As of September 30, 1996, no SARs had
been granted under the LTI Plan.
RESTRICTED STOCK AWARDS. The Compensation Committee is authorized under the
LTI Plan to issue shares of restricted Common Stock to eligible participants on
such terms and conditions and subject to such restrictions, if any, as the
Compensation Committee may determine. As of September 30, 1996, no restricted
stock awards had been granted under the LTI Plan.
38
<PAGE>
PERFORMANCE SHARES. The Compensation Committee is authorized under the LTI
Plan to grant performance shares to selected employees. Typically, each
performance share will be deemed to be the equivalent of one share of Common
Stock. As of September 30, 1996, no performance shares had been granted under
the LTI Plan.
DIVIDEND EQUIVALENTS. The Compensation Committee may also grant dividend
equivalents in conjunction with the grant of options or SARs. Dividend
equivalents entitle the holder to receive an additional amount of Common Stock
upon the exercise of the underlying option or SAR. As of September 30, 1996, no
dividend equivalents had been granted under the LTI Plan.
OTHER STOCK-BASED AWARDS. The Compensation Committee may also grant other
awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Common Stock, as deemed by the
Compensation Committee to be consistent with the purposes of the LTI Plan. As of
September 30, 1996, no such stock-based awards had been granted.
401(K) PLAN
In February 1996, the Board of Directors approved a regional prototype
defined contribution 401(k) profit-sharing plan and trust (the "401(k) Plan")
that is intended to qualify under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"). To be eligible to participate in the 401(k) Plan
(the "Plan Eligibility Requirements"), an employee must be 21 years of age and
have completed 1,000 hours of service that are credited on the anniversary date
of the employee's hiring. After satisfying the Plan Eligibility Requirements,
employees of the Company may enroll in the 401(k) Plan on any January 1 or July
1. A participating employee, by electing to defer a portion of his or her
compensation, may make pretax contributions to the 401(k) Plan, subject to
limitations under the Code, of a percentage (not to exceed 12%) of his or her
total compensation. The Company contributes 50% of every dollar the participant
contributes up to a total of 2% of the participant's gross compensation.
Participant contributions and earnings are 100% vested at all times, while
Company-matching contributions vest in 20% increments over a five-year period,
beginning one year after the Company's matching contribution. Participants may
alter their contribution amounts as of any January 1 or July 1. Employees are
responsible for directing the investments of all assets in their individual
account. Contributions may be withdrawn, with possible penalties for certain
early withdrawals, only after (i) the employee reaches age 59 1/2, (ii) the
employee's retirement with the Company, (iii) the employee's death or
disability, (iv) the termination of the employee's employment with the Company,
or (v) the termination of the 401(k) Plan. The Company pays all expenses
associated with the 401(k) Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company to its Chief Executive Officer for the three fiscal years
ended February 29, 1996. No executive officer of the Company, other than the
Chief Executive Officer, received total compensation in excess of $100,000 for
the fiscal year ended February 29, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
FISCAL ------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION ($)(1)
- ---------------------------------------------------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Stephen A. Hafer...................................................... 1996 $ 100,000 $ 0
President and Chief Executive Officer 1995 63,000 12,000
1994 10,500 12,000
</TABLE>
- ------------------------
(1) Mr. Hafer received $1,000 per month as a Director of the Company for fiscal
years 1994 and 1995.
39
<PAGE>
STOCK OPTION GRANTS
The Company did not grant any stock options to its executive officers in
fiscal year 1996.
STOCK OPTION VALUES
The following table sets forth, as of February 29, 1996, certain information
regarding unexercised options held by the Chief Executive Officer. As of that
date, no stock options had been exercised by the Chief Executive Officer.
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
Stephen A. Hafer.......................................... 37,500 112,500 $ 185,250 $ 555,750
</TABLE>
- ------------------------
(1) Represents the closing sale price of the Common Stock on February 29, 1996
of $8.25 per share, minus the per share exercise price of the options
multiplied by the number of shares issuable upon exercise of the options.
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of August 31, 1996, Stephen A. Hafer, Chairman, President and Chief
Executive Officer of the Company, pursuant to a promissory note to the Company
issued by him and two promissory notes issued to the Company by Arccom
Technologies, Inc., a company controlled by Mr. Hafer, owed the Company $378,130
in principal and interest on such promissory notes. The promissory notes bore
interest at 10% per annum and were scheduled to mature on March 1, 1997.
Unrelated to the Company or the above-mentioned indebtedness, J. Patrick Henry,
President of the Company's Unibol, Inc. subsidiary and a Director of the
Company, was obligated to make certain payments to Mr. Hafer. On August 31,
1996, in satisfaction of his unrelated obligations to Mr. Hafer, Mr. Henry
transferred 68,626 shares of Common Stock owned by Mr. Henry to the Company in
full satisfaction of the above-described indebtedness owed by Mr. Hafer to the
Company pursuant to such promissory notes.
In fiscal year 1995, the Company issued 6,600 shares of Common Stock to Dr.
Thomas Zimmerer, a Director of the Company, in exchange for independent
consulting services Dr. Zimmerer performed for the Company.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 31, 1996, certain information
regarding the beneficial ownership of the Common Stock by (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) each Director of the Company; (iii) the Company's Chief Executive Officer;
and (iv) all Directors and executive officers of the Company as a group. Unless
otherwise indicated, each person has sole voting and investment power with
respect to the shares shown. Pursuant to the rules of the Commission, in
calculating percentage ownership, each person is deemed to beneficially own
shares that such person is entitled to purchase pursuant to options exercisable
within 60 days of October 31, 1996, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
SHARES --------------------------------
BENEFICIALLY AFTER
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING OFFERING
---------------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
Stephen A. Hafer (1)........................................... 1,314,050 23.1% 18.3%
1800 Sandy Plains Parkway
Suite 305
Marietta, Georgia 30066
J. Patrick Henry (2)........................................... 226,374 4.0% 3.1%
Thomas Zimmerer................................................ 11,400 * *
Nelson J. Millar............................................... 3,200 * *
All Directors and executive officers as a group (5 persons)
(3).......................................................... 1,555,024 27.3% 21.6%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 289,000 shares held by Arccom Technologies, Inc., of which Mr.
Hafer is President and sole shareholder; 400,000 shares held by Linder
Financial Corporation, of which Mr. Hafer is Chairman of the Board and a
majority shareholder; 20,000 shares held by Foutz & Associates, Inc., a
company owned by Marta Hafer, Mr. Hafer's spouse; and 20,000 shares held by
Marta Hafer. Also includes 75,000 shares subject to options exercisable
within 60 days. Mr. Hafer has sole voting and investment power with respect
to these shares.
(2) Includes 25,000 shares subject to options exercisable within 60 days. In the
event that the Underwriters' over-allotment option is exercised in full, Mr.
Henry will sell 50,000 shares of Common Stock, after which he will
beneficially own 176,374 shares of Common Stock, representing 2.4% of the
Common Stock outstanding after this offering.
(3) Includes 100,000 shares subject to options exercisable within 60 days. In
the event that the Underwriters' over-allotment option is exercised in full,
Mr. Henry will sell 50,000 shares of Common Stock. In such event, all
directors and executive officers of the Company as a group will beneficially
own 1,505,024 shares of Common Stock, representing 20.7% of the Common Stock
outstanding after this offering.
In the event that the Underwriters' over-allotment option is exercised in
full, the following shareholders (the "Selling Shareholders") will sell the
number of shares indicated below:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL
PRIOR TO OWNERSHIP AFTER
OVER-ALLOTMENT NUMBER OF SHARES OVER-ALLOTMENT
NAME EXERCISE BEING OFFERED EXERCISE
------ ---------------------- ----------------- ---------------
<S> <C> <C> <C>
J. Patrick Henry...................................... 226,374 50,000 176,374
B. Michael Wilson..................................... 195,931 50,000 145,931
George Gruber......................................... 175,688 50,000 125,688
</TABLE>
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares,
consisting of 25,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $1.00 per share.
COMMON STOCK
As of October 31, 1996, 5,590,245 shares of Common Stock were issued and
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Holders of Common Stock are
entitled to such dividends, if any, as may be declared by the Board of Directors
at its discretion out of funds legally available for that purpose, and to
participate pro rata in any distribution of the Company's assets upon
liquidation after the payment of all debts and payment to holders of Preferred
Stock. Holders of Common Stock have no preemptive or conversion rights, nor are
there any redemption or sinking fund rights with respect to the Common Stock.
There is no cumulative voting with respect to the election of Directors, which
means that the holders of a majority of the shares can elect all the Directors
if they choose to do so. All outstanding shares of Common Stock are, and all
shares of Common Stock offered hereby will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company currently has no shares of Preferred Stock outstanding and has
no current plans to issue any shares of Preferred Stock. The Board of Directors
has the authority to issue Preferred Stock from time to time in one or more
series and, without further approval of the shareholders, to fix the dividend
rights and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each series of Preferred Stock. The
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the rights of the holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock.
REPRESENTATIVE'S WARRANT
The Company has agreed to sell to the Representative or its designees, for
nominal consideration, the Representative's Warrant to purchase up to 150,000
shares of Common Stock at an exercise price equal to 165% of the public offering
price. The Representative possesses certain demand and incidental registration
rights that may require the Company to register for public resale the shares of
Common Stock issuable under the Representative's Warrant. The Representative's
Warrant is exercisable for a period of four years, beginning one year from the
date of this Prospectus. See "Underwriting."
NOTE WARRANT
In connection with the sale of $2.0 million aggregate principal amount of
convertible promissory notes to certain offshore investors in December 1995, the
Company granted to the placement agent for such promissory notes the Note
Warrant to purchase 25,000 shares of Common Stock at $6.90 per share. The Note
Warrant expires on December 20, 2000. Holders of the Note Warrant possess
certain registration rights with regard to the shares issuable thereunder. See
"--Registration Rights."
43
<PAGE>
ADVISOR WARRANTS
On July 16, 1996, the Company entered into a financial consulting agreement
with B C Capital Corp., an affiliate of the investment banking firm of Barber &
Bronson. In connection therewith, the Company granted to B C Capital Corp. and
certain of its affiliates the Advisor Warrants to purchase an aggregate of
87,500 shares of Common Stock at $6.00 per share and warrants to purchase an
aggregate of 87,500 shares of Common Stock at $7.00 per share. The Advisor
Warrants expire on July 15, 2001. Holders of the Advisor Warrants possess
certain registration rights with regard to the shares issuable thereunder.
See "--Registration Rights."
REGISTRATION RIGHTS
In connection with the acquisition of the Company's payment-processing
technology, the Company issued 500,000 shares of Common Stock to the
shareholders of Smoky Mountain (the "Registrable Shares"). Such shareholders are
entitled to certain registration rights with regard to the Registrable Shares.
Pursuant to such registration rights, the Company registered 25% of the
registrable shares for public resale on Form S-3, under the Securities Act, in
September 1996 (Registration No. 333-11605). Subject to certain limitations, the
Company must also use its best efforts to register for resale on Form S-3, under
the Securities Act: (i) an additional 25% of the Registrable Shares by April 16,
1997, and (ii) the balance of the Registrable Shares by April 16, 1998. The
Company has agreed to maintain the effectiveness of all registration statements
covering the resale of the Registrable Shares, until such time as the
Registrable Shares registered thereunder are sold, otherwise transferred or
become freely tradable.
Holders of the Advisor Warrants are entitled to certain registration rights
with respect to the shares of Common Stock issuable under the Advisor Warrants.
At any time prior to July 15, 2003, holders of the Advisor Warrants may request
that the Company file a registration statement under the Securities Act for the
public resale of the Common Stock issuable upon exercise of the Advisor Warrants
and, upon such request and subject to certain conditions, the Company will be
required to prepare and file and use its best efforts to cause to become
effective any such registration. The holders of the Advisor Warrants have the
right to demand registration as described above on at least two separate
occasions.
The Representative possesses similar demand registration rights with respect
to the shares of Common Stock issuable pursuant to the Representative's Warrant.
Such rights are exercisable at any time prior to the expiration of the
Representative's Warrant on the fifth anniversary of this Prospectus. These
rights may be exercised on three separate occasions.
In the event the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of others, the
holders of the Advisor Warrants, the Note Warrant and the Representative's
Warrant are entitled to notice of such registration and to include the shares of
Common Stock underlying such warrants therein, subject to certain limitations,
including the right of the underwriters of any offering by the Company to limit
the number of shares included in such registration. The Company is generally
obligated to bear the expenses, other than underwriting discounts and sales
commissions, of the above-described registrations.
The Company provided notice to the holders of the Advisor Warrants and the
Note Warrant of the filing of the Registration Statement incorporating this
Prospectus and all such holders waived their rights to have any shares of Common
Stock included in this Registration Statement. See "Shares Eligible for Future
Sale."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without shareholder
approval, to issue up to 5,000,000 shares of Preferred Stock and to determine
the rights and preferences thereof. This authority, together with certain
provisions of the Company's Amended and Restated Bylaws (the "Bylaws"), may
discourage takeover attempts or tender offers that could result in shareholders
receiving a premium over
44
<PAGE>
the market price for the Common Stock or that shareholders may otherwise
consider to be in their best interests.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Company's Bylaws provide that the Company may indemnify any person who
was or is made a party or is threatened to be made a party to any threatened,
pending or completed action by reason of being a Director, officer, employee,
fiduciary or agent of the Company or serving at the request of the Company as a
Director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner reasonably
believed to be in the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Company has also entered into indemnification
agreements pursuant to which it has agreed, among other things, to indemnify its
Directors and officers against certain liabilities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Corporate Stock
Transfer, Denver, Colorado.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,090,245 shares of
Common Stock outstanding. Of these shares, 5,260,000 shares (including the
1,500,000 shares sold in this offering) will be freely tradable without
restriction under the Securities Act and an additional 1,830,000 shares may be
sold subject to the limitations of Rule 144 under the Securities Act. The
executive officers, directors, certain other shareholders of the Company and
their affiliates and certain warrant holders have agreed, pursuant to lock-up
agreements with the Representative, that they will not, without the prior
written consent of the Representative, sell or otherwise dispose of an aggregate
of approximately 1,631,000 outstanding shares of Common Stock and approximately
525,000 shares of Common Stock issuable upon exercise of outstanding options or
warrants beneficially owned by them for a period of 12 months from the date of
this Prospectus. Upon the expiration of these lock-up agreements, such shares of
Common Stock will become eligible for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. The Representative may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to any of such lock-up agreements.
In general, under Rule 144 under the Securities Act, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares (as
that term is defined in Rule 144) for at least two years, including any person
who may be deemed to be an affiliate of the Company, 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 then-outstanding shares of Common Stock (approximately
71,000 shares immediately after this offering) or the average weekly trading
volume in the Common Stock as reported by Nasdaq during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 also are subject to certain
other requirements relating to the volume, manner of sale, and other limitations
under Rule 144 and notice and availability of current public information about
the Company. Affiliates may publicly sell shares not constituting restricted
securities under Rule 144 in accordance with the foregoing volume limitations
and other restrictions, but without regard to the two-year holding period. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least three years, is
entitled to sell such shares under Rule 144 without regard to the limitations
described above.
In September 1996, the Company filed a registration statement on Form S-3
(Registration No. 333-11605) for the resale of up to 125,000 shares acquired by
the holders of such shares in connection with the Company's acquisition of Smoky
Mountain. As of October 31, 1996, Messrs. George Gruber and B. Michael Wilson
have sold a total of 91,131 shares under this registration statement. These
holders also have the right to require the Company to file registration
statements in April 1997 and April 1998 for the resale to the public of an
additional 125,000 shares and 250,000 shares of Common Stock, respectively.
Holders of 235,000 of these shares to be registered for public resale in April
1998 have entered into 12-month lock-up agreements covering such shares with the
Representative, agreeing to defer their registration rights until the earlier of
release of these shares from the lock-up agreements or the expiration of the
lock-up agreements. The Representative may in its sole discretion, and at any
time without notice, release all or a portion of the securities subject to any
of such lock-up agreements. The Company intends to maintain the effectiveness of
the current registration statement on Form S-3 regarding the resale of the
remaining unsold portion of the 125,000 shares. As a result, these shares may be
sold at any time into the public market. In addition, 100,000 of the 125,000
shares eligible for registration in April 1997 have been registered for sale in
this offering in the event the Underwriters' over-allotment option is exercised.
None of the 250,000 shares covered by the current registration statement on Form
S-3 or the registration statement to be filed in April 1997 are covered by
lock-up agreements. See "Principal Shareholders" and "Description of Capital
Stock--Registration Rights."
As of October 31, 1996, an aggregate of 200,000 shares of Common Stock were
reserved for issuance pursuant to the Note Warrant and the Advisor Warrants.
Holders of the Note Warrant and the Advisor Warrants each possess certain
registration rights with regard to the 25,000 shares and 175,000 shares,
46
<PAGE>
respectively, issuable thereunder. The holders of the Advisor Warrants have
entered into 12-month lock-up agreements with the Representative. See
"Description of Capital Stock--Registration Rights."
As of October 31, 1996, 832,500 shares of Common Stock were subject to
options outstanding under the LTI Plan, 237,502 of which were currently
exercisable at a weighted average exercise price of $3.31 per share. The
remainder of these options become exercisable at various points over the next
four years at a weighted average exercise price of $4.23 per share. An
additional 205,000 shares of Common Stock are reserved for future issuance under
the LTI Plan. The Company has filed a registration statement on Form S-8
(Registration No. 33-98564) to register the shares of Common Stock reserved for
issuance under the LTI Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act, subject in certain
events to the expiration of lock-up agreements and Rule 144.
As of October 31, 1996, 150,000 shares of Common Stock were reserved for
future issuance under the Director Plan. The Company intends to file a
Registration Statement on Form S-8 to register the shares of Common Stock
reserved for future issuance under the Director Plan, thus permitting the resale
of such shares in the public market without restriction under the Securities
Act, subject in certain events to the expiration of lock-up agreements and Rule
144.
Upon completion of this offering, the Representative will receive the
Representative's Warrant to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price. The Representative
possesses certain demand and incidental registration rights that may require the
Company to register for public resale the shares of Common Stock issuable under
the Representative's Warrant. The Representative's Warrant may not be exercised
until the first anniversary of the date of this Prospectus. See "Description of
Capital Stock--Representative's Warrant" and "Underwriting."
The Company maintains the effectiveness of a registration statement on Form
S-3 dated June 14, 1993, as amended (Registration No. 33-64312), for the public
resale of 75,000 shares of Common Stock held by Mr. Hafer, the Company's
President, Chief Executive Officer and Chairman of the Board. Of these shares,
16,000 shares have been sold by Mr. Hafer and 59,000 shares remain eligible for
sale. As a result, these shares may be sold at any time into the public market.
The Company makes no prediction as to the effect, if any, that future sales
of shares or the availability of shares for future sale will have on the
prevailing market price of the Common Stock. Sales of substantial amounts of the
Common Stock in the public market or the perception that such sales could occur
could have an adverse effect on the prevailing market price of the Common Stock.
47
<PAGE>
UNDERWRITING
The Underwriters named below, acting through the Representative, Cruttenden
Roth Incorporated, have agreed, severally, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions, and that
the Underwriters are committed to purchase all of such shares (other than those
covered by the over-allotment option described below), if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Cruttenden Roth Incorporated........................................................................
------------
Total........................................................................................... 1,500,000
------------
------------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price reflected on the cover page of this Prospectus and to selected securities
dealers at such price less a concession not exceeding $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not exceeding
$ per share to other dealers. After the public offering of the shares of
Common Stock, the public offering price and other offering terms may be changed.
The Company and the Selling Shareholders have granted the Underwriters an
over-allotment option, exercisable during the 45-day period after the date of
this Prospectus, to purchase up to 225,000 additional shares of Common Stock at
the public offering price set forth on the cover page of this Prospectus less
the underwriting discounts and commissions. The Underwriters may exercise the
over-allotment option only to cover over-allotments in the sale of Common Stock.
If the Underwriters exercise the over-allotment option, the Underwriters will
purchase additional shares in approximately the same proportion as the shares
set forth in the above table.
In connection with this offering, the Company has agreed to issue to the
Representative the Representative's Warrant to purchase up to 150,000 shares of
Common Stock. The Representative's Warrant is exercisable for a period of four
years, beginning one year from the date of this Prospectus. The Representative's
Warrant is exercisable at a price equal to 165% of the public offering price.
The Representative's Warrant is nontransferable for a period of one year
following the date of this Prospectus, except (i) to any of the Underwriters, or
to individuals who are either officers or partners of an Underwriter or (ii) by
will or the laws of descent and distribution. The holders of the
Representative's Warrant will have, in that capacity, no voting, dividend or
other shareholder rights. The Representative possesses certain demand and
incidental registration rights that may require the Company to register for
public resale the shares of Common Stock issuable under the Representative's
Warrant. The number of shares covered by the Representative's Warrant and the
exercise price are subject to adjustment in certain events to prevent dilution.
Any profit realized by the Representative on the sale of securities issuable on
exercise of the Representative's Warrant may be deemed to be additional
underwriting compensation.
The Representative will also receive at the closing of this offering a
nonaccountable expense allowance equal to 2% (less $20,000 advanced and other
expenses of the Representative paid by the Company) of the aggregate public
offering price of the shares of Common Stock sold in this offering.
The executive officers, Directors, certain other shareholders of the Company
and their affiliates and certain warrant holders who as of October 31, 1996 held
an aggregate of 1,690,000 shares of Common
48
<PAGE>
Stock, warrants to purchase 175,000 shares of Common Stock and options to
purchase an aggregate of 350,000 shares, of which 50,000 were then currently
exercisable, have agreed not to sell any of such shares of Common Stock owned by
such persons (except for 59,000 shares of Common Stock held by Mr. Hafer which
are not subject to a lock-up agreement), pursuant to Rule 144 under the
Securities Act or otherwise, without the prior written consent of the
Representative, for a period of 12 months from the date of this Prospectus. The
Representative has the discretion to reduce or eliminate such lock-up period.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In addition, the Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute in certain events to any liabilities
incurred by the Underwriters in connection with the sale of shares of Common
Stock.
In connection with this offering, certain Underwriters and selling group
members, if any, or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business-day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof. Copies of the Underwriting Agreement are on file
at the offices of the Representative, the Company and the Commission. See
"Additional Information."
LEGAL MATTERS
The law firm of Snell & Wilmer L.L.P., Salt Lake City, Utah, has acted as
counsel to the Company in connection with this offering and will render an
opinion as to the legality of the shares of Common Stock being offered hereby.
Perkins Coie, Seattle, Washington, has acted as counsel to the Underwriters in
connection with certain legal matters relating to this offering.
EXPERTS
The supplemental consolidated financial statements of UniComp, Inc. and its
subsidiaries included in this Registration Statement have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
dated August 23, 1996, accompanying such financial statements, and are included
herein in reliance upon the report of such firm, which report is given upon
their authority as experts in accounting and auditing.
49
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Supplemental Consolidated Financial Statements:
Supplemental Consolidated Balance Sheets as of February 29, 1996, February 28, 1995 and August 31,
1996................................................................................................... F-3
Supplemental Consolidated Statements of Operations for the years ended February 29, 1996 and February 28,
1995 and 1994 and for the six months ended August 31, 1996 and 1995.................................... F-5
Supplemental Consolidated Statements of Changes in Stockholders' Equity for the years ended February 29,
1996 and February 28, 1995 and 1994 and for the six months ended August 31, 1996 and 1995.............. F-6
Supplemental Consolidated Statements of Cash Flows for the years ended February 29, 1996 and February 28,
1995 and 1994 and for the six months ended August 31, 1996 and 1995.................................... F-7
Notes to Supplemental Consolidated Financial Statements.................................................. F-8
</TABLE>
F-1
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of UniComp, Inc. and Subsidiaries:
We have audited the supplemental consolidated balance sheets of UniComp,
Inc. and subsidiaries as of February 29, 1996 and February 28, 1995, the related
supplemental consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
February 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We 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.
The supplemental financial statements give retroactive effect to the merger
of UniComp, Inc. and Smoky Mountain Technologies, Inc. on April 16, 1996, which
has been accounted for as a pooling of interests as described in notes 1 and 3
to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of UniComp, Inc. and
subsidiaries after annual financial statements covering the date of consummation
of the business combination are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated balance sheets of UniComp, Inc. and
subsidiaries at February 29, 1996 and February 28, 1995, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended February 29, 1996 in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
August 23, 1996
F-2
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 29, -------------
1995 1996
------------ ------------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 85,845 $ 1,261,153 $ 225,982
Accounts and other receivables:
Trade, net of allowance of $127,006, $137,878 and $146,052,
respectively................................................... 3,575,491 4,721,909 4,669,837
Receivables from related party................................... 277,646 404,478 --
Other receivables................................................ 259,528 205,636 198,025
Inventories........................................................ 531,888 715,944 854,893
Prepaid expenses................................................... 456,875 852,050 724,894
Deferred stock offering costs...................................... -- -- 525,153
Other.............................................................. 9,391 171,396 160,701
------------ ------------- -------------
Total current assets........................................... 5,196,664 8,332,566 7,359,485
------------ ------------- -------------
Property and equipment, net.......................................... 1,618,603 2,401,969 2,454,451
------------ ------------- -------------
Other assets:
Acquired and developed software, net of accumulated amortization of
$689,419, $1,371,355 and $2,056,454, respectively................ 2,789,332 4,802,724 5,155,025
Goodwill, net of accumulated amortization of $0, $57,345 and
$100,191, respectively........................................... 332,829 694,489 673,959
Deferred tax asset................................................. 540,000 348,638 209,157
Valuation allowance................................................ (540,000) -- --
Other.............................................................. 20,683 91,667 208,219
------------ ------------- -------------
Total other assets............................................. 3,142,844 5,937,518 6,246,360
------------ ------------- -------------
Total assets................................................... $ 9,958,111 $ 16,672,053 $ 16,060,296
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-3
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 29, -------------
1995 1996
------------ ------------- (UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................................... $ 1,308,059 $ 2,128,526 $ 1,345,459
Accrued expenses................................................... 1,016,267 1,195,896 852,921
Deferred revenues.................................................. 2,298,826 1,662,864 1,352,477
Line of credit..................................................... 661,750 1,078,933 1,826,225
Income taxes payable............................................... 198,500 148,015 98,692
Other accrued taxes................................................ 12,525 393,915 284,035
Current portion of notes payable................................... 266,732 375,105 279,242
------------ ------------- -------------
Total current liabilities...................................... 5,762,659 6,983,254 6,039,051
------------ ------------- -------------
Long-term liabilities:
Notes payable...................................................... 727,079 1,072,926 1,011,045
Convertible notes.................................................. -- 1,980,000 --
Deferred income taxes.............................................. 116,616 519,109 592,191
------------ ------------- -------------
Total long-term liabilities.................................... 843,695 3,572,035 1,603,236
------------ ------------- -------------
Total liabilities.............................................. 6,606,354 10,555,289 7,642,287
------------ ------------- -------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock: $.01 par value, authorized 25,000,000, issued and
outstanding 5,001,234, 5,163,432 and 5,590,245, respectively..... 50,012 51,634 55,902
Additional contributed capital..................................... 5,527,454 6,229,829 8,177,213
Retained earnings (deficit)........................................ (1,583,874) 475,636 1,217,981
------------ ------------- -------------
3,993,592 6,757,099 9,451,096
Less treasury stock................................................ (493,654) (460,554) (849,933)
Cumulative translation adjustment.................................. (148,181) (179,781) (183,154)
------------ ------------- -------------
Total stockholders' equity..................................... 3,351,757 6,116,764 8,418,009
------------ ------------- -------------
Total liabilities and stockholders' equity..................... $ 9,958,111 $ 16,672,053 $ 16,060,296
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-4
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------- SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
1994 1995 1996 ----------------------------
------------- ------------- ------------- 1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and software............. $ 6,031,127 $ 8,911,948 $ 10,881,491 $ 5,106,355 $ 4,845,914
Maintenance and services........... 5,671,837 8,944,368 11,409,528 4,956,469 6,773,603
Sound systems...................... 503,392 468,268 -- -- --
------------- ------------- ------------- ------------- -------------
Total revenues................... 12,206,356 18,324,584 22,291,019 10,062,824 11,619,517
------------- ------------- ------------- ------------- -------------
Cost of sales:
Equipment and software............. 4,558,261 5,078,321 6,151,381 2,815,442 3,565,147
Maintenance and services........... 561,796 1,059,353 1,826,341 552,019 1,177,008
Sound systems...................... 286,612 304,570 -- -- --
------------- ------------- ------------- ------------- -------------
Total cost of sales.............. 5,406,669 6,442,244 7,977,722 3,367,461 4,742,155
------------- ------------- ------------- ------------- -------------
Gross profit......................... 6,799,687 11,882,340 14,313,297 6,695,363 6,877,362
------------- ------------- ------------- ------------- -------------
Selling, general and administra-
tive............................... 4,598,053 9,014,043 11,048,431 5,079,787 5,321,000
Depreciation expense................. 597,424 651,551 709,858 338,901 350,857
------------- ------------- ------------- ------------- -------------
Total operating expenses......... 5,195,477 9,665,594 11,758,289 5,418,688 5,671,857
------------- ------------- ------------- ------------- -------------
Operating income..................... 1,604,210 2,216,746 2,555,008 1,276,675 1,205,505
Other income (expense):
Other, net......................... 35,337 123,707 (41,701) 2,492 (12,938)
Interest........................... (174,107) (224,034) (251,182) (100,203) (150,045)
------------- ------------- ------------- ------------- -------------
Other income (expense), net...... (138,770) (100,327) (292,883) (97,711) (162,983)
Income before provision for income
taxes.............................. 1,465,440 2,116,419 2,262,125 1,178,964 1,042,522
------------- ------------- ------------- ------------- -------------
Provision for income taxes........... (255,291) (494,741) (202,615) 130,059 300,177
------------- ------------- ------------- ------------- -------------
Net income........................... $ 1,210,149 $ 1,621,678 $ 2,059,510 $ 1,048,905 $ 742,345
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share................. $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of shares.... 4,343,501 4,710,228 5,188,092 5,186,240 5,482,705
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------- ---------------------
NUMBER OF NUMBER OF ADDITIONAL RETAINED TOTAL
SHARES SHARES CONTRIBUTED EARNINGS STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL (DEFICIT) EQUITY
---------- -------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 28, 1993............... 3,560,767 $35,608 10,000 $(190,000) $4,697,734 $(4,337,285) $ (35,398)
Stock issued.......................... 680,667 6,806 925,993 932,799
Treasury stock purchased.............. (350,000)
Conversion of preferred stock......... 100,000 1,000 (10,000) (10,000) 9,000 0
Subscription receivable............... 200,000 (200,000) 0
Shares issued to effect pooling of
interest with Smoky Mountain........ 500,000 5,000 (5,000) 0
Effect of shares issued by Smoky
Mountain............................ 33,186 33,186
Net income............................ 1,210,149 1,210,149
Distribution by Smoky Mountain........ (38,125) (38,125)
Change in cumulative translation
adjustment.......................... 98,147
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 28, 1994............... 4,841,434 48,414 -- -- 5,460,913 (3,165,261) 1,850,758
Stock issued.......................... 159,800 1,598 98,541 100,139
Treasury stock purchased.............. (143,654)
Subscription receivable............... (82,000) (82,000)
Effect of shares issued by Smoky
Mountain............................ 50,000 50,000
Net income............................ 1,621,678 1,621,678
Distribution by Smoky Mountain........ (40,291) (40,291)
Change in cumulative translation
adjustment.......................... (4,873)
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 28, 1995............... 5,001,234 50,012 -- -- 5,527,454 (1,583,874) 3,351,757
Stock issued.......................... 162,198 1,622 603,375 604,997
Change in treasury stock.............. 33,100
Effect of shares issued by Smoky
Mountain............................ 99,000 99,000
Net income............................ 2,059,510 2,059,510
Change in cumulative translation
adjustment.......................... (31,600)
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 29, 1996............... 5,163,432 51,634 -- -- 6,229,829 475,636 6,116,764
Conversion of debt.................... 426,813 4,268 1,947,384 1,951,652
Treasury stock purchased.............. (389,379)
Net income............................ 742,345 742,345
Change in cumulative translation
adjustment.......................... (3,373)
---------- -------- --------- --------- ----------- ----------- -------------
Balance August 31, 1996 (unaudited)..... 5,590,245 $55,902 -- $ -- $8,177,213 $ 1,217,981 $8,418,009
---------- -------- --------- --------- ----------- ----------- -------------
---------- -------- --------- --------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------- SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
1994 1995 1996 ------------------------
------------ ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities:
Net income.............................. $1,210,149 $1,621,678 $2,059,510 $ 1,048,905 $ 742,345
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization......... 981,730 956,664 1,449,240 824,326 1,078,803
Loss on disposition of equipment...... -- -- 29,395 -- --
Allowance for doubtful accounts....... 7,000 60,812 10,872 14,920 8,174
Deferred income taxes................. 338,624 7,825 60,855 150,000 212,563
Changes in assets and liabilities:
Accounts and other receivables...... (88,258) (591,999) (1,241,638) (586,083) 66,608
Inventories......................... 273,355 (39,123) (184,056) (304,098) (138,949)
Prepaid expenses.................... 294,702 (212,152) (295,175) (5,288) 127,156
Accounts payable.................... (1,576,698) 19,459 820,467 195,498 (783,067)
Accrued expenses.................... -- 318,719 313,847 (161,338) (286,959)
Other accrued taxes................. -- 12,525 381,390 66,424 (109,880)
Deferred revenues................... 1,285,341 738,925 (635,962) (747,976) (310,387)
Income taxes payable................ -- 198,500 (50,485) 18,281 (49,323)
Pension liability................... 241,178 (265,000) -- -- --
Other assets........................ (5,200) (24,072) (232,989) 13,750 (212,537)
------------ ------------ ------------ ----------- -----------
Net cash provided by operating
activities...................... 2,961,923 2,802,761 2,485,271 527,321 344,547
------------ ------------ ------------ ----------- -----------
Cash flow from investing activities:
Capital expenditures.................... (549,602) (924,800) (1,574,535) (1,119,818) (403,340)
Proceeds from disposal of property and
equipment............................. -- -- 51,916 -- --
Acquired and developed software......... (379,713) (1,067,783) (2,695,328) (740,322) (1,037,400)
Deferred acquisition costs.............. 275,864 -- -- -- --
Business disposition.................... -- (154,208) -- -- --
Business acquisition.................... (2,208,198) (78,558) (422,083) -- --
------------ ------------ ------------ ----------- -----------
Net cash used by investing
activities...................... (2,861,649) (2,225,349) (4,640,030) (1,860,140) (1,440,740)
------------ ------------ ------------ ----------- -----------
Cash flow from financing activities:
Proceeds from issuance of convertible
notes, net............................ -- -- 1,900,000 -- --
Payments on notes payable............... (1,245,017) (463,702) (228,291) (91,465) (157,744)
Proceeds from borrowing................. -- 159,430 1,099,693 1,362,022 747,292
Issuances of common stock, net.......... 943,686 68,139 717,097 152,865 --
Deferred stock offering costs........... -- -- -- -- (525,153)
Smoky Mountain distributions............ (38,125) (40,291) --
Receivables from related party.......... 345,394 (214,850) (126,832) 82,000 --
Repurchase of treasury stock............ (350,000) (143,654) -- -- --
------------ ------------ ------------ ----------- -----------
Net cash (used) provided by
financing activities............ (344,062) (634,928) 3,361,667 1,505,422 64,395
------------ ------------ ------------ ----------- -----------
Net (decrease) increase in cash........... (243,788) (57,516) 1,206,908 172,603 (1,031,798)
Effect of exchange rate changes on cash... 98,147 (4,873) (31,600) 2,439 (3,373)
Cash and cash equivalents at beginning of
period................................... 293,875 148,234 85,845 85,845 1,261,153
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period................................... $ 148,234 $ 85,845 $1,261,153 $ 260,887 $ 225,982
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-7
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The supplemental consolidated financial statements have been prepared to
give retroactive effect of the acquisition of Smoky Mountain Technologies, Inc.
("Smoky Mountain") as described in Note 3. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements reflect the
consolidated financial position of UniComp, Inc. and its Subsidiaries ("the
Company") prior to the date of consummation; however, they will become the
historical consolidated financial statements of the Company after annual
financial statements covering the date of consummation of the business
combination are issued. The preparation of financial statements requires
management to make estimates and assumptions underlying the reported amounts and
disclosures. Amounts affected by these estimates include, but are not limited
to, the estimated useful lives, related amortization expense and carrying values
of the company's intangible assets and capitalized software development costs.
Changes in the status of certain matters or facts or circumstances underlying
these estimates could result in material changes to these estimates, and actual
results could differ from these estimates.
The financial statements include the accounts of UniComp, Inc. and its
subsidiaries all of which are wholly owned. All material intercompany balances
and transactions have been eliminated in consolidation. Certain amounts
previously presented in the consolidated financial statements have been
reclassified to conform to current presentation.
REVENUE RECOGNITION
The Company's revenues are generated primarily in the United Kingdom and the
United States from licensing software products, the sale of computer equipment,
and providing maintenance and support.
Revenues from the sale of hardware, the Company's computer software products
and the resale of third-party software are recognized upon delivery, customer
acceptance, fulfillment of significant vendor obligations and determination that
collectibility is probable. Revenue related to sales which impose significant
vendor obligations on the Company are deferred until the obligations are
satisfied. Revenues from consulting services are recognized as services are
provided. Contract revenues from post-contract customer support are deferred and
recognized over the life of the contract.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
All assets and liabilities in the balance sheet of a foreign subsidiary
whose functional currency is other than the United States dollar are translated
at the year-end exchange rate. Income statement items are translated at the
average currency exchange rate for the period. Translation gains and losses are
accumulated as a separate component of stockholders' equity and are not included
in determining net income. Transaction gains and losses are included in the
results of operations in the period which they occur and are not significant in
any period presented.
F-8
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all cash balances and highly liquid
investments with an original maturity of three months or less. At times, cash in
bank deposits may exceed the federally insured limits. The Company has not
experienced and does not anticipate any losses from such accounts.
INVENTORIES
Inventories consist of equipment, services in process, computer hardware,
and software available for resale. Inventories are stated at the lower of cost
or market, cost being determined on a first-in first-out ("FIFO") basis.
Components of inventories are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------ AUGUST 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Services in process.................................. $ 110,085 $ 7,222 $ 107,286
Computer hardware and software....................... 421,803 708,722 747,607
------------ ------------ -----------
Total.............................................. $ 531,888 $ 715,944 $ 854,893
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost less accumulated depreciation. Depreciation is
provided on the straight-line method over the estimated useful lives of the
related assets, except for leasehold improvements and capital leases, which are
amortized over the life of the related lease. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized in the results of
operations.
ACQUIRED AND DEVELOPED SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" ("FAS 86"), costs incurred to develop the Company's software products
which are to be licensed to its customers and costs of purchased software are
capitalized and amortized at the greater of the amount computed using the ratio
of current product revenues as compared to the current and estimated future
revenues of that product, or on a straight-line basis over the estimated life of
the products, generally three to four years. All research and development costs
incurred prior to technological feasibility or subsequent to general
availability have been expensed in the period which they were incurred and
totaled approximately $610,000, $235,000 and $42,000 in fiscal years 1996, 1995,
and 1994, respectively.
Costs which are capitalized include direct and indirect costs associated
with payroll, benefits and computer usage, among others. The Company capitalized
software development costs of $1,037,400 in the six months ended August 31, 1996
and $2,695,328 (including $1,000,000 of purchased software), $1,067,783, and
$379,713 during fiscal years 1996, 1995, and 1994, respectively, with
amortization of $685,099 in the six months ended August 31, 1996 and $681,936,
$305,113, and $384,306 in fiscal years 1996, 1995 and 1994. Capitalized software
costs are net of amounts reimbursed by United Kingdom government grants totaling
F-9
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
approximately $242,000 in the six months ended August 31, 1996 and $389,000,
$369,000, and $285,000 in fiscal years 1996, 1995, and 1994, respectively.
The amount by which unamortized software costs exceeds the net realizable
value, if any, is recognized as expense in the period it is determined.
GOODWILL
Goodwill is recorded upon acquisition and amortized on a straight-line basis
over its estimated period of future benefit, generally ten years. The Company
evaluates the recoverability of goodwill based upon a comparison of estimated
undiscounted future cash flows from the related operations as compared with the
carrying value of the respective assets. The amount by which unamortized
goodwill exceeds future estimated cash flows, if any, is recognized as expense
in the period it is determined.
HEDGING
The Company does not use hedging strategies to reduce the effects of
unfavorable price movements on profitability as a result of fluctuations in
foreign exchange rates.
INCOME TAXES
Income taxes are provided on taxable income at the statutory rates
applicable to such income in the United States and the United Kingdom under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). Under FAS 109, the deferred tax liabilities and assets are
determined based on temporary differences between the bases of certain assets
and liabilities for income tax and financial reporting purposes. These
differences are primarily attributable to differences in the recognition of
depreciation and amortization of property and equipment, intangible assets, and
capitalized software development costs. As of February 29, 1996, deferred income
taxes of approximately $353,000 have not been provided on the cumulative
undistributed earnings of foreign subsidiaries in the amount of $2,344,290 since
such amounts are considered by management to be permanently reinvested.
NET INCOME PER SHARE
Net income per common and common equivalent share is based upon the weighted
average of common and common equivalent shares outstanding during the year.
Primary and fully diluted net income per share are the same. The weighted
average number of shares outstanding for the six months ended August 31, 1996
includes 294,055 common equivalent shares assuming the conversion of options and
warrants which are dilutive. The weighted average number of shares outstanding
for fiscal year 1996 includes 294,656 common equivalent shares assuming the
conversion of options and warrants which are dilutive. The weighted average
number of shares outstanding for fiscal years 1995 and 1994 include no common
equivalent shares since dilutive securities do not reduce net income per share
by at least 3%.
F-10
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NEW ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants has issued Statement
of Position 93-7 ("SOP 93-7"), "Reporting on Advertising Costs," which is
effective for fiscal years beginning after June 15, 1994. SOP 93-7 generally
requires that advertising costs, with certain exceptions, be expensed as
incurred. As the Company has historically expensed advertising costs as
incurred, the effects of the Company's adoption of SOP 93-7 during fiscal year
1996 did not have a material effect on the Company's consolidated financial
statements. Advertising expenses for fiscal years 1996, 1995 and 1994 were
approximately $200,000, $180,000 and $150,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). FAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the expected future
cash flows of those assets are less than the assets' carrying amount. FAS 121
also addresses the accounting for long-lived assets that are expected to be sold
or discarded. The Company will adopt FAS 121 in fiscal year 1997. The effect of
adoption is not expected to be material to the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 requires that companies with stock-based
compensation plans either recognize compensation expense based on new fair value
accounting methods or continue to apply the provisions of Accounting Principles
Board Opinion No. 25 and disclose pro forma net income and earnings per share
assuming the fair value method had been applied. The Company will adopt the
disclosure method in fiscal year 1997 and the adoption is not expected to have a
material effect on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT:
The components of property and equipment at February 28, 1995, February 29,
1996, and August 31, 1996 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE FEBRUARY 28, FEBRUARY 29,
(YEARS) 1995 1996
------------- ------------- ------------- AUGUST 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings........................... 20 $ 161,501 $ 964,054 $ 1,191,279
Land................................ N/A 57,066 58,737 58,737
Leasehold improvements.............. 5-10 434,714 421,071 444,505
Computer equipment.................. 2-5 2,207,772 2,032,816 2,119,371
Computer software................... 3 210,766 148,237 123,725
Furniture and fixtures.............. 5 752,806 761,982 619,977
Vehicles............................ 2-4 188,082 139,207 59,090
------------- ------------- -------------
4,012,707 4,526,104 4,616,684
Less accumulated depreciation....... (2,394,104) (2,124,135) (2,162,233)
------------- ------------- -------------
$ 1,618,603 $ 2,401,969 $ 2,454,451
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-11
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
3. BUSINESS COMBINATIONS AND DISPOSAL:
ACQUISITION OF SMOKY MOUNTAIN TECHNOLOGIES, INC.
On April 16, 1996, the Company completed its acquisition of Smoky Mountain,
a software and hardware developer for the financial transaction industry. The
Company issued 500,000 shares of its common stock for all of the outstanding
common stock of Smoky Mountain. This transaction has been accounted for as a
pooling of interests; therefore, these financial statements have been restated
to reflect this merger.
Smoky Mountain prepared its financial statements on a December 31 year end.
Smoky Mountain's fiscal year end has been changed to conform with the Company's
year end and its financial data is included in the Supplemental Consolidated
Financial Statements for all periods presented as of the Company's year end.
The stockholders' equity accounts have been adjusted to reflect the 149
shares of Smoky Mountain preferred stock which were converted into 6,037 shares
of Smoky Mountain common stock. Adjustments have also been made to reflect the
conversion of all Smoky Mountain common stock into 500,000 shares of the
Company's common stock. No other adjustments were required to reflect the
consolidation of Smoky Mountain into the Company since the accounting policies
of Smoky Mountain prior to the transaction were substantially the same as the
Company's and prior to the date of the acquisition there were no transactions
between the companies.
Smoky Mountain's revenues and net income included in the Company's
consolidated statements of operation for the three years ended February 29, 1996
and February 28, 1995 and 1994 and for the six months ended August 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1994
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 12,157,833 $48,523 $ 12,206,356
Net income......................................... 1,186,124 24,025 1,210,149
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1995
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 17,798,566 $ 526,018 $ 18,324,584
Net income (loss).................................. 1,637,715 (16,037) 1,621,678
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 29, 1996
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 21,305,287 $ 985,732 $ 22,291,019
Net income (loss).................................. 2,061,938 (2,428) 2,059,510
<CAPTION>
FOR THE SIX MONTHS ENDED AUGUST 31, 1995
----------------------------------------
(UNAUDITED)
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $9,744,703 $ 318,122 $ 10,062,825
Net income (loss).................................. 1,108,729 (59,824) 1,048,905
</TABLE>
F-12
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
3. BUSINESS COMBINATIONS AND DISPOSAL: (CONTINUED)
ADVEC LIMITED
On August 1, 1995, the Company acquired certain assets and liabilities of
Advec Limited in the United Kingdom under an asset purchase agreement for
approximately $418,000. The acquisition has been accounted for as a purchase and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed based on the estimated fair values at the date of
acquisition. The results of operations have been included from August 1, 1995.
The excess consideration above the fair value of net assets acquired of
approximately $395,000 has been recorded as goodwill. Supplemental pro forma
information for the results of operations is not presented since the amounts are
not material to the Company's consolidated financial position and results of
operations.
DOMINION SOUND SYSTEMS, PLC.
On November 30, 1994, the Company sold the capital stock of Dominion Sound
Systems, Plc. ("Dominion") in exchange for the assumption of the net liabilities
of Dominion in the amount of $154,208. This amount was recognized in 1995 and is
included in other income.
CI COMPUTER SOFTWARE LIMITED
On September 18, 1994, the Company acquired the capital stock of CI Computer
Software Limited, a United Kingdom company, in exchange for $20, assumption of
net liabilities and forgiveness of a working capital advance in the amount of
approximately $200,000. The business combination was accounted for as a purchase
and accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair values at the date of
acquisition. The results of operations are included from September 18, 1994, the
date of acquisition. The excess consideration above the fair value of net assets
acquired of approximately $333,000 has been recorded as goodwill.
ICS COMPUTING GROUP LIMITED
On May 21, 1993, the Company acquired Questgold Technology Limited
("Questgold"), a United Kingdom company, for approximately $4.1 million. The
business combination was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
results of operations are included from May 21, 1993, the date of acquisition.
On June 15, 1993, Questgold changed its name to ICS Computing Group Limited.
F-13
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
4. INCOME TAXES:
The significant components of income tax expense (benefit) are as follows
(all amounts are in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------- ------------- --------------- SIX MONTHS
ENDED AUGUST
31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current provision:
Federal.............................. $ -- $ -- $ 14 $ --
State................................ -- 11 43 21
Foreign.............................. 12 188 80 30
Deferred provision:
Federal.............................. -- (14) (307) 129
State................................ -- -- -- --
Foreign.............................. 243 310 373 120
----- ----- ----- -----
$ 255 $ 495 $ 203 $ 300
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes is
as follows (all amounts are in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------- ------------- ------------- SIX MONTHS
ENDED AUGUST
31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax at statutory rate........... $ 490 $ 716 $ 770 $ 354
State income taxes (net of federal tax
deduction)............................ -- 7 29 14
Impact of foreign taxes................ (61) (126) (52) (68)
Utilization of federal net operating
losses................................ (188) (112) (238) --
Reduction of deferred tax asset
valuation allowance................... -- -- (302) --
Other.................................. 14 10 (4) --
----- ----- ----- -----
Tax expense........................ $ 255 $ 495 $ 203 $ 300
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The deferred tax asset was offset by a 100% valuation allowance for 1995 and
1994. Based upon the performance of the United States subsidiaries, the Company
determined that a valuation allowance related to the deferred tax asset in the
United States was not required as of February 29, 1996. As a result, the Company
reduced the valuation allowance by $238,000 for current year utilization of the
federal net operating loss and recorded a credit of $302,000 to tax expense to
reduce the valuation allowance to zero. The deferred tax liability recorded is
principally due to temporary differences as a result of the timing of
F-14
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
4. INCOME TAXES: (CONTINUED)
recognition of the capitalization and amortization of internally developed
software costs and the amortization of goodwill. The components of the deferred
tax asset are as follows (all amounts are in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
--------------- --------------- --------------- AUGUST 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cumulative U.S. NOL's at statutory
rate................................. $ 736 $ 540 $ 302 $ 209
Cumulative U.K. NOL's at statutory
rate................................. -- -- 40 --
Alternative minimum tax credit
carryforward......................... 1 -- 7 --
----- ----- ----- -----
Gross deferred tax asset.......... $ 737 $ 540 $ 349 $ 209
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
As of February 29, 1996, the Company has net operating loss carryforwards,
subject to certain limitations under the provisions of Internal Revenue Code
Section 382, that expire February 28, 2003 through 2007 of $54,653, $320,000,
$44,371, $264,891, and $289,327, respectively.
5. RELATED PARTY TRANSACTIONS:
Accounts and other receivables from related parties at February 29, 1996 and
February 28, 1995 are comprised of $404,478 and $277,646, respectively, due from
affiliated companies or officers which have borrowed funds from the Company
principally in the form of unsecured 10% notes which mature within one year from
February 29, 1996.
On August 31, 1996, the Company's Board of Directors approved the exchange
of 68,626 shares of the Company's common stock in lieu of payment of $378,130 of
indebtedness owed to the Company by certain officers and affiliated companies.
These shares were held in treasury at August 31, 1996.
6. LEASES:
The Company leases office space and automobiles under non-cancelable
operating leases. Rental expense for the years ended 1996, 1995 and 1994 were
$1,033,006, $869,586 and $793,026, respectively. In addition, the Company leases
certain computers under capital leases.
Future minimum lease payments for operating leases and capital leases at
February 29, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------ ---------
<S> <C> <C>
1997................................................................. $ 729,092 $ 55,197
1998................................................................. 604,839 16,150
1999................................................................. 379,156 --
2000................................................................. 259,114 --
2001................................................................. 28,182 --
Thereafter........................................................... 28,182 --
------------ ---------
$ 2,028,565 $ 71,347
------------ ---------
------------ ---------
</TABLE>
F-15
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
7. LINES OF CREDIT:
The Company maintains a line of credit in the United Kingdom which is
secured by certain accounts receivables. The line of credit is utilized for
short-term borrowing for general corporate use. Interest is charged based on the
average outstanding balance at a variable rate which was 7.5% as of August 31,
1996. The outstanding balance on the line of credit was $1,386,225, $1,078,933
and $661,750 at August 31, 1996, February 29, 1996 and February 28, 1995,
respectively. The Company also maintains two lines of credit in the United
States with outstanding balances totaling $440,000 as of August 31, 1996. These
lines of credit were not used during fiscal years 1996 and 1995.
8. LONG-TERM DEBT:
NOTES PAYABLE
Notes payable as of February 29, 1996 and February 28, 1995 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------ AUGUST 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to a United Kingdom bank, interest at
a variable rate, 8.625% as of August 31, 1996,
collateralized by a building in Northern Ireland,
payable in quarterly installments of $17,300
commencing October 1995............................ $ -- $ 654,075 $ 609,712
Notes payable to a United Kingdom bank, interest at
a variable rate, 8.625% as of August 31, 1996,
collateralized by accounts receivable and other
assets of the Company, payable in quarterly
installments of $38,200 commencing March 1995...... 790,000 612,000 546,000
Other............................................... 203,811 181,956 134,575
------------ ------------ ------------
Total notes payable............................... 993,811 1,448,031 1,290,287
Less: current portion............................... 266,732 375,105 (279,242)
------------ ------------ ------------
$ 727,079 $ 1,072,926 $ 1,011,045
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Maturities of long-term debt as of February 29, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 375,105
1998........................................................ 250,853
1999........................................................ 222,000
2000........................................................ 222,000
2001........................................................ 70,000
Thereafter.................................................. 308,073
-----------
$ 1,448,031
-----------
-----------
</TABLE>
F-16
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
8. LONG-TERM DEBT: (CONTINUED)
CONVERTIBLE NOTES
In December 1995, the Company issued $2,000,000 aggregate principal amount
of two-year 7% convertible promissory notes. The notes are convertible at the
holder's option as follows: 20% of the principal and accrued interest are
convertible 61 days after issuance, with an additional 20% convertible each
subsequent 10 days into shares of common stock at the lesser of $5.75 per share
or 85% of the market price of the common stock on the date of conversion. As of
August 31, 1996, all the principal and related accrued interest thereon had been
converted into 430,291 shares of common stock.
9. STOCKHOLDERS' EQUITY:
The Company has an incentive plan under which options to purchase shares of
the Company's common stock have been granted to eligible employees. There are
1,200,000 shares of common stock available for award under the plan which is
administered by the Compensation Committee of the Board of Directors.
Option activity under the stock option plan is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, -----------
1994 1995 1996
------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C>
Shares under option at beginning of
period................................... -- 690,000 980,000 572,500
Granted................................. 690,000 300,000 12,500 230,000
Exercised............................... -- -- (162,500) --
Forfeited............................... -- (10,000) (257,500) --
------------ ------------ ------------ -----------
Shares under option at end of period...... 690,000 980,000 572,500 802,500
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Shares under option exercisable at end of
period................................... -- -- 70,000 70,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Shares available for future grant......... 510,000 220,000 465,000 235,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The exercise price of options exercised under the plan during 1996 were
$3.31 to $4.41. The exercise price of shares under option at August 31, 1996 was
$3.31 to $6.00 per share.
All options granted have exercise prices of 100% of the market value at the
date of grant and are generally exercisable at the rate of 25% per year
beginning two years from date of grant. Options expire up to 10 years from the
date of grant.
In accordance with the issuance of the convertible promissory notes, the
Company granted warrants to purchase 25,000 shares of the Company's common stock
at $6.90 per share, the fair value of the common stock at the date of grant. As
of February 29, 1996, the warrants had not been exercised.
The Company granted 4,800, 9,800, and 1,000 shares of common stock to
outside directors during 1996, 1995 and 1994, respectively, and recognized
$24,000, $24,570, and $900 of expense related to these transactions during the
same periods. Additionally, in 1994, the Company issued 63,000 common shares to
F-17
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
holders of a bridge loan in accordance with the terms of the subscription
agreement. The Company recognized expense of $56,700 associated with this
transaction.
The Company held 133,400 shares of common stock in treasury at February 29,
1996. 100,000 shares were given to the Company during fiscal year ended February
28, 1994 as payment for debt owed to the Company. In November 1994, 40,000
shares were reacquired from a previous officer of Dominion. Subsequently in
1995, 6,600 shares were issued to a director for services for which the Company
recognized $16,170 of expense. Treasury stock is held at cost and presented as a
reduction of stockholders' equity.
10. COMMITMENTS AND CONTINGENCIES:
The Company is not presently a party to any material litigation, nor to the
knowledge of management is any material litigation threatened against the
Company. There are no significant pending legal proceedings, other than routine
litigation incidental to the Company's business.
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest totaled $106,008 for the six month ended August 31,
1996 and $249,307, $245,682 and $215,607 in fiscal years ended 1996, 1995 and
1994, respectively.
The Company paid income taxes of $100,709 for the six months ended August
31, 1996 and $262,559 and $12,684 in 1996 and 1995. The Company paid no income
taxes in 1994.
During fiscal year ended 1996, convertible notes with principal amounts of
$20,000 were converted into 3,478 shares of common stock. Additionally, for the
six months ended August 31, 1996, the remaining principal amount of $1,980,000
was converted into 426,813 shares of Common Stock.
12. SEGMENT INFORMATION:
The Company operates in a single industry segment of marketing computer
hardware and software, software support services and software development
services.
F-18
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
12. SEGMENT INFORMATION: (CONTINUED)
A summary of operations by geographic area follows:
<TABLE>
<CAPTION>
U.S. U.K.
OPERATIONS OPERATIONS
------------- -------------
<S> <C> <C>
FISCAL YEAR 1994
Revenues....................................................... $ 2,636,215 $ 9,570,141
Cost of sales.................................................. 1,308,040 4,098,629
Gross profit................................................... 1,328,175 5,471,512
SG&A expense................................................... 823,676 3,774,377
Depreciation................................................... 39,490 557,934
Operating income............................................... 618,984 985,226
Total assets................................................... $ 1,085,392 $ 6,224,991
FISCAL YEAR 1995
Revenues....................................................... $ 2,796,697 $ 15,527,887
Cost of sales.................................................. 905,517 5,536,727
Gross profit................................................... 1,891,180 9,991,160
SG&A expense................................................... 1,294,026 7,720,017
Depreciation................................................... 57,108 594,443
Operating income............................................... 291,510 1,925,236
Total assets................................................... $ 1,068,747 $ 8,889,364
FISCAL YEAR 1996
Revenues....................................................... $ 3,632,543 $ 18,658,476
Cost of sales.................................................. 1,044,433 6,933,289
Gross profit................................................... 2,588,110 11,725,187
SG&A expense................................................... 2,087,798 8,960,633
Depreciation................................................... 59,082 650,776
Operating income............................................... 441,230 2,113,778
Total assets................................................... $ 3,498,816 $ 13,173,237
</TABLE>
The Company sells its product and services to a variety of customers. No
individual customer accounted for more than 10% of Company revenues during the
fiscal years ended February 29, 1996, and February 28, 1995 and 1994.
13. PENSIONS:
The Company's U.K. subsidiaries operate a pension plan which is designed to
provide death and retirement benefits for eligible employees. The pension costs
are assessed in accordance with the advice of a qualified actuary. Actuarial
assumptions used at February 29, 1996 included a 9% long-term rate of return on
assets, a 8.5% discount rate and a salary increase of 5.5%.
- All employees over 25 years of age are eligible for the pension plan.
- Benefit formula: annual pension to be 1/60 of final pensionable salary for
each year of pensionable service, subject to a maximum fraction of 2/3.
F-19
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
13. PENSIONS: (CONTINUED)
- Funding policy: the employer contributes to the fund at rates determined
by the actuary. Employees contribute in accordance with the plan.
- Assets held are fixed interest securities and deferred annuities insurance
policies.
Cost components for 1996 (in 000's):
<TABLE>
<S> <C>
Service cost......................................................... $ 116
Interest cost........................................................ 318
Return on assets..................................................... (360)
Amortization and deferral of period service costs.................... 11
---------
Net periodic pension cost.......................................... $ 85
---------
---------
</TABLE>
Reconciliation of funded status as of February 29, 1996 (in 000's):
<TABLE>
<S> <C>
Accrued benefits obligation......................................... $ 3,481
---------
---------
Project benefit obligation.......................................... $ 3,638
Assets at market value.............................................. 3,820
---------
Funded status..................................................... 182
Unrecognized transitions asset...................................... (59)
Unrecognized loss................................................... 104
---------
Prepaid pension expense........................................... $ 227
---------
---------
</TABLE>
14. FOURTH QUARTER ADJUSTMENTS:
During the fourth quarter of fiscal year 1996, the Company recorded an
income tax provision principally in the United Kingdom in the amount of
$258,000. The effective tax rate used during the year reflected anticipated
foreign tax rates and tax planning alternatives during the quarterly periods and
was adjusted to the actual amounts in the fourth quarter. Additionally, in the
fourth quarter, the Company recognized a credit to tax expense of $302,000
related to recognition of the United States deferred tax asset when the Company
determined that it was more likely than not that the deferred tax asset would be
realized in future periods.
Also, during the fourth quarter of fiscal year 1996, the Company recorded a
$227,000 credit related to the defined benefit pension plan in the United
Kingdom based on the computation of its actuarial determination of net periodic
pension cost in the fourth quarter.
15. SIGNIFICANT RISKS AND UNCERTAINTIES:
The Company's operating results and financial condition can be impacted by a
number of factors, including but not limited to any of the following which could
cause actual results to vary materially from current and historical results or
the Company's anticipated future results.
A portion of the Company's business is focused on developing and marketing
platform-migration software and development tools that enable users to migrate
applications written for proprietary IBM mid-
F-20
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
15. SIGNIFICANT RISKS AND UNCERTAINTIES: (CONTINUED)
range computer systems to portable operating systems such as UNIX and Windows NT
in the United States and the United Kingdom. Product revenues to be received
from the Company's UNIBOL products are difficult to forecast because of the
evolving product lifecycle for the UNIBOL36 product and the recent introduction
of the UNIBOL400 product. The Company's success will depend on the level of
market acceptance and enhancements to the market on a timely and cost effective
basis, and its ability to maintain a labor force sufficiently skilled to compete
in the current environment.
While management believes that the Company's financing needs for the
foreseeable future will be satisfied from cash flows from operations and the
Company's existing credit facilities, unforeseen events and adverse economic or
business trends may significantly increase cash demands beyond those currently
anticipated that affect the Company's ability to generate/raise cash to satisfy
financing needs.
The Company derives net revenues primarily from its operations in Northern
Ireland. It is reasonably possible that this concentration of revenues makes the
Company vulnerable to the risk of a near-term severe impact on consolidated net
revenues due to unforeseen political and economic forces, as well as exchange
rate fluctuations.
As a result of the above and other factors, the Company's operations and
financial position can vary significantly from quarter-to-quarter and
year-to-year. These variations may contribute to volatility in the market for
the Company's common stock.
F-21
<PAGE>
- -----------------------------------------------------
-----------------------------------------------------
- -----------------------------------------------------
-----------------------------------------------------
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 IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 11
Price Range of Common Stock.................... 12
Dividend Policy................................ 12
Dilution....................................... 13
Capitalization................................. 14
Selected Consolidated Financial Data........... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 23
Management..................................... 35
Certain Relationships and Related
Transactions.................................. 41
Principal Shareholders......................... 42
Description of Capital Stock................... 43
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 49
Experts........................................ 49
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------------------
1,500,000 SHARES
[LOGO]
UNICOMP, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
CRUTTENDEN ROTH
INCORPORATED
, 1996
- -----------------------------------------------------
-----------------------------------------------------
- -----------------------------------------------------
-----------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the Common Stock being registered hereby. All the amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq additional listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 4,906
NASD filing fee................................................... 1,923
Nasdaq additional listing fee..................................... 17,500
Legal fees and expenses........................................... 350,000
Representative expense allowance.................................. 150,000
Accounting fees and expenses...................................... 140,000
Blue Sky fees and expenses........................................ 2,500
Transfer Agent fees............................................... 2,500
Printing and engraving expenses................................... 40,000
Miscellaneous..................................................... 50,671
---------
Total......................................................... $ 760,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Colorado law permits extensive indemnification of present and former
directors, officers, employees or agents of a Colorado company, whether or not
authority for such indemnification is contained in the indemnifying company's
articles of incorporation or bylaws. Specific authority for indemnification of
present and former directors and officers, under certain circumstances, is
contained in paragraph 12 of the Registrant's Amended and Restated Bylaws
(Exhibit 3.3 hereto) (the "Bylaws"). Under Colorado law, for a company to
provide indemnification, a disinterested majority of the company's board of
directors, independent legal counsel, a court or the shareholders must find that
the director, officer, employee or agent acted, or failed to act, in good faith
and in a manner he or she reasonably believed, in the case of conduct in his or
her official capacity with the company, was in the best interests of the company
or, in all other cases, was at least not opposed to the company's best
interests, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Statutory
indemnification is permissive, except in the event of a successful defense, in
which case, unless limited by the articles of incorporation, a director,
officer, employee or agent must be indemnified against reasonable expenses
incurred by him or her in connection therewith. Indemnification is permitted
with respect to expenses, judgments, fines and amounts paid in settlement by
such persons.
The Registrant's Bylaws provide that the Registrant may indemnify any person
who was or is made a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant), by reason of the fact that he or she is or was a
director, officer, employee, fiduciary or agent of the Registrant or is or was
serving at the request of the Registrant as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to the
best interests of the Registrant and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Registrant's Bylaws also provide that the Registrant may indemnify a
person who was or is made a party or is threatened to be made a party to any
proceeding by or in the right of the Registrant to procure a
II-1
<PAGE>
judgment in his or her favor by reason of the fact that he or she is or was a
director, officer, employee or agent of the Registrant, or is or was serving at
the request of the Registrant as a director, officer, employee, fiduciary or
agent of another corporation or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
with the defense or settlement of such action if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Registrant. No indemnification shall be made in respect of
any claim, issue or matter as to which such person has been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
Registrant unless and only to the extent that the court in which the action is
brought determines that in view of all the circumstances such person is fairly
and reasonably entitled to indemnification for expenses which the court deems
proper.
The Registrant's Bylaws also provide that to the extent that an authorized
representative of the Registrant who neither was nor is a director or officer of
the Registrant has been successful on the merits or otherwise in defense of any
action, suit or proceeding, he or she shall be indemnified by the Registrant for
and against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith. Such an authorized
representative may, at the discretion of the Registrant's Board of Directors, be
indemnified by the Registrant in certain circumstances to the same extent he or
she would have been had he or she been a director of officer of the Registrant.
A determination of whether indemnification is proper shall be made by the
Board of Directors by a majority vote of a quorum consisting of disinterested
directors or, if such a quorum is not obtainable or, even if obtainable, as a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the Registrant's shareholders. The Registrant shall
advance expenses (including attorneys' fees) upon receipt of an undertaking by
or on behalf of the director to repay such amount unless it is determined that
he or she is not entitled to be indemnified.
In order to induce qualified and essential persons to serve as members of
the Board of Directors or officers of the Registrant, the Registrant believes it
is advantageous to enter into indemnification agreements. As such, the
Registrant has entered into indemnification agreements with its officers and
members of the Board of Directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 1993, the Registrant has sold the following unregistered
securities:
1. On December 14, 1993, the Registrant sold 166,667 shares of Common Stock
to certain unrelated offshore investors. The aggregate purchase price for such
shares was $600,000.
2. On September 1, 1994, the Registrant issued a warrant to purchase 50,000
shares of Common Stock at $2.00 per share to a principal of Ally International
Securities, Inc. as compensation for underwriting services provided by Ally
International Securities, Inc. The warrant became exercisable upon issuance and
expires on September 1, 1997. The warrant has been exercised in full.
3. On October 26, 1994, the Registrant sold 100,000 shares of Common Stock
to certain unrelated offshore investors. The aggregate purchase price for such
shares was $274,000. As part of this transaction, the purchasers also acquired
warrants to purchase 15,000 shares of Common Stock at an exercise price of
$3.625 per share. All such warrants were exercised in full on May 30, 1995.
4. On December 24, 1995, the Registrant sold $2.0 million aggregate
principal amount of convertible promissory notes to certain unrelated offshore
investors, which amount was convertible into shares of Common Stock at a
weighted average exercise price of $4.80 per share. As of August 31, 1996, all
of the principal amount of the notes and accrued interest thereon had been
converted to 430,291 shares of Common Stock.
5. On December 24, 1995, the Registrant granted the Note Warrant for 25,000
shares of Common Stock at $6.90 per share to First Bermuda Securities, Ltd. as a
portion of the compensation for its services in acting as placement agent in
connection with the sale of the convertible promissory notes.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant (previously filed with Form S-18,
filed April 15, 1986 (Reg. no. 33-04906-D) and incorporated herein by
reference)
3.2 Amendment to Articles of Incorporation changing the Registrant's name from
Liberty Ventures, Ltd. to UniComp, Inc. (previously filed with Form S-18,
filed April 15, 1986 (Reg. no. 33-04906-D) and incorporated herein by
reference)
3.3 Amended and Restated Bylaws of the Registrant (previously filed with Form S-1,
dated September 18, 1996 (Reg. no. 333-12209) and incorporated herein by
reference)
4.1 Form of Representative's Warrant
5.1 Opinion of Snell & Wilmer L.L.P. as to legality of shares
10.1 End-User Purchase Agreement between the Registrant and Hewlett-Packard dated
October 25, 1994 (previously filed with Form 10-K/A amendment no. 2 for the
fiscal year ended February 28, 1994 and incorporated herein by reference)
10.2 Business Partner Agreement between the Registrant and IBM dated March 1, 1994
(previously filed with Form 10-K/A amendment no. 2 for the fiscal year ended
February 28, 1994 and incorporated hereby by reference)
10.3 Agreement between the Registrant and Siemens Nixdorf dated January 3, 1995
(previously filed with Form 10-K for the fiscal year ended February 28, 1995
and incorporated herein by reference)
10.4 Agreement for Sale of a Business between the Registrant and Euro Software
Limited dated September 25, 1995 for the acquisition of the assets of Advec
Limited (previously filed with Form 10-K for the fiscal year ended February
25, 1996 and incorporated herein by reference)
10.5 Offshore Warrant Agreement between the Registrant and First Bermuda
Securities, Ltd. dated December 20, 1995 (previously filed with Form 10-K
for the fiscal year ended February 25, 1996 and incorporated herein by
reference.)
10.6 Form of 7% Convertible Promissory Notes dated December 20, 1995 issued by the
Registrant to certain offshore investors (previously filed with Form 10-K
for the fiscal year ended February 25, 1996 and incorporated herein by
reference)
10.7 Stock Purchase Agreement between the Registrant and Smoky Mountain
Technologies, Inc. dated April 16, 1996 (previously filed with Form 8-K
dated May 1, 1996, as amended, and incorporated herein by reference)
10.8 Employment Agreements dated April 16, 1996 between the Registrant and each of
B. Michael Wilson and George Gruber, (previously filed with Form 8-K dated
May 1, 1996, as amended, and incorporated herein by reference)
10.9 Form of Indemnification Agreement to be used between the Registrant and
members of the Board of Directors and executive officers of the Registrant
(previously filed with Form S-1, dated September 18, 1996 (Reg. no.
333-12209) and incorporated herein by reference)
10.10 Agreement between Smoky Mountain Technologies, Inc. and Atalla Division of
Tandem, Inc. dated October 30, 1996 (previously filed with Amendment No. 2
to Form S-1, dated November 5, 1996 (Reg. no. 333-12209) and incorporated
herein by reference)
21.1 Subsidiaries of the Registrant (previously filed with Form S-1, dated
September 18, 1996 (Reg. no. 333-12209) and incorporated herein by
reference)
23.1 Report and Consent of Independent Accountants
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Snell & Wilmer L.L.P. (included in opinion filed as Exhibit 5.1)
24.1 Power of Attorney (contained on signature page of Form S-1, dated September
18, 1996 (Reg. no. 333-12209))
24.2 Power of Attorney of Nelson J. Millar (previously filed with Amendment No. 1
to Form S-1 dated October 17, 1996 (Reg. no. 333-12209))
99.1 UniComp, Inc. Long Term Incentive Plan (previously filed with Form S-8 dated
October 25, 1995 (Reg. no. 33-98564) and incorporated herein by reference)
99.2 UniComp, Inc. 1996 Director Incentive Plan (previously filed with Form S-1,
dated September 18, 1996 (Reg. no. 333-12209) and incorporated herein by
reference)
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because the required information is
either included in the consolidated financial statements or the notes
thereto or is not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Marietta, State of Georgia, on the 12th day of November, 1996.
UNICOMP, INC.
By: /s/ STEPHEN A. HAFER
-----------------------------------------
Stephen A. Hafer
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 12th day of November, 1996.
SIGNATURE TITLE
- -------------------------------------- --------------------------------------
/s/ STEPHEN A. HAFER Chairman of the Board, President and
- -------------------------------------- Chief Executive Officer (Principal
Stephen A. Hafer Executive Officer)
/s/ L. ALLEN PLUNK
- -------------------------------------- Chief Financial Officer (Principal
L. Allen Plunk Financial and Accounting Officer)
* J. PATRICK HENRY
- -------------------------------------- Director
J. Patrick Henry
* NELSON J. MILLAR
- -------------------------------------- Director
Nelson J. Millar
* THOMAS ZIMMERER
- -------------------------------------- Director
Thomas Zimmerer
*By: /s/ L. ALLEN PLUNK
as Attorney-In-Fact
II-5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE
AT THE CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
THE PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1994
Accounts receivable allowance.............. $ 500 $ 65,694 $ 66,194
Deferred tax asset valuation allowance..... $895,000 $ (157,249)(1) $737,751
Year ended February 28, 1995
Accounts receivable allowance.............. $ 66,194 $ 80,710 $10,759 $ (30,657) $127,006
Deferred tax asset valuation allowance..... $737,751 $ (197,751)(1) $540,000
Year ended February 29, 1996
Accounts receivable allowance.............. $127,006 $110,296 $ (99,424) $137,878
Deferred tax asset valuation allowance..... $540,000 $ (540,000)(2) $ 0
</TABLE>
- ------------------------
(1) To adjust the valuation allowance to reflect the utilization of net
operating losses during the year.
(2) To adjust the valuation allowance to reflect the utilization of net
operating losses during the year and realization of remaining deferred tax
asset.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant (previously filed with Form S-18, filed April
15, 1986 (Reg. no. 33-04906- D) and incorporated herein by reference)
3.2 Amendment to Articles of Incorporation changing the Registrant's name from Liberty
Ventures, Ltd. to UniComp, Inc. (previously filed with Form S-18, filed April 15, 1986
(Reg. no. 33-04906-D) and incorporated herein by reference)
3.3 Amended and Restated Bylaws of the Registrant (previously filed with Form S-1, filed
September 18, 1996 (Reg. no. 333-12209) and incorporated herein by reference)
4.1 Form of Representative's Warrant
5.1 Opinion of Snell & Wilmer L.L.P. as to legality of shares
10.1 End-User Purchase Agreement between the Registrant and Hewlett-Packard dated October 25,
1994 (previously filed with Form 10-K/A amendment no. 2 for the fiscal year ended
February 28, 1994 and incorporated herein by reference)
10.2 Business Partner Agreement between the Registrant and IBM dated March 1, 1994 (previously
filed with Form 10-K/A amendment no. 2 for the fiscal year ended February 28, 1994 and
incorporated hereby by reference)
10.3 Agreement between the Registrant and Siemens Nixdorf dated January 3, 1995 (previously
filed with Form 10-K for the fiscal year ended February 28, 1995 and incorporated herein
by reference)
10.4 Agreement for Sale of a Business between the Registrant and Euro Software Limited dated
September 25, 1995 for the acquisition of the assets of Advec Limited (previously filed
with Form 10-K for the fiscal year ended February 25, 1996 and incorporated herein by
reference)
10.5 Offshore Warrant Agreement between the Registrant and First Bermuda Securities, Ltd. dated
December 20, 1995 (previously filed with Form 10-K for the fiscal year ended February 25,
1996 and incorporated herein by reference.)
10.6 Form of 7% Convertible Promissory Notes dated December 20, 1995 issued by the Registrant to
certain offshore investors (previously filed with Form 10-K for the fiscal year ended
February 25, 1996 and incorporated herein by reference)
10.7 Stock Purchase Agreement between the Registrant and Smoky Mountain Technologies, Inc. dated
April 16, 1996 (previously filed with Form 8-K dated May 1, 1996, as amended, and
incorporated herein by reference)
10.8 Employment Agreements dated April 16, 1996 between the Registrant and each of B. Michael
Wilson and George Gruber, (previously filed with Form 8-K dated May 1, 1996, as amended,
and incorporated herein by reference)
10.9 Form of Indemnification Agreement to be used between the Registrant and members of the
Board of Directors and executive officers of the Registrant (previously filed with Form
S-1, filed September 18, 1996 (Reg. no. 333-12209) and incorporated herein by reference)
10.10 Agreement between Smoky Mountain Technologies, Inc. and Atalla Division of Tandem, Inc.
dated October 30, 1996 (previously filed with Amendment No. 2 to Form S-1, dated November
5, 1996 (Reg. no. 333-12209) and incorporated herein by reference)
21.1 Subsidiaries of the Registrant (previously filed with Form S-1, filed September 18, 1996
(Reg. no. 333-12209) and incorporated herein by reference)
23.1 Report and Consent of Independent Accountants
23.2 Consent of Snell & Wilmer L.L.P. (included in opinion filed as Exhibit 5.1)
24.1 Power of Attorney (contained on signature page of Form S-1, dated September 18, 1996 (Reg.
no. 333-12209))
24.2 Power of Attorney of Nelson J. Millar (previously filed with Amendment No. 1 to Form S-1
dated October 17, 1996 (Reg. no. 333-12209))
99.1 UniComp, Inc. Long Term Incentive Plan (previously filed with Form S-8 dated October 25,
1996 (Reg. no. 33-98564) and incorporated herein by reference)
99.2 UniComp, Inc. 1996 Director Incentive Plan (previously filed with Form S-1, filed September
18, 1996 (Reg. no. 333-12209) and incorporated herein by reference)
</TABLE>
<PAGE>
UNICOMP, INC.
1,500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
_____________, 1996
CRUTTENDEN ROTH INCORPORATED
As Representative of the
Several Underwriters
named in Schedule I hereto
18301 Von Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
UniComp, Inc., a corporation organized under the laws of the State of
Colorado (the "Company"), proposes to issue and sell to the several Underwriters
named on Schedule I hereto (the "Underwriters") an aggregate of 1,500,000 shares
(the "Firm Shares") of common stock, par value $.01 per share, of the Company
(the "Common Stock"). The Company also proposes to issue to you, individually
and not in your capacity as Representative (the "Representative"), a five-year
warrant (the "Representative's Warrant") to purchase up to 150,000 shares of
Common Stock of the Company (the "Representative's Warrant Stock"). In
addition, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, each of the Company and the shareholders of the
Company named on Schedule II hereto (the "Selling Shareholders") propose to
grant to the Underwriters an option to purchase up to an aggregate of
225,000 shares (the "Option Shares") of Common Stock, including
75,000 additional shares to be sold by the Company and 150,000 shares to be
sold by the Selling Shareholders. The Firm Shares and any Option Shares
purchased pursuant to this Agreement are herein called the "Shares."
This is to confirm the agreement concerning the purchase of the Shares from
the Company and the Selling Shareholders by the Underwriters.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, each Underwriter
that:
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(a) A registration statement on Form S-1 (File No. 333-12209) (the
"Initial Registration Statement") has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the Commission. Copies of
such Initial Registration Statement and any amendments, and all forms of the
related prospectuses contained therein, including a registration statement, if
any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act, have been
delivered to you. The Initial Registration Statement on Form S-1, including the
prospectus, Part II thereof and all exhibits thereto, as amended at the time
when they shall become effective, and the Rule 462(b) Registration Statement,
which became effective upon filing, are herein referred to as the "Registration
Statement," and the prospectus included as part of the Initial Registration
Statement on file with the Commission that discloses the information (if any)
that was omitted from the prospectus on the effective date pursuant to Rule 430A
of the Rules and Regulations (as defined below), with any changes contained in
any prospectus filed with the Commission by the Company after the effective date
of the Initial Registration Statement, is herein referred to as the "Final
Prospectus." The prospectus included as part of the Initial Registration
Statement on the date when the Initial Registration Statement was declared
effective and when the Rule 462(b) Registration Statement became effective is
referred to herein as the "Effective Prospectus"; any prospectus included in the
Initial Registration Statement and in any amendments thereto prior to the
effective date of the Initial Registration Statement is referred to herein as a
"Pre-Effective Prospectus." For purposes of this Agreement, "Rules and
Regulations" means the rules and regulations adopted by the Commission under
either the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as applicable, and "affiliate" shall have the definition
specified in Rule 405 of the Rules and Regulations.
(b) No order preventing or suspending the use of any Pre-Effective
Prospectus has been issued by the Commission and each Pre-Effective Prospectus,
at the time of the filing thereof, did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that the foregoing shall not
apply to statements in or omissions from any Pre-Effective Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by you or by any Underwriter through you, specifically for use in the
preparation thereof.
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(c) When the Registration Statement became or becomes effective and
at all times subsequent thereto, the Registration Statement, any post-effective
amendment thereto and the Effective Prospectus and the Final Prospectus as
amended or supplemented did or shall comply in all material respects with the
requirements of the Securities Act and the Rules and Regulations. No such
document did or shall contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the foregoing shall not apply to
statements in, or omissions from, any such document, in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof. There
is no contract or document required to be described in the Registration
Statement or Effective Prospectus or Final Prospectus or to be filed as an
exhibit to the Registration Statement that is not described or filed as
required.
(d) Coopers & Lybrand L.L.P., whose report appears in the Effective
Prospectus and the Final Prospectus, is an independent certified public
accountant as required by the Securities Act and the Rules and Regulations. The
financial statements (including the related notes) included in the Registration
Statement, any Pre-Effective Prospectus, the Effective Prospectus and the Final
Prospectus present fairly the financial condition, the results of the operations
and changes in cash flows and equity of the entity purported to be shown thereby
at the dates and for the periods indicated and have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated. The summary and selected financial and
statistical data included in the Registration Statement present fairly the
information shown therein on the basis stated in the Registration Statement and
have been compiled on a basis consistent with the financial statements presented
therein.
(e) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Colorado, with full
power and authority (corporate and other) to own or lease its properties and
conduct its business as described in the Effective Prospectus and the Final
Prospectus, and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the condition (financial or otherwise) earnings, operations or
business of the Company and its subsidiaries, taken as a whole; and each
subsidiary of the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation. All of the issued shares of the subsidiaries of the Company have
been duly and validly authorized and issued, are fully paid and (except for one
share of
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certain of the Company's subsidiaries which are held by Stephen A. Hafer) owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims. The Company and its subsidiaries have
obtained all material licenses, certificates, permits and authorizations from
governmental authorities necessary for the conduct of their businesses as
described in the Effective Prospectus and the Final Prospectus, such licenses,
certificates, permits and other governmental authorizations are in full force
and effect, the Company and its subsidiaries are in compliance therewith, and
the expiration of any such licenses, permits or other governmental
authorizations would not materially affect the operations of the Company or any
of its subsidiaries. Complete and correct copies of the Articles of
Incorporation and of the Bylaws of the Company and all amendments thereto have
been delivered to the Representative, and, except as disclosed in the
Registration Statement and the Effective Prospectus, no changes therein will be
made subsequent to the date hereof and prior to the date of the consummation of
the sale of the Firm Shares.
(f) The capitalization of the Company is as set forth under the
caption "Capitalization" in the Effective Prospectus and the Final Prospectus,
and the Common Stock conforms to the description thereof contained under the
caption "Description of Capital Stock" in the Effective Prospectus and the Final
Prospectus; the outstanding shares of Common Stock have been, and the Shares to
be sold by the Company on each Closing Date, upon issuance and delivery and
payment therefor in the manner herein described, will be, duly authorized,
validly issued, fully paid and nonassessable. All offers and sales by the
Company of outstanding shares of capital stock and other securities of the
Company made prior to the date hereof, were made in compliance with the
Securities Act and all applicable state securities or blue sky laws. Except as
disclosed in the Effective Prospectus and the Final Prospectus or the
Registration Statement, the Company does not own, and at the date of the
consummation of the sale of the Firm Shares will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. Except as described in the Effective
Prospectus and the Final Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's Articles of
Incorporation, Bylaws or other governing documents or any agreement or other
instrument to which the Company is a party or by which it may be bound. Neither
the filing of the Initial Registration Statement or the Rule 462(b) Registration
Statement, if any, nor the offering or sale of the Shares as contemplated by
this Agreement or the Representative's Warrant gives rise to any rights, other
than those that have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
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(g) Except as described in or contemplated by the Effective
Prospectus and the Final Prospectus, there has not been any material adverse
change in, or any adverse development that materially affects, the business,
properties, financial condition, results of operations or prospects of the
Company or any of its subsidiaries from the date as of which information is
given in the Effective Prospectus and the Final Prospectus, and, except as
described in or contemplated by the Effective Prospectus and the Final
Prospectus, the Company and its subsidiaries have not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transactions not in the
ordinary course of business, that are material to the business of the Company or
any of its subsidiaries, and there has not been any change in the capital stock
of, or any incurrence of long-term debt by, the Company, or any issuance or
grant of options, warrants or rights to purchase the capital stock of the
Company or any of its subsidiaries, or any declaration or payment of any
dividend on the capital stock of the Company from the date as of which
information is given in the Effective Prospectus and the Final Prospectus.
(h) Neither the Company nor any of its subsidiaries is, nor with the
giving of notice or lapse of time or both would any of them be, in violation of
or in default under, nor will the execution or delivery of this Agreement or the
Representative's Warrant or the consummation of the transactions contemplated
hereby or thereby result in a violation of, or constitute a default under the
Articles of Incorporation, Bylaws or other governing documents of the Company or
any of its subsidiaries, or any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries may be bound, or
to which the properties of the Company or any of its subsidiaries is subject,
nor will the performance by the Company of its obligations hereunder or under
the Representative's Warrant violate any law, rule, administrative regulation or
decree of any court, or any governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of the properties of the Company
or any of its subsidiaries, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company or any of
its subsidiaries. Except for permits and similar authorizations required under
the Securities Act and the securities or "blue sky" laws of certain
jurisdictions and for such permits and authorizations that have been obtained,
no consent, approval, authorization, order, registration, filing, qualification,
license or permit of any court, regulatory, administrative or other governmental
agency or body or financial institution is required for the execution and
delivery of this Agreement or the Representative's Warrant or in connection with
the consummation of the transactions contemplated by this Agreement or the
Representative's Warrant.
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(i) The Company has the power and authority to enter into this
Agreement and to issue the Representative's Warrant and to authorize, issue and
sell the Shares it will sell hereunder as contemplated hereby and the shares of
Common Stock to be issued upon exercise of the Representative's Warrant as
contemplated by the Representative's Warrant. Each of this Agreement and the
Representative's Warrant has been duly authorized, executed and delivered by the
Company and constitutes the valid and binding agreement of the Company and is
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally.
(j) The Representative's Warrant Stock has been duly authorized and
reserved for issuance upon the exercise of the Representative's Warrant and when
issued and paid for pursuant to the terms of the Representative's Warrant will
be validly issued, fully paid and nonassessable.
(k) The Company and its subsidiaries have good and marketable title
in fee simple to all items of real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects, except such as are described or referred to in the
Effective Prospectus and the Final Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made or
proposed to be made of such property by the Company and its subsidiaries, and
any real property and buildings held under lease by the Company and its
subsidiaries are held by it under valid, existing and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company and its
subsidiaries.
(l) Except as described in the Effective Prospectus and the Final
Prospectus, there is no litigation or governmental proceeding to which the
Company or any of its subsidiaries is a party or to which any property of the
Company or any of its subsidiaries is subject or which is pending or, to the
knowledge of the Company, threatened against the Company that might result in
any material adverse change in the condition, financial or otherwise, results of
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operations, business affairs or business prospects of the Company and its
subsidiaries or that is required to be disclosed in the Effective Prospectus and
the Final Prospectus, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion, race, or physical or mental disability, and no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is, to the
Company's or any of its subsidiaries' knowledge, imminent that might be expected
to affect adversely the condition, financial or otherwise, results of
operations, business affairs or business prospects of the Company and its
subsidiaries or that is required to be disclosed in the Effective Prospectus.
(m) Neither the Company nor any of its subsidiaries is in violation
of any law, ordinance, governmental rule or regulation or court decree to which
they may be subject, which violation might be expected to have a material
adverse effect on the condition, financial or otherwise, results of operations,
business affairs or business prospects of the Company.
(n) The Company has not taken, and shall 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 Shares.
(o) The Company and each of its subsidiaries have timely (giving
effect to permitted extensions) and properly prepared and filed all necessary
federal, state, local and foreign income, franchise and any other required tax
returns and have paid all taxes shown as due thereon, and the Company has no
knowledge of any tax deficiency that has been or might be asserted against the
Company or any of its subsidiaries that might materially and adversely affect
the financial condition, results of operations, business or prospects of the
Company.
(p) Neither the Company or any of its subsidiaries nor any of their
officers, directors, employees or agents acting on behalf of the Company or any
of its subsidiaries has at any time (i) made any contributions to any candidate
for political office in violation of law, or failed to disclose fully any
contributions to any candidate for political office in accordance with any
applicable statute, rule, regulation or ordinance requiring such disclosure,
(ii) made any payment to any local, state, federal or foreign governmental
officer or official or other person charged with similar public or quasi-public
duties, other than payments required or allowed by applicable law, (iii) made
any payment outside the ordinary course of business to any purchasing or selling
agent or person charged with similar duties of any entity to which the Company
or any of its subsidiaries sells or from which the Company or any of its
subsidiaries buys products for the purpose of influencing such agent or person
to buy products from or sell products to the Company or any of its subsidiaries,
or (iv) except as set forth in the Effective Prospectus and the Final
Prospectus, engaged in any transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds that have been
and are reflected in the normally maintained books and records of the Company or
any of its subsidiaries.
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(q) The Company does not know of any claims for services in the
nature of a finder's fee, brokerage fee or otherwise with respect to this
offering for which the Company or any of the several Underwriters may be
responsible.
(r) The Company and its subsidiaries have all their properties
adequately insured against loss or damage by fire and maintain such other
insurance as is prudent or customarily maintained by companies in the same or
similar business and in the same or similar locality.
(s) The Company and its subsidiaries own or possess adequate rights
to use all material patents, patent rights, inventions, trademarks, service
marks, trade names and copyrights necessary for the conduct of their businesses
as described in the Effective Prospectus and the Final Prospectus and have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their trade secrets and know-how that are not part of the public knowledge or
literature. Any employees of the Company or any of its subsidiaries and any
other person who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed these secrets, or who have knowledge
of or access to information relating to them, have been put on notice and have
entered into agreements that these secrets are proprietary to the Company and
its subsidiaries and are not to be divulged or misused. The Company and its
subsidiaries have not received any notice of infringement of or conflict with,
and, to the best of the Company's knowledge, neither the Company nor any of its
subsidiaries infringes or is in conflict with, asserted rights of others with
respect to any patents, patent rights, inventions, trademarks, service marks,
trade names, copyrights or trade secrets that, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could materially and
adversely affect the financial condition, results of operations, business or
prospects of the Company.
(t) There are no outstanding loans or advances or guarantees of
indebtedness by the Company or any of its subsidiaries to or for the benefit of
any affiliate of the Company or any of its subsidiaries, any of the officers or
directors of the Company or any of its subsidiaries, or any of the members of
the families of any of them, that are required by the Rules and Regulations to
be described in the Registration Statement, the Effective Prospectus and the
Final Prospectus, except such that are so described.
(u) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization, (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance
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with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(v) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares other than any Pre-Effective Prospectus, Effective Prospectus or
Final Prospectus or other materials permitted by the Securities Act to be
distributed by the Company.
(w) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder represents and warrants to, and agrees with,
each Underwriter that:
(a) Such Selling Shareholder has duly executed and delivered a Power
of Attorney (the "Power of Attorney"), appointing Stephen A. Hafer and L. Allen
Plunk, and each of them, as attorney-in-fact (the "Attorneys-in-Fact") with full
power and authority to execute and deliver this Agreement on behalf of such
Selling Shareholder, to authorize the delivery of the Shares to be sold by the
Selling Shareholder hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this Agreement.
(b) Such Selling Shareholder has duly executed and delivered a
Custody Agreement (the "Custody Agreement") with Lawco of Washington, Inc., as
Custodian, pursuant to which certificates in negotiable form for the Shares to
be sold by such Selling Shareholder hereunder have been placed in custody for
delivery under this Agreement.
(c) Such Selling Shareholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody Agreement, and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder; and all consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Shareholder of this
Agreement, the Power of Attorney and the Custody Agreement, and for the sale and
delivery of the Shares to be sold by such Selling Shareholder hereunder, have
been obtained, except such as may be required under the Securities Act or any
state securities or blue sky laws.
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(d) Such Selling Shareholder has, and at the Option Closing Date (as
defined in Section 4) will have, good and valid title to the Option Shares to be
sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances, equities and claims; and, upon delivery of and payment for such
Option Shares pursuant to this Agreement, the Underwriters will acquire all such
Option Shares, free and clear of all liens, encumbrances, equities and claims
within the meaning of the Universal Commercial Code, as adopted in the State of
Colorado.
(e) Neither the execution or delivery of this Agreement, the Power of
Attorney and the Custody Agreement nor the consummation of the transactions
contemplated hereby and thereby by such Selling Shareholder will result in a
violation of, or constitute a default under, any agreement, indenture or other
instrument to which such Selling Shareholder is a party or may be bound, nor
will the performance by such Selling Shareholder's obligations hereunder or
thereunder violate any law, rule, administrative regulation or decree of any
court or any governmental agency or body having jurisdiction over such Selling
Shareholder. Except for permits and similar authorizations required under the
Securities Act and the securities or "blue sky" laws of certain jurisdictions
and for such permits and authorizations which have been obtained, no consent,
approval, authorization or order of any court, governmental agency or body or
financial institution is required in connection with the consummation of the
transactions contemplated by this Agreement by such Selling Shareholder.
(f) Such Selling Shareholder has not taken, and shall 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 Shares.
(g) Such Selling Shareholder does not know of any claims for services
in the nature of a finder's fee, brokerage fee or otherwise with respect to this
offering for which such Selling Shareholder or any of the several Underwriters
may be responsible.
(h) To the extent that any statements or omissions made in the
Registration Statement, any Pre-Effective Prospectus, the Effective Prospectus,
the Final Prospectus or any amendment or supplement thereto are made in reliance
upon and in conformity with written information with respect to such Selling
Shareholder furnished to the Company by such Selling Shareholder expressly for
use therein, such Pre-Effective Prospectus and the Registration Statement did
not, and the Effective Prospectus, Final Prospectus and any further amendments
or supplements to the Registration Statement and the Final Prospectus will not,
when they are filed with the
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Commission 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.
(i) Except as otherwise set forth in such Selling Shareholder's
Lock-Up Agreement entered into pursuant to Section 5(k), such Selling
Shareholder will not offer to sell, transfer, assign or otherwise dispose of,
directly or indirectly, shares of Common Stock or other equity securities of the
Company now owned or hereafter acquired for a period of one year after the date
of the Final Prospectus, otherwise than hereunder or with the written consent of
the Representative, and, during such one-year period, no such offer, transfer,
assignment or other disposition of any Common Stock will be made by such Selling
Shareholder pursuant to Rule 144 of the Rules and Regulations unless such
Selling Shareholder shall have first offered the Representative in writing the
opportunity to effect any such transaction and the Representative shall not have
notified the Selling Shareholder thereof within five business days of the
Representative's receipt of such notice of its desire to attempt to effect such
transaction on behalf of the Selling Shareholder.
(j) Such Selling Shareholder does not have knowledge that the
Registration Statement, any Pre-Effective Prospectus, the Effective
Prospectus or the Final Prospectus (or any amendment or supplement thereto)
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(k) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, each of the
Selling Shareholders agrees to deliver to you prior to or at the Option Closing
Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(l) Each of the Selling Shareholders specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Shareholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder, and that the arrangements made by such Selling
Shareholder for such custody and the appointment by such Selling Shareholder of
the Attorneys-in-Fact by the Power of Attorney are to that extent irrevocable.
Each of the Selling Shareholders specifically agrees that the obligations of the
Selling Shareholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any
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individual Selling Shareholder, or, in the case of an estate or trust, by the
death or incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a corporation or partnership, by the dissolution of
such corporation or partnership, or by the occurrence of any other event. If
any individual Selling Shareholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be terminated, or if
any such corporation or partnership should be dissolved, or if any other such
event should occur before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the Selling
Shareholders in accordance with the terms and conditions of this Agreement and
of the Custody Agreement, and actions taken by the Attorneys-in-Fact pursuant to
the Power of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of whether
or not the Custodian or the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or other
event.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, the Company agrees to sell to
each Underwriter, and each Underwriter agrees to purchase from the Company at a
price of $_____ per share, the number of Firm Shares determined by multiplying
the aggregate number of Firm Shares set forth opposite such Underwriter's name
in Schedule I hereto. The Underwriters agree to offer the Firm Shares to the
public as set forth in the Final Prospectus.
(b) In addition, subject to the terms and conditions and upon the
basis of the representations and warranties herein set forth, the Company and
each of the Selling Shareholders, as and to the extent indicated on Schedule II
hereto, hereby grant, severally and not jointly, to the several Underwriters an
option to purchase at their election the Option Shares at the same price per
share as set forth for the Firm Shares in the paragraph above, for the sole
purpose of covering over-allotments in the sale of the Firm Shares. The option
granted hereby may be exercised in whole or in part, but only once, and at any
time upon written notice given within 45 days after the date of this Agreement,
by you, as Representative of the several Underwriters, to the Company, the
Attorneys-in-Fact and the Custodian setting forth the number of Option Shares as
to which the several Underwriters are exercising the option and the time and
date at which certificates are to be delivered. Any such election to purchase
Option Shares shall be made in proportion to the maximum number of Option Shares
to be sold by the Company and each Selling Shareholder as set forth on
Schedule II hereto; PROVIDED, HOWEVER, that if you, on behalf of the
Underwriters, elect to exercise the option with respect to less than all the
Option Shares, the Underwriters shall purchase
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the Option Shares being sold by the Selling Shareholders (in proportion to the
maximum number of Option Shares to be sold by each Selling Shareholder) prior to
the purchase of any Option Shares being sold by the Company. If any Option
Shares are purchased, each Underwriter agrees, severally and not jointly, to
purchase that portion of the number of Option Shares as to which such election
shall have been exercised (subject to adjustment to eliminate fractional shares)
determined by multiplying such number of Option Shares by a fraction the
numerator of which is the maximum number of Option Shares that such Underwriter
is entitled to purchase as set forth opposite the name of such Underwriter on
Schedule I hereto and the denominator of which is the maximum number of Option
Shares that all the Underwriters are entitled to purchase hereunder. The time
and date at which certificates for Option Shares are to be delivered shall be
determined by the Representative but shall not be earlier than two or later than
ten full Business Days (as defined in Section 14 hereof) after the exercise of
such option, and shall not in any event be prior to the First Closing Date (as
defined in Section 4 hereof). If the date of exercise of the option is three or
more full days before the First Closing Date, the notice of exercise shall set
the First Closing Date as the Option Closing Date.
(c) On the First Closing Date, the Company will issue and sell to the
Representative or its designees, consistent with all applicable state and
federal securities laws and regulations and all applicable regulations of the
National Association of Securities Dealers, Inc. (the "NASD"), one or more
warrants for the purchase of an aggregate of 150,000 shares of Common Stock.
Such warrants shall have a per share exercise price equal to 165% of the initial
public offering price per share, shall be exercisable over a four-year period
commencing one year from the date of the Final Prospectus and shall be in
substantially the form attached hereto as Exhibit A . Such warrants shall be
dated, executed and delivered as of the First Closing Date.
4. DELIVERY OF AND PAYMENT FOR SHARES.
Delivery of certificates for the Shares to be purchased by the Underwriters
hereunder shall be made against payment therefor by, at your election, certified
or official bank check or checks drawn upon or by a New York Clearing House bank
or by wire transfer, in either case payable in same-day funds to the order of
the Company. Such delivery and payment with respect to the Firm Shares shall be
made at 7:00 A.M., Pacific standard time, at the offices of Perkins Coie,
1201 Third Avenue, 40th Floor, Seattle, WA 98101 (or such other place as
mutually may be agreed upon), on the third full Business Day or at such other
date as shall be determined by you and the Company (the "First Closing Date").
With respect to Option Shares, such delivery and payment shall be made at the
time and on the date
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specified by you in the written notice given by you of the Underwriters'
election to purchase the Option Shares, or such other time and date as you and
the Company may agree upon in writing, such time and date being referred to
herein as the "Option Closing Date." Such certificates will be made available
for checking and packaging at least 24 hours prior to the First Closing Date or
the Option Closing Date, as the case may be, at a location as may be designated
by you. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of each
Underwriter. The First Closing Date and the Option Closing Date are herein
individually referred to as the "Closing Date" and collectively referred to as
the "Closing Dates."
5. COVENANTS.
The Company covenants and agrees with each Underwriter that:
(a) The Company shall use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is utilized, to comply with the provisions of, and make all
requisite filings with the Commission pursuant to, Rule 430A of the Rules and
Regulations and to notify you promptly (in writing, if requested) of all such
filings. The Company shall notify you promptly of any request by the Commission
for any amendment of or supplement to the Registration Statement or the
Effective Prospectus or the Final Prospectus or for additional information; the
Company shall prepare and file with the Commission, promptly upon your request,
any amendments of or supplements to the Registration Statement or the Effective
Prospectus or the Final Prospectus that, in your opinion, may be necessary or
advisable in connection with the distribution of the Shares; and the Company
shall not file any amendment of or supplement to the Registration Statement or
the Effective Prospectus or the Final Prospectus that is not approved by you
after reasonable notice thereof, such approval not to be unreasonably withheld
or delayed. The Company shall advise you promptly of the issuance by the
Commission or any state or other regulatory body of any stop order or other
order suspending the effectiveness of the Registration Statement, suspending or
preventing the use of any Pre-Effective Prospectus or the Effective Prospectus
or Final Prospectus or suspending the qualification of the Shares for offering
or sale in any jurisdiction, or of the institution of any proceedings for any
such purpose; and the Company shall use its best efforts to prevent the issuance
of any stop order or other such order and, should a stop order or other such
order be issued, to obtain as soon as possible the lifting thereof.
(b) The Company shall furnish to the Underwriters, from time to time
and without charge, a reasonable number of copies of the Registration Statement
of which one for the Representative and one for counsel to the Underwriters
shall be
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signed and shall include exhibits and all amendments and supplements to such
Registration Statement.
(c) The Company will furnish the Underwriters with as many copies of
any Pre-Effective Prospectus as the Representative may reasonably request, and,
during the period when delivery of a prospectus is required under the Securities
Act, the Company will furnish the Underwriters with as many copies of the Final
Prospectus as the Representative may, from time to time, reasonably request. If
during such period any event occurs as a result of which the Final Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances then existing, not misleading, or, if during such
period it is necessary to amend the Registration Statement or supplement the
Final Prospectus to comply with the Securities Act, the Company shall promptly
notify you and shall amend the Registration Statement or supplement the Final
Prospectus (at the expense of the Company) so as to correct such statement or
omission or effect such compliance.
(d) The Company shall take or cause to be taken all necessary action
and furnish to whomever you may direct such information as may be required in
qualifying the Shares for sale under the laws of such jurisdictions that you
shall designate and to continue such qualifications in effect for as long as may
be necessary for the distribution of the Shares; except that in no event shall
the Company be obligated in connection therewith to qualify as a foreign
corporation, or to execute a general consent for service of process. The
Company will, from time to time, prepare and file such statements, reports and
other documents as are or may be required to continue such qualifications in
effect for so long a period as the Representative may reasonably request for
distribution of the Shares.
(e) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities Act, as
soon as practicable but in any event not later than 45 days after the end of its
fiscal quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement satisfying the requirements
of Section 11(a) of the Securities Act covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement and will advise you in writing when such statement has been so made
available.
(f) For a period of one year following the First Closing Date, the
Company will not, without your prior written consent, (i) purchase any shares of
Common Stock or equity securities of the Company or (ii) offer, issue, sell,
transfer or otherwise dispose of, for value or otherwise, directly or
indirectly, any shares of Common Stock or other equity securities of the
Company, except (A) the Shares and
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the Representative's Warrant, (B) pursuant to the exercise of options or
warrants of the Company outstanding immediately prior to the First Closing Date,
as described in the Effective Prospectus and the Final Prospectus, (C) up to
235,000 shares of Common Stock issued upon the grant of options pursuant to the
Company's existing employee benefit plans, as described in the Effective
Prospectus and the Final Prospectus, (D) up to 150,000 shares of Common Stock
issued upon the grant of options pursuant to the Company's 1996 Director
Incentive Plan, (E) issuances and sales in transactions not involving a public
offering, or (F) in connection with a merger of another corporation into, or an
acquisition of all or substantially all of the assets or stock of another entity
by, the Company where the Company or a subsidiary is the surviving entity.
(g) The Company shall apply the net proceeds of the sale of the
Shares as set forth under the caption "Use of Proceeds" in the Final Prospectus.
(h) The Company shall pay or cause to be paid (A) all expenses
(including stock transfer taxes) incurred in connection with the delivery to the
several Underwriters of the Shares, (B) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Pre-Effective Prospectus, the Effective
Prospectus and the Final Prospectus as amended or supplemented and the printing,
delivery and shipping of this Agreement and other underwriting documents,
including Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue
Sky Memoranda, Agreements Among Underwriters and Selected Dealer Agreements and
any letters transmitting the offering material to Underwriters or selling group
members (including costs of mailing and shipment), (C) all filing fees and
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the qualification of the Shares under state securities laws as
provided in Section 5(d) hereof, (D) the filing fee of the NASD, (E) any
applicable listing fees, including the fee for listing the Shares on the Nasdaq
National Market, (F) the cost of printing certificates representing the Shares,
(G) the cost and charges of any transfer agent or registrar, (H) the costs of
preparing, printing and distributing bound volumes for the Representative and
its counsel, and (I) all other costs and expenses incident to the performance of
its obligations hereunder that are not otherwise provided for in this section
(collectively, the amounts described in clauses (A) through (I), inclusive,
being the "Company Expenses"). In addition, the Company will also pay to you,
individually and not in your capacity as Representative, a nonaccountable
expense allowance equal to 2% of the initial public offering price of the Shares
(including Option Shares). If the sale of the Shares provided for herein is not
consummated by reason of acts of the Company pursuant to
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Section 9(a) hereof which prevent this Agreement from becoming effective, or by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder is not fulfilled, the
Company shall (i) pay the several Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with the investigation, preparation to market and
marketing of the Shares or in contemplation of performing their obligations
hereunder, (ii) pay all blue sky filing fees and expenses, including reasonable
blue sky legal fees, and (iii) pay all expenses incurred by the Company,
including printing expenses and accounting and legal fees. If this Agreement is
terminated for any of the events specified in clauses (iii) through (v),
inclusive, of Section 9(b), or if the sale of the Shares provided for herein is
not consummated for any reason other than a reason described in the immediately
preceding sentence, the Company shall pay (or reimburse to the several
Underwriters) the Company Expenses. You acknowledge that $20,000 has already
been paid to you by the Company to be applied against such nonaccountable
expense allowance or such expenses if the sale of Shares is not consummated as
provided in the preceding sentences, as the case may be. You agree that any
portion of such $20,000 that is not necessary to pay the Underwriters for their
reasonable out-of-pocket expenses actually incurred if the sale of Shares is not
consummated for any reason shall be returned to the Company. You also
acknowledge that [$__________] has already been paid to you by the Company to be
applied against expenses incurred and submitted to the Company for reimbursement
in a written statement. Such $__________ in accountable expenses shall also be
applied against such nonaccountable expense allowance or such expenses payable
to you if the sale of Shares is not consummated as provided in the preceding
sentences, as the case may be. The Company shall not in any event be liable to
any of the Underwriters for loss of anticipated profits or other consequential
damages or otherwise (except solely as described in Section 7 hereof) from the
transactions covered by this Agreement.
(i) The Company, at its expense, will furnish to its shareholders an
annual report (including financial statements prepared in accordance with
generally accepted accounting principles audited by independent certified public
accountants), and, as soon as practicable after the end of each of the first
three quarters of each fiscal year, a statement of operations of the Company for
such quarter (which may be in summary form), all in reasonable detail, and,
during the five-year period after the date hereof, at its expense, will furnish
you, with copies for each of the several Underwriters, (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 or operations, shareholders' equity and changes in financial position
of the Company and any consolidated subsidiaries, and of any
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nonconsolidated significant subsidiary, for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent certified public accountants; (ii) as soon as they are available, a
copy of all reports (financial or other) mailed to security holders; (iii) as
soon as they are available, a copy of all periodic reports and financial
statements furnished to or filed with the Commission; and (iv) such other
information as you may from time to time reasonably request. In addition,
during such five-year period, upon your request the Company will furnish you
with copies for each of the several Underwriters, every material press release
and every material news item or article in respect of the Company or its affairs
that is released or prepared by the Company.
(j) If and so long as the Company has any subsidiaries, the financial
statements provided for in this Section 5(j) will be on a consolidated basis to
the extent the accounts of the Company and such subsidiaries are consolidated in
reports furnished to its shareholders generally. Separate financial statements
shall be furnished for any subsidiaries whose accounts are not consolidated, but
which at the time are significant subsidiaries as defined in the Rules and
Regulations.
(k) At or before the First Closing Date, you shall receive from each
of the Company's current officers and directors, certain warrant holders of the
Company and the Selling Shareholders, a written agreement (the "Lock-up
Agreement") not to offer, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any shares of Common Stock or other equity securities of
the Company (except the sale of the Option Shares as contemplated hereby, shares
currently registered on outstanding S-3 Registration Statements, and, in the
case of certain Selling Shareholders, currently obligated to be registered on an
S-3 Registration Statement in April 1997) now owned or hereafter acquired by
such person for a period of one year from the date of the Final Prospectus,
without first (i) obtaining your prior written consent and (ii) granting you the
right, if you so elect, to act as the sole broker/dealer with respect to any
such offer, sale, transfer or other disposition of such securities pursuant to
Rule 144 of the Rules and Regulations.
(l) The Company shall continue to maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(m) The Company shall comply with all registration, filing and
reporting requirements of the Exchange Act that may from time to time be
applicable to the Company.
(n) The Company shall make all filings required to maintain the
designation of the Common Stock on the Nasdaq National Market system.
(o) Prior to the First Closing Date, without the Representative's
approval, the Company shall not publish or otherwise disseminate any news
release, advertisement or comparable announcement relating to the Shares or the
offering of the Shares contemplated hereby.
(p) If any time during the 25-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of and, if deemed appropriate
by the Company and its counsel in consultation with you and your counsel,
disseminate a press release or other public statement reasonably satisfactory to
you responding to or commenting on such rumor, publication or event.
(q) During the one-year period following the First Closing Date, the
Company shall give notice to the Representative of meetings of the Company's
Board of Directors and, if requested by the Representative, shall permit a
designee of the Representative to attend such meetings as an observer. Such
notice to the Representative shall be made in the same manner and at the same
time as notice of such meeting given to the directors of the Company.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and each Closing Date (as if made at such Closing Date), of the
representations and warranties of the Company and the Selling Shareholders
contained herein, to the performance by the Company and the Selling Shareholders
of their obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and all filings required by Rule 424,
Rule 430A and Rule 462(b) of the Rules and Regulations shall have been made
within the applicable time period prescribed for such filing; no stop order
suspending the
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effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceedings for the issuance of such an order
shall have been initiated or threatened and any request of the Commission for
additional information (to be included in the Registration Statement or the
Final Prospectus or otherwise) shall have been disclosed to you and complied
with to your reasonable satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Effective Prospectus or the Final Prospectus, or
any amendment or supplement thereto, contains an untrue statement of fact that,
in your opinion, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(c) On or prior to each Closing Date, you shall have received from
Perkins Coie, counsel for the Underwriters, such opinion or opinions with
respect to the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you
reasonably may require and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) On each Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriters) of Snell & Wilmer, counsel for the
Company and the Selling Shareholders, dated such Closing Date and in form as set
forth as Exhibit B hereto and substance satisfactory to counsel for the
Underwriters.
In rendering such opinion, such counsel may rely upon opinions of local
counsel and upon certificates of any officer of the Company, the Selling
Shareholders or government officials as to matters of fact of which the maker of
such certificate has knowledge; PROVIDED, HOWEVER, that counsel rendering such
opinion shall furnish the Representative with copies of any such statements or
certificates and state in their opinion that they have no reason not to rely
upon any such statements or certificates.
(e) On each Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriters) of Sprecher Grier, counsel for the
Company, dated such Closing Date and in form as set forth as Exhibit C hereto
and substance satisfactory to counsel for the Underwriters.
In rendering such opinion, such counsel may rely upon opinions of local
counsel and upon certificates of any officer of the Company, the Selling
Shareholders or government officials as to matters of fact of which the maker of
such certificate has knowledge; PROVIDED, HOWEVER, that counsel rendering such
opinion shall furnish the
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Representative with copies of any such statements or certificates and state in
their opinion that they have no reason not to rely upon any such statements or
certificates.
(f) There shall have been furnished to you a certificate, dated such
Closing Date and addressed to you, signed by the President and by the Chief
Financial Officer of the Company to the effect that: (i) the representations
and warranties of the Company in this Agreement are true and correct, as if made
at and as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date; (ii) no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or threatened; (iii) all filings required
by Rule 424, Rule 430A and Rule 462(b) of the Rules and Regulations have been
made; (iv) the signers of said certificate have carefully examined the
Registration Statement and the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and such documents contain all
statements and information required to be included therein, and do not include
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; and (v) since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amendment or
supplement to the Registration Statement or the Effective Prospectus and the
Final Prospectus that has not been so set forth.
(g) Each Selling Shareholder shall have furnished to you a
certificate, dated such Closing Date and addressed to you, to the effect that
the representations and warranties of such Selling Shareholder in this Agreement
are true and correct, as if made at and as of such Closing Date, and that such
Selling Shareholder has satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date.
(h) Since the effective date of the Initial Registration Statement,
the Company shall not have sustained any loss by fire, flood, accident or other
calamity, nor shall it have become a party to or the subject of any litigation,
which is material to the Company, nor shall there have been a material adverse
change in the general affairs, business, key personnel, capital, financial
position or net worth of the Company, whether or not arising in the ordinary
course of business, which loss, litigation or change is so material to the
Company that, in your judgment, it shall render it inadvisable to proceed with
the delivery of the Shares.
(i) On the date of this Agreement and on each Closing Date you shall
have received a letter of Coopers & Lybrand L.L.P., dated the date hereof and
such Closing Date, respectively, addressed to you as Representative, to the
effect that
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(i) They are independent certified public accountants with
respect to the Company within the meaning of the Securities Act and the
applicable Rules and Regulations and the answer to Item 10 of the Registration
Statement is correct insofar as it relates to them (or no response is required).
(ii) In their opinion, the audited financial statements and notes
thereto of the Company reported on by them and contained in the Effective
Prospectus and the Final Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and the Rules
and Regulations.
(iii) On the basis of (a) a reading of the latest unaudited
financial statements made available by the Company, (b) carrying out certain
specified procedures (but not an examination in accordance with generally
accepted auditing standards), (c) a reading of the minutes of the meetings of
the shareholders, directors and committees of the Company, and (d) inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters of the Company as to transactions and events subsequent to
February 29, 1996, nothing came to their attention that caused them to believe
that
(A) any unaudited financial statements contained in the
Effective Prospectus and the Final Prospectus (x) do not comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and the Rules and Regulations or (y) are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements;
(B) the financial data included in the Effective Prospectus
and the Final Prospectus under the captions "Prospectus Summary" do not agree
with the corresponding amounts in the audited and unaudited financial statements
for and as at the end of each of the periods then ended; and
(C) at a specified date not more than five Business Days
prior to the date of such letter, (a) there was any change in the capital stock
or long-term debt of the Company or any decrease in net current assets or net
assets or shareholders' equity, in each case as compared with corresponding
amounts shown in the February 29, 1996 balance sheet contained in the Effective
Prospectus and Final Prospectus, or (b) for the period from February 29, 1996 to
the specified date referred to above, as compared with the corresponding period
in the prior year, there was any decrease in sales or in net income or net
income per share, except in all instances for changes, decreases or increases
that the Effective Prospectus and the Final Prospectus disclose have occurred or
may occur, or if there was any change, decrease or increase, setting forth the
amount of such change or decrease.
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(iv) They have compared the information expressed in amounts,
dollar amounts and percentages derived therefrom and other financial information
pertaining to the Company set forth in the Effective Prospectus and the Final
Prospectus specified by you, in each case to the extent such information was
obtained or derived from the general accounting records of the Company 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 such
letters, and found them to be in agreement.
(j) At or prior to the First Closing Date the Representative's
Warrant shall have been issued and sold to you pursuant thereto.
(k) At or prior to the First Closing Date, you shall have received
the Lock-up Agreements described in Section 5(k) hereof.
(l) You shall have been furnished such additional documents and
certificates as you may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to counsel for the Underwriters. The Company
or, as applicable, the Selling Shareholders shall furnish you with such
conformed copies of such opinions, certificates, letters and other documents as
you shall reasonably request. If any of the conditions specified in Section 5
shall not have been fulfilled when and as required by this Agreement, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, each Closing Date, by you. Any such cancellation shall
be without liability of the Underwriters to the Company. Notice of such
cancellation shall be given to the Company in writing, or by telegraph or
telephone and confirmed in writing.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each Underwriter,
each officer and director thereof, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, against any loss, claim,
damage or liability, joint or several, to which such Underwriter or such persons
may become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage or liability (or action in respect thereof) arises out of or is
based upon (i) any untrue statement or alleged untrue statement made by the
Company in Section 1 hereof or (ii) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Pre-Effective Prospectus, the
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Effective Prospectus or the Final Prospectus or any amendment or supplement
thereto, or (B) in any blue sky application or other document executed by the
Company specifically for that purpose or based upon written information
furnished 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 Shares under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or (iii) the
omission or alleged omission to state in the Registration Statement, any Pre-
Effective Prospectus, the Effective Prospectus or the Final Prospectus or any
amendment or 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; and shall pay each Underwriter or such person for any reasonable
legal or other reasonable expenses as and when incurred by such Underwriter or
such person in connection with investigating or defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action, notwithstanding the possibility that payments for such
expenses might later be held to be improper, in which case the person receiving
them shall promptly refund them; except that the Company shall 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, any Pre-Effective Prospectus, the Effective
Prospectus or the Final Prospectus or any amendment or supplement thereto, or
any Blue Sky Application, nor shall the Company be liable 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 in any
Pre-Effective Prospectus that is corrected in the Final Prospectus if the person
asserting any such loss, claim, damage or liability purchased shares but was not
sent or given a copy of the Final Prospectus at or prior to the written
confirmation of the sale of such shares to such person. In addition to its
other obligations under this Section 7(a), the Company agrees that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or the failure to perform its obligations
hereunder, it will pay each Underwriter or such person on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to indemnify hereunder or to pay each
Underwriter or such person for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the
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extent that any such interim payment is so held to have been improper, each
Underwriter or such person shall promptly return it to the Company, together
with interest compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco, California
(the "Prime Rate"). Any such interim payment that is not made to an Underwriter
or such person within 30 days of a request for payment shall bear interest at
the Prime Rate from the date of such request.
(b) Each of the Selling Shareholders, severally in proportion to the
number of Option Shares sold by such Selling Shareholder hereunder to the total
number of Shares sold hereunder, shall (i) indemnify and hold harmless each
Underwriter, each officer and director thereof and each person, if any, who
controls any Underwriter within the meaning of the Securities Act, against any
loss, claim, damage or liability, joint or several, to which such Underwriter or
such persons may become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage or liability (or action in respect thereof) arises
out of or is based upon any untrue statement or alleged untrue statement made by
such Selling Shareholder in Section 2 hereof and (ii) pay each Underwriter or
such person for any reasonable legal or other reasonable expenses as and when
incurred by such Underwriter or such person in connection with investigating or
defending or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or action, notwithstanding the possibility that
payments for such expenses might later be held to be improper, in which case the
person receiving them shall promptly refund them; except that the Selling
Shareholders shall 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, any
Pre-Effective Prospectus, the Effective Prospectus or the Final Prospectus or
any amendment or supplement thereto, nor shall the Selling Shareholders be
liable 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 in any Pre-Effective Prospectus that is corrected in the
Final Prospectus if the person asserting any such loss, claim, damage or
liability purchased Shares but was not sent or given a copy of the Final
Prospectus at or prior to the written confirmation of the sale of such Shares to
such person. In addition to its other obligations under this Section 7(b), each
Selling Shareholder, severally in proportion to the number of Option Shares sold
by such Selling Shareholder hereunder to the total number of Shares sold
hereunder, agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or
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<PAGE>
other proceeding arising out of or based upon any inaccuracy in the
representations and warranties of such Selling Shareholder herein, it will
pay each Underwriter on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry, or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Selling Shareholder's obligation to indemnify hereunder
or to pay each Underwriter for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim payment is so held to have
been improper, each Underwriter shall promptly return it to the Selling
Shareholders, together with interest compounded daily, determined on the
basis of the Prime Rate. Any such interim payment that is not made to an
Underwriter within 30 days of a request for payment shall bear interest at
the Prime Rate from the date of such request. Notwithstanding the foregoing,
in no event shall any Selling Shareholder be liable hereunder for an amount
in excess of the lesser of (i) the proceeds received by such Selling
Shareholder from the Underwriters hereunder or (ii) an amount equal to (a)
the total of such losses, claims, damages, liabilities and expenses
indemnified or contributed against multiplied by (b) a fraction, the
numerator of which is the number of Option Shares sold by such Selling
Shareholder hereunder and the denominator of which is the total number of
Shares sold hereunder.
(c) Each Underwriter severally, but not jointly, shall indemnify and
hold harmless the Company, each of its directors, officers who have signed the
Registration Statement, each Selling Shareholder and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the Act
against any loss, claim, damage or liability to which the Company, any Selling
Shareholder or such person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability or action in respect
thereof arises out of or is based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Registration Statement,
any Pre-Effective Prospectus, the Effective Prospectus or the Final Prospectus
or any amendment or supplement thereto, or (B) in any Blue Sky Application, or
(ii) the omission or alleged omission to state in the Registration Statement,
any Pre-Effective Prospectus, the Effective Prospectus or the Final Prospectus
or any amendment or 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; except that such indemnification shall be available in each such
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company through
you by or on behalf of such Underwriter specifically for use in the preparation
thereof, and shall pay the Company, such
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<PAGE>
Selling Shareholder or such person for any reasonable legal or other reasonable
expenses as and when incurred in connection with investigating or defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action. In addition to its other obligations under
this Section 7(c), each Underwriter severally agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 7(c), it will pay the
Company, such Selling Shareholder or such person on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to indemnify hereunder or to pay
the Company, such Selling Shareholder or such person for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim payment is
so held to have been improper, the Company, such Selling Shareholder or such
person shall promptly return it to the Underwriters, together with interest
compounded daily, determined on the basis of the Prime Rate. Any such interim
payment that is not made to the Company, such Selling Shareholder or such person
within 30 days of a request for payment shall bear interest at the Prime Rate
from the date of such request.
(d) Promptly after receipt by an indemnified party under
Section 7(a), (b) or (c) hereof of notice of any claim or the commencement of
any action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the claim or the commencement of that action;
the failure to notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party otherwise. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under such subsection for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
will have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (ii) the indemnified
party has reasonably concluded (based on advice of counsel) that
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<PAGE>
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(iii) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party), or (iv) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7(a), (b) or (c) hereof, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in Section 7(a), (b) or (c)
hereof (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders, on the one hand, and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
such Selling Shareholders, on the one hand, and the Underwriters, on the other,
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Final Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Shareholders, on the one
hand, or the Underwriters, on the other, 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 contributions pursuant to this Section 7(e)
were to be determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this Section 7(e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or
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<PAGE>
liabilities referred to in the first sentence of this Section 7(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending against any
action or claim that is the subject of this Section 7(e). Notwithstanding
the provisions of this Section 7(e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
7(e) to contribute are several in proportion to their respective underwriting
obligations and not joint, and the Company's and each Selling Shareholder's
obligations in this Section 7(e) to contribute are several in proportion to
their respective proceeds from the sale of the Shares hereunder and not
joint. Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it shall promptly
give written notice of such service to the party or parties from whom
contributions may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise. Notwithstanding the foregoing, in no event shall any Selling
Shareholder be liable hereunder for an amount in excess of the lesser of (i)
the proceeds received by such Selling Shareholder from the Underwriters
hereunder or (ii) an amount equal to (a) the total of such losses, claims,
damages, liabilities and expenses indemnified or contributed against
multiplied by (b) a fraction, the numerator of which is the number of Option
Shares sold by such Selling Shareholder hereunder and the denominator of
which is the total number of Shares sold hereunder.
(f) It is agreed that any controversy arising out of the operation of
the interim payment arrangements set forth in Sections 7(a), (b) and (c) hereof,
including the amounts of any requested payments and method of determining such
amounts, shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock Exchange,
Inc. or pursuant to the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc. Any such arbitration shall be commenced
by service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration shall be limited to the operation of
the interim payment provisions contained
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in Sections 7(a), (b) and (c) hereof and shall not resolve the ultimate
propriety or enforceability of the obligation to indemnify or pay expenses that
is created by the provisions of Sections 7(a), (b) and (c) hereof.
(g) The obligations of the Company and the Selling Shareholders under
this Section 7 shall be in addition to any liability that the Company and the
Selling Shareholders may otherwise have, and the obligations of the Underwriters
under this Section 7 shall be in addition to any liability that the respective
Underwriters may otherwise have.
8. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter defaults in its obligation to purchase the
number of Shares that it has agreed to purchase under this Agreement, the
nondefaulting Underwriters shall be obligated to purchase (in the respective
proportions that the number of Shares set forth opposite the name of each
nondefaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the nondefaulting Underwriters in
Schedule I hereto) the Shares that the defaulting Underwriter agreed but failed
to purchase; except that the nondefaulting Underwriters shall not be obligated
to purchase any of the Shares if the total number of Shares that the defaulting
Underwriter or Underwriters agreed but failed to purchase exceeds 10% of the
total number of Shares, and any nondefaulting Underwriter shall not be obligated
to purchase more than 110% of the number of Shares set forth opposite its name
in Schedule I hereto plus the total number of Option Shares purchasable by it
pursuant to the terms of Section 3 hereof. If the foregoing maximums are
exceeded, (i) the nondefaulting Underwriters, 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 the Shares. If the nondefaulting Underwriters or the other underwriters
satisfactory to you do not elect to purchase the Shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase, this Agreement shall
terminate without liability on the part of any nondefaulting Underwriter, the
Company or the Selling Shareholders, except for the payment of expenses to be
borne by the Company and the Underwriters as provided in Section 5(h) hereof and
the indemnity and contribution agreements of the Company and the Underwriters
contained in Section 7 hereof.
(b) 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 Shares
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 effect any changes
that may be necessary in the Registration Statement, the Effective Prospectus or
the Final
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<PAGE>
Prospectus or in any other document or agreement, and to file promptly any
amendments or any supplements to the Registration Statement or the Effective
Prospectus or the Final Prospectus that in your opinion may thereby be made
necessary.
9. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at whichever of the
following times shall first occur: (i) at 8:00 A.M., Pacific standard time, on
the first full Business Day following either (x) the date upon which the
Registration Statement becomes effective or (y) if the Registration Statement
becomes effective in accordance with Rule 430A, the date upon which the Final
Prospectus is filed with your consent, or (ii) the time after the Registration
Statement becomes effective as you, in your discretion, shall first release the
Shares for sale to the public. For purpose of this Section 9, the Shares shall
be deemed to have been released for sale to the public upon release by you for
publication of a newspaper advertisement relating to the Shares or upon release
by you of communications offering the Shares for sale to securities dealers,
whichever shall first occur. Until this Agreement is effective, it may be
terminated by the Company by giving notice as hereinafter provided to you or by
you by giving notice as hereinafter provided to the Company, except that the
provisions of Sections 5(h) and 7 hereof shall at all times be effective.
(b) Until the First Closing Date, this Agreement may be terminated by
you by giving notice as hereinafter provided to the Company, if (i) the Company
or the Selling Shareholders shall have failed, refused or been unable, at or
prior to the First Closing Date, to perform any agreement on their respective
parts to be performed hereunder; (ii) any other condition of the obligations of
the Underwriters hereunder is not fulfilled; (iii) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or the
over-the-counter market shall have been suspended or minimum or maximum prices
or other material restrictions upon trading of securities generally shall have
been established on either of such exchanges or such market by the Commission or
by such exchange or other regulatory body, or governmental authority having
jurisdiction; (iv) a general banking moratorium shall have been declared by
federal or state authorities; or (v) there shall have been such a material
adverse change in economic, political, market or financial conditions (including
any material adverse effect of international conditions on the financial markets
in the United States) that, in your judgment, it is inadvisable, impractical or
undesirable to proceed with the delivery of the Shares. Any termination of this
Agreement pursuant to this Section 9 shall be without liability on the part of
the Company and the Selling Shareholders or any Underwriter, except as otherwise
provided in Sections 5(h) and 7 hereof.
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(c) This Agreement may also be terminated by you, by notice to the
Company, as to any obligation of the Underwriters to purchase the Option Shares,
upon the occurrence at any time prior to the Option Closing Date of any of the
events described in Section 9(b) hereof.
(d) Any notice referred to above may be given at the address
specified in Section 11 hereof in writing or by telegraph or telephone, and if
by telegraph or telephone, shall be immediately confirmed in writing.
10. SURVIVAL OF INDEMNITIES; CONTRIBUTION; WARRANTIES AND
REPRESENTATIONS. The indemnity and contribution agreements contained in
Section 7 hereof and the representations, warranties and agreements of the
Company in Section 1 hereof shall survive the delivery of the Shares to the
Underwriters hereunder and shall remain in full force and effect, regardless
of any termination or cancellation of this Agreement or any investigation
made by or on behalf of any indemnified party.
11. NOTICES. Except as otherwise provided in this Agreement, (a) whenever
notice is required by the provisions of this Agreement to be given to the
Company, such notice shall be in writing (and may be telecopied if confirmed by
letter) addressed to the Company at 1800 Sandy Plains Parkway, Suite 305,
Marietta, Georgia 30066, telecopier number (770) 424-5558, Attention: President;
and (b) whenever notice is required by the provisions of this Agreement to be
given to the several Underwriters, such notice shall be in writing addressed to
the Underwriters in care of Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: President.
12. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
the last paragraph on the cover page, the legend on page 2 with respect to
stabilization, and under the caption "Underwriting" in any Pre-Effective
Prospectus and in the Effective Prospectus and the Final Prospectus constitute
the written information furnished by or on behalf of any Underwriter referred to
in Sections 1(b) and (c) hereof and in Sections 7(a), (b) and (c) hereof.
13. PARTIES. This Agreement is made solely for the benefit of the several
Underwriters, the Company, the Selling Shareholders, any officer, director or
controlling person referred to in Section 7 hereof, and their respective
successors and assigns, and no other person shall acquire or have any right by
virtue of this Agreement. The term "successors and assigns," as used in this
Agreement, shall not include any purchaser of any of the Shares from any of the
Underwriters merely by reason of such purchase.
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14. DEFINITION OF "BUSINESS DAY." For purposes of this Agreement,
"Business Day" means any day other than Saturday, Sunday, a federal holiday or a
day on which the New York Stock Exchange is closed.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
the choice of law or conflict of laws principles thereof.
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<PAGE>
16. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement. Please confirm, by
signing and returning to us counterparts of this Agreement, that you are acting
on behalf of yourselves and the several Underwriters and that the foregoing
correctly sets forth the agreement among the Company and the several
Underwriters.
Very truly yours,
UNICOMP, INC.
By:
------------------------------------
Its
------------------------------------
SELLING SHAREHOLDERS LISTED ON SCHEDULE II
By:
------------------------------------
Attorney-in-Fact
Confirmed and accepted as of
the date first above mentioned
CRUTTENDEN ROTH INCORPORATED
as Representative of the Several
Underwriters named in Schedule I hereto
By:
-----------------------------
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SCHEDULE I
Underwriting Agreement dated ________, 1996
NUMBER OF MAXIMUM
FIRM SHARES NUMBER OF
UNDERWRITER TO BE PURCHASED OPTION SHARES
- -------------------------------------------------------------------------------
Cruttenden Roth Incorporated...... 1,500,000 225,000
--------- -------
Total............................ 1,500,000 225,000
--------- -------
--------- -------
<PAGE>
SCHEDULE II
Maximum
Number of Number of
Seller Firm Shares Option Shares
UniComp, Inc. .................. 1,500,000 75,000
Selling Shareholders:
J. Patrick Henry ............... 50,000
George Gruber .................. 50,000
B. Michael Wilson .............. 50,000
---------- -------
Total ........................... 1,500,000 225,000
---------- -------
---------- -------
Page 1
<PAGE>
EXHIBIT 4.1
<PAGE>
No. of Stock Units: 150,000 Warrant No. CR01
WARRANT
TO PURCHASE COMMON STOCK OF
UNICOMP, INC.
THIS IS TO CERTIFY THAT Cruttenden Roth Incorporated, or its registered
assigns, is entitled to purchase from UniComp, Inc., a Colorado corporation (the
"Company"), at any time on and after , 1997, but not later than 5:00
p.m., Los Angeles time, on , 2001 (the "Expiration Date"), 150,000
Stock Units (as such term is hereinafter defined), in whole or in part, at a
purchase price of $ per Share (adjusted as provided below), all on the terms
and conditions hereinbelow provided.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL
TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
SECTION 1. CERTAIN DEFINITIONS
As used in this Warrant, unless the context otherwise requires:
"ADDITIONAL SHARES OF NONPREFERRED STOCK" shall mean all shares of
Nonpreferred Stock issued by the Company after the date of original issuance of
this Warrant, other than the Warrant Stock.
"AFFILIATE" shall mean a Person (1) that directly or indirectly controls, or
is controlled by, or is under common control with, the Company, (2) that
beneficially owns 10% or more of the Voting Stock of the Company, or (3) 10% or
more of the Voting Stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of which is owned by the Company. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"APPRAISED VALUE" shall mean the fair market value of all outstanding shares
of Common Stock (on a fully diluted basis including any fractional shares and
assuming the exercise in full of all then-outstanding Warrants and all other
options, warrants or other rights to purchase shares of Common Stock that are
then currently exercisable at exercise prices less than the Current Market
Price), as determined by a written appraisal prepared by an appraiser acceptable
to the Company and the holders of Warrants evidencing a majority in number of
the total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants. "Fair market value" is defined for this purpose as
the price in a single transaction determined on a going-concern basis that would
be agreed upon by the most likely hypothetical buyer for a 100% controlling
interest in the equity capital of the Company (on a fully diluted basis
including any fractional shares and assuming the exercise in full of all then
outstanding Warrants and all other options, warrants or other rights to purchase
shares of Common Stock that are then currently exercisable at exercise prices
less than the Current Market Price), each extending for a period of time
considered
1
<PAGE>
sufficient by all parties to effect the transfer of goodwill from the seller to
the buyer and disregarding any discounts for nonmarketability of Common Stock of
the Company. In the event that the Company and said holders cannot, in good
faith, agree upon an appraiser, then the Company, on the one hand, and said
holders, on the other hand, shall each select an appraiser, the two appraisers
so selected shall select a third appraiser who shall be directed to prepare such
a written appraisal (the "APPRAISAL") and the term Appraised Value shall mean
the appraised value set forth in the Appraisal prepared in accordance with this
definition. Except as otherwise set forth herein, the entire cost of the
appraisal process shall be borne by the Company, but the cost thereof shall be
deemed an account payable of the Company and shall be considered in the
determination of the Appraised Value.
"ARTICLES OF INCORPORATION" shall mean the Articles of Incorporation of the
Company, as amended, as in effect on the date of issuance of this Warrant and as
at any time amended or otherwise modified.
"BOARD OF DIRECTORS" shall mean either the board of directors of the Company
or any duly authorized committee of that board.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on
which banks in the State of California or New York are required or permitted to
close.
"COMMISSION" shall mean the Securities and Exchange Commission and any other
similar or successor agency of the federal government administering the
Securities Act and the Exchange Act.
"COMMON STOCK" shall mean the Company's authorized Common Stock, par value
$.01 per share, irrespective of class unless otherwise specified, as constituted
on the date of original issuance of this Warrant, and any stock into which such
Common Stock may thereafter be changed, and shall also include stock of the
Company of any other class, which is not preferred as to dividends or assets
over any other class of stock of the Company issued to the holders of shares of
Common Stock upon any reclassification thereof.
"COMPANY" shall mean UniComp, Inc., a Colorado corporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"CURRENT MARKET PRICE" per share of Common Stock for the purposes of any
provision of this Warrant at the date herein specified shall be deemed to be the
price determined pursuant to the first applicable of the following methods:
(i) If the Common Stock is traded on a national securities exchange or
is traded in the over-the-counter market, the Current Market Price per share
of Common Stock shall be deemed to be the average of the daily market prices
for 20 consecutive Business Days commencing 20 Business Days before such
date. The market price for each such Business Day shall be, if the Common
Stock is traded on a national securities exchange or in the over-the-counter
market, its closing bid quotation on the next preceding Business Day on the
principal market for the Common Stock.
(ii) If the Current Market Price per share of Common Stock cannot be
ascertained by the method set forth in paragraph (i) immediately above, the
Current Market Price per share of Common Stock shall be deemed to be the
price equal to the quotient determined by dividing the Appraised Value by
the number of outstanding shares of Common Stock (on a fully diluted basis
including any fractional shares and assuming the exercise in full of all
then-outstanding Warrants and all other options, warrants or other rights to
purchase shares of Common Stock that are then currently exercisable at
exercise prices equal to or less than the Current Market Price).
"CURRENT WARRANT PRICE" per share of Common Stock, for the purpose of any
provision of this Warrant at the date herein specified, shall mean the amount
equal to the quotient resulting from dividing the
2
<PAGE>
Exercise Price in effect on such date by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at any applicable
time.
"EXERCISE PRICE" shall mean the purchase price per Stock Unit as set forth
on the first page of this Warrant on the date of original issuance of this
Warrant and thereafter shall mean such dollar amount as shall result from the
adjustments specified in Section 4.
"HOLDER" shall mean, initially, Cruttenden Roth Incorporated and thereafter
any Person that is or Persons that are the registered holder(s) of the Warrants
or Warrant Stock as registered on the books of the Company.
"NONPREFERRED STOCK" shall mean the Common Stock and shall also include
stock of the Company of any other class which is not preferred as to dividends
or assets over any other class of stock of the Company and which is not subject
to redemption.
"PERSON" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRABLE SECURITIES" shall mean the Common Stock held from time to time
by the Holders pursuant to their exercise of the Warrants, provided, however,
that Registrable Securities shall not include any shares of Common Stock which
have been previously Registered and sold to the public or which have been sold
in a private transaction in which the transferor's rights under this Agreement
were not transferred.
"REGISTRATION EXPENSES" shall mean all expenses incurred in effecting any
Registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees payable to the Commission and to
the NASD, listing fees, printing expenses, escrow fees, fees and disbursements
of counsel for the Company, fees under state securities or blue sky laws of any
jurisdictions, and expenses of any regular or special audits incident to or
required by any such Registration, and fees and disbursements of one counsel for
the selling Holders, but shall not include Selling Expenses, fees and
disbursements of additional counsel for the Holders and the compensation of
regular employees of the Company, which shall be paid in any event by the
Company.
"RESTRICTED CERTIFICATE" shall mean a certificate for Common Stock or a
Warrant bearing the restrictive legend set forth in Section 9.1.
"RESTRICTED SECURITIES" shall mean Restricted Stock and Restricted Warrants.
"RESTRICTED STOCK" shall mean Common Stock evidenced by a Restricted
Certificate.
"RESTRICTED WARRANT" shall mean a Warrant evidenced by a Restricted
Certificate.
"RULE 144" shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"RULE 145" shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any applicable
time.
"SELLER" shall mean a holder of Restricted Securities of the Company for
which the Company shall be required to file a registration statement or which
shall be registered under the Securities Act at the request of such holder
pursuant to any of the provisions of Section 9. Neither the Company nor any of
its Affiliates shall be deemed a "Seller" for any purposes of this Agreement.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than fees and disbursements of
counsel included in Registration Expenses).
"STOCK UNIT" shall constitute one share of Common Stock, as such Common
Stock was constituted on the date of original issuance of this Warrant and
thereafter shall constitute such number of shares (including any fractional
shares) of Common Stock as shall result from the adjustments specified in
Section 4.
"UNDERWRITER" shall mean any of the underwriters listed on Schedule I
attached to the Underwriting Agreement between the Company and Cruttenden Roth
Incorporated dated , 1996 (the "Underwriting Agreement").
"VOTING STOCK" shall mean any equity security entitling the holder of such
security to vote at meetings of shareholders except an equity security which
entitles the holder of such security to vote only upon the occurrence of some
contingency, unless that contingency shall have occurred and be continuing.
"WARRANT STOCK" shall mean the shares of Common Stock purchasable by the
holder of a Warrant upon the exercise of such Warrant.
"WARRANTS" shall mean the Warrants issued pursuant to the Underwriting
Agreement, of which this warrant is one, evidencing rights to purchase up to an
aggregate of 150,000 Stock Units, and all Warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of Stock Units for which they may be exercised.
SECTION 2. EXERCISE OF WARRANT; REPURCHASE RIGHTS
The holder of this Warrant may, at any time on and after , 1997,
but not later than the Expiration Date, exercise this warrant in whole at any
time or in part from time to time for the number of Stock Units which such
holder is then entitled to purchase hereunder. The Holder may exercise this
Warrant, in whole or in part, by either of the following methods:
2.1 CASH EXERCISE
The Holder may deliver to the Company at its office maintained pursuant to
Section 14 for such purpose (i) a written notice of such Holder's election to
exercise this warrant, which notice shall specify the number of Stock Units to
be purchased, (ii) this Warrant, and (iii) a sum equal to the aggregate Exercise
Price therefor in immediately available funds.
2.2 NET ISSUE EXERCISE
The Holder may also exercise this Warrant, in whole or in part, in a
"cashless" or "net-issue" exercise by delivering to the Company at its office
maintained pursuant to Section 14 for such purpose (i) a written notice of such
Holder's election to exercise this Warrant, which notice shall specify the
number of Stock Units to be delivered to such Holder and the number of Stock
Units with respect to which this Warrant is being surrendered in payment of the
aggregate Exercise Price for the Stock Units to be delivered to the Holder, and
(ii) this Warrant. For purposes of this Section 2.2, each Stock Unit as to which
this Warrant is surrendered shall be attributed a value equal to the product of
(y) the Current Market Price per share of
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Common Stock minus the Current Warrant Price per share of Common Stock,
multiplied by (z) the number of shares of Common Stock then comprising a Stock
Unit.
2.3 AUTOMATIC NET ISSUE EXERCISE
Notwithstanding the foregoing, if, on the Expiration Date, the Current
Market Price per share of Common Stock is greater than the Current Warrant Price
per share of Common Stock, all outstanding Warrants as of the Expiration Date
shall be deemed exercised on a "cashless" or "net-issue" basis in accordance
with Section 2.2 as described above for the maximum number of shares of Common
Stock issuable thereunder and notice shall be deemed delivered to the Company of
such exercise for purposes of this Section 2.
2.4 EXERCISE MECHANICS
Any notice required under this Section 2 may be in the form of Subscription
attached as Exhibit A hereto. Upon delivery thereof, the Company shall as
promptly as practicable and in any event within ten Business Days thereafter,
cause to be executed and delivered to such holder a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so delivered shall
be in such denominations as may be specified in said notice and shall be
registered in the name of such holder or, subject to Section 9, such other name
or names as shall be designated in said notice. Such certificate or certificates
shall be deemed to have been issued and such holder or any other Person so
designated to be named therein shall be deemed to have become a holder of record
of such shares with all rights pursuant thereto, including to the extent
permitted by law the right to vote such shares or to consent or to receive
notice as a stockholder, as of the time said notice is delivered to the Company
as aforesaid. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of said certificate or certificates,
deliver to such holder a new Warrant dated the date it is issued, evidencing the
rights of such holder to purchase the remaining Stock Units called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of such holder, appropriate notation may be made on
this Warrant and the Warrant shall be returned to such holder.
The Company shall pay all expenses, taxes (other than income or similar
taxes imposed on any Holder) and other charges payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2.
All shares of Common Stock issuable upon the exercise of this Warrant shall
be validly, issued, fully paid and nonassessable, and free from all liens and
other encumbrances thereon.
Except as may otherwise be required by law, the Company shall not close its
books against the transfer of this Warrant or of any share of Warrant Stock in
any manner which interferes with the timely exercise of this Warrant. The
Company shall from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of this Warrant is at all times equal to or less than the Exercise
Price then in effect.
The Company shall issue certificates for fractional shares of stock upon any
exercise of this Warrant whenever, in order to implement the provisions of this
Warrant, the issuance of such fractional shares is required.
SECTION 3. TRANSFER, DIVISION AND COMBINATION
Subject to Section 9, this Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company to be maintained
for such purpose, upon surrender of this Warrant at the office of the Company
maintained for such purpose pursuant to Section 14, together with a written
assignment in the form attached as Exhibit B hereto duly executed by the holder
hereof or its agent or attorney and payment of funds sufficient to pay any stock
transfer taxes payable upon the making of such transfer. Upon
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such surrender and payment the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be canceled. If and when this warrant is assigned in
blank (in case the restrictions on transferability in Section 9 shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
hereof as the absolute owner of this Warrant for all purposes and the Company
shall not be affected by any notice to the contrary. This Warrant, if properly
assigned in compliance with this Section 3 and Section 9, may be exercised by an
assignee for the purchase of shares of Common Stock without having a new Warrant
issued.
This Warrant may, subject to Section 9, be divided or combined with other
Warrants upon presentation at the aforesaid office of the Company, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the holder hereof or its agent or attorney. Subject
to compliance with the preceding paragraph and with Section 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes and other charges incurred by the
Company in the performance of its obligations in connection with the
preparation, issue and delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants.
SECTION 4. ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE
The number of shares of Common Stock comprising a Stock Unit, and the
Exercise Price per Stock Unit, shall be subject to adjustment from time to time
as set forth in this Section 4 and in Section 5. The Company shall not take any
action with respect to its Nonpreferred Stock of any class requiring an
adjustment pursuant to either Section 4.1 or 4.2 without at the same time taking
like action with respect to its Nonpreferred Stock of each other class; and the
Company shall not create any class of Nonpreferred Stock which carries any
rights to dividends or assets differing in any respect from the rights of the
Common Stock on the date of original issuance of this Warrant.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS
In case at any time or from time to time the Company shall:
(a) take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock into a larger
number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into a smaller
number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of the
number of shares of Common Stock which a record holder of the number of shares
of Common Stock comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the happening of such
event; PROVIDED, HOWEVER, that no such event may take place with respect to any
shares of Nonpreferred Stock unless it shall also take place for all shares of
Nonpreferred Stock.
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4.2 CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS
In case at any time or from time to time the Company shall take a record of
the holders of any of its Nonpreferred Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(a) cash (other than a cash distribution made as a dividend and payable
out of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the
Company, to the extent, but only to the extent, that the aggregate of all
such dividends paid or declared after the date of original issuance of this
Warrant, does not exceed the consolidated net income of the Company earned
subsequent to the original issuance date of this Warrant determined in
accordance with generally accepted accounting principles, consistently
applied), or
(b) any evidence of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or
Additional Shares of Nonpreferred Stock), or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness (other than Convertible Securities), any
shares of its stock (other than Additional Shares of Nonpreferred Stock) or
any other securities or property of any nature whatsoever (other than cash
and other than Convertible Securities or Additional Shares of Nonpreferred
Stock),
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of shares
of Common Stock comprising a Stock Unit immediately prior to such adjustment by
a fraction (i) the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record, and (ii) the
denominator of which shall be such Current Market Price per share minus the
portion applicable to one share of Nonpreferred Stock of any such cash so
distributable and of the fair value of any and all such evidences of
indebtedness, shares of stock, other securities or property, or warrants or
other subscription or purchase rights, so distributable. Such fair value shall
be determined in good faith by the Board of Directors of the Company, PROVIDED
that if such determination is objected to by the holders of Warrants evidencing
a majority in number of the total number of Stock Units at the time purchasable
upon the exercise of all then outstanding Warrants, such determination shall be
made by an independent appraiser chosen in the manner specified in the
definition of Appraised Value. The fees and expenses of any appraisers shall be
paid by the Company. A reclassification of the Nonpreferred Stock into shares of
Nonpreferred Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Nonpreferred Stock of such
shares of such other class of stock within the meaning of this Section 4.2 and,
if the outstanding shares of Nonpreferred Stock shall be changed into a larger
or smaller number of shares of Nonpreferred Stock as a part of such
reclassification, shall be deemed a subdivision or combination, as the case may
be, of the outstanding shares of Nonpreferred Stock within the meaning of
Section 4.1.
4.3 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS
The following provisions shall be applicable to the making of adjustments of
the number of shares of Common Stock comprising a Stock Unit hereinbefore
provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by the
preceding Subsections of this Section 4 shall be made whenever and as often
as any specified event requiring an adjustment shall occur, except that no
adjustment shall be made except pursuant to Section 4.1 if it would decrease
the number of shares of Common Stock comprising a Stock Unit immediately
prior to such adjustment. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date
of its occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this Section
4, fractional interests in Nonpreferred Stock shall be taken into account to
the nearest one-thousandth of a share.
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(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of
the holders of its Nonpreferred Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution thereof to shareholders,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
4.4 MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS
In case the Company shall merge or consolidate into another corporation or
shall sell, transfer or otherwise dispose of all or substantially all of its
property, assets or business to another corporation and pursuant to the terms of
such merger, consolidation or disposition of assets, shares of common stock of
the successor or acquiring corporation are to be received by or distributed to
the holders of Nonpreferred Stock of the Company, then each holder of a Warrant
shall have the right thereafter to receive, upon exercise of such Warrant, Stock
Units each comprising the number of shares of common stock of the successor or
acquiring corporation receivable upon or as a result of such merger,
consolidation or disposition of assets by a holder of the number of shares of
Nonpreferred Stock comprising a Stock Unit immediately prior to such event. If,
pursuant to the terms of such merger, consolidation or disposition of assets,
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) are to
be received by or distributed to the holders of Nonpreferred Stock of the
Company, there shall be either, at the Holder's option, (i) a reduction of the
Exercise Price equal to the amount applicable to the number of shares of Common
Stock then comprising a Stock Unit of any such cash and of the fair value of any
and all such shares of stock or of other securities or property to be received
by or distributed to the holders of Nonpreferred Stock of the Company, or (ii)
such Holder shall have the right to receive, upon exercise of its Warrant, such
cash, shares of stock or other securities or property of any nature as a holder
of the number of shares of Nonpreferred Stock underlying a Stock Unit would have
been entitled to receive upon the occurrence of such event. Such fair value
shall be determined in good faith by the Board of Directors of the Company,
provided that if such determination is objected to by the holders of Warrants
evidencing a majority in number of the total number of Stock Units at the time
purchasable upon the exercise of all then outstanding Warrants, such
determination shall be made by an independent appraiser selected in the manner
specified in the definition of Appraised Value. The fees and expenses of any
appraisers shall be paid by the Company. In case of any such merger,
consolidation or disposition of assets, the successor acquiring corporation
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed by
the Company and all of the obligations and liabilities hereunder, subject to
such modification as shall be necessary to provide for adjustments of Stock
Units which shall be as nearly equivalent as practicable to the adjustments
provided for in this Section 4. For the purposes of this Section 4, "COMMON
STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of such
corporation of any class, that is not preferred as to dividends or assets over
any other class of stock of such corporation and that is not subject to
redemption, and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event, and any warrants or other rights to subscribe
for or purchase any such stock. The foregoing provisions of this Section 4.4
shall similarly apply to successive mergers, consolidations or dispositions of
assets.
SECTION 5. NOTICE TO WARRANT HOLDERS
5.1 NOTICE OF ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE
Whenever the number of shares of Common Stock comprising a Stock Unit, or
the price at which a Stock Unit may be purchased upon exercise of the warrants,
shall be adjusted pursuant to Section 4, the Company shall forthwith obtain a
certificate signed by its chief financial officer, setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated
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(including a statement of the fair value, as determined by the Board of
Directors of the Company or by appraisal (if applicable), of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 4.2 or Section 4.4) and
specifying the number of shares of Common Stock comprising a Stock Unit and, if
such adjustment was made pursuant to Section 4.4, describing the number and kind
of any other shares of stock comprising a Stock Unit and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly, and in any case within three Business Days
after the making of such adjustment, cause a signed copy of such certificate to
be delivered to each holder of a Warrant in accordance with Section 15. The
Company shall keep at its office or agency, maintained for the purpose pursuant
to Section 14, copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
holder of a Warrant or any prospective purchaser of a warrant designated by a
holder thereof.
5.2 NOTICE OF CERTAIN CORPORATE ACTION
In case the Company shall propose (a) to pay any dividend payable in stock
of any class to the holders of its Nonpreferred Stock or to make any other
distribution to the holders of its Nonpreferred Stock (other than a cash
dividend) or (b) to offer to the holders of its Nonpreferred Stock rights to
subscribe for or to purchase any Additional Shares of Nonpreferred Stock or
shares of stock of any class or any other securities, rights or options or (c)
to effect any reclassification of its Nonpreferred Stock (other than a
reclassification involving only the subdivision, or combination, of outstanding
shares of Nonpreferred Stock) or (d) to effect any capital reorganization or (e)
to effect any consolidation, merger or sale, organic change, transfer or other
disposition of all or substantially all of its property, assets or business or
(f) to effect the liquidation, dissolution or winding up of the Company, then,
in each such case, the Company shall deliver to each holder of a Warrant, in
accordance with Section 15, a notice of such proposed action, which shall
specify the date on which a record is to be taken for the purposes of such stock
dividend, distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, organic change, transfer,
disposition, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Nonpreferred Stock, if any such
date is to be fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Nonpreferred Stock and the number and kind of any other shares of stock which
shall comprise a Stock Unit, and the purchase price or prices thereof, after
giving effect to any adjustment which shall be required as a result of such
action. Such notice shall be so delivered thirty (30) days prior to (i) the
record date for determining holders of the Nonpreferred Stock for purposes of
any action covered by clause (a) or (b) above and (ii) in the case of any other
such action, the date of the taking of such proposed action or the date of
participation therein by the holders of Nonpreferred Stock, whichever shall be
the earlier.
SECTION 6. RESERVATION AND AUTHORIZATION OF NONPREFERRED STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company shall at all times reserve and keep available for issuance upon
the exercise of Warrants such number of its authorized but unissued shares of
Common Stock as shall be sufficient to permit the exercise in full of all
outstanding Warrants. The Company shall not amend its Articles of Incorporation
in any respect relating to the Common Stock other than to increase or decrease
the number of shares of authorized capital stock (subject to the provisions of
the preceding sentence) or to decrease the par value of any shares of
Nonpreferred Stock. All shares of Common Stock which shall be so issuable, when
issued upon exercise of any Warrant or upon such conversion, as the case may be,
shall be duly and validly issued and fully paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
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counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock at such adjusted Current
Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock comprising a Stock Unit or in the Current Warrant
Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of warrants require registration with any governmental authority under
any federal or state law (otherwise than as provided in Section 9) before such
shares may be so issued, the Company shall in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
SECTION 7. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Nonpreferred Stock with respect to which any provision of Section
4 refers to the taking of a record of such holders, the Company shall in each
such case take such a record and shall take such record as of the close of
business on a Business Day. The Company shall not at any time, except upon
dissolution, liquidation or winding up or as otherwise may be required by law,
close its stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
SECTION 8. TAXES
The Company shall pay all taxes (other than federal, state, local or foreign
income taxes) which may be payable in connection with the execution and delivery
of this Warrant or the issuance and sale of the Restricted Securities hereunder
or in connection with any modification of the Restricted Securities and shall
save the Holder harmless without limitation as to time against any and all
liabilities with respect to or resulting from any delay in paying, or omission
to pay, such taxes. The obligations of the Company under this Section 8 shall
survive any redemption, repurchase or acquisition of Restricted Securities by
the Company.
SECTION 9. RESTRICTIONS ON TRANSFERABILITY
The Restricted Securities shall not be transferable except upon the
conditions specified in this Section 9. Each transferee shall be subject to the
same transfer restrictions imposed on the Holder by this Agreement.
9.1 RESTRICTIVE LEGEND
Unless and until otherwise permitted by this Section 9, each certificate for
Warrants issued under this Agreement, each certificate for any Warrants issued
to any transferee of any such certificate, each certificate for any Warrant
Stock issued upon exercise of any Warrant and each certificate for any Warrant
Stock issued to any transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
COMPANY OF SUCH
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OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL TO THE EFFECT
THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER."
9.2 "PIGGYBACK" REGISTRATION
(a) If at any time, or from time to time prior to the second anniversary of
the Expiration Date, the Company shall determine to Register any of its
securities either for its own account or for the account of any holder of its
securities (including a Holder), other than a Registration relating solely to
employee benefit plans, or a Registration relating solely to a Rule 145
transaction or a Registration on any Registration form that does not permit
secondary sales, the Company will:
(1) promptly give to each Holder written notice thereof and
(2) include in such Registration (and any related qualification under
state securities or other blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests made within 20 days after receipt of such
written notice from the Company, by any Holder or Holders, except as set
forth in Section 9.2(b). Any such written request may specify all or a part
of a Holder's Registrable Securities.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
9.2(a). In such event, the right of a Holder to Registration pursuant to this
Section 9.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall (together with the
Company and the other holders of securities of the Company with registration
rights to participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 9.2, if the underwriter
advises the Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, the underwriter may limit the amount of
Registrable Securities to be included in the Registration and underwriting, and
the number of shares to be included in such underwriting or Registration shall
be allocated as set forth in Section 9.11.
9.3 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any Registration,
qualification or compliance pursuant to this Section 9 shall be borne by the
Company; provided, however, that the Company shall not bear the Registration
Expenses incurred in connection with more than one Registration made pursuant to
a request made pursuant to Section 9.4. All Selling Expenses relating to the
Registrable Securities so Registered shall be borne by the Holders of such
Registrable Securities pro rata on the basis of the number of shares of
Registrable Securities so Registered on their behalf.
9.4 REGISTRATION ON FORM S-3
The Company shall use its best efforts to maintain its qualification for
registration on Form S-3 or any comparable or successor form or forms. In
addition to the rights contained in the foregoing provisions of this Section 9,
the Holders of a majority of Registrable Securities shall have the right, prior
to the Expiration Date, to request registrations on Form S-3 (such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holder or Holders), provided, however, that the Company shall not
be obligated to effect any such Registration if (1) the Company shall have
delivered to such Holder an opinion of counsel to the Company, addressed to such
Holder and reasonably satisfactory in form and substance to such Holder to the
effect that such Registrable Securities proposed to be included may lawfully be
so disposed of without Registration, (2) within a period of 180 days after the
effective date of any previous such
11
<PAGE>
Registration, or (3) the Company has filed and maintained the effectiveness of
three registration statements in accordance with the provisions of this Section
9, pursuant to requests made under this Section 9.4 in which all Registrable
Securities requested by Holders have been included in such registration
statements. If the Company shall receive a written request pursuant to this
Section 9.4 for Registration, then the Company shall promptly notify all other
Holders of such request and shall use its best efforts to cause all Registrable
Securities that Holders have requested within 20 days after receipt of the
Company's notice to be registered under the Securities Act. Any registration
statement filed pursuant to this Section 9.4 may, subject to the provisions of
Section 9.11, include other securities of the Company with respect to which
Registration rights have been granted.
9.5 REGISTRATION PROCEDURES
In the case of each Registration effected by the Company pursuant to this
Section 9, the Company will keep each Holder advised in writing as to the
initiation of each Registration and as to the completion thereof. Except as may
be set forth in Section 9.3, at its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and cause such registration statement to become
effective; provided that no such registration statement will be filed by the
Company until counsel for the Sellers of securities included therein shall
have had a reasonable opportunity to review the same and to exercise their
rights under clause (k) below with respect thereto and no amendment to any
such registration statement naming such Sellers as selling shareholders
shall be filed with the Commission until such Sellers shall have had at
least seven days to review such registration statement as originally filed
and theretofore amended and to exercise their rights under clause (k) below;
(b) Keep such registration effective for a period of 180 days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that (i) such 180-day period shall be extended for a period of time
equal to the period the Holder refrains from selling any securities included
in such Registration at the request of an underwriter of Common Stock (or
other securities) of the Company; and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 180-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 145, or any successor
rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (1) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (2)
reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation
by reference of information required to be included in (1) and (2) above to
be contained in periodic reports filed pursuant to Section 13 or 15(d) of
the Exchange Act in the registration statement;
(c) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Holder from time to time may reasonably request;
(e) Register or qualify the securities covered by such registration
statement under the state securities laws and blue sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered thereby;
12
<PAGE>
(f) At the time when any registration statement pursuant to this Section
9 becomes effective, and at the time when any post-effective amendment
thereto becomes effective, furnish to the Holder or Holders of the
Registrable Securities being registered under such registration statement,
an opinion of counsel satisfactory to such Holder or Holders to the effect
that (1) to the best knowledge of such counsel, no stop order suspending the
effectiveness of the registration statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (2) the registration statement and
the prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, comply as to form in all material
respects with the requirements of the Securities Act, (3) such counsel has
no reason to believe that the registration statement, the prospectus, or any
amendment or supplement thereto, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (4) the descriptions in the registration statement, the
prospectus and any amendment or supplement thereto of statutes, legal and
governmental proceedings, and contracts or other documents are accurate and
fairly present the information required to be shown, and such counsel does
not know of any legal or governmental proceedings required to be described
in the registration statement, the prospectus or any amendment or supplement
thereto which are not described as required, nor of any contracts or
documents of a character required to be described in the registration
statement or prospectus or any amendment or supplement thereto, or to be
filed as exhibits to the registration statement which are not described and
filed as required, provided that such counsel need not express any opinion
as to the financial statements and schedules included in or omitted from any
such registration statement, prospectus or amendment or supplement thereto;
(g) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
such statements therein not misleading or incomplete in the light of the
circumstances then existing;
(h) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued
by the Company are then listed;
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration;
(j) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first month after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(k) Enter into an underwriting agreement in form reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting
agreement contains customary underwriting provisions and provided further
that if the underwriter so requests the underwriting agreement will contain
customary contribution provisions and cooperate with such underwriters and
take all such other reasonable actions as are necessary or advisable to
permit, expedite and facilitate the disposition of such Restricted
Securities in the manner contemplated by the related registration statement,
in
13
<PAGE>
each case to the same extent as if all the securities then being offered
were for the account of the Company, and the Company will provide to any
Seller of Restricted Securities, any underwriter participating in any
distribution thereof pursuant to a registration statement, and any attorney,
accountant or other agent retained by any Seller or underwriter, reasonable
access to appropriate Company officers and employees to answer questions and
to supply information reasonably requested by any such Seller, underwriter,
attorney, accountant or agent in connection with such registration
statement; and
(l) Furnish or cause to be furnished to each Seller of Restricted
Securities covered by such registration statement, addressed to such
Sellers, a copy of the "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included
in the registration statement, delivered on the closing date to the
underwriters of such Restricted Securities.
9.6 FURNISH INFORMATION
The Holder or Holders of Registrable Securities included in any Registration
shall furnish to the Company such information regarding such Holder or Holders
and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be reasonably required in connection with any
Registration, qualification or compliance referred to in this Section 9.
9.7 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers, directors
and partners, legal counsel, and accountants and each Person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which Registration, qualification, or compliance has been effected pursuant to
this Section 9; and each underwriter, if any, and each Person who controls
within the meaning of Section 15 of the Securities Act any underwriter, against
all expenses, claims, losses, damages, and liabilities (or actions, proceedings,
or settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each Person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
9.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
Person who controls the Company of such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder, and each of their
officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus,
14
<PAGE>
offering circular, or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld); and provided that in no event shall any indemnity
under this Section 9.7(b) exceed the gross proceeds from the offering received
by such Holder.
(c) Each party entitled to indemnification under this Section 9.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnity (the "Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 9, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 9.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party hereunder as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the parties under this Section 9.7 shall survive the
completion of the offering of Registrable Securities under the registration
statement and otherwise.
9.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without
the prior written consent of a majority in interest of the Holders, enter into
any agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights the
terms of which are more favorable than the registration rights granted to the
Holders hereunder.
15
<PAGE>
9.9 RULE 144 REPORTING
With a view to making available to the Holders the benefits of certain rules
and regulations of the Commission that may permit the sale of the Restricted
Securities to the public without registration, the Company agrees, so long as
any Holder owns Registrable Securities, to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act,
at all times from and after 90 days following the effective date of the
first Registration under the Securities Act filed by the Company for a
public offering of its securities;
(b) File with the Commission in a timely manner all reports and other
documents required of the company under the Securities Act and the Exchange
Act at any time after it has become subject to such reporting requirements;
and
(c) Furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as a
Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
9.10 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS
Prior to , 1997 the rights of any Holder under this Warrant
including, without limitation, the registration rights under this Section 9 may
not be transferred or assigned by a Holder except to (i) any of the
Underwriters, (ii) individuals who are either officers or partners (but not
directors) of an Underwriter, or (iii) by will or the laws of descent and
distribution. As of , 1997 and thereafter, the rights of any holder
under this Warrant, including, without limitation, the registration rights under
this Section 9, may be transferred or assigned by a Holder only to a transferee
or assignee of not less than 10,000 shares of Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like), provided that the Company
is given written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned.
9.11 ALLOCATION OF REGISTRATION OPPORTUNITIES
In any circumstance in which all of the Registrable Securities and other
shares of Common Stock of the Company (including shares of Common Stock issued
or issuable upon conversion of shares of any currently unissued series of
Preferred Stock of the Company) with Registration rights (the "Other Shares")
requested to be included in a Registration on behalf of the Holders or other
selling stockholders cannot be so included as a result of limitations on the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, the number of shares of Registrable Securities and Other Shares
that may be so included shall be allocated among the Holders and other selling
stockholders requesting inclusion of shares pro rata based upon total number of
shares requested to be so included. In the event a Holder or other selling
stockholder subsequently withdraws or reduces a request for inclusion in such
Registration, the number of shares which may be so included shall be
re-allocated in the same manner.
9.12 SUSPENSION OF REGISTRATION RIGHTS
No Holder may request Registration pursuant to Section 9.4 at any time that
all Registrable Securities held by such Holder may immediately be sold under
Rule 144 during any 90-day period.
16
<PAGE>
SECTION 10. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of the Warrant Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
SECTION 11. LOSS OR DESTRUCTION OF WARRANT CERTIFICATES
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Company (the original Warrant holder's or any other institutional Warrant
holder's indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such institutional holder), or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the
Company shall make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
SECTION 12. FURNISH INFORMATION
The Company agrees that it shall deliver to the holder of record hereof
promptly after their becoming available copies of all financial statements,
reports and proxy statements which the Company shall have sent to its
stockholders generally.
SECTION 13. AMENDMENTS
The terms of this Warrant and all other Warrants may be amended, and the
observance of any term therein may be waived, but only with the written consent
of the holders of Warrants evidencing a majority in number of the total number
of Stock Units at the time purchasable upon the exercise of all then outstanding
Warrants, provided that no such action may change the number of shares of stock
comprising a Stock Unit or the Exercise Price, without the written consent of
the holders of Warrants evidencing 100% in number of the total number of Stock
Units at the time purchasable upon the exercise of all then outstanding
Warrants. For the purposes of determining whether the holders of outstanding
Warrants entitled to purchase a requisite number of Stock Units at any time have
taken any action authorized by this Warrant, any Warrants owned by the Company
or any Affiliate of the Company (other than an institutional investor which may
be deemed an Affiliate solely by reason of the ownership of Warrants) shall be
deemed not to be outstanding.
SECTION 14. OFFICE OF THE COMPANY
So long as any of the Warrants remains outstanding, the Company shall
maintain an office where the Warrants may be presented for exercise, transfer,
division or combination as in this Warrant provided. Such office shall be at
1800 Sandy Plains Parkway, Suite 305, Marietta, Georgia 30066 unless and until
the Company shall designate and maintain some other office for such purposes and
deliver written notice thereof to the holders of all outstanding Warrants.
17
<PAGE>
SECTION 15. NOTICES GENERALLY
15.1 ADDRESSES FOR NOTICE
All communications (including all required or permitted notices) pursuant to
the provisions hereof shall be in writing and shall be sent:
(a) if to Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100,
Irvine, California 92715-1009, or at such other address as it may have
furnished in writing to the Company and all other holders of Warrants and
Warrant Stock at the time outstanding;
(b) if to the Company, 1800 Sandy Plains Parkway, Suite 305, Marietta,
Georgia 30066, or at such other address as it may have furnished in writing
to all other holders of Warrants and Warrant Stock at the time outstanding;
or
(c) if to any other Person who is the registered holder of any Warrants
or Warrant Stock, to the address of such holder as it appears in the stock
or warrant ledger of the Company.
15.2 DELIVERY OF NOTICES
Any notice shall be deemed to have been duly delivered (a) when delivered by
hand, if personally delivered, (b) if sent by mail to a party whose address is
in the same country as the sender, two Business Days after being deposited in
the mail, postage prepaid, (c) if sent by facsimile transmission on a Business
Day, when receipt is acknowledged or, if sent on a day that is not a Business
Day, on the next Business Day following the day on which receipt is
acknowledged, and (d) if sent by recognized international courier, freight
prepaid, with a copy sent by telecopier, to a party whose address is not in the
same country as the sender, three Business Days after the laterof (i) being
telecopied and (ii) delivery to such courier.
SECTION 16. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the laws
of the State of California.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name by its President and its corporate seal to be impressed hereon and attested
by its Secretary or an Assistant Secretary.
Dated: , 1996
UNICOMP, INC.,
a Colorado corporation
By:
--------------------------------------
Name: Stephen A. Hafer
Title: President and Chief Executive
Officer
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Stock Units of UniComp, Inc., a Colorado corporation,
purchasable with this Warrant, and herewith makes payment therefor (by check in
the amount of $ ), or hereby tenders Stock Units as payment therefor, all
at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to whose address is and,
if such Stock Units shall not include all of the Stock Units issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the Stock Units issuable thereunder be delivered to the undersigned.
Dated:
--------------------------------------
(Signature of Registered Owner)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of Stock Units
set forth below:
<TABLE>
<CAPTION>
NO. OF STOCK
NAME AND ADDRESS OF ASSIGNEE UNITS
- ----------------------------------------------------------------- ------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint
Attorney-in-Fact to make such transfer on the books of UniComp, Inc., a Colorado
corporation, maintained for the purpose, with full power of substitution in the
premises.
Dated:
--------------------------------------
Signature
--------------------------------------
Witness
NOTICE: The signature to the assignment must correspond with the name as written
upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
1
<PAGE>
EXHIBIT 5.1
<PAGE>
[SNELL & WILMER LETTERHEAD]
November 12, 1996
UniComp, Inc.
1800 Sandy Plains Parkway, Suite 305
Marietta, GA 30066
Re: Registration Statement on Form S-1
Gentlemen:
We have acted as counsel for UniComp, Inc., a Colorado corporation
("COMPANY"), and in such capacity have examined the Company's Registration
Statement on Form S-1, Registration No. 333-12209 (the registration statement,
including the amendments thereto being referred to collectively herein as the
"REGISTRATION STATEMENT"), filed by the Company with the Securities and Exchange
Commission ("COMMISSION") initially on September 18, 1996, under the Securities
Act of 1933, as amended ("ACT"), relating to the proposed public offering by the
Company of up to 1,815,000 shares of Common Stock, $.01 par value per share, of
the Company ("COMPANY SHARES").
As counsel for the Company and for purposes of this opinion, we have made
those examinations and investigations of legal and factual matters we deemed
advisable and have examined originals or copies, certified or otherwise
identified to our satisfaction as true copies of the originals, of those
corporate records, certificates, documents and other instruments which, in our
judgment, we considered necessary or appropriate to enable us to render the
opinion expressed below, including the Company's Articles of Incorporation, as
amended to date, the Company's Bylaws, as amended to date, and the minutes of
meetings of the Company's Board of Directors and other corporate proceedings
relating to the authorization and issuance of the Company Shares. We have
assumed the genuineness and authorization of all signatures and the conformity
to the originals of all copies submitted to us or inspected by us as certified,
conformed or photostatic copies. Further, we have assumed the due execution and
delivery of certificates representing the Company Shares.
Based on the foregoing, and relying solely thereon, we are of the opinion
that the Company Shares have been duly authorized, and the Company Shares will
be, when issued, delivered and paid for in the manner and upon the terms
contemplated by the Registration Statement, validly issued, fully paid and
nonassessable.
<PAGE>
UniComp, Inc.
November 12, 1996
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement. In giving
this consent we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission thereunder.
Very truly yours,
SNELL & WILMER L.L.P.
<PAGE>
EXHIBIT 23.1
REPORT AND CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the supplemental consolidated financial
statements of UniComp, Inc. and subsidiaries as of February 29, 1996 and
February 28, 1995, and for each of the three fiscal years in the period ended
February 29, 1996, which financial statements are included in the Prospectus, we
have also audited the financial statement schedule listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
August 23, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (Reg.
No. 333-12209) of our report dated August 23, 1996, on our audits of the
supplemental consolidated financial statements and financial statement schedule
of UniComp, Inc. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
November 12, 1996
